Steptoe partners Meredith Rathbone and Brian Egan authored an article on US secondary sanctions published in WorldECR’s special report, “The Global Agenda.” The article discusses how US secondary sanctions seek to target and restrict the activities of non-US persons and explains how best to deal with those sanctions.
More information is available here.
On August 10, 2017, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) announced a settlement with IPSA International Services, Inc. (“IPSA”) to resolve apparent violations of the Iranian Transactions and Sanctions Regulations (“ITSR”). The apparent violations include importation of Iranian-origin services in violation of § 560.201 and engagement in transactions or dealings related to Iranian-origin services in violation of § 560.206 and § 560.208. IPSA is a “risk mitigation” firm that specializes in providing regulatory-related due diligence services, among other offerings. IPSA agreed to pay $259,200 to resolve the matter.
According to OFAC, the apparent violations stem from two contracts entered into by IPSA and one of its subsidiaries. IPSA (the US parent) entered into the first contract (“contract one”) with a third country, presumably a government agency or entity, regarding its “citizenship by investment program,” which may be a program similar to the EB-5 Immigrant Investor Visa Program in the US. IPSA’s Canadian subsidiary entered into the second contract (“contract two”), which involved a similar immigration-related investment program, with a government-owned financial institution based in a different third country.
Some of the applicants to both of these programs were Iranian nationals whose personal information could not be appropriately vetted by sources outside Iran. In an effort to verify information about these applicants, IPSA’s Canadian subsidiary and IPSA’s subsidiary in the UAE hired subcontractors to conduct due diligence, and those subcontractors then hired third parties to obtain and validate information within Iran. …
Continue Reading Settlement Points to Potentially Expansive View of Importation of Iranian Services by OFAC
On June 26, 2017, American International Group, Inc. (AIG) agreed to a $148,698 civil settlement with OFAC based on a voluntary disclosure of 555 apparent violations of OFAC’s Iran, Sudan, Cuba and Weapons of Mass Destruction Proliferators economic sanctions programs. AIG processed approximately $396,530 in premiums and paid claims on policies covering maritime shipments of goods destined for or transiting through Iran, Sudan, or Cuba, or that involved a person on OFAC’s Specially Designated Nationals (SDN) list. 455 of the 555 transactions involved Iran, and 33 involved shipments aboard “blocked” vessels belonging to Islamic Republic of Iran Shipping Lines (IRISL). IRISL was an SDN at the time, but was delisted as a result of the Iran nuclear deal in January 2016 (although IRSL remains subject to sanctions for US persons and in limited circumstances also for non-US persons).
OFAC’s Frequently Asked Questions (FAQs) concerning the Insurance Industry make clear that OFAC’s regulations trump state insurance law, and that the mere issuance of a policy or coverage to a prohibited person or for a prohibited activity constitutes a “service” that would violate US law, assuming the insurer is subject to OFAC’s jurisdiction. Furthermore, an insurance policy that involves a restricted government, SDN, or entity owned 50 percent or more by an SDN, could be treated as “blocked” property, in which case the insurer essentially cannot take any action on the policy without a license from OFAC.
The standard practice for insurance companies operating with global scope to cope with these restrictions (in addition to screening the names of parties against the relevant sanctions lists) is to include “exclusionary clauses” in their policies to carve out from coverage any provisions that would violate US economic or trade sanctions. There is no “one size fits all” exclusion clause that OFAC has published or officially endorsed, but the clause should be written in such a way and operate so as to put the insured on notice and legally exclude the sanctioned activity or party from the coverage. …
Continue Reading OFAC Penalizes AIG’s Voluntary Disclosure of Overly “Narrow” Exclusion Clauses and Single Shipment Policies
On May 26, 2017, in Epsilon Electronics v. US Department of the Treasury, a split panel of the DC Circuit Court of Appeals partially upheld and partially remanded to the district court a determination by the Treasury Department’s Office of Foreign Assets Control (OFAC) to impose a penalty of over $4 million against Epsilon for violating the Iranian Transaction and Sanctions Regulations, 31 CFR Part 560 (ITSR). (See this link for a summary of the May 2016 district court decision granting summary judgment in favor of OFAC.)
The case, which has been watched with interest by US companies whose products can be found in Iran, considered the meaning and application of an OFAC regulation prohibiting the transshipment of US goods to Iran through third countries. The relevant regulation prohibits US persons from exporting “goods, technology or services to Iran,” including exports to third countries with “knowledge or reason to know” that the exports are “intended specifically” for shipment to Iran. 31 CFR § 560.204.
The transshipment provision is a critical component of the US sanctions program. US sanctions against Iran are far more significant than sanctions that most other countries in the world maintain on Iran, with virtually all trade between the United States and Iran being prohibited by the US government. Thus, companies in the United States that must comply with US sanctions on Iran frequently interact with non-US firms that are not similarly restricted under their local law in their dealings with Iran. For US exporters, this may include trade with wholesalers or distributors in third countries who also do business in Iran.…
Continue Reading Epsilon Electronics: A Cautionary Tale on Transshipments?
Following up on our previous post, yesterday the UK Office of Financial Sanctions Implementation (OFSI) issued regulations formally implementing the civil penalties framework set out in the Policing and Crime Act 2017. OFSI has issued a press release, regulations regarding civil penalties, responses received to OFSI’s request for consultation regarding draft guidance…
The UK’s Office of Financial Sanctions Implementation will soon issue regulations that could significantly alter the British sanctions enforcement environment, and bring it closer in line with the US’s approach to such violations. On the heels of the newly-enacted Policing and Crime Act 2017, the regulations will introduce civil penalties for the violation of financial…
On February 3, 2017, the US Treasury Department’s Office of Foreign Assets Control issued a finding of violation against Taiwan-based B Whale Corp. (BWC), a member of the Taiwan-based shipping company TMT Group. The finding of violation was issued for activity occurring entirely outside the United States, based on the jurisdictional finding that “BWC was…
The US Treasury Department’s Office of Foreign Assets Control (OFAC) published an amendment to the Sudanese Sanctions Regulations (SSR), 31 C.F.R. Part 538, on January 17, 2017. The amendment authorizes all transactions that were previously prohibited under the SSR, including transactions involving the Government of Sudan. OFAC’s SSR amendment comes as a broad general…
Steptoe’s Meredith Rathbone and Peter Jeydel co-authored an article in Risk & Compliance, “New DOJ Guidance Could be a Game Changer for Export Controls and Sanctions Enforcement.” The article was published in the January-March issue and centers on how the US Department of Justice’s guidance may cause difficulties and new risks for industries.
For…
Capping off a year of robust sanctions enforcement, two recent enforcement actions highlight the risks of doing business with sanctioned countries, in particular Iran. In December 2016, federal and New York state regulators initiated enforcement actions related to alleged sanctions violations involving Iran. In the first enforcement action, Italy’s largest retail bank, Intesa Sanpaolo SpA…
