Category Archives: OFAC

July 26, 2016

No Sanctions Compliance Program? Expect Significant OFAC Penalties

by Jeremy Paner

hammer-1506667-1920x1440Settlement announcements from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) generally reflect the agency’s enforcement prioritization and sanctions compliance expectations.  The two most recent enforcement actions indicate that OFAC continues to target companies that operate without sanctions compliance programs.  Although robust sanctions compliance programs do not provide complete inoculation from sanctions compliance risk, such programs dramatically reduce the likelihood of violations and resulting civil penalties.

OFAC Civil Penalties Against Exporters Lacking Compliance Programs 

On June 23, OFAC announced a $107,691 settlement with HyperBranch Medical Technology, Inc. to resolve apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR) prohibition on the direct or indirect exportation of goods to Iran.  According to the settlement announcement, HyperBranch exported about 4,000 units of various medical supplies to its United Arab Emirates-based distributor that it knew or had reason to know were ultimately destined for Iran.  OFAC considered HyperBranch’s lack of a sanctions compliance program at the time of the apparent violations as an aggravating factor in the calculation of the civil penalty.

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May 4, 2016

Recent Court Decision Provides Insight Into Enforcement of OFAC Sanctions

by Jeremy Paner

gavel-3-1236445On March 7, the District Court for the District of Columbia issued a Memorandum Opinion granting the government’s Motion for Summary Judgment in the matter of Epsilon Electronics, Inc. v. United States Department of the Treasury, Office of Foreign Assets Control, et al., Civil Action No. 14-2220 (RBW), __ F.Supp.3d __ (D.D.C. 2016).  The case arises from a $4,073,000 civil penalty the Office of Foreign Assets Control (OFAC) assessed against Epsilon Electronics (the plaintiff)  in July 2014 for violations of the embargo on Iran.  According to the announcement of this penalty, the plaintiff violated the Iran Transactions and Sanctions Regulations by shipping car audio and video equipment that it knew or had reason to know would be reexported to Iran.  The opinion dismissing the challenge to this penalty serves as a cautionary tale of how OFAC may assess significant civil penalties with the aid of a few administrative subpoenas and circumstantial evidence provided by financial institutions and simple internet research.

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April 19, 2016

New Sanctions Regulations Threaten Foreign Financial Institutions with Severance from the U.S. Financial System

by Jeremy Paner

scissor-1568316Last Friday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) published regulations that implement the Hizballah International Financing Prevention Act of 2015.  The listing criteria for these regulations echo those  in the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010  (CISADA), which was largely responsible for economically isolating Iran.  Although frequently mischaracterized as extraterritorial in nature, the prohibitions of secondary sanctions are limited to domestic financial institutions.

The Hizballah Financial Sanctions Regulations, 31 CFR 566, prohibit U.S. financial institutions from opening or maintaining certain accounts for foreign financial institutions listed for knowingly providing significant transactions for Hizballah, or any person designated for acting for or on behalf of, or being owned or controlled by that terrorist organization.  OFAC identifies  Hizballah-related designated persons with the text [‘‘Subject to secondary sanctions pursuant to the Hizballah Financial Sanctions Regulations’’] in their respective List of Specially Designated Nationals (SDN List) entries. Continue reading

March 25, 2016

U.S. Treasury Sanctions UK Individuals and Businesses for Dealings with Iranian Commercial Airline

by Jeremy Paner

Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated UK-based individuals and businesses for their dealings with Mahan Air, a commercial Iranian airline. OFAC designated this airline in 2011 pursuant to its counterterrorism authority for providing support to the IRGC-Qods Force. U.S. individuals and businesses are now generally prohibited from any dealings with these UK designees.  Secondary sanctions also attach to terrorism-related listings.  Foreign financial institutions that knowingly facilitate or conduct significant financial transactions for these designees could be prohibited from maintaining correspondent accounts at U.S. banks.

OFAC has firmly established authority to derivatively designate businesses that provide support or services to designated Iranians, irrespective of the nationality or location of those businesses. The recent lifting of certain secondary sanctions does not limit this authority.  In fact, derivative designations against companies in Europe and Asia will likely increase in the near term.

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March 22, 2016

Increased Sanctions on North Korea Focus on China and Russia

by Jeremy Paner

Last week, President Obama significantly increased sanctions on North Korea through Executive Order 13722, which implements the North Korea Sanctions and Policy Enhancement Act of 2016 (H.R. 757). The Executive Order’s prohibitions and blocking provisions, and designation criteria are substantially more expansive than that Act. Concurrently with the issuance of the Executive Order, OFAC announced the designations of 17 North Korean government officials and organizations, 15 entities, two individuals, and identified 40 blocked vessels under various sanctions authorities.

While neither Congress nor the President imposed secondary sanctions per se, China and Russia should  interpret the Executive Order as a clear warning about their economic ties with North Korea. In the Iran sanctions program, secondary sanctions require that a foreign financial institution “knowingly facilitate or conduct a significant financial transaction” for a particular individual or entity. This evidentiary standard greatly limited the use of those sanctions authorities. The new sanctions against North Korea are clearly aimed at foreign business interests, but unlike secondary sanctions, this new authority does not have an evidentiary impediment to its implementation.

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March 16, 2016

OFAC Provides Cuba Access to the U.S. Dollar

by Jeremy Paner

u-turn-istockYesterday, the U.S. Department of the Treasury and U.S. Department of Commerce announced  further amendments to the Cuban embargo that take effect today.  Changes involving travel and related transactions, banking and financial services, trade and commerce, and the authorization of certain grants and awards will be effective today.  Whereas the majority of the previous amendments sought to benefit the Cuban people by opening certain aspects of Cuban markets to U.S. businesses, many of the most recent revisions to the General Licenses more narrowly and directly benefit Cuban interests.

U-Turn Payments

The most significant change is likely the authorization of so-called U-turn payments, which notionally grants Cuba access to the U.S. dollar.  An amended General License found in 31 C.F.R. 515.584(d) permits funds transfers from foreign banks to pass through one or more U.S. financial institutions before being transferred to another foreign bank,  if neither the originator nor the beneficiary of that transfer is a person subject to the  jurisdiction of the United States.

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March 9, 2016

OFAC Targets Knowing Violations by Foreign Companies

by Jeremy Paner

Oil_Rig_Blue_Dark_shutterstock_17758444Late last month, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced  settlements with two Cayman Island subsidiaries of Halliburton Energy Services, Inc. and CGG Services S.A., a French geoscience exploration and production company. The settlements resolved apparent violations of the Cuban embargo. These penalties highlight the increased compliance expectations imposed on sophisticated international businesses operating in highly-regulated industries.

The violations involving the Halliburton foreign subsidiaries arise from the provision of goods and services to a consortium in which a Cuban state-owned company held a 5 percent interest in the oil and gas produced within an identified concession in Angola. This was not the first OFAC settlement involving Cuban participation in a consortium. In October 2013, OFAC entered into a settlement with Ameron International Corporation to resolve apparent violations of the Cuban Assets Control Regulations arising from the sale of concrete pipe to a consortium in which a Cuban company was a partner.

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February 9, 2016

OFAC Announces Its First “50 Percent Rule” Penalty

by Jeremy Paner

Yesterday, the U.S. Department of the Treasury’s Office of Foreign Assets Control announced the first settlement of apparent violations based on its “50 Percent Rule.” This interpretive guidance, first articulated in February 2008, was expanded in August 2014. Under the current guidance, entities that are 50 percent or greater directly or indirectly owned by one or more blocked persons[1] in the aggregate are considered to be blocked. U.S. companies are therefore generally prohibited from any dealings with entities owned by blocked persons, even if those entities are not specifically listed by OFAC.

This penalty highlights the fundamental due diligence aspect of sanctions compliance, which requires assessments beyond screening against the Specially Designated Nationals (SDN) List, the Sectoral Sanctions Identification (SSI) List and the countries against which the United States maintains partial or comprehensive sanctions programs.

Violations of the Zimbabwe Sanctions Regulations

Barclays Bank Plc agreed to pay $2,485,890 to resolve apparent violations of the Zimbabwe Sanctions Regulations (31 C.F.R. Part 541), arising from the provision of financial services through the United States. Barclays New York branch, and other U.S. banks processed transactions between July 2008 and September 2013 for three corporate customers of Barclays Bank of Zimbabwe Limited. Although not specifically listed, these entities are blocked as a matter of law, because they are owned 50 percent or more by the Industrial Development Corporation of Zimbabwe (IDCZ). OFAC designated IDCZ pursuant to Executive Order 13469 on July 25, 2008. As of that date, all property IDCZ owned 50 percent or more was also blocked.

OFAC determined that Barclays did not voluntarily self-disclose the violations. It appears that other financial institutions blocked and reported some of the transactions. These reports would have notified OFAC of “substantially similar apparent violation[s],” thereby precluding Barclays of receiving credit for voluntary self-disclosure.

50 Percent Rule Enforcement Factors

The settlement announcement sets forth three factors that may determine whether a civil penalty is appropriate for violations arising from the 50 Percent Rule.

  1. A direct customer relationship with the entities that are not listed, but blocked as a matter of law;
  2. Failure to act on records that demonstrate ownership by a blocked person; and
  3. Publically available information about ownership by one or more blocked persons.

The availability of public information will likely weigh heavily toward a civil penalty if the peers of the violating business act on that information.

We will continue to monitor OFAC enforcement actions and publish updates as significant developments arise.


 

[1] The 50 Percent Rule also applies to entities owned by persons on the Sectoral Sanctions Identification (SSI) List. Sectoral Sanctions restrictions apply to entities owned 50 percent or more in the aggregate by one or more persons on the SSI List.

February 8, 2016

OFAC Issues a Warning: High Risk International Trade Managers Must be Trained on Prohibited Facilitation

by Jeremy Paner

Training Business People Team Teamwork Success Strategy Concept

Last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a Finding of Violation against Johnson & Johnson (Middle East) Inc. for violations of the Sudanese Sanctions Regulations. Although such a finding does not result in a monetary penalty, Johnson & Johnson will not be eligible for a 25 percent “first violation” reduction for any violations that may occur over the next five years. See OFAC Economic Sanctions Enforcement Guidelines, available here.

Johnson & Johnson (Middle East) is a New Jersey corporation and wholly owned subsidiary of Johnson & Johnson. Following a corporate restructuring in 2009, Johnson & Johnson (Middle East) managed Johnson & Johnson (Egypt) S.A.E., including its trade with Sudan. This management led to the prohibited facilitation of five shipments of goods to Sudan from  Johnson & Johnson (Egypt) S.A.E. over a seven month span in 2010.

The United States maintains a comprehensive embargo on Sudan, which prohibits the exportation of goods and services to that country. The Sudanese Sanctions Regulations explicitly prohibit facilitation of such exportation. 31 C.F.R. 538.206 and 407. Continue reading

February 2, 2016

Continued International and Domestic Coordinated Focus on Money Laundering

by Jeremy Paner

stack_100_dollar_bills_iStock_000005509580XSmallYesterday, the U.S. Drug Enforcement Agency (DEA) announced an unspecified number of arrests of Hizballah money launderers, including Mohamad Noureddine. These arrests followed the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designation of Noureddine pursuant to its counterterrorism authority. The OFAC press release for this designation identifies Noureddine as a key Hizballah money launderer. According to OFAC,  Noureddine and his company Trade Point International S.A.R.L. established a money laundering network across Asia, Europe, and the Middle East that provides bulk cash shipping and black market currency exchange services for those seeking to hide their ill-gotten gains.

Hizballah International Financing Prevention Act of 2015

Irrespective of the detention of Noureddine, foreign financial intuitions that knowingly facilitate or conduct significant financial transactions for Trade Point International S.A.R.L. may have their U.S. correspondent or payable through accounts severed. OFAC has this authority under Section 102 of the Hizballah International Financing Prevention Act of 2015, which authorizes secondary sanctions on Hizballah. Continue reading