2012 Mid-Year OFAC Update

July 27, 2012

The first half of 2012 saw the Office of Foreign Assets Control ("OFAC") within the United States Department of Treasury continue enforcement of U.S. sanctions laws and issue a flurry of new regulations and guidelines. But the hallmark of this period was the implementation of recent legislation and executive action further targeting Iran and Syria for pursuit of weapons of mass destruction ("WMD"), human rights abuses, and attempts to evade sanctions. 

This article reviews OFAC developments in the first half of 2012 in five areas – legislation, executive orders, regulations, other significant developments, and major enforcement actions – and assesses what the experience in the first half of 2012 suggests about how clients can best adapt to OFAC’s ongoing enforcement of the United States’ sanctions regime.  

I.   Legislation

Though Congress has not yet passed sanctions legislation in 2012, two initiatives targeting Syria – in particular its pursuit of WMD and human rights abuses – are currently under consideration.   

          a.   H.R. 2106 — Syria Freedom Support Act 

In response to Syrian President Bashar al-Assad’s continued crackdown on political opposition and pursuit of WMD, Congress considered a bill further sanctioning Syria and penalizing persons and companies who do business in the country’s petroleum industry. Introduced by Rep. Ileana Ros-Lehtinen (R-FL18) and last Reported by Committee on March 7, 2012, H.R. 2106 ("Syria Freedom Support Act")[1] requires the maintenance of current restrictions against the Government of Syria and related persons until the President certifies that Syria has ended support for terrorism, dismantled biological, chemical, radiological, and nuclear weapons programs, has committed to combat the proliferation of these weapons, does not pose a threat to U.S. national interests and to U.S. allies, and upholds human rights, political freedoms, and civil liberties. 

The proposed legislation would impose sanctions on anyone who exports, transfers, or provides to Syria any items or services that contribute materially to Syria’s ability to acquire chemical, biological, nuclear, or advanced conventional weapons and technologies. It would prohibit the United States from entering into any nuclear agreement with, or exporting or transferring nuclear materials, services, or technology to, a country that assists Syria’s nuclear program or transfers advanced conventional weapons to Syria. Further, the Act directs the Secretary of State to deny visas to any alien included in a report identifying persons involved in specified weapons proliferation activities with Syria. 

The legislation would also penalize persons doing business in Syria’s petroleum industry if such persons: 1) knowingly made an investment of $5 million or more that directly and significantly contributed to the enhancement of Syria’s ability to develop petroleum resources; 2) sold, leased,

or provided goods, services, technology, information, or support to Syria which had a fair market value of at least $1 million or, over a 12-month period, $2 million, and could directly and significantly facilitate the maintenance and production of refined petroleum products; 3) sold or provided refined petroleum products to Syria worth at least $1 million; or 4) sold or provided

goods, services, technology, information, or support worth at least $1 million that directly and significantly contributed to Syria’s ability to import refined petroleum products.

The Syria Freedom Support Act would also direct the President to impose sanctions on Syrian government officials responsible for, or complicit in, human rights abuses committed against Syrian citizens or their family members, as well as direct the President to freeze U.S. or U.S.-controlled assets of a person determined to have been involved in the transfer of goods or technologies to Syria that may have been used to commit human rights abuses. The Act would also authorize the President to provide financial and political assistance to persons that support democracy and the promotion of democracy in Syria.

          b.   S. 2034 — Syria Human Rights Accountability Act of 2012

The Senate also moved to impose additional sanctions on Syria.  On January 24, 2012, Senator Kirsten Gillibrand (D-NY) introduced S. 2034 ("Syria Human Rights Accountability Act of 2012") in the chamber.[2] The Act, which has not been referred to committee, also targets the Syrian government and persons who assist the government in committing human rights abuses. If passed, it would direct the President to submit and regularly update a number of lists to Congress, including any Syrian government officials or persons acting on behalf of that government responsible for ordering, controlling, or otherwise directing the commission of serious human rights abuses against Syrian citizens or their family members; any person who knowingly transfers or facilitates the transfer of goods or technologies that are likely to be used by Syria to commit human rights abuses against the Syrian people; and any person who engages in censorship that prohibits, limits, or penalizes the legitimate exercise of freedom of expression by Syrian citizens.

Listed persons would be ineligible for entry into the United States, their property would be blocked, and financial institutions would be prohibited from conducting transactions with them. The Act would also prohibit federal agencies from entering into or renewing contracts for the procurement of goods or services with any person who exports sensitive technology to Syria. The Act’s provisions and sanctions could terminate only when the President certifies that the Government of Syria is democratically elected or a legitimate transitional government is in place.

The Act overlaps with Executive Order 13606 "Blocking the Property and Suspending Entry Into the United States of Certain Persons With Respect to Grave Human Rights Abuses by the Governments of Iran and Syria via Information Technology" ("GHRAVITY E.O."),[3] which also targets persons who sell, lease, or provide goods, services, or technology to Iran or Syria which are likely to be used to disrupt computers or networks, monitor or track individuals, and that could enable serious human rights abuses by the Syrian government. This overlap may explain why the Senate has made little progress in enacting this legislation.  

II.   Executive Orders 

In the first half of 2012, President Obama signed five Executive Orders implementing sanctions again Iran, Syria, Yemen, and Burma.  

          a.   Iran 

On February 5, 2012, President Obama signed Executive Order 13599 "Blocking Property of the Government of Iran and Iranian Financial Institutions."[4] The E.O. requires that U.S. persons block (i.e. seize) all property and interests in property of the Government of Iran, the Central Bank of Iran, all Iranian financial institutions, and of persons owned, controlled by, or acting on behalf of any such persons whose property is blocked, if such property is in the United States or comes within the possession or control of any United States person. The Executive Order defines "Government of Iran" as "the Government of Iran, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Iran, and any person owned or controlled by, or acting for or on behalf of, the Government of Iran,"[5] and "Iranian financial institution" as "a financial institution organized under the laws of Iran or any jurisdiction within Iran (including foreign branches), any financial institution in Iran, [and] any financial institution, wherever located, owned or controlled by the Government of Iran."[6] The E.O. blocks the property of any individual or entity if it falls within these definitions, regardless of whether it is listed as a Specially Designated National ("SDN").[7]  

This Executive Order goes beyond the Iranian Transactions Regulations ("ITR"),[8] which required that financial institutions and U.S. persons reject such transactions and refuse to carry them out, not freeze the assets in question.

OFAC also issued two general licenses excluding certain transactions from sanctions pursuant to E.O. 13599. General License A authorizes the continuation of many transactions already permitted under existing licenses, such as those general licenses set forth under the ITR and those specific licenses previously issued by OFAC.[9] However, General License A does not permit the closing of the accounts of the Government of Iran or an Iranian financial institution and the transfer of the balances to accounts outside of the United States.[10] General License B authorizes U.S. depository institutions and U.S. registered brokers or securities dealers to process non-commercial, personal remittances to or from Iran as long the payments are not made to any individual included in the term "Government of Iran," and that the person receiving the remittances is designated only pursuant to E.O. 13599, not a number of other sanctions regulations.[11]  

          b.   Iran and Syria 

On April 22, 2012, President Obama signed Executive Order 13606, the GHRAVITY E.O.[12] The E.O. aims to prevent the continued attempts by the Governments of Syria and Iran to violently suppress political opposition. It targets those governments and persons who use and facilitate the use of information and network technology to enable such human rights abuses.[13] The E.O. blocks the property of anyone determined to have operated, or directed the operation of, information and communication technology that facilitates computer or network disruption, monitoring, or tracking that could assist in or enable serious human rights abuses by or on behalf of the Governments of Iran or Syria.[14]

The United States will also block the property of persons who have sold, leased, or otherwise provided goods, services, or technology to Iran or Syria likely to be used to facilitate such activities.[15] These penalties further extend to anyone who materially assists, sponsors, or provides financial, material, or technological support for these activities. The GHRAVITY E.O. is not intended to block the provision of technologies that would enable the Iranian and Syrian people to communicate among themselves and the outside world.[16]

On May 1, 2012, President Obama signed Executive Order 13608 "Prohibiting Certain Transactions With and Suspending Entry Into the United States of Foreign Sanctions Evaders With Respect to Iran and Syria" ("FSE E.O.").[17] The FSE E.O. targets foreign persons who violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition contained in, or issued pursuant to an extensive list of Executive Orders and other sanctions. The FSE E.O. also targets those foreign persons who facilitate deceptive transactions for or on behalf of any person subject to United States sanctions concerning Iran or Syria. The FSE E.O. language grants the Secretary of the Treasury broad listing powers, in particular the legal ability to identify a foreign company as a sanctions evader if it facilitates a deceptive transaction, even if it was unaware of the identity of the sanctioned individual or entity. The FSE E.O. therefore imposes a substantial requirement on foreign persons considering conducting any transactions with individuals or entities which are potentially subject to U.S. sanctions.

Though OFAC has not yet listed any foreign persons under the FSE E.O., the penalties following a listing may include a prohibition on any direct or indirect transactions with such a person involving, inter alia, purchasing, selling, transporting, financing, or facilitating any good or service intended for the United States or provided to or by a U.S. person, wherever located. Notably, U.S. persons are not required to block the property of foreign persons listed under the FSE E.O. 

          c.   Yemen

On May 16, 2012, President Obama signed Executive Order 13611 "Blocking Property of Persons Threatening the Peace, Security, or Stability of Yemen" in response to the significant political upheaval in Yemen.[18] The Executive Order — which aims to deter political violence in Yemen — blocks the property of any person found to 1) have engaged in acts that directly or indirectly threaten the peace, security, or stability of Yemen, such as acts that obstruct the implementation of the agreement of November 23, 2011; 2) be a political or military leader of an entity that has engaged in such acts; 3) have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of such acts; or 4) be owned, controlled by, or acting on behalf of any person whose property has been blocked pursuant to the order. Thus far, no persons or entities have been designated or sanctioned pursuant to this Executive Order

          d.   Burma

On July 11, President Obama signed Executive Order 13619 "Blocking Property of Persons Threatening the Peace, Security, or Stability of Burma,"[19] released in conjunction with two general licenses significantly relaxing investment and export regulations governing U.S.-Burmese economic relations. The Executive Order provides the Secretary of the Treasury with new authority to block the property of persons determined to have damaged, threatened, or undermined the peace, security, or stability in Burma. In particular, the E.O. blocks any person who: 1) engages in acts that directly or indirectly threaten the peace, security, or stability of Burma, such as actions that have the purpose or effect of undermining or obstructing the political reform process or the peace process with ethnic minorities in Burma; 2) is responsible for or complicit in the commission of human rights abuses in Burma; 3) has, directly or indirectly, imported, exported, re-exported, sold or supplied arms or related material from North Korea or the Government of North Korea to Burma or the Government of Burma; 4) is a senior official of an entity that has engaged in the foregoing acts; or 5) has materially assisted any of the foregoing acts. Pursuant to this new Executive Order, the President designated the Directorate of Defense Industries ("DDI"), which carries out missile research and development at its facilities in Burma in conjunction with North Korean experts, as a Specially Designated National.

III.   Significant OFAC Regulations Published in 2012

OFAC issued a number of new regulations in the first six months of 2012. The regulations implemented key legislation targeting Iran and clarified a number of existing regulations by providing definitions of key terms. 

          a.   Iran

OFAC amended the Iranian Financial Sanctions Regulations ("IFSR") to implement Section 1245(d) of the National Defense Authorization Act for FY 2012 ("NDAA"), which, inter alia, targets the Iranian petroleum sector and the Central Bank of Iran. OFAC amended the IFSR in multiple ways.[20] First, the IFSR now includes the prohibitions and exceptions set forth in Section 1245(d) of the NDAA. Second, the IFSR defines key terms in line with NDAA definitions, including petroleum, petroleum products, food, medicine, and medical devices. Third, the IFSR now interprets the phrase "country with primary jurisdiction over the foreign institution" in the same way as the NDAA. Fourth and finally, the IFSR sets forth the types of factors considered in determining whether a transaction is "significant" under 31 C.F.R. §§ 561.201 and 561.203.

OFAC also amended the ITR to reflect definitions found in the IFSR. In particular, OFAC adjusted the definition of "entity owned or controlled by the Government of Iran" in the ITR to "include[] any corporation, partnership, association, or other entity in which Iran owns a 50 percent or greater interest or a controlling interest, and any entity which is otherwise controlled by that government."[21]

          b.   Cote d’Ivoire, Darfur, and the Democratic Republic of Congo

OFAC added a definition to the Cote d’Ivoire Sanctions Regulations, the Darfur Sanctions Regulations, and the Democratic Republic of Congo Sanctions Regulations.[22] Under these regulations, any person who provides "financial, material, or technological support" for proscribed activities shall have his or her property blocked.   OFAC revised these regulations, 31 C.F.R. § 543, 31 C.F.R. § 546, and 31 C.F.R. § 547, respectively, to include the following definition of "financial, material, or technological support":

[A]ny property, tangible or intangible, including but not limited to currency, financial instruments, securities, or any other transmission of value; weapons or related materiel; chemical or biological agents; explosives; false documentation or identification; communications equipment; computers; electronic or other devices or equipment; technologies; lodging; safe houses; facilities; vehicles or other means of transportation; or goods.[23]

          c.   Transnational Criminal Organizations

OFAC continued its implementation of Executive Order 13581 "Blocking Property of Transnational Criminal Organizations"[24] by issuing a final rule regarding Reporting, Procedures and Penalties. The rule prohibits all transactions which violate E.O. 13581 and require that any person holding funds subject to 31 C.F.R. § 590.201, which prohibits transactions in violation of E.O. 13581, must hold or place such funds in a blocked, interest-bearing account located in the United States.[25] OFAC will continue to supplement these regulations, potentially including additional guidance, licenses, and statements of licensing policy.  

IV.   Other Significant Developments

In the first half of 2012, OFAC also issued both a number of important licenses and guidelines permitting some transactions with sanctioned countries while limiting others, and informational reports describing recent OFAC activities. 

          a.   Iran

OFAC issued General License 5A,[26] which permits transactions related to the MV Dianthe, a vessel seized in India and identified as blocked property pursuant to E.O. 13382 "Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters."[27] Among the transactions now permitted, one can bid on the purchase of the vessel, provide financing or funding in connection with its purchase, and repair the vessel for commercial use. OFAC also noted that if the vessel is sold pursuant to judicial sale, the purchaser may provide OFAC with evidence demonstrating that blocking is no longer applicable and request the vessel’s expedited removal from the Specially Designated Nationals list.

OFAC also restricted financial transactions with a number of entities pursuant to E.O. 13574 "Authorizing the Implementation of Certain Sanctions Set Forth in the Iran Sanctions Act of 1996, as Amended."[28] In particular, OFAC’s restrictions prohibit U.S. financial institutions from making loans or providing credits totaling more than $10 million in any 12-month period to Fal Oil Co., Ltd., Kuo Oil (S) Pte., Ltd., and Zhuhai Zhenrong Co. However, OFAC did specify that if these three institutions are engaged in activities to relieve human suffering, U.S. financial institutions may provide loans and credits specifically for those activities. Further, though the restrictions do limit financial transactions with these firms, the entities are not SDNs or blocked persons.

OFAC also provided further guidance on its export policy related to internet freedom in Iran. Attempting to ensure that the sanctions in Iran do not have a chilling effect on the ability of companies to provide commercial communications tools to individuals in Iran, OFAC issued interpretive guidance regarding § 560.540 of the ITR, which authorizes the exportation of services incident to the exchange of personal communications over the internet to persons in Iran. Under the ITR, exporting certain types of services and products incident to the exchange of personal communications over the internet is now permissible, including services and products related to personal communications (e.g. Google Talk); updates to personal communications software; personal data storage (e.g. Dropbox); browsers (e.g. Firefox); Plug-ins (e.g. Flashplayer); document readers (e.g. Adobe Acrobat); free mobile applications related to communications; and RSS Feed Readers.

OFAC also clarified its Statement of Licensing Policy regarding internet freedom in Iran and concluded that specific licenses may be issued on a case-by-case basis for other types of software and services incident to the sharing of information over the internet. Such software and services could include (but are not limited to): web hosting, online advertising, fee-based mobile applications, and fee-based Internet communication services.

          b.   Syria

OFAC issued General License 4A, which aligns the U.S. Department of Treasury’s sanctions regulations with the U.S. Department of Commerce’s regulations, and General License 15, which provides for certain patent-related exceptions. In particular, General License 4A authorizes the export or re-export of items to Syria from the United States to any person whose property is blocked if such items are authorized by the Department of Commerce.[29] General License 15[30] authorizes certain patent, trademark, copyright, and intellectual property transactions that would otherwise be prohibited by Executive Order 13582 "Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria,"[31] including the filing and prosecutions of applications, receipt and renewal of patents and trademarks, the filing and prosecution of opposition or infringement proceedings, and payment of fees due to the United States or Syrian governments in connection with such transactions.

          c.   Burma

In line with the general improvement in U.S.-Burmese relations,[32] OFAC issued important new licenses in the spring and summer of 2012. General License No. 16 and General License No. 17, announced on July 11, 2012, supersede General License No. 14-C and General License No. 15 and significantly loosen regulations restricting financial services and investment in Burma. General License No. 16 authorizes the exportation of U.S. financial services to Burma.[33] Reflecting human rights concerns, however, persons may not export financial services to the Burmese Ministry of Defense, state or non-state armed groups (which includes the military), or entities owned by the foregoing. General License No. 16 also does not authorize the exportation of financial services to any person blocked under the Burma sanctions program. Transfers of funds to or from an account of a financial institution that is blocked under the Burma sanctions program are authorized, however, provided that the account is not on the books of a U.S. financial institution.

General License No. 17 authorizes new investment in Burma by waiving the ban on new U.S. investment set forth in the Foreign Operations, Export Financing and Related Programs Appropriations Act of 1997.[34] Similar to General License No. 16, persons are not authorized to invest pursuant to an agreement that is entered into with the Burmese Ministry of Defense, state or non-state armed group (including the military), or entities owned by the foregoing, or any person blocked under the Burma sanctions program.

General License No. 17 also requires that any U.S. person investing in Burma abide by new reporting requirements. Persons whose aggregate new investment exceeds $500,000 must provide the State Department with information set forth in the "Reporting Requirements on Responsible Investment in Burma."[35] Pursuant to these requirements, investors must file reports with the State Department on an annual basis that include information about policies and procedures with respect to human rights, workers’ rights, environmental stewardship, land acquisitions, arrangements with security service providers, and aggregate annual payments exceeding $10,000 to Burmese government entities, including state-owned enterprises. In addition, persons undertaking new investment pursuant to an agreement with the Myanmar Oil and Gas Enterprise ("MOGE") must notify the State Department within 60 days of their new investment.

OFAC also designated Innwa Bank pursuant to Executive Order 13464 "Blocking Property and Prohibiting Certain Transactions Related to Burma"[36] as an entity that is owned or controlled by Myanmar Economic Corporation. Myanmar Economic Corporation, previously designated by OFAC, is a conglomerate owned by the Ministry of Defense that has extensive interests in a variety of Burmese economic sectors.  

          d.   Cuba

In May, OFAC issued revised Cuba travel-related transaction guidelines.[37]  The updated guidelines reflect changes made to the Cuban Assets Control Regulations.[38]  The amendments to the CACR allow for greater licensing of travel to Cuba for religious, cultural, educational and journalistic purposes.  The Application Guidelines respond to some confusion in differentiating between instances in which activities were authorized by a general license (and thus did not require a specific license from OFAC) and activities that required a specific license from OFAC.  

          e.   Trade Sanctions Reform & Export Enhancement Act ("TSRA")

Pursuant to the TSRA,[39] OFAC issued a report detailing its licensing activities in the third quarter (April-June)[40] and fourth quarter (July–Sept.)[41] of FY 2011.  In the third quarter, OFAC received 467 license applications and issued 485 license determinations. Of those 485 determinations, 177 were for cases received during the third quarter. OFAC issued 330 licenses, 48 license amendments, 75 "return-without-action" letters, and two denial letters. Of the licenses, 296 were for products bound for Iran and 24 for Sudan. The majority of the licenses issued were for medical devices and medicine. In the fourth quarter, OFAC received 462 license applications and issued 448 license determinations. Of those 448, 166 were for cases received during the fourth quarter. OFAC issued 300 licenses, 51 license amendments, 79 "return-without-action" letters, and one denial letter. Of the licenses, 277 were for products bound for Iran and 23 for Sudan. The majority were for medical devices and medicine. In general, the number of license applications, determinations, and eventual issuances remained fairly stable from the third to the fourth quarter of FY 2011.

          f.   2011 Annual Report on U.S. Assets of Terrorist Country-Designees

As required by law, OFAC submitted the 2011 Annual Report on U.S. Assets of Terrorist Country-Designees to Congress detailing the number of individuals and entities sanctioned — as well as the amount of funds seized — as of December 31, 2011. OFAC reported that, pursuant to E.O. 13224 "Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism,"[42] it had listed 626 individuals and entities as Specially Designated Global Terrorists. OFAC also had listed 39 individuals and entities as Specially Designated Terrorists pursuant to E.O. 12947 "Prohibiting Transactions With Terrorists Who Threaten To Disrupt the Middle East Peace Process"[43] and E.O. 13099 "Prohibiting Transactions With Terrorists Who Threaten To Disrupt the Middle East Peace Process."[44] In addition, OFAC listed 49 organizations or groups as Foreign Terrorist Organizations pursuant to the Antiterrorism and Effective Death Penalty Act of 1996 and blocked a total of $25,528,389 in assets pursuant to the above regulations.

V.   Major OFAC Enforcement Actions

          a.   Richland Trace Homeowners Association, Inc. ("Richland Trace")

Richland Trace violated the Former Liberian Regime of Charles Taylor Sanctions Regulations ("FLRCTSR") when it used $9,500 in proceeds from a sale of a property in which a person designated pursuant to Executive Order 13348 "Blocking Property of Certain Persons and Prohibiting the Importation of Certain Goods from Liberia"[45] had an interest to reimburse itself for past assessments and late fees that had accrued against the property.[46] This reimbursement violated the prohibition against dealing in blocked property pursuant to 31 C.F.R. § 593.201. Though the base penalty for such a violation was $10,000, OFAC assessed a $9,000 penalty because — despite Richland’s reckless disregard in failing to comply with OFAC regulations and its lack of voluntary self-disclosure — it had no prior OFAC violations.

          b.   Online Micro, LLC ("Online")

OFAC alleged that Online and one of its owners ("Owner") violated the Iranian Transactions Regulations when they exported unlicensed computer goods from the United States — through Dubai, United Arab Emirates — to Iran between 2009 and 2010.[47] OFAC, Online, and Owner agreed to a settlement in the amount of $1,054,388. That settlement is related to criminal plea agreements reached by Online, Owner, and the office of the United Sates Attorney for the District of Columbia, as well as a settlement agreement between Online, Owner, and the U.S. Department of Commerce’s Bureau of Industry and Security ("BIS"). Online and Owner each pleaded guilty in the U.S. District Court for the District of Columbia to one count of criminal conspiracy to violate the International Emergency Economic Powers Act ("IEEPA") and the ITR. They also agreed — pursuant to their settlement with BIS — to forfeit $1,899,964 and accept a suspended Export Denial Order that would prohibit them from exporting any goods from the United States for a ten-year period if they do not remain in compliance with the terms of their settlement agreements and Export Administration Regulations. Because of their acceptance of criminal responsibility, the Export Denial order, and their financial forfeiture, OFAC deemed its settlement with Online and Owner already satisfied. 

          c.   Essie Cosmetics, Ltd. ("Essie")

OFAC alleged that Essie and a former corporate officer ("Individual") violated the ITR when they knowingly sold and exported unlicensed nail care products worth $33,299 to an Iranian distributor in apparent violation of 31 C.F.R. § 560.204.[48] Essie and Individual sold and exported nail care products on or about September 17, 2009, December 8, 2009, and February 23, 2010, pursuant to an Exclusive Distributorship Agreement. The base penalty for the violations was $750,000, however Essie, Individual, and OFAC agreed to a settlement in the amount of $450,000. In determining the size of this settlement, OFAC took into consideration a number of aggravating and mitigating factors. OFAC’s determination that Essie and Individual intentionally attempted to evade sanctions and did not voluntarily self-disclose the apparent violation constituted aggravating factors. Essie and Individual’s lack of prior OFAC violations and their cooperation with an investigation by U.S. Immigrations and Customs Enforcement – which resulted in executed Non-Prosecution Agreements with the United States Attorney’s Office for the Southern District of New York, and pursuant to which they agreed to the civil forfeiture of $200,000 — mitigated the penalty. Further, OFAC considered $200,000 of its total settlement of $450,000 satisfied by Essie and Individual’s agreement with the U.S. Attorney’s Office and the $200,000 forfeiture. 

          d.   Sandhill Scientific, Inc. ("Sandhill")

OFAC alleged that Sandhill violated the ITR in May 2007 when it exported unlicensed medical equipment to Dubai, United Arab Emirates, with knowledge or reason to know that the goods were intended for shipment to Iran.[49] This violation carried a base penalty of $250,000. OFAC further alleged that Sandhill violated OFAC’s Reporting, Procedures and Penalties Regulations ("RPPR")[50] in May and July 2008 when it failed to provide documents responsive to two administrative subpoenas issued by OFAC during its investigation of the alleged ITR violation. The two alleged violations of the RPPR carried a total penalty of $40,000. In agreeing to a settlement of $126,000, OFAC noted that Sandhill’s actions constituted an egregious violation of sanctions laws because: 1) the unlicensed export resulted from willful and deliberate conduct in which the company’s management was directly involved; 2) Sandhill appeared to deliberately conceal that the goods were destined for Iran; 3) Sandhill did not fully cooperate with the investigation; and 4) Sandhill did not appear to have any compliance program in place at the time of the alleged violations. Mitigating factors included the fact that the export may have been eligible for an OFAC license pursuant to § 560.530 of the ITR and that OFAC has no record of any prior sanctions enforcement actions involving Sandhill.

          e.   Genesis Asset Managers, LLP ("GAM US")

OFAC alleged that GAM US violated the ITR when its UK-based subsidiary, Genesis Investment Management, LLP ("GIM UK"), purchased approximately $3 million of shares in the First Persian Equity Fund ("FPEF"), a Cayman Islands company that invests exclusively in Iranian securities.[51] In agreeing to settle for $112,500 for the August 1, 2007 alleged violation, OFAC identified a number of aggravating and mitigating factors. Aggravating factors included: GAM US’s failure to exercise a minimal degree of caution or care in the conduct leading to the apparent violation; GAM US’s officers were aware of the conduct giving rise to the apparent violations; substantial economic benefit was conferred to Iran, undermining the objectives of the ITR; GAM US did not have an OFAC compliance program in place at the time of the apparent violations. Mitigating factors included: GAM US had not received a penalty notice from OFAC for similar violations; GAM US substantially cooperated with OFAC’s investigation by responding promptly and completely to OFAC’s requests for information, by voluntarily self-disclosing the violation, and by agreeing to settle the matter without the issuance of a Prepenalty Notice; and GAM US also took remedial action and may not have fully understood its OFAC obligations under U.S. law.

          f.   ING Bank N.V. ("ING Bank")

OFAC alleged that ING Bank violated the Cuban Assets Control Regulations ("CACR"),[52] the Burmese Sanctions Regulations ("BSR"),[53] the Sudanese Sanctions Regulations, the Libya Sanctions Regulations ("LSR"),[54] and the ITR from October 2002 until September 2007.[55] ING Bank allegedly violated the CACR by processing 20,452 electronic fund transfers, trade finance transactions, and travelers checks in which Cuba had an interest, in the amount of $1,654,657,318, through financial institutions located in the United States. ING Bank allegedly violated the BSR when it processed 41 electronic fund transfers and trade finance transactions, in the amount of $15,469,938, through financial institutions located in the United States. OFAC alleged that ING Bank allegedly violated the SSR when it processed 44 electronic wire transfers and trade finance transactions worth a total $1,976,483. ING Bank allegedly violated the ITR when it processed one $153,000 electronic fund transfer, to the benefit of the Government of Iran, through a financial institution located in the United States and processed — through financial institutions located in the United States — a $1,205,000 export letter of credit issued by an Iranian bank related to the export of an aircraft engine from the United States to Iran.

ING Bank and OFAC agreed to a multi-part settlement, including: the payment of $619,000,000; the institution of policies and procedures designed to minimize the risk of recurrence of such violations; a review process whereby after one year following the settlement, ING Bank will review its compliance policies and submit the results of that review to OFAC; and the opportunity for OFAC — should it determine that ING Bank has willfully and materially breached its settlement obligations — to declare the settlement null and void. In reaching this settlement, OFAC determined that ING Bank took substantial steps to mitigate the alleged violation, including: voluntarily self-disclosing all of the alleged violations except the export letter of credit for an aircraft engine; taking prompt and thorough remedial action, including adopting a consolidated sanctioned countries and export control policy; implementing new training sessions and new software designed to prevent violations; disengaging from any new business in any currency involving Cuba, Iran, Burma, North Korea, Sudan, and Syria; and closing its office in Havana, among other steps. Other factors OFAC used to determine the terms of the settlement included ING Bank’s clean violation record in the previous five years and that, while ING Bank cooperated closely with OFAC in identifying weaknesses in its compliance programs, it did not respond promptly or completely to explicit requests for information. In particular, requested information was ultimately provided but only after multiple requests and with heavy redactions.

          g.   National Bank of Abu Dhabi ("NBAD")

OFAC alleged that the National Bank of Abu Dhabi violated the Sudanese Sanctions Regulations when it removed Sudan-related references in 45 transactions — worth approximately $4.39 million — that were routed through financial institutions located in the United States.[56] NBAD allegedly committed these violations from November 2004 until December 2005. Despite a base penalty of $4,276,000 for such violations, OFAC and NBAD ultimately settled the matter for $855,000. NBAD’s substantial cooperation with OFAC during the investigation process, its prompt remedial efforts, and its lack of violations over the previous five years resulted in this reduction. 

VI.   Looking Forward — Future Directions in OFAC Sanctions and Enforcement

The second half of 2012 will likely bring additional sanctions measures against Syria, and increasing pressure on Iran.  One additional development worth noting is the loss of significant expertise and experience due to the departure of several senior-level compliance analysts, licensing officers and legal advisors at OFAC.  Several of these individuals have left OFAC for the private sector, either financial institutions or law firms.  Several have taken advantage of early retirement offerings.

There could be two consequences of significance to the trading community.  First, license processing times — already too long — can be expected to get even longer.  Second, the loss of experience in the penalties area might lead to increased — and perhaps disproportionate – penalty assessments.