On July 27, 2017, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a settlement with Singapore-based CSE Global Limited (“CSE”) and its wholly-owned subsidiary, CSE TransTel Pte. Ltd. (“TransTel”) for allegedly causing at least six separate financial institutions to engage in the unauthorized exportation or re-exportation of financial services from the United States to Iran. The companies agreed to pay over US$12 million to settle the alleged violations of the International Emergency Economic Powers Act1 (“IEEPA”) and the Iranian Transactions and Sanctions Regulations2 (“ITSR”). CSE is an international technology group, and TransTel supplies telecommunications systems and services to the oil and gas industry. During the relevant time period, TransTel conducted business in Iran through, and owned a 49 percent stake in, an Iranian entity.
Between August 25, 2010 and November 5, 2011, TransTel entered into contracts with multiple Iranian companies, at least two of which were on the Specially Designated Nationals and Blocked Persons List (“SDN List”), to deliver and install telecommunications equipment related to several Iranian energy projects. These contracts included projects for the South Pars Gas Field in the Persian Gulf, the South Pars Power Plant in Assalouyeh, Iran, and the Reshadat Oil Field in the Persian Gulf. TransTel also engaged a number of third-party vendors, including Iranian companies, to provide goods and services in connection with these projects.
During this time, CSE and TransTel maintained separate US and Singaporean dollar bank accounts with an unidentified non-US financial institution located in Singapore. In April 2012, CSE and TransTel provided the bank with a letter stating that they would not route any transactions related to Iran through the bank. Despite this letter, and in connection with the projects in Iran, TransTel originated 104 fund transfers totaling over US$11 million from the Singaporean bank to multiple third-party vendors, including vendors located in Iran. These fund transfers were processed through the United States financial system and made no reference to Iran, allegedly causing multiple US financial institutions to engage in the prohibited exportation or re-exportation of financial services from the United States to Iran. Further, TransTel allegedly had knowledge and reason to know that these fund transfers would be received in Iran.
In calculating the penalty, OFAC took into consideration the fact that CSE and TransTel did not voluntarily self-disclose their conduct, and that the alleged conduct constituted an egregious violation. OFAC also considered the following aggravating factors:
- TransTel engaged in and obfuscated its involvement in known prohibited conduct, including the misrepresentations to the Singaporean bank;
- TransTel’s senior management at the time had actual knowledge of, and played an active role in, the alleged conduct;
- TransTel’s alleged violations resulted in significant economic benefit to Iran and/or Iranian people and companies on the SDN List; and
- TransTel is a sophisticated enterprise with operations in multiple countries.
Based on the penalty guidelines, the base penalty for CSE’s and TransTel’s activity was over US$38 million. However, OFAC considered a number of mitigating factors in calculating the penalty, including the fact that TransTel had not received any penalty notice or finding of violation in the previous five years, that TransTel and CSE both undertook remedial steps to ensure future compliance with US sanctions programs, and that TransTel and CSE both provided substantial cooperation during OFAC’s investigation. Based on this, the final penalty imposed was US$12,027,066.
- Non-US companies are targets: The IEEPA makes it unlawful for anyone to violate or to cause a violation of any regulations or prohibitions issued under its authority (including the ITSR). While recent enforcement actions have focused on non-US banks that process US dollar transactions with sanctioned countries and not the non-US customers of those banks, this enforcement action is similar in principle and underscores that non-US companies that conduct sanctioned country business using US dollars can themselves be penalized for causing a violation of the ITSR.
- US dollar nexus: While the use of US dollars itself is not sufficient to create OFAC jurisdiction, US dollar transactions are often routed through US financial institutions, which does provide OFAC with jurisdiction over the conduct. Non-US companies should take care when dealing with sanctioned countries or entities on the SDN List. Transactions with those parties which involve the US financial system could result in US sanctions violations.
- Parent/Subsidiary supervision: The misconduct occurred even though CSE allegedly instructed TransTel to screen third-party vendors for US sanctions compliance before TransTel entered into any of the Iranian contracts. Parent companies should have a compliance program designed to ensure that subsidiaries are also following applicable regulations. Indeed, simply telling a subsidiary to comply is insufficient.
- Cooperation: As noted above, CSE and TransTel could have been fined over US$38 million. However, in part because of their substantial cooperation during OFAC’s investigation, the settlement resulted in a fine of less than one third of the base penalty. OFAC specifically cited the fact that CSE and TransTel provided detailed information in an organized and timely manner. Once potential misconduct has been uncovered, a company should engage competent counsel to conduct a thorough investigation, so that, if necessary, the company can maximize cooperation credit with the relevant authorities while best protecting the company’s interests.
- Remediation: Another key reason why CSE and TransTel received a reduced fine was because they promptly took remedial steps to ensure compliance with US sanctions laws. When a compliance program fails and a company has reason to believe that violations of law may have occurred, it should take concrete and actionable steps to identify the root cause of the issue and implement measures to address the compliance shortcomings.
- Conduct at the top: One of the aggravating factors here was the fact that senior management was allegedly aware of and helped facilitate the conduct. To have an effective compliance program, a company must ensure that senior executives and the board of directors consider compliance a top priority and that they actively demonstrate this belief through action.
1 50 U.S.C. § 1705(a) (“It shall be unlawful for a person to violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition issued under this chapter.”)
2 31 C.F.R.§ 560.204 (“...[T]he 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...”)