OFAC Settles with Hong Kong Trading Company for $5.2 Million for Violations of Iran Sanctions Program | Michael Volkov

OFAC got off to a brisk start in 2022. After announcing Airbnb’s application procedures at the beginning of January, OFAC announced a settlement with Sojitz (Hong Kong) Limited, a Hong Kong-based company in China that engages in foreign trade. Cross-border trade financed $5,228,298 for violations of the Iran sanctions program.

Sojitz HK violated Iran’s sanctions program by making payments in US dollars through US financial institutions for Iranian high-density polyethylene (HDPE) resin originating from its Hong Kong bank to HDPE-supplying banks in Thailand. By doing so, Sojitz HK paid the financial institutions that processed the funds to engage in prohibited financial transactions related to goods of Iranian origin.

Sojitz HK voluntarily disclosed the violations.

Between August 2016 and May 2018, Sojitz HK employees acted in violation of Sojitz HK’s policies and procedures to have Sojitz HK purchase 64,000 tons of Iranian-origin HDPE from a supplier in Thailand for resale to buyers. Sojitz HK paid the purchase price by wire transfer to the Thai supplier upon confirmation of the shipper for shipment to Chinese buyers.

Sojitz HK made 60 separate payments in US dollars from its Hong Kong bank to the Thai supplier’s banks, totaling more than $75 million. Each US dollar payment was processed and settled through several US financial institutions, including private correspondent banks linked to Hong Kong and Thailand banks.

Non-compliant employees of Sojitz HK have removed all references to Iran from the money transfer instructions. Immediately prior to trading in HDPE, noncompliant employees of Sojitz HK were specifically notified on several occasions that they could not make payments in US dollars in transactions relating to Iran. Subsequently, the non-compliant employees deleted the Iranian country of origin information for HDPE from the relevant transaction documents. In particular, the non-compliant employees did not mention Iran in the bills of lading.

Additionally, during Sojitz HK’s internal business approval processes, non-compliant employees misled supervisors and compliance officers by establishing that HDPE originated from a supplier in Thailand.

Sojitz HK and its parent company, Sojitz Corporation, have implemented important remedial measures: (i) terminate non-compliant employees who have engaged in HDPE business misconduct; (ii) strengthening screening procedures to require all counterparties to be screened; and (3) the appointment of the Commercial Compliance Unit in the Legal Department and the appointment of additional staff.

OFAC stressed that the Sojitz HK case demonstrated the importance of effective risk-based internal controls to identify, intercept, escalate and prevent potential OFAC sanctions violations. In particular, OFAC recognized that “the case also highlights the potential risks and costs to non-US companies when the US financial system is used in transactions that may involve sanctioned persons or jurisdictions.” To prevent such misconduct, OFAC has indicated that companies should conduct robust risk assessments to identify activities that present a significant penalty risk and implement customized risk-based procedures.

OFAC emphasized that the case emphasized the importance of parent companies ensuring that appropriate compliance programs and procedures are implemented in their overseas subsidiaries and exercising appropriate oversight over activities that may pose sanction risks.

Leave a Comment