Archive for the ‘SEC’ Category



SEC Name and Shame Obligation Survives Implementation Day

Posted by at 11:29 pm on January 28, 2016
Category: Iran SanctionsSEC

Shame for Mihaha - graffiti by Gabriel [CC-BY-SA-2.0 (], via Flickr [cropped]One of the issues that has received little attention in all the hubbub about Implementation Day is the survival of the name and shame provisions adopted by Congress in section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012, which amended the Securities and Exchange Act of 1934 to require that all “issuers” who are required to file annual or quarterly reports with the SEC must report certain Iran-related activities by the company itself or its “affiliates.” The activities that must be reported are activities specified in sections 5(a) and 5(b) of the Iran Sanctions Act, sections 104(c)(2) and 105A(b)(2) of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 and any transactions with the Government of Iran or with persons blocked under Executive Orders 13224 or 13382.

These transactions include knowingly

  • Making and investment of $20 million or more that directly and significantly contributes to Iran’s ability to develop its petroleum resources;
  • Providing goods and services valued at $1 million (or an aggregate of $5 million in a 12-month period) that directly and significantly contribute to Iran’s ability to import refined petroleum;
  • Assisting Iran in the development of chemical, biological or nuclear weapons or a destabilizing amount of conventional weapons;
  • Assisting in the transfer of items to Iran that can be used for human rights violations including conventional firearms, stun guns, and hardware, software and technology for monitoring and censorship;
  • Assisting (in the case of foreign financial institutions) the IRGC to acquire weapons of mass destruction or delivery systems for such weapons; or
  • Engaging in any transaction or dealing with the Government of Iran or any company owned by the Government of Iran “without the specific authorization of a Federal department or agency.”

Significantly, section 219 may require disclosure of activity that is not prohibited under U.S. sanctions. If any of the above described transactions is engaged in by a foreign company (that is not a subsidiary of U.S. company) and does not involve any U.S. origin goods, the transaction, although subject to one or more sanctions (such as debarment from U.S. government procurement), is not prohibited as a matter of law.

Some, but not all, of the secondary sanctions listed above were lifted on Implementation Day for foreign firms (other than those that are U.S. subsidiaries). Nevetheless, the reporting requirements set forth in section 219 remain in place for those foreign firms that are also issuers required to file annual or quarterly reports.

The situation is somewhat more complex for foreign companies that are owned or controlled by U.S. companies. Prior to Implementation Day, the activities listed above were absolutely prohibited to those companies. Now, General License H  permits some (but, again, not all) of those activities (provided no U.S. persons facilitate those activities other than through revising policies or making global IT systems available). Importantly, it permits, for foreign subsidiaries of U.S. companies, transactions or dealings with the Government or Iran and its state-owned enterprises.

As with completely foreign firms, these foreign subsidiaries that are owned and controlled by U.S. companies will be required to report all of the above listed activities, except for one, under section 219. The exception is for transactions or dealings with the government of Iran and its state-owned enterprises authorized by General License H. Because the SEC has stated that a general license constitutes the specific authorization referred to in Section 219, those transactions by foreign subs of U.S. parents will no longer be required to be reported under Section 219. Ironically, because General License H applies only to entities owned or controlled U.S. persons, wholly foreign firms that do not meet that criterion will still be required to report these transactions with the Government of Iran and its state-owned enterprises under section 219.

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Copyright © 2016 Clif Burns. All Rights Reserved.
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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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Copyright © 2013 Clif Burns. All Rights Reserved.
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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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Copyright © 2011 Clif Burns. All Rights Reserved.
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