Iran, So Far Away

• Published date: 08 September 2023
• Subject Matter: International Law, Real Estate and Construction, Compliance, Export Controls & Trade & Investment Sanctions, Construction & Planning
• Law Firm: Torres Trade Law, PLLC
• Author: Torres Law, PLLC

How a shopping mall project in Tehran ended up costing a US construction company $660,594

Sanctions on Iran have been around, and on more than off, for many years. Thanks to geopolitical tensions in the Middle East and the memory of the 1979 hostage crisis, most Americans recognize that doing business with Iran is fraught with compliance and reputational risk. However, this is not always the case with overseas subsidiaries. Take, for instance, the recent settlement agreement between the Treasury Department Office of Foreign Assets Control (OFAC) and New Jersey-based construction firm Construction Specialties, Inc. (CS).

CS agreed to a $660,594 fine to settle three apparent violations of the Iranian Transactions Sanctions Regulations (ITSR), which arose from the activities of their United Arab Emirates subsidiary, Construction Specialties, Middle East LLC (CSME). According to the OFAC press release: "Between December 4, 2016, and August 3, 2017, CSME senior leadership oversaw the purchase and reexportation of commercial building products, valued at approximately $1,100,991, from suppliers in the United States with the knowledge that these goods were ultimately destined for a customer in Iran. OFAC determined that these apparent violations were egregious and were voluntarily self-disclosed."

The settlement states that during a CS management visit to Dubai in June 2016, CSME's non-US person General Manager proposed supporting the construction of a shopping mall in Tehran. CS consulted with counsel and took advantage of General License H, which allowed US companies' non-US subsidiaries to do business with Iran but did not authorize exports or reexports of US goods (General License H didn't last long; OFAC revoked it on June 27, 2018). CS took the opportunity to revamp its compliance procedures and changed its corporate structure to meet OFAC requirements. In a message to CSME's General Director quoted in the Settlement Agreement, the Secretary of the CS Board of Directors stated: "In a nutshell, CS [USA] may not engage in business with Iran, but CSME is allowed to do so. US citizens and US lawful permanent residents are not allowed to facilitate or support Iranian business in any way." The internal correspondence went on to say, "[Non-U.S. person] has been appointed by [CS Chief Executive Officer] as a non-U.S. citizen proxy to provide support to CSME on the project as needed ... I want you all to be aware of this so that neither you nor your teams...