On February 28, 2017, United Medical Instruments, Inc. (UMI), a California corporation, settled its potential civil liability with the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) in the amount of $515,400 for 56 alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). UMI’s settlement will be effective with: (i) its compliance with the terms of its September 24, 2013 Settlement Agreement with the U.S. Department of the Commerce’s Bureau of Industry and Security; and (ii) its payment of $15,400 to the U.S. Department of the Treasury.
OFAC alleged that, from on or about December 5, 2007 to on or about April 30, 2009, UMI violated the ITSR on at least 56 occasions when it made sales of medical imaging equipment with knowledge or reason to know that the goods were intended specifically for supply or re-exportation to buyers located in Iran, and when it facilitated the sales of medical imaging equipment from a company located in the United Arab Emirates to Iran. The total value of the goods associated with these transactions was approximately $2,493,597.
In determining the penalty, OFAC considered the following to be aggravating factors: (i) UMI willfully exported goods from the United States to Iran with actual knowledge and prior notice that such shipments constituted or likely constituted a violation of U.S. law; (ii) UMI had actual knowledge that it required a license to send and/or export its products to Iran, as demonstrated by a November 2003 license application the company submitted to OFAC; and (iii) UMI failed to effectively manage and enforce its compliance program.
OFAC considered the following to be mitigating factors: (i) the alleged violations occurred due to the actions of a single UMI employee rather than a systemic pattern of company-wide conduct; (ii) UMI took remedial action in response to the alleged violations, including by voluntarily ceasing transactions involving Iran and by implementing new procedures and updating its compliance program to prevent the recurrence of similar sanctions violations; (iii) UMI has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the alleged violations; (iv) UMI cooperated with OFAC’s investigation by providing timely responses to OFAC’s correspondence and by entering into multiple statute of limitations tolling agreements; (v) UMI is a small business, as determined by the size standards set forth by the Small Business Administration; and (vi) based on the financial condition of UMI, including significant financial difficulties experienced by the company in recent years, additional mitigation is warranted.
This settlement highlights several items of interest for U.S. life sciences companies:
- OFAC remains very interested in the unlicensed export, and re-export, of pharmaceuticals and medical devices to Iran.
- The United Arab Emirates remains a popular ‘diversion’ point for exports of U.S. pharmaceuticals and medical devices being re-exported to Iran.
- OFAC requires that U.S. exporters exercise diligence in controlling to where distributors and other purchasers may send US pharmaceuticals and medical devices.
- Any company that thinks it may have an export control violation should (i) thoroughly investigate; (ii) update/upgrade its compliance program; and (iii) consider self-reporting to OFAC.
- Extensions of the statute of limitations and cooperation with OFAC remain significant mitigating factors in determining the severity of penalties.
- Small businesses and those with financial difficulties may be able to present those facts as mitigating factors with OFAC when it determines the severity of penalties.
- U.S. life sciences companies should use the licensing process set forth in the Trade Sanctions Reform and Export Enhancement Act of 2000 to obtain required export licenses for the export of U.S. pharmaceuticals and medical devices to Iran.