To resolve claims that a subsidiary violated American sanctions by routing payments from clients in Iran, Sudan, and Syria through a foreign branch of a U.S. financial institution, Danish firm Danfoss agreed to pay close to $4.4 million.
According to a Dec. 30 enforcement notice from the Treasury Department's Office of Foreign Assets Control (OFAC), the unit is 225 suspected sanctions violations occurred between November 2013 and August 2017 and involved almost $17 million in total bank transfers.
Danfoss, a company that sells air conditioners, refrigerators, and other cooling goods, employs more than 40,000 people and operates 69 plants globally. Customers in Iran, Sudan, and Syria were allegedly instructed to wire money to the U.S. branch account in the United Arab Emirates via Danfoss FZCO, the company's fully owned subsidiary in the UAE.
According to OFAC, the payments were made via third-party payers in non-sanctioned countries, which allowed the monies to get past the bank's internal compliance checks.
"While OFAC found no evidence that Danfoss willfully used third-party payers for the purpose of evading sanctions, Danfoss FZCO was aware since at least 2011 that using a U.S. financial institution to send or receive payments related to sanctioned jurisdictions could be prohibited," the agency stated. Nevertheless, OFAC found no evidence that Danfoss willfully used third-party payers for the purpose of evading sanctions. The parent company of Danfoss and numerous financial institutions contacted the subsidiary during the pertinent period to express concerns about potential violations of U.S. sanctions and to flag declined payments, according to OFAC.
"Despite these communications, Danfoss FZCO continued to use its U.S. branch account to collect payments from customers in sanctioned jurisdictions," according to OFAC.
The agency criticized Danfoss for the shortcomings in its worldwide sanctions compliance program, which was in charge of advising Danfoss FZCO on compliance-related issues. Danfoss lacked processes for frequently checking on Danfoss FZCO's operations, including payments for breaking sanctions.
"As a result, Danfoss lacked the means to know when problems arose unless Danfoss FZCO proactively contacted Danfoss’s compliance program manager," according to OFAC.
According to the agency, employees of Danfoss FZCO, including the regional finance director, lacked adequate training on U.S. sanctions regulations. The dubious transactions that resulted in the apparent infractions were not discussed by the finance director with the compliance program manager at Danfoss.
According to OFAC, the finance director's "insufficient understanding of U.S. sanctions" led to "a lack of urgency to address Danfoss FZCO's banking issues and significantly contributed to the delay in stopping the violative transactions."
In order to address the alleged compliance issues, Danfoss wrote a sanctions manual, gave employees at Danfoss FZCO sanctions training, established new procedures to determine the true source of payments and reject those that come from sanctioned countries, updated its export control manuals to include U.S. sanctions rules, and distributed announcements, forms, and documents to help staff members understand U.S. sanctions rules and identify suspicious activity.
Additionally, Danfoss ceased doing business with clients in Syria, Sudan, and Iran.
In this case, the relevant basic civil penalty was almost $21.9 million. Danfoss was praised for its cooperation and the potential infractions it may have committed were found "non-egregious."
According to OFAC, Danfoss did not voluntarily self-disclose the alleged offenses.
According to the agency, the incident serves as a reminder for businesses to "maintain effective, risk-based sanctions compliance programs and to train key staff, including senior management, to identify and escalate potential violations of U.S. sanctions to the appropriate compliance personnel."
According to a statement on its website, Danfoss stated that company "took quick action to ascertain the root causes of the conduct at issue, cooperated fully with OFAC, and also adopted new and more effective internal controls and procedures to prevent a recurrence of the apparent violations."
By fLEXI tEAM