UPS turned itself in. It intercepted a shipment to the Iranian Embassy in Helsinki from a customer in Sweden but then inadvertently released it for delivery in June — a probable violation of U.S. sanctions on Iran. The contents of the illicit package: a harmless box of ink cartridges for a printer.
A contrite UPS told U.S. regulators it made no profit on the delivery and has beefed up procedures to prevent a repeat error.
When it comes to U.S. sanctions on Iran, no detail is too small to overlook these days. Since February, publicly traded companies have filed nearly 500 disclosure forms about their business ties to Iran. The disclosures included hotel bills, Costco memberships and a few dollars collected for ATM transaction fees.
The recent six-month deal with Iran over its nuclear program holds out the promise of a modest relaxation of international sanctions, but there is no letup in the new requirement that companies whose stock trades on U.S. exchanges keep track of even the tiniest interactions with the Islamic republic. And as Congress threatens to undercut the nuclear deal with even tougher sanctions, companies are scrambling to document virtually every Iranian encounter.
Corporations can quickly rack up millions of dollars in fines if they violate trade sanctions, and the dollar amount can climb higher if the activity is not properly disclosed. Perhaps more alarming to firms are the reputational and legal risks they face if they fail to report the business ties, including potential lawsuits from disgruntled investors.
“It’s statutes like these that strike fear in the hearts of companies,” said Jacob S. Frenkel, a former Securities and Exchange Commission enforcement lawyer who is now at Shulman Rogers. “The concern is about the consequence of not disclosing or disclosing too little.”
So most companies aren’t taking any chances.
Costco, the huge members-only retailer, reported that its subsidiary in Japan had four cardholders on two business memberships in the name of the Embassy of the Islamic Republic of Iran earlier this year. Another subsidiary in Britain granted one membership, shared by two people, in the name of Iran Air.
Costco canceled the memberships after netting less than $170 in profits.
Citibank disclosed that its branch in Bahrain made $4 in profit in the second quarter by processing ATM transactions involving Future Bank, a joint venture whose owners include two Iranian-linked banks barred from doing business with U.S. companies.
All of the companies declined to comment.
Not all of the disclosures are trivial. On Nov. 27, for example, Siemens reported that a French affiliate had fixed a smoke alarm on an Iranian passenger plane — butalso disclosed that it sold 23 diesel electric locomotives worth $56 million to an Iranian firm that resold them to the state-owned railway.
On Nov. 8, banking giant UBS said it had arranged trade financing for Swiss exporters involving four Iranian banks allegedly taking part in deals related to weapons of mass destruction. The bank said in its public filing that there had been no transactions since February 2012 but that it still maintained “one existing account relationship” with one of the Iranian banks.
And though Citibank’s ATM fees were minimal, the bank involved was partly owned by Bank Saderat, which has been on the Treasury Department’s sanctions list since 2006 for being a “conduit” between Iran and Hezbollah, the militant Shiite Muslim movement based in Lebanon.
For years, the administration has kept a watchful eye on U.S. companies’ dealings with Iran, investigating potential violations and granting special waivers for goods such as medicine or “information materials.”
Companies that fessed up if they discovered they had run afoul of trade sanctions could obtain more lenient treatment. But the definition of improper transactions was open to interpretation, and minor infractions were no doubt overlooked, international-law experts said.
Last year, in imposing a new and tougher round of economic sanctions, Congress stripped companies of the discretion they had in reporting transactions. It forced firms that trade on U.S. exchanges to report business dealings with Iran to the SEC starting in February — even some that didn’t violate sanctions.
The goal was to cripple Iran’s economy and force it to abandon its nuclear program by pressuring or even shaming companies into cutting their business activities in that country, or at least vigilantly enforcing the sanctions.
But the move has resulted in what some describe as disclosures of the ridiculous. Telecom Argentina disclosed that it had received about $11 in roaming fees and $369 in total charges paid under its Iranian-related agreements, according to a note to clients by the law firm Shearman & Sterling.
Some companies make no apologies even as they disclose dealings.
The Hyatt hotel chain said that this year, an individual whom the Treasury Department identified as working for one of the National Iranian Oil Co.’s front companies stayed for five nights at the Grand Hyatt in Malaysia’s capital of Kuala Lumpur, a franchise not owned by the chain. The hotel netted about $400. But Hyatt said there was nothing wrong with that because no American people or products were involved.
Philip Urofsky, a partner at Shearman & Sterling, said the government never set a minimum dollar threshold, so companies must report everything, no matter how minor.
“It sounds silly, but since the government won’t set a de minimis exception, the companies simply have to make the disclosure,” Urofsky said. “They have an affirmative obligation now to do it, and if they don’t, they’re in violation of securities law.”
All the disclosures made to the SEC are reviewed by Treasury’s Office of Foreign Assets Control. So far, the department has not publicly announced any enforcement actions tied to these disclosures, and neither has the SEC. The regulators have a fair amount of discretion on what to enforce.
Clif Burns, an economic sanctions lawyer at the firm Bryan Cave, said there was a strong backlash to the reporting requirements in the corporate community, with multinationals particularly irked about the lack of thresholds and the logistics of reporting to two government regulators.
“It certainly is a source of concern to folks that they now have to disclose these legal, distant transactions of tiny amounts that have some connection to Iran,” Burns said. “Just because the government is trying to sanction Iran, it shouldn’t be penalizing U.S. businesses in the process.”