On February 6, 2014 the Treasury’s Department’s Office of Foreign Assets Control (OFAC) added names to yet another list of entities that U.S. companies must screen against prior to engaging in any international business dealings involving Syria or Iran. The “new” list – the Foreign Sanctions Evaders (FSE) List – was first announced nearly two years ago, back on May 1, 2012 (see our previous comments on the convoluted Executive Order authorizing these new sanctions here and here), but until now consisted of only a single entity added in May 2013 – a Ukrainian tanker company that OFAC says facilitated deceptive transactions with an Iranian counterpart in order to avoid U.S. sanctions.
The latest announcement adds eleven new entities to the FSE List that are now effectively barred from access to the U.S. commercial and banking systems. Getting on the list does not subject these entities to blocking of assets, but it does bar U.S. persons and companies from doing almost all types of business with them – leaving them for all intents and purposes cut off from all forms of commerce with the U.S. It is worth noting that although OFAC says that the financial accounts of persons on the FSE List are not blocked, it says in its FAQs on this program that such accounts are “restricted and . . . . [may not be] operated without authorization from OFAC,” which presumably is not much different in effect from blocking the account. Failure to screen against this list could leave U.S. persons exposed to significant penalties for dealing with these entities, even unintentionally.
U.S. persons (which includes U.S. companies) are prohibited from all transactions or dealings, whether direct or indirect, involving entities on the List, unless they receive prior approval for the transaction for OFAC or the transaction fits into exemptions provided in the International Emergency Economic Powers Act (“IEEPA”) such as those relating to personal communications, humanitarian donations, and informational materials.
Foreign entities and individuals make it onto the FSE List if the U.S. Government deems that they 1) have violated, attempted to violate, conspired to violate, or caused a violation of U.S. economic and financial sanctions on Syria and Iran, or 2) facilitated deceptive transactions for or on behalf of persons subject to such sanctions.
While what constitute “deceptive transactions” remains undefined, some clues can be gleaned from the circumstances surrounding adding the three Georgia-based Iranian nationals, and the eight companies they controlled (along with multiple variations on their names), to the List. According to OFAC, they funneled tens of millions of dollars through a Georgian bank in which they acquired a controlling interest in 2011 to several Iranian banks subject to U.S. sanctions. OFAC accuses them of deception by falsifying financial disclosures in order to hide these transactions from the Georgian government, which it says provided substantial assistance on the matter.
While it is not clear when or why more entities may be added, OFAC has said that these sanctions are intended to reach foreign entities that might not subject to designation under the language of prior executive orders but have been involved in certain transactions with Iran or Syria. (In fact, these designation orders generally allow designating parties providing material assistance to designated entities, so whether these parties could not be designated outside of the FSE program is not entirely clear.)
These additions are part of a broader approach to Iran sanctions that promises increased enforcement under certain sanctions programs even as the U.S. and EU temporarily suspend certain sanctions on Tehran to encourage suspension of enrichment of uranium as part of its nuclear program and engaging in long term talks as part of an agreement signed in Geneva last November.
Regardless of the geopolitics, U.S. companies now face strict penalties even if they inadvertently do business with an entity on the list and thus they will have to include screening against the FSE List as part of their due diligence when exploring new opportunities overseas.
As far as actually conducting this screening, as of this writing the FSE List is published on the OFAC website here, but the entries do not appear to have been added to the Export.gov Consolidated Screening List, which provides a single downloadable list of the sanctions lists maintained by the State, Commerce and Treasury Departments. If or when that will occur is not clear, but companies must now be diligent in checking yet one more list for FSEs amongst the alphabet soup of SDNs, SDGTs, and others that make up the ever-changing milieu of U.S. sanctions policy