May

23

Are There Any Limits Remaining on OFAC Jurisdiction over Foreigners?


Posted by Clif Burns at 10:26 pm on May 23, 2012
Category: Iran SanctionsOFAC

Gurnsey Island, The 51st State?In today’s civil penalty releases, the Office of Foreign Assets Control (“OFAC”) announced a settlement with a U.K company, Genesis Asset Managers, LLP (“GAM”), arising from a purchase that one of its subsidiaries, Genesis Investment Management, LLP (“GIM”), also based in the United Kingdom, made on behalf of a Guernsey-based investment fund that GAM was managing. The investment in question was in a Cayman Islands fund that invested in exclusively in Iranian securities. GIM made the investment pursuant to a contract it had with GAM to provide investment advice to GAM with respect to GAM’s management of the Gurnsey fund. The $3 million dollar investment by GIM in the Cayman Islands fund led to a $112,500 penalty imposed by OFAC on GAM. And, in case you are interested, GAM voluntarily disclosed the matter to OFAC.

You may be scratching your head, and rightly so, about what OFAC was doing futzing around in the business of U.K. investment managers and their advice to, and investment in, funds in island-based tax havens. Part of the reason appears to be that OFAC believed GAM to be a U.S. company, even though its website, linked above, shows the company to be based in the United Kingdom. There must be some connection to the United States — hence the voluntary disclosure and the fine — but OFAC is not letting on what it is.

But even if GAM is based in the United States, this is still a fairly tenuous basis to penalize GAM based on these facts. There is nothing in the OFAC announcement that indicates that GAM facilitated, or was otherwise involved in, U.K.-based GIM’s purchase for a Gurnsey fund of shares in a Cayman fund. The release says that officers of GAM “were aware of the conduct giving rise to the apparent violation.” But mere knowledge that a foreign affiliate engaged in a transaction for foreign companies involving Iran is not enough absent some finding that the GAM officers participated in or somehow facilitated the transaction.

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4 Comments:


Clif,

The public information is not entirely illuminating, to be sure, but one plausible scenario is that UKCo was acting as agent for USCo–which manages the offshore fund–under the IMA. Perhaps this is facilitation through negligent supervision or something, but the scenario doesn’t seem to be so farfetched. And it’s the first case I can recall against investment management firms, which is causing quite a stir.

Just my two cents,

John

Comment by John Pisa-Relli on May 24th, 2012 @ 5:30 pm

GAM LLP is a Delaware LLP and therefore a US person. Also, I think John’s right that the agency theory seems to be key to the release.

Comment by Paul Marquardt on May 31st, 2012 @ 1:30 pm

    I initially couldn’t find any evidence of that, but after your comment (and by adding “Delaware”) to a Google search, I found this, which is an S.E.C. filing that identifies them as a Delaware LLP.

    Comment by Clif Burns on May 31st, 2012 @ 3:12 pm

I just checked the Delaware Secretary of State site.

Comment by Paul Marquardt on May 31st, 2012 @ 4:30 pm