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Cooperation, Remedial Actions Offset “Ineffective” Compliance Program in Iran Sanctions Case

Monday, August 14, 2017
Sandler, Travis & Rosenberg Trade Report

The Office of Foreign Assets Control reports that a U.S. company has agreed to pay $259,200 to settle its potential civil liability for 72 apparent violations of the Iranian Transactions and Sanctions Regulations. The statutory maximum civil penalty amount was $18 million and the base civil penalty amount was $720,000. OFAC determined that the apparent violations were not voluntarily disclosed but constituted a non-egregious case.

According to OFAC, the company at issue entered into an engagement letter and fee agreement with a third country with respect to its citizenship-by-investment program and its Canadian subsidiary entered into a similar contract with a government-owned financial institution in a separate third country. While the majority of the applicants to both programs were nationals from countries not subject to OFAC sanctions, some were Iranian nationals. To conduct the necessary due diligence in Iran the company’s foreign subsidiaries hired subcontractors that in turn hired third parties to validate information that could only be obtained or verified within Iran.

OFAC states that the company thus appears to have violated the Iran sanctions by (a) importing Iranian-origin services, given that its foreign subsidiaries conducted the due diligence in Iran on its behalf and for its benefit, and (b) reviewing, approving, and initiating the foreign subsidiaries’ payments to providers of those services.

OFAC considered the following to be aggravating factors: (1) the company failed to exercise a minimal degree of caution or care and the frequency and duration of the apparent violations constitute a pattern or practice of conduct; (2) at least one of the company’s senior management knew or had reason to know that it was importing and/or engaging in transactions or dealings related to services of Iranian origin; (3) the transactions giving rise to the apparent violations resulted in economic benefits to Iran and the underlying conduct is not eligible for OFAC authorization under existing licensing policy; (4) the company is a commercially sophisticated company operating internationally with experience in U.S. sanctions; and (5) the company’s OFAC compliance program was ineffective in that it did not recognize or react to the risks presented by engaging in transactions that involved Iranian-origin background investigation services.

Mitigating factors included that the company (1) had no prior OFAC sanctions history in the five years preceding the earliest date of the transactions at issue; (2) undertook significant remedial measures by taking swift action to cease the prohibited activities, conducting an investigation to discover the causes and extent of the apparent violations, and adopting new internal controls and procedures to prevent reoccurrence of the apparent violations; and (3) substantially cooperated with OFAC’s investigation by conducting an internal look-back investigation for potential sanctions violations and submitting an investigation report to OFAC without receiving an administrative subpoena, promptly providing detailed additional information and documentation in a well-organized manner in response to OFAC’s multiple requests for information, and entering into a statute of limitations tolling agreement.

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