OFAC Fines 3M More Than $9M for Alleged Iran Sanctions Violations

The violations began in 2015, OFAC said, when employees at a 3M subsidiary in Dubai started working on a proposal to sell the license plate sheeting to a German company that would then resell the sheeting in Iran. The Dubai subsidiary was preparing to take advantage of the Joint Comprehensive Plan of Action, otherwise known as the Iran nuclear deal, that would lift certain U.S. sanctions against Iran.

After the JCPOA took effect in January 2016, OFAC published a general license to authorize foreign subsidiaries of U.S. companies to conduct certain transactions with Iran if those deals excluded the Iranian military or other law enforcement entities. When the license took effect, 3M shared guidance with its employees about the JCPOA and the new authorization, and the company’s trade compliance department began “to formulate a procedure for doing business in Iran” involving the German reseller.

The plan involved the German company reselling the sheeting to “transport authorities in Iran,” but OFAC said 3M’s trade compliance personnel misunderstood the description of the German reseller, which led to a sanctions screening mistake. The agency said 3M’s compliance department screened against a proposal that omitted a page on the “parties involved” and “product end use,” and only the German company was screened and not the actual Iranian end-user.

In April 2016, the German reseller notified a 3M subsidiary that it didn’t plan to incorporate the reflective license plate sheeting into the production of finished blank plates, but would instead resell the sheeting to Bonyad Taavon Naja in Iran. “Despite this departure from the previously approved version of the proposal, the Proponents did not bring this change to Trade Compliance’s attention,” OFAC said.

Soon after, the 3M subsidiary received an “outside due diligence report” involving the Iranian company which “flagged a connection” to Iran’s Law Enforcement Forces. The 3M subsidiary “dismissed the need for further investigation, stating that the cited connections to the LEF were ‘expected’ given that license plate issuance is a government function,” OFAC said.

The agency said employees at both Dubai-based 3M Gulf Proponent and Switzerland-based 3M East Proponents “obfuscated details of the sale from colleagues for fear that it would be re-reviewed by Trade Compliance and spur a more fulsome review.” They also “repeatedly misrepresented the use of the” sheeting, OFAC said. “When numerous managers involved in planning the logistics of the Iran business raised concerns about the deal,” the subsidiary “ignored them” or “falsely claimed they had already received approval from Trade Compliance.”

Between September 2016 and September 2018, OFAC said 3M East sent 43 shipments of the sheeting to the German reseller, which then resold it to the Iranian entity. OFAC also said a U.S.-person employee of 3M Gulf “performed substantial work in furtherance of these sales to Iran,” and “received sales incentives partially based on the Iran business.” The person knew that their actions were potentially subject to sanctions and received “internal guidance on this prohibition on multiple occasions.”

The company discovered the alleged violations after OFAC rescinded its general license in 2018, the agency said. The manufacturing firm voluntarily self-disclosed the violations to OFAC, fired or reprimanded culpable employees, hired new trade compliance counsel, improved its sanctions training and ended business with the German reseller.

OFAC said it could have imposed a maximum penalty of $27,481,363, but decided on a fine of $9,618,477, the agency's second-largest penalty this year behind its $30 million fine of Wells Fargo in April (see 2303310017). OFAC pointed to several mitigating factors, including the fact that 3M had a risk-based compliance program in place, performed a “thorough” investigation of the alleged violations, improved its compliance procedures, introduced “enhanced” due diligence procedures for any business involving a sanctioned country and more. The company also provided “substantial cooperation” during OFAC’s investigation and agreed to toll the statute of limitations.

The agency also pointed to several aggravating factors, including the fact that 3M Gulf senior managers “willfully” violated U.S. sanctions, and “numerous other” 3M employees were “reckless in their handling” of the company’s sales. OFAC also said 3M employees had “actual knowledge” of the identity of the specific end user months before the distributor agreement was signed, and noted that the Iranian company was affiliated with Iranian perpetrators of human rights abuses.

OFAC said the case highlights the importance of “effective” sanctions controls to deal with a “changing sanctions landscape.” The agency also stressed that parent companies are expected to oversee U.S. sanctions compliance within their subsidiaries and empower employees to alert headquarters of business dealings that may need further review.