The Treasury Department’s Office of Financial Assets Control (OFAC) has taken the unprecedented action of adding an individual to their list of Foreign Sanctions Evaders (FSE), while concurrently announcing a settlement with his former employer.
Evren Kayakiran, managing director of the Turkish firm Elsim Electrotechnical Systems AS (Elsim) from 2013 to 2015, has been sanctioned as a Foreign Sanctions Evader for his willful violation of U.S. sanctions on Iran. OFAC also announced that U.S.-based Kollmorgen Corp, which acquired Elsim in 2013, has reached a settlement, and agreed to pay a fine of $13,381—a much smaller sum than the potential $1.5M they could have faced had they not had a strong compliance program in place.
In his role as managing director, Kayakiran forced employees to travel to Iran to service machinery, in direct violation of U.S. sanctions. Employees were threatened with the possibility of losing their jobs should they refuse, and were also instructed to file falsified documents that indicated their travel to Iran was for personal reasons rather than professional. In addition to these flagrant violations of sanction programs, Kayakiran also produced fraudulent reports to Kollmorgen that certified no products or services were being sent to Iran.
Export violations hotline
As part of their acquisition, Kollmorgen put a number of proactive measures in place to ensure compliance with U.S. sanction programs. These measures included a comprehensive review of Elsim’s customer database, informing and educating employees about their compliance requirements, and implementing an ethics hotline for employees to report violations.
Were it not for an internal complaint filed through their new ethics hotline, Kayakiran’s violations may not have been uncovered. As a result of that complaint, the company launched an internal investigation, and identified at least six violations of U.S. sanctions that they reported to the Treasury Department. This is in spite of Kayakiran’s efforts to disrupt the investigation by attempting to delete emails and other references to Iran from Elsim’s records.
A culture of compliance can often save the day
Subsequent to their investigation, Kollmorgen has implemented a number of new compliance measures, including requiring additional levels of approval for any work-related travel, a stronger compliance education program that includes in-person training, and making it clear to their major Turkish customers that Elsim can no longer provide goods or services to Iran.
This case highlights the importance of implementing a strong culture of compliance when acquiring a new business, and making sure everyone is onboard. Despite Kollmorgen’s efforts, the actions of a single member of management led to multiple violations. However, due to mitigating factors, such as their history of compliance, their cooperation in the investigation, and their “extensive preventative and remedial conduct,” Kollmorgen was able to minimize the impact of the penalty, which could have reached $1.5M. Kayakiran, however, is now barred from participating in transactions related to “any goods, services, or technology in or intended for the United States, or. . .provided by or to U.S. persons.”