The Office of Foreign Assets Control ("OFAC") recently announced a settlement agreement with Danfoss A/S ("Danfoss" or "the company") in response to allegations that Danfoss directed its customers in Iran, Syria, and Sudan to make payments through third-party agents to Danfoss's bank account at the branch of a U.S. financial institution located in the United Arab Emirates ("UAE"). These directions apparently came to customers via Danfoss FZCO, Danfoss's wholly owned UAE entity.
According to OFAC, the Danish manufacturer of cooling products directed its sanctioned customers to remit payments to the U.S. financial institution in the UAE worth a total value of approximately $17 million. OFAC indicated that although Danfoss FZCO did not willfully use third-party agents for the purpose of evading sanctions, it ignored or failed to respond to red flags that its activities could be considered in violation of U.S. sanctions regulations.
The company's inability to recognize these red flags, according to OFAC, came from deficiencies within its own sanctions compliance program.
OFAC considered Danfoss's activities to be "non-egregious" (e.g., the transactions did not involve willful or reckless conduct and did not present serious harm to sanctions program objectives) and assessed a maximum civil penalty equal to the sum of the applicable schedule amount for each violation. OFAC did find several mitigating factors, and as a result, OFAC assessed Danfoss's ultimate penalty to be $4,379,810.
Having a robust sanctions compliance program in place, and regular compliance training for employees is critical to avoiding these types of penalties.
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