The US Department of the Treasury announced it was adding scores of Iranian entities to its list of Specially Designated Nationals and Blocked Persons (the SDN list) due to their connections with the Islamic Revolutionary Guards Corps (IRGC)-affiliated Basij force, specifically the Bonyad Taavon Basij (Basij Cooperative Foundation).  Importantly, however, these additions are not strictly military related, and include some Iranian economic giants across sectors including automotive, finance, and mining, including household names such as:

• Bahman Automotive Group
• Bank Mellat
• Esfahan Mobarakeh Steel Company
• Iran Tractor Manufacturing Company (ITMC)
• Mehr Eqtesad Bank
• Parsian Bank
• Sina Bank

Mobarakeh Steel and ITMC are the largest companies in the region in their respective sectors of steel production and tractor manufacturing.  Importantly, Bank Mellat and Bank Parsian are among Iran’s largest financial institutions.  Bahman Group is a large automotive company that has assembled foreign automobiles in Iran.

The additions of the banks may be the most interesting for many, especially U.S. persons seeking to divest from Iran. Being designated under the SDGT (Executive Order 13224) makes virtually all transactions with such entities prohibited.  This covers otherwise exempt or general license transactions such as medical, food, and agricultural sales, and the transfer of personal remittances.  As such, to the extent U.S. persons have any transactions with Iran in non-sanctioned areas such as humanitarian sales and divestment or personal remittances, they should take extra care to make sure such entities have no interest in such transactions.  Any such involvement can subject such funds to blocking upon coming into possession of a U.S. person.  The release of blocked funds requires a specific OFAC license.   If such entities have been or are involved, a specific OFAC license will now be needed and such parties should not proceed without first consulting a professional.

This announcement dovetails an advisory issued last week by the Department of the Treasury’s Financial Crime Enforcement Network (FinCen) on deceptive Iranian financial practices.

Importantly, today’s move by the Department of the Treasury does not appear to be related to President Trump’s announcement in May 2018 that the United States would be ceasing participation in the Joint Comprehensive Plan of Action (the “Iran Deal”), but rather part of the Administration’s policy to increase pressure against the Islamic Republic, particularly on the economic front.

We’ve been getting a lot of questions at the office as to what President Trump’s May 8, 2018 announcement to cease U.S. participation in the Joint Comprehensive Plan of Action (JCPOA, also known as the “Iran Deal”), an agreement between Iran and the “P5+1” (U.S., UK, France, Russia, China, and Germany) over Iran’s nuclear program. In the midst of this sanctions snap-back and sliding value of the Iranian Rial, many Iranian-Americans naturally have some cause for consternation and confusion.

Importantly, the general laws on remittances and asset divestiture from Iran are largely the same for U.S. persons, which the sanctions regulations define as U.S. citizens and permanent residents wherever they are (including in Iran) or other people physically in the United States. While we can no longer import Iranian-origin food products or carpets, regulations governing the sale of personal assets, the transfer of personal and family funds and the receipt of gifts remain intact. The only noticeable difference legally is that certain Iranian banks like Melli, Mellat, Sepah, and Tejarat will soon return to the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals and Blocked Persons (the “SDN” list). This means that transactions involving such entities will largely require specific OFAC licenses to be permissible to avoid blocking (aka “freezing”) by U.S. banks, for example.

Beyond the law however, we are seeing some tangible differences from the pre-JCPOA era. For one, the size of transfers appears to be shrinking, although this may be a direct result of the spike in the Dollar’s value versus the Iranian Rial/Toman.  In other words, for example, a $500,000 asset divestiture may require more funds transfers now than before.

Also, banks appear to be stepping up scrutiny of Iran-related transfers (such as gifts, proceeds from the sale of real estate, etc.) Remember, the law does require you to keep proper records of Iran-related transactions and these laws are not new. However, recent trends we have seen point to the increased importance of this. It is not only a legal requirement but a best practice that banks will likely look for more and more when processing funds transfers for their clients.

The best you can do is be firm on what the law is – often many people start inquiring as to what U.S. law is after they have begun the divestment or transfer process. That’s too late. Many transactions require licenses and while the laws on such licensing haven’t changed because of the JCPOA (other than issues connected to banks that will go back on the SDN list and an increased number of other entities that are being designated by OFAC), the logistics are getting a bit more difficult. These logistical issues can naturally create legal exposure points, so it’s best to be thorough and comprehensive. Exercising best practices is not only a matter of complying with the law but keeping good documents and properly informing your U.S. financial institution through the right channels (i.e., informing the right people, not just anybody at the bank).

Remember, banks often look for erratic activity in accounts, much like credit card companies do.  Oftentimes remittance transfers from Iran (like the transfer of inheritance or the sale of a home) will be unlike transactions typical to your account, and the source is not going to be identifiable as funds must be processed from a third country. This can arouse suspicion for a completely lawful transfer. Therefore, as bank compliance departments increase their scrutiny, there will be more responsibility on the part of customers to ensure that the underlying transaction (1) was lawful, and either allowed by OFAC by general or specific license (and you have a specific license if needed); and that (2) all aspects of the handling and transfer of the funds are lawful.  Otherwise you can run a high risk of having your funds rejected, or your account. It is key to provide proper documentation to your bank’s compliance team to ensure everything is not only done legally but also transparently.

OFAC slapped a $2 million penalty on ExxonMobil on Thursday for alleged violations of U.S. sanctions on Russia. Specifically the allegations were that during a narrow, 9-day window in May 2014, the U.S.-based oil giant entered into several contracts with Russian energy company Rosneft OAO where the signatory was Igor Sechin, who was named by OFAC as a Specially Designated National (SDN).  (It’s worthy to note that ExxonMobil then turned around and brought suit, alleging some similar arguments to those my law firm Akrivis Law Group successfully made on behalf of Epsilon Electronics in California in its landmark case challenging a $4 million penalty by OFAC.)  Beyond the constitutional arguments, this case highlights the taint of the SDN in transactions.

SDNs, as you probably know, are non-U.S. entities (companies, organizations, or natural persons) who have been designated by OFAC for varying reasons.  The list, which is effectively a “black list” for U.S. persons, numbers well into the hundreds of pages (it is almost reminiscent of the old white pages the phone company issued every year).  While many are in sanctioned countries like Iran, Cuba, and Syria, many are in countries with which the United States maintains very robust trade and diplomatic ties. U.S. persons are generally barred from dealing with such entities and these entities’ assets that come into possession of U.S. persons must generally be blocked.  Since there are many ways to get on to the SDN list (in large part through Executive Orders), not all designations are treated equally. In fact, there are sometimes carveouts for some SDNs.

Despite these nuances ion the list, many parties around the world, specifically banks, often adopt a “de-risking” approach towards SDNs – meaning they will generally not comb through the laws and enable or execute those transactions that may be exempted under law (even if they are specifically licensed by OFAC to do so) – rather, they prefer to simply not deal with such entities, even if a transaction does not include a single U.S. element. Long story short, it can be a fast downward spiral for any company, organization, or individual on a truly global scale. Getting off the list can be very challenging and time consuming.

So what happened here? Even though Rosneft was not itself on the SDN list, OFAC’s position was that ExxonMobil effectively imported the services of a designated entity, specifically Mr. Sechin. The dealing with Rosneft itself was not necessarily an issue per se, but having an SDN sign the contracts on behalf of Rosneft was.  In other words, Sechin’s signature on the contract and other work he did in furtherance of constituted a prohibited dealing for ExxonMobil.

ExxonMobil tried to argue that White House statements at the time indicated that these types of transactions were not problematic (although OFAC published a somewhat responsive Frequently Asked Question or “FAQ” on the same issue vis-à-vis the Burmese sanctions). White House or government agency statements can be very useful in determining a compliance approach or strategy, but ultimately the actual law is what’s written in the books.

Beyond the issue of policy versus law, again, the most important point here arguably is that the presence of an SDN can taint an entire transaction. OFAC licenses for certain activities with sanctioned countries often state that certain entities remain off limits. Therefore even if an activity is specifically licensed by OFAC or subject to a general license, one must be very careful to avoid SDNs in any aspect of the transaction (unless there is an applicable carveout or the specific license clearly states that you are allowed to deal with a given SDN for a particular purpose). The presence of an SDN may not necessarily invalidate all activities surrounding a given transaction.  However, it can not only constitute a violation of applicable OFAC regulations, but also lead to money or other assets being blocked.

The lesson here is particularly important in countries like Russia where many designated entities are persons or companies of extremely elevated importance in those countries’ economies. The SDN “taint” typically trickles down to any entity they own or control (think subsidiaries), which is why you should always do your due diligence and care to make sure all aspects of your transaction, not just the one that’s the focus of your attention, is compliant with applicable OFAC regulations.

I’m proud of my firm and my team’s big win that came out yesterday in a major, widely-watched sanctions case at the U.S. Court of Appeals for the District of Columbia Circuit. Read our last alert to see why win is important not just for our client but for the trade community.

The U.S. Court of Appeals for the District of Columbia Circuit ruled today in favor of our client Epsilon Electronics, Inc., in a case against the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the primary U.S. government body administrating trade restrictions against sanctioned countries like Iran and Cuba. This case is already the subject of exceptional interest and significance for the trade compliance community. The ruling is particularly timely in the aftermath of the agreement over Iran’s nuclear program resulting in the 2015 Joint Comprehensive Plan of Action (JCPOA), which led to partial but not complete sanctions relief for Iran.

Today’s victory was a direct result of the zealous efforts of Akrivis Partner Teresa N. Taylor, who spearheaded the litigation strategy for Epsilon on this case and very successfully argued in favor of Epsilon in litigation and at oral argument on November 9, 2016. Ms. Taylor worked very closely with Farhad R. Alavi, Akrivis Managing Partner, on the technical interpretation of the complex web of U.S. sanctions and the commercial aspects surrounding the international transactions at issue.

It should be emphasized that the U.S. Court of Appeals for the DC Circuit is arguably the nation’s second most influential court and commonly referred to as the “mini Supreme Court,” both because it sends more cases to the U.S. Supreme Court than any other federal appellate circuit, and as many recent Supreme Court appointments have come from this court’s bench.

Factual Context

Epsilon Electronics is a small business in southern California in the automotive after-market business. In July 2014, OFAC imposed a massive $4,073,000 penalty on Epsilon, alleging that a series of shipments by the company to Asra International Corporation, LLC in Dubai, United Arab Emirates (UAE) were in fact destined for end-use in Iran, which would signify a breach of U.S. sanctions. $1.25 million of this penalty stemmed from five shipments in 2012 to Asra International, wherein OFAC imposed the maximum $250,000 statutory penalty at the time per shipment, although some of these shipments being only several hundred dollars in value and even though Asra International had a retail store in Dubai that was selling Epsilon’s products. This penalty was imposed despite Epsilon’s cooperation with OFAC during its investigation and it being a modestly sized family enterprise of limited sophistication.
This case turned on the issue of the Administrative Procedure Act (APA), U.S. sanctions on Iran, and U.S. Constitutional Claims. It is exceptionally challenging to bring APA cases before federal courts after a final agency action. Courts have relied on prior cases, which establish that federal agencies such as OFAC, the Bureau of Industry and Security (BIS), or the Environmental Protection Agency (EPA) are subject matter experts in their respective domains and that judges should give such agencies a high degree of deference and not second-guess their rulings on subject-specific matters. This premise holds that courts should only review federal agency actions when they are “arbitrary and capricious.” Akrivis argued this on Epsilon’s behalf, among many other claims.

The U.S. Court of Appeals for the District of Columbia Circuit today remanded the case to the district court, with instructions to remand the matter to OFAC for further consideration of the five alleged 2012 violations, and calculation of the total monetary penalty imposed for all liability findings. The Court’s order also remanded OFAC’s determination that Epsilon’s five shipments to Asra International in 2012 violated the regulations. OFAC’s determination that Epsilon had reason to know that the 2012 shipments were specifically intended for reexport to Iran was not supported by substantial evidence and was therefore arbitrary and capricious, as OFAC did not explain in the Administrative Record why e-mails between Epsilon and Asra regarding Asra’s stores in Dubai were not credible evidence.

What this means for Compliance

Beyond the many benefits accruing to Epsilon, today’s opinion is a standard bearer for the trade compliance community as it establishes several key precedents. First, as OFAC is rarely challenged and because OFAC’s holdings are not fully available for public access it offers a crucial, rare window into the inner workings of U.S. sanctions policy. Second, the case also demonstrates that agency enforcement actions can be subject to greater judicial review, which could lead to enhanced transparency in the dialogue between alleged violators and the government in the penalty phase at the administrative level. Third, it establishes that the government does not need to prove that goods or services actually reached the sanctioned destination, but it must clearly establish reason to know that such exports were intended specifically for the that destination.

The Epsilon case is particularly important for U.S. businesses exporting to the Middle East, particularly the UAE because it reveals OFAC’s interpretations of key regulations, which will help companies chart out key compliance strategies. Further, the case’s importance extends far beyond the Middle East to companies doing business overseas, particularly regions with higher sanctions risks exposure, be they in the Persian Gulf region, Russia, Cuba, or elsewhere. This explains why this case has been the subject of numerous articles and presentations around the world.

The positive outcome in this case is a direct result of the hard work and diligence of Ms. Taylor, an experienced litigator and former federal law clerk. Prior to joining Akrivis, Ms. Taylor served in the office of the Chief Counsel at the U.S. Department of the Treasury and practiced at a leading global law firm. Ms. Taylor’s experience includes extensive work on federal litigation and investigatory matters involving U.S. trade laws. Ms. Taylor’s experience has helped Akrivis build a highly sophisticated federal white collar practice.

Mr. Alavi, also previously with leading global law firms, is a frequent commentator appearing in international media on U.S. sanctions and trade laws. He regularly advises U.S. and foreign companies on related complex compliance and cross-border commercial matters. More broadly, Akrivis’s team has long been established as a go-to firm for U.S. trade compliance, particularly the area of U.S. sanctions.

Akrivis Law Group, PLLC would also like to thank its team for their hard work, as well as Abu Dhabi-based attorney John P. McGowan, Jr., who submitted an amicus brief on behalf of his company JPM Legal Advisors Worldwide Ltd., and his counsel.

Citation: Epsilon Electronics, Inc. v. U.S. Department of the Treasury, Office of Foreign Assets Control, et al., No. 1:16-5118 slip op. (D.C. Cir. May 26, 2017)

The opinion can be ready by clicking on this link on the Court’s website.  A PDF version of this alert is available here.

The text of this post has been copied verbatim from Akrivis Law Group’s website.

Like other areas, developing compliance with anti-corruption regulations is a tall endeavor whose requirements can vary based on a number of factors, including jurisdiction, size, and sophistication of the company.  The emerging International Standards Organization (ISO) 37001:2016 standard for Anti-Bribery Management Systems, issued in October 2016, may be a significant move towards some clarity and standardization in this area, right? Maybe, but not so fast.

A number of jurisdictions such as Singapore have adopted the ISO 37001 standard, and Microsoft announced earlier this year it will be the first public U.S. company to adopt the standard. Does this mean we will soon be seeing “compliance in a box” solutions that could help companies large and small circumvent the need for customized compliance programs? Probably not.

First off, the ISO 37001:2016 standard only covers bribery and not other activities like fraud prevention or anti-money laundering (AML).

Second, the jury is out on whether this standard will become an worldwide industry standard like ISO 9001 (quality management) or whether the early interest we are seeing will fizzle out.  US commentators think that while the guidance is a useful tool its core principles are effectively the same as what you already see in the US Department of Justice (DOJ), US Securities & Exchange Commission (SEC), US Foreign Corrupt Practices Act (FCPA) Guidelines, and the Federal Sentencing Guidelines.  There are also some minor differences.  For example, the standard does not allow for the facilitation (or so-called “grease”) payments, which can under certain circumstances be acceptable under the FCPA (but not the UK Bribery Act).

That said, having an independent third party audit and provide a certification for a company’s anti-bribery management system may carry appreciable weight with US regulators.  It remains to be seen what the DOJ and SEC say on this particular point. That being said, the DOJ did in February release guidance on the Evaluation of Corporate Compliance Programs.

But how can you define a standard when governments tend to look at many, not to mention different, factors?

Interestingly, for countries like Singapore and Peru (and others that follow them) it may be that government contractors or those seeking public tenders may eventually need to certify that they are ISO 37001 compliant to even bid for projects in certain countries.  In drafting contracts for international counterparties it may be less controversial to incorporate compliance provisions referencing a neutral ISO standard that say, referring to the FCPA.

While following a standard could be a great place to start, the reality is that anti-corruption laws are national in nature and not international, even though effort has been made to harmonize some of these laws.  A solid compliance program will adopt policies that are tailored to the requirements of the local jurisdiction but with an eye to establishing an over-arching “best practice” standard that would not cause reputational damage for the company in other countries.  Importantly, compliance programs also have an entirely proprietary dimension – they must cover key exposure points, which can vary not only from country to country but business to business and business line to business line.

For now, it is clear that no one size fits all, and attention to domestic nuances remains critical for compliance with anti-corruption requirements.

Note: Eric Ubias (Senior Counsel, Akrivis Law Group, PLLC) contributed to this post.

Chalk this one up as one more sign of how granular U.S. sanctions on Iran still are and why you should still be careful.

We recently helped a client obtain an OFAC license to close out a bank account in Iran and transfer the funds to the United States.  Most of the money was sent from a third country exchanger (sarafi), but a very small amount (under $10,000) was remaining.  This week, an email came asking if the client could have her brother hand carry the cash to the United States, rather than having to send it over via a third country exchange.  This is something that probably happens daily, if not hourly.

Personal, non-commercial remittances (or so-called “family remittances”) are among some of the lesser regulated funds transfers between the US and Iran. Individuals can send funds for their family (like gifts) in unlimited amounts, between both countries, provided the transfer meets all applicable provisions of US law, for example, no sanctioned banks, or ensuring the funds come into the US through a third country (like the UAE or China).  US persons can even hand carry cash remittances for family in Iran, such as someone from the US taking $1,000 for their mother there.

But it effectively stops there. You can hand carry cash to Iran, so long as you’re not carrying it on behalf of somebody else. Meaning, your sister can’t give you $1,000 to take with you to Iran to give to your mother.  The converse (hand carrying for someone else from Iran to the US) is also true – it’s not allowed.  This was confirmed to us via email by the OFAC Licensing Officer responsible for the above-mentioned license. Such transfer needs to be specified in the license request filed with OFAC and therefore such authorization will be provided in any subsequent license based on that request.  And that’s just one example of many.

You could say that current sanctions mean that dealing with Iran, even on a personal level, is kind of like walking along 6 inches away from an electrical fence. You’re OK so long as you don’t touch the fence, but if you do, a whole set of problems can arise. Oftentimes, transactions that are otherwise legal are effectively tainted by our own clients (before they retain us!), meaning a transfer, if done right from the beginning, may not need an OFAC license, but the client (or a relative or agent in Iran) may wind up doing something along the way that makes the client need to obtain a license.  Therefore, seeking compliance is not something you do in the final phase but from the get-go..

This example highlights that individuals seeking to engage in a financial transaction should consider all aspects of the transaction and should plan beforehand. The premise of legalities and authorizations in OFAC is based not just on the underlying transaction (meaning what you did to get that money, like sell a property or receive a gift) but also how that transaction was carried out (who the parties involved are, what banks are involved, how the money gets to you in the US, etc.). Lesson learned – don’t assume and take things for granted. At the end of the day, you’re still talking about Iran, which remains (contrary to the belief of some) subject to the most robust sanctions regime in US history.

Cleaning up is far more difficult and costly than preventing.

One morning in February I woke up to see an email from someone at the University of Copenhagen’s Faculty of Law inviting me to speak at a conference there titled “The Impact of the Nuclear Agreement with Iran,” to be held at the university in April.  The conference was sponsored by the university, the Carlsberg Foundation and another Danish organization.  The university would be kind enough to provide my airfare and accommodations.  Other speakers included a Danish sanctions lawyer (who would be my co-panelist), academics from Europe and beyond, the Danish Ambassador to Tehran, and the Iranian Ambassador to Denmark.  As I travel quite a bit, time in Washington is a precious commodity.  But this was hard to pass up.  Within days I decided I wanted to attend.  While I planned weeks in advance, I wound up getting my ticket less than a week before I left as my attendance was unclear until almost the last minute.  Why? U.S. sanctions on Iran.

What do Iran sanctions have to do with speaking at a conference in Europe?  This is a particularly relevant question as there now, post nuclear-deal, many Iran-related symposia internationally.  What’s wrong with talking about Iran? Don’t U.S. persons talk to the media about Iran all the time?

One concern was that the conference was about Iran after the JCPOA but with a bit of what some may construe as a commercial angle.  Some Danish companies would be in attendance as they were interested to know about Iran’s business and political climate.  While US attorneys can advise foreign companies on sanctions with Iran, we cannot help them do business, meaning, we can’t advise them on how to circumvent sanctions.  This is at the crux of “facilitation.”  Even though I would just be talking about US law, my attendance and participation at this conference could be seen as helping facilitate the conference, which was not entirely but in part geared towards some aspects of Danish business related in Iran.

While that is a solid legal argument if I may so myself, OFAC’s issue was evidently something else, which I had also spotted. Iran’s Ambassador to Denmark was to also speak at the conference and potentially he and other Iranian Foreign Ministry personnel would be attending.  Talking in front of such people in the conference could be seen as a prohibited exportation of services to the Iranian Government (we can under certain limited circumstances obtain certain OFAC licenses to advise such entities on US sanctions laws). Even though my panel discussion would still be short and about the U.S. perspective on Iran post-sanctions, it could still be construed as a provision of a “service.”  Notably, § 560.554(b) of the Iranian Transactions and Sanctions Regulations (the “ITSR”) provides:

[T]he exportation, reexportation, sale, or supply of services directly related to the sponsorship by a U.S. person of a public conference or other similar public event in a third country that is attended by persons who are ordinarily resident in Iran, other than the Government of Iran, . . . is authorized, provided that attendance and participation at the conference or other similar public event is open for the public and that the conference or

Well, looks like the Government of Iran would be in attendance.  I therefore filed for a specific license. OFAC was exceptionally gracious and gave me one with ease, thankfully being very mindful of the imminent conference date. I went, spoke, and really enjoyed Denmark, its cultural offerings, and wonderful people. More on that in a later post.

But why is my experience important? For one, it again shows how far-reaching the sanctions regulations are, particularly for Iran deal supporters and critics who very wrongfully think all business between the US and Iran is now lawful.  Second, this is incredibly timely – think of all the conferences that have crept up around Europe, the United States, and the Middle East (including Iran) focused on Iran business– effectively “meet and greets” between people from within Iran and others outside, be they businessmen interested in doing a deal, or just simply to network. Now obviously, networking in and of itself is not necessarily a problem, neither is basic personal communication, but to attend and present at an Iran-focused forum where Iranian government officials would be in attendance is problematic.  This is not to mention facilitation, which could also be a major issue.

All this said, although OFAC does clearly not want U.S. persons to engage in unlawful commerce with Iran, it generally does maintain a favorable policy on people-to-people exchanges between the two countries.  This is likely why my license was issued.   My hope is that my experience helps illustrate to readers the far reach of U.S. sanctions laws on Iran, and the need to continue emphasizing compliance.