Danfoss settlement with OFAC

Angelika Hellweger of Rahman Ravelli details the company’s resolution of allegations of sanctions violations and the issues involved.

Danish multinational company Danfoss has settled a case with OFAC for apparent violations of the Iran, Syria and Sudan sanctions programmes due to the facilitation of prohibited financial transactions.

The company manufactures and sells refrigeration products, operates 69 factories globally, employs approximately 42,000 people worldwide, and serves customers in more than 100 countries, including the United States. It has agreed to pay $4,379,810 over allegations that it failed to exercise sufficient caution or care in complying with US sanctions requirements over four years.

The alleged violations, of which there are more than 225, occurred when Danfoss’ wholly-owned UAE subsidiary, Danfoss FZCO, directed customers in Iran, Syria and Sudan to make payments to its bank account at the UAE branch of a US financial institution, and made payments from that same account to entities in Iran and Syria. Danfoss FZCO, therefore, facilitated - through its US branch account - financial transactions to sanctioned jurisdictions.

The case highlights the risks faced by non-US persons and entities when dealing with OFAC-sanctioned countries using US financial institutions.

OFAC noted in the settlement that the violations occurred as a consequence of the following facts and circumstances:

• Danfoss FZCO (UAE) relied on compliance guidance from Danfoss which had deficiencies.
• Danfoss did not have in place procedures to regularly monitor Danfoss FZCO’s activities to identify potential sanctions issues.
• Danfoss lacked the means to know when problems arose unless Danfoss FZCO proactively contacted Danfoss’ Compliance Programme Manager.
• Personnel at Danfoss FZCO, including the Regional Finance Director, did not have substantive training on US sanctions and did not consult with Danfoss’ Compliance Programme Manager regarding the transactions that gave rise to the apparent violations.
• The insufficient understanding of US sanctions meant there was a lack of urgency in the Regional Finance Director’s addressing of Danfoss FZCO’s banking issues, which contributed substantially to the delay in stopping the transactions in question.
• Danfoss FZCO’s clients in Iran, Syria, and Sudan used third-party agents in non-sanctioned jurisdictions to pay for the purchase of cooling and heating equipment, and Danfoss FZCO made five transfers from its US Branch Account to parties in Iran and Syria. Yet parties in sanctioned jurisdictions cannot use third-party payers in non-sanctioned jurisdictions in order to disguise the originator or beneficiary of these transactions.
• Danfoss FZCO was aware from at least 2011 that using a US financial institution to send or receive payments related to sanctioned jurisdictions could be prohibited. Indeed, two transactions were rejected in 2011 and 2016 as they were not permitted.

The main points of the case for corporates, from a compliance and governance perspective, are:

• Always maintain and update a risk-based sanctions compliance programme and additional guidance.
• Be aware that supervision and monitoring of a subsidiary is crucial. It is necessary to implement controls specific to the risks posed by the regions in which subsidiaries operate.
• Parent companies need to make sure that local personnel in the subsidiaries are sufficiently trained and updated when it comes to the latest US sanctions developments.
• Apply appropriate controls and pay attention to your (third party) screening processes.
• Pay close attention to all activities – and stop immediately those that are not allowed as soon as a problem emerges.