ABOVE: Associated Shipbroking HQ

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Monaco-based Associated Shipbroking was, earlier this week, quietly removed from the Office of Foreign Assets Control’s List of Specially Designated Nationals and Blocked Persons, fondly known simply as the SDN List. As is normally the case with these removals, OFAC declined to give a reason for the company’s removal from the list, either because of its aversion for admitting mistakes or because it is disinclined to offer any guideposts to others on the list about avenues for removal.

This is exceedingly odd given everything that was said by the U.S. Government when it whacked Associated Shipbroking with these ultimate sanctions in the first place. It all started on May 24, 2011, when the Department of State sanctioned seven companies, including Associated Shipbroking, under the Iran Sanctions Act. Three of these companies –Tanker Pacific (Singapore), Ofer Brothers Group (Israel), and Associated Shipbroking — were added to the State Department’s Sanctioned Entity List because they were said to have dealt with a front company used by the Islamic Republic of Iran Shipping Lines (“IRISL”) to buy an $8.65 million dollar tanker.

Tanker and Ofer were sanctioned for failure to exercise due diligence to discover that they were dealing with an IRISL front company. Accordingly, they were prohibited from receiving Ex-Im Bank loans, obtaining loans over $10 million from U.S. financial institutions or receiving U.S. export licenses. Associated Shipbroking was sanctioned more severely because it was deemed to have acted knowingly and was aware that the company was an IRISL front. As a result, it was prohibited from “U.S. foreign exchange transactions, U.S. banking transactions and all U.S. property transactions.” On the same day, OFAC added Associated Shipbroking — but not Ofer or Tanker — to the SDN List which, in addition, would block all property of Associated that comes into the control of U.S. persons.

Several months later Ofer was removed from the State Department list, apparently because the Ofer family convinced the State Department that they were not responsible for the decisions made by their affiliate Tanker Pacific. Somewhat later, Tanker Pacific got itself removed from the State Department list after promising the State Department that it would behave in the future. Then about a week before the OFAC action, the State Department removed Associated Shipbroking from its sanctions list stating, somewhat oddly, that Associated “is no longer engaging in sanctionable activity.” That is odd because since Associated was sanctioned for a single transaction, it was no longer engaging in sanctionable activity the day after that transaction closed.

So, although OFAC does not state a reason for removing Associated Shipbroking from the SDN list, it presumably was simply following the State Department’s lead in removing the company a week earlier. It still leaves open the question as to why a company caught “knowingly” dealing with IRISL through a front company got a get-out-of-jail-free card from OFAC.  Of course, it can’t be ruled out that this delisting is based on larger diplomatic considerations in the context of ongoing discussions with Iran about dismantling its nuclear program.

A reader and colleague sent me an email with a great story (and the wire documents to back it up) about OFAC screening software gone bad. At issue was a relatively small wire transfer that was blocked because the SWIFT message referenced Sudan. What was the reference? Well in SWIFT message field 59, which contains the beneficiary account number, the account number was shown as XDQSUDAN13DE4. (For obvious reasons, I have munged all the alphanumeric characters of the actual account number except for S, U, D, A and N).

Now, I realize that being given an account number with the words Sudan, Iran, Cuba or some SDN name is about the same as the chance of a chimp randomly typing out in its entirety Hegel’s Phenomenology of Spirit (although there are some who might suggest that is precisely what happened), this amusing incident indicates that screening software is stupid and relentless and that you need to check everything about a transaction to avoid unexpected glitches. It makes me wonder how Mark Cuban can conduct any business at all these days.