Due Diligence Firm Fined $259,200 by OFAC for Iran Sanctions Violations

IPSA International Services, Inc., a US-based risk management firm, has been fined $259,200 by OFAC for violating US sanctions on Iran.  The violations, worth $290,784, are said to have occurred when IPSA assisted two countries with their citizenship by investment programmes.  Some of the applicants to the programmes were Iranian nationals and, because most of the information about them could not be checked or verified from outside of Iran, IPSA and its subsidiaries engaged subcontractors, who in turn hired third parties, to validate their information.  As a result, OFAC found that IPSA had directly imported Iranian-origin services into the United States, or done so indirectly by reviewing, approving, and initiating payments to the providers of the Iranian origin services by its foreign subsidiaries.

The base penalty amount was $720,000 and the maximum penalty available was $18,000,000.  In aggravation, OFAC found that IPSA had not voluntarily disclosed the violations, that at least one of its senior management knew or had reason to know of the violations, and that the underlying conduct was not eligible for OFAC authorisation under an existing licence. In mitigation, OFAC said that IPSA had substantially cooperated with its investigation and taken significant remedial measures to prevent further violations from occurring in the future. (source: europeansanctions.com)

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In response, Michael Beber, President & CEO,Exiger LLC, posted the following note to several of their clients which provided further context regarding the recent OFAC settlement and their relative view and role:

‘By way of background, Exiger was formed in July 2013 to monitor, on behalf of the U.S. and UK governments, the worldwide sanctions and anti-money laundering (AML) compliance programs of HSBC.  Since its founding, Exiger has gone on to be retained by and work with dozens of financial services companies, including many other global banks in the U.S., Europe, and Asia, to conduct KYC due diligence and improve sanctions and AML compliance programs.  Exiger is also working closely with regional banks in smaller countries to improve their overall compliance so that they can continue their correspondent banking relationships and avoid de-risking.

Exiger is, in a real sense, an integrity company, trusted by governments and banks around the world to improve due diligence and compliance processes. We now bring that expertise to the CBI market.

As you know, OFAC recently announced a settlement with the U.S. company that sold IPSA Canada to Exiger—IPSA International Services, Inc. (IPSA Parent)—regarding transactions dating back to 2012 that involved obtaining due diligence information within Iran.  The principal finding OFAC made was that performing due diligence services within Iran—by a U.S. company, as had been historically done by due diligence companies working for CBI programs—constituted an apparent technical violation of U.S. regulations.  And importantly, the technical violation of the OFAC regulations was IPSA Parent’s alone because it is a U.S. company; neither IPSA Canada (bought by Exiger in 2017, years after the facts at issue) nor any of its clients, were or are in any way exposed to liability.  Nothing about the OFAC settlement or the underlying facts implicated in any way the quality of the due diligence services that IPSA had conducted.  As part of its fresh look at the CBI industry, from both quality and compliance perspectives, Exiger has made the decision that we will not perform any work in Iran and, of course, will continue to conduct all other due diligence work around the world in strict conformity with appropriate sanction regulations.

Exiger was attracted to the CBI industry because of the opportunity to combine our well-earned reputation for compliance expertise and integrity with the best and most experienced professionals in the industry; the best processes and the best, purpose-built, due diligence technology, all of which allows Exiger to provide client solutions far superior to competing due diligence firms.

With Exiger in this market, CBI programs can have greater confidence than ever before that its due diligence company, Exiger, understands the unique issues of this industry reputationally and will only lead the industry in a direction of quality, compliance and integrity. This provides an excellent opportunity for our clients to assure themselves and their countrymen that CBI due diligence will not only be performed at a best-in-class level, but will operate in an environment that will stand up to the scrutiny of observers around the world.

We entered this business to help our clients to make the CBI due diligence industry far better and more compliant. We look forward to continuing to work with the industry to make that a reality.’