Danish manufacturer Danfoss agreed to pay nearly $4.4 million to settle allegations a subsidiary violated U.S. sanctions by running payments from customers based in Iran, Sudan, and Syria through the foreign branch of a U.S. financial institution.
The unit’s 225 apparent sanctions violations occurred between November 2013 and August 2017 and included nearly $17 million in total bank transfers, according to the Treasury Department’s Office of Foreign Assets Control (OFAC) in a Dec. 30 enforcement release.
Danfoss, which sells refrigeration products, air conditioners, and other cooling products, has 69 factories worldwide and more than 40,000 employees. Its wholly owned subsidiary in the United Arab Emirates, Danfoss FZCO, allegedly directed customers in Iran, Sudan, and Syria to send payments to the U.S. branch account located in the UAE.
The customers used third-party payers in nonsanctioned jurisdictions to make the payments, which allowed the funds to skirt the bank’s internal compliance filters, according to OFAC.
“While OFAC found no evidence that Danfoss willfully used third-party payers for the purpose of evading sanctions, Danfoss FZCO was aware since at least 2011 that using a U.S. financial institution to send or receive payments related to sanctioned jurisdictions could be prohibited,” the agency said. Danfoss’s parent company and multiple financial institutions contacted the subsidiary during the relevant period with concerns about possible U.S. sanctions violations and to flag rejected payments, OFAC said.
“Despite these communications, Danfoss FZCO continued to use its U.S. branch account to collect payments from customers in sanctioned jurisdictions,” OFAC said.
The agency faulted Danfoss’s global sanctions compliance program, which was tasked with guiding Danfoss FZCO on compliance matters, for deficiencies that allowed the apparent violations to occur. Danfoss didn’t have procedures in place to regularly monitor Danfoss FZCO’s activities, including payments for sanctions violations.
“As a result, Danfoss lacked the means to know when problems arose unless Danfoss FZCO proactively contacted Danfoss’s compliance program manager,” OFAC said.
Danfoss FZCO personnel, including the regional finance director, had not received substantive training on U.S. sanctions rules, according to the agency. The finance director did not consult with Danfoss’s compliance program manager regarding the questionable transactions that led to the apparent violations.
The “insufficient understanding of U.S. sanctions” by the finance director resulted in “a lack of urgency to address Danfoss FZCO’s banking issues and substantially contributed to the delay in stopping the violative transactions,” OFAC said.
Danfoss addressed its alleged compliance deficiencies by writing a sanctions manual and implementing sanctions training for Danfoss FZCO employees; creating new procedures to identify the true origins of payments and to reject payments that arise from sanctioned nations; updating its export control manuals to include U.S. sanctions rules; and issuing announcements, forms, and documents to reinforce employees’ understanding of U.S. sanctions rules and help them flag suspicious transactions, OFAC said.
Danfoss also stopped doing business with customers in Iran, Sudan, and Syria.
The base civil penalty applicable in the case was approximately $21.9 million. Danfoss received credit for cooperation, and its apparent violations were deemed “non-egregious.”
Danfoss did not voluntarily self-disclose the apparent violations, according to OFAC.
The case is a reminder for companies to “maintain effective, risk-based sanctions compliance programs and to train key staff, including senior management, to identify and escalate potential violations of U.S. sanctions to the appropriate compliance personnel,” the agency said.
Danfoss said it “took quick action to ascertain the root causes of the conduct at issue, cooperated fully with OFAC, and also adopted new and more effective internal controls and procedures to prevent a recurrence of the apparent violations,” according to a statement on its website.
No comments yet