A few months ago, we wrote a case study on how the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) treated a U.S. company that had sold its majority ownership interest to an Iranian national. In today’s post, we address a newly rendered OFAC enforcement action where they issued a cautionary letter for a U.S. company involved in the brokering of an export of agricultural commodities to Iran on behalf of a non-U.S. company. As readers of this blog may be familiar, the Iranian Transactions and Sanctions Regulations (ITSR) allow for the brokering of agricultural commodities on behalf of U.S. persons, and have a favorable licensing policy in terms of licensing brokering services on behalf of non-U.S., non-Iranian parties in relation to those same commodities. However, how does OFAC react when a license has not been obtained for brokering on behalf of such a non-U.S., non-Iranian parties?

In the case at hand, the U.S. entity was a relatively new company with no prior OFAC experience, and no discernible OFAC compliance program. The U.S. entity, using contacts based in Iran, successfully negotiated the sale of bulk agricultural commodities to Iran. The commodities, however, were sourced through a third country supplier. A contract was executed between the U.S. entity and the third country supplier. The third country supplier and the Iranian importer also entered into a separate contract regarding the sale and purchase of the commodities. The U.S. entity received their commission payment on the transactions from the third country supplier.

In drafting the voluntary self-disclosure, counsel argued that there was no harm to the sanctions program, as this type of transactions would likely have been licensed had the U.S. entity been familiar with OFAC and had applied for a license. Further, counsel pointed out that the ITSR, and its underlying authority, were not promulgated to prohibit this type of activity, and that the Trade Sanctions Reform and Export Enhancement Act (TSRA) actually calls for these types of exports to be authorized. Finally, counsel argued that the U.S. entity was a new and small company, and that they had taken immediate steps to self-disclose and to file for a license for future dealings on behalf of the third country supplier and Iran.

After approximately three (3) months, OFAC returned a cautionary letter. In the cautionary letter, OFAC noted that the brokering service provided was in violation of 31 C.F.R. 560.204, as it was an exportation of a service to Iran. The prohibitions contained at 31 C.F.R. 560.204 include the provision of services to a person in a third country undertaken with knowledge or reason to know that such services are intended for supply or sale, directly or indirectly, to Iran. The cautionary letter constitutes a final agency action from OFAC, however, the letter will remain on file in the event of any future violations by the U.S. entity.

As always, feel free to write us with any OFAC related case studies of your own. We hope that examples such as these will shed some light on how OFAC will respond in certain types of situations. That said, it is important to note that OFAC does consider matters on a case by case basis and that every case is different. If faced with a potential OFAC violation it’s important to contact a licensed legal professional with experience and knowledge on U.S. economic sanctions and regulations to determine what level of exposure may exist and how to remediate any potential liability resulting from such exposure.

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.