Earlier this year, Ameron International, now a subsidiary of National Oilwell Varco (as of 2011), agreed to a settlement with OFAC for violations of the CACR (Cuban Assets Control Regulations) and the ITSR (Iranian Transactions and Sanctions Regulations). The enforcement action release noted that the violating conduct was between 2005 and 2006.
Or was it? Erich Ferrari of Ferrari & Associates told me, via Twitter, to dig further. So, I dug a little bit, and turned up more disturbing details.
Let's start with Kenneth Katzman's report for the Congressional Research Service in April of this year, that states:
Some subsidiaries of U.S. energy equipment and energy-related shipping firms were in the Iranian market as late as 2010, according to their “10-K” filings with the Securities and Exchange Commission. However, most such energy sector- related sales to Iran are now sanctionable and these companies have most likely exited the Iranian market. Those still in the Iran market as of 2010 included…Ameron International Corporation
One should reasonably assume that the Iranian office was idle for 2007 through 2010.
Ameron has also had run-ins with the SEC (Securities and Exchange Commission), which United Against Nuclear Iran has excerpted in part. The page notes that OFAC first asked for information from Ameron back in 2008, the fact that the goods in question were fiberglass pipe, and this evidence of apparently violating conduct after the 2005-6 timeframe:
In addition, certain foreign subsidiaries included within the Current Consolidated Group had limited sales from current operations into Iran during 2008 – Two foreign subsidiaries included within the Current Consolidated Group (Ameron (Pte) Ltd. (“PTE”), a wholly-owned subsidiary of the Company located in Singapore and Ameron Malaysia Sdn. BHn. (“AM”), a wholly-owned subsidiary of PTE located in Malaysia, reported combined direct sales from current operations of $342,826.76, and no indirect sales, into Iran during the 2009 Comment Letter Period.
The Company has also recently received information that Bondstrand Ltd. (a foreign company of which the Company indirectly – through a wholly-owned foreign subsidiary – owns 40%) had sales of approximately $13,936.98 of adhesive to an Iranian company.” (CORRESP for AMERON INTERNATIONAL CORP, 9.14.2009)
Even if one discounts the Bondstrand sales since there is not majority ownership (although Mr. Watchlist would argue that there is certainly significant benefit to Ameron from the relationship and significant input, if not control, of the company), the Singaporean and Malaysian operations have, at best, business operations requiring further review.
Perhaps most damning is the September 14, 2009 letter from James R, McLaughlin, the Senior Vice President, CFO and Treasurer of the firm, to the SEC.
1. We note your disclosure on pages 28 and 57 that OFAC requested information regarding transactions involving Iran. Please describe to us the transactions the request relates to, including whether they were transactions by you, your subsidiaries, joint venture, joint venture partners or other entities.
RESPONSE:
As disclosed on pages 28 and 57 of our Form 10-K for the fiscal year ended November 30, 2008 (the “2008 Form 10-K”), the Office of Foreign Assets Control (“OFAC”) sent to the Company a Requirement To Furnish Information regarding transactions involving Iran. OFAC did not identify any specific transactions in its letter. Rather, OFAC directed the Company to provide the following information regarding transactions in or with Iran: (i) whether the Company has exported any goods to Iran (directly or indirectly) since December 1, 2003, (ii) whether any foreign branch or subsidiary of the Company has exported or reexported goods from the United States to Iran (directly or indirectly) since December 1, 2003 and (iii) information regarding any U.S. person’s involvement in transactions involving Iran, including, but not limited to, servicing, consulting, assisting, managing, purchasing, selling, transporting, swapping, brokering, approving, dealing, financing, facilitating, or guaranteeing in any manner; facilitating payments through U.S. bank accounts; or exercising managerial control over operations in Iran.
We have finalized our inquiry and are delivering the findings of the inquiry to OFAC at the same time as the filing of this response letter. Certain information obtained through the inquiry is included in response to question 3 below. Following the inquiry, the Company adopted a policy that prohibits it and its subsidiaries from accepting any new business in or with Iran, North Korea, Sudan or Syria, and that memorializes the current prohibition on the Company or any of its subsidiaries engaging in any business in Cuba or with Cuban customers.
Which strongly implies that business was being conducted with or, at the very least, there were no controls to prevent business with, four countries which have fairly comprehensive sanctions which would prohibit sales of Ameron's products to them.
2. We note that the free CD-Rom Dualoy Fuelhandling order form on your website, listing contact information for Ameron B.V. in the Netherlands, includes a country dropdown menu that includes Cuba, Iran, Syria and Sudan. Each of these countries is identified by the State Department as a state sponsor of terrorism, and is subject to U.S. economic sanctions and export controls. Please tell us whether you provide the CD-Roms, containing your product catalog, to persons in these countries, and whether you sell into the countries.
RESPONSE:
Although we have not discovered any evidence that the Company or any of its subsidiaries directly distributed any of the Dualoy CD-Roms in Iran, we have discovered evidence that a copy of the CD-ROM may have been provided to an unaffiliated Iranian sales agent by an UAE subsidiary of the Company. We found no evidence that the Company or any of its subsidiaries provided the Dualoy CD-Rom to any person in Cuba, Syria or Sudan. The software program for online ordering had a prepackaged dropdown menu which listed every country in the world. We have replaced this with a regional dropdown menu (North America, Asia and Middle East, Europe (including Africa and CIS), and South America). As noted earlier, the Company has adopted a policy that prohibits it and its subsidiaries from accepting any new business in or with, among other countries, Iran.
Again, another issue of controls – why were those countries listed on their website in the first place (they blame the supplier of the software). And the response? Changing the drop-down to regional values not only abdicates resposibility for one's business operations, but does not actually prevent sales to the sanctioned countries (it just puts the responsibility on procedure and process controls). And, even if you accept that the prepackaged set of countries included sanctioned ones, where were the internal controls to flag these countries before goods went out the door?
and lastly, and perhaps most damaging:
3. In addition, we note a job posting website that includes an Ameron subsidiary employee resume detailing positions held thru “Present” that include providing Ameron services and products in Syria and Iran, and another job posting website that advertises a job selling Ameron high performance coatings in Iran. Please describe to us any direct and indirect contacts with Cuba, Iran, Syria and Sudan since your letters to us of May 21, 2008 and June 26, 2008, including contacts through subsidiaries, joint ventures, distributors, or other indirect arrangements.
RESPONSE:
As indicated in response to Question 2 above, the Company did not have any sales from current operations into Cuba, Iran, Syria or Sudan during the Reviewed Period. Also as described in response to Question 2 above, certain of the Company’s foreign subsidiaries within the Current Consolidated Group have had sales from current operations into (and therefore contacts with) Iran and Sudan during the Reviewed Period, and a foreign branch of one of the Company’s domestic subsidiaries within the Current Consolidated Group had sales from current operations to (and therefore contact with) a branch or subsidiary of a Cuban company during the Reviewed Period. In addition, although neither the Company nor any of the Company’s foreign subsidiaries within the Current Consolidated Group has had sales from current operations into Syria during the Reviewed Period, certain of the Company’s foreign subsidiaries have had limited contacts in Syria that did not lead to sales during the Reviewed Period.
The Company has also recently received information that Bondstrand Ltd. had sales of approximately $13,936.98 of adhesive to an Iranian company. Bondstrand Ltd. informed the Company that there was no involvement by the Company, or any of the Company’s domestic subsidiaries, or any employee, executive or director of the Company or any of the Company’s domestic subsidiaries, in this transaction. As noted above, the Company does not control the activities of Bondstrand Ltd.
In connection with the Company’s internal inquiry regarding OFAC’s Requirement to Furnish Information described above, the Company is reporting to OFAC certain limited contacts that Company employees had during the Reviewed Period with individuals involved with Iranian companies such as (1) employees of the Company forwarding to its foreign subsidiaries inbound email inquiries regarding Iranian companies, (2) a lunch meeting that a Company employee attended with an employee of an Iranian-based company that is a sales agent to PTE in Iran, (3) an unsuccessful quote by the Company to a Canadian company that was a potential contractor for a project in Iran and (4) receipt by employees of the Company of requests from a foreign subsidiary for approval of unsuccessful bids on a project in Iran (although we did not find evidence that the approval was ever granted). The Company is not aware of any direct or indirect sales that have resulted from these contacts.
In addition, the Company is reporting to OFAC certain situations where Company employees took actions that indirectly related to the Company’s foreign subsidiaries’ business in Iran, two examples of which include (1) the opening of a bank account in Dubai used by the Company’s foreign subsidiaries to conduct business in Iran, and (2) product testing in support of a foreign subsidiary’s unsuccessful bid on a project in Iran. There was no evidence discovered in the inquiry indicating that the Company executives who signed the corporate resolution authorizing the bank account or signed account opening documents knew that the purpose of the bank account was specifically to assist a foreign subsidiary’s business in Iran, or that the Company employees involved in the product testing knew that the testing was in support of a bid in Iran.
The Company is also reporting to OFAC one realized transaction during the 2008 Comment Letter Period involving Iran in which the Company’s management was asked to approve certain capital expenditures requested by PTE and Ameron B.V. (“BV”), a wholly-owned subsidiary of the Company located in the Netherlands. The expenditures were for equipment of general usage, but were requested by PTE and BV to support ongoing demand for a contract involving Iran that PTE had previously obtained without the involvement of the Company or any of its domestic subsidiaries.
During the course of the inquiry the Company also discovered that PTE reexported some commonly used U.S.-origin pipe-related tools, fittings and accessories to Iran and Sudan during the Reviewed Period. However, none of these goods was sourced from or reexported by the Company or any of its domestic subsidiaries. We believe that all of these goods should be classified by OFAC as EAR99 and, therefore, that the reexports of such goods were authorized by 31 C.F.R. § 538.507(b).
Would a resume list Iran and Syria as places where business was conducted, if it wasn't? And the job listing… don't get me started.
Another important point highlighted by these policy, procedures and controls failures needs to be made: it's not about actually doing the business. If you seek out the business, make a quote, have meetings with people you shouldn't – that's violating conduct. Sure, there is nothing to seize, but it's still a violation. If you make an offer to do business, it doesn't really matter if it actually concludes.That's why banks can't make foreign exchange trades or agree to letters of credit involving sanctioned entities – it doesn't have to get to the actual sending or receiving of assets. The intent is almost as important as the result – although you'll note that OFAC extends mitigation for deals that don't actually conclude, as the damage to US interests is zero in those cases.
Now, why was the settlement only over the 2005-2006 violations? Three possibilities exist: that the later conduct was non-violating (although Mr. Watchlist doubts that highly), that OFAC will get around to the newer violations (Ameron did agree to a tolling agreement), or that, in order to get the settlement out of the way, and not to damage Ameron's bottom line inordinately, that the later conduct was purposefully omitted.
Something tells me Erich might know more, but that's what I've turned up so far.
Links:
Congressional Research Service report on Iran Sanctions (April 24, 2013)
United Against Nuclear Iran page on Ameron International
September 14, 2009 correspondence to Securities and Exchange Commission
Posted with BlogsyFiled under: Cuba Sanctions, Iranian Sanctions, OFAC Updates, Settlements
