The U.S. Government shut down gave the folks over at the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) a few weeks of rest and relaxation, but now that they are back they have come out swinging. Today OFAC announced a $1.5 million penalty against a UAE based investment company, Alma Investment, LLC, responsible for originating six (6) transactions totaling $103,283 on behalf of parties in Iran. Why such a huge penalty? Simple. The matter wasn’t voluntarily self-disclosed and the conduct was egregious. As a result, OFAC determines the base penalty to be twice the value of the transaction, or the statutory maximum of $250,000, per transaction. Here the statutory maximum was greater, so they imposed a penalty of the statutory maximum for each of the six (6) transactions.

But what facts led originating six (6) transactions for roughly over $100,000 to be an egregious violation? Egregiousness was based on OFAC’s findings that 1) Alma concealed material information in funds transfers they originated for processing through the United States; 2) Alma’s management knew the transactions constituted sanctions violations, and 3) Alma did not cooperate with OFAC during the course of its investigation. OFAC stated in its enforcement announcement that assessing a civil monetary penalty against Alma will have a compliance/deterrence effect by encouraging greater due diligence by foreign financial institutions that maintain accounts for third-country trading companies and/or money transmitters.

What was most interesting to me, however, was the quip OFAC made about Alma—a company who has been in trouble in the past–being an investment and advising company, that also appears to serve as a general trading company. What’s interesting about this is that it seems to strike at the heart of the most popular system for moving money into and out of Iran, a system where parties being owed money in Iran by parties outside of Iran are using those debts owed to them to pay other debts outside of Iran. For example, let’s say that Mr. X has wants to send $50,000 to a family member in the U.S. Mr. X goes to the saraaf (money exchanger) in Iran and pays the money exchanger the money to be sent. The money exchanger will then have a debt owed to him from Company A outside of Iran. As part of settling the debt, the money exchanger will tell Company A to pay $50,000 of the debt owed to the family member in the U.S. This typically happens through companies that hold themselves out as “general trading” companies. While the underlying facts of the Alma case may be different, it could be that this penalty is a result of employing such a system. If so the penalty is a sign of the times, and paradigmatic of how, in many cases, funds are being sent out of Iran.

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.