On Thursday, the United States Department the of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced an agreement to settle violations of the Iranian Transactions and Sanctions Regulations (“ITSR”), and the Sudanese Sanctions Regulations (“SSR”) with Fokker Services B.V. (“Fokker”) The total? A whopping $50,922,208. The total number of prohibited transactions was 1,153, the overwhelming majority of which were violations of the ITSR occurring over a five (5) year period from 2005-2010. Although sanctions were the cause of the violations, the settlement was not with OFAC alone, it also included settlement with the United States Department of Commerce Bureau of Industry and Security (“BIS”) and the U.S. Attorney’s Office for the District of Columbia.

While Treasury did issue a press release on this settlement, a lot of the facts remained unclear. What it did reveal, however, was that Fokker voluntarily self-disclosed their violations. This has prompted some sanctions’ commentators to state that it sets a bad precedent, as criminally prosecuting sanctions violators who voluntarily self-disclose their violations discourages future violators from following the same path. Indeed, I have made such an argument on this blog before as well. Therefore, I became curious as to why OFAC had reacted so harshly to these self-disclosed violations. Since, the Treasury press release was somewhat vague as to what had actually occurred, I went and did some digging and pulled up the criminal information that was filed in U.S. District Court for the District of Columbia on Wednesday. Here are some of the key facts which make the OFAC’s actions here so much more understandable:

1. During the relevant time period, Fokker was servicing aircraft located in Iran, Sudan, and Burma, using aircraft parts manufactured all of the world, including the United States. In Iran, five of Fokker’s customers were military entities, including Iran’s Air Force. In Burma, two of Fokker’s customers were blacklisted entities designated pursuant to Executive Order 13348, Air Bagan and Yangon Airways.

2. Fokker not only sold U.S. origin parts to Iran and Sudan, they also sent parts from those jurisdictions to the United States for repair in U.S. based repair shops. In total they made $21 million from such transactions.

3. Fokker deliberately withheld aircraft tail numbers, and/or provided false tail numbers to U.S. and U.K. companies in order to mask the identity and location of the planes for which the parts and services were being provided. In addition, on certain occasions, Fokker would tell the U.S. and U.K. companies that the parts were for “stock” or general inventory.

4. Fokker employees created and maintained a chart tracking which U.S. companies were the most vigilant on export controls and directed employees not to do business with those companies.

5. Fokker intentionally removed references to Iran in materials sent to U.S. subsidiaries and repair shops. In an email sent out by a Fokker employee, it was stated that in relation to dealing with U.S. repair shops, that Fokker followed the “what they don’t know, won’t hurt them” principle in justifying hiding information concerning dealings with Iranian customers. This principle was also memorialized in a 2007 Fokker internal memorandum to the management team of Fokker’s Component and Material Services Division.

6. Fokker deliberately changed their own database to delete the field requiring end-user information.

7. Fokker instructed their employees to hide all Iran related activities and documents when U.S. Federal Aviation Administration inspectors audited their Dutch warehouse.

8. Fokker drafted written guidance known as a “work instruction” directing employees to only use U.S. repair shops where U.S. end-user information was not requested, and to repackage parts to remove any indication that those parts were being sent from a sanctioned jurisdiction or by a sanctioned party. This work instruction was issued following Fokker’s commissioning of an export compliance working group to examine possible violations of various legal regimes (U.S., E.U., and Dutch) had revealed that many of Fokker’s activities were in violation of U.S. law.

9. In 2009, Fokker’s President threatened to fire a newly appointed export compliance manager who informed the company that they had to stop selling to Iran.

10. In 2002, Fokker had applied for an OFAC license to reexport certain U.S. origin products to Iran, thereby demonstrating that they were aware of the prohibitions contained in the U.S. sanctions program targeting Iran. That license application was denied approximately two (2) years later, yet Fokker continued their prohibited conduct for an additional six (6) years.

Well….that certainly explains a lot. While I do agree it sets a bad precedent to criminally prosecute those parties who voluntarily self-disclose their violations, there were exigent circumstances here. The sad part of this whole thing is that during the entire time period of Fokker’s conduct there was a licensing policy at 31 C.F.R. 560.528 which may have allowed for at least portion of the prohibited activity to have been authorized.

As a side note, and what makes this even more interesting given contemporary political developments, is that its rumored that a number of parties in Iran are attempting to seek parts for Fokker aircraft under the Joint Plan of Actions (“JPOA”) Statement of Licensing Policy (“JPOA-SLP”) on civil aviation, which essentially put into place an expanded OFAC licensing policy in favor of exports of aircraft parts and services to Iran for use in commercial passenger aircraft. Such an undertaking may become even more difficult now, given that potential suppliers are going to be more on guard than ever regarding dealings for parts and services for aircraft operating inside of Iran.

It seems obvious that such a fact would not be lost upon the U.S. government which is what makes the timing of the announcement of the settlement, and the filing of the criminal information, so interesting. The investigation has been ongoing for four (4) years, and yet it is made public approximately one (1) month prior to the expiration of the interim nuclear deal outlined in the JPOA, and at a time where negotiators from Iran and the P5+1 are having difficulty reaching a final agreement. While I don’t want to sound like too much of a conspiracy theorist, could it be that the timing of this matter was lined up to ratchet up the pressure on Iran by increasing the difficulty of obtaining much needed aircraft parts for Iran’s commercial passenger fleet at this critical juncture, thereby incentivizing Iran’s entry into a comprehensive deal that somehow offers further sanctions relief in relation to civil aviation above and beyond that which is already on the table? Or, is it mere coincidence that the terms of the settlement just happened to be reached at this critical time in the negotiations…your guess is as good as mine.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.