Archive for the ‘OFAC’ Category

New EU Trade SPV to Keep Iran Afloat After US JCPOA Withdrawal


By: Danielle Hatch

Recently France, Germany and Britain have started working on a new channel (Special Purpose Vehicle) for non-dollar trade with Iran to avoid the newly re-imposed US sanctions on the country. Last year the United States withdrew from the Joint Comprehensive Plan of Action (JCPOA) which had offered relief from US sanction on Iran for companies. Once the US left the JCPOA they began to the re-impose the trade sanctions on Iran, not only impacting US entities but also causing secondary sanctions for European entities to deal with, especially if they wanted to continue trade with Iran.

The goal of the re-imposed US sanctions is to encourage Europeans to stop business with Iran because of the threat of losing US business. This is puts European entities in a bit of a pickle because they would prefer to keep JCPOA up and running, without the US. They are working hard to make the deal work after Iran threatened to leave the JCPOA if they are unable to keep receiving economic benefits for their part in the deal. The goal of the Special Purpose Vehicle (SPV) is to help match Iranian oil and gas exports against purchases of EU goods, the problem is, that it won’t realistically be used for large trade transactions that Iran wants to see. It’s more likely be used for small trade such as humanitarian products or food. A European diplomat explained, “It won’t change things dramatically, but it’s an important political message to Iran to show that we are determined to save JCPOA and also to the United States to show we defend our interests despite their extraterritorial sanctions.”

“We do not expect the SPV will in any way impact our maximum economic pressure campaign,” a US State Department spokeswoman said. “The United States questions the efficacy of the SPV and remains committed to fully enforcing its sanctions,” another senior Trump administration offered.

Unfortunately, as the SPV is still months away from being operational, relations between the European Union and Iran have been strained. The EU recently imposed its first sanctions on Iran since JCPOA after ballistic missile tests and assassination plots were revealed on European soil. The EU added two Iranian individuals and an Iranian intelligence unit to its terrorist list. They are also still deciding if another push for new sanctions on Iran over its missile program will be part of the SPV.

“We are clear; this commitment does not in any way preclude us from addressing Iran’s hostile and destabilizing activities” Jeremy Hunt explained (British Foreign Secretary).

More information:

OFAC Dings U.S. Defense Contractor for Sanctions Violations, Inadequate Screening


By: Thad McBride on December 12, 2018


  • Penalties imposed for violations of U.S. sanctions on Russia and Ukraine
  • Violations identified during pre-acquisition due diligence on contractor
  • Denied persons screening was conducted but missed prohibited parties

In late November 2018, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that Cobham Holdings, Inc. agreed to pay $87,507 to settle violations of U.S. sanctions on Ukraine and Russia.

Violations Identified During Pre-acquisition Due Diligence

According to OFAC, the violations were committed by Cobham’s former subsidiary, Metelics, prior to the sale of Metelics to MACOM. It was MACOM that identified the violations during due diligence related to its acquisition of Metelics. And it was presumably MACOM that required Cobham to make the voluntary disclosure to OFAC that led to the penalty in this matter.

The penalty is small by recent OFAC standards. (For example, it is about 620 times less than Societe Generale paid to OFAC as part of its global settlement of sanctions violations.)

But as a cautionary tale, the Cobham matter is important to any exporter.

Products Sold to Entity Blocked Under U.S. Sanctions

According to OFAC, during a six-month period in 2014 and 2015, Metelics sold products through distributors in Canada and Russia to a blocked entity under U.S. sanctions. That entity – Almaz Antey Telecommunications LLC (AAT) – was not explicitly named as a blocked party on the OFAC List of Specially Designated Nationals and Blocked Persons (the SDN List).

Yet AAT was nonetheless a blocked person because it was 51 percent-owned by a party – JSC Almaz-Antey – that was named on the SDN List. As OFAC has made abundantly clear, any entity that is owned 50 percent or more by one or more blocked persons is a blocked entity itself.

Any blocked person, whether named on the SDN List or not, is effectively off limits to U.S. companies and individuals.

Screening Challenges Lead to Violations

The chronology of this matter demonstrates the challenges exporters face when screening third party business parties.

According to OFAC, on June 18, 2014, Metelics agreed to sell products to AAT through a Canadian distributor. On June 19, Metelics screened AAT against its prohibited parties screening software. At that time, JSC Almaz-Antey was not a prohibited party – and thus neither was AAT.

On June 27, Metelics shipped products to AAT. In connection with that shipment, Metelics again conducted denied parties screening and identified no match for AAT.

None of this is surprising or problematic from OFAC’s standpoint because JSC Almaz-Antey was not designated as an SDN until July 16, 2014. That is when things get more interesting.

On July 31, 2014, Metelics made another shipment to AAT. In connection with this shipment, Metelics again conducted denied parties screening for AAT and again did not identify any matches – even though JSC Almaz-Antey, the majority owner of AAT, was now named on the SDN List.

Based on this, OFAC deemed the screening effort to be insufficient. OFAC emphasized that Metelics proceeded with shipment to AAT “despite the inclusion of two uncommon terms [‘Almaz’ and ‘Antey’] in the names of both the SDN and [AAT].” OFAC’s statement suggests that the screening software should have identified at least a potential match, which Metelics would presumably have reviewed further before continuing with the transaction.

Notably, there is no indication that Metelics somehow set the software or screening mechanism to avoid identifying a match with AAT. In fact, in its press release, OFAC states that the screening software was set-up to identify “fuzzy” search criteria yet missed the similarities between AAT and JSC Almaz-Antey.

It thus appears that Metelic was not entirely to blame for these apparent violations. Yet in explaining the penalty in this case, OFAC also notes that Metelics “was subject to a consent agreement for violations of the International Traffic in Arms Regulations [ITAR]… resulting from recurring compliance failures.” Arguably those ITAR compliance failures should have made Metelics particularly vigilant about protecting against failures with its screening system.

While OFAC does not name the provider of the screening software in this case, the agency does state that “[p]ersons employing sanctions screening software should take steps to ensure it is sufficiently robust.” In other words, simply because a company uses software to conduct screening does not mean that software is adequate to protect against violations.


This may be a tough lesson for exporters to absorb.  It’s not clear that many exporters conduct quality control checks of their screening software. The raison d’etre for such software is to identify actual or potentially prohibited parties based on name similarities. That is exactly what Metelics expected its software to do.

The proliferation of prohibited and restricted parties – and the lists of such parties – makes it impossible for most companies to keep up-to-date with those lists on their own. That’s the reason so many companies seek software solutions to help meet their compliance obligations. It is the responsible thing to do.

Which makes it a little jarring to read the following exhortation from OFAC:

It is essential that companies engaging in international transactions maintain a culture of compliance where front line staff are encouraged to follow up on sanctions issues, including by promptly reporting to compliance personnel transactions suspected to involve sanctioned parties.

That is surely good advice but it is not clear how it pertains to the facts in the Cobham matter. There is no indication that any Metelics employee was aware of a transaction suspected to involve sanctioned parties – or that any employee ducked their head in the sand.

Nevertheless, it is useful to remember the value of periodic risk assessments during which compliance policies, procedures, and processes are reviewed. Potential weaknesses can be identified and addressed before they lead to violations.

The Bass, Berry & Sims trade lawyers work closely with clients to assist in risk assessments and other compliance exercises. Our targeted, efficient approach to such matters leads to practical, effective solutions. Feel free to contact us anytime if we can assist you.


BIS Denies Export Privileges and OFAC Announces $2,774,972 Settlement with Jereh Group


By: Danielle Hatch

The Bureau of Industry and Security (BIS) announced a settlement with Yantai Jereh Oilfield Services Group Co., Ltd., of Yantai Shandong Province, China (“Yantai Jereh”) in conjunction with the Office of Foreign Assets Control (OFAC).

BIS alleges that the company committed four violations of the EAR (Acting with knowledge of a violation and making false statements to BIS during the course of an investigation. Yantai Jereh has agreed to pay $600,000 to BIS and the company’s 5-year denial period will be suspended if the company pays the BIS fine, in addition to the penalty under their OFAC Settlement Agreement (details below). If at any time, the company commits any violations of the Regulations or fails to pay its penalties on time, BIS can revoke the denial suspension.

The settlement between the OFAC and Yantai Jereh is concurrent with the BIS settlement. The main difference is that the company had 11 violations of the Iranian Transactions and Sanctions Regulations causing a much larger fine of $2,774,972. All 11 violations involved exportation or rexxeportation or the attempted exportation or reexportation of US goods to Iran by way of China. Two of the 11 shipments of oilfield equipment spare parts (coiled tubing strings and pump sets) were seized by US Customs and Border Protection before they left the US.

OFAC determined that the violations constituted an egregious case and the company did not voluntarily disclose their violations.

BIS Charging Letter:

OFAC Settlement:

Reimposition of Iran Sanctions Starts


On November 5, 2018 the Office of Foreign Assets Control (OFAC) began to re-impose several sanctions on Iran related to the 180-day wind-down period and the reimposition of US sanctions that had been lifted or waived in connection with the Joint Comprehensive Plan of Action (JCPOA).

The biggest change you will see is that over 700 people have been designated or identified and added to the SDN list, including those that had been recently removed from the list in connection with JCPOA. In addition, person and associated block property that was previously identified on Executive Order (EO) 13599 have been moved to the SDN list and OFAC has removed EO 13599 from its website.

An amendment to the Iranian Transactions Sanctions Regulations (ITSR) has taken affect and will reimpose certain sanctions pursuant to EO 13846 and technical changes that remove references to EO 13599.

OFAC Frequently Asked Questions:


A Crude Awakening: U.S. Sanctions on the Russian Oil Sector


By: Olga Torres, Esq. and Derrick Kyle, Esq. All of Torres Trade Law.

This article will discuss U.S. economic sanctions on Russia as enforced by the Office of Foreign Assets Control (“OFAC”), a government agency within the U.S. Department of the Treasury. Specifically, we will provide an overview of Directive 4 to Executive Order 13662 (“Directive 4”), which prohibits certain transactions related to the Russian oil sector.1 While Directive 4 does not prohibit all oil sector transactions with companies in Russia, it does create many potential obstacles for U.S. businesses. We will also briefly discuss Russian oil sector prohibitions administered by the Department of Commerce Bureau of Industry and Security (“BIS”).2 Russia and Texas are two of the largest producers of oil and gas in the world, and, because many companies involved in the petroleum industry in Texas have dealings with Russian entities or individuals, they are likely to be faced with sanctions issues. Below we describe some of the issues that need to be addressed prior to the commencement of transactions involving Russian parties in the context of certain oil exploration and production activities.

U.S. economic sanctions are a tool of foreign policy that target countries as well as activities related to national security and other foreign policy-based concerns, such as terrorism, narcotics trafficking, human rights, and cybersecurity. In 2014, the Obama Administration implemented various economic sanctions against Russia in response to Russia’s occupation of the Crimea region of Ukraine. These sanctions programs included: 1) a trade embargo against Crimea; 2) blocking sanctions against persons listed on the Specially Designated Nationals and Blocked Persons (“SDN”) List; and 3) sectoral sanctions prohibiting certain transactions with persons identified on the Sectoral Sanctions Identification (“SSI”) List.3 President Obama’s sanctions were implemented primarily through a series of Executive Orders.

In August 2017, President Trump signed the Countering America’s Adversaries Through Sanctions Act (“CAATSA”). This comprehensive, bipartisan sanctions regime targeted Russia, North Korea, and Iran. The part of CAATSA that focuses on Russia, the Countering Russian Influence in Europe and Eurasia Act of 2017 (“CRIEEA”), codified many of the Executive Orders implemented during the Obama Administration.4 Additionally, CRIEEA expanded the existing scope of sanctions on Russia as well as implemented new secondary sanctions (sanctions that apply to activities by non-U.S. individuals and entities).5 The sanctions on Russia were passed in response to Russia’s cyber meddling in the 2016 elections as well as their continued occupation of the Crimea region of Ukraine.

Specifically, the relevant Russian sectoral sanctions are implemented through four directives. Directives 1 through 3 prohibit and impose restrictions on various kinds of financial transactions between U.S. persons and individuals or entities identified on the SSI List. Directive 4 is slightly different from the other Directives in that it provides more tangible restrictions on exports of goods and non-financial services related to the Russian oil industry.

Directive 4
Directive 4 prohibits:
The provision, exportation, or reexportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that:

(1) have the potential to produce oil in the Russian Federation, or in a maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to this Directive […]; or

(2) are initiated on or after January 29, 2018, that have the potential to produce oil in any location, and in which any person determined to be subject to this Directive… has (a) a 33% or greater ownership interest, or (b) ownership of a majority of the voting interests.

There is a lot to unpack in Directive 4. To start, “persons subject to this Directive” means persons that are listed on the SSI List and specifically identified as subject to Directive 4. The list of parties subject to Directive 4 includes several prominent Russian energy companies, such as Gazprom, Lukoil, and Rosneft. Notably, OFAC’s 50% rule applies for purposes of the SSI List. The 50% rule states that an entity that is owned 50% or more by an individual or entity on the SSI List will also be treated as being on the SSI List. So, if Company A is listed on the SSI List and owns 80% of Company B, then Company B will also be considered to be on the SSI List. OFAC also applies the 50% Rule in conjunction with aggregation rules when determining which transactions are prohibited. For example, Company A and Company B are both listed on the SSI List. Company A owns 30% of Company C, while Company B owns 25% of Company C. Company C would be considered to be on the SSI List, because it is owned 55% by entities on the SSI List.7

Further, Directive 4 was amended by CAATSA in October 2017 to add the second section of the directive related to oil produced in any location. This updated prohibition is interesting for a couple of reasons. First, the prohibition potentially now applies to oil projects anywhere in the world. Second, this part of the prohibition focuses on ownership of or voting interests in the project by a Directive 4-subject person, rather than just the involvement of a Directive 4-subject person. Importantly, this portion of the Directive 4 prohibition applies to listed persons having only a 33% ownership interest in the specified projects. Therefore, a project with a Russian company as a minority owner in a country other than Russia could be subject to the prohibitions of Directive 4.

Another important aspect of Directive 4 is the meaning of the terms used in the directive. As with many other sanctions regimes, the terms used do not necessarily carry their ordinary meanings. OFAC provided the definitions of some important terms in the Frequently Asked Questions (“FAQs”) section of its website:

  • Initiated. Part of Directive 4 applies only to projects initiated on or after January 29, 2018. According to OFAC, a project is initiated when, “a government or any of its political subdivisions, agencies, or instrumentalities (including any entity owned or controlled directly or indirectly by any of the foregoing) formally grants exploration, development, or production rights to any party.”
  • Services. OFAC defines services to include, for example, drilling services, geophysical services, geological services, logistical services, management services, modeling capabilities, and mapping technologies. Importantly, for purposes of Directive 4, services does not include the provision of financial services, clearing transactions or providing insurance related to such activities.
  • Deepwater. OFAC defines deepwater as underwater activities at depths of 500 feet or more.
  • Shale projects. The term “shale projects” applies to projects that have the potential to produce oil from resources located in shale formations.
  • Artic offshore projects. This phrase applies to projects that have the potential to produce oil in areas that (1) involve operations originating offshore, and (2) are located above the Arctic Circle.

While the above focuses on primary sanctions, CAATSA also implements secondary sanctions. Under Section 225 of CAATSA, the President is required to impose sanctions on non-U.S. persons that knowingly make a significant investment in a “special Russian crude oil project,” which is a deepwater, Arctic offshore, or shale oil project in Russia.13 The Department of State (“State”) is tasked with administering Section 225 and has stated it will determine what is “significant” on a case-bycase basis. In published guidance,14 State has explained that it will not consider an investment significant if a U.S. person would not require specific licenses from OFAC to participate in the same conduct.15 Section 226 of CAATSA, administered by OFAC, also now requires the imposition of secondary sanctions on Russian or other foreign financial institutions that knowingly engage in or facilitate significant transactions involving Russian deepwater, Arctic offshore, or shale oil projects.

The penalties for violations of Directive 4 can be steep. Civil penalties can be up to $295,141 per violation, or up to twice the value of the transaction that was the basis for the violation. Criminal, willful or knowing violations, can lead to penalties of up to $1 million per violation and imprisonment up to 20 years for individuals.

Screening of Parties
Because the Directive 4 prohibitions hinge on the involvement of a party on the SSI List, it is important that companies engage in the screening of all parties involved in potential transactions. Various government agencies maintain lists of entities and individuals with whom U.S. (and sometimes non-U.S.) persons are restricted or prohibited from transacting. These lists include, but are not limited to, OFAC’s SSI and SDN Lists, and the BIS Entity List. Entering into a transaction with a party on a denied party list can have grave consequences, such as sanctions, fines, or the denial of export privileges.

As such, companies should ensure that all parties to a transaction are screened. The U.S. Government provides a free screening search function that consolidates multiple government screening lists, aptly named the Consolidated Screening List (“CSL”).17 By searching for the name and address of an individual or company on the CSL, parties are able to screen against multiple government lists at once.

Because the minutia of the above can be complex, the following example aims to highlight the issues encountered during a Directive 4 analysis. Suppose Company A (a Texas company) plans to enter into an agreement to sell fracking fluid to Company B (a Russian company). Based on the sales agreement, Company A knows the fracking fluid will be used in a hydraulic fracturing project in Russia, and hydraulic fracturing is most often associated with shale projects. Company B is a subsidiary of Company C, which is on the SSI List and owns an unknown percentage of Company B. Finally, assume it is not clear from the sales agreement who the owner of the specific fracking project is. Company A should resolve several questions before exporting any fracking fluid to Company B in Russia. These questions include:

  • Is Company B subject to Directive 4 based on Company C’s listing on the SSI List?
  • When was this project initiated?
  • Who are the owners of the specific project, and how is this ownership structured? Is a 33% or greater owner listed on the SSI List?
  • Is this project a shale project? Even if not, how can Company A be sure the fracking fluid will not be used in a shale project?

End-use statements and other assurances from Company B stating that the project is not a shale project or subject to any U.S. sanctions would be helpful to show due diligence on the part of Company A. But OFAC sanctions violations are viewed under a strict liability standard, so if OFAC determines the fracking fluid has been used in activities prohibited by Directive 4, Company A could face an enforcement action. Additionally, it is notoriously difficult to determine the ownership structure of some Russian companies and oil projects, so Company A may not be able to obtain a verifiable answer regarding the applicability of Directive 4 to Company B or the proposed transaction. Ultimately, companies working in this space must conduct a cost-benefit analysis with regards to each proposed transaction and determine the level of risk with which they are comfortable. A legal opinion from international trade counsel can be helpful in deciding whether or not a transaction is permissible.

BIS Rule
As if the above was not complicated enough, the Department of Commerce’s export control agency, BIS, has its own prohibitions on exports to the Russian oil industry. Section 746.5 of the Export Administration Regulations (“EAR”) imposes specific licensing requirements for certain parts identified in Supplement No. 2 to part 746 of the EAR as well as specific parts identified in the regulation. These parts cannot be exported, reexported, or transferred without a license if the party knows the item will be used directly or indirectly in the exploration for, or production of, oil or gas in Russian deepwater or Arctic offshore locations or shale formations in Russia.

Additionally, if the party is unable to determine whether the item will be used in such projects, then a BIS license is required for export. Parties should also be aware that BIS may inform persons individually or through amendment to the EAR that a license is required for a specific end-use or end-user because there is a high risk of use in the activities specified above. Any request for such a license will likely be denied as BIS maintains a general policy of denial for such license requests.

Latest Developments
In the latest string of Russian sanctions related developments, the State Department announced on August 8, 2018 that it would be imposing new sanctions on Russia pursuant to the Chemical and Biological Weapons Control and Warfare Elimination Act (CBWA), as a result of Russia’s attempted assassination of former Russian intelligence officer Sergei Skripal and his daughter. A Federal Register notice was published on August 27, 2018 and more significant sanctions must be imposed in the next three months if the U.S. government finds that Russia does not meet certain conditions, absent a waiver by the President of the United States.20 These potential additional sanctions should be closely monitored because there is an option for a very punitive track of sanctions depending on how the Russian government responds.

Overall, Directive 4, CAATSA sanctions, and other U.S. Government regulations impose a complex network of restrictions on U.S. parties seeking to do business with the Russian oil industry. Even when OFAC and other relevant agencies provide guidance, few bright line rules exist. Whether a transaction is covered by the specific authority is determined by the facts of the specific case.

As such, it is important that parties who want to engage in transactions with the Russian oil industry conduct their due diligence. All parties to the transaction should be screened against the SSI and SDN Lists, as well as any other denied party lists maintained by U.S. government agencies. The ownership of these parties and the interests held in oil projects must also be investigated to determine the potential involvement of sanctioned parties. Additionally, although this article focuses on Russian sanctions, other oil-producing nations, including Iran and Venezuela, among others, are subject to OFAC-administered sanctions. This means that any company engaged in oil and gas transactions with foreign companies or countries should make sure that there are no prohibitions on the transaction and conduct a review of any applicable sanctions programs.

Full Article:

OFAC Releases Changes to Iranian Transactions and Sanctions Regulations


The Office of Foreign Assets Control (OFAC) published a final rule effective November 5, 2018 which makes changes to the Iranian Transactions and Sanctions Regulations (ITSR) to further implement President Trump’s decision to end the United State’s participation in the Join Comprehensive Plan of Action (JCPA) back in May of this year. These changes basically reimpose certain sanctions as well as change an existing general license to ITSR to allow US person to sell personal property in Iran and transfer the proceeds to the US.


  • 560.211 by revising paragraph (c), adding a note to paragraph (c)(2), and revising notes 1 and 2 to paragraphs (a) through (c) to read as follows:
  • 560.211 Prohibited transactions involving blocked property.

(c)(1) All property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, including any foreign branch, of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in:

  • Any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to paragraphs (a) through (c)(1)(i) of this section; or
  • Any person determined by the Secretary of the Treasury, in consultation with the Secretary of State:

(A) To have, on or after August 7, 2018, materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the purchase or acquisition of U.S. bank notes or precious metals by the Government of Iran; or

(B) To have, on or after November 5, 2018, materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the National Iranian Oil Company (NIOC); the Naftiran Intertrade Company (NICO); any entity owned or controlled by, or operating for or on behalf of, NIOC or NICO; or the Central Bank of Iran.

(2) Paragraph (c)(1)(ii) of this section shall not apply with respect to any person for conducting or facilitating a transaction involving a project—

(i) For the development of natural gas and the construction and operation of a pipeline to transport natural gas from Azerbaijan to Turkey and Europe;

(ii) That provides to Turkey and countries in Europe energy security and energy independence from the Government of the Russian Federation and the Government of Iran; and

(iii) That was initiated before August 10, 2012 pursuant to a production sharing agreement, or an ancillary agreement necessary to further a production-sharing agreement, entered into with, or a license granted by, the government of a country other than Iran before August 10, 2012.

  • Revise Note 1 to § 560.304 to read as follows:
  • 560.304 Government of Iran.
    Note 1 to § 560.304: The names of persons that the Office of Foreign Assets Control (OFAC) has identified as meeting this definition are published in the Federal Register and incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) with the identifier ‘‘[IRAN].’’ The SDN List is accessible through the following page on OFAC’s website: However, the property and interests in property of any persons meeting the definition of the term Government of Iran are blocked pursuant to § 560.211 regardless of whether the names of such persons are published in the Federal Register or incorporated into the SDN List.
  • Revise Note 1 to § 560.324 to read as follows:
  • 560.324 Iranian financial institution.
    Note 1 to § 560.324: The names of persons that the Office of Foreign Assets Control (OFAC) has identified as meeting this definition are published in the Federal Register and incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) with the identifier ‘‘[IRAN].’’ The SDN List is accessible through the following page on OFAC’s website: However, the property and interests in property of any persons meeting the definition of the term Iranian financial institution are blocked pursuant to § 560.211 regardless of whether the names of such persons are published in the Federal Register or incorporated into the SDN List.
  • Add a Note to § 560.518 to read as follows:
  • 560.518 Transactions in Iranian-origin and Iranian government property.

Note to § 560.518: See § 560.543 for an authorization to engage in all transactions necessary and ordinarily incident to the sale of certain real and personal property located in Iran.

  • Amend § 560.543 by revising the section heading, paragraph (a), and paragraph (b)(2) to read as follows:
  • 560.543 Sale of certain real and personal property in Iran and transfer of related funds to the United States.
    (a) Individuals who are U.S. persons are authorized to engage in transactions necessary and ordinarily incident to the sale of real and personal property in Iran and to transfer the proceeds to the United States, provided that such real and personal property was acquired before the individual became a U.S. person or inherited from persons in Iran. Authorized transactions include engaging the services of any persons in Iran necessary for the sale, such as an attorney, funds agent, or broker.

(b) * * *

(1) * * *

(2) The re-investment in Iran of the proceeds from the real or personal property sales authorized in paragraph (a) of this section; or

Federal Register Notice:

JPMorgan OFAC Sanctions Violations: Why Proactive Due Diligence Matters


Written by Staff Restricted Party Screening Specialist

On October 5, 2018, JPMorgan Chase Bank (JPMC) reached a $5.26M settlement with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) for apparent OFAC violations dating between January 2008 and February 2012.

Included in the announcement was notification of separate OFAC violations related to the Foreign Narcotics Kingpin and Syrian Sanctions Regulations that took place between August 2011 and April 2014.

Details about the earlier violations suggest that there were gaps in JPMC’s reporting and escalation processes (and that despite red flags, staff members allowed transactions to proceed). What’s noteworthy about second case, however, is not that JPMC staff allowed 85 prohibited transactions from six customers (and Specially Designated Nationals) to occur. Rather, it was the following:

  1. That the institution’s screening system failed to “identify customer names with hyphens, initials, or additional middle or last names as potential matches to similar or identical names on the SDN List,” and
  2. That JPMC employees did not further vet results despite similarities in name, addresses and dates of birth.

On the positive side, JPMorgan Chase self-identified the weakness in its screening tool and took remedial actions to correct—ultimately moving to a new screening system in 2013. Once implemented, they rescreened close to 200 million customer records, discovered the transactions in question, and ultimately reported the violations to OFAC.


For an organization the size of JPMorgan Chase, a $5M financial settlement probably isn’t going to break the bank (no pun intended!). But the same may not be true for businesses without a similar bottom line to fall back on.

The later violation could have been avoided altogether if JPMC had set procedures in place—a match resolution workflow, for example. And some education that staff had a responsibility to take extra steps to further vet information in the event one or more search terms came back positive.

Despite the screening tool lacking the ability to recognize hyphens, initials, and additional middle or last names—though a good restricted and denied party screening solution should be able to account for this information—there was still enough readily-available data (e.g., matching dates of birth, etc.) that, upon review, would have indicated that the six account holders, and those on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List, were potentially one and the same.


Screening everyone and every transaction isn’t enough to be compliant with OFAC and other U.S. export, trade and financial compliance laws—positive matches should always be fully vetted and cleared before a transaction can take place, ideally in an environment with set procedures and systems in place.

Full Article:

OFAC Reaches $5 Million Settlement with JPMorgan Chase Bank


By: Danielle Hatch

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced this month that it had reached a $5,263,171 settlement with JPMorgan Chase Bank, N.A. for 87 violations of the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Weapons of Mass Destruction Proliferators Sanctions Regulations.

The transactions were net settlement payments with a very small portion being provided to the interests of airlines that were on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List), blocked pursuant to OFAC sanctions, or located in countries subject to OFAC sanctions. The transactions included airline freight charges which are not exempt from the prohibitions of the International Emergency Economic Powers Act (IEEPA).

On a separate issue, OFAC issued a Finding of Violation to JPMC for violations of the Foreign Narcotics Kingpin Sanctions Regulations and the Syrian Sanctions Regulations. Between 2011 and 2014 JPMC processed 85 transactions worth $46,127.04 held accounts on behalf of six customers who were on the SDN list.

In both situations JPMC voluntarily disclosed the violations and they were considered to be non-egregious violations by OFAC.

Settlement Agreement:

Epsilon vs. OFAC: Third Party Risks & “Reason to Know”


By: Danielle Hatch

Before I get to the nitty gritty of this case its important to remember that companies can be held liable for sanctions violations when they export a product to a third-party in another country and know or have reason to know that the third party intends to reexport their product to Iran. Companies must do their due diligence to make sure that that third party who is receiving their products isn’t planning on sending them to Iran. Now that that’s out of the way, let’s get started.

Note: This case was between the Office of Foreign Assets Control (OFAC) and Epsilon Electronics but Power Acoustik Electronics who is a subsidiary of Epsilon who engaged in the transactions in question.

Epsilon Electronics, also doing business as Power Acoustik Electronics, Sound Stream, Kole Audio, and precision Audio has agreed to pay $1.5 million to OFAC to settle the enforcement case related to alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). OFAC’s Penalty Notice alleged that Epilson violated the ITSR when it issued 39 invoices for sales to Asra Internationals LLC from 2008 to 2012 because Epsilon knew or had reason to know that Asra was distributing its products to Iran.

In 2008 OFAC found out that Power Acoustik exported items to an address in Iran. OFAC issued a subpoena and eventually sent the company a cautionary letter in 2012. During a separate investigation, OFAC uncovered wire transfers from Asra International (company located in Dubai) to Power Acoustik totaling more than $1.1 million between 2010 and 2011. OFAC believed that these wires may have been for products that were destined to Iran and they issued another subpoena to Power Acoustik. The company explained that they had 41 sales of audio and video equipment to Asra between 2008 and 2012 which explained the wire transfers. During a further investigation, OFAC did not directly find any proof that any of the equipment was reexported to Iran by Asra but they did find a website for Asra that specified that the company provided car audio and video products to Iran. The Iran affiliate’s address on Asra’s website was the same address as the 2008 address that OFAC initially sent a subpoena to Power Acoustik for, related to the illegal shipment.

OFAC then issued a Penalty Notice to Epsilon for $4 million based on 34 non-egregious violations (those that occurred before the 2012 cautionary letter) and 5 egregious violations (occurred after the cautionary letter). Epsilon challenged OFAC’s Penalty Notice in the US District Court for the District of Columbia and lost. The company than appealed the order to the US Court of Appeals for the District of Columbia which affirmed the 34 non-egregious violations but reversed the 5 egregious violations to be non-egregious changing the penalty from $4 million to $1.5 million. The Court of Appeals found that an exporter may be found liable if it exports goods from the US to a third country, with reason to know that those goods are specifically intended for reexport to Iran, even if they never make it to Iran. The “reason to know” requirement for OFAC can be established “through a variety of circumstantial evidence” including “course of dealing, general knowledge of the industry or customer preferences, working relationships between parties, or other criteria far too numerous to enumerate.”

Up until 2011, Asra distributed to Iran exclusively, making the evidence on their website evidence for OFAC that Power Acoustik could have reasonably inferred that Asra only distributed its products to Iran. The Court of Appeals found that the final five exports didn’t fit the “reason to know” standard because OFAC did not address several emails between Acoustik’s sales team and an Asra manager between 2011-2012 which explained that their products were going to be sold from Asra’s new retail store in Dubai…causing the 5 violations to be changed.

OFAC saw the following as aggravating factors:

  1. The alleged violations constituted or resulted in a systematic pattern of conduct
  2. Epsilon exported goods valued at $2,823,000 or more
  3. Epsilon had no compliance program at the time of the alleged violations

OFAC considered the following to be mitigating factors:

  1. Epsilon has not received a Penalty Notice or a Finding of Violation in five years preceding the transactions that gave rise to the alleged violations
  2. Epsilon is a small business
  3. Epsilon provided some cooperation to OFAC, including entering into an agreement to toll the statute of limitations for one year

The important take away from this case is that, as most people already know, there is a very far-reaching interpretation of what constitutes “reason to know” when dealing with third parties and Iran (and Cuba).

Enforcement Details:

French Lender Has Been Saving for $1.27 Billion in US Sanctions Penalties


By: Danielle Hatch

French multinational bank, Société Générale (SocGen) has released a statement that the lender believes it will be reaching a resolution in the coming weeks related to transactions it processed related to persons subject to US sanctions. The bank has been setting aside funds to cover the penalties since 2017 and they believe they have done it. In their statement, SocGen says that they expect the US penalty of 1.2 Billion to be, “almost entirely covered” by the provisions it’s been saving.

In June, SocGen agreed to pay $1.3 billion to authorities in the US and France to end disputes over transactions related to Libya and over the suspected rigging of Libor, an interest rate used in contracts worth trillions of dollars globally. The bank’s CEO at that time, Didier Valet, was released as part of the settlement.

ScoGen has also already paid 963 million euros in 2017 to settle disputes with the Libyan Investment Authority, a sovereign wealth fund.

A little background related to fines related to banks and sanctions penalties: In 2015, Credit Agricole SA (France’s second largest bank), paid $787 million in fines to cover a similar sanctions case. Four years ago, BNP Paribas SA plead guilty to charges related to transactions involving Iran, Cuba and Sudan and they paid $9 billion.