Before acquiring a Chinese power tool company, Stanley Black & Decker Inc. took several steps to discourage the business from continuing to export its products to Iran, including training employees about the Foreign Corrupt Practices Act and sanctions violations.

But Stanley Black & Decker's efforts were ultimately insufficient, according to the Treasury Department and its Office of Foreign Assets Control, which has reached a $1.8 million settlement with the New Britain, Connecticut-based tool company.

The Stanley Black & Decker case is similar to another recent settlement involving the Kollmorgen Corp. in Radford, Virginia, as both actions show OFAC “trying to drive home the message that deceptive practices involving a foreign subsidiary will not shield the U.S. parent company from potential liability for that subsidiary's actions,” said Michael Dobson, former senior sanctions policy adviser for the Office of Foreign Assets Control.

“The OFAC catchphrase these days is better compliance through enforcement,” added Dobson, who serves as of counsel at Morrison & Foerster in Washington, D.C.

OFAC found that Stanley Black & Decker gave trade compliance training to employees at China-based Jiangsu Guoqiang Tools Co. Ltd. ahead of its May 2013 acquisition of the company. Jiangsu's senior management also agreed in writing that they would stop doing business with Iran.

But Stanley Black & Decker failed to “implement procedures to monitor or audit [Jiangsu's] operations to ensure that its Iran-related sales did not recur post-acquisition,” according to OFAC.

Operating with an apparent lack of oversight from its new U.S.-based parent company, Jiangsu allegedly exported 23 shipments of power tools and spare parts with a total value of more than $3.2 million to Iran between June 29, 2013 and Dec. 30, 2014.

Jiangsu used four trading companies in the United Arab Emirates and two more in China as conduits for the sales to Iran in an attempt to hide its activities, according to the government. Jiangsu's employees also allegedly created bogus bills of lading that identified the wrong ports of discharges and delivery locations and told customers to avoid writing “Iran” on business documents.

Stanley Black & Decker eventually uncovered the misconduct through an internal investigation and self-disclosed the alleged violations, according to its settlement agreement with OFAC. The agreement notes that the company faced a maximum civil penalty of nearly $7 million.

In addition to paying a $1,869,144 settlement, Stanley Black & Decker also has agreed to conduct regular risk assessments and audits and provide ongoing sanctions compliance training to Jiangsu employees. 

A spokeswoman for Stanley Black & Decker wrote in an email that the company is “committed to a culture of integrity and compliance.”  

“In 2015, upon learning that employees at a recently acquired company had disregarded our training and violated our trade compliance policies and procedures, we took quick action to remediate and also submitted a voluntary self-disclosure to OFAC,” she added. “We have taken and will continue to take steps to ensure all employees are compliant with corporate policies and applicable laws.”

The Treasury Department stated the Stanley Black & Decker case “highlights the importance of U.S. companies to conduct sanctions-related due diligence both prior and subsequent to mergers and acquisitions, and to take appropriate steps to audit, monitor and verify newly acquired subsidiaries and affiliates for OFAC compliance.”

Read More: