OFAC Sanctions: Pay Attention to the Red Flags

On August 6, the Office of Foreign Assets Controls ("OFAC") entered into a settlement agreement with heavy truck manufacturer PACCAR, Inc. and its European subsidiary DAF Trucks, N.V. PACCAR agreed to pay $1,709,325 to settle 63 apparent violations of the Iranian sanctions regulations. The transactions involve DAF's independent German and Bulgarian dealers and trucks ultimately being sold to Iran.

During the period in question, DAF's dealers would purchase and resell the trucks to end users and DAF would manufacture trucks based on specific orders. In one instance, the dealer placed an order for 51 trucks. The original quotation indicated that the order was for an Iranian company in Iran. When informed by DAF that it could not sell to Iran, the dealer called back later in the day with the exact same specifications, but the purchaser was an unnamed party in Russia. In another transaction, DAF sold 2 trucks to a trader in the Netherlands who ultimately resold the trucks to a buyer in Iran. DAF should have known about the ultimate sale because the trader sent draft invoices to DAF showing that the buyer was in Iran. Finally, in 2014, a DAF manager introduced DAF's Bulgarian dealer to an Iranian buyer.; Subsequently the dealer sold 10 trucks to an affiliated rental company who in turn sold them to the Iranian buyer.

Even though each of these transactions had significant red flags which the DAF employees knew or should have known that the ultimate destination was Iran, OFAC concluded that the violations were not egregious. In addition, because DAF and PACCAR (i) voluntarily disclosed the violations, (ii) strengthened their compliance programs and instituted in person training for each of its dealers, and (iii) changed their business practice by requiring a direct sales agreement with each end user of a new vehicle and prohibiting resale transactions.

This case highlights the importance of having a robust compliance program with training to recognize the red flags associated with transactions structured to avoid sanctions.