- Investment Fund Settles Enforcement Case With OFAC Relating to Iranian Sanctions
- May 24, 2012 | Authors: Rebecca S. Hartley; Carl A. Valenstein
- Law Firm: Bingham McCutchen LLP - Washington Office
Genesis Asset Managers, LLP (“GAM”) agreed with the U.S. Office of Foreign Assets Control (“OFAC”) on May 21, 2012, to remit $112,500 to settle potential civil liability for an alleged violation of the Iranian Transactions Regulations that occurred in August 2007. OFAC is the office of the U.S. Department of the Treasury which administers most U.S. sanctions programs, including the sanctions imposed on Iran. This enforcement action confirms OFAC’s intention to penalize investment fund managers and other financial services businesses that fail to have adequate programs in place to comply with U.S. sanctions programs, particularly the sanctions imposed on Iran. Although there have been several settlements with OFAC by banks of alleged violations of the OFAC sanctions imposed on Iran, this is the first case involving an investment fund and manager.
GAM, a U.S. limited liability partnership, is the investment manager of Genesis Emerging Markets Fund, a Guernsey-organized investment fund (“GEMF”). As such, GAM invests and re-invests cash, securities and other property for GEMF. In 2007, GAM’s U.K. subsidiary, acting as GAM’s agent under the authority of an Investment Advisory Agreement, purchased for GEMF $3 million of shares in the First Persian Equity Fund, a Cayman Islands company that invests exclusively in Iranian securities.
GAM did not have an OFAC compliance program in place at the time of the share purchase, and GAM’s officers were aware of the conduct that led to the apparent violation. In addition, OFAC stated GAM U.S. failed to exercise a minimal degree of caution or care in connection with this transaction, which in OFAC’s view conferred a substantial economic benefit on Iran. However, GAM cooperated fully and promptly with OFAC following its voluntary disclosure of the matter and took remedial measures that OFAC viewed as appropriate. Thus, the settlement amount was substantially below the potential base penalty that OFAC could have imposed in connection with an impermissible $3 million transaction with a fund that invests in Iranian securities.
This settlement underscores the importance for U.S. financial services businesses, including investment funds and managers, of having adequate policies and procedures in place to ensure compliance with U.S. sanctions programs, such as the sanctions imposed on Iran.