Key Takeaways
- U.S. sanctions on Iran apply to non-U.S. companies that are owned 50% or more by one or more U.S. persons, so a non-U.S. subsidiary’s sales can create liability for its U.S. parent company.
- Under U.S. sanctions, indirect sales to Iran through a third-country distributor are prohibited. OFAC faulted Rice Lake for not making clear to its Italian subsidiary that U.S. sanctions reach shipments routed through intermediaries.
- A written instruction is not a sanctions compliance program. Companies should pair policies with localized guidance, recurring training, and ongoing monitoring of non-U.S. operations, and should weigh voluntary self-disclosure and remediation, which OFAC credited here.
On August 12, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $60,764 settlement with Rice Lake Weighing Systems (Rice Lake), a Wisconsin-based manufacturer of scales and other weight measuring equipment, to address apparent violations of U.S. sanctions on Iran. The violations were committed by Dini Argeo S.r.l. (Dini), Rice Lake’s Italian subsidiary.
The relatively modest settlement serves as an important reminder for U.S. companies with international operations that U.S. sanctions on Iran extend to non-U.S. entities owned by one or more U.S. persons.
Background: Rice Lake OFAC Settlement
Rice Lake acquired Dini in 2016. At that time, Dini had an ongoing business relationship with an Iranian business partner. That business continued, with Rice Lake’s knowledge, pursuant to Iran General License H (GL H), which was issued in January 2016 in connection with the Joint Comprehensive Plan of Action (JCPOA) that the United States (and others) entered into with Iran in October 2015.
The United States withdrew from the JCPOA in May 2018, and soon thereafter OFAC revoked GL H. With the termination of the general license, Dini was no longer authorized to sell goods to Iran, directly or indirectly. This is because US sanctions on Iran under the Iranian Transactions and Sanctions Regulations extend to non-U.S. companies that are owned 50% or more by one or more U.S. persons, e.g., Dini.
According to OFAC, after GL H was terminated, Rice Lake informed Dini that transactions involving Iran were prohibited. OFAC also claimed that Rice Lake did not provide sufficient guidance to Dini, because it did not clearly notify Dini that the sanctions applied to indirect sales to Iran. OFAC also asserted that Rice Lake did not adequately monitor Dini’s compliance with the sanctions.
As a result, between June 2019 and November 2021, Dini fulfilled eight orders worth approximately $121,527 through a distributor in the United Arab Emirates (UAE). According to OFAC, Dini knew or had reason to know that the goods ultimately would be transferred to the Iranian customer.
Rice Lake discovered the activity after receiving a tip in late 2021, stopped further sales by Dini to the UAE distributor, voluntarily disclosed the conduct to OFAC, and implemented compliance enhancements. OFAC treated the matter as non-egregious and, in reaching a settlement amount of approximately the value of the underlying transactions, credited Rice Lake’s remediation and cooperation.
Sanctions Matter Extend Well Beyond U.S. Borders
All U.S. sanctions extend beyond U.S. territory, as any action by a U.S. person, anywhere in the world, is subject to U.S. sanctions. Likewise, any person, regardless of nationality or location, who causes a violation of U.S. sanctions is themselves subject to U.S. sanctions jurisdiction.
U.S. sanctions on Iran (and Cuba) go even further and reach the conduct of non-U.S. entities owned by a U.S. person. In announcing this settlement, OFAC emphasizes that compliance failures by non-U.S. subsidiaries often create liability for U.S. parent companies.
What Should U.S. Companies with Foreign Subsidiaries Do Now?
It is therefore essential that compliance policies and practices adequately account for the risks that non-U.S. operations present. Policies should include practical guidance, tailored to local operations, with support through regular training and appropriate monitoring. As the Rice Lake settlement demonstrates, simply instructing a foreign subsidiary not to transact with a sanctioned jurisdiction may not be enough if employees are not equipped to fully understand and address the risks.
Recent Comments