Evolving U.S. Economic Sanctions and their Legal Implications Cuba, Iran, Russia and Burma

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1 Evolving U.S. Economic Sanctions and their Legal Implications Cuba, Iran, Russia and Burma Christopher R. Wall July 2015 Pillsbury Winthrop Shaw Pittman LLP

2 U.S. Economic Sanctions - Overview Administered by U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC). Statutes, executive orders and regulations for each program International Emergency Economic Powers Act (IEEPA) Trading With The Enemy Act (TWEA) Generally apply to U.S. persons U.S. citizens Individuals physically present in the U.S. U.S. companies and overseas branches Cuba sanctions also apply to foreign subsidiaries of U.S. companies, Iran sanctions hold parent companies responsible for actions of subsidiaries that would violate sanctions if engaged in by parent company. Berman Amendments exemption for information and travel (except Cuba). 1 Evolving U.S. Economic Sanctions and their Legal Implications

3 U.S. Economic Sanctions Overview (cont.) Country Sanctions Cuba Iran Russia Sudan Syria Old/Partial Regimes Burma Libya Balkans Sierra Leone Liberia Iraq Belarus 2 Evolving U.S. Economic Sanctions and their Legal Implications

4 Targeted Entities Terrorists Terrorism List Governments Foreign Terrorist Organizations Narcotics Traffickers Persons Engaged in the Proliferation of WMD Specially Designated Nationals and Blocked Persons ( SDN List ) Identifies individuals, entities, and vessels with whom U.S. persons may not trade and blocks property of these parties. Entities in which a designated person owns 50% or more interest are also blocked even if entities themselves are not listed. 3 Evolving U.S. Economic Sanctions and their Legal Implications

5 Types of Sanctions Comprehensive economic sanctions (i.e., Iran, Syria, Cuba, Sudan, Syria) prohibit: U.S. export/import trade with target country/sdn Investment in target country Dealings in property of target country/sdn Most sanctions programs require blocking property of sanctioned government or listed person/entity. Banks must freeze funds received and notify OFAC. Transactions denominated in U.S. dollars clearing through U.S. banks even if no U.S. persons involved in underlying transaction (property interest and export of services). Foreign banks prosecuted for hiding role of sanctioned parties in such transactions, Each program is different - must examine specific regulations 4 Evolving U.S. Economic Sanctions and their Legal Implications

6 Prohibited Facilitation U.S. persons may not facilitate activities by non-u.s. persons that would be prohibited for U.S. persons, such as: Approving a transaction or participating in contract negotiation/performance Furnishing any kind of transactional support Advising on how to structure a transaction Referring sanctioned country business to non-u.s. entity OFAC construes facilitation broadly 5 Evolving U.S. Economic Sanctions and their Legal Implications

7 Cuba Embargo in place since 1963 total blocking regime. Prohibits U.S. persons (including foreign subsidiaries of U.S. companies) from engaging in any transaction in which Cuba or a Cuban national has an interest. Cuban Assets Control Regulations codified in statutory form in 1996 Helms- Burton Act. Limited OFAC licensing authority at the time for travel to Cuba for certain humanitarian and cultural activities, telecommunications services, journalism, family remittances, etc. Current Cuba Policy Presidential announcement in December 2014 and publication of OFAC and Commerce Department regulations in January Embargo remains in place but greatly expanded licenses for travel, remittances and other types of economic activity, including: 6 Evolving U.S. Economic Sanctions and their Legal Implications

8 Cuba (cont.) Cuba - New Activities Permitted Exports under License Exception SCP (Support for the Cuban People) Exports under License Exception CCD (Consumer Communications Devices) OFAC general license for telecommunications services Internet services and exports Imports of Cuban goods and services from private sector Travel and travel services Banking and credit cards Remittances Other support for private business Cuban nationals in third countries or the United States Transactions other than those specifically authorized are still prohibited. Lifting the embargo will require Congressional action. 7 Evolving U.S. Economic Sanctions and their Legal Implications

9 Iran Iranian Transactions and Sanctions Regulations generally prohibit: Trade (import/export) Services to or from Iran and dealing in services from Iran New investment Transactions with blocked parties Transactions with Iranian financial institutions or the Central Bank of Iran Transactions with the Government of Iran Facilitation by U.S. persons Secondary Extraterritorial Sanctions and Special Provisions Prohibitions on foreign companies making investments in petroleum sector Sanctions against foreign countries that do not reduce purchases of Iranian oil Prohibitions on certain transactions by foreign financial institutions Subsidiary liability U.S. parent can be fined for actions by subsidiary that violate Iran sanctions SEC reporting for certain Iran-related activities of affiliates 8 Evolving U.S. Economic Sanctions and their Legal Implications

10 Iran - Joint Plan of Action Sanctions relief for Iran during nuclear negotiations in effect since January Primarily related to secondary extraterritorial sanctions implemented under executive orders. U.S. forbearance in not imposing sanctions on foreign financial institutions that conduct transactions related to exports of Iranian petrochemical products. Temporary suspension of sanctions on Iranian auto industry. Temporary suspension of sanctions on gold and precious metals. OFAC licensing for the supply and installation of spare parts for civil aviation (available for U.S. and non-u.s. persons). Pause in U.S. efforts to further reduce Iran crude oil exports below current levels and continued waiver for certain countries continuing to purchase Iranian oil. 9 Evolving U.S. Economic Sanctions and their Legal Implications Cuba, Iran, Russian and Burma

11 Iran - Joint Plan of Action (cont.) Iranian commitments Reduction in stocks of enriched uranium and no new enrichment over 5%. No enrichment activities at Fordow and Arak facilities and no new enrichment locations. No reprocessing or construction of facilities for reprocessing. Enhanced IAEA monitoring and reporting. 10 Evolving U.S. Economic Sanctions and their Legal Implications

12 Iran Nuclear Agreement Review Act of 2015 Amendment to Atomic Energy Act of 1954 Requires President to submit to Congress within five days of concluding an agreement a package containing: (1) agreement, (2) verification assessment report, and (3) certification that the agreement meets U.S. non-proliferation objectives and ensures that Iran s nuclear related activities will not be used to advance military or explosive purposes. Congress has 30 days to review package if submitted before July 10, 2015 or 60 days if submitted between July 10 and September 7, 2015 May enact joint resolution of disapproval or take no action. President s veto may be overridden by 2/3 vote of both Houses of Congress no sanctions relief during legislative process. 11 Evolving U.S. Economic Sanctions and their Legal Implications

13 Iran Nuclear Agreement Review Act of 2015 (cont.) Issues Duration of agreement temporary halt in Iranian weapons development Pace of lifting sanctions immediate or phased. Nuclear sanctions vs. terrorism, WMD human rights and other sanctions Full Iranian accounting of past nuclear weapons activities Inspection of military and research facilities Snap-back of sanctions Role of United Nations Security Council (Russian and China veto) 12 Evolving U.S. Economic Sanctions and their Legal Implications

14 Russia SDN Designations Persons who have asserted governmental authority over a region of Ukraine without the authority of the Ukraine government and leaders of an entity engaged in such activity, including: Luhansk People s Republic Donetsk People s Republic Officials of the Russian government and business leaders, including: Gennady Temchenko Arkady and Boris Rotenberg Yuri Kavalchuk Igor Sechin (President and Chairman of Rosneft) Entities operating in the arms or related materiel sector, including: Kalishnikov Concern United Shipbuilding Almaz-Antey GSC 13 Evolving U.S. Economic Sanctions and their Legal Implications

15 Russia SDN Designations (cont.) Bank Rossiya Personal bank for senior Russian officials Provides corporate services, including in the oil, gas and energy sectors as well as retail services. Correspondent relationships with banks around the world U.S. credit card issuer Wide array of entities owned or controlled by these SDN s (50% rule) 14 Evolving U.S. Economic Sanctions and their Legal Implications

16 Russia Sectoral Sanctions Directives 1-2 Financial Institutions extension of credit to listed entities of longer than 30 days or new equity Bank of Moscow Gazprombank Russian Agricultural Bank VEB VTB Sberbank Oil and Gas extension of credit to listed entities of longer than 90 days OAO Novatek Rosneft Oil Company Gazpromneft Transneft 15 Evolving U.S. Economic Sanctions and their Legal Implications

17 Russia Sectoral Sanctions Directive 3 Defense - extension of credit to listed entities of longer than 30 days or new equity Rostec U.S. Commerce Department, Bureau of Industry and Security (BIS) prohibits exports/reexports of certain items listed in the Export Administration Regulations (EAR) to military end-users in Russia. 16 Evolving U.S. Economic Sanctions and their Legal Implications

18 Russia Sectoral Sanctions Directive 4 Prohibits U.S. persons from providing, exporting or reexporting directly or indirectly goods, services (except financial services) or technology to listed entities in support of: Exploration or production from deep water (greater than 500 ft.), Arctic offshore, or shale projects that have the potential to produce oil in or offshore Russia. Listed entities include Gazprom, Gazpromneft, Lukoil, Rosneft, Surgutneftgas. BIS also prohibits exports/reexports of items subject to the EAR. Listed items include pipes, tubing, casings, etc. used in oil drilling and production as well as oil and gas exploration data and software (not limited to listed entities). Exporter knows or is unable to determine whether the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deep water, Arctic offshore or shale formations in Russia. Entity List designations. 17 Evolving U.S. Economic Sanctions and their Legal Implications

19 Russia - Crimea Executive Order Blocks property of designated entities operating in the Crimea region of Ukraine and prohibits: New investment in the Crimea region of Ukraine Exports to and imports of goods, services or technology to/from the Crimea region of Ukraine Approving, facilitating, financing or guaranteeing such transactions Issues related to screening transactions involving a region rather than an entire country. 18 Evolving U.S. Economic Sanctions and their Legal Implications

20 Burma General Licenses Easing of sanctions in conjunction with democratic reforms General License 16 authorizes export/reexport of financial services to Burma, subject to limits on dealings with blocked persons, Ministry of Defense and state and non-state armed groups. General License 17 authorizes new investment in Burma, subject to limits on dealings with blocked persons, Ministry of Defense and state and non-state armed groups. Requires annual reports to State Department if aggregate investment exceeds $500,000. Requires State Department notification of agreement with Myanma Oil and Gas Enterprise (MOGE) General License18 authorizes importation of Burmese products except for jadeite or rubies mined or extracted from Burma or jewelry containing such jadeite or rubies. General License Number 19 (incorporated in Burmese Sanctions Regulations) authorizes dealings with four Burmese banks designated as SDN s. 19 Evolving U.S. Economic Sanctions and their Legal Implications

21 Burma Remaining Sanctions Remaining sanctions on Burma prohibit only: Dealing with blocked persons and entities owned or controlled by blocked persons Dealing with Ministry of Defense and armed groups that involve export/reexport of financial services or new investment in Burma Some imports still prohibited Facilitation by U.S. persons of prohibited activities 20 Evolving U.S. Economic Sanctions and their Legal Implications