U.S. Person-1 OFAC Penalty Notice: $1.1M (2024)

Beginning in or about 2019 and lasting through 2022, U.S. Person-1 executed a plan to purchase, renovate, and operate a 19-suite hotel on the Caspian Sea in Iran. U.S. Person-1 financed the project through two methods: selling real property previously acquired in Iran and reinvesting the proceeds, and separately transferring funds from the United States to Iran. At all relevant times, U.S. Person-1 maintained personal and business accounts at Bank Melli Iran and Bank Keshavarzi Iran, both blocked entities on OFAC's List of Specially Designated Nationals and Blocked Persons, and used those accounts to pay for the hotel's renovation and operations.

To effectuate payments to contractors and others, including fees associated with Iranian government permits or licenses, U.S. Person-1 utilized a Canadian money services business (MSB) employing an informal value transfer system (IVTS) to circumvent the prohibition on most commercial financial transfers between the United States and Iran. U.S. Person-1 would contact the MSB to request a transfer of Iranian rials to their Iranian bank accounts; the MSB would then instruct U.S. Person-1 to remit an equivalent amount in U.S. dollars to a specified individual in the United States with whom U.S. Person-1 had no preexisting relationship, after which the MSB arranged for the same amount in rials to be deposited into U.S. Person-1's Iranian accounts. U.S. Person-1 primarily used checks for these remittances, with memo lines that sometimes referenced Iran or inaccurately described the payment as a loan.

In mid-2020, U.S. Person-1's bank opened an investigation based on the number, frequency, and typology of the payments, including the consecutive transfer of funds to separate accounts owned by the same recipient. After the bank identified the Iranian nexus and exited U.S. Person-1 as a customer in late 2020, U.S. Person-1 opened new accounts at another U.S. financial institution and resumed the same activity, this time routing transfers through accounts held by two majority-owned companies, omitting explicit references to Iran from check memo lines, and reducing the average value of each transfer.

To repatriate hotel proceeds from Iran to the United States, the same MSB worked with a currency exchange located in Iran to complete a similar transaction in the opposite direction. The last leg of the repatriation transaction included in the 75 violations was executed via wire transfer with a blank payment reference field.

During the same period, and separate from the hotel project, U.S. Person-1 also transferred ownership of a parcel of Iranian real property to their U.S.-person children without authorization.

The conduct resulted in 75 violations of the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. §§ 560.203(a) (transactions that evade, avoid, or cause a violation of the ITSR), 560.206(a)(1) (prohibited transactions related to services of Iranian origin), 560.207 (prohibited new investment in Iran), 560.208 (prohibited approval or facilitation by a U.S. person of a transaction by a foreign person that would be prohibited if performed by a U.S. person), and 560.211(b) (prohibited transactions involving blocked property).

Following the issuance of a Pre-Penalty Notice, OFAC issued a Penalty Notice to U.S. Person-1 under the ITSR, 31 C.F.R. § 560.704. OFAC determined that U.S. Person-1 did not voluntarily self-disclose the violations and that the violations constitute an egregious case. Accordingly, under OFAC's Economic Sanctions Enforcement Guidelines, 31 CFR part 501, app. A., the base civil monetary penalty equals the statutory maximum of $27,610,200. The final penalty of $1,104,408 reflects OFAC's consideration of the General Factors under the Enforcement Guidelines.

OFAC's Iran sanctions include prohibitions against new investment in Iran; transactions related to Iranian-origin goods or services; dealings involving the Government of Iran or any Iranian financial institution; U.S. person facilitation of transactions by a foreign person that would be prohibited for a U.S. person; and actual or attempted sanctions evasion. OFAC has also issued general licenses that authorize certain transactions, including noncommercial, personal remittances to or from Iran and the sale of certain real and personal property in Iran and transfer of related funds to the United States. U.S. Person-1's conduct in this matter did not meet the conditions of any general license.

This case also highlights the vital importance to an effective financial institution compliance function of both sanctions screening and anti-money laundering and counter-terrorism financing (AML/CFT) programs. The initial stage of the violative funds transfers took place within the United States and between U.S.-person individuals, a common feature of IVTS. Given the challenge of detecting potential sanctions violations under such circumstances, AML/CFT programs can help identify suspicious transactional activity, including atypical funds transfers between customers and third parties with whom they otherwise maintain no ongoing financial relationship and transactions atypical of the stated business purpose for a corporate customer. These types of patterns may, when combined with other factors, serve as a red flag indicative of potential sanctions evasion.

OFAC encourages financial institutions that identify potentially violative activity by their customers to file voluntary self-disclosures with OFAC's Enforcement Division. In addition to reducing the amount of any potential civil monetary penalty against the financial institution, such disclosures can provide OFAC with critical investigative leads that may prevent further sanctions violations. All U.S. persons, including individuals, are required to comply with U.S. sanctions.

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