Berkshire Hathaway to Pay $4.1 Million for Iranian Sanctions Violations
Berkshire Hathaway will pay $4.1 million after its subsidiary illegally exported more than 140 shipments of cutting tools to Iran, the Office of Foreign Assets Control said in an Oct. 20 notice. Iscar Kesici Takim Ticareti ve Imalati Limited Sirket (Iscar Turkey), Berkshire’s Turkish subsidiary, hid the exports from its parent company, which resulted in more than $350,000 worth of orders going to Iranian end-users. Along with the fine, Berkshire committed to a range of sanctions compliance procedures in a settlement agreement with OFAC and will annually certify for the next five years that it is meeting its compliance obligations.
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Between 2012 and 2016, Iscar Turkey sold cutting tools and “related disposable inserts” to two Turkish companies, knowing the goods would be sold to an Iranian distributor, OFAC said. Iscar Turkey completed 144 orders that shipped to Iran, including to the Iranian government, despite Berkshire’s “repeated communications” about U.S. sanctions against Iran. Berkshire did not comment.
OFAC said Iscar Turkey’s general manager believed it was “inevitable” that U.S. and European Union sanctions against Iran would be lifted and “sought to be well positioned” to sell to Iran. To “capitalize” on this belief, the manager began a “small-volume commercial” relationship with an Iranian distributor so Iscar Turkey would be in position to expand sales to Iran once sanctions were lifted. The manager and his employees hid the sales by using private email addresses that bypassed compliance controls, used fake names in the company’s internal records, gave “false assurances in response to compliance inquiries” and gave fake evidence of a compliance training session, OFAC said.
Eventually, Iscar Turkey gave a Turkish distributor an “authorization letter” certifying it as authorized to sell Iscar Turkey products -- and other products from four other Berkshire subsidiaries -- in Iran. To hide Iscar Turkey’s connections to Iran, the company received cash payments in euros from an Iranian distributor and worked with its Turkish distributors to create false invoices, which recorded that the products were sent to other Turkish companies instead of Iran. Iscar Turkey also listed incorrect end-customer names for most of its orders, including at least one “non-existent company.” The company’s sales manager also ordered employees to open private email accounts to work on the Iranian orders, OFAC said.
Despite Iscar Turkey’s efforts to hide the transactions, OFAC said other Berkshire subsidiaries should have noticed the company was violating sanctions. Those subsidiaries were included in email chains involving Iranian addresses and received emails referencing customers in Iran. OFAC said only one Berkshire subsidiary told Iscar Turkey the orders were illegal.
Berkshire voluntarily disclosed the violations to OFAC in 2016 after receiving an anonymous tip. Even so, OFAC said the violations were an egregious case due to Iscar Turkey's actions. Aggravating factors included the subsidiary’s “knowledge” that the transactions were illegal, that certain Berkshire subsidiaries “had reason to know” the products they sent to Iscar Turkey were destined for Iran and that Iscar Turkey’s senior management intentionally hid the dealings. OFAC also said Iscar Turkey sought out Iranian business despite knowing it was illegal and undermined U.S. leverage in negotiations with Iran.
Mitigating factors included Berkshire’s voluntary self-disclosure, its cooperation with OFAC’s investigation, its efforts to improve compliance procedures and its replacement of employees responsible for the violations. OFAC also said Iscar Turkey had not received a penalty notice within the previous five years.
OFAC said the case highlights the importance of compliance among subsidiaries known to do business with countries that are sanctioned countries or “are otherwise determined to be higher risk based on ... their geographic location, customers and counterparties, or products and services.” Companies must also make sure their subsidiaries understand their compliance obligations, OFAC said. Companies should routinely verify “end-users and associated underlying paperwork for goods shipped through third-country distributors, particularly where there are red flags.”