OFAC Attorneys

This may end up being the biggest week in the history of the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). Yesterday, for the third day in a row, OFAC announced a large settlement against a financial institution for violations of U.S. economic sanctions. Yesterday OFAC took aim against the Bank of Tokyo-Mitsubishi UFJ (“Bank of Tokyo”) settling violations with the bank for alleged violations of the Burmese, Iranian, Proliferators of Weapons of Mass Destruction, Sudanese, and Cuban sanctions programs.

According to OFAC, Bank of Tokyo engaged in tactics to conceal the involvement of sanctioned countries and parties in transactions that were processed through financial institutions in the United States. Specifically, Bank of Tokyo maintained written policies calling upon their employees to systematically and purposefully delete or omit information identifying sanctioned targets. As a result of this policy, Bank of Tokyo processed 97 transactions for a total value of $5,898,943 through its New York branch and other U.S. banks. The policy was discovered by senior management, and after an internal review, Bank of Tokyo filed a voluntary self-disclosure. Bank of Tokyo was settled the allegations of sanctions violations for $8,571,634.

It is clear from the settlement amount that OFAC determined Bank of Tokyo’s conduct to be egregious. The fact that even with Bank of Tokyo filing a voluntary self-disclosure the settlement amount was higher than the amount of the transactions involved is a key indicator of how egregious OFAC considered the violations. Voluntary self-disclosures allow for an automatic 50% reduction in the enforcement penalty or settlement and are often recommended to be filed in order to put the case in the best possible light to OFAC. In this case, however, OFAC aggravated the penalty based on the fact that Bank of Tokyo’s conduct concealed the involvement of U.S. sanctions targets and displayed reckless disregard for U.S. sanctions. This aggravating factor was supported by the fact that the general manager of the Operations Center knew or had reason to know that procedures had been implemented instructing employees to manipulate payment instructions. Moreover, OFAC found that the sanctions targets received a substantial economic benefit as a result of Bank of Tokyo’s conduct. There were some mitigating factors applied as well for cooperating with OFAC and upgrading their internal compliance program, however, this is one case where OFAC definitely found that the bad outweighed the good.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.

Today, the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced that Genesis Assets Managers, LLP (GAM) was paying $112,500 to settle apparent violations of the Iranian Transactions Regulations (ITR). In short, GAM a U.S. based firm serving as a investment manager for Genesis Emerging Markets Fund, violated the ITR when its agent, Genesis Investment Management, LLP invested $3 million to Cayman Islands’ based First Persian Equity Fund on behalf of GAM. First Persian Equity Fund is a company which invests solely in Iranian securities.

Despite OFAC finding that GAM failed to use a minimum amount of caution, provided a substantial benefit to Iran through their actions, and had knowledge of the transactions, OFAC stated that GAM’s activities were not egregious. I must say I was surprised by OFAC’s finding that the activity was non-egregious, considering this is a financial services firm operating without any sort of OFAC compliance program. Moreover, OFAC admits GAM’s activities undermined the sanctions program by providing a substantial economic benefit to Iran. There must have been a great deal of lawyering done to convince OFAC that this activity wasn’t completely reckless.

There were a few things working in GAM’s favor when OFAC determined what settlement amount was appropriate. First, they self-disclosed the apparent violation; thereby reducing any base penalty by half. Second, they substantially cooperated with OFAC during its investigation. Third, they took steps to remediate the violations. Finally, and quite surprisingly, OFAC stated that GAM may not have known of their OFAC obligations under U.S. law. Again, I am surprised by this, as those in the financial services industry should be more on aware of OFAC and the sanctions programs it administers than anyone. Indeed, the financial services industry is the first line of defense for catching and preventing OFAC violations.

Despite my surprise at how OFAC is viewing the apparent violations, I think it goes to show what a great tool the voluntary self-disclosure program can be. Since OFAC found that the transactions were non-egregious and GAM self-disclosed the base penalty was capped at $125,000. Therefore, mitigation based on other factors found in the OFAC Enforcement Guidelines was only $12,500 or about 10% of the base penalty. However, when one considers that the base penalty could have been in the millions, it really does seem like GAM received a massive break from OFAC.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

On Wednesday, President Obama imposed sanctions against certain parties contributing to the instability in Yemen. Although, no parties were designated pursuant to this new executive order, it gives the Department of Treasury the authority to block those parties presenting a threat to Yemen’s peace, security and stability. In particular, the executive order points to those involved in preventing the implementation of the November 23, 2011 agreement for the transition of power in Yemen as being eligible for designation. In addition to those parties designated under this sanction program, political or military leaders of those designated parties will also be targeted for designation. Moreover, those providing material support and assistance to designated parties are also at risk for designation.

As with most all U.S. economic sanctions administered by the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC), parties designated under this new sanctions program will have their assets under U.S. jurisdiction blocked and be prevented from transacting with U.S. persons. However, unlike some other sanctions programs, President Obama has indicated that the humanitarian donation exemption contained in the International Emergency Economic Powers Act (IEEPA)–the underlying legal authority for these sanctions–would impair his ability to protect the national security of the United States and therefore, the exemption does not apply under these new sanctions.

These new sanctions do not impose upon any contracts entered into prior to the issuance of this executive order, nor do they impair the ability of the United States Government, its employees, grantees, and contractors from carrying out the official business of the United States.

As noted above, these new Yemeni sanctions are designed as a warning to those who would derail the peace process in Yemen. While no parties have been designated under this program, OFAC compliance officers should start looking at potential areas of risk arising out of transactions they are involved in or facilitating in Yemen. As those in the OFAC compliance community know, designations can occur overnight and when dealing in a strict liability environment not moving quickly could lead to administrative subpoenas and possibly penalties.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

Every matter arising as a result of economic sanctions administered by the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) is different, because every set of circumstances surrounding transactions prohibited by those sanctions is different. Despite the variance between these cases, there are some common considerations that can and should be taken into account when filing a voluntary self-disclosure for an apparent violation of OFAC regulations.

First, there needs to be a determination made as to the egregiousness of the violation. How bad was conduct that is being disclosed? Does it involve something as simple as the sale of property in Iran? Or is it something more harmful to U.S. national security interests, such as, for example, exporting sensitive technology to Sudan? The determination to be made here is whether or not the self-disclosure of the violation will lead to a civil penalty or a criminal prosecution. If it is the latter, then you may want to rethink your self-disclosure and make a determination. If it is the former, seek to make a determination as to the penalty amount. Will any potential penalty be in an amount which you or the company can afford to pay? Strategy hinges greatly upon the determination as to the egregiousness of the apparent violation so it should be carefully thought out.

Second, those who were engaged in the prohibited transactions should work closely with counsel. This is not only to protect attorney-client privilege, it is also to develop a deep and meaningful understanding of the circumstances surround the sanctions violation. Legal counsel can only glean so much information from documents and emails related to the prohibited transactions; therefore, it is important that the actual people involved in those transactions are reviewing the information going into the self-disclosure and providing input into that self-disclosure.

Third, and related to the point above, is that there are two primary sources of information in preparing a voluntary self-disclosure to OFAC: 1) interviews, and 2) documents. These really go hand in hand. If you rely too heavily on what the parties involved in the transactions say about what occurred, then you may find yourself self-disclosing facts which are not supported by the documentation. On the other hand, if you only rely on documentation, then you may have only a very sterile recitation of facts that does not provide all of the circumstances surrounding the violations.

In my opinion, more often than not, it is a good idea to file an OFAC voluntary self-disclosure. There are tremendous benefits from a penalty calculation standpoint for doing so and OFAC does seem to treat parties who self-disclose their potential violations favorably. One final note, if you are reading this as an individual or company employee with no OFAC experience, I would caution against filing your own self-disclosure. I have seen one too many cases where people have tried to file their own OFAC self-disclosures and ended up getting themselves into even more trouble. As always, when dealing with OFAC proceed with caution.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

The new sanctions targeting Iran which impose prohibitions on U.S. depository institutions maintaining correspondent or payable through accounts for foreign financial institutions who engage in “significant” transactions with the Central Bank of Iran or other designated banks has caused a number of questions to arise. The most prevalent question is: what constitutes a “significant” transaction for purposes of the Iranian Financial Sanctions Regulations (IFSR).

While there is no set definition for the term “significant” as used in the IFSR, when determining whether a transaction or financial service is “significant,” OFAC will consider a number of factors:

(1) the size, number, frequency, and nature of the transaction(s);

(2) the level of awareness of management of the transaction(s) and whether or not the transaction(s) are a part of a pattern of conduct;

(3) the nexus between the foreign financial institution involved in the transaction(s) and a blocked Islamic Revolutionary Guard Corps individual or entity or blocked Iran-linked financial institution;

(4) the impact of the transaction(s) on the goals of CISADA;

(5) whether the transaction(s) involved any deceptive practices; and

(6) any other factor that may be relevant to OFAC.

As is usually the case with OFAC, these determinations are always made on a case-by-case basis. Once, a transaction is determined to be significant, then the foreign financial institution engaged in such transactions will be sanctioned and lose access to U.S. banks by losing their ability to maintain correspondent or payable through accounts at those institutions. The entities which are designated in such a manner are to be listed in a new list maintained by OFAC known as the Part 561 List.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.

For those of you unfamiliar with the case of USA v. Aviation Services International, B.V. d/b/a Delta Logistics, B.V., (“ASI”) it concerns a U.S.. prosecution of a Dutch aircraft supply company for violations of U.S. economic sanctions, in particular The Iranian Transactions Regulations. In ASI, the defendant (“ASI”) entered a guilty plea to these violations.

As with any plea hearing in the federal criminal system the government filed a factual proffer to show what evidence they would have offered at trial to prove that the defendant was indeed guilty of the charges leveled against them. Below is a brief analysis of the government’s factual proffer in that case.

In essence to prove that ASIl engaged in a violation of the (IEEPA) and the Iranian Transactions Regulations the government needs to show three different things: 1) that ASI engaged in prohibited transactions with Iran; 2) that ASI engaged in such transactions without obtaining the appropriate licenses from the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”); and 3) that ASI acted willfully.

1. Transactions with Iran: To prove that ASI engaged in prohibited transactions with Iran, the government’s factual proffer states that at trial they would have shown that ASI’s Director placed orders from U.S. suppliers for electronic communications equipment. In one instance, the order was placed through a New Hampshire company, then shipped to a Georgia company before being sent to ASI in the Netherlands. Once arriving in the Netherlands, the equipment was soon transshipped to Iran. In addition, the government contends that evidence exists to show that ASI and its Director entered into an agreement with an Iranian businessman in 2004 for ASI to procure U.S. origin goods and ship them to Iran. ASI also quoted and fulfilled contracts for the provision of U.S.-origin goods for a number of other customers in Iran.

ASI also engaged in similar activity with other types of articles. Some of those shipments were even seized by Dutch Customs Enforcement prior to their shipment to Iran.

2. No License: The factual proffer only states that at no time did ASI or its Director obtain a license to reexport the above referenced equipment to Iran from OFAC.

3. Willfully: According to the government’s factual proffer, in one case, upon the request of the U.S. supplier, ASI informed the U.S. supplier that the end-users were in Poland and that the items were for the Polish Border Control Agency, when actually the order was placed on behalf of parties in Iran for final shipment to Iran. ASI’s Director also informed the shipping company that the end-users were in Poland. There was also other information in the proffer suggesting that ASI provided false end-user information for other suppliers as well.

The above representation of what is contained in the factual proffer is abbreviated. There were a number of other occurrences in this case that warrant discussion but which are outside of this posting’s purpose. The above was merely provided to show what types of activities the government proves occurred in order to establish an IEEPA violation for export of U.S.-origin goods to Iran. In essence, it all comes down to whether the defendant was transacting with Iran without a license and whether they were dealing in a misleading way in an attempt to avoid the sanctions. The allegations in similar cases tend to show the same type of information used against the defendants. In short, those transacting with Iran for U.S.-origin goods and acting in a misleading or deceptive way run the risk of criminal prosecution for an IEEPA violation.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.