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Sanctions enforcement warning for general counsel

Sanctions enforcement warning for general counsel

GENERAL COUNSEL involved in cross-border deals must take account of increasingly aggressive enforcement of economic sanctions against countries and organisations, says a visiting US…

GENERAL COUNSEL involved in cross-border deals must take account of increasingly aggressive enforcement of economic sanctions against countries and organisations, says a visiting US expert.

Former assistant general counsel at Citigroup Serena Moe, now a consultant with Deloitte in Washington, said last week the US$80 million fine ABN AMRO had to pay in 2005 for contravening US embargoes against dealing with Iran was the first wake-up call.

“What I think has shocked everybody has been the announcement in March this year that ABN AMRO has placed 365 million ($580 million) in reserve for settlement of a [US] Department of Justice criminal action based on the same facts,” said Moe.

She said any banking operation that holds US offices and runs transactions in US currency should ensure it is complying with the tough US regulations.

In addition, UN Security Council resolutions in December last year and March this year require all member states to implement targeted sanctions against Iran, including the Iranian Bank Sepah and its UK subsidiary Bank Sepah International.

“When you designate a bank and say all member nations of the UN are now obligated to put laws in place so that their citizens and their financial institutions do not engage in any transactions with an entity, that’s a fairly powerful sanction,” she said.

She said the problem highlighted by the ABN AMRO contravention was that its Dubai office was structuring payments in such a way that those that went through the US did not correctly identify that Iranian and Libyan banks had participated in the transaction.

“So the US branch processed the transaction, which appeared to exclusively involve ABN’s branch in Dubai, there was no indication of an Iranian or Libyan involvement, so what you see in the Fed order was a statement that the US branches were unable to engage in effective compliance — they effectively got blinded by their own affiliates as these payments came through.”

According to Tim Phillips, the national forensic team leader at Deloitte’s Australian office, this highlights the need for careful due diligence of all aspects of cross-border deals.

“There are significant implications for general counsel, particularly at international organisations who are putting together international deals,” he said. “[For example], mining companies shipping iron ore out of China to Cuba, or large dairy companies moving milk powder from Australia to Iran — these are innocent in their own nature … but a real minefield of regulation of what you can and can’t do.”

A deal may contravene sanctions even if it doesn’t involve any transactions with a prohibited country. For example, Moe noted that if the goods are in the end shipped on an Iranian freighter, it would still be a contravention of sanctions regimes now in place.

Earlier this year, the Australian reported that payments of US$950,000 to an Iranian transport company by an AWB subsidiary in the US had been blocked by the Bank of New York last year, and returned to AWB.

AWB said the payment was legitimate and they would continue to seek to trade with countries affected by US sanctions using non-US currency.

Phillips said most big Australian banks with offshore dealings were already moving to ensure they were complying with US requirements.

“It is having an impact on the big Australian banks, they’re all paying it very serious attention right now,” he said.

“If they want to keep their banking licences in the US, and they want to be able to clear funds in the US they are going to have to keep them happy.”

He said the US action, however, made it obvious that while Australia was quick to follow the UN and US economic sanctions against suspected terrorist organisations and countries, there was little enforcement action. He said this was perhaps due to there being no regulator specifically charged with following up compliance with sanctions.

As a result, he said Deloitte is convening a private meeting on 28 June that will include the federal Attorney-General, the Ambassador for Counter-Terrorism and members of the financial and mining sector to assess whether anything further needs to be done by Australian authorities.

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