Thai Company to Pay $20 Million to Settle Iran Sanctions Violations

A now-defunct Thai trading company will pay $20 million to settle charges that it violated Iran sanctions by selling high density polyethylene resin made in Iran to East Asian customers in U.S. dollars, the Office of Foreign Assets Control said April 19 in an enforcement release.

OFAC said SCG Plastics “caused U.S. financial institutions to process $291 million in wire transfers” for the Iranian-origin HDPE, which was manufactured in a joint venture between SCG Plastics’ parent company and the National Petrochemical Company of Iran, “an entity that is part of the Government of Iran.” It also “initiated U.S. dollar wire transfer transactions on behalf of this Iranian-based joint venture to pay the joint venture’s outstanding debts to third-party vendors.”

SCG Plastics ”transferred all of its assets and existing liabilities to Thai Polyethylene Co.,” an affiliated company, in January 2022. Thai Polyethylene “has also entered into an independent agreement with OFAC to maintain U.S. sanctions compliance commitments for five years.”

Per the terms of the agreement, OFAC agreed "to release and forever discharge SCG Plastics, without any finding of fault, from any and all civil liability in connection with the Apparent Violations arising under the legal authorities that OF AC administers."

“This enforcement action demonstrates OFAC’s intent to impose significant penalties on non-U.S. companies that obfuscate the involvement of sanctioned persons or jurisdictions in shipping or payment documentation so that U.S. financial institutions process those financial transactions,” OFAC said.

According to OFAC, SCG Plastics “was a trading company that purchased, marketed, and sold plastic resin products manufactured by affiliates of SCG Chemicals,” including the Iranian joint venture Mehr Petrochemical Company.

“To receive payment for the Iranian-origin HDPE that it sold, SCG Plastics regularly issued invoices to its customers that instructed them to remit U.S. dollar-denominated payments into SCG Plastics’ bank accounts in Thailand,” OFAC said. “These U.S. dollar-denominated payments were processed by U.S. financial institutions acting in their capacity as correspondent banks.”

OFAC said SCG Plastics hid the Iranian origin of the HDPE, “thereby evading detection by U.S. correspondent banks that processed these transactions.”

SCG Plastics issued shipping and payment documents that “listed variants of the term ‘Middle East’ as the country of origin,” rather than Iran. Export pro forma invoices issued by SCG Plastics to its customers listed the loading port as “any port in the Middle East” or Jebel Ali, a port in the United Arab Emirates, rather than the actual Iranian loading port. Final commercial invoices sent to customers omitted “the Iranian nexus” by listing shipments as being from Jebel Ali, and entering “Middle East” as the country of origin.

“SCG Plastics also transshipped the Iranian-origin HDPE it resold to its customers through the UAE,” OFAC said. “Once the cargo arrived in the UAE, under direction from SCG Plastics, SCG Plastics’ shipping agent issued an ocean bill of lading and corresponding shipping documents indicating Jebel Ali, UAE as the port of loading for the HDPE instead of Iran.”

According to the settlement agreement, “an informal ‘Working Team’ comprised of SCG Plastics' sales, customer service, freight, finance, and accounting personnel oversaw these processes.”

Also, on “at least” 10 occasions, SCG Plastics “paid debts owed by Mehr in U.S. dollars to Mehr’s third-party vendors in exchange for HDPE produced by Mehr,” OFAC said. “In doing so, SCG enabled Mehr to access the international financial system and engage in commercial trade by not providing accurate information to the financial institutions involved in the transactions that would have indicated that the payments were on behalf of Mehr, an Iranian entity.”

Payment instructions for these transactions from SCG Plastics “misleadingly stated the payments were for ‘payment for goods,’ even though SCG Plastics had not purchased goods from these vendors,” OFAC said. Mehr instructed SCG Plastics to “pay to bank accounts held under other non-Iranian companies’ names in countries other than Iran, further obfuscating Iranian parties’ roles in these transactions and aiding Iran’s furtive attempts to engage in trade intermediated by U.S. financial institutions,” it said.

In all, OFAC found 467 apparent violations of the Iran Transactions and Sanctions Regulations. SCG Plastics only voluntary self-disclosed the 10 of those related to the payment of debts to third parties. “OFAC determined that all 467 Apparent Violations constitute egregious violations,” it said. OFAC said the statutory maximum penalty for these violations is $600,399,124.

“The settlement amount of $20,000,000 reflects OFAC’s consideration of the General Factors under the Enforcement Guidelines” and Thai Polyethylene Co.’s “agreement to implement U.S. sanctions compliance commitments for five years.”

Among the aggravating factors in the case were that SCG Plastics “willfully engaged in a persistent, multi-year pattern of conduct to conceal the fact that the HDPE that it sold was of Iranian origin, thus demonstrating an intent to evade detection by financial institutions processing the transactions and avoid measures these institutions would likely have taken to comply with U.S. law,” OFAC said.

SCG Plastics “caused significant harm to the policy objectives of OFAC sanctions on Iran” by “conferring significant economic benefits to Mehr,” a partially state-owned Iranian firm in a sector that is a major source of revenue generation for the country. And SCG was “commercially sophisticated” at the time of the violations, and the violations generated “a significant amount of SCG Plastics’ total revenue.”

Mitigating factors included that OFAC hadn’t issued a penalty notice or found violations at SCG Plastics in the five years prior to the earliest violations, and that SCG Plastics “provided substantial cooperation to OFAC, including by conducting an independent internal investigation, responding promptly to OFAC’s requests for information, providing large volumes of data regarding the Apparent Violations, and entering into tolling agreements with OFAC.”

SCG Plastics also will “not engage in further business activities after the execution of the settlement agreement with OFAC except those necessary to implement the settlement and its liquidation,” OFAC said.

OFAC also considered that Thai Polyethylene Co., which purchased all of SCG Plastics’ assets, “implemented multiple remedial measures to respond to the Apparent Violations, including adopting a sanctions compliance policy.” Among the actions already implemented by Thai Polyethylene Co. are the creation of “a risk-based U.S. sanctions compliance policy tailored to the company,” as well as the creation of and hiring for a new sanctions compliance officer position "that will permanently remain within the corporate structure,” new “sanctions screening policies” and “regular compliance training sessions for employees.”

The case “highlights the risks and potential costs that non-U.S. companies are exposed to when using the U.S. financial system for transactions that may involve U.S. sanctioned persons or jurisdictions,” OFAC said. “Commercial activity that might not otherwise violate OFAC regulations -- such as the sale of non-U.S. goods by a non-U.S. person to an entity in an OFAC-sanctioned country -- can nonetheless result in a violation when the financial transactions related to that activity are processed through or involve U.S. financial institutions. ...”

“Accordingly, non-U.S. companies engaging in transactions involving U.S. persons are well served by implementing a risk-based sanctions compliance program,” OFAC said. “Such a compliance program should include risk assessments to identify business partners or activities that pose potential sanctions-related risks. Such a compliance program should also implement effective risk-based internal controls to identify, interdict, escalate, and prevent violations of OFAC-administered sanctions.”