On January 23, 2020, the US State Department and the Office of Foreign Assets Control (OFAC) named six companies based in Hong Kong, China, and Dubai as Specially Designated Nationals (SDNs) under Executive Order (EO) 13846 for engaging in transactions involving Iran’s petroleum sector and the National Iranian Oil Company (NIOC).
OFAC’s designations target two Hong Kong-based trading companies, Triliance Petrochemical Co. Ltd. (Triliance) and Sage Energy HK Limited; Shanghai-based Peakview Industry Co. Limited; and Dubai-based Beneathco DMCC. The four companies are accused of transferring millions of dollars to NIOC, which was previously designated as an SDN, for Iranian petroleum purchases.
Concurrently, the State Department announced the designation of Triliance and another Hong Kong company, Jiaxiang Industry Hong Kong Limited, and China-based Shandong Qiwangda Petrochemical Co. Ltd. (Shandong Qiwangda). for knowingly engaging in a significant transaction for the purchase, acquisition, sale, or transport of petrochemical products from Iran, following the expiration of China’s Significant Reduction Exception in May 2019. The designations also included two executive officers of Triliance and Shandong Qiwangda.
According to a US Treasury Department news release:
“In 2019, Triliance ordered the transfer of the equivalent of millions of dollars to NIOC as payment for Iranian petrochemicals, crude oil, and petroleum products shipped to the United Arab Emirates and China after the expiration of any applicable significant reduction exceptions. In facilitating these shipments, Triliance worked to conceal the Iranian origin of these products. Triliance has also facilitated the sale of millions of dollars’ worth of petroleum products involving Naftiran Intertrade Company, a subsidiary of NIOC, to companies in China . . .
Similarly, in 2019, Hong Kong-based Sage Energy HK Limited (Sage Energy) and Shanghai-based Peakview Industry Co. Limited (Peakview) each ordered the transfer of the equivalent of millions of dollars to NIOC for exports after the expiration of any applicable significant reduction exceptions.”
As a result of the designations, all property and property interests of the designated companies and individuals that are in the United States or in the possession or control of US persons are blocked (frozen) and cannot be released or transferred without permission from OFAC. Moreover, US persons are prohibited from directly or indirectly dealing with the SDNs or entities owned 50% or more by them.
Non-US persons are also prohibited from dealing with the designated companies or entities owned 50% or more by them if the transactions involve US persons or the US financial system, including payments that clear through US-correspondent accounts.
Removal from the SDN List
Given that most international banks refuse to do business with SDNs and related parties, some designated companies may petition OFAC for removal from the SDN List. OFAC has previously stated that it would consider removing persons from the SDN List under some circumstances because the “ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior.”
Persons that intend to file an application for removal must ensure that any disclosure made to the US government is not only accurate and complete, but demonstrates a change in behavior that is consistent with US foreign policy objectives, which includes, among other things, ceasing any sanctionable activity. However, even a successful application for removal from the SDN List can take several months, if not more.
For additional information on these issues, including managing risks from exposure to SDN companies or entities owned 50% or more by them, follow the Steptoe International Regulation and Compliance (IRC) Blog or contact one of our lawyers located in the United States, Europe (London and Brussels), and Asia (Beijing and Hong Kong).