OFAC Pushes Iran Sanctions Enforcement
Many companies have been laser-focused on anti-corruption compliance, and with good reason given the risks and consequences of an anti-corruption enforcement action. In doing so, companies have to be careful to avoid ignoring sanctions risks, especially in the ever-evolving nature of sanctions rules and regulations.
The Office of Foreign Asset Control is an enforcement agency that coordinates its investigations activity with the Department of Justice in a similar manner to the SEC and Department of Justice’s collaboration on FCPA enforcement. OFAC is responsible for civil enforcement of sanctions laws and regulations, while DOJ is responsible for criminal enforcement of transactions laws.
The new administration continues to enforce vigorously OFAC’s sanctions program, and has responsibility for enacting new regulations required under the new sanctions law. (See Here for summary of new requirements).
In two recent enforcement actions, OFAC reminded companies of the importance of sanctions compliance, especially with regard to the continuing Iran sanctions program. In particular, the enforcement actions focused on the risks associated with USD transactions and subcontractor/third party services in Iran. Interestingly, the IPSA settlement described below involved a due diligence company that investigated the activities of Iranian nationals.
Both of these cases reinforce the importance of due care and diligence with respect to potential transactions involving the Iran sanctions program. Companies have to ensure that interactions with companies doing business with Iranian companies do not involve USD transactions, and that subcontractors and third parties, at whatever level, do not engage in otherwise prohibited activities.
On July 27, 2017, OFAC announced a $12 million settlement with TransTel, a subsidiary of CSE Global, a Singapore-based telecommunications company that provides equipment and services to companies in the oil and gas sector, for violation of the Iran sanctions program. (See Here for copy of settlement agreement).
TransTel provided equipment and services to oil and gas projects in Iran, and retained a number of third party subcontractors to assist in the projects. TransTel maintained USD and non-USD bank accounts in a Singapore bank. As part of its agreement with the Singapore bank, TransTel specifically agreed not to conduct any banking services through the Singapore bank related to the Iran project. Despite this specific assurance, within two months of beginning the project, TransTel engaged in prohibited USD transactions to pay its third parties for services and equipment provided as part of the Iran projects.
Specifically, from June 2012 to March 2013, TransTel conducted 104 separate transactions in violation of the Iran sanctions prohibition, totaling $11 million. As a result, six US banking institutions processed prohibited transactions involving the Iran projects. The 104 transactions contained no information referencing the Iran projects or the connection to Iran.
TransTel faced a penalty of $38 million but reduced the penalty to $12 million by cooperating with the OFAC investigation and enhancing its sanctions compliance program. TransTel did not disclose the conduct to OFAC.
IPSA International Services
On August 10, 2017, OFAC announced a settlement agreement with IPSA International Services, based in Phoenix, Arizona (“IPSA”) for $259,200 for 72 apparent violations of the Iran sanctions program. (See Here for copy of settlement).
IPSA is an investigative company that provided due diligence services for citizenship for investment programs for financial institutions and a foreign country. Through two foreign subsidiaries, IPSA provided such services to a financial institution and a foreign country to investigate and conduct due diligence of several individuals, including some Iranian nationals.
In order to verify information in Iran, the IPSA subsidiaries hired subcontractors to collect, review and analyze information about individuals inside Iran. The subcontractors, in turn, hired Iranian third parties to validate information about these Iranian nationals.
On 44 occasions, IPSA imported Iranian-origin goods and services, i.e. information about Iran nationals. On 28 occasions, IPSA reviewed and initiated payments to providers of Iranian-origin services.
OFAC noted that IPSA did not disclose the conduct but IPSA enhanced its sanctions compliance program and cooperated with the OFAC investigations.