OFAC Starts Off 2013 With An Enforcement Action

On the first business day of the new year, the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a $191,700 settlement of sanctions violations with Ellman International, Inc. (“Ellman”) for apparent violations of the Iranian Transactions Regulations (“ITR”). Under it’s prior ownership and management Ellman exported products to Iran and retained the services of an Iranian physician in contravention of the sanctions. Although the transactions in question equaled $317,211, OFAC found that the base penalty amount for Ellman’s activities was $426,000. That penalty was mitigated due to Ellman’s cooperation with the OFAC investigation, their signing of a tolling agreement, their setting up of an OFAC compliance program, and according to OFAC, their “providing all requested information in a responsive and well-organized fashion”. Of course, the penalty was higher than it would have been otherwise, as OFAC found that Ellman’s prior owners acted to willfully evade the sanctions by setting up a middle man in Dubai to facilitate the transfer of the goods.

There are two (2) particularly interesting aspects to this enforcement action. First, is that the fact that the goods which were exported, and for which Ellman’s export apparently violated the sanctions, was medical equipment. As readers of this blog know, exports of medical devices to Iran are eligible for licensing under the Trade Sanctions and Export Enhancement Act of 2000 (“TSRA”). Indeed, participation in the TSRA program is one of the only ways to legally export any type of U.S. products to Iran. Second, OFAC explicitly included Ellman’s engagement of Iranian-origin services from an Iranian physician. While I don’t believe that this is the first time OFAC has issued an enforcement action for engaging Iranian-origin services, it is rare. At our office we have handled numerous voluntary self-disclosures where parties have engaged Iranian-origin services and none of them have been penalized or had an OFAC enforcement action leveled against them.

Digging a little deeper, I took a look at OFAC enforcement actions over the past year dealing with the ITR. Excluding, the massive bank cases (ING, HSBC, etc.), the majority of the enforcement actions for ITR violations dealt with transactions that would have been eligible for licensing under the TSRA program. In the past year, their have been three (3) OFAC enforcement actions for exports of medical equipment and supplies, and one (1) for export of food, which is now generally authorized for export. The other enforcement actions dealt with export of cosmetics, facilitation of prohibited exports, and prohibited investment/financial services. It is amazing, however, to consider that the most of OFAC’s enforcement actions concerning Iran last year dealt in the very area of exports for which OFAC maintains a robust licensing program; namely, the TSRA program. To this author, this means either one of two things: 1) it is unclear to exporters that just because they can obtain authorization to export these products to Iran that they need to apply for that authorization, or 2) exporters are taking a calculated risk that they won’t get caught for exporting products that by now many people understand are eligible for export to Iran. Either way, no one should be having to deal with an enforcement action for export of products which are clearly eligible for licensing. After all, if you want to export these types of products to Iran, all you have to do is get permission from OFAC and unlike in most cases you will probably get it.

The author of this blog is Erich Ferrari, an attorney specializing in OFAC matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrariassociatespc.com.