District Court Finds US Bank Processing of Dollar-Denominated Transactions Satisfies any Requirement for a US Nexus in Prosecution for Violation of the IEEPA and the ISTR

The World in U.S. Courts: Winter 2016 - International Trade/US Trade Sanctions/ Iranian Transactions and Sanctions Regulations | October.17.2016

US V. Zarrab, US District Court for the Southern District of New York, October 17, 2016

Zarrab, a Turkish/Iranian businessman, was arrested in the US and charged with violations of the IEEPA and the ISTR.  He was alleged to have owned a group of Turkish and UAE companies that engaged in a scheme to conceal evidence of transactions with Iran forbidden by the two provisions.  Characterizing the charges against him as “violating US law for agreeing with foreign persons in foreign countries to direct foreign banks to send funds transfers from foreign companies to other foreign banks for foreign companies,” he sought to dismiss the indictment as reflecting an impermissibly extraterritorial application of the IEEPA and the ISTR.

The indictment first involved a provision of law prohibiting schemes to “deprive the government of money or property or attack the integrity of the United States and its agencies.”  The Court suggested that the provision should be applied extraterritorially, requiring no US contacts at all, but concluded in any event that the processing of funds through banks in New York established any minimum US contacts necessary for a domestic transaction.

The second count of the indictment involved a provision that applied only to “exports from the United States, or by a United States person, wherever located.”  Zarrab first argued that this provision, as applied to a non-US citizen like himself, required that he have committed the violation while on US soil.  He also argued that the actions of a US bank clearing a dollar-denominated transaction abroad were not an “export.”  The Court disagreed with both arguments.  It found that such banking activities constituted the prohibited export of a “service” and thus satisfied the provision’s requirements.   

Having concluded that there was an adequate US connection between the conduct and violations alleged, the Court found no need to determine whether the IEEPA and the ISTR had extraterritorial effect.  Nonetheless, the Court reviewed the language of the two provisions and found that both reflected an effort by the US to protect itself, in connection with which the usual presumption against extraterritoriality does not apply.

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