Archive for the ‘Sanctions’ Category

Treasury Department Releases Foreign Sanctions Evaders List

Thursday, March 13th, 2014 by Brooke Driver

By: Brooke Driver

On February 6, the Treasury Department released its new Foreign Sanctions Evaders List, which you should incorporate into your screening process for selecting potential international clients and associates. The list identifies foreign individuals and entities that have either violated, attempted to violate, conspired to violate or caused a violation of U.S. economic and financial sanctions on Syria or Iran or facilitated deceptive transactions for or on behalf of persons subject to such sanctions. Individuals and entities included on the list are prohibited from working with U.S. commercial or financial systems. Likewise, U.S. persons or companies are forbidden to directly or indirectly enter into business relations with any of the listed parties unless OFAC grants permission or the transaction is exempt under the International Emergency Economic Powers Act.

To view the list, click here: http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/fse_list.aspx.

BIS Settles with Ansell and Comasec for Attempted Transshipment of Industrial-Strength Gloves to Iran through UAE

Thursday, March 13th, 2014 by Brooke Driver

By: Brooke Driver

Well, folks, here’s yet another case of the consequences of defying U.S. embargoes. BIS has announced that it has reached a settlement agreement with Ansell Protective Products Inc. of New Jersey and Comasec of Gennevilliers, France. Specifically, Ansell was charged with two counts of engaging in prohibited conduct by exporting items to Iran without the required license and two counts of evasion, while Comasec was charged with two counts of causing, aiding or abetting and two counts of evasion. Between June 27, 2008 and September 19, 2008, Ansell entered into business with French company Comasec SAS and agreed to export 35,000 pairs of Nitrotough N115 and Blue Nitrile industrial-strength gloves with a total value of $43,500 to Comasec’s client Zhabeh Safety Co. of Tehran, Iran. To avoid the U.S. embargo, Ansell and Comasec chose to first ship the items to the UAE, where they would then be transferred to their final destination in Iran. The scheme was thwarted in March of 2009, when the violation was discovered and the items seized by CBP.

The two companies were certainly smart to settle, rather than go to court over these charges, as the investigation had uncovered a significant amount of evidence of both companies’ conscious efforts to continue with the transaction despite the U.S. sanction. The evidence ranged from invoices that explicitly stated the end user’s location in Iran to emails between Ansell and Comasec expressing their knowledge of the U.S. embargo against Iran and detailing their plan for avoiding the restrictive U.S. law. Considering the amount and gravity of the evidence, in fact, BIS’ settlement of a $190,000 fine for each company is surprisingly lenient.

Of course, the relatively low value of the items involved certainly played a role in determining the appropriate payment, but Ansell’s and Comasec’s blatant disregard for U.S. regulations seems to merit a more severe consequence. All the same, the case certainly proves the point yet again that it is never worth the cost to engage in business with an embargoed country and that BIS is cracking down on those that do.

Clearstream Banking Pays $151.9 Million for Transferring Funds to Iran through the U.S.

Thursday, March 13th, 2014 by Brooke Driver

By: Brooke Driver

On January 23, OFAC announced that Luxembourg-based Clearstream Banking, S.A. has agreed to pay $151.9 Million for alleged violations of the Iranian Transactions and Sanctions Regulations. OFAC points out that the case is an example of the particular risks faced by intermediaries, custodians and other firms in the international security markets. Apparently Clearstream held an omnibus account at a New York bank, through which the Central Bank of Iran maintained a beneficial ownership interest in 26 corporate and sovereign bonds, with a nominal value of $2.8 billion. In connection to this account, Clearstream exported controlled security-related services to the Iranian bank. One of the main factors, surely, in OFAC’s decision to assign such a large fine was the fact that OFAC officials had previously confronted the Luxembourg bank concerning its relationship with the CBI, and, while the institution assured OFAC that it would cease business relations with the bank, it continued to work with the CBI, simply disguising its activities by utilizing a European bank as a custodian for the CBI’s securities entitlements.

Clearly, these violations were committed intentionally, a theory further supported by the fact that Treasury discovered evidence that at least one Clearstream supervisor and one senior executive of the institution possessed knowledge of the illegality of the institution’s actions. OFAC claims that it arrived at the large penalty due to the reckless and egregious nature of the case and the fact that Clearstream did not disclose its violations. However, OFAC greatly reduced the potential fine of $5.6 billion, as the institution has made substantial efforts to improve its compliance program. It’s hard to believe that anyone could be relieved by a nearly $152,000,000 debt, but in this case, I’m sure Clearstream’s officials are feeling just that.

Ameron International pays $434,700 for Illegal Transactions with Iran and Cuba

Wednesday, December 4th, 2013 by Brooke Driver

By: Brooke Driver

Ameron International Corporation of Pasadena, California recently settled with OFAC for violations of both the Iranian Transactions and Sanctions Regulations and the Cuban Assets Control Regulations that occurred between March 14, 2005 and October 5, 2006. Ameron was accused of:

  • Approving its Singapore and Dutch subsidiaries’ requests to purchase tools and equipment necessary for them to fulfill orders for a South Pars project located in Iran,
  • Passing along to its subsidiaries Iranian business opportunities in order to sidestep preventative U.S. Government regulations, and
  • Providing testing results to its Singapore subsidiary, despite the fact that Ameron professionals had reason to believe that they would be sent to the Iranian company Arvand Petrochemical.

U.S. companies should learn from this case that they may not approve or facilitate another party’s dealings with Iran or Iranian entities. The first two violations above involved the acts of approving subsidiaries requests and passing on business leads. In the third case, Ameron exported tech data to Singapore with knowledge or suspicion that the data was intended to be forwarded on to the Iranian entity.

Ameron also violated the CACR when its Columbian branch sold concrete pipe to a conglomerate that included a Cuban partner.

The company was hit with a relatively significant penalty in this case, because its Iran-related violations involved intentional actions to violate the rules or to try to get around the rules in an illegal fashion. In other words, if you do things wrong on purpose, you pay more.

The base penalty for Ameron’s collected offenses is $690,000. OFAC stated that it arrived at the settlement amount of $434,700 based on the following factors:

  • The case was ruled non-egregious
  • Ameron did not voluntarily disclose
  • Ameron’s management and supervisory staff acted with reckless disregard of U.S. sanctions requirements
  • Ameron had reason to suspect the involvement of the Iranian and Cuban entities in the transactions with its foreign subsidiaries
  • Two of the apparent violations (the approvals of the two capital expenditure requests) caused significant harm to U.S. sanctions program objectives on Iran
  • Many violations involved transactions that were never completed
  • Ameron had not committed any violations in the five years prior to the date of these illegal transactions
  • Ameron has taken remedial steps to improve its compliance program
  • Ameron cooperated with OFAC throughout the investigation

Offshore Marine Labs Pays $97,695 for Exports to UAE that Ended Up in Iran

Monday, March 4th, 2013 by Danielle McClellan

By: John Black

Offshore Marine Laboratories (“OML”), of Gardena, CA, agreed to pay $97,695 for alleged violations of the Iranian Transactions Regulations and Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters.” Between July 11, 2007, and July 17, 2008, OML allegedly exported to a company in the United Arab Emirates eight shipments of spare parts and supplies intended for supply to an offshore oil drilling rig located in Iranian waters. Both the rig owner and operator were located in Iran, and five of the shipments occurred after OFAC blocked the rig owner’s property and blocked interests in property.

Even though OML did not voluntarily disclose its actions to OFAC, OFAC determined that the alleged violations constitute a non-egregious case. OML’s $97,695 penalty is substantially less than the base penalty amount for the alleged violations, which was $167,000.

OFAC said the settlement amount is based on its consideration of these facts:

  • OML harmed sanctions program objectives because the transactions aided the development of Iranian petroleum resources;
  • OML had no OFAC compliance program in place at the time of the alleged violations;
  • OML has no history of prior OFAC violations;
  • OML demonstrated substantial cooperation with OFAC throughout the investigation, including agreeing to waive the expiration of the statute of limitations; and
  • OML took remedial measures by implementing an OFAC compliance program.

The numerous cases involving illegal shipments to the UAE and then on to Iran indicate:

  1. The government is watching for such shipments;
  2. There is a risk that things you send to the UAE may end up in Iran; and
  3. You want to make extra sure you are not knowingly or otherwise involved in something like this.

Bank of Tokyo-Mitsubishi UFJ, Ltd. Pays $8 Million for OFAC Violations

Thursday, January 17th, 2013 by Danielle McClellan

By: John Black

The Office of Foreign Assets Control (OFAC) of the US Treasury Department announced on December 12, 2012 that the Bank of Tokyo-Mitsubishi UFJ, Ltd. (“BTMU”), Tokyo, Japan, agreed to pay $8,571,634 to settle apparent violations of US embargoes and sanctions on Burma, Iran, Sudan, Cuba, and persons involved in the proliferation of weapons of mass destruction. The violations occurred between April 3, 2006, and March 16, 2007.

According to OFAC, BTMU’s Tokyo operations concealed the involvement of countries or persons subject to U.S. sanctions in transactions that BTMU processed through financial institutions in the United States. Pursuant to written operational instructions utilized in a Tokyo operations center, BTMU employees engaged in stripping activities, which means they systematically deleted or omitted from payment messages any information referencing U.S. sanctions targets that would cause the funds to be blocked or rejected, prior to sending the transactions through the United States. These activities are similar to the so-called stripping activities for which many of the largest European banks have agreed to pay over $2 billion combined penalties to the US Government in the past.

According to OFAC, using its stripping practices, BTMU processed at least 97 funds transfers, with an aggregate value of approximately $5,898,943, through BTMU’s New York branch or other banks in the United States, in apparent violation of OFAC regulations. In 2007, BTMU’s senior management learned of these practices, it took the textbook correct actions: It began an internal review of historical transaction data and made a voluntary self-disclosure to OFAC.

OFAC said that it decided on the settlement amount based on its General Factors under OFAC’s Economic Sanctions Enforcement Guidelines in its regulations at 31 CFR Part 501, app. A. OFAC said these are the key factors that determined the amount of the penalty:

  • BTMU’s conduct concealed the involvement of U.S. sanctions targets and displayed reckless disregard for U.S. sanctions;
  • The general manager of the Operations Center in Tokyo knew or had reason to know that procedures had been implemented instructing employees to manipulate payment instructions;
  • BTMU’s conduct conferred a substantial economic benefit to targets of OFAC sanctions;
  • BTMU is a large, commercially sophisticated financial institution;
  • BTMU has undertaken significant remediation to improve its OFAC compliance policies and procedures;
  • BTMU substantially cooperated with OFAC’s investigation, including providing detailed and organized information regarding the apparent violations, and entering into a tolling agreement with OFAC; and
  • BTMU has no history of prior OFAC violations.

OFAC determined that BTMU’s violations constitute an “egregious case” despite the BTMU internal investigation, voluntary disclosure, and clean record. Obviously, the fact that these violations were the result of intentional actions to evade the rules, as opposed to an oversight or misunderstanding of the rules, weighed heavily in OFAC’s decision to impose a significant penalty for this egregious case.

US Publishes Rules to Prohibit Foreign Subsidiaries of US Companies from Doing Business with Iran

Thursday, January 17th, 2013 by Danielle McClellan

By: John Black

As we described in past issues, on December 26, 2012, the United States published a Federal Register notice to revise the Iranian Transaction and Sanctions Regulations (ITSR) to prohibit foreign-based subsidiaries of US companies from being involved in most activities with Iran. The Office of Foreign Assets Control (OFAC) in the US Treasury Department revised the ITSR to implement elements of the Iran Threat Reduction and Syria Human Rights Act of 2012 and multiple executive orders.

One of the key changes is that a new section 560.215 was added to the ITSR to prohibit entities owned or controlled by a United States person and established or maintained outside the United States from “knowingly” engaging in activities in which US persons have long been prohibited from engaging. These entities outside the United States, let’s call them foreign subsidiaries, are “owned or controlled by a US person if the US person:

  • Holds a 50 percent or greater equity interest by vote or value in the entity;
  • Holds a majority of seats on the board of directors of the entity; or
  • Otherwise controls the actions, policies, or personnel decisions of the entity.

Now, foreign subsidiaries, like US persons, are prohibited from knowingly engaging in any transaction directly or indirectly with Government of Iran or any person subject to the jurisdiction of Iran (for example, any entity located in Iran). “Knowingly” means having actual knowledge or reason to know. If you combine “reason to know” with engaging “indirectly” in an activity, you have a broad prohibition that could create huge compliance challenges for large and complex organizations.

There are two key exemptions from this new prohibition on foreign subsidiaries. The first applies to certain activities related to the natural gas pipeline from the Shah Deniz natural gas field in Azerbaijan’s sector of the Caspian Sea to Turkey and Europe (and related pipeline projects). The second exemption applies to authorized intelligence activities of the US Government, which frees up the US CIA and its affiliates from having to file voluntary disclosures for actions in Iran.

The ITSR includes a “winding down” general license provision that gives foreign subsidiaries a short time period to end their activities involving Iran. ITSR 560.555 authorizes activities normally incident to winding down newly prohibited activities through March 8, 2013 as long as no US persons are involved in those activities.

On a related point, section 4 of an October 9, 2012 Executive Order says that the penalties for a foreign subsidiaries violations may be assessed against the owning/controlling US company but the penalties will not be applied if the US person divests or terminates its business with the entity by February 6, 2013.

When the US Government imposed its trade embargo on Iran back in the mid-1990′s it intentionally allowed foreign subsidiaries to do business with Iran as long as the US parent company was not involved. Not only are those days gone, but now US persons face the difficult, and in some cases nearly impossible, task of ending their foreign subsidiaries activities in Iran or ending their ownership/control of the foreign subsidiary. Good luck will be needed for this impossible task, even for those companies who began ending their Iran activities long before these new rules entered into force.

For the complete Federal Register notice go to http://www.treasury.gov/resource-center/sanctions/Programs/Documents/fr77_75845.pdf

Illegal Computer Exports to Iran Get 4 Years Prison Time and $10 Million Penalty

Friday, November 2nd, 2012 by Danielle McClellan

By John Black

U.S. District Judge Virginia M. Hernandez Covington sentenced Mohammad Reza “Ray” Hajian of Tampa, Florida to 4 years in federal prison for conspiracy to violate the International Emergency Economic Powers Act and the Iranian Transaction Regulations. The court also ordered Hajian to serve a one-year term of supervised release, upon his release from prison, and to forfeit $10 million, which are traceable to proceeds of the offense.   Hajian shipped approximately $14.85 million worth of computer and related equipment.

Between 2003 and 2011, Hajian conspired with others (aka “co-conspirators”) to illegally export enterprise level computers and related equipment from the United States to Iran, in violation of the U.S. embargo.  Ray and friends apparently went to great lengths to get away with this crime, but ultimately did not prove to be best criminals.

According to the US Government, to hide what they were doing Hajian and his co-conspirators shipped the computers and related equipment and moved the payments  to move to and from the United States and Iran through the United Arab Emirates.   (The UAE is a well-known and highly monitored diversion point for illegal trade with Iran.  Note to Ray and friends—next time try using a less obvious diversion point, perhaps one that is not being closely monitored by the US Government.)  Hajian and his co-conspirators communicated with each other via e-mail (thus creating records of their misdeeds). They employed fake identities, fake end-users, and coded language (I imagine an email saying “Dear Frank Roosevelt, I am glad you are not Iran and are in Cairo.  I will be sending the wedding cakes for the orphans in Lagos, Nigeria.  We will be shipping the CAKES on Al Italia directly to your office which is not in Dubai.  Please initiate the financing and payments for $3.2 hundred (not million) dollars.”)   I wonder if they also used those fake glasses/nose/mustache combo things.

Sanctions Against Iran Target Foreign Entities Owned or Controlled by U.S. Companies and Hold U.S. Companies Responsible for Their Violations

Friday, November 2nd, 2012 by Danielle McClellan

By Suzanne Reifman, Vinson & Elkins, 202-639-6577, sreifman@velaw.com

Over the past two years, the United States has continued to escalate sanctions against Iran, targeting both U.S. and non-U.S. persons and particularly those persons dealing with or supporting Iran’s energy and financial sectors. On July 1, 2010, the U.S. passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA). CISADA amended the existing Iran Sanctions Act of 1996 (ISA) and was designed to expand restrictions on non-U.S. entities that provide goods, services, or other support meeting particular monetary thresholds to Iran’s petroleum industry. The goal of the ISA, as amended by CISADA, is essentially to force non-U.S. companies to choose between doing business with Iran and doing business with the U.S. Following the passage of CISADA, the U.S. has continued to target non-U.S. companies that provide support to Iran through a series of laws and executive orders that have broadened the scope of sanctionable conduct and isolated Iran’s financial sector.

On August 10, 2012, President Obama signed the Iran Threat Reduction and Syria Human Rights Act of 2012 (TRA). The law contains many new prohibitions that affect a broad range of industries. In particular, the TRA addresses what many have described as a “loophole” in prior sanctions. Prior to the enactment of the TRA, in many instances foreign subsidiaries of U.S. companies could continue to legally engage in business with Iran as long as the business did not involve the provision of U.S. origin equipment or technology or require facilitation from U.S. persons. The prior sanctions were decidedly less restrictive than U.S. sanctions targeted against Cuba, under which foreign entities owned or controlled by U.S. companies are considered “U.S. persons” and fully subject to all of the sanctions’ requirements. However, under the TRA, any entity “owned or controlled by a United States person and established or maintained outside the United States” is now subject to the range of prohibitions applicable to U.S. persons or persons located in the U.S. with respect to dealings involving Iran.

It should be noted that the definition of “own or control” in TRA is broad, and means “holding more than 50 percent equity interest by vote or value in the entity;” “holding a majority of seats on the board of directors of the entity;” or “otherwise control[ling] the actions, policies, or personnel decisions of the entity.” The TRA does not identify the circumstances in which an entity can be “otherwise control[led]” and no other guidance has been issued. As such, U.S. companies that are parties to foreign joint ventures or similar entities in which they do not hold a majority equity interest or control a majority of board seats will still need to assess their level of control in order to determine whether these foreign entities could be construed as controlled by a U.S. company and, thus, subject to the Iran sanctions that apply to U.S. persons.

The TRA provided that the President would have to implement this provision within 60 days after the law’s enactment. Accordingly, Section 4 of the October 9, 2012 EO formally satisfied this statutory requirement. The EO provides that the penalties for violations of the prohibitions may be assessed against the U.S. person that owns or controls the entity that engaged in the prohibited transaction. The EO also provides that penalties shall not apply if the U.S. person that owns or controls the entity divests or terminates its business with the entity not later than February 6, 2013. Therefore, given the short grace period allowed for divestment/termination, U.S. companies will need to promptly determine:

  • Does the U.S. company own or control foreign entities that are engaged in conduct involving Iran that would violate U.S. sanctions against Iran? Note that in cases where U.S. companies are involved in joint ventures or other arrangements, it may be difficult to immediately identify all circumstances in which they control an entity based on the broad description set forth in the TRA.
  • If the foreign entity is engaged in business involving Iran, can this business be discontinued prior to February 6, 2013? Note that there is no general license or other authorization that would enable a U.S. company to provide unauthorized facilitation during this process. For example, a U.S. company could not participate in negotiations involving a foreign subsidiary and its Iranian customer to try and mitigate any breach of contract claims that would result from the foreign subsidiary’s termination of a contract.
  • If the owned or controlled foreign entity is either unable or unwilling to discontinue its business with Iran, can the U.S. company divest or terminate its interest in the foreign entity prior to February 6, 2013? Note that unlike the more general ISA sanctions, there is no “safe harbor” provision or other exception that would be granted to a foreign entity owned or controlled by a U.S. company that continues to do business with Iran (even if the entity is in the process of winding down or reducing its business).
  • Does the U.S. company have any of its own licenses from OFAC to engage in transactions involving Iran? If so, the company needs to consider whether it will need to cover any of its foreign owned or controlled foreign entities under these licenses going forward.
  • Can the U.S. company put the appropriate policies and procedures in place at its owned or controlled foreign entities to ensure compliance on a going-forward basis?

Given these issues, compliance with the TRA, as implemented by the October 9 EO, will present a major challenge for many U.S. companies and their owned or controlled foreign entities.

http://www.velaw.com/resources/SanctionsAgainstIranTargetForeignEntitiesOwnedControlledUSCompanies.aspx

OFAC Drops CISADA Bomb on Two Banks

Tuesday, September 4th, 2012 by admin

By  R. Clifton Burns, Esq., Bryan Cave LLP, Wash DC, 202-624-3949, Clif.Burns@bryancave.com, Export Law Blog, www.exportlawblog.com. Reprinted by permission.

The Office of Foreign Assets Control (“OFAC”) today applied sanctions <http://www.treasury.gov/ofac/downloads/561list.pdf> under the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 <http://www.hcfa.house.gov/111/MAR10505.pdf> against the Bank of Kunlun in China and the Elaf Islamic Bank in Iraq. Under these sanctions, U.S. financial institutions are “prohibited from opening or maintaining a correspondent account or a payable-through account” for the two banks, effectively cutting them off from foreign exchange and the U.S. financial system. <http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr&sid=35b678cbeb6866a7140739e0f6ef9eb2&rgn=div5&view=text&node=31:3.1.1.1.20&idno=31#31:3.1.1.1.20.2.1.1> This is the first time these sanctions have been applied. OFAC does not supply details on the basis for these actions other than to state that they were imposed under 561.201 of its Iranian Financial Sanctions Regulations.

Back in April, the Wall Street Journal identified <http://online.wsj.com/article/SB10001424052702303299604577323601794862004.html> Kunlun as significant player in providing financial services to Iran. Kunlun, which is controlled by state owned China National Petroleum Corp., on its website identifies the petroleum and petrochemical industries as its main customer base. Sanctions under section 561.201 are aimed at financial institutions that assist the Government of Iran to acquire WMD or support terrorist organizations, unlike 561.203 which is directed at foreign persons that facilitate transactions with blocked Iranian financial institutions such as the Central Bank of Iran or Bank Tejerat. Therefore, it seems reasonable to surmise that OFAC is taking the broad position that banks that help Iran sell petroleum products are, at least indirectly, furthering Iran’s nuclear program.