Keeping Up With Economic Sanctions: A Review of Developments in 2011

Transcription

1 Keeping Up With Economic Sanctions: A Review of Developments in 2011 The following is a summary of key points made during Fulbright & Jaworski s breakfast seminar, held November 30, 2011, on the effects of the Arab Spring on U.S. economic sanctions programs in various countries. Panelists included Fulbright International Trade attorneys, Steve McNabb, Marsha Gerber, and Stefan Reisinger and special guest, Celine Gerson, Chief Compliance and Ethics Officer of Cameron International. Libya The rapid unfolding of events and imposition of economic sanctions against Libya made it extremely difficult for companies with exposure to Libya to react a rollercoaster ride, as one panelist described it. D First, rapid tightening of sanctions against the Government of Libya and related entities. D Then, authorization by OFAC of certain transactions with the Transitional National Council ( TNC ) of Libya. D Followed by further relaxation of some sanctions following the demise of the Qaddafi regime. A key discussion point: Smart sanctions (those that target certain types of transactions, entities and circumstances) can be far more challenging for companies to react to than comprehensive sanctions. AUSTIN BEIJING DALLAS DENVER DUBAI HONG KONG HOUSTON LONDON LOS ANGELES MINNEAPOLIS MUNICH NEW YORK PITTSBURGH-SOUTHPOINTE RIYADH SAN ANTONIO Lessons Learned from Libya D Libya was unique in how rapidly the crisis evolved, but it may not be the last such situation, considering the unrest in other countries and greater consensus on the use of economic sanctions. D Know your customers and suppliers and with whom they do business. D Have an understanding of current regulations and study prior sanctions imposed by OFAC in similar situations. D Examine contracts that involve areas at high risk of sanctions. D Consider key effects of sanctions and how to counteract them. D Consider how existing contracts might be affected by future sanctions. ST. LOUIS WASHINGTON, D.C.

2 Continuing Concerns regarding Libya D Although most sanctions have been relaxed, clashes among multiple militia groups raise the prospect of civil war. D How events unfold could have a real-time impact on U.S. sanctions on Libya. Syria The framework of targeted economic sanctions imposed by the U.S. against Syria in 2004 quickly escalated into far more comprehensive restrictions during the 2011 uprising and the deaths of thousands of Syrians at the hands of the regime. Executive Order issued Aug. 17, 2011: D Blocks all property of the Syrian Government including its owned or controlled agencies, instrumentalities and entities and other designated persons; D Prohibits providing, directly or indirectly, any services to Syria (interpreted to prohibit engaging in any transaction, even in third countries, where the benefit would be felt in Syria); D Prohibits U.S. person involvement in the export or re-export of non-u.s. origin or de minimis goods to Syria; D Prohibits engaging in any transactions or dealings with, or related to, Syrian-origin petroleum or petroleum products; D Prohibits importing into the United States petroleum or petroleum products of Syrian origin; D Prohibits performing new investment in Syria; D Prohibits transactions with the Syrian Commercial Bank and Syrian Lebanese Commercial Bank; D Prohibits facilitating any transaction by a foreign person involving Syria that would be prohibited if performed by a U.S. Person; D Prohibits non-emergency U.S. takeoffs and landings by Syrian air carriers; OFAC issued 14 general licenses specifying authorized activities and related restrictions. A key provision: General License 7 (issued Sept. 9 th ) provided a small window for winding down operations. D It authorized transactions until Nov. 25, 2011 that were incident and necessary to wind down contracts involving the Syrian government, and authorized the divestiture to foreign persons of a U.S. person s investments in Syria; however, did not authorize transactions with a person, other than the Syrian government, whose property is blocked. D OFAC took a practical view of winding down operations, so long as they involved completing existing contractual obligations. D OFAC s main concern was to prevent new or additional activities that were not related to completing existing obligations. The United Kingdom, European Union, Turkey, the UAE and the Arab League have also imposed targeted sanctions on Syria. Lessons Learned from Syria D Be prepared to respond quickly to new sanctions. D Watch the news. (Morning news stories can signal U.S. government actions later that day.) D Watch E.U. and U.K. sanctions impositions as indicators of new U.S. government actions. 2

3 Keeping Up With Economic Sanctions: A Review of Developments in 2011 D U.S. acquirers of non-u.s. companies with Syrian operations and those with foreign subsidiaries doing business with Syria should know the U.S. government is looking more closely at U.S. persons involvement with prohibited nations (Iran is a model). D The SEC has shown interest in disclosures related to business with sanctioned countries in required filings. D Anticipate additional U.S. and multi-lateral sanctions as violence worsens in Syria and the global consensus on sanctions strengthens. D Watch for easing of opposition to sanctions by China and Russia should Syria refuse to allow Arab League monitors into Syria. Iran Congressional concerns over Iran s nuclear program and the President s failure to impose sanctions under the Iran Sanctions Act of 1996 ( ISA ), resulted in passage of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), which amended the ISA in an effort to pressure Iran into constructive negotiations. CISADA: D Broadened the conduct that can be sanctioned; D Increased the range of potential sanctions; D Limited the President s discretion in imposing sanctions. Further enhancements to sanctions: D Designation of Iran as a jurisdiction of primary money laundering concern under Section 311 of the Patriot Act. D OFAC s periodic adding of entities/individuals to the specially designated nationals list. D Executive Order authorized CISADAtype sanctions for transactions related to the maintenance or expansion of Iran s domestic production of petrochemical products and also reduced the monetary threshold for imposing sanctions on transactions related to the maintenance or enhancement of Iran s ability to develop its petroleum resources. The following activities are now sanctionable: e Any provision of goods, services technology or support to Iran that has a fair market value of $250,000 or more or totals $1,000,000 or more in any 12-month period if the provider knows or should know that the transaction could directly and significantly contribute to the maintenance or expansion of Iran s domestic production of petrochemical products ( petrochemical products is defined to include any aromatic, olefin, and synthesis gas, and any of their derivatives, including ethylene, propylene, butadiene, benzene, toluene, ammonia, methanol, and urea. ) e Any provision of goods, services, technology, or support to Iran that has a fair market value of $1 million or aggregate value of $5 million over 12 months, if the provider knows or should know that the transaction could directly and significantly contribute to the maintenance or enhancement of Iran s ability to develop domestic petroleum resources. Key Points D Limited sanctions imposed pursuant to CISADA can be more complex to deal with and appear more quickly than comprehensive sanctions. D Congress mandated that the President impose sanctions under CISADA unless certain waiver criteria apply. 3

4 D U.S. allies are in agreement on Iran, making it easier to impose sanctions. D CISADA authorizes sanctions on companies doing business with Iran s energy sector CISADA also focuses on financial institutions facilitating transactions with Iran. D State and local pension funds are permitted to divest from companies involved in Iran under CISADA. D Know your customers and make sure they are not using your goods to enhance or maintain Iran s petroleum or petrochemical industries. D Include specific clauses in contracts that address the possible imposition of sanctions. Cuba D There has been limited relaxation of some restrictions. D New general license authorizes travel-related transactions incident to religious activities. D Expanded scope of licenses for journalistic activities. D U.S. persons may remit up to $500 per quarter to any Cuban national, except prohibited government officials, to support the development of private businesses, among other purposes. D Unlimited remittances to religious organizations in Cuba in support of religious activities. D Certain transactions with individual nationals of Cuba who have taken up permanent residence outside of Cuba are now authorized; however, all property of such persons that was blocked under prior law remains blocked. D There is growing sentiment calling for reconsideration of U.S. economic sanctions against Cuba but nothing will likely be done until after the 2012 elections. D Some nations, including Canada, restrict compliance with U.S. economic sanctions on Cuba, creating addition compliance challenges for U.S. companies. Key Points D U.S. persons cannot yet take comfort that Cuba sanctions will be substantially lifted in the immediate future. D Consequently, considerable caution must still be exercised when considering any transaction involving Cuba and advice should be sought before entering into such a transaction. D Despite the above, businesses considering opportunities in or related to Cuba can probably include potential opportunities in their long range planning. Sudan D OFAC guidance regarding the recent secession of South Sudan from the Republic of Sudan: e U.S. Sudanese Sanctions Regulations (SSR) generally do not apply to South Sudan (which controls 70% of the oil reserves of the two countries). e Following Fulbright s November 30th seminar, on December 8, 2011, OFAC issued two general licenses that significantly eased restrictions on transactions with South Sudan, including its 4

5 Keeping Up With Economic Sanctions: A Review of Developments in 2011 oil and gas industry. See Fulbright s December 9th alert - OFAC Significantly Eases Existing Restrictions on Transactions With South Sudan. e DDTC amended the ITAR to clarify that its policy of denial for exports to Sudan does not apply to South Sudan. Key Points D The two new general licenses create significant business and investment opportunities for U.S. companies seeking to engage in activities related to South Sudan s petroleum and petrochemical industries. D It remains important to conduct thorough due diligence on any transactions with South Sudan to ensure they do not implicate remaining restrictions in the SSR. D Be aware of continuing instability in South Sudan particularly in regards to its ongoing dispute with Sudan over petroleum resources. For more information, please contact: Marsha Z. Gerber, Partner mgerber@fulbright.com Stephen M. McNabb, Partner smcnabb@fulbright.com Stefan Reisinger, Senior Associate sreisinger@fulbright.com 5

6 Attorney Advertising 12/11 MO Copyright 2011 Fulbright & Jaworski L.L.P. All Rights Reserved