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September 13, 2011 

State Department Finally Publishes Notice Regarding Iran Sanctions Announced in May and Admits Sanctioning Wrong Entity

The State Department will finally publish in tomorrow’s Federal Register a formal notice regarding the sanctions imposed on seven non-U.S. companies announced on May 24, 2011 for engaging in activity that violated the Iran Sanctions Act of 1996 (ISA), as amended by the Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 (CISADA).

The sanctioned companies included in the May 24, 2011 announcement were: Associated Shipbroking, Petróleos de Venezuela S.A. (PDVSA); Petrochemical Commercial Company International (PCCI), Royal Oyster Group, Speedy Ship FZC, Tanker Pacific Management (Singapore) Pte. Ltd. and Ofer Brothers Group.

This Notice provides a list of the specific sanctions imposed on each of the named companies. In addition, the Notice specifies, in relation to each sanctioned entity, whether the penalties apply "with respect to [the named company] and not to any subsidiary, affiliate, or shareholder thereof unless separately identified", or alternatively specify that the penalties "also apply with respect to any person in which [the named company] has an interest of fifty percent or more." The two prior Federal Register notices announcing ISA sanctions did not contain this language. This new language is useful to clear up confusion among commercial counterparties, and especially among financial institutions, dealing with affiliates of designated persons.

An important aspect of the formal notice is that the State Department eliminated the sanctions on Israel’s Ofer Brothers Group and replaced them with Allvale Maritime Inc. (based in Liberia) and Société Anonyme Monégasque D’Administration Maritime Et Aérienne (SAMAMA) (based in Monaco), companies that are owned by the Ofer Brothers Group.

A State Department official today admitted that it sanctioned the wrong entity in its May 24th announcement, stating:

"In issuing this clarification, our intent was to sanction the specific entities in the Sammy Ofer shipping organization that were responsible for providing a tanker to Iran. The use of the name ‘Ofer Brothers Group,’ a commonly used trade name, caused confusion for some banks and companies that were trying to comply with U.S. sanctions. The complex nature of the conglomerate's business structure necessitated that we take the time to look closely at these companies in order to ensure that we were identifying the precise legal names of the entities directly responsible for the sanctionable transaction."
The sanctions imposed on PDVSA, Associated Shipbroking, PCCI, Royal Oyster Group, Speedy Ship FZC, and Tanker Pacific Management (Singapore) Pte. Ltd. remain unchanged from the original notice.

Depending on the sanctioned company, these sanctions include a prohibition on: U.S. financial institutions from making loans or providing credits totaling more than $10 million in any 12-month period, obtaining U.S. government contracts, from receiving financing from the Export-Import Bank of the U.S. and from being a part to U.S. export licenses. Crude oil exports from PDVSA to the U.S. are not affected by these sanctions.

To date, the Treasury Department's Office of Foreign Assets Control (OFAC) has not yet provided guidance to financial institutions on how to interpret and apply the prohibition on loans or credits over $10 million in any 12-month period, which has been imposed on five different sanctioned companies since October 2010.

In addition, the Commerce Department's Bureau of Industry and Security (BIS) has not made any public statement on how it intends to implement the export sanctions on PDVSA and other companies. Under ISA export sanctions, the U.S. Government may not issue any specific license and shall not grant any other specific permission or authority to export any goods or technology to the sanctioned companies.

In another interesting development, Tanker Pacific Management (Singapore) Pte. Ltd. (TPM) today issued a press release stating that the ISA sanctions were a result of PM’s role in managing the 2010 sale of the tanker Raffles Park to Coral Light Asset Corp (Panama), an company nominated by the buyers. The statement indicates that due diligence carried out by TPM at the time of the sale included checking OFAC’s SDN List and the buyers did not appear on the list and the company’s due diligence uncovered no evidence that the buyers had any links to Iran. TPM noted that it was later informed by the U.S. Government that the buyers acted as front companies for the Islamic Republic of Iran Shipping Lines (IRISL). The statement also indicates that had TPM been aware that “the buyers were acting on behalf of Iranian interests, this sale would never have gone ahead.”

To address this issue and improve the company’s internal compliance procedures, TPM announced that it has implemented the following enhanced due diligence measures:
  • comprehensive risk assessment: we will continue our ongoing comprehensive risk assessment to identify and mitigate areas of potential risk;
  • enhanced counterparty screening procedures: we have instituted new procedures including additional pre-transaction due diligence and independent third party screening to assess the profile of potential counterparties more effectively;
  • compliance manager: we have recruited a dedicated compliance manager;
  • mandatory training programs: we are putting in place robust training programs for all relevant personnel;
  • regular compliance procedure reviews: we will conduct ongoing compliance reviews to update our procedures, reflecting changing business operations and evolving legal requirements.
These additional measures serve as a useful guide to other companies on the need to performing additional due diligence on prospective buyers and helping to ensure compliance with ISA/CISADA and other U.S. sanctions programs.

The last page of the Federal Register notice contains a complete list of companies that have been sanctioned under the Iran Sanctions Act. The complete list is as follows:
  • Allvale Maritime Inc.
  • Associated Shipbroking (a.k.a. SAM)
  • Belarusneft (see 76 Fed. Reg. 18821, April 5, 2011);
  • Naftiran Intertrade Company (see 75 Fed. Reg. 62916, Oct. 13, 2010).
  • Petrochemical Commercial Company International (a.k.a. PCCI)
  • Petróleos de Venezuela S.A.
  • Royal Oyster Group
  • Société Anonyme Monégasque D’Administration Maritime Et Aérienne (a.k.a. S.A.M.A.M.A., a.k.a. SAMAMA)
  • Speedy Ship (a.k.a. SPD)
  • Tanker Pacific Management (Singapore) Pte. Ltd.
 More information on the Iran Sanctions Act sanctions announced on  May 24, 2011 can be found here.




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