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CLIENT UPDATE

OFAC Enforcement:  Facilitation

 

U.S. Company Pays $7.8 Million to Settle OFAC Sanctions Violations Arising from Approval of Transactions by Foreign Subsidiary

Zoltek Companies, Inc. and Zoltek Corporation, both U.S. corporations (Zoltek U.S.), agreed to pay $7.8 million to settle apparent violations of OFAC’s Belarus Sanctions Regulations because Zoltek U.S. approved at least 26 purchase transactions between Zoltek’s Hungarian subsidiary and a blocked entity identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN).  Zoltek U.S. senior management approved the transactions, apparently and at least in part, based on advice from the foreign subsidiary’s local counsel in Hungary that the sanctions did not apply to companies in Hungary.  As part of the settlement, Zoltek agreed to undertake substantial “compliance commitments,” including conducting risk assessments, establishing extensive internal controls, auditing and training, and providing annual certification to OFAC for the next 5 years.

The facts surrounding the alleged violations are covered in the OFAC Settlement Agreement and summarized in OFAC’s civil penalties Enforcement Information.  The settlement agreement is significant because a U.S. company was held accountable for violating the sanctions simply for its role in approving transactions by a foreign subsidiary.  Under Zoltek’s normal business practices at the time, purchase orders by the Hungarian subsidiary were forwarded to the CEO and other senior officers of Zoltek U.S. for approval.  As OFAC noted, U.S. parent companies must be vigilant to ensure that certain business operations of foreign subsidiaries are segregated or walled-off to ensure the U.S. parent company and its employees do not violate U.S. sanctions by facilitating the actions of subsidiaries.