October 24, 2016
By: Daniel Calloway, Legal Content Writer, SanctionsAlert.com
On September 13, 2016, Pan American Seed Company, a US-based producer of flower seeds, agreed to pay over $4,000,000 to settle potential civil liability for alleged violations of the Iranian Transactions and Sanctions Regulations.
The settlement comes after the Office of Foreign Assets Control (OFAC) – the US Treasury’s agency tasked with US sanctions administration and enforcement – allegations that PanAm Seed, indirectly exported flower seeds to two Iranian distributors on 48 separate occasions.
The case has vital lessons on how employee behavior can bring the wrath of OFAC, even when you are selling a harmless product like flowers, and how to engage with the agency once it starts investigation your company.
Continued sale to Iran for 8 months despite OFAC investigation
Section 560.204 of the Iranian Transactions and Sanctions Regulations prohibits exports to third countries when done with knowledge or reason to know that the goods are “intended specifically” for Iran.
OFAC alleged that for a number of years, the grower made indirect sales of seeds to two Iranian distributors. PanAm Seed would ship the seeds to consignees based in a third country in Europe or the Middle East, and PanAm Seed’s customers would arrange for the re-exportation of the seeds to Iran.
According to OFAC, PanAm Seed employees, including mid-level managers, knew that the transactions were potential sanctions violations, and needed a license from OFAC. They also knew that the seeds were intended for re-exportation to Iran, and tried to hide the sale to the sanctioned country.
Finally, the grower continued sales to its Iranian distributors for nearly eight months after its Director of Finance learned of OFAC’s investigation, according to OFAC.
No cooperation and willful violations
Several additional factors contributed to OFAC’s aggression in seeking action against PanAm Seed.
- Willfully violated US Sanctions on Iran by engaging in, and systematically obfuscating conduct it knew to be prohibited;
- Demonstrated recklessness with respect to US sanctions requirements by ignoring its OFAC compliance responsibilities, despite substantial international sales and warnings that OFAC sanctions could be implicated;
- Had contemporaneous knowledge of the transactions precipitating the exportations and continued sales to its Iranian distributors for nearly 8 months even after learning of the OFAC investigation;
- Engaged in this pattern of conduct for years, providing over $770,000 in economic benefit to Iran;
- Did not initially cooperate with OFAC;
- Is a “commercially sophisticated, international corporation” (as a division of Ball Horticultural), with full awareness of compliance protocol.
By law, the maximum and base civil monetary penalty amounts for the listed violations are up to $12,000,000. OFAC intended to pursue this case fully for two reasons: that PanAm Seed did not voluntarily self-disclose the alleged violations to OFAC, and that the violations were egregious.
Ultimately, the case settled for much less at $4,320,000. Several mitigating factors led to the smaller settlement: (1) PanAm Seed was considered a “first offender” making them eligible for mitigation up to 25 percent; (2) the exports were most likely eligible for an OFAC license; (3) PanAm Seed took remedial steps such as stopping the action, implementing a compliance program, and training its personnel; (4) PanAm cooperated with OFAC by tolling the statute of limitations (the amount of time they were susceptible to legal action)for a total of 882 days.
Four lessons for export companies
Firstly, the case underscores the importance of a “culture of compliance”. It is not enough to merely have written compliance procedures. The leadership must actively support and understand compliance efforts. In this case, continuing to sell to Iran for 8 months after the Director of Finance became aware of the OFAC investigation is clearly not the right message from the top. Employees need to understand the importance of cooperating with OFAC officials and the manner in which a company responds when it becomes aware of its violations is critical to successful resolution.
Secondly, the case demonstrates that OFAC continues to vigorously enforce Iran sanctions that are still in force. The January 2016 partial lifting of Iran sanctions as a result of the nuclear agreement, did not change the prohibitions that apply to US persons and US origin products and technology.
Thirdly, the case underscores that exporters that use foreign intermediaries or resellers in their sales process must ensure that these will not re-export their products to Iran or other sanctioned countries in violation of US export controls or sanctions laws.
Fourthly, when you think of sanctions most people immediately point to obvious US national security concerns: Export of military materials, bank transactions involving terrorists, come to mind, not of the export of flowers that can be found in garden centers in the US, Canada and Europe. The PanAm case teaches us that no sector is immune from OFAC prosecution.
Whether you are dealing in arms or simply selling flower seeds, OFAC will pursue an enforcement action. Less sensitive fields such as agriculture and food must take this seriously and be sure to include a sanctions compliance program and stay up to date on OFAC’s regulations and guidelines.