April 24, 2017

April 24, 2017

Subscribe to Latest Legal News and Analysis

April 21, 2017

Subscribe to Latest Legal News and Analysis

Recent U.S. Government Actions Highlight the Inherent Risk to U.S. and Foreign Companies Doing Business in Lebanon

Last week, the Acting U.S. Attorney for the Southern District of New York announced the settlement of a civil fraud suit against American University of Beirut (AUB) and payment of a $700,000 penalty for alleged False Claims Act (FCA) violations arising from OFAC sanctions violations.  The alleged violations arose from false certifications of economic sanctions compliance made by AUB to the U.S. Agency for International Development (USAID) in connection with U.S. Government grants.  According to the settlement, AUB provided USAID annual certifications that it did not provide “material support or resources” to designated entities or individuals on the Specially Designated Nationals (SDN) List of the Treasury Department’s Office of Foreign Assets Control (OFAC).

As part of the settlement, AUB admitted to a series of sanctions violations involving three separate Hizballah designated entities.  AUB acknowledged that it provided journalism training workshops attended by representatives of two designated Hizballah media entities, and separately promoted a designated Hizballah construction company through its inclusion on a publicly accessible online database.  AUB agreed to pay $700,000 and strengthen its compliance program to resolve the civil action.

OFAC Designations of Lebanese Companies

The AUB settlement follows recent Lebanon-based terrorism designations and sanctions enforcement actions by OFAC.  For instance, last month, OFAC designated Lebanese pharmaceutical, construction, and environmental services companies tied to the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF) and Hizballah.  These designations reflect the continued targeting of prominent Lebanese companies connected to Iran and Hizballah.  The agency previously listed a large Lebanese telecommunications company, and one of the largest and most successful real estate businesses in Lebanon.  The U.S. government will very likely continue to sanction additional sectors of the Lebanese economy through designations of Lebanese businesses connected to Iran and Hizballah.

Extraterritorial Reach of U.S. Law

In late 2016, OFAC announced the settlement of apparent sanctions violations by an Oregon-based company involving shipments to Lebanon subsequently reexported to Iran.  This enforcement action represents the standard jurisdictional application and enforcement of U.S. economic sanctions.  The OFAC and SDNY actions join a litany of  U.S. government responses to prohibited dealings by U.S. persons with Iran or Iranian-related entities operating in or through Lebanon.  These actions should remind U.S. businesses of risks associated with reexportation to Iran and dealings with designated Lebanese individuals and entities.

The compliance risks from Lebanese trade extend far beyond these typical concerns.  Non-U.S. companies doing business in or through Lebanon face potential significant civil and criminal fines, even if those dealings have no connection to the United States.  This extraterritorial reach is possible because of the current Foreign Terrorist Organization (FTO) designation of Hizballah, and the likely future FTO designation of the IRGC.

U.S. law prohibits the knowing provision of “material support or resources” to an FTO.  Material support is broadly defined to include “any property, tangible or intangible, or service.”

The United States may assert jurisdiction over material support to Hizballah that has no connection to the United States if the “offender is [later] brought into or found in the United States.”  Non-U.S. companies should consider the implications of this broad extraterritorial expansion of U.S. law.  Conviction for a violation of providing material support to Hizballah may bring a prison sentence of not more than 20 years, or life if the violation results in death, and/or a monetary penalty per offense of a maximum $250,000 for individuals and $500,000 for entities.

European companies should be especially mindful of the distinction between the EU and U.S. sanctions on Hizballah.  The United States, unlike the EU, does not distinguish the armed wing of Hizballah from the group’s “legitimate” charities, hospitals and schools.

Copyright Holland & Hart LLP 1995-2017.

TRENDING LEGAL ANALYSIS


About this Author

Steven Pelak, holland hart, investigative counsel, corporate compliance attorney
Partner

Steven W. Pelak focuses his practice on civil and criminal enforcement proceedings and internal investigations. With more than 25 years of experience, he provides clients with sound counsel and advocacy on administrative and criminal inquiries, investigations, and prosecutions, as well as internal corporate compliance matters.

Mr. Pelak has significant experience as a federal prosecutor and in private practice handling and supervising the investigation and prosecution of export control, embargo, fraud, bribery, public corruption, immigration,...

202-654-6929
Jeremy Paner, Economic, Trade Sanctions Attorney, HOlland Hart Law Firm
Of Counsel

Mr. Paner is Of Counsel at Holland & Hart's Washington, DC office. His practice focuses on economic and trade sanctions compliance issues, in addition to general white collar criminal and regulatory investigations. Mr. Paner leverages his sophisticated governmental experience to deliver valuable risk analysis and compliance and avoidance advice to private clients.

Prior to joining Holland & Hart, Mr. Paner was the New York State Department of Financial Services appointed independent economic sanctions monitor of a major international financial institution. He was responsible for providing remedial enhancements to the economic sanctions compliance program throughout the bank's worldwide operations. Mr. Paner enhanced the bank's Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures and he improved its sanctions filter screening and escalation procedures to better manage evolving risk. Mr. Paner also enriched the bank's economic sanctions training and OFAC risk assessment programs. Throughout his tenure, Mr. Paner specifically focused on enhancing the compliance program of the international trade business unit to effectively reduce the bank's overall sanctions compliance risk.

202-654-6912