OFAC Fines Electronics Firm for Sanctions Violations, Says Employees Hid Sales to Iran

The company, Connecticut-based Harman International Industries, voluntarily disclosed 11 alleged violations of the Iranian Transactions and Sanctions regulations, which OFAC said were “egregious.” The agency also said Harman had no “formal” sanctions compliance program and the company’s British sales team tried to hide the true destination of the shipments, so OFAC couldn't “definitively” determine how much the company earned from the sales.

The agency estimated Harman, between May 2018 and October 2020, sold about $148,261 worth of goods across 11 illegal shipments. The company agreed to invest $400,000 in its sanctions compliance program “as partial satisfaction of the settlement amount,” OFAC said.

A Harman spokesperson noted that the company self-reported the issues to OFAC, "participated fully in the investigative process and took immediate and comprehensive remedial measures to improve its compliance programming." The company agreed to settle with OFAC "to resolve this matter as quickly as possible, without any admission of liability and are committed to adhering to all applicable laws and regulations in our global operations."

OFAC said Harman’s longtime UAE distributor, which the agency didn’t name, sold Harman products to customers in Iran for years with the “knowledge and support” of 13 British employees of Harman’s U.S. subsidiary, Harman Professional. The agency said the UAE distributor picked up the goods from Harman’s Danish distribution center, “after which the Distributor assumed responsibility for onward shipment and export,” including by filing export declarations with Danish customs and paying any tariffs when importing them into Dubai.

Although Harman Professional had “no direct visibility” into the goods once the UAE distributor picked them up from the Danish warehouse, members of Harman Professional’s British sales team -- which included mostly middle level managers such as sales directors and account managers -- “understood” that the UAE distributor channeled Harman’s goods to Iran, OFAC said. Some members of the sales team "suspected" that the sales were illegal and that at least one end user was the Iranian government, OFAC said.

The Harman employees hid references to Iran in internal emails and sales presentations, including by referring to Iran as “the northern region,” “North Dubai,” and “up north” because Iran is directly north of the UAE, the agency said.

OFAC pointed to one instance in 2017 in which Harman’s Europe, Middle East and Africa vice president and general manager approved a request for a discount on Harman products that the UAE distributor planned to ship to the “northern region.” In another instance, a regional director reported that most of the UAE distributor’s business is in “North Dubai” and said: “[The f]act is, [the Distributor] is a North Dubai business,” according to OFAC.

The agency said Harman Professional eventually ended its business with the UAE distributor on Nov. 5, 2019,” following a series of disputes.”

OFAC said the company had “no formal system for monitoring or auditing sanctions-related risks,” and its legal department usually relied on business units to find potential issues. “Indeed, Harman, a large electronics company that operates worldwide, had only one employee -- the senior director of supply chain and global trade compliance -- responsible for managing U.S. economic sanctions and export control risks, and this person lacked the expertise and screening tools to adequately perform their duties,” OFAC said.

It also said Harman’s in-house lawyers didn’t have the “training, time, or resources to develop adequate expertise on OFAC sanctions and export controls.” The company did not extend its policies and controls sufficiently throughout its organization, including to overseas employees of its U.S. subsidiaries.”

OFAC said it could have imposed a maximum penalty of $4,154,700 but decided on a lesser amount because Harman self-disclosed the violations, had not received a penalty in the previous five years, and was “highly cooperative and responsive” to OFAC’s investigation, including by suspending the statute of limitations. The agency also said Harman carried out a “rigorous internal investigation” by hiring an outside lawyer to investigate and an auditor to scrutinize its internal controls, auditing functions and compliance procedures. The company also made “substantial investments” to improve its sanctions compliance abilities, put in place new reporting guidelines, gave its legal and trade compliance department more authority, and ordered compliance training for certain employees.

The agency also pointed to several aggravating factors, including the fact that members of the British sales team “willfully engaged in efforts” to sell Harman products to Iran and to hide those deals, including by using “euphemisms” for Iran. This “clearly reflects an understanding that the activity was not allowed and therefore should not be explicitly described in email communications,” OFAC said. “The length of time that efforts to intentionally sell and obscure sales to Iran took place and remained unaddressed reflect a longstanding practice of disregard for applicable law.”

It also noted that the employees had “actual knowledge” of the Iranian sales, which harmed U.S. sanctions objectives, and noted that Harman is a large and sophisticated electronics company with worldwide operations.

OFAC said the case highlighted the risks posed by foreign employees of U.S. companies if they don’t have sanctions compliance controls in place. “Geographic distance of employees from a company’s U.S. headquarters or offices should not result in diminished oversight, even if those employees are based in a third country,” the agency said.

It also warned about companies having a “sales-driven corporate culture” that prioritizes revenue over compliance. “Risks can be reduced for global companies by having strong, independent compliance programs with appropriate resources in place,” OFAC said.