A case where the goods were legal to sell to almost anyone outside the United States, and where the violation was in how the payment reached the dollar system.
What happened
SCG Plastics was a trading company in a multinational group headquartered in Bangkok. It bought and resold 60 per cent of the output of a petrochemical plant in Assaluyeh, Iran, run by a joint venture that OFAC says was owned by, among others, SCG Plastics’ parent and the National Petrochemical Company of Iran. The plant makes high-density polyethylene, and SCG Plastics sold it to manufacturers in East Asia from 2009 to July 2018, with a pause from 2013 to 2014.
Customers were told to pay in US dollars into SCG Plastics’ bank accounts in Thailand. Those payments passed through US banks acting as correspondents, which is what made them subject to US sanctions on Iran. OFAC found 457 such payments worth $289.3 million between 2017 and 2018.
The documents
OFAC says SCG Plastics “repeatedly issued shipping and payment documents that listed variants of the term ‘Middle East’ as the country of origin rather than ‘Iran’”.
- Pro forma invoices gave the loading port as “any port in the Middle East” or “Jebel Ali, UAE”, not Assaluyeh.
- Final commercial invoices listed shipments as from Jebel Ali with “Middle East” as the origin.
- Transshipment. OFAC says the resin was moved through the UAE, where, on SCG Plastics’ instruction, its shipping agent issued an ocean bill of lading naming Jebel Ali as the port of loading instead of Iran.
The release describes these as practices “inconsistent with industry-standard shipping documentary practices” and as hallmarks of deceptive practices OFAC has seen before.
The debt payments
Separately, on at least ten occasions SCG Plastics paid the joint venture’s debts to its vendors in dollars, in exchange for resin. OFAC says the payment instructions “misleadingly” described the payments as “payment for goods”, though SCG Plastics had bought nothing from those vendors. Where the vendors were Iranian, the venture told SCG Plastics to pay accounts held by other companies outside Iran. The ten payments came to about $1.8 million, and SCG Plastics disclosed them voluntarily. The other 457 were not disclosed.
The penalty
OFAC treated all 467 violations as egregious. Under its Enforcement Guidelines the base penalty was $597.6 million, just under the $600.4 million statutory maximum. The settlement was $20 million, which OFAC says reflects the general factors and the agreement of a group company, Thai Polyethylene Co., Ltd., to keep sanctions compliance commitments for five years. That company took over all of SCG Plastics’ assets and liabilities in January 2022, so SCG Plastics is no longer operating and is being liquidated.
The aggravating factors OFAC named were a “persistent, multi-year pattern of conduct to conceal” the Iranian origin, harm to the sanctions programme’s objectives, and the fact that the company was commercially sophisticated and earned a significant share of its revenue from the violations. Among the harm, OFAC pointed out that selling in dollars, “the common currency used in the petrochemical industry”, widened the Iranian producer’s market. The mitigating factors were no penalty in the previous five years, substantial cooperation, the liquidation, and remedial steps by the acquiring company.
The wider point
OFAC’s release says commercial activity that might not otherwise violate its regulations, such as a non-US person selling non-US goods to a sanctioned country, “can nonetheless result in a violation” when the payments run through US financial institutions. The Sojitz Hong Kong case on this site also concerns Iranian-origin polyethylene, bought from a supplier in Thailand. OFAC’s Sojitz notice as summarised there does not name that supplier, so no link between the two matters is claimed here.
OFAC also notes that in March 2023, after the conduct had stopped, it designated the joint venture as part of a “shadow banking” network.