US Citizen Given $1M OFAC Penalty for Evading Sanctions Against Iran

The person, who OFAC didn’t name, knew they were breaching U.S. sanctions against Iran as part of a plan to buy and operate a 19-suite hotel along the Caspian Sea, the agency said. The person didn’t voluntarily disclose their nearly 75 alleged violations of the Iranian Transactions and Sanctions Regulations, which OFAC said were valued at about $561,802 and represented “egregious” violations.

OFAC said the person worked on a plan to purchase, renovate and operate the hotel between 2019 and 2022, including by selling property they had previously bought in Iran and reinvesting those earnings into the hotel. They also transferred the value of their U.S.-based funds to Iran though an “informal value transfer system,” or an IVTS, which allowed the person to access their money in Iran without any “actual cross-border movement of funds.”

They did this by using a Canadian money services business that offered an IVTS mechanism to customers. Under this system, the U.S. citizen first transferred their U.S. funds in dollars to a “specified individual in the United States with whom” they had “no preexisting relationship,” OFAC said. The Canadian business then arranged for that same amount, in Iranian rials, to be transferred to the U.S. citizen’s bank accounts in Iran.

OFAC said the U.S. person had personal and business accounts at Iran’s Bank Melli and Bank Keshavarzi, both of which are sanctioned and listed on the agency’s Specially Designated Nationals List. After the Iranian rials were deposited in the Iranian bank accounts, the U.S. person used those accounts to pay for the hotel’s renovation and operations, OFAC said.

To transfer the value of their U.S. funds to Iran, the U.S. person mostly used checks to send American dollars to the U.S. “individuals specified” by the Canadian money services business under the IVTS mechanism. The U.S. person sometimes referenced Iran in the money lines of those checks, and OFAC said their U.S. bank dropped them as a customer in 2020 after investigating the issue.

But OFAC said the person opened new accounts soon after at another U.S. bank and “resumed the same activity,” but they “attempted to better conceal the nature of the activity at the second bank,” including by sending the money transfers using two companies they owned. The person also left out “explicit references” to Iran from the check memo lines and lowered the average value of each transfer to avoid raising red flags.

The Canadian money services business worked with a currency exchange company in Iran to “complete a similar transaction in the opposite direction” and “repatriate hotel proceeds from Iran” back to the U.S., OFAC said. “Unlike the majority of the outgoing transactions, the last leg of the repatriation transaction included in the 75 violations at issue was executed via wire transfer and with a blank payment reference field.”

During the same time as they were transferring money for the hotel, OFAC also said the U.S. person committed another sanctions violation when they transferred ownership of Iranian property to their U.S. citizen children without authorization. The agency said this was “separate from the hotel project.”

OFAC could have fined the person more than $27.6 million but settled on a $1,104,408 penalty partly because they had “little expertise in sanctions-related issues” and had not received a penalty notice in the previous five years. The agency also said it lowered the penalty because of the “financial condition” of the U.S. person.

Several aggravating factors contributed to the fine, OFAC said, including the fact that the person acted “recklessly” and sometimes “willfully” by “engaging in unauthorized commercial activity” that they knew was restricted by sanctions. The person “at all times had actual knowledge of the violative conduct,” gave “liquidity” to two sanctioned, government-owned Iranian banks and didn’t “fully cooperate” with OFAC’s investigation, the agency said.

OFAC noted that it has issued general licenses allowing certain remittances involving Iran or the sale of certain Iranian property, but the “conduct in this matter did not meet the conditions of any general license.”

It also said the case highlights the importance of banks putting in place sanctions screening, anti-money laundering and counter-terrorism financing controls, adding that 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 IVTS.”

OFAC said compliance controls can help banks pinpoint suspicious transactions, including “atypical funds transfers” between customers and third parties. “These types of patterns may, when combined with other factors, serve as a red flag indicative of potential sanctions evasion,” it said.

The agency encouraged financial institutions that find possible “violative” or suspicious activity involving their customers to file voluntary self-disclosures with OFAC. Those disclosures could lower any possible penalty against the bank and may give OFAC “critical investigative leads that may prevent further sanctions violations.”