The U.S. Treasury Department ("Treasury") Office of Foreign Assets Control ("OFAC") sanctioned a Turkish individual as a "Foreign Sanctions Evader" for allegedly instructing the Turkish subsidiary of a U.S. company to violate U.S. sanctions against Iran. The U.S. company settled potential civil liability for the Turkish subsidiary's conduct. This marks the first case in which OFAC designated a Foreign Sanctions Evader in relation to a civil enforcement action.

Pursuant to Executive Order 13608, OFAC sanctioned Evren Kayakiran for causing six violations of U.S. sanctions against Iran. Mr. Kayakiran was the managing director of a Turkish company that "imports, distributes, and installs motion control products." After the Turkish company was acquired in 2013 by the U.S. company Kollmorgen Corporation ("Kollmorgen"), Kollmorgen undertook compliance measures designed to make sure that the newly acquired Turkish company complied with U.S. sanctions requirements. Nonetheless, Mr. Kayakiran and other managers at the Turkish subsidiary reportedly ordered employees of the Turkish subsidiary to service machinery located in Iran, threatened to fire those employees if they refused to travel to Iran, and directed them to falsify corporate records by indicating that their travel was personal and not business related.

In addition, OFAC alleged that Mr. Kayakiran consistently and fraudulently certified to Kollmorgen that no products were being sent to Iran. OFAC noted that upon learning of Kollmorgen's investigation, Mr. Kayakiran and other managers of the Turkish subsidiary misled Kollmorgen's lawyers, tried to obstruct the investigation by instructing the Turkish company's employees to delete references to Iran in company records, and attempted to delete emails related to Iran.

To settle the OFAC charges, Kollmorgen agreed to pay approximately $13,000 on behalf of its Turkish subsidiary to settle potential civil liability for the six violations of U.S. sanctions against Iran. OFAC determined that Kollmorgen voluntarily disclosed the violations, and that the violations constituted a "non-egregious case." In addition, after the violations were discovered, OFAC said, Kollmorgen undertook remedial action to address its compliance issues and "discourage violative conduct."

As a result of OFAC's action, most transactions or dealings concerning Mr. Kayakiran are barred, and U.S. financial institutions are required to reject payments involving Mr. Kayakiran. Treasury said that OFAC's notice regarding the Kollmorgen settlement included "an important discussion of sanctions compliance practices for companies engaged in international trade."

Commentary / James Treanor

As evidenced by the relatively small size of the fine paid by Kollmorgen, OFAC's actions in this case clearly were directed at Mr. Kayakiran and his alleged accomplices at Kollmorgen's Turkish subsidiary. Indeed, the settlement notice contains ne'er a word of criticism against Kollmorgen. OFAC did highlight "the importance of: (1) performing heightened due diligence, particularly with regard to affiliates, subsidiaries, or counter-parties . . . that [] pose high-risks . . . and (2) implementing proactive controls when U.S. persons ... acquire companies with preexisting relationships with sanctioned persons and jurisdictions." However, these are precisely the types of precautions that Kollmorgen undertook following acquisition of the Turkish subsidiary in 2013, only to be stymied by Mr. Kayakiran.

Ultimately, OFAC's actions against Kollmorgen and Mr. Kayakiran may signal the hard line on Iran sanctions that can be expected following the U.S. withdrawal from the Iran nuclear deal, and the full re-imposition of U.S. sanctions on Iran. U.S. companies are on notice that they may be held to account for the actions of their foreign subsidiaries and other parties, especially when their compliance efforts are anything less than best-in-class. Non-U.S. persons, meanwhile, can be left with no doubt that OFAC will respond aggressively to any attempts at sanctions evasion.

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