Archive for the ‘Iran Sanctions’ Category


Oct

20

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 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/5xQkWj [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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Copyright © 2015 Clif Burns. All Rights Reserved.
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Sep

28

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 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://flic.kr/p/cCRFX [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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Copyright © 2015 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Aug

12

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 http://stiliyankadrev.com/en/gallery/asia/iran.html [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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Copyright © 2015 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jul

27

Don’t Believe Everything You Read in the Newspaper


Posted by at 11:32 am on July 27, 2015
Category: BISCriminal PenaltiesIran Sanctions

Republian Herald HQ via Google Maps [Fair Use]

From the Republican Herald (Pottsvile, PA) story on a guilty plea by Falcon Instrumentation and Machinery FZE in connection with an attempted shipment by Pennsylvania-based Hetran, Inc. of a bar peeling machine to Iran:

Federal prosecutors allege the machine, valued at more than $800,000 and weighing more than 50,000 pounds, has both military and civilian uses, which meant Hetran could not ship it to Iran without obtaining a license from the U.S. government. The machine is used in the production of high-grade steel, which is used in making automobiles and aircraft parts, according to prosecutors.

As astute readers of this blog will no doubt already know, U.S. companies like Hetran can’t ship anything at all (including EAR99 items) to Iran without a license or an applicable exception. But before we jump down the throat of a poor reporter in Pottsville, let’s think about what likely happened. In doing that, realize first that local reporters like DOJ press releases more than cats love catnip. Just rewrite it a little and push send and the day’s work is done.

And, indeed, as suspected there is a DoJ press release and it says this:

Under U.S. law and regulations, American companies are forbidden to ship “dual use” items (items with civilian as well as military or proliferation applications), such as the peeler, to Iran without first obtaining a license from the U.S. Government.

Sigh. I realize the export law and economic sanctions are a somewhat complicated area of law, but it does not seem unreasonable to suggest that the government employees who are charged with sending people to jail for export violations at least make an effort to understand the laws that they enforce.

[Note: I’m on vacation this week, so this is the last post for this week; normal posting resumes next week.]

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Copyright © 2015 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)

Jul

15

Iran Deal Leaves Many Sanctions Still in Place


Posted by at 12:33 am on July 15, 2015
Category: Iran Sanctions

Imam Khomeini by Kaymar Adl [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Flickr https://www.flickr.com/photos/kamshots/515002010/ [cropped]After the deal with Iran was announced today, a colleague asked me whether I’d have any work left to do. At that point, I had not yet read the Joint Comprehensive Plan of Action (“JCPOA”). Now that I have, it seems clear that if you were hoping that the JCPOA would reduce legal compliance costs, you are going to be disappointed.

One key point to realize is that Executive Order 13059, which was signed by President Clinton in 1997 and which banned the exportation of all goods and services to Iran, stays in place. The ban on imports, first adopted in Executive Order 12613, also is not going anywhere. What the JCPOA does is carve out various sectors that will be exempted from this ban, including the energy and petrochemical sector, the shipping, shipbuilding and port sector; gold and other precious metals, raw and semi-finished metals, the automotive sector, and aircraft and parts. In addition, what appears to be most Iranian SDNs, including individuals, companies, ships and aircrafts, will be removed from the SDN List.

None of this is going to happen immediately, of course. To begin with, lifting these sanctions depends on endorsement of the JCPOA by the U.N. Security Council. Additionally, the IAEA will need to verify that Iran has taken the agreed steps with respect to its nuclear program and the U.N. will have to terminate the various Security Council Resolutions relating to Iran, including the arms embargo, subject to their reimposition if Iran does not keep its commitments with respect to its nuclear program.

How long will it take before the sanctions are lifted? It’s hard to say. There is an initial 90-day delay between the endorsement of the JCPOA by the parties involved and the United Nations Security Council and the first steps towards implementing the obligations under the JCPOA. After that, the IAEA needs to verify Iran’s compliance, and there is no way to tell how long that will take. And, of course, OFAC has to adopt new rules which, of course, if history is any guide, might take quite some time.

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Copyright © 2015 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)