Not Guilty

A Lucky Escape for Deutsche Forfait

It's all your fault.
  • Why it matters

    Why it matters

    Being added to a U.S. government sanctions list can quickly bring an international business to its knees. One company got lucky.

  • Facts


    • Deutsche Forfait was accused of undertaking oil dealings in Iran earlier this year.
    • As a result, it has lost €8.4 million ($10.74 million) in the past nine months.
    • The company received a loan of €30 million from bondholders last year.
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With a business model based on export trade financing in the developing world, Deutsche Forfait is used to risk. But when a U.S. sanctions-monitoring agency targeted the German firm earlier this year, it looked like the company may have taken one risk too many.

Deutsche Forfait, which has been trading receivables since 2000, stood accused of breaking sanctions against Iran by supporting the business dealings of the National Iranian Oil Company (NIOC), which is thought to have links to the Iranian Revolutionary Guard. As a result, it was added to the U.S. government sanctions list in February. The company said it has been “paralyzed” ever since.

Suddenly the company found its fate in the hands of the U.S. Office of Foreign Asset Control, or OFAC, and that’s not an easy position to be in. The office, which is part of the U.S. Treasury,  takes 850 days on average to settle challenges to its listings. That would have been too long: cash reserves were due to run out at the end of the year; a restructuring was already put in jeopardy; and the listing was threatening its bondholders.

Just as suddenly, on Friday, Deutsche Forfait said it was handed a lifeline. OFAC had removed it from the sanctions list. All U.S.-dollar operations that are critical to its business can now be restarted. The company can now begin the long journey back to profitability.

“We are very relieved,” Frank Hock, chief financial officer, said in a statement. “What counts now is making the business’ dealings operational again as quickly as possible.”

“We are very relieved. What counts now is making the business' dealings operational again as quickly as possible.”

Frank Hock, Chief Financial Officer, Deutsche Forfait

Based in Cologne, Deutsche Forfait buys corporate accounts receivables – money owed for goods or services – acquired through export activities. The advantage is that Forfait’s customers gain hard cash and the financier can repackage the debt obligations and sell them on to investors.

The sanctions listing put a major spanner in the works. The company was forced to hold an extraordinary shareholder meeting earlier this week. At that time, the dispute still threatened to drag on for months. The company warned it could “no longer realize new business” and the sale of debt obligations is “no longer possible.”

In its battle to get delisted, Deutsche Forfait, which denied the sanction-breaking allegations, drew on the support of the Germany’s central bank, the Bundesbank, as well as the German foreign ministry. It has also had a U.S. law firm examine in detail its dealings with Iran. The law firm found “no substantial violations of U.S. sanctions laws,” the company said.

The company may still have made some minor infractions. In exchange for getting delisted on Friday, Deutsche Forfait said it had agreed to introduce a “compliance system” to better educate its employees on how not to run foul of U.S. restrictions. The “terms of removal” also required it to give assurances that “to the best of its knowledge” it had not uncovered – and will not uncover – any connections between its operations and those companies that are on the U.S. sanctions list.

A debt restructuring still looks likely. The firm said "comprehensive measures" will still be needed.

The OFAC listing caused losses of €8.4 million ($10.74 million) in the first nine months of the business year, the company has asserted. Lawyers and consultants fees alone have amounted to €1.5 million ($1.92 million). Now its coffers are almost empty. At the end of September, the remaining equity was just €2.2 million ($2.81 million). That was enough to stay afloat until the end of the year.

The business stop has affected not only shareholders but also investors in its so-called Mittelstand bonds. Investors had trusted the company with some €30 million ($38.37 million) just last year – at an interest rate of 7.9 percent.

At this week’s meeting, management had outlined an emergency restructuring concept. It was assumed that “bondholders will also be contributing” to the company’s survival.

A debt restructuring still looks likely. On Friday, the firm said that “comprehensive measures” will still be needed to strengthen its capital base and it would be looking for further debt financing from bondholders. Existing creditors “will have to make a contribution to the successful restructuring” of the company.

The U.S. agency has long been feared by many German companies, and with good reason. Clearstream, the clearing and settlement division of the Deutsche Börse stock exchange, was also accused by OFAC of sanctions violations. It admitted no guilt but paid €152 million ($194.43 million) to the U.S. government in a settlement. It was delisted soon afterwards.

Deutsche Forfait was lucky to escape before it was too late.


Michael Brächer is the financial editor of the investment team at Handelsblatt’s bureau in Frankfurt, and Christopher Cermak is an editor who deals with financial issues for Handelsblatt Global Edition in Berlin. To contact the authors:

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