Over the last few months, US economic sanctions have taken the front pages as the Trump Administration has reinstated certain sanctions aimed at Iran following the United States withdrawal from the Joint Comprehensive Plan of Action (“JCPOA”). While the so-called “snapback” reinstated sanctions provisions increase the risk for non-US companies, recent enforcement actions against non-US companies demonstrate that such companies have always been at risk of violating the US sanctions laws. Our analysis of the re-imposition of the sanctions can be accessed here.
Over the past five years, non-US companies have had billions of dollars in civil and criminal fines and penalties levied against them by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) for US sanctions violations. While the majority of those cases involve financial institutions, large fines have also been levied against companies in the telecommunications, energy, transportation, and technology sectors, among others. Although the 2017 case involving major Chinese telecommunications equipment maker ZTE, which was found to be violating US sanctions on Iran and North Korea ultimately paid a US$1.19 billion fine, has been the most widely-reported and discussed, two other recent cases demonstrate that the long arm of US jurisdiction in sanctions matters covers a variety of conduct.
CSE Global Limited
In 2017, CSE Global Limited (“CSE”) and its subsidiary, CSE TransTel Pte. Ltd. (“TransTel”) allegedly caused US financial institutions to engage in the unauthorized exportation or re-exportation of financial services from the United States to Iran.
In particular, TransTel entered into contracts with multiple Iranian companies to deliver and install telecommunications equipment related to several Iranian energy projects. TransTel also engaged a number of third-party vendors, including Iranian companies, to provide goods and services with respect to those contracts.
At the time, CSE and TransTel maintained separate US and Singapore dollar bank accounts with a non-US financial institution located in Singapore. In April 2012, CSE and TransTel sent the bank a letter stating that the companies would not route any Iran-related transactions through the bank.
Despite this confirmation, TransTel originated 104 fund transfers totaling over US$11 million from the bank to multiple third-party vendors, including some located in Iran, in connection with the Iran projects. The transfers were processed through the US financial system and made no reference to Iran, causing multiple US financial institutions unknowingly to engage in the exportation or re-exportation of financial services from the United States to Iran in violation of the economic sanctions against Iran. Further, TransTel had knowledge and reason to know that these fund transfers would flow to Iran. In the end, the companies were fined over US$12 million.
Tan Wee Bang
In October 2018, a Singaporean national was indicted on charges of violating US sanctions with respect to North Korea. Tan Wee Bang (“WB”), who was named as an “entrepreneur of the year” by Ernst & Young in 2011, was charged with conspiring to use the US financial system to finance the shipments of goods to North Korea using Wee Tiong (S) Pte Ltd, a company of which he was a director and part-owner. In 2011, WB allegedly entered into these transactions on behalf of North Korean entities, including Daedong Credit Bank (“DCB”), an entity which was on the OFAC Specially Designated Nationals and Blocked Persons List (“SDN List”), and with which US persons cannot engage in transactions, and which allegedly managed millions of dollars in support of the North Korean government.
Specifically, the indictment alleges that WB used his commodities businesses to conduct transactions with front companies in Singapore, Thailand, Hong Kong, and elsewhere that were used by North Korean entities to evade the US sanctions regime. Some of these transactions made use of US financial institutions in violation of the sanctions and effectively laundered funds from DCB and other North Korean entities and persons to pay WB’s companies for shipments of goods to North Korea.
Although he has been indicted, WB has not yet been arrested. Additionally, WB and the two Singapore-based companies involved in the transaction were added to the SDN List.
As these cases demonstrate, the long arm of the US economic sanctions regime can reach non-US entities, especially in light of the ubiquity of the US financial system. As so many commercial interactions touch US shores at some point in the course of the transaction, companies operating in the global market must be aware of the risks of dealing with companies that may be connected with sanctioned countries, entities and persons. And as OFAC continues to expand the SDN List, that risk expands as well. Companies should ensure that they have a robust and adequate internal sanctions and anti-money laundering policy in place to help identify, analyze and mitigate the risk of violating the US sanctions regime.