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OFAC Sanctions More than Two Dozen Firms and Individuals in Connection with Iran's Ballistic Missile Program
On February 3, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that it was imposing new sanctions against several entities and individuals involved in procuring technology and/or materials to support Iran’s ballistic missile program, as well as for acting for or on behalf of, or providing support to, Iran’s Islamic Revolutionary Guard Corps-Qods Force. The sanctions block “all property and interests in property of those designated today subject to U.S. jurisdiction are blocked, U.S. persons are generally prohibited from engaging in transactions with” the identified firms and individuals.
OFAC Settles with Canadian Bank for Apparent Violations of Cuban Assets Control Regulations and Iran Sanctions
On January 13, Treasury’s Office of Foreign Asset Control (OFAC) announced a $516,105 settlement agreement with a Canadian-based bank and its online-brokerage subsidiaries in connection with accounts held and transactions processed on behalf of certain Specially Designated Nationals and Blocked Persons located in Cuba, Iran and other locations in the Middle East. OFAC also identified general “shortcomings in the bank’s OFAC compliance policies, procedures, and programs” including the bank’s failure to screen for any potential nexus to an OFAC-sanctioned country or entity prior to processing related transactions through the U.S. financial system and occurring due to shortcomings in the banks policies and procedures. The settlement agreement does, however, note that the Apparent Violations constituted a non-egregious case, that the Bank voluntarily self-disclosed the Apparent Violations, and that the applicable total base penalty amount for the apparent violations was $955,750—well above the $516,105 amount OFAC assessed.
Notably, in the agreement’s concluding paragraph, OFAC highlights, as a general matter, the risks associated with both “subsidiaries in high-risk industries–such as securities firms” and, in particular “online payment platforms when the financial institution is unable to restrict access for individuals and entities located in comprehensively sanctioned countries.”
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.
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.
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.
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.
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.
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.”
On June 23, OFAC announced a $107,691.30 settlement with a North Carolina-based medical device company for apparent violations of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (the Regulations). Specifically, the company violated § 560.204 of the Regulations by exporting a number of its medical products to its United Arab Emirates distributor throughout April and May 2011 with the knowledge or reason to know that the products 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, editing its destination control statement at the request of its distributor and continuing to conduct business with its distributor after receiving confirmation that the distributor had reexported the company’s products to Iran; (ii) the company’s former CEO and International Sales Manager knew the products were ultimately destined for Iran; and (iii) the company did not have a sanctions compliance program at the time of the apparent violations. OFAC considered the following as mitigating factors when determining the settlement amount: (i) limited harm was inflicted on U.S. sanctions program objectives because OFAC likely would have granted the company a license to export the medical products to Iran, had the company sought permission to do so; (ii) the company had no prior OFAC sanctions history; (iii) the company took remedial steps, such as establishing an OFAC compliance program; and (iv) the company “cooperated with OFAC’s investigation and agreed to toll the statute of limitations for a total of 513 days.”
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