There’s been a great deal of overheated rhetoric about what the nuclear agreement between the P5+1 and Iran means for U.S. businesses hoping to enter the Iranian market. There is certainly a possibility that sanctions relief will lead to a number of new opportunities, particularly for U.S. multinationals with foreign subsidiaries. However, the reality for most U.S. persons is that the vast majority of restrictions contained in the Iranian Transactions and Sanctions Regulations (“ITSR”) will remain in place. For those who might believe that the remaining prohibitions are for show and that the nuclear agreement heralds a new era of lax Iran sanctions enforcement, OFAC issued a message on Friday: Don’t bet on it.
With the ink on the Joint Comprehensive Plan of Action not yet dry, OFAC hit Oklahoma-based Great Plains Stainless Co. (“GPS”) for violations Weapons of Mass Destruction Proliferators Sanctions Regulations to the tune of $214,000. According to the settlement, GPS’s Chinese vendor shipper goods from Shanghai to Dubai aboard a blocked Iranian vessel, the MV Sahand. Compounding their error, GPS then asked that new trade documents be created that omitted any reference to the Sahand, apparently in an effort to conceal its violations. It then sent the new documents to its customers so that the goods could be released from port in Dubai.
OFAC’s determination that the conduct was non-egregious is interesting. After the initial violation GPS apparently received verbal and written guidance from OFAC stating that the company should talking to Licensing before doing anything further with the shipping documents. With regard to the trade documents, GPS also submitted a license application to OFAC seeking authorization for the same conduct that led to the violation. The conduct was also not voluntarily self-disclosed.
Despite these factors, OFAC found the violations to be non-egregious, thus capping the potential civil penalty at $250,000 per violation, rather than the full statutory maximum of $500,000. It may be that since GPS wasn’t aware that the Sahand was involved until the vessel was about set sail, the actual use of a blocked vessel was not their fault. It’s also somewhat questionable that it appears OFAC penalized for the full value of the goods on board, even though the Iranian party would only derive benefit from any fees involved.
There are a number of other oddities in the settlement. The finding that the conduct wasn’t voluntarily self-disclosed also seems strange, since the company filed a license application, presumably disclosing the Sahand’s involvement. Additionally, OFAC alleged that the violations began on April 9, 2009 and lasted until July 4, 2009. Given the 5-year statute of limitation for violations of the International Emergency Economic Powers Act and the lack of credit for a tolling agreement, this means that OFAC shouldn’t have been unable to issue a penalty for any of the conduct. So unless OFAC no longer considers tolling agreements to be mitigating under § G(6) of the Enforcement Guidelines, it’s unclear how they can even issue a civil penalty in this case.
There are a number of important lessons to be learned from this settlement. First and foremost – the JCPOA does not mean OFAC is closed for business with regard to Iran sanctions enforcement. In fact, the Sahand, now named the Adalia, will be unblocked once Iran fulfills its nuclear commitments under the JCPOA. So in roughly 6-8 months, the conduct penalized by OFAC will not even be a violation of 31 C.F.R. Part 544 (WMD sanctions). Second, be careful what you include in a license application, because OFAC won’t necessarily consider any violations disclosed therein to be voluntary.
The strangeness of this settlement merits additional investigation, will update if anything new comes to light.