A subsidiary that had its parent’s compliance policies, had been told about them repeatedly, and went to some trouble to keep the parent from seeing what it did.
The sales
From December 2012 to January 2016, according to OFAC, Iscar Turkey sold cutting tools and inserts to two Turkish intermediary companies, knowing they would go on to an Iranian distributor and Iranian end-users, some later found to be the Government of Iran. It completed 144 such orders, worth $383,443, and also bought goods from other Berkshire subsidiaries to fill orders bound for Iran. The prohibition applies to it because Iran’s rules extend to foreign entities owned or controlled by a US person; Berkshire is liable for what the subsidiary does. See US-owned or controlled foreign entity.
The general manager “reportedly believed it was inevitable that U.S. and European Union sanctions against Iran would be lifted” and wanted a foothold in the Iranian market when they were. Employees visited Iran in June 2012, and a relationship with an Iranian distributor followed.
The concealment
OFAC lists what Iscar Turkey did to hide the business from the rest of the group:
- private email addresses that bypassed the corporate system, set up on the sales manager’s instruction;
- false names in internal records, including at least one fake company name;
- incorrect end-customer names on most orders;
- false invoices arranged by the Turkish distributors with other Turkish companies;
- an open-ended authorisation letter naming one distributor as authorised for several Berkshire subsidiaries’ products, used for sales in Iran;
- cash payments, then euro payments through the banking system;
- false assurances in response to compliance inquiries, fraudulent evidence of a compliance training session, and lying to interviewers once the internal investigation began.
See third-country transshipment and front companies, and the Türkiye page.
What other Berkshire companies saw
Employees at other Berkshire subsidiaries received emails that “could have revealed” the Iranian destination, such as an Iranian address in the chain or a customer known to be in Iran. Only one told Iscar Turkey that an order was for an Iranian customer and that such sales were prohibited. OFAC counted that as an aggravating factor: certain subsidiaries “knew or had reason to know” that products they sent were intended for Iran.
The penalty
Berkshire disclosed in May 2016, after an anonymous tip in January of that year, and signed three tolling agreements. OFAC called the case egregious because of the conduct of the subsidiary’s management, and set a base of $18.4 million, and the settlement was $4.1 million. Its compliance considerations are due diligence on affiliates known to deal with sanctioned places, making sure subsidiaries understand their obligations “to include when they supply goods to other companies within their corporate chain”, and “verifying the accuracy of end-users and associated underlying paperwork for goods shipped through third-country distributors.”