United States: OFAC Pushes New Limits On Jurisdiction Of U.S. Sanctions By Penalizing Non-U.S. Companies For "Causing" Violations By Making U.S. Dollars Payments

Key Points

  • The U.S. government has used the charging theory of "causing" violations to assert broader jurisdictional reach over non-U.S. entities engaging in transactions that have no direct contact with the United States, other than making payments in U.S. dollars.
  • Payments in U.S. dollars in transactions involving sanctioned countries should be a heightened compliance and enforcement risk for all persons involved in the transaction, including non-U.S. persons.
  • This case represents the first time that OFAC has penalized a non-financial institution outside the United States for engaging in a transaction with a sanctioned country where the only nexus with U.S. jurisdiction is that the transaction is conducted in U.S. dollars.

On July 27, 2017, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced the civil settlement with CSE TransTel Pte. Ltd. ("TransTel") and CSE Global Limited ("CSE Global") in the amount of $12,027,066 for potential civil liability for apparent violations of the U.S. economic sanctions against Iran. Past enforcement actions based upon similar facts have targeted the non-U.S. financial institution involved in the transaction, rather than the non-U.S. company. This case represents the first time that OFAC has penalized a non-financial institution outside the United States where the sole nexus was settling a transaction with a sanctioned country in U.S. dollars, which OFAC has stated thereby resulted in the non-U.S. entity causing a violation of U.S. sanctions by a financial institution.

The enforcement action is noteworthy for several reasons and marks a continued effort by the U.S. government to assert jurisdiction over transactions among non-U.S. entities solely due to payment being conducted in U.S. dollars and the indirect involvement of U.S. financial institutions in such transactions:

  • U.S. dollar transfers in transactions involving sanctioned countries should be a heightened compliance and enforcement risk for all persons, including non-U.S. persons.
  • The U.S. government is continuing to use the charging theory of "causing" violations to assert greater jurisdictional reach over non-U.S. entities that otherwise have no direct contact with the United States.

First, the existence of U.S. dollar transfers in transactions involving at least one sanctioned country, Iran, should be a heightened compliance and enforcement risk for all persons, including non-U.S. persons. TransTel and CSE Global are both foreign companies, and the enforcement action alleges no basis for U.S. jurisdiction over the entities other than that the entities are alleged to have "caused six separate financial institutions to engage in the unauthorized exportation or reexportation of financial services from the United States to Iran" in violation of 31 C.F.R. 560.204. In short, there is no allegation of U.S. persons (U.S. citizens or permanent residents, or entities) involved in the transactions, no allegation of non-U.S. persons engaged in the transactions while in the United States and no allegation of U.S. origin goods. There is also no explanation of how the U.S. financial institutions were presumably involved in clearing these payments. Instead, the alleged violation asserted by OFAC (and agreed to as part of the settlement by TransTel and CSE Global) is that a non-U.S. company "caused" a non-U.S. financial institution to, in turn, cause a U.S. financial institution to provide financial services, the benefit of which was received in Iran.

The settlement indicates that TransTel and CSE were banking with a non-U.S. financial institution located in Singapore, and maintained with this Singapore bank individual U.S. dollar and Singaporean dollar accounts. TransTel received purchase orders from multiple Iranian companies to deliver and install telecommunications equipment for several energy projects in Iran and, as part of fulfilling the purchase orders, engaged third-party vendors to provide goods and services for the purchase orders. OFAC's enforcement action highlights that TransTel and CSE Global represented to the Singapore bank that it would "undertake not to route any transactions related to Iran through [the Bank], whether in Singapore or elsewhere." Despite this representation, TransTel is alleged to have originated U.S. dollar funds transfers from its U.S. dollar-denominated account with its Singapore bank that were related to its Iranian business beginning no later than June 2012 and failed to mention references indicating the payments for Iranian projects or parties. There is no allegation beyond the representation made by the companies to the Singapore bank that they were legally required to mention Iran projects or parties on the payments. Nonetheless, OFAC admonishes in the penalty announcement:

When signing letters of attestation or making other representations and warrantees to financial institutions that provide access to the U.S. financial system, individuals and entities should consider carefully whether they are willing and able to act within the parameters of such agreements.

Second, the U.S. government is continuing to use the charging theory of "causing" violations to assert greater jurisdictional reach over non-U.S. entities. 31 C.F.R. 560.204 provides that:

the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any goods, technology, or services to Iran or the Government of Iran is prohibited, including the exportation, reexportation, sale, or supply of any goods, technology, or services to a person in a third country undertaken with knowledge or reason to know that [the goods or services are intended for Iran or the government of Iran].

Section 203 of these regulations prohibits any transaction that "causes a violation." The statute authorizing this regulation to be issued—the International Emergency Economic Powers Act (IEEPA)—provides for civil and criminal liability if one were to "attempt to violate, conspire to violate or cause a violation" of the regulations. The civil and criminal maximum penalties can be severe. This case was treated by OFAC as an "egregious" case under its Enforcement Guidelines, in part, due to the fact that the companies had not initiated voluntary self disclosures. Other factors leading to this determination included that (i) TransTel "willfully and recklessly caused apparent violations of U.S. economic sanctions by engaging in, and systematically obfuscating, conduct it knew to be prohibited, including by materially misrepresenting to its bank that it would not route Iran-related business through the bank's branch in Singapore or elsewhere, and by engaging in a pattern or practice that lasted for 10 months"; (ii) TransTel's then-senior management had actual knowledge of—and played an active role in—the conduct underlying the apparent violations; (iii) TransTel's actions conveyed significant economic benefit to Iran and/or persons on OFAC's List of Specially Designated Nationals and Blocked Persons by processing dozens of transactions through the U.S. financial system that totaled $11,111,812 and benefited Iran's oil, gas and power industries; and (iv) TransTel is a commercially sophisticated company that engages in business in multiple countries.

Non-U.S. clients that choose to engage in transactions involving sanctioned persons or countries and are doing so on the basis that the transactions are concluded with non-U.S. counterparties, with payment through non-U.S. financial institutions, for non-U.S. origin goods or services, should carefully assess the jurisdictional assumptions in light of the expansive theory expressed in this enforcement action and an apparent continued willingness by the U.S. government to assert these theories in enforcement actions against non-U.S. individuals and companies. Although the TransTel case highlights the alleged misrepresentation to its Singapore bank, it remains unclear what evidence TransTel is alleged to have seen that would place the company on notice that it was causing the exportation of a financial service from the United States (e.g., by a U.S. financial institution) other than the mere knowledge that the underlying transactions were denominated in U.S. dollars.

This fact missing from the allegations remains a concern, given that the U.S. Treasury Department in the prior administration stated on multiple occasions that the mere existence of U.S. dollars is not sufficient to assert jurisdiction. Recent enforcement actions suggest that it may be too fine of a line for non-U.S. clients to parse as to when U.S. jurisdiction does and does not exist if U.S. dollars are being used, but where the use of U.S. dollars may nevertheless involve or "cause" indirectly a U.S. financial institution to violate economic sanctions. The most prudent route would be for clients to presume, for sanctions compliance purposes, that U.S. jurisdiction either exists, or could be asserted by the U.S. government, any time a transaction is denominated in U.S. dollars.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.