BMR Advisors Impact of International Sanctions and growing importance of Sanctions Compliance

1. BMR Advisors Impact of International Sanctions and growing importance of Sanctions Compliance August 2011 Sarabjeet Singh

2. Overview • Sanctions Impact • Sanctions Compliance

3. Impact of Sanctions Barclays paid USD 298 million fine in 2010 to the US authorities - transactions with banks in Cuba, Iran, Libya, Sudan and Burma ABN Amrofined USD 80 million in 2005 and USD 500 million in 2008 relating to OFAC violations UBS paid a USD 100 million fine in 2004 for breaching US sanctions by sending funds to Cuba, Iran, Libya and Yugoslavia Sanctions regime has created a complex and challenging environment – Failures have cost financial institutions and regulators are pressing hard

4. Key Sanctioning Bodies • Global sanction bodies are set-up to enforce restrictive measures on target countries, companies and individualsto comply with their objectives without resorting to the use of force

5. Sanctions – some have more impact than others… Comprehensive Sanctions In the case of Iraq, comprehensive sanctions resulted in reduction of the per capita income, from $3510 in 1989 to $450 in 1996, heavily influenced by the rapid devaluation of the Iraqi dinar. According to UNICEF, half a million children died.. • Economic Sanctions Smart/Targeted Sanctions In 2007, EU froze funds used to subsidize sugar farmers in Fiji categorizing them as non-humanitarian aid – Fiji GDP dropped by 7% Trade Sanctions Financial Sanctions Iraq was 70% dependent on imported food, from 1991-96 , chronic malnutrition rose from 19% to 31% in children below five Lloyds TSB paid USD 350 million to settle sanction violation of OFAC regulations Asset Freeze Diplomatic Sanctions Arms Embargo Travel Bans

6. Comprehensive Iran Sanction, Accountability, and Divestment Act of 2010 (“CISADA”) • Act signed on July 1, 2010 by President Obama to impose sanctions on Iran for its ongoing violation of the Nuclear Non-Proliferation Treaty (UN Security Council Resolution 1929). • The bill substantially expands sanctionable activities beyond current law so as to include efforts by foreign firms: • to sell, lease, or provide to Iran any goods, services, technology, information, or support that would allow Iran to maintain or expand its petroleum refineries; • to supply refined petroleum products to Iran (all applicable to activities above $1 million in value). The effect of the first-referenced provision would be to significantly expand the breadth of the sanctions to potentially include companies in many new sectors, including financial services, telecommunications, logistical, consulting and business services, and any other sector capable of providing support to Iran's petroleum refineries. • As per the Act, (4) Because of the involvement of Iran’s Revolutionary Guard Corps in Iran’s nuclear program, international terrorism, and domestic human rights abuses, the President should impose the full range of applicable sanctions on— • any individual or entity that is an agent, alias, front, instrumentality, representative, official, or affiliate of Iran’s Revolutionary Guard Corps; and • any individual or entity that has conducted any commercial transaction or financial transaction with an individual or entity described in subparagraph (A);

7. Iran – Impact Energy sector provides about 80 % of government revenues. Key Impact • Iran's economic growth will fall to 0% in 2011 - IMF • Gasoline imports have dropped 90%: To compensate for the loss, Iran has converted some of its petrochemical plants to produce gasoline. • The price of gasoline is up 400%, natural gas is up 1,000%, and diesel is up 2,000% • The Producer Price Index (PPI) surged 32.8% • Strikes & unrest are spreading amongst workers due to poor wages and lack of job security • Key Sanctions • Canada • Australia The total number of persons and firms now sanctioned for proliferation by the E.U. is 292, as compared to 189 sanctioned by the United States and 117 by the United Nations – But for FIs, does the due diligence for establishing affiliations with Iran stop at only screening these lists ?

8. Case Study - I Name : Antonio Brufau Niubo Chairman - Indian Oil Mauritius Limited Former Chairman – BOD, Green Gas Ltd Chairman – BOD, Chennai Petroleum Corporation Ltd Background: Repsol YPF has been identified by U.S. Government Accountability Office as one of the 41 firms that had commercial activity in the Iranian energy sector between 2005 and 2009 CEO – Repsol YPF SA Position Repsol YPF SA • Findings: • Antonio Brufau Niubo is one of the board of directors of Repsol YPF • Repsol has signed a service contract with Shell • Also , Repsol holds 33% share in an exploration contract which is signed between National Iranian Oil Company (NIOC) and OMV Company • Joint venture between Shell, Repsol and the National Iranian Oil Co. being developed for the Iran's Persian LNG project Chairman – IOT Infrastructure & Energy Services Ltd Antonio Brufau Niubo Organization Service Contract with Shell JV to form Persian LNG Project 33% share in contract between NIOC and OMV Direct/Indirect relationships Subsidiaries Organization Position Entities associated with Iran Result: Antonio Brufau Niubo is associated to Repsol YPF* identified to be dealing with Iranian energy companies • * identified by Foundation for Defense of Democracies (FDD)

9. Case Study - II Chairman / Director - SA ViewCom AS Managing Director / Chairman – Modulex AS Name : Bent Pedersen Former Chairman – BOD, Green Gas Ltd Vice Chairman / BOD – DNB Nor Bank ASA Member - BOD - Proark Energy Background: Red Cell Intelligence Group, a US based consulting and training services firm has identified, Dnb Nor Bank ASA as an international bank that services Iranian banks Chairman - Eksport Kredit Fonden Member – BOD - Private Equity New Markets Member -BOD - DNB Nor ASA Vice Chairman / BOD – Axcel AS Position • Findings: • Bent Pedersen is one of the board of directors in DNB Nor ASA • Subsidiary of the DNB Nor ASA i.e. DNB Nor Bank ASA as an international bank provides services to Iranian banks • The Bank of New York Mellon is doing business with DNB Nor Bank ASA which provides services to Iranian Banks (like: Bank Mellat, Export Development Bank of Iran, Bank Melli, Bank Refah, Bank Tejarat) DNB Nor ASA Bent Pedersen Chairman – Vaekst Invest Nordjylland Organization Vital Forsikring ASA DNB Nor Bank ASA Bank of New York Mellon Entities associated with Iran Result : Bent Pedersen is affiliated with DNB Nor Bank ASA* identified to be dealing with Iranian energy companies • * identified by Foundation for Defense of Democracies (FDD)

10. Case Study - III Name : Jurgen Schrempp Advisory Board of Vodafone AG Advisory Board of GEMS III, L P Advisory Board of Deutsche Bank AG Background: U.S. Securities and Exchange Commission (SEC) states that Sasol has entered in to a joint venture with one of the Iranian company and it supplies its products to Iran through its subsidiaries Lead independent non executive director - Sasol Director -Compagnie Financiere Richemont SA Position Sasol Organization Jurgen Schrempp • Findings: • Jurgen Schrempp is serving as the lead independent non executive director of Sasol. • Sasol entered into a 50:50 joint venture with Iran's Pars Petrochemical Company to form Iran based Arya Sasol Polymer Company • African Amines a subsidiary of Sasol exported 120 tons of dimethylamine to Iran (2004) • Sasol supplies its products to Iran through its subsidiaries Sasol Middle East and Sasol Gulf African Amines Pars Petrochemical Company Sasol Middle East Arya Sasol Polymer Company (JV 50:50) Sasol Gulf Direct/Indirect relationships Subsidiaries Organization Position Entities associated with Iran Result: Jurgen Schrempp is affiliated with Sasol* identified to be dealing with Iranian energy companies • * identified by Foundation for Defense of Democracies (FDD)

11. Sanctions Compliance for Financial Institutions • Sanctions are here to stay and a fact of modern business in global markets • Despite increased investments, Financial Institutions recognize that sanctions compliance awareness needs to be increased • Technology is essential, but requires substantial manual intervention.

12. Culture & Ownership Sanctions Risk Assessment Focus Areas for effective Sanctions Compliance • Setting ‘tone at the top’ essential • Suffers if seen secondary to revenues • Sanctions Risk Assessment Program – How many domestic Indian banks have done that? • Global approach – far too important not to have central oversight • Necessary, incomplete and requires manual interventions • Often real reports made by staff vigilance, rather than systems • Not enough? • Frequent transfers? • People retention issues – hard and tedious work • Need for experience and expertise • Politics of sanctions need to be kept aside Technology People & Training Regulatory risk cannot be eliminated, but good effective implementation can substantially mitigate it.

13. Thank You Sarabjeet Singh +91 991 034 5454 sarabjeet.singh@bmradvisors.com