Foreign Companies Need to Consider Extraterritorial Reach of US Economic Sanctions

As a businessperson, your main goal is to make money.? When you find an obstacle in your way, the natural inclination is to find a way to get around that obstacle. You and your company have a “can do” attitude and think creatively how to get around government regulations and make a profit. However, this mind-set can land you in hot water with the US government for evading US economic sanctions and export controls regulations.

The United States is able to apply its laws regarding economic sanctions and export controls outside of the U.S., meaning the laws provide for extraterritorial jurisdiction.? ??“But this is not fair”, many foreign companies and persons complain.? Fair or not fair, is a topic about which reasonable minds can differ.? However, if you want to do business in US dollars, and any of your transactions go through US financial institutions, or you employ US persons or are transacting in US-made goods or merchandise with US components, then you may be subjected to US export control and sanctions laws even though you and your company are foreign.

First, foreign companies and foreign persons can end up having to pay millions in civil penalties to the US government. Second, even worse, a foreign company may be subjected to secondary sanctions whereby, as the punishment for evading US sanctions, even though they were not the primary target, a company or person ends up being listed as an SDN (Specially Designated National) because of their role in evading US sanctions or aiding and abetting other SDNs. Third, they can end up criminally prosecuted and having their assets seized.?

?First, foreign companies and persons can be subjected to civil penalties for violating US economic sanctions.? ?For example, Toll Holdings Ltd., an Australian firm, paid more than $6.1 million in civil penalties to the US government for routing payments through US financial institutions to Iran, North Korea and Syria, as well as entities blocked due to terrorism or Weapons of Mass Destruction (WMD). After their bank discovered the issue, the Australian firm omitted the sanctioned jurisdictions from the invoices, so the banks would not find out. Later on, Toll Holdings adopted a sanctions program but it was too little too late. They ended up entering a settlement agreement with OFAC for $6,131,855

According to the settlement agreement: “Toll acted with reckless disregard for U.S. economic sanctions laws when, over the period of six years, it caused at least 2,958 payments involving shipments from, to, or through sanctioned jurisdictions or the blocked property or an interest in blocked property of entities on the SDN List to be routed through U.S. financial institutions.? Toll’s pattern of conduct occurred despite an existing company compliance policy…” See, https://ofac.treasury.gov/media/922441/download?

A foreign company cannot get around US export controls and sanctions by putting one country as the destination on their shipping documents, and then re-shipping the merchandise to a second, embargoed country or sanctioned end-user.? So, a company cannot put that they are shipping merchandise from the US to UAE, and then re-ship it from UAE to Iran.? That is called a “reexport” and it is forbidden under US export controls. ?

An example is that of Alfa Laval Middle East Ltd, a UAE company, which settled with OFAC for $415,695, for only two violations, because it falsely listed the UAE rather than Iran as the end-destination on export documents, when buying products from a US company which it then reexported to Iran. So, “AL Middle East willfully caused the U.S. company to export goods indirectly from the United States to Iran in violation of U.S. sanctions.”

Second, companies and persons that aid and abet SDNs can end up being listed by OFAC as SDNs themselves.?? Entities not traditionally thought of as “criminal”, such as banks and vessels, can end up being designated as SDNs due to their role in sanctions evasion: “Public Joint Stock Company Transkapitalbank (TKB)?is a Russian privately owned commercial bank…TKB representatives have offered services to several banks in Asia, including within China, and the Middle East, and suggested options to evade international sanctions. For example, to avoid detection and sanctions-derived restrictions, TKB has offered its clients the ability to conduct transactions via its proprietary Internet-based banking system, known as TKB Business, an alternative communication channel to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network, including for the purpose of processing U.S. dollar payments for sanctioned clients. TKB has also sought to create a settlement hub in Asia without involving U.S. or European banks in the clearing process.”? See, ?OFAC designates facilitators of Russian sanction evasion, https://home.treasury.gov/news/press-releases/jy0731.

?Third, foreign companies and individuals can be criminally prosecuted.? Regarding individuals, any foreign national physically in the US is considered a “US person” for purposes of US sanctions laws, and must follow all sanctions rules.? If in the U.S. a foreign national may be arrested and prosecuted by the US government for sanctions evasion. If the individuals are located abroad, a lot depends upon whether they are located in a country that that has a treaty with the US providing for extradition.? Extradition proceedings are generally fairly straightforward, and once extradited to the U.S., the foreign national will be tried in federal court for their violations of the IEEPA (International Emergency Economic Powers Act) and other sanctions laws and regulations.? If the individuals are located in countries with which the US has no extradition treaty, and there is no way to bring the individual to the US to be tried, the US government may still bring a civil forfeiture action against any property of the sanctions-evaders that is located in the U.S.

Copyright 2024 ? Heidi J Meyers, all rights reserved. This article is for general informational purposes only and is not intended as legal advice.

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