Construction Specialties, Inc. (“CS”), a vendor of building materials headquartered in New Jersey, has settled its potential civil liability for apparent violations of the Iranian Transactions and Sanctions Regulations. On August 16, 2023, the Office of Foreign Assets Control of the US Department of the Treasury (“OFAC”) announced the settlement, whereby CS has agreed to pay $660,594 and to satisfy additional compliance requirements.
As described by OFAC, between December 2016 and August 2017, senior managers at the United Arab Emirates-based subsidiary of the company, Construction Specialties Middle East L.L.C. (“CSME”), knowingly re-exported building materials from CS and another US supplier to Iran for the construction of a shopping mall in Teheran, despite having received explicit sanctions compliance guidance to the contrary. According to OFAC, the CSME personnel falsified or omitted the destination of goods re-exported from the US suppliers, thereby engaging in a pattern of behavior that concealed or obfuscated the destination of the goods – Iran. In addition, the CSME personnel allegedly removed documentation that identified the US origin of the re-exported materials.
The conduct was discovered by a US person employed by CSME in Dubai, who confronted the CSME managers; the CSME managers dismissed the employee, who flew immediately to the United States to report the discovery of suspicious conduct and unexplained levels of sales and expenses in the region. The information precipitated an internal investigation on the part of CM. The company terminated Iran-related business and reported the matter to OFAC.
OFAC determined that CSME’s conduct resulted in three apparent violations of § 560.215 of the Iranian Transactions and Sanctions Regulations, 31 CFR part 560 (“ITSR”). In its analysis of the matter, OFAC found the apparent violations to be egregious, viewing as aggravating factors the willful violations of ITSR by two senior managers at CSME, including the general manager – both non-US persons – and the fact that they had actual knowledge of, and participated actively, in the conduct. Likewise, the status of CSME as a commercially sophisticated company, one of 25 entities owned or controlled by CS in sixteen countries, was deemed to be an aggravating factor. At the same time, OFAC considered as mitigating factors CS’s prompt disclosure of the apparent violations, the company’s cooperation with OFAC;s investigation, the fact that the company’s US headquarters was apparently unaware of CSME’s activity, and the company’s compliance program in effect at the time of the apparent violations.
The settlement amount reflects these considerations, having been reduced to $660,594 from the statutory maximum of $2,201,982. The settlement agreement also requires CS to establish and maintain for at least five years compliance measures designed to prevent similar conduct. The compliance program must incorporate training and awareness components for senior management, and must allocate adequate resources to minimize the risk of noncompliance. Pursuant to the settlement, CS commits to conduct sanctions risk assessments, and to implement internal controls that adequately address the results of the risk assessments. Furthermore, CS must provide training and disseminate sanctions compliance guidance to relevant employees. Annually for the next five years, CS must certify to OFAC its compliance with the terms of the settlement.