Doing the right thing is always the right thing to do

The US sanctions regulator, OFAC, recently issued a press release relating to a settlement in a sanctions case involving the activities of a UK company (Anite) acquired by a US company (Keysight). While the settlement is not particularly remarkable from the point of view of a US sanctions practitioner, for practitioners and businesses outside the US it is a timely reminder that:

• First, US jurisdiction attaches to many seemingly “non-US” transactions, and can and is being enforced by the US;
• Second, if you are subject to US jurisdiction, it is not a good idea at all to act as if you are not, or tell head office that you are complying with US rules when you are not;
• Third, even when things look bad, cooperating with investigating authorities is always the right thing to do, and disclosing breaches voluntarily is usually the best course of action.

Keysight, a US company, acquired Anite plc in August 2015. Through its Finnish subsidiary, Anite Finland Oy, Anite had been trading in Iran. Keysight’s pre-acquisition due diligence and risk assessments identified that Anite had conducted business with certain sanctioned countries, including Iran. Prior to its acquisition by Keysight, Anite committed to cease all existing and future business with such countries.

Thinking they were fooling head office, the three employees then engaged in clear and obvious attempts to conceal these sales by:

• omitting the word "Iran" in key correspondence; and

• changing "Iran" to "UAE" in other cases.

In a model of brevity, OFAC then notes:

Looking at the learnings, Keysight and its advisers had clearly identified, prior to purchase, the risks that Keysight would be running under US law if companies in the Keysight group sold into Iran. Keysight had also taken steps (e.g. compliance programmes and training) to ensure that former Anite companies and employees not only understood their obligations under US law, but had also specifically discussed possible Iranian sales with senior Anite employees. However, the senior employees had specifically ignored those instructions and appeared to have persuaded other Anite colleagues to go along with sales to Iran. The senior Anite employees lost their jobs as a result, and it would be interesting to know what counsel for the employees told them about the risks of visiting the US in the future.

As to the approach of Keysight, this was built around a voluntary disclosure. This is a tried and tested method under US and UK trade law, and is intended to put the company in a better position than if it did nothing and simply waited to see whether the breach was ever discovered. Looking at the penalty, OFAC noted that the maximum civil penalty was around US$2 million, but, due to the voluntary disclosure, the base civil penalty was reduced to half of that. OFAC then looked at aggravating and mitigating circumstances and, in imposing a penalty of less than US$500,000, noted:

It is also important to note OFAC's comments on successful post-acquisition integration. OFAC stated:

The intriguing phrase is “appropriately integrating newly acquired foreign subsidiaries”.  From a practitioner’s point of view, it would be helpful to understand whether OFAC felt that Keysight had indeed “appropriately” integrated Anite. On the one hand, Keysight appeared to have done what OFAC suggested, but on the other, the three employees still engaged in serious and knowing violations. Given the reduction in the fine, it appears that OFAC deemed Keysight’s efforts to have been appropriate.