On Friday, February 3, 2017, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) issued a Finding of Violation (FOV) against B Whale Corporation, a Member of the TMT Group of Shipping Companies, (BWC) for alleged violations of the Iranian Transactions and Sanctions Regulations (ITSR). The surprise in the announcement was the unique basis on which OFAC asserted jurisdiction over BWC, a non-U.S. entity conducting business outside the United States.
In the FOV, OFAC alleged that between August 30 and September 2, 2013, BWC’s vessel, the M/V B Whale, received more than 2 million barrels of crude oil from a vessel owned by the National Iranian Tanker Company (NITC) that was designated on OFAC’s List of Specially Designated Nationals (SDNs). OFAC found that BWC had (a) demonstrated reckless disregard for U.S. sanctions, (b) knew or should have known that the transaction involved a vessel on the SDN list, and (c) took steps to conceal the transaction, including by leaving ship logs blank and turning off vessel transponders.
The sole apparent basis for OFAC’s jurisdiction over the transaction was BWC’s involvement in U.S. bankruptcy proceedings. BWC is a Liberian incorporated entity based in Taiwan with no identified business operations in the United States. However, it and 22 affiliates (collectively the TMT Group)—at least one of which, TMT USA Shipmanagement LLC, was a U.S.-incorporated entity— had filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of Texas on June 20, 2013. OFAC found that BWC was therefore a “U.S. person” because it was “present in the United States for the bankruptcy proceedings when the transaction occurred.” Further, because BWC’s vessel was under the jurisdiction of the Bankruptcy Court, OFAC found that the transfer of oil to that vessel represented an “importation from Iran to the United States.”
Companies considering use of U.S. bankruptcy courts should therefore pay attention. OFAC has now indicated that it will assert jurisdiction over non-U.S. entities and activity that is conducted outside the United States, if that activity is conducted by an entity that has placed itself within the jurisdiction of a U.S. bankruptcy court. Therefore, if a company is considering use of U.S. bankruptcy courts, it must now ensure that it, as well as any of its affiliates falling under the court’s jurisdiction, understand, and comply with, OFAC sanctions during the pendency of the bankruptcy proceedings.
For more information, contact: Monique Almy, Cari Stinebower, Dj Wolff