As part of a new series we are rolling out on Sanction Law, we will take actual cases and provide case studies outlining the factual background of the case, the legal arguments made, and how the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) reacted to those arguments and what decision they rendered. Please keep in mind that all cases differ in their facts and circumstances, and OFAC judges each case on its own merits with no two cases ever being identical.
Factual Background: A U.S. entity owned and founded by a U.S. citizen, with its principal place of business in third country, was sold to an Iranian national. The company was involved in the sale of food products. The company never sold products to Iran, nor did it have any assets in Iran. Several years after formation, the company was approached for purchase by an Iranian national. The Iranian national sought to purchase the company so that they could apply for a U.S. investor visa. After seeking the advice of U.S. counsel, the U.S. citizen allowed the Iranian national to purchase a minority interest in the company and be named an officer. A year later, the Iranian national purchased the rest of the shares and became the sole owner. The U.S. citizen stayed on with the company as a director. Following the purchase by the Iranian national, the company became dormant. The only activity the company had was the payment for its rental obligations, fees and taxes. This was carried out by the U.S. person with funds provided by the Iranian national. The U.S. citizen did not receive any compensation. Upon attempting to apply for the visa, the consulate requested to see the OFAC license obtained for sale of the company to the Iranian national. This was the first time either the U.S. citizen or the Iranian national came to learn of OFAC. The U.S. citizen and company then filed a voluntary self-disclosure to OFAC.
Legal Arguments: It was argued that there was no willful conduct because there was no knowledge of OFAC. This was proven by the fact that the entire purpose of the sale was to engage in otherwise lawful activity related to U.S. immigration. In addition, U.S. counsel failed to inform the U.S. citizen and company about OFAC regulations prohibiting transactions with Iran. Further, it was argued that the sales were isolated incidents and did not demonstrate a pattern of conduct. Finally, it was argued that these transactions are typically eligible for licensing since they are related to immigration, and therefore there was no harm to the integrity of the sanctions program or national security.
Conclusion: OFAC found that a violation occurred and issued a cautionary letter. In its enforcement response OFAC cited 31 C.F.R. 560.204 (exportation of U.S.-origin goods, services, and technology), 31 C.F.R. 560.206 (transactions for Iranian-origin goods and services), and 31 C.F.R. 560.204 (importation of Iranian-origin goods and services), in coming to the decision that the transactions in question constituted a violation of the Iranian Transactions Regulations (now known as the Iranian Transactions and Sanctions Regulations).
We hope that this information is helpful to those dealing with OFAC issues. Again, this information should not be relied upon to believe that OFAC will always respond in a consistent manner when similar circumstances exist. If there are any practitioners or others who want to submit their own case studies, please email me at the email address below. Please do not include any names or specifics of the parties involved in the transactions so as not to breach any confidentiality or privilege obligations. Please only provide general information. Hopefully, this new series can become a valuable resource for the OFAC compliance community and the OFAC bar.
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 email@example.com.