Most people know you're not supposed to buy cigars from Cuba. Castro country is on the Specially Designated Nationals List (SDN List) of The Office of Foreign Assets Control (“OFAC”). Most people also know that Iran is on that list too. However, complying with OFAC's prohibition against dealing with Iran is a lot harder than staying away from Cuban cigars.
That's why it's a good idea to police your supply chain for any involvement with Iranian trade, no matter how remote the connection. Last week OFAC issued an advisory to the maritime industry that Islamic Republic of Iran Shipping Lines (IRISL) has recently been operating vessels despite their flags having been revoked. The advisory recommends that the logistics industry exercise vigilance in staying away from such carriers.
Attorney Michael Burke, chair of the ABA's International Section and partner with the Atlanta law firm of Arnall Golden Gregory LLP, wrote a bulletin about the advisory and warned that even shippers may face penalties if their goods travel on these ships. Logistics companies, under OFAC's comprehensive sanctions, are prohibited from directly transacting with any person or entity in Iran and from facilitating any transaction between a “U.S. Person” and any such sanctioned person or entity.
According to Burke, penalties for violations of U.S. sanctions programs are severe. He cites the cases of logistics companies such as Stena Bulk LLC, Maersk Line, Limited, Seacor Holdings Inc., and DPWN Holdings (USA), Inc., each of which has been subject to investigations over violations of the Iranian Sanctions Program. Criminal fines for violating the provisions of most sanctions programs range up to the greater of $500,000 or “twice the pecuniary gain per violation for an organization, or up to the greater of $250,000 or twice the pecuniary gain per violation for an individual.” Individuals may also be imprisoned for up to 10 years for a criminal violation.
Okay, but if you as a shipper who does business globally end up contracting with a logistics provider that eventually uses an Iranian ship somewhere in your supply chain, how likely is it that you could be held responsible?
I called Mr. Burke and asked him.
“The liability trail for violation if the Iranian sanctions act reaches pretty far,” he said. “Traditionally it almost never went back to a customer, but OFAC and the Justice Department, especially in regard to the sanctions on Iran and on Cuba, have been very aggressive in pursuing liability that can be traced back. If there are sufficient red flags for a customer or client that would indicate a violation of one of these sanction programs, there's a high probability a violation will occur. Then the U.S. person, whether a customer or 3PL, is on notice they should not proceed with the transaction.”
Burke told me there have been at least six enforcement actions over the past three years that either target U.S. companies or U.S. affiliates of foreign companies for violations of the Iranian Sanctions Act. In one action taken by the Treasury Department, they found out an Iranian vessel was providing services in a logistics company's chain. It had been reflagged as a Liberian vessel but the international maritime number was the same. This company was providing services using an Iranian flagged vessel and there were indications it knew this could be an Iranian flagged vessel and that's when the Treasury Dept. fined them.
But let's go back to that question: how likely is it that the Justice Dept. will go after shippers? Burke thinks it has enough bandwidth to pursue these kinds of cases because both OFAC and the Justice Dept. have higher budgets and they put their budgets into enforcement. For example, Great Western, out of southern Washington State, was trading with Cuba through an affiliate and they got fined $1.35 million.
“I think we'll see more prosecutions under this because it goes with the ramping up of enforcement actions,” Burke said. “The cases you see a lot of in the logistics industry involve Iran, Syria and Sudan because of how shipments get routed. It may not violate law in Germany or Italy, but because a company has a U.S. presence that brings some measure of required compliance with U.S. law onto the whole company.”
The moral here, for both 3PLs and their clients, is to make sure you have a compliance program that looks at export control risk and tailor it to your operations and needs. Evaluate specific transactions and customers. Know how to deal with these problems if they come up and educate employees about these responsibilities.
Finally, shippers should take a look at their contracts with third parties. Make sure you have the right export control liability language in there. Although the shipping lines will be the first line of scrutiny, OFAC and the Justice Dept. are getting aggressive in their approach to keeping Iran out of U.S. supply chains.