By Mengqi Sun

Berkshire Hathaway Inc. has agreed to pay roughly $4.1 million to settle allegations that a Turkish subsidiary violated U.S. sanctions on Iran.

The U.S. Treasury Department on Tuesday alleged that Berkshire's indirect subsidiary -- Iscar Kesici Takim Ticareti ve Imalati Limited Sirket -- sold cutting tools and related inserts to two third-party Turkish distributors between 2012 and 2016, knowing that the goods would be shipped to a distributor in Iran for resale to end-users there.

Several of those recipients were identified later as Iranian government entities, according to the civil settlement agreement between Berkshire and the Treasury's Office of Foreign Assets Control. Federal regulations prohibit any U.S. companies and their foreign subsidiaries from dealing with the government of Iran and its entities.

Iscar Turkey, direct subsidiary of Berkshire's IMC International Metalworking Companies B.V., completed 144 orders of goods worth about $383,000 that were shipped and resold to Iran. OFAC, which administers U.S. trade and economic sanctions, said the company's conduct "represents particularly serious apparent violations of the law calling for a strong enforcement action."

A spokesperson for Berkshire didn't immediately respond to a request for comment.

The settlement amount is small for a company the size of Berkshire, which has a stock market value of about $500 billion. But compliance efforts of such sophisticated multinational companies also can break down. Omaha, Neb.-based Berkshire disclosed the alleged misconduct to OFAC after receiving an anonymous tip about the alleged violations in January 2016, according to the agreement.

The alleged activities began with Iscar Turkey starting a business relationship with an Iranian distributor in 2012, according to the agreement. Iscar Turkey's general manager at the time believed that U.S. and European Union sanctions against Iran would inevitably be lifted and sought to be positioned to sell in that market, according to the settlement.

Certain employees at Iscar Turkey then allegedly took steps to conceal its transactions involving Iran from being detected by Berkshire, despite repeated communications and policies sent by Berkshire and its subsidiaries regarding U.S. sanctions against Iran, according to the agreement.

These employees allegedly used private email addresses to bypass controls and visibility of the company email system, false names in internal records and provided false assurances in response to compliance inquiries. Iscar Turkey also received payments in euros to obfuscate its transactions with Iran, according to the settlement.

The alleged activities were barely detected internally, OFAC said. Employees of other Berkshire subsidiaries, from which Iscar Turkey also purchased goods to fulfill orders destined for Iran, received information in emails that could have revealed that these orders may have been prohibited by corporate policies and procedures, according to the agreement.

Only one Berkshire subsidiary informed Iscar Turkey that such transactions were prohibited, and others didn't, according to the agreement.

OFAC credited Berkshire for its cooperation with the investigation and the steps it took to remediate the compliance lapse, including replacing personnel involved and enhancing compliance procedures for its foreign subsidiaries, according to the agreement.

Write to Mengqi Sun at mengqi.sun@wsj.com

(END) Dow Jones Newswires

10-20-20 1856ET