OFAC Voluntary Self-Disclosures: Key Considerations

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.

Bookmark and Share
Advertisements

Leave a comment

Determining a Significant Financial Transaction Under the IFSR

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.

Bookmark and Share

Leave a comment

USA v. Aviation Services International: An Examination of an IEEPA Violation

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.

Bookmark and Share

Leave a comment

Advertising for OFAC Licensed Travel to Cuba

Ok, so you or your company has obtained a license to facilitate travel arrangements to Cuba for people to people educational exchanges. The next step is letting those licensed parties know about your services. Since both services to be provided and the travel itself are still subject to the authority of the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) it follows that advertising of travel to Cuba may have certain restrictions imposed on it as well. Indeed, it does. Luckily, last Friday OFAC released guidance on advertising people to people travel services to Cuba.

Below are two lists. One list defines what activities you can legally engage in relating to the advertising of travel to Cuba pursuant to licenses for people to people exchanges. The other list is a list of those activities which a U.S. person cannot engage in relating to the advertising of travel to Cuba pursuant to licenses for people to people exchanges. In the spirit of OFAC we will refer to the list of activities that are allowed as the Authorized Activities List and the list of activities which are prohibited as the Blocked Activities List.

*Disclaimer: These lists were not created by OFAC. They were merely compiled by me and were derived from the information contained in OFAC’s March 9, 2012 Guidance. These lists do not have the effect of legal authority. All OFAC cases are different and are considered based on their specific facts. Any questions about proposed activities should be referred to OFAC Compliance or at a minimum experienced counsel with a knowledge of OFAC regulations and OFAC’s Cuba travel policy.

AUTHORIZED ACTIVITIES LIST

1. Designing advertisement related to licensed Cuba travel;

2. Accepting advertisement related to licensed Cuba travel;

3. Publishing the advertisement in any medium;

4. Providing a link to the website of a licensed organization whose services are being advertised;

5. Posting of information related to licensed services on a website;

6. Production of a brochure advertising licensed services and distribution of that brochure to the public;

7. Promotion of licensed travel services via phone campaigns;

8. Promotion of licensed travel services at travel expositions;

9. Collection, organization, and production of contact information for prospective travelers in exchange for a referral fee or otherwise.

BLOCKED ACTIVITIES LIST

1. Registering travelers on behalf of a licensed travel provider;

2. Collecting funds from travelers for forwarding on to a licensed travel provider;

3. Advertising without including the licensed travel provider’s name;

4. Advertising using an alternate name for a licensed travel provider in the advertisement;

5. Advertising that misleads travelers into believing they will not be required to maintain a full time schedule of educational exchange activities;

6. Advertising for people-to-people travel that suggests the travel will focus on activities that may be undertaken after their daily full-time schedule of people-to-people activities;

7. Advertising activities that are primarily tourist-oriented;

8. Advertising self-directed educational activities that are intended only for personal enrichment.

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.

Bookmark and Share

Leave a comment

OFAC Penalizes Dallas Company for Dealings With Richard Chichakli’s Assets

One of the most public OFAC SDN reconsideration cases, that dealing with former Texas resident, Richard Chicakli, has added a new chapter. Yesterday, OFAC penalized Richland Trace Homeowners Association, Inc. of Dallas, Texas, $9,000 USD for dealing in assets in which Mr. Chicakli had an interest. Mr. Chichakli is designated as a Specially Designated National (SDN) under the Former Liberian Regime of Charles Taylor Sanctions Regulations. Mr. Chichakli has repeatedly sought reconsideration of his SDN designation, but to no avail. He maintains a website where he has chronicled these efforts.

OFAC originally proposed a penalty of $9,000 for Richland. In their response to the proposed penalty, Jack Manning, Richland’s attorney, stated that Richland had acted in accordance with their OFAC license to transact in this property and that the OFAC license authorized Richland’s sale of property which Mr. Chichakli had an interest in and the distribution of the proceeds from that sale.

OFAC differed with Mr. Manning’s interpretation of the facts finding that Richland violated 31 C.F.R. §593.201 and that Section II(b) of Richland’s License (LB-126) states that the license’s authorization excludes “any taxes, costs, or legal, administrative, or other fees incurred or accruing prior to the court authorized foreclosure of the Blocked Premises . . . .”

As such, OFAC found that Richland’s use of $9,500 of the proceeds of the sale of the property towards reimbursing itself for past assessments and late fees was not authorized by License LB-126 because it comprised a reimbursement of fees that accrued prior to the court authorized foreclosure of the property that was expressly prohibited by Section II(b) of the license. As a result, it constituted an unauthorized dealing in property in which Richard Chichakli, an SDN, had an interest.

Even with an OFAC license in place, engaging in transactions which an SDN has its pitfalls. First, the license application must be thoroughly drafted to seek authorization for all conceivable uses or transactions that may need to be engaged in under the authorization. Second, the license must be thoroughly understood in order to ensure that the license holder is not acting outside of the authorizations contained in the license. Failure to follow either of these steps could lead one to find themselves in the same position as Richland has.

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.

Bookmark and Share

Leave a comment

Is OFAC’s SDN Search Tool Accurate?

Last week the United States Department of the Treasury Office of Foreign Assets Control (OFAC) introduced a new search tool on their website which allows users to search for the names of individuals and entities on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List). The tool is simply called simply SDN Search. There has been a lot of buzz around this new search tool primarily because of the disclaimer OFAC issues on their webpage indicating that “The use of SDN Search does not limit or excuse any liability for any act undertaken as a result of, or in reliance on, such use.” However, aside from the fact that using OFAC’s own search tool to detect and prevent transactions with parties on the SDN List will not shield you from liability from engaging in transactions with such parties, OFAC’s new search tool has other potential issues; namely, that the information provided by SDN Search might not exactly be accurate.

How would I know whether the information is accurate or not? I happen to represent a few individuals who are on the SDN List and are seeking to have their names removed. I looked up those individuals and entities and noticed some discrepancies between OFAC’s information on my clients and what the documentary evidence, which we had provided to them, actually showed.

For example, in one case, OFAC SDN Search shows five (5) passports and passport numbers for one of my clients. However, it fails to show information on another one of my client’s passports, a copy of which was turned over to OFAC during the reconsideration process. Moreover, that same client’s date of birth on the OFAC SDN Search is twenty (20) days later than his actual birth as documented on his birth certificate. In another case, OFAC lists three (3) birth dates for the client when only one of those dates is the actual date of his birth.

So what does this mean? In my mind it means one of two things. On one hand it could mean that OFAC does not care about the information, supported by documentary evidence, that is provided to them in the reconsideration process. On the other hand it could mean that they have serious data entry and record keeping problems. Regardless, these discrepancies coupled with OFAC’s disclaimer regarding liability all amount to one thing: OFAC SDN Search may not be the best tool to use when running your SDN checks. While I do applaud OFAC for taking this step and trying to provide a tool to make SDN checks easier, I think it will take some time to work out the bugs before it comes to be on par with products offered by MK Data Services, World Check, or ATTUS.

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.

Bookmark and Share

1 Comment

Will the EU Sanction Iranian Oil?

Today there are variety of reports regarding Iranian Oil Minister Rostam Qasemi’s statement that the EU would not sanction Iranian oil exports because it would harm the global crude market. EU leaders have recently been calling for increased sanctions against Iran due to Tehran’s disputed nuclear program. This has included discussions on new sanctions targeting Iran’s energy, transport, and banking sectors.

Iran has already been targeted at least four times by U.N. sanctions and international sanctions for refusing to halt its nuclear program in the face of accusations from the United States and its allies saying its aim is to develop a nuclear weapon. Iran has denied these allegations, saying it needs nuclear technology to generate electricity. Iranian authorities say the sanctions have had no impact on Iran’s economy, who remain OPEC’s number two oil producer with 2.6 million barrels a day worth of oil exports. According to some reports, Iran’s economy is 40 percent reliant on oil revenue.

The U.S., Britain, and Canada have already announced new sanctions against Iran’s energy and financial sectors, and France is currently proposing new sanctions which would include blocking the assets of Iran’s Central Bank and suspending purchases of its oil. France is backed by Germany and Britain in this effort, however, some E.U. states have expressed reservations, because of their reliance on Iranian oil.

Both China and Russia have appealed against new sanctions which would increase the difficulty of developing Iran’s large gas reserves. Currently, Iran sits on the world’s second-largest natural gas reserves after Russia. Regardless of this, international sanctions have impaired opportunities to develop this sector.

So how much truth was there Mr. Qasemi’s statement? Possibly quite a bit. It is no secret that the U.S. has been pushing for increased European sanctions against Iran for years, however, recently there has been even more pressure due to the Undersecretary for Terrorism and Financial Intelligence, David Cohen’s, recent trips to Europe calling for increased pressure on Iran. One thing that has come out of those discussions is that Europe is concerned over what sanctions on Iranian oil could mean for Europe’s economy. That gives one pause to think that perhaps the EU will not issue new sanctions against Iran, at least not on Iranian oil. However, with new proposed sanctions being debated in the U.S. Congress that would harm foreign banks that do business with Iran, Europe may soon have no choice but to move towards sanctions on Iran’s oil sector.

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.

Bookmark and Share

Leave a comment