Industry News: V9N3


Case of Mistaken Identities?

Following Iran’s ballistic missile test, the Office of Foreign Assets Control (OFAC) announced new sanctions on Iran. The sanctions targets, Abdollah Asgharzadeh and a network of people and companies that have assisted in procuring items for Iran’s ballistic missile program. One person alleged to be in the network is Carol Zhou, who is described as one of “three China-based brokers” who assisted in these procurement activities. No information was provided with respect to Carol Zhou other than her date of birth. And because she is being sanctioned under the Weapons of Mass Destruction Proliferators Sanctions, this means that secondary sanctions can be imposed under the Iran Financial Sanctions Regulations against foreign financial institutions that deal with Ms. Zhou.

It should come as no surprise that Carol Zhou is an extremely common name. Any transaction involving an individual named Carol Zhou risks being blocked by U.S. financial institutions and rejection by every other financial institution in the world. For all those named Carol Zhou–performing banking services may have just become much more difficult.

OFAC Fines a Canadian for Following Canadian Law

The Office of Foreign Assets Control (“OFAC”) recently fined Toronto-Dominion Bank, a financial institution headquartered in Toronto, Canada, with a $516,105 fine for sanctions violations including maintaining bank accounts for 62 Cubans in Canada.

The announcement appears to be a reference to TD Bank Group, a Canadian corporation headquartered in Toronto, and not a reference to its U.S. banking subsidiary TD Bank, N.A., as the U.S. banking operation does not have branches in Canada. The jurisdictional hook alleged by OFAC to cause Cuban accounts in a Canadian bank to be illegal under U.S. law is, apparently, this:

“Between August 7, 2007 and January 24, 2011, TD Bank processed 99 transactions totaling $459,341.62 to or through the United States on behalf of these customers in apparent violation of the CACR.”

OFAC doesn’t explain how TD Bank violated the law, probably because it is just an “apparent” violation. However, in all instances, violations must either be “by a person subject to the jurisdiction of the United States,” or “property subject to the jurisdiction of the United States.”

TD Bank Group in Canada does not appear to have any U.S. activity. The only reasonable explanation of the fine is based upon OFAC’s overreaching belief that dollars anywhere located anywhere in the world are subject to the jurisdiction of the United States. Ironically, the Canadian Foreign Extraterritorial Measures Act forbids TD Group from complying with the U.S. boycott of Cuba.

More OFAC…

Office of Foreign Assets Control (“OFAC”) issued a finding of violation, (but no fine) against B Whale, a member of the Taiwanese TMT Shipping Group. The finding of violation appears to be a continuation of OFAC’s general belief that it has jurisdiction over anyone anywhere in the world. The alleged violation involved the transfer of Iranian oil from an Iranian vessel in international waters to a Monrovian-registered Liberian-flag ship owned by a Taiwanese company without any branches or business operations in the United States.

OFAC claimed that this was an illegal importation of Iranian goods into the United States in violation of section 560.201 of the Iranian Transactions and Sanctions Regulations (“ITSR”). According to OFAC, the foreign flagged ship in international waters became a part of the United States once TMT filed a bankruptcy petition in the United States, thereby placing all its assets under the control of the bankruptcy court.

There is no precedent from OFAC, any court or any US Federal agency for such an expansive definition of the “United States.” Congress, defined the scope of the “United States” at 18 U.S.C. 5 as “all places and waters, continental or insular, subject to the jurisdiction of the United States, except the Canal Zone.”

To cover ships, 18 U.S.C. 7 defines the “special maritime and territorial jurisdiction” of the United States to covers ships on the high seas owned by at least one U.S. citizen or a foreign vessel with a scheduled departure or arrival in the United States “to the extent permitted by international law.”

Ships owned by bankrupt companies are neither part of the United States, nor part of the special maritime jurisdiction as far as Congress was concerned. It’s hard to imagine that OFAC has the statutory authority to expand the scope of its jurisdiction as it has within this notice of violation.