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2 "Global Economic Sanctions: Cross-Border Challenges in Navigating Risks, Establishing Compliance, and Assessing New Developments "

3 Speakers: J. Daniel Chapman Chief Compliance Officer & Counsel Parker Drilling Company David Lorello Partner Steptoe & Johnson LLP, Lex Mundi member firm for Washington D.C. Meredith A. Rathbone Partner Steptoe & Johnson LLP, Lex Mundi member firm for Washington D.C.

4 Distinguishing Economic Sanctions, Export/Reexport Controls and Antiboycott Laws Who or what is regulated? Basis for regulation What is prohibited? Economic sanctions people nationality (such as citizenship, residency, physical presence, or employing or parent company) transactions involving certain persons, countries or activities Export and reexport controls goods, software and technology national origin of content certain end uses, end users or end destinations (plus certain transshipment requirements pursuant to EAR General Prohibition 8) Antiboycott laws people participating in another country s economic sanctions or export/ reexport controls nationality (such as citizenship, residency, physical presence, or employing or parent company) providing certain information or agreeing to boycott participation

5 Terminology for In-House Counsel Clearly distinguish economic sanctions and export and reexport controls Avoid the terms: boycott embargo or embargoed trade controls trade sanctions

6 Many Countries Impose Economic Sanctions Examples: United Nations and European Union Imposes sanctions on various nations for human rights and violations of international law Iran To be discussed in greater detail later in this presentation Certain members of the Arab League Impose economic sanctions on Israel and its nationals

7 US Economic Sanctions The Office of Foreign Assets Control, US Dept. of the Treasury administers most U.S. sanctions programs Regulations: 31 C.F.R. Parts Website: ofac/ US economic sanctions generally forbid: Directly engaging in or Facilitating others engaging in Prohibited dealings with sanctioned countries, governments, persons or activities

8 What Is Facilitation? An expansive and indefinable legal term that has a meaning similar to enable. Examples A party subject to US economic sanctions cannot: Make referrals to parties not subject to US economic sanctions Change practices or procedures to allow unregulated parties to engage in prohibited transactions Provide certain business, legal planning or other support for sanctioned transactions (advice, payroll, IT support, etc.) Broker, approve, guarantee, incur financial risk or insure any action that permits a sanctioned transaction to proceed Any other form of assistance that permits a sanctioned transaction to proceed

9 US Economic Sanctions Apply to United States Persons Companies Entities legally organized in the United States Non-US branches of US banks Almost always US persons Individuals US citizens and US legal residents Persons physically present in the US Other considerations As a pragmatic matter: Treat employees or other representatives of US persons as US persons TWEA programs (Cuba) also apply to subsidiaries of US persons US person involvement is often a moot issue due to involvement of US headquartered banks

10 Commonly Encountered US Economic Sanctions Programs Cuba US and non-us persons must not engage in or facilitate transactions in Cuba or with its government, companies, residents or citizens Iran and Sudan US persons must not engage in or facilitate transactions in Iran, in portions of Sudan (energy sector all of Sudan) or with their governments, including government-controlled companies Targeted Programs US persons must not engage in or facilitate transactions involving specific activities, persons or governments, including: the provision of financial services or new investment in or to Burma/Myanmar (certain exceptions for subcontracting arrangements), parties on the Specially Designated Nationals List regional: Balkans, Belarus, Ivory Coast, Congo, Iraq, Liberia, Lebanon, North Korea, Somalia, Sudan, Syria, Zimbabwe subject matter: conflict diamonds, narcotics trafficking, non-proliferation, terrorism other targeted activities (Syria flight restrictions, North Korean flagged vessels, etc.) Imports All imports into the United States of goods, software or technology of Cuban, Iranian, Myanmar/ Burma or North Korean origin

11 Examples of Prohibited Transactions Exports, re-exports, and transshipments of U.S.-origin goods, technology, know-how, and services to sanctioned countries or persons Investment in sanctioned countries or persons Dealing in goods, technology, or services destined for sanctioned countries (regardless of origin) or blocked property (asset freezes) owned/controlled by sanctioned persons Facilitating or approving a foreign (non-u.s.) person in its business dealings with sanctioned countries or persons Evading or avoiding the restrictions in OFAC s regulations

12 Key Issues Limited exceptions on a program-by-program basis for sales to general inventory of third parties, informational materials, personal communications software, licensed humanitarian and agricultural goods, etc. Facilitation by US Persons (US parent companies, US citizens working for non-us affiliates) Violations of export licensing requirements to most sanctioned countries create a separate economic sanctions violation Scrutinize any transaction or connection to: Transactions in or through Cuba, Iran, Sudan or Burma/Myanmar Diversion from adjacent countries (however, certain inventory exceptions may apply) The government of Cuba, Iran, Sudan or Burma/Myanmar (including companies owned or controlled by them even if operating extraterritorially) Cuban nationals or companies Importation of goods of Cuban, Iranian, North Korean or Burmese origin into the United States

13 US Export/Reexport Controls The US government may require that a company obtain a license for: Actual exports and reexports Deemed exports and reexports Cuba, North Korea and Syria All exports or reexports (Exception: Deemed exports and reexports to Syria of EAR99 technologies or software source code require no license) Iran Nearly all non-ear99 exports or reexports All other destination countries Generally less restrictive, vary from country to country based upon item s classification High risk areas Shipments to, through or adjacent to Cuba, Syria or North Korea Any involvement with Cuban, Syrian or North Korean nationals

14 Iran Sanctions Act & Related Developments Iran Sanctions Act (formerly ILSA) in place since 1996 Targeted persons determined to have (1) invested $20 million or more in a project in Iran that contributed to the development of Iran s petroleum resources, or (2) sold WMDs or certain conventional weapons to Iran Focused on the activities of non-u.s. companies President to choose 2 of 6 possible sanctions Never enforced Limited UN sanctions against Iran have been in place since 2006

15 Iran Sanctions Act & Related Developments (Cont.) Tougher Sanctions Passed: UN Security Council - Resolution 1929 (June 9, 2010) United States Comprehensive Iran Sanctions Accountability and Divestment Act (CISADA) (June 24, 2010) European Union (July 26, 2010) Canada (July 26, 2010) Japan (August 3, 2010)

16 U.S. Sanctions CISADA (Refined Petroleum) CISADA expands petroleum-related restrictions of ISA by prohibiting: Providing refined petroleum products to Iran valued at $1 m or more ($5 m in a 12-month period) Providing of goods, services or other support to Iran valued at $1m or more ($5 m in a 12-month period) that could directly and significantly facilitate the maintenance or expansion of Iran s domestic production of refined petroleum products Providing goods, services, technology, information or support valued at $1 m or more ($5 m in a 12-month period) that could directly and significantly contribute to Iran s ability to import refined petroleum products Insurance/reinsurance/underwriting Financing/brokering Shipping services

17 US Sanctions CISADA (Refined Petroleum) CISADA makes it more difficult for the President to avoid conducting an investigation or making a determination of sanctionable activity Requires the President to impose 3 out of an expanded menu of 9 sanctions New sanctions include: (1) prohibition on transactions in foreign exchange; (2) prohibition on transfers of credit or payments through/to U.S. financial institutions if sanctioned person has an interest; (3) prohibition on dealing in property in which sanctioned person has an interest Sanctions can be imposed on parent companies and affiliates Delay and waiver provisions still available, but more difficult to use

18 CISADA Financial Institutions Targets non-u.s. financial institutions that: facilitate Iran s ability to acquire WMDs or provide support for terrorism facilitate activities of persons subject to UN sanctions provide significant facilitation/support of blocked IRGC entities or blocked Iranian financial institutions Prohibits U.S. financial institutions from dealing with non-u.s. financial institutions that violate sanctions Regulations to be implemented that will establish certain audit, reporting, due diligence, or certification requirements Goal: Force foreign financial institutions to choose us or them

19 CISADA Other Provisions U.S. Government contracting restrictions USG contractors must certify that they do not engage in sanctionable activities Enhanced import restrictions; codifies export restrictions Permits divestment from companies that engage in sanctionable activities Requires DNI to submit reports identifying destinations of diversion concern Enhanced export licensing requirements for designated countries

20 EU Sanctions Against Iran Regulation 961/2010 (25 October 2010): Broad new EU-Iran sanctions. Culmination of several years of incremental EU sanctions against Iran since Applies to activities in EU and to EU nationals overseas Export restrictions Military ban Ban on goods/technology/software listed under Nuclear Suppliers Group, Missile Technology Control Regime, and EU Dual Use List License requirement for items in Annex IV of Regulation unilateral EU nuclear list (list includes many items that have common application outside of nuclear sector) Ban on items in Annex VI of regulation -- key equipment for oil/gas end use Restrictions on brokering services, financial assistance, and technical assistance for items subject to export restrictions

21 EU Sanctions Against Iran (continued) Certain Iranian persons and entities designated for financial sanctions Various financial restrictions Heightened due diligence / reporting requirements for financial institutions Restrictions on providing insurance to Iran Prior notification requirement for funds transfers to/from Iran of over EUR 10,000, license requirement for funds transfers of over EUR 40,000 Customs clearance requirements Penalties and enforcement determined by individual EU Member States.

22 Other EU Sanctions Most sanctions: Follow international policies UN, EU, Organization for Security and Co-operation in Europe (OSCE) Combination of EU and Member State legislation Focus on specific items, particularly arms / munitions Burma/Myanmar: certain financing restrictions Unilateral sanctions Uncommon US-style broad, unilateral sanctions are unpopular Designated Entities Post-9/11 legislation restricts dealings with specified persons and entities associated with Al- Qaeda, Usama bin Laden, and the Taliban Prohibit virtually all economic activity with specified parties (similar to OFAC SDN restrictions) Prohibited list is in Annex I to Regulation 881/2002, and has been regularly amended Various other entity-based restrictions by country / region (e.g. Iran, Belarus, Burma, Zimbabwe) Certain Members States maintain formal or informal blacklists Particularly relevant to countries such as Belarus, certain Middle East countries.

23 EU Blocking Statute EC Regulation 2271/96: Prohibits compliance with US Sanctions under Helms-Burton, Cuba Assets Control Regulation, Iran Sanctions Act Article 2: requires EU persons/entities to notify the European Commission within 30 days of learning that its economic/financial interests are affected by above US restrictions Article 5: prohibits compliance by EU persons or entities with the US restrictions set forth in the EU regulation Articles 7/8: allows for the European Commission to authorize compliance on a case-by-case basis Enforced by Member States E.g., UK: Extraterritorial US Legislation (Sanctions against Cuba, Iran and Libya) (Protection of Trading Interests) Order 1996

24 Examples for Corporate Counsel What are the major sanctions compliance pitfalls for U.S. companies that export and source internationally? How can doing business in or with sanctioned countries affect non-u.s. affiliates of a U.S. company? What laws should a company consider oil and gas related products from the EU to Iran? What if there is no involvement by U.S. persons and no U.S. products or technology are being exported?

25 Speaker Contact Information J. Daniel Chapman Chief Compliance Officer & Counsel, Parker Drilling Company David Lorello Partner, Steptoe & Johnson LLP Meredith A. Rathbone Partner, Steptoe & Johnson LLP

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