Archive for the ‘Iran Sanctions’ Category



OFAC Expands List of Medical Devices Eligible for Unlicensed Exports to Iran

Posted by at 10:28 pm on November 4, 2015
Category: Iran SanctionsOFAC

GE Giraffe Baby Warmer via [Fair Use]

Back in September, we reported on industry criticism of the list published by the Office of Foreign Assets Control (“OFAC”) of medical devices eligible for export to Iran without a license for certain glaring omissions, namely, infant warmers used in maternity units and neo-natal intensive care devices. This seemed ironic given that certain contraceptive devices were on the list, but critical infant care items were not.

Well, OFAC just updated the list to add a number of devices eligible for unlicensed exports to Iran, including “infant radiant warmer and parts and accessories … [and] [n]eonatal equipment (phototherapy, nasal CPAP, etc. and all components).” Whether or not OFAC listened to what we had to say or not, it clearly listened to industry and did the right thing.

There are a substantial number of additions to the new list, too many to detail here, but I noticed certain changes of particular interest. The category of radiology equipment was expanded from a single item (medical ultrasound equipment) to pretty much the full array of radiology equipment: MRIs, X-ray machines, x-ray film, contrasting agents, mammography machines, and tomography scanners.

Also on the list, and it’s hard to understand why this took so long, are hearing aids. It seems to me that we were in no position to say that Iran was not listening to our arguments on nuclear proliferation at the same time we were restricting the export of hearing aids to the Iranians.

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Keeping A List, Not Checking It Twice

Posted by at 9:13 am on October 23, 2015
Category: Iran SanctionsOFAC

Red Rug by Christopher Sessums [CC-BY-SA-2.0 (], via Flickr [cropped]

BMO Harris Bank on Wednesday escaped an OFAC fine, even though it admitted to having processed six funds transfers totaling $67,357 representing payment by a customer of sums to an Iranian entity from which the customer had purchased Persian rugs. The customer, apparently a retailer that purchased and resold Persian rugs from Iran, had been a bank customer since 2009 when the importation of rugs from Iran was still legal. Because the customer’s name contained the word “Persian,” the bank’s somewhat overzealous interdiction software had been resulting in hits for each transaction by the customer, so the bank put the customer on a false hits list to prevent transactions by the customer from being flagged each time.

On September 29, 2010, OFAC banned the importation of Iranian rugs but, apparently, the bank’s customer didn’t get the message. (That’s what you get for not reading the Federal Register cover-to-cover each morning!) The customer continued to import Iranian rugs and the bank continued to process related wire transactions. In 2011, a suspicious downstream bank in the transaction requested additional information. A Harris Bank employee apparently then learned that the payment was to Iran for Persian rugs but, because the customer was on the false hit list, did not do anything and, as a result, Harris processed five additional transactions for payments to Iran.

Normally such a scenario is a sure-fire guarantee that the company involved will get walloped with an OFAC fine, but in this case OFAC decided to show a little mercy, apparently feeling that the false-hit list was to blame and stating that the bank “may have been unaware of the risks associated with a false hit list that was not reviewed and updated regularly.” This is a bit strange given that the issue here had nothing to do with reviewing and updating the list. The customer, which was on the false hit list, was still a false hit. It had not become an SDN, and the violation did not result from an error in the list.

The violation occurred not because the bank did not review the list but because it did not review the transaction. And this reveals an all-too-common misunderstanding by front line employees about OFAC sanctions. They often see it merely as a list-checking exercise. Is the customer on the list? Nope. Okay, then, everything’s good to go. And this appears to be exactly what happened here. The front line bank employee saw that the customer wasn’t on the SDN list and was instead on the “false hit” list and that was the end of the inquiry

Even though this case really isn’t about a bad false hit list, OFAC used it as an opportunity to issue a “False Hits List Guidance.” The new guidance, if it can really be called that, states the obvious: namely, that false hit lists are a “legitimate” practice as long as you check them periodically to make sure that someone who was not an SDN two weeks ago did not suddenly become an SDN yesterday. Oddly, OFAC does not say anything in the guidance about the glaring lesson from the case at hand, so I’ll say it for them: just because a customer is on the false hit list does not mean that the transaction itself need not be reviewed. (Your welcome, OFAC.)

Of course, I can’t leave the guidance without reference to a tiny bit of silliness in it. The guidance says that a review of the list should be triggered by any “meaningful change” in the customer’s information such as “a change in ownership status, business activity, address, date of birth, place of business, etc.” Wait a second. Does this mean you can change your birth date? Really? Please tell me how you do that. My birthday comes really close to Christmas and I’ve always wanted to move it back into a more present-friendly zone such as June. Also, I bet a number of us would like to shave a few years off that birth date as well.

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And The Jackpot Winner Is … New York!

Posted by at 4:41 pm on October 20, 2015
Category: Iran SanctionsOFAC

All in a Day's Work by Damian Gadal [CC-BY-SA-2.0 (], via Flickr [cropped]

Crédit Agricole just agreed to pay $787.3 million to settle charges that it violated the U.S. sanctions on Iran and other countries by stripping references to those countries in communications sent to U.S. banks to process dollar-based transactions. And to quote Yogi Berra: “It’s déjà vu all over again.”

The payment is divided up as follows: $385 million to the New York State Department of Financial Services, $156 million to the U.S. Attorney’s Office for the District of Columbia, $156 million to the Manhattan District Attorney’s Office, and $90.3 million to the Federal Reserve. Once again the biggest chunk of change goes to the NYDFS which, as you probably know, doesn’t have the power to enforce any U.S. sanctions inasmuch as it’s just a state agency, notwithstanding its own delusions of grandeur.

But wait a minute. Where is OFAC in all this? I mean, after all, the last time I checked the Iran, Cuba and Sudan sanctions all had OFAC’s name written all over them. Well, OFAC announced today at the same time a $329.5 million fine against Crédit Agricole. Is that on top of the $787.3 million, pushing the fine over $1 billion? Nope. Read the fine print at the end of the OFAC press release:

CA-CIB’s $329,593,585 settlement with OFAC will be deemed satisfied by the bank’s payment of that amount to DOJ, DANY, and the Board of Governors for the same pattern of conduct.

As noted above, out of the $787.3 million, $402.3 million dollars is going to DOJ (through the U.S. Attorney for the District of Columbia), the DANY and the Federal Reserve, more than enough to satisfy the OFAC penalty under this somewhat odd arrangement. But it is not completely insignificant that OFAC did not say that payments to the NYDFS would discharge the OFAC penalty, perhaps indicating a bit of pique by OFAC with NYDFS trying to cash in on violations of OFAC rules.

In this context, an email that Reuters obtained back in June from OFAC to NYDFS in reference to an unnamed investigation of a foreign bank (presumably Crédit Agricole) by NYDFS was not very nice at all.

Given the ongoing negotiations, the situation regarding Iran is extremely sensitive at the moment. As a result, any actions that are taken in connection with sanctions violations pertaining to Iran may have serious impacts on the ongoing negotiations and U.S. foreign policy goals and objectives. The Iranians are not going to distinguish between enforcement actions taken at the state level versus enforcement actions taken at the federal level.”

One has to assume that the NYDFS, driven to feed its addiction to federal sanctions money, gave a terse and impolite response to OFAC that can’t be printed in a family blog, which explains the oddity of OFAC settlement in this case. I think we can safely assume that NYDFS isn’t being invited to OFAC’s holiday party this year.

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Voluntary Disclosure Serves as Chum for Derivative Suit Plaintiffs’ Lawyers

Posted by at 9:50 pm on September 28, 2015
Category: BISIran SanctionsOFAC

Shark by Jeff Kubina [CC-BY-SA-2.0 (], via Flickr [cropped]

An unfortunate issue for publicly traded companies that file voluntary disclosures is what seems to be an increasing trend: plaintiffs’ lawyers specializing in derivative shareholder suits circling the company looking for a kill. This seems to be particularly true if there is a whiff of Iran in the voluntary disclosure, something that attracts plaintiffs’ lawyers like buckets of chum in the water, the lawyers well knowing that once they can ominously whisper Iran in front of jury, their contingent fee award and that new Ferrari are a done deal.

Here’s a particularly instructive example of a plaintiffs’ firm called Harwood Feffer LLP trolling for plaintiffs in a press release on PR Newswire on the heels of a company’s voluntary disclosure to OFAC and BIS:

Harwood Feffer LLP … is investigating potential claims against the board of directors of VASCO Data Security International, Inc. … concerning whether the board has breached its fiduciary duties to shareholders.

On July 21, 2015, VASCO disclosed that certain of its products may have been illegally sold to parties in Iran subject to economic sanctions. The Company has notified the U.S. Department of the Treasury, Office of Foreign Assets Control and the U.S. Department of Commerce, Bureau of Industry and Security and will report to them the full extent of the violations once an internal review has been completed.

If you own VASCO shares and wish to discuss this matter with us, or have any questions concerning your rights and interests with regard to this matter, please contact [us].

Oh dear. That sounds grim. The company’s products sold “to parties in Iran subject to economic sanctions.” Somebody better get out their checkbooks so that Mr. Harwood and Mr. Feffer can make the down payment on that Ferrari. (Nevermind, of course, the misunderstanding of U.S. sanctions evinced by “sold to parties in Iran subject to economic sanctions” . . . as if there were parties in Iran not subject to sanctions.)

But, of course, this frightening scenario cooked up by Harwood Feffer loses most, if not all, of its steam when you look at the SEC filing that prompted the Harwood Feffer “investigation.”

VASCO regularly sells products through third party distributors, resellers and integrators (collectively “Resellers”). VASCO’s standard terms and conditions of sale and template agreements that are in general use prohibit sales and exports of any VASCO products contrary to applicable laws and regulations, including United States export control and economic sanctions laws and regulations. VASCO, however, does not always have visibility over its Reseller’s ultimate customers.

VASCO management has recently become aware that certain of its products which were sold by a VASCO European subsidiary to a third-party distributor may have been resold by the distributor to parties in Iran … .

The Audit Committee of the Company’s Board of Direc.tors has initiated an internal investigation to review this matter with the assistance of outside counsel. VASCO has stopped all shipments to such distributor pending the outcome of the investigation which will include a review and recommendations to improve, if necessary, VASCO’s applicable compliance procedures regarding these matters. As a precautionary matter, concurrent initial notices of voluntary disclosure were submitted on June 25, 2015 with each of the U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”), and the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”). The Company will file a further report with each of OFAC and BIS after completing its review and fully intends to cooperate with both agencies.

Regular readers of this blog will, no doubt, find risible claims that the actions by VASCO management described above are a breach of fiduciary duty. The products were not sold by VASCO but by a distributor under a contractual obligation not to resell the products to Iran. VASCO, once it learned of the sales, halted all sales to the distributor, commenced an internal investigation, and filed precautionary initial notifications with BIS and OFAC. In other words, they followed what appear to have been best practices in such a situation. And now, they have to deal with the likes of Messrs. Harwood and Feffer.

There are two lessons here. First, the potential discovery requests from plaintiff’s lawyers in search of contingent fee awards mean that companies must be particularly careful to assure that the internal investigation is covered, to the extent possible, by attorney-client privilege. Second, I think publicly traded companies will begin to re-evaluate filing precautionary initial notices of voluntary disclosure with respect to sales made, without the company’s knowledge or consent, to embargoed countries. Rather, I think we’ll see companies decide to conduct a robust internal investigation and then file an initial notification only if that investigation turns up evidence that the company or its employees knew of, or consented to, the sales in question.

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The Unspeakable in Pursuit of the Inedible: Iran Edition

Posted by at 9:41 pm on August 12, 2015
Category: Iran SanctionsOFAC

Hunters in Iran via [Fair Use]U.S. sanctions on Iran make a number of benign transactions with Iran difficult. If you want to send, say, a chia “pet” to a relative in Tehran, you need a license, and you probably can’t get one. On the other hand, if you want to pay the Government of Iran tens of thousands of dollars to hunt, say, a Transcaspian Urial or a Laristan Mouflon in the wilds of Iran, hey, no problem!

Apparently almost a decade ago, the Office of Foreign Assets Control put aside national policy considerations to permit U.S. persons to tromp around the woods and mountains of Iran hoping to bag some rare Iranian wildlife. According to this article published today by the BBC, the government fees to kill a Transcaspian Urial are around $15,000 and for a Laristan Mouflon around $20,000. This is exclusive of fees paid to local guides.

Not only has OFAC apparently eased the sanctions to permit huge payments to Iran for wild game hunting, but it’s relatively easy to bring the dead animal, or at least parts therof, back. The Fish and Wildlife Service have said that “sport-hunted trophies” can be brought back from Iran in a traveler’s luggage but not shipped separately. Interestingly, such “trophies” can’t be brought back at all from Sudan, in case you were wondering.

Many sites, such as this one listing references from U.S. citizens, detail the prices for expeditions to Iran, including the governmental fees that must be paid. This site, clearly aimed at Americans, is somewhat cagier about mentioning that hunting in Iran requires making payments to the Government of Iran and apparently supplies information on such fees only by email in response to specific inquiries.

My point here is not so much whether hunting for the sport of killing alone is right or wrong. Rather it is this: why would OFAC have a conniption over exports by American of fingernail polish to Iran but seem to have no issue with Americans giving the government of Iran tens of thousands of dollars to hunt exotic animals?


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