Another Reason To Always Run Compliance Screenings Even If You Are A Non-U.S. Party – OFAC Is Targeting Foreign Companies

If you are a foreign company that wants access to the U.S. financial markets, make sure you  understand the U.S. Iran Transactions and Sanctions Regulations (ITSR). Administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), the ITSR, unlike other sanctions programs, contain secondary sanctions that apply to non-U.S. persons for wholly non-U.S. conduct that may occur entirely outside U.S. jurisdiction. Even if you are not doing business with Iran, several companies and individuals, many of whom are not Iranian, have been listed under the sanctions program, including 25 more added earlier this month.

What makes the ITSR unique is its broad reach and recent actions by OFAC indicate that that its reach is only expanding. For instance, just last week OFAC issued a violation (but no fine) against a Taiwanese shipping group over which it asserted jurisdiction because some of the property involved in the transaction was subject to a bankruptcy proceeding in a U.S. court. The transaction involved an Iranian ship transferring oil to a Liberian-flagged ship that was owned by the Taiwanese company. The transfer took place in international waters. Because the Taiwanese shipping group had filed a bankruptcy petition in U.S. court, thereby placing its assets under control of the court, OFAC determined that a violation of the ITSR had occurred.

While OFAC’s jurisdictional claim in the above case is particularly novel and the facts particularly unique, foreign companies should take note of it since it signals that OFAC is enforcing the ITSR with particular zeal. Further, the recent listing of more companies and individuals to the Specially Designated Nationals and Blocked Persons (SDN) List, many of whom are not Iranian, should put companies on notice that they should always screen parties with whom they are transacting business so as to not run afoul of ITSR’s secondary sanctions. Although OFAC may not be able to bring criminal sanctions or enforce a civil penalty against a foreign person transacting business with Iran, secondary sanctions allow it to add companies and individuals whom it finds have transacted such business to the SDN List, essentially shutting them out of the U.S. financial system. For more on secondary sanctions programs, see my blog post from last summer here.

As all sanctions regulations, but particularly the ITSR, can prove complicated, companies are advised to consult with their compliance officers and lawyers before conducting any business that many involve Iran or a company or person who is on the SDN List. Screening is essential to discover if a company or person is on the SDN List, and understanding what can and cannot be done is critical. Given the recent administration’s expressed intent to get tough with Iran and OFAC’s increasingly assertive jurisdictional posture, compliance should be more a priority than ever before.

Have a great week.

Doreen