OFAC has issued a Penalty Notice imposing a USD1,104,408 penalty on a natural U.S. person (“U.S. Person-1”) for 75 breaches of OFAC sanctions on Iran valued at approximately USD561,802. Between 2019 and 2022, U.S. Person-1 executed a plan to purchase, renovate, and operate a hotel in Iran. In furtherance of this scheme, U.S. Person-1 used foreign money services businesses in Iran
and Canada to evade U.S. sanctions. U.S. Person-1 was aware at all times of U.S. sanctions on Iran. The penalty amount reflects OFAC’s determination that the breaches were egregious and were not voluntarily self-disclosed.

Description of the breaches

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 different methods. First, U.S. Person-1 sold real property they had previously acquired in Iran and reinvested the proceeds in the hotel. Second, U.S. Person-1 transferred separate 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 Keshavarsi Iran, both of which are blocked entities on OFAC’s List of Specially Designated Nationals and Blocked Persons. U.S. Person-1 utilised their accounts at these two blocked Iranian financial institutions to pay for the hotel’s renovation and operations.

To effect payments to contractors and others, including any fees associated with Iranian government permits or licences, U.S. Person-1 utilised a Canadian money services business to circumvent the prohibition on most commercial financial transfers between the United States and Iran. To execute these transfers, U.S. Person-1 would first contact the money services business to request the transfer of Iranian rials to one or more of U.S. Person-1’s Iranian bank accounts. The money services business employed a mechanism known as an informal value transfer system (often known as "hawala"), through which the value of each
funds transfer from U.S. Person-1 would reach Iran without any actual cross-border movement of funds.1 After agreeing on an exchange rate, the money services business would instruct U.S. Person-1 to remit an 1 The Financial Crimes Enforcement Network (FinCEN) has explained that informal value transfer system includes “any system, mechanism, or network of people that receives money for the purpose of making the funds or an equivalent value payable to a third party in another geographic location, whether or not in the same form.” While such systems may be used for legitimate purposes, they may also be used to facilitate sanctions evasion and other unlawful activity. As a type of money services business, informal value transfer system businesses may legally operate in the United States so long as they abide by applicable state and federal laws, including registering with FinCEN and complying with applicable anti-money laundering and counter-terrorist financing provisions of the Bank Secrecy Act. For additional information about informal value transfer system, see FinCEN, “Informal Value Transfer Systems (FIN-2010-A011)” (September 1, 2010) and “Informal Value Transfer Systems (Issue 33)” (March 2003). Per OFAC FAQ 242, where a U.S. person wishes to process Iran-related funds transfers ordinarily incident and necessary to 2 equivalent amount of funds in U.S. dollars to a specified individual in the United States with whom U.S. Person-1 had no preexisting relationship. Upon completion of the transfer, the money services business arranged for the same amount in rials to be transferred to U.S. Person-1’s Iranian accounts, after which U.S. Person-1 would use the funds to make payments in Iran.

U.S. Person-1 primarily used checks to remit U.S. dollars to the U.S.-based individuals specified by the money services business. The memo lines sometimes referenced Iran or inaccurately purported to be in connection with a loan. In mid-2020, U.S. Person-1’s bank opened an investigation into the payments based on their number, frequency, and typology, including the consecutive transfer of funds to separate accounts owned by the same recipient. Following the conclusion of the bank’s investigation in late 2020, which identified the Iranian nexus in the funds transfers, U.S. Person-1’s bank terminated U.S. Person-1 as a customer. Shortly thereafter, U.S. Person-1 opened new accounts at another U.S. financial institution and resumed the same activity.

U.S. Person-1 appears to have attempted to better conceal the nature of the activity at the second bank, including by primarily executing the violative funds transfers through accounts held by two companies majority-owned by U.S. Person- 1: an existing construction company and a newly created company for which the bank apparently had no written record of intended business activities. U.S. Person-1 also omitted explicit references to Iran from check memo lines and reduced the average value of each funds transfer.

To repatriate hotel proceeds from Iran to the United States, the same money services business worked with a currency exchange located in Iran to complete a similar transaction in the opposite direction. Unlike the majority of the outgoing transactions, the last leg of the repatriation transaction included in the 75 breaches at issue was executed via wire transfer and 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 authorisation.

The conduct described above resulted in 75 breaches of the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. §§ 560.203(a) (transactions that evade, avoid, or cause a breach 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).

Penalty Calculations and General Factors Analysis

Following the issuance of a Pre-Penalty Notice to U.S. Person-1, OFAC issued a Penalty Notice to U.S. Person-1 in accordance with the ITSR, 31 C.F.R. § 560.704, finding the breaches and assessing a civil monetary penalty. The statutory maximum civil monetary penalty applicable in this matter is USD27,610,200. OFAC determined that U.S. Person-1 did not voluntarily self-disclose the breaches and that the breaches constitute an egregious case. Accordingly, under OFAC’s Economic Sanctions Enforcement Guidelines (“Enforcement Guidelines”), 31 CFR part 501, app. giving effect to an underlying transaction that has been authorised by a specific or general licence in the Iranian Transactions and Sanctions Regulations, the usage of an informal value transfer system or money services business directly by such a U.S. person is prohibited unless the informal value transfer system or money services business is: (a) in a third country and (b) engaged to provide services by a U.S. depository institution or U.S. broker-dealer in securities. See 31 C.F.R. §§ 560.319 & 560.321.
3
A., the base civil monetary penalty applicable in this matter equals the statutory maximum of USD27,610,200.
The final penalty amount of USD1,104,408 reflects OFAC’s consideration of the General Factors under the Enforcement Guidelines.
OFAC determined the following to be aggravating factors:

(1) U.S. Person-1 acted recklessly, and with respect to certain transactions, willfully by engaging in unauthorised commercial activity and by continuing to engage in funds transfers to and from Iran when they knew such transfers were prohibited by U.S. sanctions.

(2) U.S. Person-1 at all times had actual knowledge of the violative conduct in which they were engaged.

(3) U.S. Person-1’s scheme invested at least a half-million dollars in Iran and effectively provided liquidity to two blocked, government-owned Iranian financial institutions.

(4) U.S. Person-1 was not fully cooperative with OFAC’s investigation.

OFAC determined the following to be mitigating factors:
(1) U.S. Person-1 has little expertise in sanctions-related issues and has not been the subject of an OFAC enforcement action in the five years preceding the earliest transaction giving rise to the breaches.

(2) Based on the financial condition of U.S. Person-1, OFAC determined significant mitigation from the base penalty to be warranted.

Compliance Considerations
This action underscores the risks associated with violating U.S. sanctions, including comprehensive sanctions programs like the long-standing U.S. embargo on Iran. OFAC’s Iran sanctions include prohibitions against conduct including 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.

At the same time, OFAC has issued general licences2 that authorise transactions including noncommercial, personal remittances to or from Iran and the sale of certain real and personal 2 General licences authorise a particular type of transaction for a class of persons without the need to apply for a specific licence. Some general licences are codified in the Code of Federal Regulations, while others may be published in the form of a web general licence on a program-specific OFAC sanctions page (see https://ofac.treasury.gov/sanctions-programs-and-country-information). Persons engaging in transactions pursuant to a general licence must ensure that all conditions of the licence are strictly observed, including any reporting requirements.
4
property in Iran and transfer of related funds to the United States. These general licences allow U.S. persons, including those with family in Iran, to carry out these types of transactions without needing to seek specific permission from OFAC. U.S. Person-1’s conduct in this matter did not meet the conditions of any general licence.

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 in this case took place within the United States and between U.S.-person individuals—a common feature of informal value transfer system. Given the challenge of detecting potential sanctions breaches under such circumstances, AML/CFT programs can help to 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 warning 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.3 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 breaches.

All U.S. persons, including individuals, are required to comply with U.S. sanctions. OFAC’s website includes numerous sanctions program-specific FAQs; contact information for OFAC’s compliance hotline; and other sanctions program-specific resources designed to assist the public with sanctions compliance. Persons who wish to engage in a transaction that would ordinarily be
prohibited by OFAC sanctions may apply for a specific licence from OFAC.

Full notice: https://ofac.treasury.gov/media/933651/download?inline