OFAC Settles and the DOJ Declines to Prosecute in Sanctions Case

This week OFAC, the financial intelligence and enforcement agency of the US Treasury, announced (click here) a settlement agreement against Houston-based Unicat Catalyst Technologies LLC, a company that sells and consults on catalyst products used in petrochemical refinery and steel mill operations, for sanctions violations involving Iran and Venezuela.

The company was fined heavily in a civil liability settlement. Related to this case is this announcement by the US Department of Justice (DOJ) declining to prosecute White Deer Management LLC, a private equity (PE) firm that acquired Unicat in 2020. Shortly after the acquisition White Deer uncovered the sanctions misconduct and quickly self-reported it to the authorities.

It is noteworthy that the DOJ’s National Security Division (NSD) was involved in the case and that its enforcement policy was applied in reaching the declination decision. The Department of Commerce’s Bureau of Industry and Security (BIS) also penalised the firm in parallel to OFAC and the DOJ but at the time of publishing, the case documents were not available.

Salient aspects of the OFAC case against Unicat are summarised below:

• The violations were committed between 2016 and 2021, and involved the company's former CEO and former employees knowingly supplying catalyst products and consulting services to sanctioned Iranian customers, and the selling of goods to a sanctioned Venezuelan state-owned entity;
• Since at least October 2016, Unicat sourced most of its catalyst products from Chinese manufacturers through a supplier with operations in both China and the US;
• Orders were either received at Unicat’s headquarters in Texas or via a Netherlands-based affiliate majority-owned by Unicat. The supplier managed procurement from China and typically arranged for direct shipment to customers worldwide;
• Occasionally the supplier shipped products to the US or the Netherlands for onward delivery, but only a small number of orders were fulfilled directly from the US;
• In 2018, the supplier incorporated a company under the Unicat name in the city of Dalian in China to support Unicat’s logistics. The same distribution model was used to supply catalyst products to Iranian customers.

Concealed Sales to Iran

• The Enforcement Release notes that the Former CEO had explicit awareness of US sanctions on Iran since at least 2015 and had acknowledged these in internal written correspondence – despite this he still directed sales to Iran;
• In 2016 and in 2020, Unicat entered into agreements with a distributor operating in the United Arab Emirates (UAE) and Iran, with the aim of facilitating sales of Unicat products to Iranian end-users;
• Sales to Iran were routed through the Dutch affiliate and the China Office which enabled the avoidance of direct US-entity involvement;
• Internal communications showed a supply chain manager raising compliance concerns - these were dismissed by the former CEO and he instead advised that the orders be handled by the Dutch entity, and the goods be shipped via China as a clear circumvention measure;
• Unicat also delivered technical consulting services to Iranian customers, including site visits by Dutch affiliate employees, to supervise catalyst use and reactor loading - these services were intentionally paid for in cash to avoid traceability back to the US business;
• Internal emails also show efforts to circumvent formal banking channels, with instructions to avoid transferring money due to the inability to make payments from the US to Iran;
• By late 2018, Unicat’s Board and senior leadership were aware of the Iranian dealings but failed to act - Board meeting agendas explicitly referred to Iran-related business as a discussion point;
• Employees continued to evasively refer to Iran as “I” in emails and avoided references to the country in the subject lines of emails. Employees also discussed who to share, or not share, shipping documents with – indicating a clear awareness of sanctions;
• There were internal warnings to drop such transactions, but sales to Iran persisted until February 2021.

Obscured Dealings with Blocked Venezuelan Entity

• In May 2020, Unicat sold catalyst products to a Venezuelan company (Orinoco Iron S.C.S) owned by the Venezuelan government – a company listed on OFAC’s sanctions list;
• Like the Iran-related arrangements, the transaction involved sourcing from the China Office and shipping directly to Venezuela;
• The former CEO worked with the China Office and an intermediary for Orinoco to use unrelated third-party entities in the transaction, creating layers to obscure Unicat’s involvement;
• To obfuscate tracing, around 37% of the USD $1.37 million payment was received in the form of a credit from the China Office, bypassing standard financial channels.

OFAC Violations

• Violation of 560.204 of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR) - on 10 occasions between October 2016 and February 2021, Unicat exported or sold catalyst products via the UAE or China with knowledge they were destined for Iranian end users. They also provided technical consulting services on the ground in Iran;
• Violation of § 560.208 of the ITSR - on three occasions between July 2018 and February 2020, Unicat facilitated sales through its Dutch affiliate to Iranian entities;
• Violation of § 591.201 of the Venezuela Sanctions Regulations, 31 C.F.R. part 591 (VSR) – on one occasion in May 2020, Unicat sold catalyst products to Orinoco, a sanctioned Venezuelan government-owned entity.

The total commercial value of the violations was USD $2.58 million, and the transactions demonstrated clear patterns of wilful circumvention according to the Enforcement Release.

Penalty Calculations and OFAC Analysis

• The Enforcement Release states that the statutory maximum civil penalty was calculated as USD $8 million;
• OFAC determined that while the violations were egregious, they were also voluntarily self-disclosed – the application of the Economic Sanctions Enforcement Guidelines resulted in a base penalty of USD $4 million (i.e. 50% of the maximum penalty);
• The following factors were considered by OFAC:

• Unicat knowingly violated sanctions, with leadership authorizing transactions and continuing sales despite clear warnings from internal staff and external advisors;
• The Former CEO and other senior management actively facilitated the violations and instructed employees to enable prohibited transactions – the Board was also aware of the activity;
• There was a clear intent to conceal the conduct (email subject obfuscation, accepting cash payments, diverting sales through non-US affiliates);
• The conduct posed material risk to US foreign policy and national security.
• Unicat did not receive a violation or penalty notice from OFAC in the five years preceding the earliest date of the transactions giving rise to the case (assumed to exceed the five-year statute of limitations in place at the time – this changed to 10 years in 2024);
• The company provided timely and full cooperation, including a detailed voluntary self-disclosure, internal investigation, and the “tolling” (i.e. an agreed temporary pause) of the statute of limitations;
• In April 2021, following a merger with a UK-based firm, the new CEO (who fired the former offending CEO) discovered the violations during a site visit and halted all related activity immediately.

• A final penalty of USD $3,882,797 was issued with a somewhat convoluted set of credit compromises with the DOJ and BIS as set out below:

Unicat agreed to pay forfeiture totalling $3,325,052.10, representing the proceeds of its violations of US sanctions and export control laws. In parallel resolutions coordinated between the ..Office of Foreign Assets Control (OFAC), and the..Bureau of Industry and Security (BIS) Office of Export Enforcement (OEE), Unicat agreed to pay $3,882,797 to OFAC for its apparent violations of US sanctions laws, and agreed with OEE to pay a penalty of $391,183 for its violation of US export control laws. OFAC agreed to credit Unicat’s payment of forfeiture pursuant to the NPA against the OFAC penalty, and OEE has agreed to credit Unicat’s payment to OFAC against the OEE penalty.

• Note that a separate administrative resolution with US Customs and Border Protection was also reached where Unicat agreed to pay USD $1,655,189 in underpaid duties, taxes, and fees.

The Enforcement Release contains a useful summary of remedial actions taken by the owners and management of Unicat, as well as several compliance considerations provided by OFAC to aid further learning:

Remedial Actions:

• Immediately stopping the conduct once learning about it;
• Terminating the employment of the Former CEO shortly after discovering the misconduct;
• Engaged legal counsel to file disclosures with the DOJ, OFAC and BIS along with a full independent review;
• Instituted a comprehensive sanctions compliance programme, including:

1. Internal policies and audits to monitor export and sanctions risks;
2. Appointment of global and US trade compliance managers;
3. Regular employee training on export controls and OFAC requirements;
4. Updating contracts with third parties to include clear sanctions compliance clauses;
5. Replacing legacy agreements to ensure all counterparties were held to updated standards;
6. Embedding compliance awareness into the company’s overall culture and governance.

Compliance Considerations:

• The case highlights OFAC’s commitment to aggressive enforcement, particularly in sectors like petrochemicals;
• It highlights the need for risk-based compliance controls tailored to a company’s geographic exposure, customer profile, and industry sector etc;
• A company-wide culture of compliance is essential - senior leadership must not only endorse but visibly uphold adherence to sanctions laws (as opposed to the opposite which prevailed in this case);
• Effective compliance programmes should include:

1. Ongoing employee training and awareness initiatives;
2. Regular audits and risk assessments to test program robustness;
3. Rapid corrective action when red flags or misconduct are discovered;
4. Firms should implement robust governance frameworks that prevent key individuals, regardless of seniority, from overriding or evading internal controls.

The DOJ Declines to Prosecute

The DOJ, led by its National Security Division (NSD), issued this three page declination letter to the PE firm, White Deer, and its affiliates which acquired Unicat in 2020. The DOJ also published this 39-page non-prosecution agreement (NPA) with Unicat. The agreements were made as the former CEO of Unicat pleaded guilty to conspiring to violate US sanctions against Iran and other countries as well as “promotional” money laundering charges. He was fined USD $1,600,000 in August 2024. The DOJ announcement mentions transactions involving Cuba and Syria which were not included in the OFAC case above.

The NSD applied this enforcement policy when reaching its decision not to prosecute. It is instructive that the policy contains voluntary self-disclosures provisions in connection with mergers and acquisitions. These provisions mean that the NSD will not generally seek a guilty plea from the acquiror, and there is a presumption that NSD will decline to prosecute the acquiror, when a company:

1. Completes a lawful bona fide acquisition of another entity;
2. Voluntarily and timely self-discloses to NSD potentially criminal violations of laws affecting US national security committed by the acquired entity;
3. Fully cooperates with NSD’s investigation; and
4. Timely and appropriately remediates the misconduct.

With the above context in mind, on page two of the declination letter the DOJ concluded the following in reaching its declination decision.

• The Unicat acquisition was a lawful bona fide acquisition;
• No pre-existing disclosure obligation required the Unicat acquirors to disclose the misconduct they discovered at Unicat;
• Although the Unicat acquirors made their disclosure to NSD approximately 10 months after the Unicat acquisition closed, the disclosure was still considered timely under the circumstances including:

1. The Unicat acquisition was the first stage of the Unicat acquirors’ two-stage investment strategy to merge Unicat’s operations with those of a later-acquired business, and the disclosure was made to the NSD just three months after the acquisition of the second business acquisition closed, and efforts to integrate the two businesses had begun;
2. Post-acquisition integration efforts were significantly delayed by the COVID-19 pandemic;
3. The Unicat acquirors acted to mitigate the imminent threat of any further national security harm by immediately cancelling a pending transaction with Iran upon learning of the misconduct; and
4. The Unicat acquirors acted promptly to disclose the misconduct to NSD just one month after discovering the misconduct during post-acquisition integration activity, and before obtaining a complete understanding of the nature and full extent of the misconduct.
5. Disclosing all known relevant facts about the misconduct and the individuals involved in the misconduct;
6. Proactively identifying relevant records retained by Unicat employees and agents on personal electronic devices and messaging accounts both inside and outside the US;
7. Proactively and lawfully disclosing relevant foreign-located records in accordance with disclosure restrictions imposed by foreign data privacy laws; and
8. Agreeing to continue to cooperate with any ongoing government investigations and any resulting prosecutions.
9. The Unicat acquirors provided and caused Unicat to provide exceptional and proactive cooperation, including by:

• The Unicat Acquirors timely and appropriately remediated the misconduct in less than one year from the date of its discovery including by terminating culpable employees, disciplining other employees involved in the misconduct;
• They also designed and implemented comprehensive and robust internal controls and compliance programme that had proven effective in practice at identifying and preventing similar potential misconduct.