OFAC Enforcement Action: Zoltek Companies, Inc. Settlement of Belarus sanctions violations

Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and Zoltek Companies, Inc.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $7,772,102 settlement with Zoltek Companies, Inc. (“Zoltek”) and its subsidiaries worldwide.  Zoltek — a holding company headquartered in Bridgeton, Missouri, and the owner of Zoltek Corporation (“Zoltek U.S.”), located in the United States, and Zoltek Vegyipari ZRT (“Zoltek ZRT”), located in Hungary — has agreed to settle its potential civil liability for 26 apparent violations of the Belarus Sanctions Regulations, 31 C.F.R. part 548 (BSR).  The apparent violations involve Zoltek U.S. approving 26 purchases of acrylonitrile — a chemical used in the production of carbon fiber — between Zoltek ZRT and J.S.C. Naftan (“Naftan”), a Belarusian entity OFAC designated on August 11, 2011 pursuant to Executive Order 13405 of June 16, 2006, “Blocking Property of Certain Persons Undermining Democratic Processes or Institutions in Belarus,” and identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (the “SDN List”), in apparent violation of § 548.201 of the BSR.  OFAC determined that Zoltek and Zoltek U.S. voluntarily self-disclosed the apparent violations and that the apparent violations that occurred prior to February 2015 constitute a non-egregious case, and that the apparent violations that occurred after February 2015 constitute an egregious case.

Basically, the firm continued to make purchases from an existing supplier even after the company was placed on the SDN List. In this case, multiple members of senior management were aware of the sanctions liability, yet continued its relationship with the supplier.

The base penalty for these violations was $11,957,081, which is a small fraction of the statutory maximum of $37,824,392. Here’s OFAC’s thinking:

OFAC considered the following to be aggravating factors:

  1. Zoltek U.S. acted with reckless disregard for U.S. economic sanctions requirements and/or failed to exercise a minimal degree of caution or care in avoiding the conduct that led to the apparent violations and failed to incorporate OFAC compliance checks in their overall risk mitigation strategy;
  2. multiple Zoltek U.S. personnel, including senior and executive-level managers, as well as individuals from Zoltek ZRT, were aware of — and participated in — the conduct that led to the apparent violations;
  3. Zoltek U.S. approved Zoltek ZRT’s purchase of a significant volume of ACN from Naftan for a period of several years, resulting in significant harm to the sanctions program objectives of the BSR and conferring more than $18 million to a Belarusian government entity; and
  4. Zoltek and Zoltek U.S. are large entities that engage in a significant volume of international trade and cross-border transactions.

OFAC considered the following to be an additional aggravating factor with respect to the egregious transactions that occurred in or after February 2015:

  1. Senior Zoltek U.S. personnel, including executive-level managers, actively discussed U.S. sanctions issues related to Naftan raised by third parties but did not review the company’s U.S. legal obligations and continued to approve transactions with the OFAC-sanctioned party.

OFAC considered the following to be mitigating factors:

  1. neither Zoltek nor Zoltek U.S. have received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the apparent violations;
  2. Zoltek and Zoltek U.S. cooperated with OFAC’s investigation, including by voluntarily self-disclosing the apparent violations, providing detailed and well-organized information for OFAC’s review, and by agreeing to toll the statute of limitations for a total of 643 days; and
  3. Zoltek and Zoltek U.S. have confirmed to OFAC that they have terminated the conduct that led to the apparent violations and have taken the following steps to minimize the risk of recurrence of similar conduct in the future:

• Zoltek U.S. expanded its Director of Global Compliance position, which initially focused only on export/import controls, to include U.S. sanctions issues;

• Zoltek implemented the use of sanctions software to screen its vendors, and their parent and subsidiary companies, against government restricted lists on a daily basis; and

• Zoltek created a “learning academy” to train all new and current Zoltek employees on U.S. economic sanctions and adherence to U.S. export controls.

One thing I do appreciate in the last few enforcement actions is the explicit enumeration of the remedial steps firms are taking to fix up their compliance programs. It’s a nice touch.

Links:

OFAC Notice

OFAC Enforcement Information

Settlement Agreement

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