A settlement reached Thursday by a Virginia company over alleged efforts by a Turkey-based affiliate to evade U.S. sanctions on Iran demonstrates the difficulty of keeping far-flung units in line with corporate policy.
Kollmorgen Corp., the Radford, Va.-based maker of motors and automation platforms, bought the Turkish affiliate, Elsim Electrotechnical Systems AS, in March 2013. Elsim continued to do business in Iran for two years after the deal, despite Kollmorgen’s efforts to get Elsim to comply with U.S. sanctions regulations, according to the U.S. Treasury Department.
“The settlement highlights the importance of performing heightened due diligence when U.S. persons, directly or indirectly, acquire companies with preexisting relationships with sanctioned persons and jurisdictions,” the Treasury said. “It also identifies compliance measures the U.S. company took pre- and post-acquisition of a foreign company, and specific remedial actions.”
A spokeswoman for Kollmorgen didn’t immediately respond to a request for comment.
Kollmorgen had reviewed Elsim’s customer database both before and after the acquisition, identified its Iran-related customers and applied controls to block them from making future orders, circulated memos to Elsim employees notifying them of U.S. sanctions on Iran, and conducted in-person training regarding trade compliance policies, the Treasury said. It ordered senior Elsim management to immediately end business, including technical support, with Iran, and required them to certify on a quarterly basis that no Elsim products or services were being sent to Iran, Treasury said.
Despite the directives, Elsim dispatched employees to Iran to fulfill service agreements and engaged in other Iran-related transactions, and management threatened to fire employees if they refused, the Treasury said. Upon return, employees were told by management to falsify corporate records by listing the travel as vacation, rather than business-related.
For the two years the transactions took place, Elsim management regularly and fraudulently certified to Kollmorgen that no Elsim products or services were being sent to Iran, Treasury said. The allegations only surfaced after an Elsim employee used the parent company’s ethics hotline in October 2015 to file an internal complaint, Treasury said. Kollmorgen then retained outside counsel to investigate, Treasury said.
Upon being notified of Kollmorgen’s investigation, the Treasury said, Elsim managers tried to obstruct the probe by instructing employees to delete references to Iran in company records and by misleading parent-company lawyers. Managers also tried to delete emails related to Iran, it said.
Kollmorgen was able to uncover the conduct and disclosed its findings to the Treasury. The department called Elsim’s conduct egregious, and said management’s behavior and their attempts to impede internal investigations by the parent company warranted the penalty.
“Notwithstanding Kollmorgen’s extensive compliance efforts, [the Treasury] determined a penalty was the appropriate administrative response,” the Treasury said.
One unique part of the penalty was the sanctions imposed by the government on an executive for allegedly carrying out Elsim’s conduct, marking the first time the department targeted an individual as a sanctions evader while resolving an enforcement case.
Turkish national Evren Kayakiran, who was the managing director of Elsim, was targeted under an executive order giving the Treasury the power to target foreigners who engage in economic activity that are intended to evade sanctions on Iran and Syria.
Sanctions evaders are placed a separate blacklist maintained by the Treasury, though it also involves penalties: Certain transactions involving Mr. Kayakiran are prohibited, and U.S. banks must reject payments in which he is involved.
Sigal Mandelker, undersecretary of Treasury for terrorism and financial intelligence, said the action concerning Mr. Kayakiran and Kollmorgen signals a change in how the U.S. will counter acts of sanctions evasion.
“This action is a clear warning that anyone in supervisory or managerial positions who directs staff to provide services, falsify records, commit fraud or obstruct an investigation into sanctions violations exposes themselves to serious personal risk,” she said.
Source » wsj