June 25, 2019

June 25, 2019

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June 24, 2019

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Connecticut Company Reaches Settlement With OFAC Regarding Alleged Iran Sanctions Violations

This week, we are pleased to have a guest post from Kevin Daly.  Attorney Daly is a member of the firm’s Manufacturing Industry Group and also its Trade Compliance Team.

On February 21, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) entered into a settlement with Connecticut-based ZAG IP, LLC (ZAG) (formerly known as ZAG International, LLC) arising from alleged violations of U.S. sanctions against Iran.  Federal law presently prohibits U.S. persons and companies from entering into almost all transactions involving Iranian buyers or sellers or Iranian goods. The settlement resolved allegations that ZAG knowingly bought and resold Iranian-origin goods. The settlement highlights several critical compliance practices that companies should consider adopting to minimize the risk of sanctions violations.

ZAG’s business involves global sourcing and marketing of cement raw materials as well as providing advisory services for the construction industry. In 2014, ZAG signed an agreement to sell about 400,000 metric tons of clinker (material that is ground to a powder and used as a binder in cement) to a purchaser in Tanzania. The material was to be manufactured by a supplier based in India. After the contract was executed, the supplier informed ZAG that due to technical problems at its plant, it would be unable to deliver a sufficient amount of clinker. When the Tanzanian purchaser refused to permit any delays in shipment, ZAG sought an alternative supplier and identified a company located in the United Arab Emirates. The UAE company offered to supply Iranian-origin clinker, falsely representing to ZAG that the material was not subject to U.S. sanctions. ZAG purchased the material.

ZAG voluntarily disclosed the potential violations to OFAC, and the settlement that was developed required ZAG to pay a $506,250 monetary penalty. OFAC found that there were both aggravating and mitigating factors regarding ZAG’s conduct. OFAC found as aggravating factors that ZAG acted in reckless disregard of the Iran sanctions, that senior management was aware of the Iranian origin of the goods, that Iran received significant benefits, that ZAG is a sophisticated business, and that ZAG did not have an effective compliance program. As mitigating factors, OFAC found that ZAG had no other violations within the last five years, that ZAG is a small business entity, that ZAG took significant remedial measures, and that ZAG cooperated with OFAC’s investigation. Ultimately, considering the circumstances OFAC determined that the violations were “non-egregious.

There are several takeaways for any U.S. company buying or selling abroad.

  1. First, U.S. Iran sanctions prohibit U.S. companies from importing or purchasing goods of Iranian origin. Although violations based on exports to Iran tend to receive the most attention, U.S companies in the buyer’s seat need to be diligent as well.

  2. Second, a U.S. company buying or selling abroad should have an effective program that includes vetting all transactions for sanctions compliance, even when (as was the case with ZAG) plans change on short notice or business exigencies develop.

  3. Third, companies must be aware of “red flags” in transactions and respond to them appropriately. Generally speaking, when a red flag arises, the company should pause the transaction until the suspicious information can be investigated. In ZAG’s case, ignoring the red flags with the proposed transaction (the knowledge of the Iranian origin of the goods) was the reason OFAC found that ZAG acted recklessly.

Copyright © 2019 Robinson & Cole LLP. All rights reserved.

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About this Author

Jeffrey White, Robinson Cole Law Firm, Hartford, Corporate Law Attorney
Partner

Jeff White provides counseling and dispute resolution advice for manufacturers and distributors. He is chair of the firm's Manufacturing Industry Team and regularly represents clients throughout the United States and globally. Jeff is significantly involved with industry issues through his participation with groups such as the National Association of Manufacturers (NAM) and the American Bar Association's International Expansion and Cross-Border Transactions Subcommittee. In 2013, he created and launched the widely read Manufacturing Law Blog, which was one of...

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Kevin Daly Complex Commercial Litigation Attorney
Counsel

Kevin P. Daly focuses his practice on complex commercial litigation and trade compliance issues. He is a member of Robinson+Cole's Business Litigation Group and Manufacturing Industry Team.

Litigation

Kevin represents a variety of clients, including manufacturers, insurance companies, and other businesses, in complex litigation. He has represented clients in class actions (including insurance class actions, consumer class actions, and class actions related to the Telephone Consumer Protection Act), and product liability actions. He represents businesses in a range of commercial disputes, such as claims for breach of contract and unfair trade practices. Kevin has achieved successes for his clients, including successfully defending a manufacturer in an attachment action which sought to seize property of a third party which had been in the client’s possession.

Trade Compliance / Regulation

Kevin represents clients in connection with a diverse array of trade compliance matters.  He advises clients on a variety of trade regulations, including Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR), and U.S. import regulations.  He also assists clients in developing facility and technology control plans to ensure that access to controlled technical data is managed consistent with applicable trade regulations. Additionally, he advises clients regarding Foreign Corrupt Practices Act (FCPA) compliance and risk assessment and the development of anti-corruption policies and training. Kevin also has experience defending False Claims Act litigation on behalf of companies with financial relationships with the U.S. government. He has experience conducting internal compliance reviews to identify and remedy potential trade compliance violations and strengthen compliance policies and procedures.

Pro Bono

Throughout his career, Kevin has maintained a robust pro bono practice focusing on criminal defense, criminal post-conviction, and civil and human rights matters. He also helped coordinate a pro bono legal clinic on behalf of homeless clients in Massachusetts.

Prior to joining Robinson+Cole, Kevin worked for a large global law firm. He represented clients in the pharmaceutical sector in matters alleging violations of the False Claims Act, unfair trade practices, consumer protection statutes, and common law. In addition, he represented financial services clients in the arbitration and litigation of complex commercial disputes.

While in law school, Kevin was a clinical student for the Southern Center for Human Rights and an intern for the ACLU of North Carolina. After graduating from law school, he served as a law clerk for Justice Judith A. Cowin of the Massachusetts Supreme Judicial Court.

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