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Even Warren Buffet is not beyond OFAC’s reach…

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

Release date
10/20/2020
Body

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced a $4,144,651 settlement with Berkshire Hathaway, Inc. (“Berkshire”), a multinational conglomerate holding company based in Omaha Nebraska, and its foreign subsidiary, Iscar Kesici Takim Ticareti ve Imalati Limited Sirket (“Iscar Turkey”). Berkshire, on behalf of itself and its subsidiary located in Turkey, has agreed to settle its potential civil liability for 144 apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR).  Specifically, between December 2012 and January 2016, Iscar Turkey exported 144 shipments of cutting tools and related inserts, with a total value of $383,443, to two third-party Turkish distributors knowing that such goods would be shipped to a distributor in Iran for resale to Iranian end-users, including several entities later identified as meeting the definition of the Government of Iran, which would have been prohibited if engaged in by a U.S. person, under §§ 560.203, 560.204, 560.206, and 560.208 of the ITSR.  These transactions appear to have violated § 560.215 of the ITSR.  OFAC determined that Berkshire voluntarily self-disclosed the apparent violations on behalf of Iscar Turkey, and that the apparent violations constitute an egregious case.

Shades of Kollmorgen Corp’s enforcement action:

The Apparent Violations occurred under the direction of certain Iscar Turkey senior managers despite Berkshire and other Berkshire subsidiaries’ repeated communications and policies sent to Iscar Turkey regarding U.S. sanctions against Iran and the application of the ITSR to Iscar Turkey’s operations. The General Manager for Iscar Turkey reportedly believed it was inevitable that U.S. and European Union sanctions against Iran would be lifted, and sought to be well positioned to sell in the Iranian market. To capitalize on this potential easing of sanctions, the General Manager for Iscar Turkey established in 2012 a small-volume commercial relationship with an Iranian distributor so that, if sanctions against Iran were eased, Iscar Turkey would be well positioned to expand its sales to Iran. The General Manager and his employees took certain steps to conceal Iscar Turkey’s activities and plans with Iran such as: utilizing private email addresses that bypassed the controls and visibility of the corporate email system to communicate about orders from Iranian customers; utilizing false names in internal records of Iscar Turkey to conceal transactions; providing false assurances in response to compliance inquiries; providing fraudulent evidence of a compliance training session; and, when the internal investigation was initiated, lying to interviewers and counseling others to lie.

and some specific evasive actions:

To obfuscate Iscar Turkey’s dealings with Iran, the Iranian distributor made payments in cash and denominated in Euros. Subsequent transactions were paid through the formal banking system denominated in Euros. The Turkish Distributors also entered into arrangements with other Turkish companies to issue false invoices, falsely giving the impression that goods were going to other Turkish companies rather than Iran. Furthermore, Iscar Turkey’s employees caused Iscar Turkey to list incorrect end-customer names for the majority of its orders arising from the Apparent Violations in an apparent attempt to mask the Iranian end users and conceal from Berkshire and its subsidiaries that sales to Iranians were occurring. At least one entry used a fake name created by an Iscar Turkey employee for a non-existent company. Starting in 2014, Iscar Turkey personnel used private email addresses not tied to the company or the employees’ actual names to further conceal the Apparent Violations and prevent others within Berkshire and Berkshire’s subsidiaries from detecting the Iran-related activity. Iscar Turkey’s Sales Manager instructed employees to open private email accounts and to use those accounts to communicate about the orders destined for Iran.

So, Berkshire Hathaway voluntarily self-disclosed these violations to OFC in May 2016 (after getting an anonymous tip in January of that year). They also cooperated and tolled the statute of limitations 3 times, enhanced its foreign subsidiaries’ compliance procedures… and replaced some of the staff.

There were apparently 144 orders of goods that ended up in Iran with a total value of $383,443. The statutory maximum penalty was $36,841,344. Because these were self-reported, but considered egregious, that gets cut in half to $18,420,672.

How did the math get the settlement cut down to about $4 million?

The aggravating factors:

(1) Iscar Turkey’s management willfully engaged in transactions with knowledge that such transactions violated prohibitions related to Iran;
(2) Certain Berkshire subsidiaries knew or had reason to know that some of the products they sent to Iscar Turkey were intended for Iran;
(3) Iscar Turkey’s senior management intentionally concealed its dealings with Iran;
(4) Iscar Turkey demonstrated a pattern of conduct by knowingly engaging in prohibited dealings for approximately three years;
(5) Iscar Turkey’s senior management sought out business activities in Iran with the express purpose of building a foothold in the Iranian market when it and other companies were prohibited from doing so; and
(6) Iscar Turkey violated prohibitions placed on Iran at a time when those prohibitions were intended to impose sustained pressure on Iran, having the effect of undermining U.S. leverage in negotiations with Iran.

And the mitigating factors:

(1) Berkshire voluntarily self-disclosed the Apparent Violations;
(2) Berkshire promptly responded to all of OFAC’s follow-on questions regarding its voluntary self-disclosure and cooperated throughout the investigation;
(3) Berkshire and its subsidiaries and affiliates entered into three statute of limitations tolling agreements with OFAC;
(4) Berkshire took appropriate measures upon learning of Iscar Turkey’s dealings with Iran, to include replacing personnel complicit in the Apparent Violations and enhancing compliance procedures for its foreign subsidiaries; and
(5) Iscar Turkey has not 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.

And the lessons to be learned from all this?

This enforcement action highlights the importance of the following compliance measures in appropriate circumstances: (1) performing appropriate due diligence, particularly with regard to affiliates, subsidiaries, or counter-parties that are known to transact with OFAC-sanctioned countries or persons, or that are otherwise determined to be higher risk based on a variety of factors, including their geographic location, customers and counterparties, or products and services; (2) ensuring subsidiaires understand their obligation to comply with all applicable OFAC sanctions, to include when they supply goods to other companies within their corporate chain, and to report potentially violative conduct; and (3) verifying the accuracy of end-users and associated underlying paperwork for goods shipped through third-country distributors, particularly where there are red flags indicating potential OFAC-sanctioned countries or persons.

Certainly the first two… that makes at least 5 cases like this in the last 2 years where the foreign subsidiary ignored its corporate parent and maintained its business with sanctioned parties…

Links:

Enforcement Information

Settlement Agreement

Categories: Civil Monetary Penalties Enforcement Actions Iranian Sanctions OFAC Updates

eric9to5

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