Sanctions Risk Management Symposium

Transcription

1 Sanctions Risk Management Symposium September 18, :15 AM 12:15 PM OFAC and BIS: How they Work Together and How their Regulatory and Criminal Powers Are Applied Matthew Bell Deputy Chief Compliance Officer, Chief Export Compliance Officer & Legal Counsel ZTE Corp. Jeannette L. Chu Managing Director Export Controls & Trade Sanctions PricewaterhouseCoopers Howard R. Fields SVP/Group Head AML Trade Sanctions and Export Controls Compliance Counsel MasterCard Peter Jeydel Associate Steptoe & Johnson LLP 1 September 18-19, 2017 The Princeton Club New York, NY

2 Peter Jeydel Associate Steptoe & Johnson LLP Introduction to BIS and how it is similar to/different from OFAC 2

3 Matthew Bell Chief Compliance Officer & Legal Counsel ZTE Corporation, USA 3

4 Key Elements of OFAC & BIS Enforcement Approach Heavy reliance on voluntary disclosures and settlement agreements Civil penalties may be imposed on a strict liability basis Extraterritorial application of regulations Appeals of civil enforcement actions are difficult and rarely pursued Increased focus on charging individuals for willful violations Adopted similar guidelines on settlement (e.g., egregious; voluntary disclosures) Each of the responsible agencies has its own priorities and approach to enforcement actions 4

5 Treasury Department: Office of Foreign Assets Control (OFAC) Enforces economic sanctions regulations Published penalty guidelines establish approach to assessing civil penalties Largest enforcement actions historically have focused on banks and financial transactions High profile, high dollar settlements Concerted effort to increase effectiveness of sanctions through enforcement Access to U.S. financial system and markets key source of leverage Threat of SDN designation Other sectors Telecommunications (ZTE) Energy (Weatherford, Haliburton, Schlumberger) Insurance (Navigators Insurance Company) Aircraft/Aerospace (Fokker) Medical products (Alcon) Consumer Electronics (Epsilon) SEC reporting requirements for transactions with SDNs and Government of Iran entities 5

6 Commerce Department Bureau of Industry and Security (BIS) Enforces the Export Administration Regulations (EAR) General Prohibition 10 or need for future licenses has the effect of forcing disclosure in many cases EAR penalty guidelines Commerce Department published updated penalty guidelines for EAR enforcement cases in June 2016 Based on OFAC s penalty guidelines Includes mitigation for voluntary disclosure and implementation of compliance programs Increased End-User Checks and Company Visits Additional outreach related to Export Control Reform to verify proper handling of 600 Series items and use of License Exception STA Visits serve both educational and compliance functions Strategic placement of companies on the Entity List to force negotiations and change conduct 6

7 Notable Enforcement Cases ZTE (2017) Alcon Laboratories, Inc. (2016) Schlumberger (2015) Fokker Services B.V. (2014) Weatherford (2013) 7

8 BIS & OFAC Areas of Convergence in Investigations Comparable length of tolling agreements Focus on select transactions to include as charges in settlement agreement Analysis can differ based on strength/weakness of jurisdiction Can impose auditing and reporting requirements Work in parallel to push resolution Keep lines of communication open with each agency as they coordinate during the investigation Provide clear and consistent information to each agency even through one agency might ask for more detailed information on a particular transaction 8

9 Jeannette Chu Managing Director PwC 9

10 BIS & OFAC Areas of Divergence in Investigations BIS OFAC Investigations developed from multiple sources of information including disclosures, outreach visits, end-use checks, anonymous leads, intelligence Reliance on disclosures No criminal enforcement authority No dedicated investigative resources analysis etc. +/-100 Criminal Investigators including Export Control Officers stationed overseas Focus on developing cases for criminal prosecution 10

11 What to Expect and How to Prepare Outreach visits conducted by Special Agents from BIS, Office of Export Enforcement may be transaction-focused or general in nature Have a procedure in place that is built on immediate notification of inhouse counsel and the Export Compliance Official Understand record retention requirements (15 CFR 762.2) timely production may be open for interpretation Sentinel trips, Pre-License Checks/Post Shipment Verifications Where appropriate, explain the purpose of such visits to the recipient For PSVs make sure end-users have license conditions and understand compliance implications 11

12 Sanctions Risk Management Symposium Questions? 12 September 18-19, 2017 The Princeton Club New York, NY

13 Bonus Slides Provided by 13

14 Office of Foreign Assets Control (OFAC) Falls under the Treasury Dept. OFAC s historical mission to cut off trade with enemy states, primarily through the US financial sector Hotline 1 (800) or (202)

15 OFAC s Specially Designated National (SDN) A list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. Also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called Specially Designated Nationals or SDNs. Their assets are blocked and U.S. persons are generally prohibited from dealing with them. 15

16 OFAC Enforcement Guidelines Economic Sanctions Enforcement Guidelines Issued in 2009 Sets forth the Enforcement Guidelines that OFAC will follow in determining an appropriate enforcement response to apparent violations of U.S. economic sanctions programs that OFAC enforces. 16

17 Base Penalty Matrix from OFAC Enforcement Guidelines 17

18 OFAC Licenses Specific license: Allows a party to engage in an otherwise prohibited transaction. General licenses: Authorize categories of transactions, such as allowing reasonable service charges on blocked accounts, without the need for case-by-case authorization from OFAC. 18

19 Bureau of Industry and Security (BIS) Falls under Department of Commerce Mission: Advance U.S. national security, foreign policy, and economic objectives by ensuring an effective export control and treaty compliance system and promoting continued U.S. strategic technology leadership. Administers and enforces the Export Administration Regulations (EAR) Export Enforcement Hotline - 1-(800)

20 BIS Enforcement Guidelines Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases Revised June 22, 2016 Promotes greater transparency and predictability to the administrative enforcement process. Aligns procedures of DOC Office of Export Enforcement with those of OFAC, both of which administer bulk of programs under International Emergency Economic Powers Act. 20

21 BIS Lists Denied Persons List: Individuals and entities that have been denied export privileges. Any dealings with them that would violate the terms of its denial order are prohibited. The Entity List: Foreign parties that are prohibited from receiving some or all items subject to the EAR unless the exporter secures a license. Unverified List: Parties whose bona fides BIS has been unable to verify. No license exceptions may be used for exports, reexports, or transfers to UVL parties. A statement must be obtained prior to shipping items not subject to a license requirement. Consolidated Screening Lists: consolidates export screening lists of the DOC, State and the Treasury to assist in screening parties to regulated transactions 21

22 BIS Commerce Control List (CCL) A key in determining whether an export license is needed from the DOC is knowing whether the item you intend to export has a Export Control Classification Number (ECCN). ECCNs are listed in the Commerce Control List (CCL) (Supplement No. 1 to Part 774 of the EAR) See: 22

23 Base Penalty Matrix from OFAC Enforcement Guidelines 23