Sanctions Violations

In the aftermath of the Standard Chartered settlement for sanctions violations involving processing of financial transactions with Iran in violation of the Iran sanctions, more banks are falling under scrutiny for violating sanctions restrictions.  I hate to say “I told you so,” but I told you so. 

The Obama Administration has implemented a large number of sanctions as part of its foreign policy.  At the same time, the Administration has made enforcement of these and other country sanctions a top priority.

The Justice Department and the Treasury Department are having banner years in enforcement.  The government has announced large settlements with ING bank and others.  In addition, the press has reported that other major banks are under government scrutiny for possible sanctions violations.

Recent press reports have noted government concerns that Chinese banks have been funneling a large number of transactions involving Iran.  The source of these reports is undisclosed but it is likely that government investigators have provided this information to press sources.  The government apparently does not have sufficient evidence (or usable evidence) to initiate enforcement actions against the banks.  The concerns identified by the government are likely to become part of diplomatic discussions between United States and Chinese officials.  Whether those discussions will have an impact, is unknown.

The government is committed to tough enforcement of sanctions.  As part of this strategy, the government is taking an expansive view of extraterritorial jurisdiction, stretching it to the limits of the Due Process Clause of the Fifth Amendment to the Constitution. 

In a recent Executive Order, the Administration expanded its enforcement to include any entity outside the United States which facilitates another entities violation of any sanction.  Moreover, the government has relied on extraterritorial jurisdiction to encompass conduct which occurs outside the United States but has a slight connection to the United States. 

As an example, in the ING Bank case, the government cited conduct which occurred outside the United States but included correspondent banking transactions in the United States, or was for the benefit of a customer located in the United States. 

If these prosecutorial theories sound familiar, they should be – the Justice Department has relied on such theories in FCPA settlements which have been criticized as stretching concepts of extraterritorial jurisdiction.

It is important to remember where the courts have drawn the line on extraterritorial jurisdiction – Congress has the authority to pass laws and create enforcement jurisdiction when the conduct, which may occur completely outside the United States, has some impact or connection to the United States. 

For example, a illegal drug shipment from Latin America to Europe would not fall within this principle unless the government could establish that some portion of the illegal drugs were destined for United States shores. 

Applying this same principle, a foreign drug transaction benefiting a terrorist organization may be subject to United States jurisdiction if the government can show that the promotion of the terrorist organization (through a State Department designation) establishes that the terrorist organization poses a threat to the United States security.

While many complain about the Justice Department’s assertion of broad extraterritorial jurisdiction in the FCPA context, it is important to place such concerns in the context of Fifth Amendment Due Process jurisprudence.  The Justice Department has precedent on its side and is likely to find favor in the courts.

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