The charges related to TransTel causing six different financial institutions to provide unauthorized financial services relating to transactions with Iran. The funds transfers were processed in part in the U.S. and they involved the supply of goods or services handled by a variety of vendors and service providers with connections to Iran. None of the transactions referred to Iran, Iranian parties, or Iranian projects, yet they were still sufficient to trigger a U.S. government investigation and charges. Note that the U.S. financial institutions were not involved in this enforcement matter at this time, but rather a non-U.S. company was accused of “causing” U.S. companies subject to OFAC jurisdiction to violate the Iran sanctions. This “causation” approach creates a broader scope of OFAC jurisdiction and enforcement than many non-U.S. companies expect, and its use is expanding. Moreover, many non-U.S. companies believe they are beyond the reach of U.S. sanctions penalties, but charges and forced settlements involving non-U.S. companies are relatively common for the agency. Companies that are charged with violations, including causation violations, face difficult choices. If they don’t settle the accusations with OFAC, they may well find themselves listed as specially designated nationals (SDN), which would render them virtually unable to conduct business in the U.S., or with most U.S. companies and subsidiaries. In addition to heightened restrictions on dealing with SDN’s many non-U.S. companies use denied party screening programs that include OFAC SDN designations, and those companies will very often refuse to deal with a listed SDN.

Best practices to reduce the risk of an OFAC investigation and associated penalties include very basic steps, such as issuing or updating a company-wide export control and sanctions policy statement and having well-versed specialists provide baseline training. Given very recent bi-partisan legislation to tighten U.S. sanctions on Iran, Russia and North Korean, now is a good time to renew a policy statement with counsel.

Protective compliance measures range from conducting a review and enhancement of the company’s broader export/sanctions compliance program, to a review of company transactions and sales channels to identify potentially risky transactions. Construction of a more robust compliance program based on the results of such a data review is a path selected by many companies, and should be seriously considered by international telecom companies, which will be under a heightened level of review.

Even in remanding a portion of OFAC’s determination to the agency, the Court upheld OFAC’s broad interpretation of the ITSR. OFAC’s final Penalty Notice imposed liability for 39 exports of car audio/visual equipment to the UAE that Epsilon knew, or should have known, were intended for reexport to Iran. OFAC relied on evidence from the UAE company’s site advertising extensive relationships with Iran, among other factors, to draw its conclusion. Epsilon argued that OFAC did not prove that any of the 39 shipments actually arrived in Iran. The Court agreed with the government that actual arrival in Iran is not necessary to find a violation – that exporting with reason to know the items were intended for Iran is sufficient to sustain a finding of violation.

With respect to five shipments, the Court held that OFAC did not appropriately articulate its reason for determining that evidence demonstrating Epsilon had reason to believe the items were for the Dubai market were unreliable. These five shipments occurred during a time that Epsilon had extensive e-mail communications with its UAE partner discussing specifically the Dubai market and the opening of a store to serve that market. The Court held that none of the pre-penalty notice, final notice, and internal OFAC record sufficiently articulated a basis for OFAC’s finding that these items were intended for Iran. However, the Court was careful to note that it did not hold that the record could not support OFAC’s finding – only that OFAC did not sufficiently articulate its reasoning. For that reason, it appears likely that Epsilon’s victory in this case will be short-lived.

The most important aspect of this case is that it reaffirmed that OFAC has broad discretion to make determinations under its regulations, and that “knowledge or reason to know” that a transaction will violate sanctions is sufficient to find a violation. However, this case does demonstrate that exporters can successfully challenge OFAC’s determinations under certain circumstances, and should encourage OFAC to more clearly articulate its rationale when imposing penalties.