Sojitz (Hong Kong) Limited pays $5M+ OFAC penalty

OFAC has announced a settlement with Sojitz (Hong Kong) Limited ("Sojitz HK"), a Hong Kong, China-based company that engages in offshore trading and cross-border trade financing. Sojitz HK agreed to remit $5,228,298 to settle its potential civil liability for apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR).

The apparent violations occurred when Sojitz HK made U.S. dollar payments through U.S. financial institutions for Iranian-origin high density polyethylene resin (HDPE) from its bank in Hong Kong to the HDPE supplier's banks in Thailand. In doing so, Sojitz HK caused the U.S. financial institutions that processed the funds to engage in and facilitate prohibited financial transactions related to goods of Iranian origin. The settlement amount reflects OFAC's determination that Sojitz HK's apparent violations were non-egregious and voluntarily self-disclosed, and accounts for Sojitz HK's remedial response and cooperation with OFAC.

Details:
From August 2016 through May 2018, certain Sojitz HK employees acting contrary to companywide policies and procedures (“noncompliant employees”) caused Sojitz HK to purchase approximately 64,000 tons of Iranian-origin HDPE from a supplier in Thailand for resale to buyers in China (the “HDPE Trading”). Under the terms of the HDPE Trading arrangement, Sojitz HK paid the purchase price by wire transfer to the Thai supplier upon the supplier’s shipment of the HDPE to the Chinese buyers. Throughout the course of the HDPE Trading relationship, Sojitz HK made 60 separate U.S. dollar payments from its Hong Kong bank to the Thai supplier’s banks in Thailand, transferring a total of $75,603,411. Each of these U.S. dollar payments were processed and settled through multiple U.S. financial institutions, including the U.S. correspondent banks of the Hong Kong and Thai banks.

As a result of the misconduct by the noncompliant employees, who directly handled the HDPE Trading, Sojitz HK’s funds transfer instructions omitted references to Iran. Thus, the U.S. financial institutions did not identify these funds transfers as violative of sanctions prohibitions, which should have caused them to reject and report each of these U.S. dollar denominated funds transfers.

Immediately prior to the HDPE Trading, these noncompliant employees were explicitly and repeatedly advised that they could not make U.S. dollar payments in connection with Iran-related business transactions. Nevertheless, to circumvent company policy, the noncompliant employees omitted the HDPE’s Iranian country of origin information from relevant transactional documents, including by requesting that the Thai supplier make no reference to Iran on the bills of lading. Furthermore, during Sojitz HK’s internal business approval processes, the noncompliant employees concealed the HDPE’s country of origin from Sojitz HK’s senior management and compliance personnel by stating that the HDPE was produced by the supplier in Thailand. Accordingly, neither the executive management, nor the compliance personnel of Sojitz HK and Sojitz HK’s parent company, were aware of the Iranian origin of the goods or of the noncompliant employees’ misconduct and concealment.

Since Sojitz HK was not aware of the Iranian origin of the goods due to the non-compliant employees’ misconduct, Sojitz HK did not reference Iran in its funds transfer instructions. This resulted in apparent violations of § 560.203 of the ITSR by causing multiple U.S. financial institutions to (i) engage in unauthorized financial transactions related to goods of Iranian origin in violation of § 560.206 of the ITSR and (ii) facilitate Sojitz HK’s Iran-related financial transactions that would have been prohibited if performed by a U.S. person in violation of § 560.208 of the ITSR (the “Apparent Violations”).