Texas Company Penalized After Lack of Compliance Program Led to Iran Sanctions Violations

Between December 2013 and May 2018, OFAC said NewTek exported 49 products from the U.S. to two third-country distributors “with knowledge” that those products were intended for an Iranian-based reseller, OFAC said. The reseller sold three of those products to Islamic Republic of Iran Broadcasting, an entity on OFAC’s Specially Designated Nationals List, the release said. NewTek also provided support, including software updates, reseller training and other services to Iranian customers.

OFAC said NewTek operated under two distributor agreements to sell its products to the Iranian reseller. Under a deal with a French company, NewTek authorized the “distribution and support” of its products in the “Middle East” region, which NewTek “was informed specifically included Iran,” OFAC said. The agency said NewTek knew the distributor “intended to supply NewTek’s products to the Iranian Reseller,” and NewTek also “provided credits” to the distributor “for the sale of products to the Iranian Reseller.”

Around 2014, NewTek’s CEO led negotiations to transfer the Middle East sales territory to another distributor in Dubai, OFAC said. Under the new agreement, the new distributor was authorized to sell NewTek’s products to a range of countries in the region, which “explicitly included Iran.”

The violations mostly stemmed from NewTek’s lack of an export or sanctions compliance program. OFAC also said the company didn’t train staff about export controls or sanctions and “incorrectly believed” that its sales to third-party distributors meant that it was ot violating U.S. sanctions. In total, OFAC said NewTek’s illegal transactions were worth about $580,000, but the “profits associated with the sales of the products that constituted the violations” totaled about $61,000.

The maximum penalty for the violations was more than $15 million, but OFAC credited NewTek for submitting a voluntary disclosure and “substantially” cooperating with the agency’s investigation. OFAC said the violations constituted a non-egregious case.

OFAC also pointed to several mitigating factors, including that the “volume and total amount of payments” that led to the violations was an insignificant portion of NewTek’s total revenue. The agency also said NewTek is a small company, hasn’t received a penalty notice in the previous five years and has taken several remedial measures, including establishing a compliance program, hiring a compliance director and providing compliance training to employees.

The company also began obtaining formal export classifications from the Commerce Department to confirm its products are designated under the Export Administration Regulations as EAR99, which means they don’t generally require an export license. The company also started “bulk name screening” against OFAC’s SDN List and implemented internet protocol blocking measures to prevent people in Cuba, Iran, North Korea, Syria and the Crimea region of Ukraine from downloading NewTek’s products.

OFAC also pointed to several aggravating factors, saying the company “demonstrated reckless disregard” for U.S. sanctions by “specifically authorizing distribution” of its products in Iran. The agency also said the company, including its four-member executive board, had “actual knowledge of the conduct leading” to the violations. The sales also caused “harm” to U.S. sanctions objectives, OFAC said.

The case should remind companies that sales to third-party distributors “with knowledge or reason to know that such goods are intended specifically for Iran” can lead to sanction violations, OFAC said. The agency also said relying on “informal sanctions compliance measures” or the “understanding of an individual in a managerial or supervisory role” may not be enough to manage compliance risks. Companies should make sure they have written compliance policies and measures and train their employees on sanctions, OFAC said. NewTek didn’t comment.