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Cleveland Manufacturer Violated OFAC Sanctions By Allowing Shipments To Iran - Know Your Customer and Know Their Customer

Client Alert
March 30, 2021

Between 2013 and 2017, UniControl exported 21 shipments of its products to two European customers. These 21 shipments were subsequently reexported to Iran, which violated the Iranian Transactions and Sanctions Regulations (“ITSR”) listed in 31 CFR Part 560.

WARNING SIGNS

UniControl encountered multiple alerts before and during this period and failed to take proper actions. In 2010, several years prior to the first of these shipments, a European trade partner of UniControl inquired whether UniControl could supply a significant market it had identified in Iran. UniControl turned down the opportunity but did not confirm that the sales to this European partner were not then being shipped to the Iranian market.

In 2014, UniControl and a European customer entered a sales agreement that listed Iran as a country to which the partner could re-sell these products. In 2016, UniControl offered to ship products directly to a purported third-party European end user, but the customer refused this offer in an attempt to obfuscate the end user. At European trade conferences, UniControl had direct interactions with Iranian nationals, but did not question their European trade partner on the interest. Finally, UniControl received a request from its European partner to remove the “Made in USA” labels from its products with the explanation that the Iranian end user may have issues with the product origin.

FIXING THE PROBLEM

UniControl consulted with outside counsel and then voluntarily self-disclosed these violations. In total, UniControl engaged in 21 prohibited transactions with a total product value of $687,189. The maximum statutory penalty that UniControl faced was $5,423,766. However, once all mitigating and aggravating factors were weighed, UniControl was able to reach a settlement with OFAC for $216,464.

Parallel to UniControl’s cooperation with OFAC and ceasing all shipments to its European trade partners, the company also righted its own “compliance ship.” This began by retaining outside counsel to strengthen their export control procedures. End-user certificates were created to make sure that buyers are not reselling to prohibited end users. These certificates are also requested from second and third level buyers of reexported products. UniControl added a Destination Control Statement within the footer of many of their trade documents to remind recipients of the restrictions on reselling, transferring, manipulating, or otherwise disposing of their products.

For a review of your export policies and processes, or questions on trade compliance, please contact International Law Attorney Kevin Burwell at kdburwell@bmdllc.com or 330-253-3715. 

International LawKevin Burwell
Client Alert

HHS Issues Opinion Regarding Illegal Attempts by Drug Manufacturers to Deny 340B Discounts under Contract Pharmacy Arrangements

January 14, 2021The federal 340B discount drug program is a safety net for many federally qualified health centers, disproportionate share hospitals, and other covered entities. This program allows these providers to obtain discount pricing on drugs which in turn allows the providers to better serve their patient populations and provide their patients with access to vital health care services. Over the years, the 340B program has undergone intense scrutiny, particularly by drug manufacturers who are required by federal law to provide the discounted pricing.Client Alert

S.B. 263 Protects 340B Covered Entities from Predatory Practices in Ohio

January 14, 2021Just before the end of calendar year 2020 and at the end of its two-year legislative session, the Ohio General Assembly passed Senate Bill 263, which prohibits insurance companies and pharmacy benefit managers (“PBMs”) from imposing on 340B Covered Entities discriminatory pricing and other contract terms. This is a win for safety net providers and the people they serve, as 340B savings are crucial to their ability to provide high quality, affordable programs and services to patients.Client Alert

DOL Finalizes New Rule Regarding Independent Contractor Status, But Its Future Is In Jeopardy

January 11, 2021On January 6, 2021, the Department of Labor announced its final rule regarding independent contractor status under the Fair Labor Standards Act. As described in a prior BMD client alert, this new rule was fast-tracked by the Trump administration after its proposal in September 2020. The new rule is set to take effect on March 8, 2021, and contains several key developments related to the "economic reality" test used to determine whether an individual is an independent contractor or an employee under the FLSA.Client Alert

Bankruptcy Law Changes - 2020 Recap And What To Expect In 2021

January 11, 2021In a year of health challenges and financial distress to many individuals and businesses affected by the pandemic, the year 2020 brought some significant changes to the bankruptcy laws. Some of these changes were in place prior to the pandemic; others were a direct response to the pandemic with the goal of helping struggling businesses and individuals. Ahead, we can likely expect further changes to the Bankruptcy Code with the incoming Congress.Client Alert

UPDATE - SBA Releases Rules and Guidance for Second Round PPP Funding

January 7, 2021Late yesterday (January 6, 2021), the U.S. Small Business Administration released rules and guidance for businesses wishing to take part in the long awaited second round of Paycheck Protection Program (“PPP”) funding. As most businesses are aware, the rules governing PPP loans have been updated as part of The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“Act”). The Act was just one section of the massive 2021 Consolidated Appropriations Act that was passed by Congress and signed into law by the President on December 27, 2020. To combat the ongoing disruptions caused by the COVID-19 pandemic, the Act generally provides (a) first time PPP loans for businesses that did not obtain a loan in the first instance, (b) PPP second draw loans for businesses that already obtained a loan but need additional funding, and (c) additional funding for businesses that returned their first PPP loan or did not get the full amount for which they qualified.
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