Dec

5

OFAC Issues Finding of Violation to Foreign Ship Registry for Dealings with Iran


Posted by at 12:38 pm on December 5, 2017
Category: Iran SanctionsOFAC

Dominica Seen From the Ship (10) by Gail Frederick [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5MYWSL [cropped and processed]Last Tuesday the Office of Foreign Assets Control (“OFAC”) issued a “finding of violation” (but not a fine) against the Dominica Maritime Registry (“DMR”) for entering into a “Binding Memorandum of Understanding” with the National Iranian Tanker Company (“NITC”), an Iranian government entity listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”). Because this was a “contingent contract” in which a blocked party had an interest, DMR’s entry into the contract, according to OFAC, violated section 560.211 of the Iranian Transactions Sanctions Regulations.

The wrinkle in this case is that the Dominica Maritime Registry is located in Fairhaven, Massachusetts, the Government of Domenica having subcontracted its governmental maritime registry functions in 1999 to the Northeast Maritime Institute in Fairhaven, which is why, I suppose, OFAC thought it could sink its teeth into DMR.  Subcontracting maritime registry functions is an unusual, although not unprecedented, situation. The Republic of the Marshall Islands has also subcontracted its maritime registry functions to International Registries, Inc. in Reston, Virginia.

OFAC noted a number of aggravating factors in its decision. DMR, according to OFAC, did not voluntarily disclose the violation; it “knew” that NITC was on the SDN list; it failed to exercise a “minimal degree of caution” in signing the contract with NITC; and DMR executives “actively participated” in negotiating and executing the contract. As mitigating factors OFAC noted that DMR was a small company with no prior penalties and that it recently hired trade counsel to assist in OFAC compliance issues.

So here we have what appears to be an intentional violation that was not voluntarily disclosed and yet the only penalty is a finding of violation — or, in more colloquial terms, a half-hearted slap on the wrist followed by a beat-down with a few wet noodles. This is likely because the real mitigating factor was one that OFAC did not want to mention much less admit: sovereign immunity. If OFAC wanted to collect any fine imposed on DMR, it would  have been forced to resort to an action in federal court, where is would have run up against the Foreign Sovereign Immunities Act, 28 U.S.C. § 1602 et seq.

Of course, the FSIA issue here is whether the maritime registry function is a commercial activity exempted from the jurisdictional restrictions of the FSIA. The Supreme Court in Republic of Argentina v. Westover spelled out the test for making this determination

the question is not whether the foreign government is acting with a profit motive or instead with the aim of fulfilling uniquely sovereign objectives. Rather, the issue is whether the particular actions that the foreign state performs (whatever the motive behind them) are the type of actions by which a private party engages in “trade and traffic or commerce.

Dominica’s International Maritime Act of 2000 sets forth the various conditions for registration of vessels entitling them to fly a Dominican flag, including a determination of seaworthiness and compliance with various other regulatory requirements, including vessel marking. Once registered the vessel is accorded certain rights by the Dominican government, including the right to freely enter its ports. It seems beyond doubt that maritime registration, even if subcontracted to a U.S. corporation, is a governmental and not a commercial function.

Based on this, the real mitigating factor in this case had nothing to do with this being a first violation or that DMR was small and agreed to hire trade counsel. No, the real mitigating factor was that OFAC probably could not have collected any fine that it imposed.

Photo Credit: Dominica Seen From the Ship (10) by Gail Frederick [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5MYWSL [cropped and processed]. Copyright 2008 Gail Frederick

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