Our Latest Sanctions Case Study

U.S. authorities have fined a now-defunct Thai company $20 million for covering up its business dealings with an Iranian joint-venture partner in the 2010s, giving us yet another opportunity to consider how companies run afoul of U.S. sanctions laws and what compliance measures you should have in place to avoid that.

The Office of Foreign Assets Control announced the settlement last Friday against SCG Plastics, a business headquartered in Bangkok and winding its way through liquidation proceedings. As described in the OFAC settlement order, SCG manufactured resins in a joint venture with a state-owned business in Iran, Mehr Petrochemical; and then sold those resins to customers throughout East Asia. To get paid for the Iran-produced resins that SCG was selling, SCG scrubbed any mention of Iran from shipping documentation and told customers to deposit their dollar-denominated payments to a bank in Thailand. 

Ultimately that led to $291 million of SCG transactions flowing through the U.S. financial system, into that bank in Thailand, and ultimately back to the Iranian government. That was a violation of U.S. sanctions law, and here we are.

We can break down this enforcement action into several pieces. First is the misconduct that SCG actually undertook: removing any mention of Iran on shipping invoices and other documentation, and typically listing the resin’s country of origin as “Middle East” (which is not its own country) or the United Arab Emirates. The UAE, however, was only a transshipment point; the port of origin was always Assaluyeh, a city in Iran.

Separately, on at least 10 occasions SCG paid off debts in U.S. dollars that Mehr, its Iranian venture partner, owed to other vendors. In exchange, Mehr paid back SCG in resin. So in effect, SCG was abetting Mehr’s access to the global financial system, by hiding the fact that those payments to other vendors were on behalf of an Iranian business.

Aggravating and Mitigating Factors

As always with sanctions cases, the maximum possible penalty under the law was far higher (in this case, $600 million) than what the offending company ultimately paid (in this case, $20 million). Also as usual, OFAC listed various aggravating and mitigating factors so that the rest of us can better understand why OFAC decided on that final $20 million number. 

The aggravating factors:

• SCG willfully engaged in a long-running pattern of conduct to conceal the Iranian origin of its resin products. In other words, SCG knew what it was doing was wrong.
• SCG’s misconduct benefitted a state-owned business in Iran, and even worse, one in the oil industry — an important source of revenue for the Iranian government. 
• SCG was a “commercially sophisticated” business at the time of the misconduct, and generated a considerable amount of its total revenue from the Iranian joint venture.

And the mitigating factors:

• SCG had no previous sanctions trouble with OFAC in the prior five years.
• SCG provided substantial cooperation with OFAC, including by conducting an independent internal investigation, responding promptly to requests for information, and providing large volumes of data about the violations.
• SCG is liquidating as a business, so it’s not like the company will ever violate sanctions law anyway.

That brings us to the successor company to SCG, a business known as Thai Polyethylene Ltd., which agreed to implement a suite of compliance reforms for the next five years as part of the settlement with OFAC. What Thai Polyethylene has agreed to do:

• After “extensive collaboration” with outside counsel, create and adopt a risk-based U.S. sanctions compliance policy;
• Hire a new sanctions compliance officer position who will permanently remain within the corporate structure;
• Implement sanctions screening policies and procedures;
• Host regular compliance training sessions for employees across business divisions to review U.S. sanctions obligations;
• Undertake regular audits of sanctions compliance procedures.

Of course, if Thai Polyethylene has agreed to adopt all these measures now, that suggests that SCG didn’t have such sanctions compliance measures before — or at least, didn’t have them to any real, effective degree. Hence the rather serious and long-running nature of the misconduct and OFAC deciding that the offenses qualified as egregious.

Sanctions Lessons for the Rest of Us

We should note that SCG’s misconduct is a snapshot in time. The violations happened in the 2010s, when sanctions against Iran were not nearly as widely understood or strictly enforced as they are today. So there are only so many lessons that modern sanctions compliance teams — especially at global companies, clearly aware of how seriously the U.S. enforces this stuff — can draw. 

That said, a few points are worth noting. 

First, as OFAC has stressed since it first published guidelines on sanctions compliance programs back in 2019, companies should always strive to cooperate as much as possible. That means voluntary self-disclosure, cooperation during the investigation, and a commitment to remedial compliance measures as necessary. SCG didn’t win any credit for voluntary self-disclosure here, and one wonders how much more money the company might have saved had it done so.

Second, if you want to avoid sanctions compliance risk, you need to have, ya know, an actual sanctions compliance program. That means hiring a sanctions compliance officer (not just assigning sanctions risk to your existing compliance program if you have any considerable amount of global trade), and following up with sanctions-specific policies and procedures. 

I’m glad to see Thai Polyethylene will carry that torch from here forward, but it seems that SCG never did much to carry said torch prior to cutting ties with Iran in 2018. (That’s when the Trump Administration first began piling on the sanctions pressure with Iran. More than one company is now settling cases of Iran violations that happened in earlier in the decade, and then the company cut ties and came clean in the late 2010s.) 

Along similar lines, I wonder whether we’ll see more sanctions cases in the mid-2020s involving Russia and Belarus, from companies that had taken sanctions compliance with those two countries only kinda sorta seriously until Russia invaded Ukraine in 2022. 

You businesses fitting that misconduct profile know who you are. It would be wise to take your cues from companies that are trying to extricate themselves from Iran sanctions headaches now: self-disclose, cooperate, and get serious about your sanctions policies and procedures. The payoff will be worth it come 2026 or so.