The U.S. Office of Foreign Assets Control (“OFAC”) issued a “Finding of Violation” to B Whale Corporation (“BWC”), a member of the TMT Group of Shipping Companies based in Taiwan. BWC violated 31 C.F.R sections 560.201 and 560.211 of the Iranian Transactions and Sanctions Regulations (“ITSR”) (the “Regulation”), when its vessel received 2,086,486 barrels of condensate crude oil in a ship-to-ship transfer. The other company involved in the deal, the National Iranian Tanker Company, is listed on the Specially Designated Nationals and Blocked Persons List (the “SDN List”).

Iranian Transactions and Sanctions Regulations (ITSR) – part 560

The transaction took place while BWC was involved in bankruptcy proceedings in the U.S. Despite BWC being a registered Taiwanese entity, as a result of the on-going bankruptcy proceedings in the U.S., OFAC determined that BWC was a U.S. person and the company was held to be present “in the United States” at the time of the transaction and therefore subject to U.S. jurisdiction.

Furthermore, the ITSR defines the United States as “the United States, its territories and possessions, and all areas under the jurisdiction or authority thereof”. The vessel M/V B Whale was subject to U.S. sanctions regulations because it was property under the jurisdiction of a U.S. bankruptcy court, and therefore the oil transferred to the vessel was an importation from Iran to the United States as defined in the ITSR. Consequently, OFAC found that BWC violated § 560.201 of the ITSR regulation, as the transaction constituted an import from Iran to the U.S.

Violation Determinations

OFAC, in agreement with their Economic Sanctions and Enforcement Guidelines, considered the following when determining whether BWC had violated U.S. Sanctions:

  • BWC had a “reckless disregard” for U.S. Sanctions while the entity and its vessel were subject to U.S. jurisdiction;
  • They concealed the transaction by turning off the automatic identification system on the vessel and not completing ship logs during the time of the transfer;
  • There should have been knowledge that Iranian-origin oil and an Iranian vessel on the SDN List were involved in the deal; and
  • Concealing the origin of the oil allowed a transfer of goods from a vessel on the SDN List to be imported to the U.S., which ultimately created a substantial benefit to Iran.

However, the above considerations were adjusted as BWC had not been penalised by OFAC in the five years preceding this violation and the bankruptcy proceedings had liquidated all of BWC’s assets.

Things to Consider

This Finding of Violation highlights an intensified focus by OFAC on the extra-territorial application of U.S. sanctions regulations. In addition, it demonstrates a continued theme around the types of behaviour and inadequacies in compliance programmes that lead to violations, including:

  • The failure to identify and/or disclose the origin of goods subject to a transactions;
  • Incomplete or inaccurate recordkeeping and documentation supporting the transaction; and
  • The failure to appropriately screen parties, including vessels, involved in the transaction.

If you would like to find out more about U.S. Sanctions and their implications, including how to design, implement and manage a robust sanctions compliance framework, please do not hesitate to get in touch with our Global Export Controls and Sanctions team.

Stacey Toder Feldman is a Director in Deloitte's Global Export Controls and Sanctions team.
Jennifer McMillan is a Consultant in Deloitte's Global Export Controls and Sanctions team.