By Samuel Rubenfeld
Wednesday, January 12, 2022
The U.S. Treasury Department issued a USD 5.2 million penalty against a Hong Kong-based offshore trading and trade-finance firm after rogue employees had made U.S.-dollar payments to buy Iranian-origin high density polyethylene resin (HDPE) while hiding the conduct from their superiors, according to a settlement announced this week.
Rogue employees of Sojitz (Hong Kong) Limited, including a mid-level manager, caused the company to buy about 64,000 tons of Iranian-origin HDPE from a Thai supplier between August 2016 and May 2018 for resale to buyers in China, according to a web notice posted Tuesday by the Treasury’s Office of Foreign Assets Control (OFAC). HDPE is one of the world’s most popular plastics; neither the Thai supplier nor the Iranian producer were named in the notice.
The rogue Sojitz employees “were explicitly and repeatedly advised” they couldn’t make U.S. dollar payments for Iran-related business transactions, according to OFAC. Sojitz voluntarily self-disclosed the matter and cooperated with an investigation, and OFAC deemed the case as non-egregious. The company didn’t have a public response on its website as of this writing.
“Even where elements of a reasonable compliance program are in place, employees may act on their own initiative to pursue profit over compliance and find ways to circumvent their organization’s policies and procedures,” the OFAC notice said. “In such cases, their actions can result in violations attributable to their organizations.”
Over the course of the HDPE trading relationship, Sojitz made 60 separate U.S.-dollar payments worth a total of USD 75.6 million from its Hong Kong bank to the supplier’s bank in Thailand, OFAC said. Each payment was processed and settled through multiple U.S. financial institutions, including the U.S. correspondent banks of the Hong Kong and Thai banks, according to OFAC. But the U.S. institutions couldn’t identify the funds as violating sanctions regulations due to the conduct of the non-compliant employees, OFAC said.
To circumvent company policy, the employees had omitted the HDPE’s country of origin information from relevant transactional documents, including by requesting the supplier make no reference to Iran on the bills of lading, OFAC said. During Sotjiz’s internal business approval process, the employees also concealed its origin from senior management and compliance personnel by saying the HDPE was produced by the supplier, according to OFAC.
Sojitz HK and its parent company, Sojitz Corporation, undertook significant remedial measures, the OFAC notice said, including by firing the rogue employees, revising its sanctions screening procedures, and enhancing the independence and capability of its compliance unit.
“To prevent such misconduct, U.S. and foreign companies should conduct robust risk assessments to identify activities that pose greater sanctions risks… including the ability of ‘rogue’ employees to circumvent internal controls,” OFAC said. “Testing and auditing to assess the effectiveness of a firm’s compliance program may help guard against such conduct.”