I generally don’t comment on individual sanctions violations cases. If you look at many of the OFAC settlements and enforcement actions during the past few years, they feature some similar compliance failures - failure to use IP addresses for compliance purposes, failure to understand to whom US sanctions apply, and failure to self disclose.
European oil company Eni SpA is a little different. The company says it inadvertently violated US sanctions by purchasing a consignment of Iranian oil because an employee, who was subsequently fired for the transaction, allegedly deliberately omitted test results on the crude that suggested the oil’s origin was unclear.
After a lab performed tests that determined the crude did not match the Iraqi-grade oil Eni was expecting, the company had to return 700,000 barrels of the stuff and ended up firing the manager of oil trading operations, Francesca Delladio, (and her boss, Alessandro Des Dorides, although Eni claims the termination was for a separate matter), for her part in the incident, including missing several red flags and trying to hide anomalous test results that indicated the oil came from Iran.
Eni’s lab in Milan performs tests on the produce prior to unloading, and Eni was pretty lucky this particular control caught the sketchy shipment and rejected the load. Delladio claims she is being scapegoated and has sued Eni for firing her unfairly claiming that the head of oil trading, Francesco Galdenzi, who also reported to Des Dorides, was responsible for the transaction.
Galdenzi told Eni’s internal auditors that the price for the oil was “very good,” and authorized a more than $48 million payment, even though the lab’s analysis showed that the crude did not match the quality of Iraq’s Basrah Light oil—a fact of which Galdenzi should have been aware. So, it certainly seems that Galdenzi authorized the transaction, knowing the crude was suspicious, because the price was right.
Another red flag, according to the lawsuit filed by Delladio, is that the crude was transferred from the ship, New Prosperity, to the White Moon. That transfer happened before Eni received and approved the organic chloride test result from its laboratory, which is the usual procedure. Before that, another ship-to-ship (STS) transfer occurred from a tanker called The Abyss. Several STS transfers should have been a bright, red flag, but somehow, the shipment just kept rolling.
Interestingly, Reuters reports on another red flag that should have caught the attention of those involved and alerted them to the suspicious nature of the shipment.
The Abyss makes regular voyages through the Mideast Gulf with its transponder switched off for days at a time, according to Refinitiv Eikon ship tracking. The transponder was switched off between April 24 and May 3 when it transferred oil to the New Prosperity. For safety reasons, it is unusual for ships to turn off their tracking systems.
Once the lab forwarded to Delladio and Des Dorides the results that showed unusually high American Petroleum Index Grade (API) density levels of the crude, neither one reported the anomaly to the company. Subsequent telephone call transcripts between the two clearly showed a conspiracy to omit the anomalous result. Galdenzi by the time he authorized the payment, had all the pertinent test results, including the anomaly, and let the transaction go through anyway.
Galdenzi was also aware of several anomalous transactions, according to court documents.
He was asked to explain the circumstances of the Transaction. He said that the price for the Crude was “very good”. He referred to it as “an unusual operation, a ship-to-ship transfer” (STS). On 23 March 2019 he said that he had asked the Claimant to carry out extra documentary checks with the Livorno, Taranto and Milazzo customs authorities to ensure that the documents (Bill of Lading, Certificate of Origin and Chamber of Commerce Certificate) were in order. Since the Transaction involved a new counterparty, he wanted to proceed more cautiously to obtain further confirmation. Unusually payment for the Crude was in euros rather than the customary dollars. He said that Mr Des Dorides had been very determined to close the Transaction and was very pushy.
SO many red flags, so little time.
It’s not like OFAC hadn’t warned the shipping community about STS being used as a sanctions evasion technique several times. It’s not like avoiding the use of the US dollar by using another currency is not a well-known sanctions evasion technique. At the very least, the transaction in euros instead of the usual US dollars should have raised alarms. And the documents that claimed the oil was Iraqi that were incongruous with the chemical test results should have been a clue.
And as they say, if the deal looks too good to be true, it most likely is. The “very good” price for the crude mentioned above should have been a red flag in and of itself.
This case is a bit more complicated than your normal sanctions violation, especially given the chemical tests that showed the origin of the crude to have been inconclusive and the various trading companies and STS transfers involved in the transaction, including small Italian trading firm, Napag, and the trading arm of Nigeria’s Oando PLC, which refused to name its supplier to whom it sent the cargo after it was rejected.
Eni, after denying that Des Dorides was fired for the Iran shipment fiasco, then proceeded to sue him for fraud. Eni accused Des Dorides of misleading all parties to the deal and hiding the role of Napag in the transaction. Interestingly, the reason Eni gave for Des Dorides’ termination was for an “unrelated petrochemical deal with Napag in 2018.”
There’s a reason why US regulators repeatedly highlight red flags that may indicate sanctions evasion techniques. They were present aplenty in this particuar case, and those involved either did not pay attention or did not care.