A committee of the New Jersey state senate and a committee of the state assembly both recently approved legislation that would prohibit the state from entering into contracts with companies that do business in Iran. I recently posted on Florida’s efforts to do the same thing and expressed considerable doubt that Florida’s statute could survive judicial review based on the Supreme Court decision in Crosby v. National Foreign Trade Council, 530 U.S. 363 (2000), which held that a similar Massachusetts law that penalized companies doing business with Burma was preempted by federal law.

The proposed New Jersey law, however, is somewhat different and may have a better chance of surviving an inevitable judicial attack. Section 202 of the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 — or CISADA for any acronymophiles out there — explicitly permits state and local governments to impose certain limited sanctions on Iran. The initial draft of the Bill was quite broad and penalized a broad range of activities in Iran, including making an investment in any amount in the “energy, financial or construction sectors of Iran.” However, before being approved by the two New Jersey legislative committees, the proposed law was amended to limit those activities which are permitted under CISADA to be a predicate for state and local sanctions, namely to an investment of $20 million or more in Iran’s energy sector.

Bringing the law within the statutory confines of state sanctions laws permitted by CISADA would certainly seem to shield the law from a challenge that the state law was preempted by federal law. Whether it shields it from a constitutional attack that it is an impermissible foray by a state government into U.S. foreign policy matters is a different question.

In today’s civil penalty releases, the Office of Foreign Assets Control (“OFAC”) announced a settlement with a U.K company, Genesis Asset Managers, LLP (“GAM”), arising from a purchase that one of its subsidiaries, Genesis Investment Management, LLP (“GIM”), also based in the United Kingdom, made on behalf of a Guernsey-based investment fund that GAM was managing. The investment in question was in a Cayman Islands fund that invested in exclusively in Iranian securities. GIM made the investment pursuant to a contract it had with GAM to provide investment advice to GAM with respect to GAM’s management of the Gurnsey fund. The $3 million dollar investment by GIM in the Cayman Islands fund led to a $112,500 penalty imposed by OFAC on GAM. And, in case you are interested, GAM voluntarily disclosed the matter to OFAC.

You may be scratching your head, and rightly so, about what OFAC was doing futzing around in the business of U.K. investment managers and their advice to, and investment in, funds in island-based tax havens. Part of the reason appears to be that OFAC believed GAM to be a U.S. company, even though its website, linked above, shows the company to be based in the United Kingdom. There must be some connection to the United States — hence the voluntary disclosure and the fine — but OFAC is not letting on what it is.

But even if GAM is based in the United States, this is still a fairly tenuous basis to penalize GAM based on these facts. There is nothing in the OFAC announcement that indicates that GAM facilitated, or was otherwise involved in, U.K.-based GIM’s purchase for a Gurnsey fund of shares in a Cayman fund. The release says that officers of GAM “were aware of the conduct giving rise to the apparent violation.” But mere knowledge that a foreign affiliate engaged in a transaction for foreign companies involving Iran is not enough absent some finding that the GAM officers participated in or somehow facilitated the transaction.