OFAC Announces $1.7 Million Settlement with Truck Manufacturer for Violations of Iran Sanctions Program
In yet another enforcement action, OFAC announced a $1.709 million settlement with PACCAR, Inc., for 63 apparent violations of the Iran Sanctions Program by DAF Trucks, a wholly-owned subsidiary based in Eindhoven, Netherlands. (Here).
On three separate occasions, between October 2013 and February 2015, DAF sold or supplied 63 trucks to customers in Europe that it knew or had reason to know were ultimately intended for buyers in Iran. The total value of the transactions was approximately $5.4 million.
OFAC’s settlement agreement underscores the extent to which companies can be held liable for third party actions reselling products for ultimate customers in Iran. Applying the regulatory scienter requirement of knowing or reason to know, OFAC is aggressively holding companies accountable for multi-level distribution schemes in which products ultimately end up being sold to Iran customers.
PACCAR is primarily a manufacturer of trucks and related goods and services. DAF is one of its brands. DAF sells its trucks through a dealer network consisting of more than 300 independent dealers. The dealers, in turn, sell DAF trucks to ultimate customers/users. Most trucks are custom-built to customer/end-ser specifications.
In June and October 2014, a DAF dealer in Hamburg, Germany placed two orders with DAF for a total of 51 trucks. The paperwork associated with these orders identified the ultimate customer as an unnamed party in Russia. The DAF Hamburg dealer, however, knew that the trucks were actually intended for a buyer in Iran.
The DAF Germany manager had reason to know that the trucks were intended for Iran rather than for Russia. The DAF Hamburg dealer initially requested a price quotation from DAF German’s manager for an Iranian company located in Iran. The DAF German manager told the DAF Hamburg dealer that DAF German could not sell trucks destined for Iran. On the same day, the DAF Hamburg dealer submitted a pricing request for a new order of trucks purportedly destined for a customer or end-user in Russia with virtually identical specifications as the earlier submitted order for the prohibited Iranian customer. The DAF German manager then processed the DAF Hamburg dealer’s order without questioning the same day request.
In an earlier incident, in October 2013, DAF Trucks Frankfurt, a directly owned DAF dealer, received two trucks from DAF that were intended for resale to a company in Germany. The original buyer cancelled the order, and DAF Trucks Frankfurt sold the two trucks to a trade in the Netherlands, which in turn resold the trucks to two buyers in Iran. An employee at DAF Trucks Frankfurt knew or had reason to know that the two trucks sold to the Netherlands trader were intended for resale to buyers in Iran. Among other things, the Netherlands trader send draft invoices to the DAF Trucks Frankfurt employee which referenced the buyers in Iran.
In June 2014, DAF sold 10 trucks to an authorized DAF sales dealer in Sofia, Bulgaria, which subsequently sold and delivered the 10 trucks to an affiliated rental company, which in turn sold the 10 trucks to a buyer in Iran. The Bulgarian dealer’s parent company disclosed that a used truck sales manager employed by DAF introduced that dealer to the Iranian buyers of the 10 trucks and knew or should have known that the trucks were intended for Iran before introducing the parties to each other.
OFAC cited the fact that DAF personnel failed to exercise a minimal degree of caution or care when they ignored red flags regarding potential sales to OFAC-sanctioned countries and customers that they knew or had reason to know intended to resell the trucks to Iran.
On the mitigating side, OFAC cited the fact that PACCAR voluntarily disclosed the matter to OFAC and that PACCA had a trade sanctions compliance program in place at the time of the violations. Further, OFAC noted that, upon learning of the apparent violations, DAF took remedial action by conducting an internal investigation, terminated the employees involved, and cancelled delivery of 20 trucks, and enhanced its compliance program.