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Writer's pictureCorporate Crime Observatory
Jan 16, 20233 min read

USA/IRAN: LESSONS LEARNED ON SANCTIONS ENFORCEMENT IN THE DANFOSS CASE


On December 30, 2022, Danfoss settled a case with OFAC for the apparent violations of the sanctions programs due to the facilitation of prohibited financial transactions

Danfoss A/S, a Danish multinational company manufacturing and selling refrigeration products, settled, in December 2022, a case with the Office of Foreign Assets Control (OFAC) about apparent violations of the Iran, Syria, and Sudan sanctions programs agreeing to pay $4,379,810. In this case, Danfoss FZCO, a Danfoss A/S subsidiary in the United Arab Emirates (UAE), facilitated through its US Branch Account financial transactions to sanctioned jurisdictions.

Five relevant lessons can be drawn from this remarkable case:

Lesson #1 – Don’t make your screening process blind

Danfoss FZCO’s clients in Iran, Syria, and Sudan used third-party agents in non-sanctioned jurisdictions to pay for the purchase of cooling and heating equipment. Moreover, Danfoss FZCO made five transfers from its US Branch Account to parties in Iran and Syria. As highlighted by OFAC, parties in sanctioned jurisdictions cannot use third-party payers in non-sanctioned jurisdictions in order to disguise the originator or beneficiary of these transactions.

Lesson #2 – Stop impermissible activities when evidenced

Even though the use of third-party agents has not been set up to evade sanctions willfully, OFAC found that “Danfoss FZCO was aware since at least 2011 that using a US financial institution to send or receive payments related to sanctioned jurisdictions could be prohibited”. Indeed, two transactions were rejected in 2011 and 2016 as they were impermissible. Accordingly, it is essential to stop prohibited transactions when evidence of the problem emerges.

Lesson #3 – Maintain and update your compliance program and processes

OFAC found that Danfoss FZCO relied on Danfoss’s compliance program, which was characterized by “deficiencies,” and that Danfoss lacked systems for regularly monitoring the activities carried out by Danfoss FZCO. Moreover, employees at Danfoss FZCO did not receive enough training on US sanctions, resulting in a delay in disrupting the infringing transactions. Furthermore, OFAC ruled out that the disclosure made by Danfoss did not qualify as voluntary self-disclosure because the information was already in possession of the agency at the time of disclosure. Given that, it is essential to maintain and update compliance programs effectively.

Lesson #4 – Always take into consideration the potential aggravating factors

OFAC took into consideration the following aggravating factors:

  • The failure to exercise a due degree of caution or care in complying with US sanctions requirements during a continuous period of 4 years.

  • The knowledge that the transactions took place with customers in sanctioned jurisdictions.

  • The use of third-party payers to disguise the origin of the payments.

Lesson #5 – Rely on initiative and good practices

OFAC took into consideration some good practices as mitigating, including:

  • The dismissal of business activities in sanctioned jurisdictions.

  • The development of procedures to identify the real originators of the payments and reject transactions from sanctioned jurisdictions.

  • The update of the Export Control Standards and Export Control Manual with the specification of the roles and responsibilities of the employees and the development of new materials to help them in the area of compliance.

  • The creation of a sanctions manual and the implementation of training for the employees to make clear their obligations under US legislation and the risk of doing business with sanctioned jurisdictions.

Please find below the OFAC Enforcement Release of December 2022.

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