On September 13, 2016, the Treasury Department’s Office of Foreign Assets Control (OFAC) reached a $4,320,000 civil settlement with PanAmerican Seed Company (PanAm Seed), an Illinois-based division of Ball Horticultural Company, for alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR) that occurred between 2009 and 2012. Remarkably, OFAC treated this as an “egregious case,” which may raise eyebrows at first glance since it only involved the export of seeds, primarily for flowers, which is not a focus of US national security concerns related to Iran. In fact, OFAC says that it likely would have granted licenses for these shipments had the company applied for them. What this case shows is that the process of resolving a case with OFAC is a factor to keep top of mind that can impact the settlement, along with the agency’s assessment of the underlying conduct itself. Companies operating in less sensitive fields such as agriculture, food, and medicine should not discount the importance of maintaining a sanctions compliance program and responding prudently to any inquiries from OFAC.
OFAC alleged that PanAm Seed violated § 560.204 of the ITSR by indirectly exporting seeds to Iran on 48 occasions through third parties in Europe and the Middle East. Section 560.204 prohibits exports to third countries when done with knowledge or reason to know that the goods are “intended specifically” for Iran. In discussing the settlement, OFAC noted that the company did not voluntarily disclose the underlying infractions, and characterized the parent company as a “commercially sophisticated, international corporation,” for which expectations of compliance and a compliance program are higher. These factors no doubt contributed to the higher penalty amount.
But what is more significant is that OFAC stated that mid-level managers at PanAm Seed and its parent company were allegedly aware of the OFAC licensing requirement for shipments to Iran, but sought to conceal that the ultimate destination was known to be Iran. Notably, according to OFAC, the company even continued these sales to Iran for nearly eight months after its Director of Finance learned about OFAC’s investigation. Moreover, the resolution by OFAC appears to have been influenced by what was viewed as less than full cooperation in resolving the matter with OFAC. For example, some of the information PanAm Seed provided in the course of the investigation was “inaccurate, misleading, or incomplete” in OFAC’s view.
An important take-away from this case is a reminder that not only must one be prepared to deal with the underlying substance of the alleged violations when dealing with OFAC to settle a case, but the manner in which a company responds when it detects violations and engages with OFAC to settle the matter are critical to a successful resolution. The manner in which OFAC characterized this settlement serves as a lesson about the importance of responding in the right way when OFAC knocks on the door.