Mr. Watchlist has struggled mightily with 2 recent OFAC enforcement actions: ZTE and B Whale Corporation. The question was how did OFAC have the jurisdiction over these two firms – one a Chinese company and the other a Taiwanese one. It has taken a number of months to understand, but now it’s much clearer.
In the case of ZTE, section 560.205 of the Iranian Transaction and Sanctions Regulations (ITSR) generally prohibits the re-exportation of US-origin goods to Iran by non-US persons, although there are licensing options and exceptions for de minimus content, among other qualifiers. The fact that ZTE re-exported the US-origin parts as part of their finished goods is clear, and that gives OFAC jurisdiction over ZTE. However, whether or not any civil monetary penalty imposed by OFAC (BTW, ZTE settled) can actually be collected is another story.
Similarly, ZTE was guilty of 560.203, which prohibits evasion and conspiracies to violate the ITSR. There is no mention of US persons or non-US persons in this section, so it applies to both, as long as jurisdiction over the violating behavior is established. And since OFAC had jurisdiction over the export of the US goods, that made the evasive actions committed by ZTE covered by this section, too.
In general, as long as the regulation can show a nexus to the United States, that gives the US government jurisdiction. It’s why the penalties that can be imposed under the secondary sanctions regulations like CISADA and the NDAA of 2012 are actually required actions by US companies and agencies, not requirements for the violating firm.
Which brings us to B Whale. Another interesting case – B Whale Corporation was in bankruptcy court in Houston, TX at the time when the cargo vessel B Whale was taking on petroleum products from an NITC (National Iranian Tanker Company) vessel on the SDN List. The enforcement action noted that OFAC determined that the company was a US person because of its presence in bankruptcy court at the time of the oil transaction, and that the cargo vessel was subject to US sanctions regulations because it was property under the jurisdiction of the bankruptcy proceeding.
That seems to make sense. Sanctions define US persons to include, among other things, company operations located in the US, as well as US persons located in the US (whether permanently or transiently). Therefore, the company’s business at the time of the violation gave the US jurisdiction. Had the bankruptcy proceedings happened months later, OFAC would have had no jurisdiction. Similarly, if the bankruptcy court had jurisdiction over the cargo vessel, regardless of its physical location, so should other parts of the US government.
Mr. Watchlist feels much better now (even if he still has some details wrong). Boy, those are some broad powers…