A Turkish national who was designated on Feb. 7, 2019 as an Iran sanctions evader shows how Turkish businesspeople were empowered and emboldened by President Recep Tayyip Erdoğan, who publicly vowed to defeat sanctions on the mullah regime.
Evren Kayakıran, a Turkish businessman, was named by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) as sanction buster in a case that marked the first time OFAC had designated in individual in a civil enforcement action. He was designated for directing the foreign subsidiary of an American company to violate US sanctions against Iran and attempting to conceal those violations, while the company he had worked for was offered a civil settlement.
“Treasury is sanctioning Kayakıran not just for his willful violation of US sanctions on Iran, but also for directing staff to commit and cover up these illegal acts. This is the first time that OFAC has designated an individual as a Foreign Sanctions Evader while resolving an enforcement matter, and is a marked change to how we will counter these acts of deception,” said Sigal Mandelker, treasury under secretary for terrorism and financial intelligence.
“This action is a clear warning that anyone in supervisory or managerial positions who directs staff to provide services, falsify records, commit fraud, or obstruct an investigation into sanctions violations exposes themselves to serious personal risk.”
A Nordic Monitor investigation has found that not only Kayakıran but also his family members have long been involved in trade with Iran. His father Hasan Basri Kayakıran, an electrical engineer, was the brainchild behind Elsim Elektroteknik Sistemler Sanayi ve Ticaret A.Ş., a family-run motion control solutions provider that specialized in manufacturing AC, DC, servo and torque motors as well as generators. He has been pictured with top government officials in Turkey receiving numerous awards.
With his wife, Mücela, Hasan Basri set up the company in 1989 in Istanbul, started manufacturing motors based on a German patent and developed into a successful automation company for OEM firms in Turkey and abroad with his son Evren.
The family sold Elsim in March 2013 to the US Kollmorgen company, a leading provider of integrated automation and drive systems for machine engineers all over the world. But Evren remained in the company as the general manager running daily operations. The trade registry data show that the family had a general assembly meeting at Elsim on Feb. 2, 2013, discussing the transfer of the shares and composition of the new board of directors for the company after it was sold to Kollmorgen.
The meeting was presided over by Evren, who offered letters of resignation for all existing members including his father, who was chairman of the board. Udo Panenka, a German national who was at the time managing director of Kollmorgen Europe GmbH, was elected chairperson on behalf of Dutch company DH Netherlands B.V.; Roman Filip Cink, a Czech national, was named deputy chair; and Evren was elected a member of the board.
The acquisition of Elsim by an American company brought the long arm of US laws and regulations to Turkey, where the firm operated. More specifically, Elsim became subject to the Iranian Transactions and Sanctions Regulations (ITSR), which prohibits foreign entities that are owned or controlled by a US person or entity and established or maintained outside the US from knowingly engaging in any transactions with Iran. According to OFAC, before and after the acquisition, Kollmorgen undertook a wide range of proactive compliance measures designed to ensure that the newly acquired Turkish company complied with US sanctions, including those against Iran.
However, as the saying goes, old habits die hard, and Evren, who had managed the company after the sale until December 2015, continued to clandestinely engage in trade with Iran. He threatened employees with dismissal if they refused to travel to Iran to provide services, and upon returning from the trips, he directed them to falsify corporate records by listing the travel as vacation rather than business. In the meantime, he was informing Kollmorgen that no products or services were being sent to Iran.
However, a whistleblower who worked for him filed an internal complaint with Kollmorgen in October 2015, prompting an investigation by the company into Evren’s conduct. Panicked over exposure, Evren tried to cover his tracks by ordering the destruction of records that mention Iran, attempted to delete emails related to Iran and lied to Kollmorgen attorneys who were sent to investigate the allegations of the whistleblower. His efforts were futile as Kollmorgen completed its own probe and notified OFAC of its findings and voluntarily disclosed information to US investigators.
The Turkish trade registry notifications that were reviewed by Nordic Monitor show Kollmorgen representatives on the board of directors convened an urgent meeting of the general assembly on Dec. 15, 2015 with a single item on the agenda: firing Evren, who was elected to the board for a three-year term on Feb. 26, 2013. Kollmorgen tried to contain the fallout from the illegal trade with Iran and offered its cooperation to OFAC officials.
The dismissal of Evren was registered with Turkish authorities on Dec. 21, 2015. The signature circulars for Evren as well as another Turkish national, Aylin Malkaralı, who had signing authority on C-class shares for the company, were also revoked, preventing them from conducting any transactions on behalf of Elsim. As a result the new board was composed of only two people: Dennis Michael Gallagher (who had previously replaced Panenka to represent the interests of Kollmorgen) and Cink.
On March 16, 2016 Gallagher and Cink convened another general assembly in Istanbul where they reviewed the company records for certification and went over the audits. At the meeting the certification of Evren’s activities as a board member for the years 2013, 2014 and 2015 was rejected in a move to distance Kollmorgen from US sanctions with regard to goods and services provided to Iran. It took two years for OFAC to officially designate Evren under the sanctions regime and announce it publicly, which could be viewed as a shot across the bow for Turkish businesses. The message was clear: If they engage in trade with Iran and evade sanctions and trust the Erdoğan government will provide sanctuary for their activities, they will pay a price and be held accountable.
However, Elsim was not the only company the family owned and operated. On Nov. 17, 2011 Hasan Basri and his family members (Evren, Mücella, Azade and Gözde Kayakıran) established a precision motor manufacturing company, EMF Motor Sanayi Ve Ticaret A.Ş. in Istanbul. It was registered with the authorities on Nov. 25. The company had a distributor in Iran under the name of Paar Sanat Saud Co., located in Pasdaren, Tehran. In interviews given by both Hasan Basri and Evren over the years, Iran was named as an export destination for company products. In fact, Hasan Basri said the company’s Iran distributor had quickly become a market leader in gearless motor products with affiliates in Sweden, Italy, the US and Egypt.
While the family was providing goods and services to Iran, they received high marks from government officials. Former Industry Minister Fikri Işık, who posed for the cameras next to Hasan Basri and praised him, saying that EMF Motor-branded motors were very important for Turkey’s future in expanding technology exports. Perhaps, EMF technology, which was used in all types of products including defense and military equipment, was more important for Iran, a country that Erdoğan called his second home, vowing to thwart US sanctions on Iran.
Although EMF Motor had been expanding since its establishment, it posted a huge loss sustained over the last few years, perhaps after the family was tipped off about the ongoing investigation by the US into Elsim, which had been sold to Kollmorgen. At a general assembly meeting held on Nov. 1, 2018, the family members who had shares in the company decided to downsize and report the huge losses the company had incurred in previous quarters. According to official registry data on the company’s financials as of year-end 2017, EMF posted a loss of TL 3.8 million sustained the previous year. It looked like the family was trying to cut its losses amid moves by OFAC into their business ventures.
As of today, OFAC has only gone after Evren, who was sanctioned as a foreign sanctions evader pursuant to Executive Order 13608, which targets efforts by foreign persons to engage in activities intended to evade US economic and financial sanctions on Iran and Syria. He committed six violations of US sanctions against Iran. The consequences of the designation are dire, not only for Evren but also for family members and EMF Motor, the remaining firm under family control, because all transactions or dealings, whether direct or indirect, involving Evren, in or related to (i) any goods, services, or technology in or intended for the United States, or (ii) any goods, services, or technology provided by or to US persons, wherever located, are prohibited. US financial institutions were required to reject payments involving Evren.
According to both Evren and his father’s accounts in various interviews, the family business has networks, clients and supplies in Europe and the US. The sanctions will potentially cripple the family business as their partners may try to avoid making deals with the family on account of Evren, who still retains shares in EMF Motor. Therefore, not only Evren but also the entire family is now exposed to risk because of Evren’s designation.
In the meantime, Kollmorgen cooperated with US authorities in their investigations and reached a settlement in connection with the US company’s civil liability for Evren’s conduct. According to OFAC, the settlement highlighted the importance of performing heightened due diligence when US persons, directly or indirectly, acquire companies with preexisting relationships with sanctioned persons and jurisdictions. It also identified compliance measures the US company took pre- and post-acquisition of a foreign company and specific remedial actions.