Key OFAC Actions

Central Bank of Iran (CBI) General License and FAQs

In September 2019, OFAC designated the CBI under terrorism-related sanctions authorities, which appeared to prohibit CBI’s involvement in processing payments for humanitarian-related transactions, such as those authorized under OFAC general licenses for agricultural commodities, medicines, or medical devices (“AgMed Licenses”).

General License 8 (“GL8”) and accompanying FAQs clarify that involvement of the CBI in humanitarian transactions and activities that were otherwise allowed under OFAC’s Iran sanctions regulations prior to the CBI’s September 2019 designation continue to be permitted.

GL8 does not authorize: persons designated as Specially Designated Nationals (“SDNs”) in connection with international terrorism or WMDs; the export/reexport to CBI of items not covered by AgMed Licenses; and any other transactions not specifically authorized by GL8.

Sanctions on Rosneft Trading SA

On February 18, 2020, OFAC designated Rosneft Trading S.A. (“Rosneft Trading”) and its president as SDNs, prohibiting U.S. persons from doing business with the firm and potentially subjecting non-U.S. persons dealing with the company to “secondary sanctions.” OFAC designated Rosneft Trading based on its engagement in significant transactions with Venezuelan state-owned energy company Petróleos de Venezuela, S.A. (“PDVSA”). OFAC issued a related designation of TNK Trading International (“TNK Trading”) on March 12, 2020.

OFAC also issued GL36A permitting a wind down of activities with Rosneft Trading and TNK Trading by May 20, 2020. Parties winding down transactions with Rosneft Trading under this GL should note that Rosneft Trading (along with other Rosneft entities) is also subject to Directive 2 and Directive 4 under the Ukraine-/Russia-related sanctions program. As a result, any wind down must avoid transactions involving prohibited “new debt,” which can include acceptance of extended payment terms on certain existing debt owed by Rosneft entities.

Issuance of Reporting, Procedures and Penalties Regulation FAQs

On February 20, 2020, OFAC issued two new FAQs regarding the interim final rule of June 21, 2019 that amended the Reporting, Procedures and Penalties Regulations, 31 CFR Part 501 (the “RPPR Rule”). New FAQs 819 and 820 clarify that all U.S. persons and persons subject to U.S. jurisdiction are required to report rejected transactions to OFAC within 10 business days of the rejected transaction and to comply with RPPR reporting requirements. Prior to issuance of the interim final rule, only financial institutions were subject to this reporting requirement.

The FAQs do not, however, clarify what type of transactions are in scope of the requirement. OFAC has stated that it is continuing to review comments regarding the reporting requirement to assess whether any clarification or modification to the rule would be appropriate.

A complete list of recent OFAC regulatory actions during Q1 2020 can be found here.

Other OFAC Legal News

Exxon Mobil Corp. v. United States Department of Foreign Assets Control

On December 31, 2019, the Court in the Northern District of Texas vacated a $2 million fine issued by OFAC against Exxon Mobil Corporation (Exxon). OFAC had imposed the fine against Exxon for violations of U.S. sanctions targeting Russia/Ukraine based on its finding that Exxon had signed eight legal documents related to oil and gas projects in Russia with Rosneft that were also signed by Igor Sechin, a SDN, but not a 50% or greater owner of Rosneft. In its penalty notice, OFAC stated that an SDN cannot be the negotiator or signatory to a contract with a U.S. Person because that activity would constitute a provision of a prohibited service to a U.S. Person.

Exxon challenged OFAC’s penalty decision on multiple grounds including a lack of fair notice in violation of the Due Process Clause of the Fifth Amendment. The Court agreed that OFAC failed to provide fair notice of its interpretation regarding SDNs acting as signatories and vacated the penalty on this ground. The Court declined to address additional issues raised by OFAC.

Although the Court considered the fact that Exxon did not seek guidance from OFAC prior to signing the contracts to be a relevant factor in its fair-notice analysis, the Court found that burden of providing fair notice remains with the agency—not the regulated party. 

Settlements: Société Internationale de Télécommunications Aéronautiques SCRL (“SITA”)

Switzerland-based SITA has agreed to pay OFAC approximately $8 million to settle civil liability for apparent violations of U.S. sanctions laws. The violations were related to OFAC’s charge that SITA had provided services to several airlines that had been designated by OFAC under the Global Terrorism Sanctions Regulations (“GTSR”)—Mahan Air, Syrian Arab Airlines, Caspian Air, Meraj Air and Al-Naser Air.

Pursuant to the GTSR, all interests in property of such designated entities that are in the United States are blocked, and U.S. persons are prohibited from providing any goods or services to such designated entities. OFAC interpreted these prohibitions as applying to the provision of any services to designated parties from the United States or by persons.

However, despite SITA being based in Switzerland (and not a U.S. person), OFAC determined that SITA’s services to the designated airlines were “subject to U.S. jurisdiction” because services and software were provided from, or transited through, the United States or "involved the provision of U.S.-origin software with knowledge that customers designated as SDGTs [Specially Designated Global Terrorists] would benefit from the use of that software."

This last allegation was related to the access to a U.S.-origin software application that allows shared users of a common terminal to manage processes such as check-in and baggage management. The basis for this alleged violation was not fully explained in the settlement agreement, which appears to conflict with the fact that the GTSR do not prohibit non-U.S. parties from re-exporting U.S.-origin goods or services to designated parties (although such re-exports could be impacted by U.S. export controls administered by the U.S. Department of Commerce.

This settlement is notable for a number of reasons:

• OFAC’s continued assertion of jurisdiction over a wide-range of activities by non-U.S. parties, which includes administrative functions of such parties with a U.S. nexus, such as hosting software on a server in the United States or routing messages through the United States. 
• OFAC noted as an aggravating factor in the penalty calculation that SITA was a sophisticated entity that knew it was dealing with designated entities but failed to adequately “vet compliance risk” based on a “comprehensive and detailed compliance program.”
• OFAC identified substantial mitigating factors in SITA’s establishment of a comprehensive compliance program that included 1) establishment of a global trade board to identify ongoing risks and a trade compliance committee to provide guidance and information to SITA and its members, 2) updated policies, procedures, and training, and 3) sanctions due diligence review on new customers and suppliers or providing new products and services in sanctioned countries.

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OFAC continues to be active and issuing additional SDN designations. To keep track of the latest news, please visit OFAC’s recent actions website. For questions related to OFAC compliance, feel free to contact the attorneys at Torres Law.