Archive for the ‘SEC’ Category



FCPA Totally Useful As a Secondary Sanctions Program

Posted by at 6:14 pm on June 17, 2013
Category: Criminal PenaltiesDoJEconomic SanctionsFCPAIran SanctionsOECDSEC

Total Gas Station in France [Fair Use]

The U.S. Department of Justice recently announced that Total, S.A., the French oil and gas company, agreed to pay $245.2 million to resolve charges that it paid bribes to an Iranian government official by way of purported consulting agreements from 1995 to 2004 in order to secure, among other things, oil and gas rights in Iran. The Justice Department described the case against Total as “the first coordinated action by French and U.S. law enforcement in a major bribery case.” The U.S. Securities and Exchange Commission also reached a settlement with Total pursuant to which Total agreed to pay $153 million to resolve related FCPA allegations.

There is a lot to be said about Total’s settlement. At almost $400 million combined, Total’s payments are in the pantheon of largest payments ever for FCPA matters, along with Siemens, KBR and BAE. Another interesting component to the Total case, however, is its potential effectiveness for economic sanctions enforcement vis-à-vis Iran.

In the past few weeks, Congress and the White House have been busy expanding U.S. economic sanctions against foreign persons for their dealings with Iran. We reported recently on the current House bill that would expand sanctions against foreign banks engaging in certain transactions with Iranian banks. The President last week issued an executive order expanding secondary sanctions against, for example, foreign banks’ rial-based transactions as well as certain dealings by anyone with most persons on the SDN List pursuant to sanctions against Iran.

These secondary sanctions, however, provide U.S. enforcement authorities with a great deal of discretion on if and when to designate foreign persons to the SDN List. Pushing the bounds of secondary sanctions beyond those against foreign persons with substantial ties to the Iranian government, of course, runs the risk of offending other countries who continue to permit their companies to do business with Iran.

Given these limitations, the FCPA would appear to be an effective tool the United States can use in applying pressure against foreign persons doing business with Iran. Although the FCPA carries its own extraterritorial criticisms, corruption is a global issue that many countries have committed itself to address whether by national law or membership to groups like the OECD.

While the United States differs with other countries on precisely what sanctions policies to adopt against Iran, Sudan, Syria or North Korea for current conflict or human rights concerns in those countries, there would seem to be a common allegiance to combat corruption there. It just so happens all four countries are among the most corrupt countries in the world as annually ranked by Transparency International. The Total case at least sends the message to foreign companies that business as usual in Iran can result in significant FCPA penalties and possible cooperation from authorities in the companies’ home countries in bringing them about.

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It Takes Two to Argentine Tango

Posted by at 5:10 pm on April 24, 2013
Category: DoJFCPASEC

By WestportWiki (Own work) [CC-BY-SA-3.0 (], via Wikimedia Commons

The U.S. Justice Department announced yesterday that Ralph Lauren Corporation agreed to pay $882,000 to resolve alleged FCPA violations. According to a Justice Department press release, the allegations involved Ralph Lauren trying to secure “improper customs clearance of merchandise” from Argentine government officials, including “clearance of items without the necessary paperwork … [and] of prohibited items” or “avoid[ing] inspection entirely.” The Justice Department alleged that Ralph Lauren employees made bribes through a customs clearance agency using “fake invoices” to justify the payments.

In addition, the U.S. Securities and Exchange Commission announced that, in parallel proceedings, Ralph Lauren agreed to pay $734,846 in disgorgement and prejudgment interest for other related alleged FCPA violations that took place between 2005 and 2009. The SEC also announced that its non-prosecution agreement with Ralph Lauren was the SEC’s first involving “FCPA misconduct.”

While the SEC first is noteworthy, a special spotlight should be shown on Argentina.

Since early last year, the Argentine government has enforced a trade policy World Trade Organization member countries have described to the WTO as a “de facto import restricting scheme” because Argentine law requires non-automatic, government pre-approval on all imports. WTO members have alleged that companies have experienced long delays in getting approval and that some companies report receiving calls from Argentine government officials telling them that they must undertake “trade balancing commitments prior to receiving authorization to import goods.” This “trade balancing” is part of Argentina’s informal adoption of a policy that requires companies seeking to import products to export “dollar for dollar” goods from Argentina or “establish production facilities in Argentina.”

As described to the WTO, the current situation in Argentina sounds ripe for situations like the one involving Ralph Lauren and other U.S. exporters to happen again. Notwithstanding the FCPA’s exception for facilitating payments, situations where foreign government officials require some form of quid pro quo for goods coming into a country need to be examined carefully to determine whether further interactions with the official may implicate applicable anti-corruption laws.  Obviously, if the quid pro quo goes to the government and not the government official, there is not an FCPA issue.  But where the requested quid pro quo is supposed to go to the government official personally, then no matter how tempting is this offer to relieve the U.S. exporter of Argentinian import burdens, the best response may be to leave the dance floor.

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First SEC Iran Disclosures Unearth Sale of Two Cars to Iranian Embassy

Posted by at 5:18 pm on February 22, 2013
Category: Iran SanctionsSEC

U.S. Securities and Exchange Commission headquarters by AgnosticPreachersKid (CC BY-SA 3.0)Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”) requires that publicly-traded companies disclose in their annual and quarterly filings with the Securities and Exchange Commission (“SEC”) certain dealings that the filers or any of their “affiliates” have had with Iran during the reporting period. Among the transactions required to be reported are any transactions with the Government of Iran “without the specific authorization of a Federal department or agency.”

There is no materiality or dollar amount threshold to this obligation to report dealings with Iranian government.  As a result, this obligation  seemingly extends to even the most trivial transaction, including legal transactions by foreign “affiliates” that are not controlled by U.S. persons and are therefore not subject to the prohibitions of section 218 of ITRSHRA

With that in mind, we have the latest Form 10-Q filed by Toyota Motor Credit Corporation (“TMCC”) which discloses that in the last quarter of 2012 an Indonesian subsidiary of Toyota Motor Company (“TMC”), a Japanese company, manufactured two automobiles worth $37,000 which another Indonesian subsidiary of TMC sold to the Iranian Embassy in Jakarta.

Because the two Indonesian companies were not controlled by TMCC these sales weren’t prohibited by Section 218 of ITRSHRA. Further, because the two cars were manufactured in Indonesia, they weren’t otherwise subject to the U.S. sanctions given that they likely had less than 10 percent U.S. origin controlled content. But since TMCC and the two Indonesian companies were under common control of TMC, they were “affiliates” of TMCC (as defined by Exchange Act Rule 12b-2), meaning that these miniscule transactions had to be reported by TMCC.

It is not clear what purpose is served by requiring companies to report such stuff other than, I suppose, to impose the regulatory hassle on any and every public company to ferret out penny ante deals by distant foreign affiliates with Iran. I, for one, look forward to upcoming revelations of, say,  some U.S. company that has an affiliated foreign grocery store chain that sold a loaf  of bread to an Iranian diplomat in Vilnius.

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SEC To TSRA: Drop Dead!

Posted by at 10:05 pm on May 26, 2011
Category: SanctionsSEC

UPS TruckYou may never have heard of the SEC’s Office of Global Security Risk and probably have no idea what they do. Well, although I know what they are supposed to do, I have always wondered what the people at that office do during the work day.

Now we know. They surf websites looking for sanctioned countries, like Syria and Sudan, in drop down address lists on the websites of U.S. companies. Allegedly this is to advise U.S. investors about publicly-traded companies that supposedly jeopardize their stockholders’ investments by dealing with sanctioned countries.

After a heavy day of web surfing the Office of Global Security Risk fired off this missive to UPS in respect to a price table it found on the UPS site.

We also note an Air Freight peak season surcharge table on your website which lists surcharge amounts for regions including Latin America and Europe, Middle East, Africa in the Destination section. According to the notes section, the destinations listed include Cuba under “Latin America (All Other Countries)” and Iran, Sudan and Syria under “Europe, Middle East, Africa.” Iran, Sudan and Cuba are identified by the U.S. State Department as state sponsors of terrorism and are subject to U.S. economic sanctions and export controls.

Apparently the SEC thinks that all exports to these countries are banned. The time that the OGS staff spent surfing the web apparently did not extend to researching economic sanctions laws and discovering, say, TSRA, which permits exports of agricultural products, medicine and medical devices to sanctioned countries. Or the Berman amendment which permits export of informational materials. Never mind any of the other exceptions.

UPS replied by saying this:

The appearance of any country on the sanctions list on a UPS listing of surcharge amounts, explained [UPS Vice-President Norman] Brothers, applies only to lawful deliveries. “During the period July 10, 2006 through December 31, 2010, UPS rejected at least 55 shipments destined for Syria because they were determined to be impermissible under U.S. export controls.”

The SEC was reportedly unembarrassed its crude understanding of U.S. export laws and immediately returned to more web surfing. You can start humming that Gershwin tune: “Nice work if you can get it.”

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AMD Queried By SEC Over AMD Chips In Iran

Posted by at 8:15 pm on August 12, 2009
Category: Iran SanctionsSEC

SEC HQAn earlier post here reported that the SEC has sent a letter to Intel inquiring as to how Intel Celeron microprocessors wound up in computers being sold in Cuba. According to an article in yesterday’s Wall Street Journal, Intel’s “misery” has a little company in arch-rival AMD, which also received a letter from the SEC inquiring as to how AMD chips wound up in a “supercomputer” in Iran as reported in December 2007. AMD’s response was similar to Intel’s response: “We have no earthly idea but we want to reaffirm that AMD complies with all laws forbidding exports to embargoed countries.”

Avid readers of this blog will remember that we covered this story back in December 2007 when Iran announced that it had built its alleged supercomputer using AMD chips. A little detective work on our part also revealed exactly how the AMD chips made it to Iran. They got there by way of a reseller located in — quelle surprise! — the UAE. Who on earth would have ever imagined that the UAE would have been the source of the chips? Obviously, the SEC doesn’t read this blog or it wouldn’t have had to ask how the chips made it to Iran.

The WSJ article interviewed John Pike of who added some unintentional comic relief to the story:

John Pike, director of, a Washington, D.C., area think tank focused on security issues, said it’s puzzling that the SEC would be focused on the issue of computer chip exports to embargoed nations.

“Why SEC? Hard to figure, unless some rocket scientist wanted to create a really robust paper trail that these companies have no direct dealings with embargoed countries,” he said in an e-mail.

Naturally it’s puzzling to people who apparently know little about the SEC and what it does, although you might have thought that Pike might have at least caught some of the news reports on the SEC’s Office of Global Security Risk (“OGSR”). That office was created to respond to a Congressional mandate that the SEC assure that documents filed by publicly-traded companies adequately disclose global security risks arising from the international activities of those companies.

The OGSR has, as a result, focused, among other things, on issuers’ dealings with embargoed countries, as we noted here and here. So there’s no mystery, at least to the reasonably well-informed, as to what the SEC is up to and why. And it’s also quite clear that Pike’s wild speculation that the SEC is trying to create a “robust paper trail” that the companies weren’t dealing with sanctioned countries is, well, silly.

But wait, there’s more from Pike:

He said the embargo made sense since “it would be stupid to make it easy for Iran to get this stuff.”

As if it were hard, in this instance, for Iran to get a mass-produced item from a distributor just across the Strait of Hormuz. In fairness to Pike, let’s just hope he was misquoted.

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