OFAC Sanctions Construction Supply Firm for Iran Sales

Treasury’s Office of Foreign Assets Control (OFAC) today announced a $660,594 settlement with Construction Specialties Inc, a Lebanon, New Jersey manufacturer and distributor of specialty architectural products. 

CS has agreed to settle its potential civil liability for three apparent violations of OFAC sanctions on Iran that arose from its United Arab Emirates subsidiary’s, Construction Specialties, Middle East L.L.C. (“CSME”), exportation of U.S. origin goods to Iran.  

Specifically, between December 4, 2016 and August 3, 2017, CSME senior leadership oversaw the purchase and reexportation of commercial building products, valued at approximately $1,100,991, from suppliers in the United States with the knowledge that these goods were ultimately destined for a customer in Iran.  OFAC determined that these apparent violations were egregious and were voluntarily self-disclosed.

For more information, please visit the following web notice and settlement agreement.

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From the Factual Statement:

FACTUAL STATEMENT

CS Establishes Policies for Business with Iran

During a visit to Dubai made by CS executives in June 2016, CSME's General Manger, a non-U.S. person based at CSME in Dubai, proposed a new business opportunity: that CSME supply materials to build a shopping mall in Tehran, Iran. CS executives informed CSME's General Manager that CSME was not permitted to pursue business with Iran until CS and external counsel determined the proposal to be permissible under sanctions laws and regulations.

[At all times relevant to the Apparent Violations, General License H ("GL H") authorized foreign subsidiaries of U.S. persons to do business with Iran under certain conditions. GL H, however, did not authorize the exportation, re-exportation, sale, or supply, directly or indirectly, of any goods, technology, or services from the United States to Iran.]

Seeking to operate in accordance with GL H, CS established a new compliance policy and issued written instructions to CSME's General Manager that set forth how CSME and other non- U.S. persons among CS' foreign subsidiaries could permissibly engage in business dealings with Iran. Based on guidance from external counsel, and consistent with GL H and OFAC's published guidance, CS' new policy removed U.S. persons from dealings with Iran, reflecting the scope of the ITSR and then-active GL H.

Consistent with this policy, CS changed CSME's reporting structure so that CSME's General Manager would no longer report to the U.S. person Chief Executive Officer (CEO) of CS regarding any matter relating to CSME's business dealings with Iran.

On August 29, 2016, the Secretary of the Board of Directors for CS disseminated the new company policy to CSME's General Manager. The Secretary's correspondence stated, "In a nutshell, CS [USA] may not engage in business with Iran, but CSME is allowed to do so. US citizens and US lawful permanent residents are not allowed to facilitate or support Iranian business in any way."

The internal correspondence went on to name “a non-U.S. citizen proxy to provide support to CSME on the project as needed... I want you all to be aware of this so that neither you nor your teams inadvertently get involved."

CSME Willfully Reexports U .S.-origin Goods to Iran

Between December 4, 2016, and August 3, 2017, contrary to CS' new policy, CSME's General Manager and another senior manager at CSME sourced materials for the shopping mall project from CS and another supplier in the United States. In doing so, the two senior managers comingled the U.S.-origin goods with goods produced in Dubai and repackaged them in the UAE before exporting them to Iran for the construction of the shopping mall in Iran.

Prior to being detected, CSME's senior managers willfully concealed their conduct by:

• stripping Iran as the final destination on purchase orders for U.S.-origin goods and instead using a false project name to purchase such goods,
• falsely stating the goods were for general inventory at CSME's warehouse in Dubai,
• relabeling U.S.-origin goods before export to Iran, falsely identifying the country oforigin as the UAE rather than the United States and,
• omitting U.S.-origin details from invoices and related documentation.

In total, CSME received payment from the customer in Iran for approximately $1,100,990 worth of prohibited goods from the United States.

Despite their efforts at concealment, a U.S. person employed at CSME in Dubai discovered the activity. The employee confronted the CSME senior managers, who then dismissed the employee. The U.S. person employee then flew to CS headquarters in the United States to report the Apparent Violations to CS, which prompted CS to launch an internal investigation.

CS subsequently replaced CSME's General Manager and the senior manager involved in the Apparent Violations, ended all future business dealings with Iran, and disclosed the matter to OFAC.