On December 30, 2022, the Department of the Treasury’s Office of Foreign Assets Control announced that it had reached a $4.3 million settlement with Danfoss A/S, a multinational Danish company that manufactures and sells air conditioners and refrigeration products. Danfoss agreed to pay more than $4.3 million to settle potential civil liability for 225 apparent violations of multiple US sanctions laws, including section 1705(a) of the International Emergency Economic Powers Act (“IEEPA”); 31 CFR part 560 of the Iranian Transactions and Sanctions Regulations (“ITSR”); 31 CFR part 542 of the Syrian Sanctions Regulations; and 31 CFR part 538 of the Sudanese Sanctions Regulations.
According to OFAC, Danfoss’ wholly owned subsidiary in the United Arab Emirates, Danfoss FZCO, committed the apparent violations between 2013 and 2017, when the company received payments from its customers in Iran, Syria, and Sudan in its bank account at a US financial institution located in the UAE, and used the same account to pay entities in Iran and Syria. The apparent violations remained undetected for years because the customers and Danfoss used third-party payers in non-sanctioned jurisdictions to make the payments, which disguised the originator or beneficiary of these transactions and prevented the payments from being detected by the bank’s transactional screening filters. The apparent violations resulted in approximately $16 million in unlawful transfers.
OFAC arrived at the settlement amount after determining that the apparent violations, although non-egregious, were not voluntarily self-disclosed. While OFAC found no evidence that Danfoss willfully used the third-party payers to evade sanctions, there was evidence that Danfoss FZCO was aware since at least 2011 that transactions involving sanctioned jurisdictions could be prohibited by US financial institutions, including communications received from the parent company and from various financial institutions regarding payments that raised sanctions concerns or were rejected. OFAC ultimately determined that the apparent violations were primarily due to deficiencies in the company’s global sanctions compliance program, which failed to adequately monitor Danfoss FZCO’s activities, and finance personnel that lacked substantive training on US sanctions. Danfoss was made aware of the apparent violations by its financial institution in May 2017, and Danfoss disclosed the information to OFAC on October 31, 2017. The submission did not qualify as a voluntary disclosure because, at the time of Danfoss’ disclosure, OFAC was already in possession of relevant information regarding possible sanctions violations.
In assessing the $4.3 million settlement amount, OFAC considered aggravating factors such as the length of time and number of apparent violations committed by a commercially sophisticated entity with worldwide operations; OFAC also considered mitigating factors such as Danfoss’ quick response to correct the apparent violations once they were discovered, including the implementation of more effective internal controls with new procedures for monitoring and documenting payments to the company’s US bank accounts. Danfoss also created a new sanctions manual specifically for Danfoss FZCO, implemented new training for Danfoss FZCO employees, and ceased doing business in Iran, Syria, and Sudan.