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OFAC Settles With Non-U.S. Company for Apparent Violation of Iran Sanctions
On January 12, Treasury’s Office of Foreign Asset Control (OFAC) announced a $17,500 settlement agreement with Aban Offshoe Limited ("Aban") of Chennai, India, in connection with an alleged violation of Iranian Transactions and Sanctions Regulations. The alleged violation arises out of events that occurred in June 2008, when Aban's Singapore subsidiary allegedly placed an order for oil rig supplies from a vendor in the United States with the intended purpose of re-exporting these supplies from the United Arab Emirates to a jack-up oil drilling rig located in the South Pars Gas Fields in Iranian territorial waters. OFAC noted, among other things, that the alleged violation constitutes a non-egregious case, but that Aban did not voluntarily self-disclose the apparent violation.
OFAC Release Further Updates to Iran Sanctions Rules
On December 23, OFAC announced it has issued a final rule amending existing Iranian Transactions and Sanctions Regulations to expand the scope of medical devices and agricultural commodities generally authorized for export or re-export to Iran. The amendment also includes new or expanded authorizations relating to training, replacement parts, software and services for the operation, maintenance, and repair of medical devices, as well as certain items that are broken or subject to product recalls or other safety concerns. In addition, this amendment revises the definition of the terms “goods of Iranian origin” and “Iranian-origin goods.” OFAC concurrently published new and updated FAQs pertaining to the amendment.
OFAC Clarifies Iran Sanctions Snapback, Also Amends General License Regarding Foreign Flights to Iran
On December 15, OFAC updated the Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action, clarifying two FAQs regarding the re-imposition of sanctions in the event of a “sanctions snapback.” Among other things, the revised guidance clarified that the U.S. will not retroactively impose sanctions for activity considered legitimate during the time of the transaction, but that activity would have to immediately halt because the agreement does not grandfather existing contracts. In addition, OFAC explained that the U.S. would provide non-Iranian foreigners a 180-day period to wind down operations that were authorized prior to a snapback. The FAQ-guidance also explained that if a snapback of sanctions were to result in the revocation of licenses, the U.S. government would provide a 180-day wind-down period for those deals, and non-Iranian foreigners could receive repayment from Iranians for goods and services provided prior to a snapback under the terms of an existing contract.
Separately, OFAC issued amended license General License J-1, regarding foreign flights to Iran, to also authorize flights that involve code-sharing agreements. A code-share is a marketing arrangement in which an airline places its designator code on a flight operated by another airline, and sells tickets for that flight. GL J-1 is effective as of December 15 and replaces and supersedes General License J in its entirety.
NYDFS Fines Italian Bank $235 Million for Repeated Violations of BSA/AML Laws
On December 14 the New York State Department of Financial Services (NYDFS) announced the imposition of a $235 million fine against an Italian bank and its New York branch as part of a consent order addressing “significant violations of New York Bank Secrecy Act and anti-money laundering (BSA/AML) laws.” According to the consent order, a NYDFS investigation identified “compliance failures . . . arising from deficiencies in the implementation and oversight of the transaction monitoring system located at the New York Branch,” as well as “non-transparent practices to process payments on behalf of Iranian clients” and “shell company activity indicative of potentially suspicious transactions” and a general “breakdown in audit and management oversight.” The consent order findings stipulate that the wrongdoing dated back to 2002, but also acknowledge that the Bank made the decision to discontinue certain of its non-transparent practices in 2006. In addition to a civil monetary penalty, the consent order also requires that the bank continue to engage an independent consultant to help “remediate the identified shortcomings,” “audit the Bank’s transaction review efforts”, and submit a report of its findings, conclusions and recommendations within 60 days. Thereafter, the Bank must submit, in writing for NYDFS review, across-the-board enhancements to its internal control policies and procedures.
Congress Approves 10-Year Extension of Iran Sanctions Act
On December 1, the U.S. Senate, by a 99-0 margin, passed a 10-year extension of the Iran Sanctions Act (ISA) sending the measure to the White House and delaying any potentially tougher actions until next year. Originally approved in 1996, the extended bill passed onto the Senate in November with only one vote against it from the House. Congressional authority to enforce sanctions against Iran—which was due to expire on December 31 if not renewed—will be presented to President Barack Obama, who will decide whether to sign the bill into law in the coming days.
OFAC Updates Iran-Related FAQs
On October 7, OFAC updated its Frequently Asked Questions (FAQs) relating to the Listing of Certain U.S. Sanctions under the Joint Comprehensive Plan of Action (JCPOA). In addition to adding three FAQs related to due diligence (see M.10 through M.12), OFAC amended two FAQs (C.7 and C.15) regarding Financial and Banking Measures and one FAQ (K.19) related to Foreign Entities Owned or Controlled by U.S. Persons. FAQ M.10 clarifies that while “[i]t is not necessarily sanctionable for a non-U.S. person to engage in transactions with an entity that is not on the SDN List but that is minority owned, or that is controlled in whole or in part, by an Iranian or Iran-related person on the SDN List,” it is recommended that persons engaging in such transactions exercise caution to ensure that they do not involve Iranian or Iran-related persons on the SDN List. FAQs M.11 and M.12, respectively, address (i) due diligence expectations related to the screening of potential Iranian counterparties; and (ii) the circumstances under which OFAC expects a non-U.S. financial institution to repeat the due diligence their customers have already performed on an Iranian customer.
House Passes Bill to Bring Transparency to Iranian Finances
On September 21, the House of Representatives voted to pass the Iranian Leadership Asset Transparency Act. This bill, HR 5461, would require the Treasury Secretary to publish a list of assets held by senior Iranian political and military leaders, including where the assets were acquired, and how they are employed. The Treasury would also be required to identify new methods used to evade anti-money laundering laws and provide recommendations to improve techniques to combat illicit uses of the U.S. financial system by each official. The required report would be posted on the Treasury Department’s website in English, but also in the three major languages spoken within Iran.
OFAC Settles with Illinois-based Company for Alleged Violations of the Iranian Transactions and Sanctions Regulations
On September 13, OFAC announced a $4,320,000 settlement with an Illinois-based company to resolve allegations that it violated the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560. From approximately May 5, 2009 to March 2, 2012, OFAC alleges that on 48 occasions the company shipped seeds to consignees located in Europe or the Middle East with the knowledge or reason to know that the seeds were ultimately destined for Iran distributors. The settlement amount reflects OFAC’s consideration of the following aggravating factors: (i) the company acted willfully by engaging in conduct it knew to be prohibited; (ii) the company acted recklessly by ignoring its OFAC compliance responsibilities; (iii) the company’s employees, including mid-level management, had “contemporaneous knowledge” that the seeds were ultimately destined for Iran, and for almost eight months after the Director of Finance learned of OFAC’s investigation, it continued sales to its Iranian distributors; (iv) the company’s conduct resulted in providing $770,000 in economic benefit to Iran; (v) the company failed to cooperate with OFAC at the start of the investigation, providing information that was inaccurate, misleading, or incomplete; and (vi) the company is a subdivision of a commercially sophisticated, international corporation. Mitigating factors considered when determining the settlement amount include, but are not limited to, the company’s lack of sanctions history with OFAC for five years before the first of the alleged 48 violations and the remedial steps the company took to ensure future compliance with OFAC sanctions.
OFAC Imposes Civil Penalty for the Export of Orthodontic Supplies to Iran
On September 7, OFAC announced a $43,200 settlement with an Oregon-based manufacturing company for alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560. Specifically, OFAC alleges that the company violated §§ 560.204 and 560.206 of the ITSR between April 2008 and July 2010 by exporting orthodontic supplies, with a collective value of $59,886, to Germany, United Arab Emirates, and/or Lebanon with the knowledge or reason to know that the supplies were ultimately destined for Iran. The settlement amount reflects OFAC’s consideration of the following aggravating factors: (i) the company acted willfully by exporting products it knew or had reason to know were ultimately destined for Iran; (ii) the company’s management knew or had reason to know that the products were destined for Iran; and (iii) the company failed to implement a compliance program until June 2008. Mitigating factors considered when determining the settlement amount include (i) the fact that alleged violations did not “result in great economic or other benefit conferred on Iran” because the transactions were generally consistent with OFAC’s licensing policy; (ii) the company’s lack of sanctions history with OFAC for five years before the first of the seven alleged violations; (iii) the company’s cooperation with OFAC by agreeing to toll the statute of limitations; (iv) the company’s development of an economic sanctions compliance procedure in June 2008 and the subsequent draft of a written compliance policy; and (v) the company’s lack of “commercial sophistication in conducting international sales at the time of the alleged violations.”
FATF Updates List of Jurisdictions with AML/CFT Deficiencies, FinCEN Issues Related Advisory
On September 7, FinCEN issued advisory bulletin FIN-2016-A004 notifying financial institutions of updates to the Financial Action Task Force’s (FATF) list of jurisdictions containing anti-money laundering/combating the financing of terrorism (AML/CFT) deficiencies. The FATF updated two documents categorizing certain jurisdictions: (i) the FATF Public Statement, identifying jurisdictions that are subject to the FATF’s call for countermeasures or are subject to Enhanced Due Diligence (EDD) due to AML/CFT deficiencies; and (ii) the Improving Global AML/CFT Compliance: on-going process, identifying jurisdictions which have developed an action plan with the FATF to address strategic AML/CFT deficiencies. Revisions to the FATF Public Statement include the 12 months suspension of FATF’s call for countermeasures against Iran; in turn, Iran was added to the EDD category based on the continued risk posed by Iran to the international financial system. North Korea remains the sole country subject to countermeasures. Jurisdictions currently on the Improving Global AML/CFT Compliance: on-going process list include Afghanistan, Bosnia and Herzegovina, Guyana, Iraq, Lao PDR, Syria, Uganda, Vanuatu, and Yemen. Myanmar (Burma) and Papua New Guinea were removed from the list. FinCEN reminded financial institutions that they are subject to a broad range of restrictions on dealing with North Korea and Iran, in spite of the 12-month suspension of its call for countermeasures against Iran.