Guess Who’s Back? The South Sudan Sanctions Regulations

A few years ago when Sudan and South Sudan separated, and the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) noted that the Sudanese Sanctions Regulations (“SSR”) would not apply to South Sudan, I opined on how this would actually work in practice since there was still a substantial amount of economic activity between the two countries. Well, so the story goes, the situation deteriorated in South Sudan causing President Obama to issue Executive Order 13664 on April 3, 2014. E.O. 13663 reimposed sanctions on South Sudan. Although E.O. 13664 was issued over three (3) months ago, the new South Sudan Sanctions Regulations (“SSSR”) were only published earlier this week.

In short, the prohibitions imposed by E.O. 13664 are unchanged in the SSSR. As such, the SSSR, unlike the SSR, is a targeted sanctions program. This means that it does not impact the entire region of South Sudan, but only those parties engaged in particular activities which threaten the peace and stability of South Sudan and/or constitute human rights abuses. There is nothing too exciting about the SSSR as they appear to be the standard set of regulations we see when dealing with new targeted sanctions programs. In sum, dealings with parties on the OFAC Specially Designated Nationals and Blocked Persons List (“SDN List”) identified with a [SOUTH SUDAN] identifier are prohibited. Such prohibited dealings include all transactions for all goods, services, and technology, with limited exceptions.

What is interesting in this new set of regulations is 31 C.F.R. 558.507 which allows U.S. lawyers and law firms to receive payment from parties designated under E.O. 13664 and the SSSR from unblocked sources for payment of legal services authorized pursuant to 31 C.F.R. 558.506 so long as they file a copy of the engagement letter or legal services contract with OFAC before receiving payment. This obviates the need to obtain a specific license to receive payment as called for in 31 CFR 558.506. Furthermore, a note to that section clarifies that U.S. lawyers and law firms can hire private investigators and consultants to assist them in the representation of such parties, so long as the underlying legal services being provided are authorized pursuant to 31 C.F.R. 558.506.

This isn’t the first time we’ve see such language issued by OFAC. The Iranian Transactions and Sanctions Regulations (“ITSR”) also contains a similar authorization. Since this seems to be a common policy of OFAC’s, it would make sense for them to just extend this provision to all sanctions programs. I can tell you that one of the most frustrating things about representing parties designated under OFAC sanctions programs is having to wait around for the OFAC license authorizing payment to be returned before receiving payment. Authorizations such as those found in 31 C.F.R. 558.506 and 560.553 make sense and go a long way in assisting those parties who have been designated to get adequate legal representation in the U.S. quickly. Hopefully, we’ll see this sort of thing more often in the future.

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.

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OFAC Provides More Insight Into New Sanctions Effective July 1, 2013

The United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued additional guidance concerning sanctions targeting Iran that went into effect today. That guidance is as follows:

1. To the extent that a shipping company transacts with port operators in Iran that have been identified as such under the Iran Freedom and Counter Proliferation Act (IFCA) and payments are limited strictly to routine fees including port dues, docking fees, or cargo handling fees, paid for the loading and unloading of non-sanctioned goods at Iranian ports, such transactions would not be considered significant transactions for the purposes of the IFCA. However, non-routine and/or large payments or fees that materially exceed standard industry rates could expose a person to sanctions under that authority, as could providing any port operator in Iran with any significant financial, material, technological, or other support.

2. The sanctions that went into effect today targeting Iran’s auto sector do not make sanctionable the export of finished vehicles to Iran if no further assembly or manufacturing is required. Therefore, parties can export fully assembled and finished vehicles to Iran for sale by a non-sanctioned Iranian dealer or distribution network and not face sanctions under the new authority. This, of course, does not include U.S. origin vehicles. On the other hand, “auto kits” exported to Iran for assembly in Iran would be considered goods or services used in connection with the automotive sector of Iran and the export of such kits to Iran would be sanctionable if the transaction is significant.

3. While, goods or services for the maintenance of finished vehicles exported to Iran would generally not be considered significant goods or services used in connection with the automotive sector of Iran, the export, sale, or distribution of goods (e.g., auto parts and accessories) or services that would contribute to Iran’s ability to manufacture or assemble vehicles, or manufacture original equipment and after-market parts in Iran could create exposure to sanctions. Persons exporting parts and services to Iran for the maintenance or upkeep of finished automobiles, and foreign financial institutions facilitating such exports, should exercise caution to ensure that the parts or services are not diverted for the manufacturing or assembly of vehicles in Iran or the manufacturing of original equipment or after-market parts in Iran, and are used only for maintenance and upkeep.

Anyone having further questions regarding this guidance would be wise to contact a qualified OFAC attorney for further guidance.

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.

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OFAC Shows its Strong Backhand; Serves a Settlement on the ATP Tour

Today the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) settled violations of the Iranian Transactions Regulations (“Regulations”) with the ATP Tour, Inc. (“ATP”) who they allege violated §§ 560.206 and 560.208 of the Regulations by approving, facilitating, and in some instances making, 18 salary payments to an individual who is ordinarily resident in Iran (the “individual”), for services rendered and expenses incurred in connection with ATP tournaments the individual officiated.

ATP did not self-disclosure their violations to OFAC. For more information on filing a voluntary self disclosure of OFAC violations please see my article at: http://www.avvo.com/legal-guides/ugc/top-three-tips-for-filing-an-ofac-voluntary-self-disclosure

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.

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Al-Kuzbari Reconsideration Shows that Designated Syrians Can Be Removed from the SDN List

Given all that is going on in Syria these days, one might believe that those designated under the Syrian Sanctions program by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) have no chance of coming off of the List of Specially Designated Nationals and Blocked Persons (“SDN List”). The fact is that removal from the OFAC SDN List is always difficult/ This is particularly true in the case of a Syria designation. That said, removal is not impossible. Indeed, just last week a Syrian individual, Nabil Rafik Al-Kuzbari was removed from the OFAC SDN List. While details regarding what prompted OFAC to remove Al-Kuzbari from the SDN List are limited, it has been rumored that the reason underlying his removal from the SDN List was due to his leaving his position with a company owned and controlled by Rami Makhlouf, another designated Syrian national who is reported to have close ties to the Assad regime.

It’s important to keep in mind that OFAC designations are not meant as punitive measures. They are designed to compel a change in behavior of the parties they target. As such, if the rumors are true, then OFAC’s designations of Al-Kuzbari worked perfectly. Others on the OFAC SDN List who seek to be removed from that list would be wise to cut off any ties to other designated parties and present the information of those severed ties as soon as possible to OFAC. The issue then turns to one of getting OFAC’s attention and getting them to act, which is probably the most difficult task. OFAC is incredibly overburdened in all phases of its operations and has an extremely limited budget–around $30 million–despite the importance and breadth of its mission.

As such, to successfully contest any type of OFAC SDN designation, quickly file the request for reconsideration pursuant to 31 C.F.R. 501.807. This will get the reconsideration process moving with OFAC. Second, identify those relationships with other SDNs which may have lead OFAC to make the designation in the first place. Once those relationships are identified, steps should be taken to cut ties with those individuals and entities and provide information showing the severing of those relationships to OFAC. If it is a case of mistaken identity or an erroneous designation, it still makes sense to seek to cut off any potentially troublesome relationships or affiliations. Arguing with OFAC that they have it all wrong and that the designated party is completely innocent of any wrongdoing–whether true or not–will only leave the party seeking reconsideration mired in a back and forth with OFAC that will move slowly if at all. Keep in mind, OFAC feels very confident that the designations they make are based on credible information, or else they wouldn’t have made it. Whether they got it wrong or not is not the point. Showing them they are wrong will not get you very far, however, showing them that you have changed circumstances or done everything in your power to avoid engaging in any type of nefarious activity or other designated parties will be much more compelling to them. Reconsideration of OFAC SDN designations is very difficult, particularly when the designations are related to programs such as Syria, but they are not impossible. With the right counsel and the right frame of mind, even the most difficult designations can be removed.

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.

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OFAC Enforcement III: Bank of Tokyo

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.

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$112,500 Settlement for Iran Sanctions OFAC Violations

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.

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President Issues Sanctions Targeting Certain Persons in Yemen

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.

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