Last week OFAC, pursuant to Executive Order 13902, placed Karnakis and Karnakis, a law firm operating in Greece and Panama, on the SDN list for “operating in the petroleum and petrochemical sectors of the Iranian economy.” The agency justified this surprising conclusion by saying this:
Karnakis and Karnakis has for years leveraged its legal practice to register shipping companies that own shadow fleet vessels responsible for shipping hundreds of millions of dollars’ worth of Iranian steel, petroleum, and petrochemicals, among other goods. The firm previously set up the companies Skyros Maritime and Trading S.A., Corfu Maritime and Trading S.A., and Elias Shipping and Trading Group S.A., among others, all of which OFAC has previously designated for their ownership of vessels active in the trade of Iranian petroleum and petroleum products.
The notice also states that the law firm “played a particularly critical role in establishing the corporate architecture for the shipping empire of Iranian liquified petroleum gas (LPG) magnate Seyed Asadoollah Emamjomeh.” The particularly critical role was, apparently, that the firm “served as the corporate agent for many of Emamjomeh’s firms.” This, says OFAC, included “several” that were ultimately designated for their role in shipping Iranian petroleum products.
Finally, the notice states that employees of the firm “act as directors and officers of many of the companies they register in order to obfuscate the true beneficial owners of these companies.” It is fair, I think, to say, given how often lawyers and their employees serve as officers or directors of companies that they have formed and registered for clients, that this is not necessarily an indication of a malign intent to obscure ownership.
Leaving aside how many companies the firm registered or for which it acted as corporate agent or supplied directors or officers, I think all law firms will be surprised to hear that OFAC thinks the law firm was “operating” in the industrial sector of its clients rather than in, you know, the legal services industry. This is, of course, a particular problem for criminal defense lawyers who may now be seen as operating in the narcotics industry or, worse, the hit man industry. Also the Uber driver who regularly drives clients to grocery stores and movie theatres is now apparently working in the film and grocery industries not the transportation industry.
My favorite part of this story is an amusing detail. In the entry for Karnakis and Karnakis on the SDN list the organization type for the firm is — are you ready? — “legal activities.” Wait, I thought they were a company in the petrochemical sector.
Now, it is possible that we have not heard the full story about the Karnakis firm’s activities with respect to Iranian oil and the designation is more than justified. And what is really curious is that even given the cited examples, OFAC might have instead proceeded under E.O. 13902 for having “knowingly engaged in . . . a significant transaction for the . . . supply, . . . to or from Iran of significant . . . services used in connection with” Iran’s petrochemical sector. Similarly, sanctions seemingly might have been possible under E.O. 13846 for providing “material support” to Iranians on the SDN List.
Whatever the reason for not taking these alternative approaches, the problem is that the sectoral operation approach leaves open the most important question of all: what distinguishes providing services to a sector from operating in it?