The United States Treasury Department’s Office of Foreign Assets Control (OFAC) announced on February 21, 2019 that ZAG IP LLC, a U.S.-based multinational producer of cement, must pay $506,250 in fines to settle potential civil liabilities associated with violations of U.S. sanctions on Iranian entities, and goods and services originating in Iran.
The sanctions in question prohibit trade-related transactions with Iran for goods, technology, or services. Between July 2014 and January 2015, it is alleged that ZAG purchased over 250,000 metric tons of cement clinker (a type of cement used in construction) worth $14.5M USD, while having full knowledge that it was Iranian in origin. The goods were then resold and transported to a company in Tanzania.
But it could have been worse
While ZAG was aware of the U.S. sanctions on Iran, they relied on an Alternative Supplier based in the United Arab Emirates who misrepresented that “cement clinker was not subject to U.S. economic sanctions on Iran.” As a result (and under immense pressure to fulfil the order or lose the contract altogether), ZAG eventually purchased the Iranian-sourced material.
All told, the potential monetary penalties could have run as high as $29,000,000 USD, however, OFAC determined the violations in question constituted a non-egregious case. Among the extenuating factors OFAC considered when making its assessment of the situation were:
- ZAG’s self-disclosure of the violations,
- Cooperating with the investigation by providing relevant information when requested,
- Conducting a thorough internal investigation to identify the cause of the compliance failures, and
- Implementing multiple remedial measures to help prevent a recurrence.
What to take away from this case
Like many cases involving an OFAC violation, ZAG’s sanctions contraventions highlight the importance of doing your due-diligence, and having strong compliance procedures and mechanisms in place. This is especially the case for companies that trade and transact internationally.
It also demonstrates that companies should not ignore common sense warning signs. For instance, knowing that the cement was of Iranian origin should have caused ZAG to look into the transaction further rather than trusting the word of a third party—in this case their UAE-based Alternative Supplier.
Finally, this case demonstrates the importance of self-disclosure and cooperating with OFAC. The fact that ZAG voluntarily disclosed the violation themselves and cooperated with OFAC’s investigation are directly cited as mitigating factors in OFAC’s final judgement of the situation.