Despite a relatively slow year in OFAC sanctions enforcement, OFAC closed 2024 with a string of settlements in five cases, including its second in 2024 against an individual defendant.  While OFAC had a slow year, DOJ continued to increase its criminal enforcement of sanctions cases against individuals, increasing its prosecutions to 70 in 2024, nearly 30 more than 2023 (42). However, in 2024, DOJ did not bring any significant criminal enforcement actions against any companies.  As DOJ ramped up its prosecution resources to the National Security Division, its “new FCPA” promise to prosecute corporate sanctions cases will likely not occur until later in 2025. 

With this backdrop, OFAC had a string of interesting cases to close out the year.  The Aiotec GmbH (“Aiotec”) case is especially interesting.  Aiotec, a Berlin, Germany company that provides industrial equipment for the energy sector, has agreed to pay $14,550,000 to settle its potential civil liability for one violation of OFAC sanctions on Iran.

Aiotec was caught attempting to dismantle and then sell an Australian polypropylene plant to Iran.  Talk about a criminal scheme — one has to wonder how the proceeds of its criminal scheme could ever justify teh efforts and scope of Aiotec’s effort to disguise its scheme and its attempt to avoid detection by its US subsidiary.

Between 2015 and 2019, Aiotec conspired to cause a U.S. company to indirectly sell and supply an Australian polypropylene plant to Iran, and remit payments for the polypropylene plant through U.S. financial institutions. Aiotec did not voluntarily disclose the violation to OFAC and was an egregious case. 

In or around 2015, an Australia-incorporated company (the “Australian Company”) hired a U.S. company (the “U.S. Company”) to broker the resale of a decommissioned polypropylene plant in Australia (the “Plant”). The U.S. Company identified Aiotec as a purchaser and entered into an agreement with Aiotec to sell the Plant for $9.7 million on November 27, 2015 (the “Sale Agreement”). The Australian Company and the U.S. Company then entered into an asset purchase agreement on December 14, 2015 (the “Asset Purchase Agreement”), whereby the Australian Company agreed to sell the Plant to the U.S. Company.

The Sale Agreement between the U.S. Company and Aiotec stipulated that Aiotec would not resell the Plant to any sanctioned country, individual or entity.  Aiotec represented falsely that the plant was to be operated in Turkey and executed an end user certificate confirming the shipment and use of the plant in Turkey. 

However, Aiotec was simultaneously conspiring with its Iran-organized subsidiary Aiotec Middle East Co. (“Aiotec ME”) and Iranian petrochemical development company Petro-Iranian Downstream Industries Development Co. (“PIDID”), a sanctioned entity, to divert the plant to Iran PIDID was indirectly owned by Persian Gulf Petrochemical Industries Company, which OFAC designated on June 19, 2019.

On November 29, 2015, two days after signing the Sale Agreement with the U.S. Company, Aiotec, Aiotec ME, and PIDID, unbeknownst to the U.S. Company, entered into a separate agreement (the “Aiotec-PIDID Agreement”) to resell the Plant to PIDID and transport it to Iran.

In 2016, Aiotec began dismantling the Plant and, between 2017 and 2019, exported it in parts from the Australian port of Newcastle to the port of Bandar Imam Khomeini (BIK), Iran. In doing so, Aiotec entered into contracts with two freight forwarders to transport the Plant in parts to Iran. At Aiotec’s behest, both contracts specifically instructed the freight forwarders not to register the end user’s name and address as “Iran” with Australia’s customs office, but instead to report the final destination as either the United Arab Emirates (UAE) or Türkiye.

Between 2016 and 2017, in response to follow-up questions from the U.S. Company regarding the Plant’s end-user and destination, Aiotec continued to conceal the fact that the plant was being exported to PIDID in Iran, and repeatedly misrepresented to the U.S. Company that the plant was to be rebuilt in Turkey.  Through a number of communications and end user confirmations, Aiotec supplied the U.S. Company with false information, representations and misleading statements.

On August 22, 2018, the U.S. Company received a copy of the first page of the Aiotec-PIDID Agreement from an anonymous source, which prompted the U.S. Company and the Australian Company to suspend Aiotec’s access to the plant, which was still being dismantled in Australia. The U.S. Company sent Aiotec a letter on September 14, 2018 confronting Aiotec with the allegation that it was exporting the plant to Iran.

The U.S. Company demanded that Aiotec submit proof that it had not exported the plant to Iran in breach of the Sale Agreement, including by providing the bills of lading (“B/Ls”) for the portions of the Plant already exported from Australia by Aiotec. In response to these allegations, Aiotec and the Turkish Company made numerous misrepresentations and produced false documents to the U.S. Company, including false statements made by outside counsel, fabricated B/Ls, and fraudulent documents between Aiotec and the fake Turkey company. 

Based on these misrepresentations, the U.S. and Australian Companies restored Aiotec’s access to the Plant site on November 14, 2018, with the condition that Aiotec would provide the U.S. and Australian Companies with a master B/L (issued by the transporting vessel, rather than the freight forwarder), showing the remaining portions of the plant were being shipped to Türkiye. One month later, on May 15, 2019, Aiotec provided the U.S. Company with a fraudulent house B/L issued by the freight forwarder dated April 14, 2019, rather than a master B/L from the transporting vessel as the U.S. Company had requested. On or around June 14, 2019, Aitoec provided the mate’s receipt2 as well as the manifest to the U.S. Company, which again falsely showed the cargo was destined for Mersin, Türkiye. Pursuant to the Sale Agreement, Aiotec ultimately remitted 11 payments, each originating in euros, between December 4, 2015 and May 23, 2019 totaling approximately $9,457,642. Aiotec made nine such payments to the U.S. Company’s dollar-denominated account at a U.S. bank (the “U.S. Bank”) and two such payments to the U.S. Company’s euro-denominated account at the U.S. Bank’s London branch.

OFAC agreed to a $14.55 million settlement and suspended $9.55 million in light of Aiotec’s financial circumstances, and its agreement to implement enhanced compliance commitments. 

In weighing the enforcement factors, OFAC cited:

(1) Aiotec willfully violated U.S. sanctions laws and regulations when it entered into the agreements that formed and furthered the conspiracy to cause the U.S. Company to indirectly sell and supply the Plant to PIDID in Iran and used the U.S. financial system in furtherance of the Conspiracy.

(2) Aiotec’s senior management advanced the Conspiracy and made multiple false representations to the U.S. Company over the course of four years with the express purpose of deceiving the U.S. Company and concealing the true end-purchaser and destination of the Plant. and

(3) Aiotec caused substantial harm to sanctions program objectives by providing Iran with a polypropylene plant—a lucrative asset that would otherwise be difficult for it to build or obtain. Providing the plant to PIDID undermined the U.S. government’s policy objectives of denying funding and productive assets to key elements of Iran’s petrochemical sector.

OFAC determined the following to be mitigating factors:

(1) Aiotec cooperated with OFAC by agreeing to toll the statute of limitations and providing extensive documentation detailing the method and means by which it exported the plant to Iran;

(2) Based on an analysis of Aiotec’s financial records from the last five years, OFAC assesses that Aiotec and Aiotec ME are small companies with few employees and limited funds and profits;

(3) As part of its settlement with OFAC, Aiotec has agreed to invest substantial resources and take remedial actions to implement sanctions compliance commitments designed to minimize the risk of recurrence of similar conduct in the future. This includes, among other commitments, implementing a sanctions compliance program with written policies and procedures; hiring a dedicated compliance officer responsible for implementing Aiotec’s sanctions compliance program; and undergoing annual compliance audits by a third party.

The Aiotec case is surprising given the breadth and scope of the illegal action and the extent to which foreign actors sought to avoid detection.  Even though Aiotec is a German company and the plant and its original owner were located in Australia, the transactions at issue were subject to U.S. jurisdiction due to the involvement of the U.S. Company reseller. Furthermore, even though Aiotec initiated the financial transactions in euros, because Aiotec sent the funds to U.S. financial institutions, Aiotec exposed itself to further potential liability. Companies seeking to do business with Iran, or any U.S.-sanctioned jurisdiction or person, should carefully consider all potential U.S. touchpoints in their transactions.

In this instance, the U.S. Company employed a sanctions compliance program and took multiple steps to confirm the true destination of the plant to keep it from being exported to a sanctioned jurisdiction like Iran, including: clearly communicating sanctions requirements in the Sale Agreement and in additional communications with Aiotec; requesting documentation like end-user certificates, shipping documents, and further sales contracts from Aiotec; seeking to confirm the authenticity of the shipping documents with the shipping company directly; conducting a site visit to the alleged plant site in Turkey; and discussing the plant with the managing director of the Turkey Company directly. Despite these best efforts, Aiotec and its apparent co-conspirators were able to deceive the U.S. Company by falsifying documents and making repeated false statements. OFAC will continue to impose strict penalties on such deceptive actors.