Yesterday the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added the Islamic Republic of Iran Shipping Lines (“IRISL”) and its related companies to the Specially Designated Nationals and Blocked Persons (“SDN”) list. As part of this designation, 123 vessels believed to be operated by IRISL were added to the SDN list. As a result of these designations, U.S. persons are forbidden to engage in any transactions with IRISL, it’s related entities or the designated vessels. Freight forwarders and shippers are now forbidden to ship any cargo — including licensed cargo — on the 123 designated vessels. Furthermore any property of the IRISL that comes under the control of a U.S. person must be blocked.

Simultaneously with the designation Adam Szubin, Director of OFAC, and several State Department officials held a press briefing on the new designations. Szubin explained that the designation was based on IRISL’s shipment of proliferation materials. He also did a little jaw-boning:

And when that is combined with the demonstrated pattern of deceptive practices, where IRISL has misled maritime authorities and other companies about the nature of the goods it’s shipping, it leads one to a very difficult question, if one is considering doing business with IRISL consistent with international requirements.

So to the question you ask, every company and insurance company will have to ascertain for itself whether it is comfortable that the cargos and the shipments that it is insuring are consistent with international requirements not to assist Iran’s proliferation program. I don’t know how easily they can reach a state of comfort with that. If they can, then they ought to proceed. But I think it’s presenting, at the very least, a very risky proposition.

What’s going on here is that an insurer of a shipment transiting on IRISL isn’t dealing directly with IRISL and thus isn’t strictly prohibited from insuring the shipment, so Szubin is trying to jaw-bone insurers into not insuring the shipments.

What about banks that issue letters of credit covering shipments carried by IRISL? Like insurers, the banks may not be dealing directly with IRISL. Here the situation is somewhat more complicated. The designation order instructs banks to reject (but not block) any funds transfer referencing a designated vessel. Moreover,

Banks must contact OFAC’s Compliance Programs Division for further instructions should the name of an SDN vessel appear in shipping documents presented under a letter of credit or if noticed in a documentary collection.

Presumably the concern here is that part of the payment under the letter of credit may be used to pay freight charges to IRISL and thus involve prohibited direct dealings with IRISL.

One problem with any vessel designation is that names and flags of the vessel can be easily changed. In the press briefing Szubin attempted to address this problem by noting the vessel information contained in the designation:

Something that I haven’t mentioned yet today, but Treasury has also made available on its website, through its specially designated nationals list, a list of 123 IRISL vessels with special identifier numbers, the flags of registry, all the information that we have, including tonnage, so as to facilitate those around the world identifying whether an IRISL ship and IRISL is involved in a given shipment. … That is the – that is the full list of vessels that we’ve been able to identify with certainty and with the types of identifiers — I was mentioning earlier the tonnage that – the unique identifying number that belongs to a ship even if it changes its name, and that’s a key point when it comes to IRISL.

Director Szubin seems to be somewhat confused and to be suggesting that the vessels net weight is a unique identifying number that should checked for each vessel. In fact, he should — and probably intended to — reference the IMO number, a unique number assigned to each vessel by the International Maritime Organization and which survives name and flag changes. Accordingly, no freight forwarder or shipper should use a vessel without obtaining the vessel’s IMO and checking that number on the SDN list.

A federal grand jury in the District of Columbia indicted an Indian national, Siddabasappa Suresh, and an Indian company, Rajaram Engineering Corporation, for unlicensed exports of U.S.-origin export-controlled goods to the Vikram Sarabhai Space Center, an Indian government agency listed on the Bureau of Industry and Security’s Entity List. All exports to individuals and companies on the Entity List of U.S.-origin goods require a license.

Although the indictment has not yet been released, a Department of Justice press release describes in more detail the facts supporting the indictment as well as showing how BIS’s Sentinel Program played a role in the indictment. Under the Sentinel program, BIS officials travel to foreign countries to verify the end-use of items that BIS has licensed for export. According to the press release, the agents conducting the investigation learned that items licensed for export to Rajaram Engineering Corporation, one of the indicted defendants, were diverted to the Vikram Sarabhai Space Center. No license was obtained from BIS to permit those items to be delivered to the space center.

The indictment further reveals that Suresh and Rajaram conspired with an unnamed Indian subsidiary of an unnamed U.S. company to divert the goods to Vikram Sarabhai Space Center. The U.S. company appears to have been the manufacturer of the exported goods. It is not clear why the U.S. company and its subsidiary were not named, nor why the Indian subsidiary and co-conspirator was not indicted.

Last week the Office of Foreign Assets Control (“OFAC”) released its monthly report on civil penalties imposed by OFAC. Among those listed was a $1,769 fine imposed on Aero Vacations, a small travel agency in Los Angeles serving Spanish-speaking customers. According to the Penalty Notice, Aero Vacations violated the Cuban Assets Control Regulations when it initiated the wire transfer of USD $2,709 to to Scotiabank Inverlat, Mexico City for the account of Viajes Viñales Tours, S.A. de C.V., a company which OFAC alleges is on the Specially Designated Nationals and Blocked Persons List.

Aero Vacations filed a response to OFAC’s Pre-Penalty Notice claiming that “absent access to Viñales documents, Aero Vacations had no reason to suspect that Viñales was a sanctioned entity.” It’s not quite clear what Aero Vacations meant by that defense, but OFAC rejected it, chiding Aero Vacations that “[a]ll U.S. businesses have an obligation to ensure that their international business partners are not listed” on the SDN list — including, apparently, tiny travel agencies where little English appears to be spoken.

Aero Vacations had, I think, at least one better defense to the Pre-Penalty Notice. As is often the case, it was not at all clear that Viajes Viñales Tours to whom the money was transferred was the same entity, or could reasonably be thought to be the same entity, as the “VINALES TOURS, Mexico City, Mexico [CUBA]” that appears on the SDN list, given the different name, the absence of a specific address, and the different spelling of Viñales that appears on the list. (In Spanish, the letters “n” and “ñ” are different letters, each with their own place in the alphabet and not simply the same letter with different diacritical markings.)

Rather than chasing down a Spanish-speaking storefront travel operator in Los Angeles for allegedly dealing with Vinales Tours, perhaps OFAC should consider speaking with Network Solutions, which is the domain registrar for Vinales Tours’s website, www.vinalestours.com. Network Solutions, as registrar, also provides the Whois Server for that Website. Although Network Solutions may be just as unaware that it is dealing with an SDN as Aero Vacations was, OFAC would do much more to stymie Vinales Tours by shutting down its website than by fining one travel agent for one wire transfer.