SCG Plastics Pays $20 Million to Settle OFAC Charges of Iran Sanctions Violations
Last Friday (April 19), the Department of Treasury’s Office of Foreign Assets Control (OFAC) announced that SCG Plastics Co., part of a Bangkok-based multinational enterprise, agreed to pay $20 million to settle charges it violated OFAC sanctions on Iran. Specifically, the government claimed SCG Plastics caused U.S. financial institutions to process $291 million in wire transfers for sales of Iranian origin high-density polyethylene resin (HDPE) manufactured by a joint venture in Iran.
In its settlement agreement with SCG Plastics, OFAC provided additional details of the company’s alleged wrongdoing. According to OFAC, the HDPE was manufactured by Mehr Petrochemical Company, a joint venture in Iran including SCG Plastics parent SCG Chemicals and the National Petrochemical Company of lran. The bulk of the illicit transactions involved SCG Plastics receiving U.S. dollar payments processed by U.S correspondent banks from its customers for sales of Iranian-origin HDPE manufactured by Mehr. OFAC found these transactions to be “egregious” violations of the Iranian Transactions and Sanctions Regulations by causing U.S. financial institutions to engage in unauthorized financial transactions related to sales of lranian-origin goods.
In addition, to conceal the scheme from the U.S. banks that processed the transactions, SCG Plastics allegedly employed shipping and documentation practices that obfuscated that the HDPE it sold originated from Iran. One of these practices was replacing “Iran” with variants of “Middle East” as the country of origin on shipping and payment documents. Similarly, the export pro forma invoices SCG Plastics issued to its customers listed the loading port as “any port in the Middle East” or “Jebel Ali, UAE,” with no mention of lranian ports where the HDPE actually was loaded. SCG Plastics made similar references in its commercial invoices to customers.
In OFAC’s accompanying web notice, OFAC used the settlement as a warning to other non-U.S. companies using U.S. banks to facilitate sanctions violations:
This case highlights the risks and potential costs that non-U.S. companies are exposed to when using the U.S. financial system for transactions that may involve U.S. sanctioned persons or jurisdictions. Commercial activity that might not otherwise violate OFAC regulations — such as the sale of non-U.S. goods by a non-U.S. person to an entity in an OFAC-sanctioned country — can nonetheless result in a violation when the financial transactions related to that activity are processed through or involve U.S. financial institutions.
OFAC further cautioned against taking action to conceal these types of violations: “[A]s this particular case demonstrates, non-U.S. companies that obfuscate the involvement of sanctioned persons or jurisdictions in shipping or payment documentation so that U.S. financial institutions process those transactions expose themselves to significant penalties.”
In its Notice, OFAC also promoted its relatively nascent Whistleblower Rewards Program, which provides a clear and confidential channel for whistleblowers to provide information on potential sanctions violations along with violations of the Bank Secrecy Act. The program is run by Treasury’s Financial Crimes Enforcement Network (FinCEN) and awards eligible whistleblowers up to 30% of any government recovery.
We do not know whether a whistleblower was involved in the SCG Plastics matter as FinCEN is strictly committed to maintaining the confidentiality of its whistleblowers, or even if a whistleblower is involved in a particular matter. But one thing is clear, if you have information of potential violations, the agency wants to hear from you. So if you have information of potential violations and would like to speak to an experienced member of the Constantine Cannon whistleblower team, please do not hesitate to contact us for a free and confidential consult.