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Rogue employees intentionally misled company executives and compliance regarding the true origin of goods worth more than $75 million, according to a Hong Kong-based subsidiary of Japanese trade conglomerate Sojitz Corp.
The Treasury Department's Office of Foreign Assets Control (OFAC) announced the fine on Tuesday against Sojitz Hong Kong (Sojitz HK) for a series of transactions involving the purchase of 64,000 tons of Iranian-origin high density polyethylene resin from a Thai bank for a Chinese customer, which was paid for through US financial institutions. OFAC stated that the payments, which totaled 60, took place between 2016 and 2018.
In an enforcement release, OFAC stated that Sojitz HK's trading "appears to have conferred significant economic benefits to Iran and undermined broad U.S. sanctions specifically targeting Iran’s petrochemical sector, a major source of revenue generation for the government of Iran."
The parent company was unaware that its subsidiary was breaking US sanctions and self-reported the apparent violations when they were discovered, among other mitigating factors. According to OFAC, Sojitz cooperated with the investigation, had no prior sanctions violations, and took corrective action. As a result, the ostensible infractions were deemed minor.
According to OFAC, Sojitz's compliance team in Japan told employees of Sojitz HK that the law and company policy prohibit paying for goods from Iran with US dollars through US financial institutions. Despite the warnings, a group of Sojitz HK employees arranged for a Chinese customer to pay for resin sourced from an Iranian manufacturer. A mid-level manager was one of the employees.
Employees at Sojitz HK concealed the fact that the resin was made in Iran by claiming that it was made in Thailand on transactional documents and in internal business approval processes. OFAC did not identify the Iranian company that made the resin.
Sojitz "conducted a thorough internal look-back investigation to identify the root causes of the compliance failures and significantly enhanced its compliance program to address deficiencies and minimize the risk of recurrence," according to OFAC.
Sojitz also fired the employees who were involved in the misconduct, revised its sanctions screening procedures "to require that the counterparties in all business transactions be subject to mandatory compliance screening to ensure that business is carried out in compliance with company-wide sanctions compliance policies and applicable laws and regulations,nd enhanced the independence and capability of its of its sanctions compliance unit “by housing the unit inside the legal department and hiring additional compliance expertise."
Companies should conduct "robust risk assessments to identify activities that pose greater sanctions risks," according to OFAC, and then implement "appropriately tailored risk-based procedures designed to minimize violations," which include the ability of rogue employees to circumvent internal controls. The regulator also pointed out that testing and auditing a company's compliance program could help prevent such behavior.
The case "further illustrates the importance for parent companies to ensure that appropriate compliance programs and procedures are implemented at their overseas subsidiaries and to exercise appropriate oversight over activities that may pose sanctions risks," according to OFAC.
In an emailed statement, Sojitz said, "OFAC’s release captures the salient details of the event in question such that we do not have any additional comments. We are continually improving our policies and procedures to comply with relevant laws and regulations, including those with respect to sanctions."
By fLEXI tEAM