OFAC Puts Companies On Notice: Due Diligence In Iran Can Trigger Sanctions Violations

Key Points

This enforcement action highlights the heightened sanctions compliance and enforcement risk that companies face when engaging third-party consultants to perform due diligence on counterparties. U.S. persons must make clear to consultants providing services that due diligence must exclude work performed in Iran or by Iranian nationals ordinarily resident in Iran. Although the activities in question occurred prior to OFAC's issuance of GL-H, OFAC made clear that such activities would not have been authorized under GL-H, raising questions regarding whether companies relying on GL-H must ensure that the benefit of a transaction is not received by their U.S. parent company. OFAC further uses this enforcement action to clarify limitations on the scope of permissible sanctions compliance guidance by legal and compliance professionals in accordance with OFAC's Guidance on the Provision of Certain Services Relating to the Requirements of U.S. Sanctions Laws, suggesting that providers of due diligence services should qualify any recommendations to conduct diligence on Iranian counterparties to ensure that such diligence does not involve U.S. prohibited importation of Iranian-origin services. On August 10, 2017, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) announced that IPSA International Services, Inc. (IPSA) agreed to pay a $259,200 civil settlement in connection with 72 apparent violations of the Iranian Transactions and Sanctions Regulations (ITSR). IPSA is a U.S. company that provides global investigative due diligence services for countries that run "citizenship by investment" programs. OFAC alleges that IPSA violated the ITSR when it benefited from imports of Iranian-origin services (Contract 1) and by facilitating payments made by its foreign subsidiaries related to Iranian-origin services (Contract 2).

Overview of Enforcement Action

According to the OFAC enforcement action, IPSA was involved in two contracts managed and performed by IPSA's foreign subsidiaries to conduct due diligence on Iranian nationals in Iran.

Both of the contracts at issue featured "Iranian-origin services" because IPSA's foreign subsidiaries hired third parties to "validate" information that "could only be obtained or verified within Iran." 1 This, in turn, meant that both contracts involved "Iranian-origin services" as defined under the ITSR, which is defined to include all services performed within Iran, or outside Iran by...

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