Jan
13
OFAC Expands Prohibitions on Re-Exports by Foreign Persons
Posted by Clif Burns at 4:16 pm on January 13, 2017
Category: Iran Sanctions • OFAC
![Aban Oil Rig via http://www.abanoffshore.com/downloads/DD1PL%20Investor%20Presentation%20231015.pdf [Fair Use]](https://www.exportlawblog.com/images/aban.jpg "Aban Oil Rig via http://www.abanoffshore.com/downloads/DD1PL%20Investor%20Presentation%20231015.pdf [Fair Use]")
Yesterday the Office of Foreign Assets Control (“OFAC”)Â announced that it had levied a $17,500 fine against Aban Offshore Ltd. (“AOL”), an Indian oil rig company, because AOL’s subsidiary in Singapore arranged to have oil rig equipment, presumably U.S. origin although not stated as such, re-exported from Saudi Arabia to Iran. This was alleged to have been in violation of section 560.204 of the Iranian Transactions and Sanctions Regulations (“ITSR”) which prohibits re-exportations from the United States to Iran.
The OFAC action is more than a little peculiar. Both AOL and it’s Singapore subsidiary are not U.S. persons and so it would seem that section 560.205 of the ITSR, which covers “reexportation of goods … by persons other than United States persons” would be the applicable provision. Of course, that section only penalizes re-exports of items that require a license from BIS for export to Iran. See § 560.205(a)(2). The oil rig equipment was almost certainly EAR99, although the OFAC document is oddly silent on this point, and would not have required a license under either sections 742.8 or 746.7 of the EAR.
It looks like what OFAC is doing here is pretending that section 560.205 does not limit section 560.204 at all. On its face, and without reference to section 560.205, section 560.204 prohibits re-exports by anyone, U.S. persons and non-U.S. persons alike, from the United States to Iran without regard to whether the item would require a BIS license. But if section 560.204 is intended to be read that broadly, there is no reason for section 560.205 to exist at all. It would simply be swallowed up by the breadth of section 560.204 rather than serve as a qualification of the scope of 560.204 for non-U.S. persons.
Granted agencies have broad latitude to interpret their own regulations, but that latitude does not go so far as to allow an agency to read one rule in a way as to render another rule absolutely meaningless. Â As it stands, OFAC has read section 560.205 out of its rules and held that non-U.S. persons can now be held liable for re-exports of U.S. origin EAR99 items to Iran.
Permalink
Copyright © 2017 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)
3 Comments:
Hey Clif,
You’re right that there is a broad interpretation of the regulations here, but if OFAC expanded their jurisdiction in this type of circumstance, it wasn’t so recently … this settlement is consistent with a number of prior cases where OFAC has prosecuted non-USPs for ordering EAR99 goods or obtaining services from the United States that the non-USP intends to reexport exclusively or predominantly to an embargoed destination, but where the USP apparently didn’t actually know the final destination of the export.
For example, the citation of 560.204 in this case is consistent with OFAC’s citation of violations in many of the information “stripping” cases against non-USP banks where the non-US bank was prosecuted based on allegations of removing information about embargoed country connections from information transmitted to US banks. In many cases, there were no allegations of collusion by the US banks, nor were the US banks prosecuted, but OFAC alleged violations “of the prohibitions against the exportation or reexportation of services from the United States to Iran, 31 C.F.R. 560.204.” (from the 2014 BNPP settlement, p. 7, for example).
Such activity could, perhaps, be alternatively characterized as a violation of 560.203(a) by the non-USP for “causing” another person to violate 560.204, if the non-USP’s false statements or omissions prevented the US exporter from actually forming the required knowledge. Thus, but for the false statement or omission of the non-USP, the USP would have had the required knowledge.
– DFO
Clif, OFAC has made it pretty clear that reexports are treated differently than transshipments. A non-U.S. company cannot procure a transshipment of EAR99 items to Iran without causing a violation of 560.204, even though it may reexport such goods from its general inventory.
What provision did the non-USP actually violate here? Was it 560.204, which on prohibits the actual re-exportation of goods, or §560.203, which prohibits the “causing” of a violation of any sanctions regulation? I ask because OFAC only said that the order was “placed” with intend that the goods would end up in Iran, rather than say that the actual goods were exported and ended up in Iran.
Not that anyone would or could ever challenge it, but if it really was just an “attempted causing” of a violation, it seems like that is prohibited by §560.203, but not the 50 USC § 1705 “causation” language it supposedly implements.
This question might not be academic if what we’re talking about here is hitting foreign parties just for placing order that are rejected by the would-be US suppliers, rather than transactions where the goods end up where they’re not supposed to be.
