June 22, 2015

OFAC Penalty for Iran Sanctions Violations Raises Questions Regarding Egregiousness Determination

by Jeremy Paner

Last Friday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a settlement with John Bean Technology Corporation (JBT) of apparent violations of sanctions imposed on the Islamic Republic of Iran Shipping Lines (IRISL). OFAC designated IRISL in September 2008 under its counter-proliferation authority for providing support to  Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL). Under the agreement, JBT will pay $391,950 for its sanctions violations.

The violations center around an April 2009 shipment of  $2,897,936 worth of goods from Spain to China by IRISL. An unnamed U.S. bank rejected the trade documents for this shipment after refusing to serve as the advising bank on the underlying letter of credit. After receiving a license from OFAC to do so, the U.S. bank returned the trade documents for this shipment. Following this rejection, JBT presented the trade documents to Banco Santander for payment. Later, JBT paid JBT AeroTech Spain $164,470 for payment it had made for IRISL and Banco Santander services.  

As OFAC explains in its Enforcement Guidelines, egregiousness and voluntary self-disclosure determinations establish base penalty calculations for violations of its regulations and Orders. According to the announcement of this enforcement action, OFAC determined that these

violations were not egregious and were not voluntarily self-disclosed. Apparently, the U.S. bank reported the rejection, and therefore OFAC could not grant JBT the benefit of having self-disclosed its violations.[1]

OFAC heavily weighs “willful or reckless violations of the law” and “awareness of the conduct at issue” in making the egregiousness finding. It appears that JBT knew that its dealing with IRISL was unlawful, especially after the U.S. bank rejected the trade documents for the transaction. According to the press release, OFAC determined that “JBT management knew of the conduct resulting in the Apparent Violations.” OFAC also found JBT to be a sophisticated entity that caused harm to the counter-proliferation sanctions program by conferring economic benefit to IRISL. These factors should have led to an egregiousness finding and a substantially greater civil penalty.


 

[1] The OFAC Enforcement Guidelines (Appendix A to Part 501 – Economic Sanctions Enforcement Guidelines) states “[n]otification to OFAC of an apparent violation is not a voluntary self-disclosure if: a third party is required to and does notify OFAC of the apparent violation or a substantially similar apparent violation because a transaction was blocked or rejected by that third party (regardless of when OFAC receives such notice from the third party and regardless of whether the Subject Person was aware of the third party’s disclosure)…”