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OFAC issues Finding of Violation, no penalties, against bank for alleged Iranian sanctions violations
On May 28, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a Finding of Violation against a U.S. bank, acting as a trustee for a customer, for violations of the Iranian Transactions and Sanctions Regulations (ITSR). According to the announcement, OFAC’s Finding of Violation was based on the fact that the bank processed at least 45 pension payments totaling over $11,000 to a U.S. citizen with a U.S. bank account, but who was residing in Iran. According to OFAC, the bank appears to have known that it was processing payments for the benefit of a person in Iran, not only because its internal system indicated that the individual’s address was located in Tehran, but also because the bank’s sanctions screening software produced an alert on each of the 45 payments. These alerts, however, were reviewed by compliance personnel who were not sanctions specialists instead of the bank’s central sanctions compliance unit. After learning of and reporting the issue to OFAC, the bank modified its review and reporting process to ensure that retirement payments are screened by the right screening platform and that sanctions alerts are handled through the appropriate process, including review by compliance specialists with expertise in sanctions.
When issuing a Finding of Violation against the bank, as opposed to a civil money penalty, OFAC considered the fact that, among other things, (i) no managers or supervisors appear to have been aware of the conduct that led to the violations; (ii) the payments at issue may not have actually been transferred to Iran; (iii) the bank took remedial action in response to the violations; and (iv) the bank cooperated with OFAC by self-disclosing the alleged violations and agreeing to tolling the matter with extensions.
President Trump issues new Iran Executive Order targeting Iran's metal sector; OFAC publishes related FAQs
On May 8, President Trump issued Executive Order 13871 (E.O. 13871) authorizing the imposition of sanctions on persons determined to operate in Iran’s iron, steel, aluminum, and copper sectors. The order is intended to target sectors of the Iranian economy that OFAC has identified as providing “funding and support for the proliferation of weapons of mass destruction, terrorist groups and networks, campaigns of regional aggression, and military expansion.” Among other things, E.O. 13871 authorizes the Secretaries of Treasury and State to impose sanctions on a foreign financial institution if it is determined that it has knowingly conducted or facilitated any significant financial transactions in these sectors, or for or on behalf of a blocked person. These sanctions are intend to curtail such institutions’ access to the U.S. financial system by prohibiting the opening of, or impose strict conditions on maintaining, a correspondent account or payable-through account by such foreign financial institutions in the United States.
The same day, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) released a set of FAQs connected to the issuance of E.O. 13871, including a discussion of the relevant 90-day wind-down period for affected transactions as well as sanction exceptions.
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German-headquartered financial institution to pay $1.3 billion for Iran sanctions violations
On April 15, U.S. regulators announced settlements totaling $1.3 billion with several banking units of a German-headquartered financial institution to resolve allegations by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), the DOJ, the Federal Reserve Board, the New York Department of Financial Services (NYDFS), and the New York County District Attorney’s Office of apparent violations of multiple sanctions programs, including those related to Burma, Cuba, Iran, Libya, Sudan, and Syria. According to OFAC’s announcement, between January 2007 and December 2011, the institution’s banking units in Germany, Austria, and Italy processed thousands of payments through U.S. financial institutions on behalf of sanctioned entities “in a manner that did not disclose underlying sanctioned persons or countries to U.S. financial institutions which were acting as financial intermediaries.”
According to the settlement agreements (see here, here, and here), OFAC considered various aggravating factors, and noted, among other things, that the institution’s banking units failed to sufficiently enforce policies addressing OFAC sanctions concerns or restrict the processing of transactions in U.S. dollars involving persons or countries subject to sanctions programs administered by OFAC. Additionally, OFAC asserted that the Austrian banking unit claimed on several occasions that OFAC’s sanctions programs “were not legally binding or relevant to [the bank].” OFAC further stated that while the banking units failed to voluntarily self-disclose the alleged violations, they have each agreed to implement and maintain compliance commitments to minimize the risk of the recurrence of the alleged conduct.
U.K. subsea services company and subsidiaries to pay $440,000 for Cuban and Iranian sanctions violations
On April 11, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced two settlements totaling more than $440,000 with a U.K. subsea services company and certain subsidiaries that operate in the oil and gas industry. The first settlement, for $227,500, resolves potential civil liability for seven alleged violations of the Cuban Assets Control Regulations (CACR). According to OFAC, two of the company's Malaysian affiliates produced analytical reports and conducted workshops for oil well drilling projects in Cuban territorial waters related to projects managed by companies including Venezuela’s state-owned oil company, which was previously designated by OFAC in January (see InfoBytes coverage here). OFAC considered various aggravating factors—including that the alleged violations constitute an egregious case—and noted that the company/subsidiaries “willfully violated U.S. sanctions laws and regulations when they knowingly dealt with Cuban interests despite prior notification of their unlawfulness.” OFAC also noted that senior managers “deliberately concealed their dealings with Cuba on multiple occasions.” OFAC considered numerous mitigating factors, including the company/subsidiaries’ voluntarily self-disclosure of the apparent violations and remedial efforts taken to avoid similar violations from occurring in the future.
The same day OFAC announced a second settlement, this time for $213,866, which resolves potential civil liability for 13 alleged CACR violations. The settlement also resolves three alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR) by the company’s U.S.-based parent company. According to OFAC, the company issued sanctions compliance guidance to all of its subsidiaries with instructions that transactions with Cuba and Iran (including indirect third parties) were prohibited. However, certain subsidiaries disregarded the guidance and allegedly engaged in transactions within Cuban and Iranian territorial waters. In reaching the settlement amount, OFAC determined, among other things, that (i) the company voluntarily self-disclosed the apparent violations; (ii) the alleged violations constitute a non-egregious case; (iii) the subsidiaries have confirmed the conduct has been terminated; and (iv) remedial efforts have been undertaken to minimize the risk of similar violations from occurring in the future.
OFAC reaches settlement with tool company for alleged Iranian sanctions violations
On March 27, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $1,869,144 settlement with a U.S. tool manufacturer and its China-based subsidiary for 23 alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). The settlement resolves potential civil liability for the company’s alleged transactions, valued at over $3.2 million, involving the subsidiary’s exporting and attempts to export 23 shipments of power tools and spare parts “with knowledge that such goods were intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran.” Because the ITSR generally prohibit non-U.S. subsidiaries of U.S. persons from knowingly engaging in transactions with Iran, this settlement illustrates the importance of implementing OFAC compliance measures at such subsidiaries.
In arriving at the settlement amount, OFAC considered various aggravating factors and characterized the alleged violations as “an egregious case.” While the company voluntarily self-disclosed the alleged violations on behalf of its subsidiary, OFAC stated, among other things, that the company allegedly failed to implement procedures to monitor and audit the subsidiary’s compliance with applicable sanctions policies post-acquisition. Moreover, OFAC claimed that the subsidiary’s senior management continued to export goods to Iran, despite executing written agreements stating they would not engage in such conduct and attending compliance training sessions.
OFAC also considered numerous mitigating factors, including that (i) neither the company nor the subsidiary have received a penalty or finding of a violation in the five years prior to the transactions at issue; (ii) the company immediately implemented “substantive remedial efforts,” including halting all of the subsidiary’s exports and hiring an independent investigator; and (iii) the company cooperated with OFAC’s investigation. OFAC noted that the company has committed to taking corrective actions to minimize the risk of recurring conduct.
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OFAC sanctions individuals and entities for transferring over a billion dollars and euros to IRGC
On March 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against “25 individuals and entities, including a network of Iran, UAE, and Turkey-based front companies,” for allegedly transferring “over a billion dollars and euros” in funds to the Islamic Revolutionary Guard Corps (IRGC) and Iran's Ministry of Defense and Armed Forces Logistics (MODAFL). Among other things, the designated individuals and entities also procured vehicles worth millions of dollars for MODAFL, which was also sanctioned, along with Iran’s IRGC-controlled bank and currency exchange arm, for allegedly providing assistance and banking services to the IRGC-Qods Force. According to OFAC, the sanctions were issued pursuant to Executive Order 13224, which “provides a means by which to disrupt the financial support network for terrorists and terrorist organizations.” As a result, all property and interests in property belonging to the identified individuals and entities subject to U.S. jurisdiction are blocked and must be reported to OFAC, and U.S. persons are generally prohibited from entering into transactions with them. In addition, OFAC noted that persons who engage in transactions with the designated individuals and entities may be exposed to sanctions themselves or subject to enforcement action. Moreover, OFAC warned foreign financial institutions that, unless an exemption applies, they may be subject to U.S. sanctions if they knowingly facilitate significant transactions for any of the designed individuals or entities.
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OFAC sanctions persons connected to an Iran defense entity
On March 22, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13382 against 14 individuals and 17 entities allegedly connected to Iran's Organization of Defense Innovation and Research (SPND), including “three key SPND front and cover companies, and four of their senior officials.” The State Department previously sanctioned SPND in 2014 for “engaging in or attempting to engage in activities that have materially contributed to, or posed a risk of materially contributing to, the proliferation of [weapons of mass destruction] or their means of delivery.” As a result, all property and interests in property belonging to the identified individuals and entities subject to U.S. jurisdiction are blocked and must be reported to OFAC, and U.S. persons are generally prohibited from entering into transactions with them. In addition, OFAC noted that persons who engage in transactions with the designated individuals and entities may be exposed to sanctions themselves or subject to enforcement action. Moreover, OFAC warned foreign financial institutions that, unless an exemption applies, they may be subject to U.S. sanctions if they knowingly facilitate significant transactions for any of the designed individuals or entities.
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OFAC reaches settlement with U.S. company resolving Iranian sanctions violations
On February 21, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $506,250 settlement with a Connecticut-based company for five alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). The settlement resolves potential civil liability for the company’s alleged transactions valued at over $14 million involving the purchase of Iranian-origin cement clinker from a supplier in the United Arab Emirates who misrepresented to the company that the material was not subject to U.S. economic sanctions on Iran.
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OFAC sanctions Iranian entities and individuals supporting intelligence gathering and cyber targeting of U.S. persons
On February 13, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against an Iran-based entity and four affiliated Iranian individuals for their alleged roles in providing support for the Islamic Revolutionary Guard Corps-Qods Force’s (IRGC-QF) efforts to recruit and collect intelligence from foreign attendees of international conferences, including facilitating contact between the IRGC-QF and U.S. persons. According to OFAC, the sanctions were issued pursuant to Executive Order 13224, which authorizes “the U.S. government to designate and block the assets of foreign individuals and entities that commit, or pose a significant risk of committing, acts of terrorism.” The same day, OFAC also sanctioned a separate Iran-based entity and six associated individuals, pursuant to Executive Order 13606, for their alleged involvement in the cyber targeting of current and former U.S. government and military personnel, in an effort to gain access to their computer systems and implant malware.
As a result of the OFAC sanctions, all property and interests in property belonging to the identified individuals and entities and subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from entering into transactions with the individuals and entities. Additionally, OFAC notes that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the persons designated today pursuant to E.O. 13224 or that are Iranian persons on OFAC’s list of Specially Designated Nationals and Blocked Persons . . . could be subject to U.S. correspondent account or payable-through sanctions.”
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OFAC designates Turkish individual as “Foreign Sanctions Evader” in relation to settlement resolving alleged Iranian sanctions violations
On February 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced a $13,381 settlement with a Virginia-based corporation on behalf of its Turkish affiliate for six alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). The settlement resolves potential civil liability for the Turkish affiliate’s alleged practice of dispatching employees to Iran to fulfill service agreements and providing products, parts, and services while knowing that they were going to Iranian end-users. OFAC’s findings included that the Turkish affiliate willfully took steps to continue its Iranian business despite the Virginia corporation’s “extensive efforts to ensure [the affiliate] complied with the ITSR,” and “fraudulently certified” that no Iranian business was continuing. This settlement demonstrates the risks posed to U.S. companies by the Iran-related dealings of their foreign subsidiaries.
In a concurrent action the same day, OFAC sanctioned a Turkish individual as a “Foreign Sanctions Evader,” pursuant to Executive Order 13608, for allegedly instructing the Turkish affiliate to violate the Iranian sanctions. According to OFAC, the sanctioned individual “regularly and fraudulently” certified to the Virginia corporation that no products were being sent to Iran. Additionally, OFAC claims that upon learning of the corporation’s internal investigation, the individual and other members of the Turkish affiliate’s management team attempted to conceal the apparent violations. As a result, all direct and indirect transactions involving the individual intended for the U.S., or provided by or to U.S. persons, are prohibited. Moreover, U.S. financial institutions are instructed to reject payments involving the identified individual.
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