With the March 27, 2019 announcement that it had reached a settlement agreement with U.S.-based tool company Stanley Black & Decker Inc., it appears the Office of Foreign Assets Control (OFAC) is not yet done cracking down on companies whose foreign subsidiaries seek to defy U.S. economic and trade sanctions.
Stanley Black & Decker has agreed to pay $1,869,144 for apparent violations of the Iranian Transactions and Sanctions Regulations by a Chinese subsidiary—an amount reduced from a potential monetary penalty of upwards of $7,000,000 USD, in part, because of the company voluntarily self-disclosed upon discovering the violations.
When it comes to acquisitions, buyers should beware
During the due diligence process prior to the acquisition of Jiangsu Guoqiang Tools Co. Ltd. (GQ), Stanley Black & Decker discovered that the Chinese-based power tool supplier exported to entities in Iran. Mindful of the OFAC compliance requirements in this area, Stanley made the cessation of such transactions a condition of the sale.
Following the acquisition, although Stanley Black & Decker took proactive measures to educate GQ staff on the importance of adhering to sanctions regulations, they ultimately did not implement measures to consistently monitor the company to ensure that shipments to Iran had stopped. This was despite written agreements from senior GQ staff that they would do so.
Willful is as willful does
It may be easy to judge an organization that seemingly did not do enough to ensure the appropriate export and OFAC compliance controls were in place as part of an acquisition of a company with known ties to Iran. However, several recent violations—such as the case with a U.S. cement company, and a German subsidiary of another U.S. tool company—have demonstrated that when management of said recently acquired companies are bent on flouting the law, and going out of their way to conceal their illicit activities, the best course of action for the parent company is to ensure they’re maximizing due diligence in this area.
Upon discovering the OFAC violations, Stanley Black & Decker tool immediate action, among them halting all GQ exports, hiring an independent investigator, and fully cooperating with OFAC’s investigation. In total, OFAC found that GQ exported 23 Iranian-bound shipments of power tools and spare parts from June 2013 to December 2014. The total value of the transactions totaled more than $3,000,000.
Lessons to be learned
While there are many benefits to U.S companies acquiring foreign subsidiaries, OFAC cautions that it can come with risks. They list “testing compliance procedures and the timely auditing of subsidiaries” as just two of the many due diligence and risk mitigation activities U.S. companies should undertake when acquiring a new business.