Recent Settlement Highlights Need For OFAC Diligence

Author:Mr Thomas Bogle and Miriam Gonzalez
Profession:Dechert
 
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The Office of Foreign Assets Control (OFAC)1 recently entered into a settlement agreement with a European-based asset manager for an alleged violation of United States sanctions against Iran.2 The settlement agreement follows the announcement of a number of new measures that significantly expand U.S. sanctions against Iran. What is significant about the new measures is that they explicitly target certain activities of non-U.S. companies as well as U.S. companies.

The recently announced settlement highlights the need for all asset management firms, wherever they may be located, to understand their obligations under U.S., EU and wider United Nations sanctions programs, and to develop policies and procedures designed to prevent sanctions violations.

Factual Background

The party entering into the settlement with OFAC is an investment management firm headquartered in the United Kingdom, but organized as a Delaware limited liability

partnership (the U.S. Manager). The U.S. Manager serves as investment manager of a Guernsey-organized investment fund (Guernsey Fund) and, in that capacity, has the power and authority to select portfolio holdings and otherwise manage the assets of the Guernsey Fund. However, the U.S. Manager delegated responsibility for selecting the Guernsey Fund's investments to its subsidiary, a limited liability partnership headquartered and organized under the laws of the United Kingdom (UK Delegate).

According to OFAC's settlement release, in 2007 the UK Delegate caused the Guernsey Fund to purchase approximately $3 million in shares of First Persian Equity Fund (Persian Fund), a Cayman Islands fund that invests exclusively in Iranian securities. OFAC appar-ently determined that this action caused the U.S. Manager to violate its obligation to comply with U.S. sanctions against Iran.

Legal Background and Discussion

Characteristically, OFAC released only limited information about the alleged sanctions violation that occurred in this case. OFAC's release states only that the U.S. Manager had allegedly violated the Iranian Transactions Regulations (ITR), without citing to any specific rule under the ITR. For this reason, one can only speculate about the actual sanctions violation that allegedly occurred.

Based on the facts released by OFAC, it appears that the transaction at issue occurred entirely outside of the United States. Nevertheless, all "United States persons" are required to comply with the ITR. Under the ITR, the term...

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