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Welcome to the first installment of our new series, Sanctions Seminars with our Law Clerk, Alexander Jeffrey! Be sure and check our our Exports library on our YouTube page and subscribe to our channel for the latest on exports and other international trade topics.
This video will cover the Unites States' Iranian Sanctions Program. Sanctions have been imposed against Iran since 1979. Over the more than forty years of imposition, the sanctions policies have changed drastically as direct results of political events. Watch this video to learn more about the Unites States' Iranian Sanctions Program.
In September of 2021 a company based in San Antonio, Texas agreed to pay 180 thousand dollars to settle its potential civil liability with OFAC over 52 apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR). For a further explanation of the ITSR watch our previous video detailing the regulations. This company develops and supplies 3D animation hardware and software systems. The apparent violations occurred when technology and services were exported from the United States to a third-country distributor. OFAC believes that the accused company knew or had reason to know of the intention to resell their technologies and services in Iran.
Starting in 2013 the company began to transfer its distribution agreement in the Middle East from one distributor to another. This new distributor formed an agreement with the company that explicitly included Iran as a country of distribution. Under this new distribution agreement, over half a million in sales were in apparent violation of the ITSR. The profit from these sales was estimated to be approximately sixty thousand.
All OFAC sanctions programs have a strict liability standard. This means that regardless of whether the individual producing the product or offering the services knew that the violation would occur they are still held liable. In this case, the company knew that their products would be distributed to Iran but assumed that because they would not be directly distributing their products in Iran that they would not be held liable. This is one of the many reasons why OFAC has a strict policy of requiring exporters to declare the end-user of any exports. Even though many products may go through a variety of channels and countries, OFAC still requires that exporters forecast what country the end-users will be from.
The company voluntarily disclosed the apparent violations to OFAC. This became one of the major factors for the violating conduct was found to be consistent with a non-egregious case. OFAC has a tiered system of how violations are evaluated ranging from a mere warning to criminal prosecution. In addition to the disclosure, OFAC takes into consideration a variety of other factors when determining the settlement amount.
OFAC listed the aggravating factors of this case as:
● The reckless disregard of sanctions requirements by authorizing distribution to Iran ;
● Possessing actual knowledge of the conduct leading to the apparent violations; and
● The facilitation of access to their products in Iran led to a designated or blocked entity possessing their products.
OFAC listed the mitigating factors as :
● The proportion of the income from the apparent violation as compared to the company’s total revenue;
● The remedial actions taken by the company since the apparent violations were facilitated; and
● The company cooperating with OFAC during the investigation
The most important lesson from any settlement agreement is understanding how the violator’s compliance program may have been flawed or inadequately structured. The key issue with this case was a misunderstanding of the liability for distributing products to sanctioned end-users.
Need help navigating the waters of an OFAC investigation or the threat of one? Click here to contact us for assistance.
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