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May 12, 2016 Sanctions (OFAC) Compliance Update May 12, 2016 Andrew W. Shoyer, Partner Sidley Austin LLP
What do we mean by sanctions? Measures imposed by governments to alter the behavior of the sanctions target in furtherance of foreign policy objectives Long history (of both successes and failures) Can be multilateral (e.g., UN, EU) or unilateral No two sanctions programs are exactly alike In U.S., responsibility shared between: Treasury Department s Office of Foreign Assets Control (OFAC) Commerce Department s Bureau of Industry and Security (BIS)
Key Features of Primary Sanctions The US asserts jurisdiction based upon some nexus to the United States: US persons US-origin goods, technology or services US-origin content in goods made outside the United States US Dollar-denominated transactions Wide variety of sanctions tools: Trade embargo Property blocking Ban on financial transactions Ban on new investment Ban on US person facilitation Geography-based vs. List-based sanctions programs Specially Designated Nationals (SDN) List
Quiz: Spot the SDN 1. PEARL ENERGY SERVICES, SA, Lausanne, Switzerland 2. BLACKMORE INVESTMENTS, Oranjestad, Aruba 3. AL-JIHAD TRADING AND CONTRACTING, Muscat, Oman 4. ASSA CORP., New York, USA
Penalties for Non-compliance STRICT LIABILITY!! Civil Penalties Transaction value or $250,000 per violation (IEEPA) Transaction value or $65,000 per violation (TWEA/Cuba) Criminal Penalties Up to 20 years in prison and $1 million per violation Reputation Risk/De-Risking
Key Features of Secondary Sanctions Retaliatory measures that are imposed against anyone, even non-us persons, engaged in sanctionable conduct, even where there is absolutely no nexus to the United States Secondary sanctions are not new, but they have been newly rediscovered by the US Congress, and have become a popular tool No criminal or civil penalties, but the sanctions include very severe measures
Cuba Sanctions Developments U.S. still maintains a very comprehensive embargo against Cuba Obama Administration announced policy shift in Dec. 2014 OFAC has created general licenses affecting: Travel and related services Vessels and ferry service Telecommunications Credit/debit cards, per diem, and import of certain goods/services Micro-financing, business, and commercial import activities Financial transactions Providing goods/services to Cuban nationals in third countries Establishing a physical presence (e.g., offices, warehouses) Remittances Cash-in-advance rule Transactions with Cuban nationals outside of Cuba Official government business Insurance Transactions ordinarily incident to licensed activities
Cuba Sanctions Developments BIS expanded the scope of two existing license exceptions Consumer Communications Devices (CCD) authorizes the sale and export/reexport of certain communications devices Gift Parcels and Humanitarian Donations (GFT) authorizes the export/ reexport of multiple gift parcels in a single shipment BIS created a new license exception: Support for the Cuban People (SCP) Allows certain goods to be sold or donated without a specific license Allows the export of items intended to improve free flow of information to for or among the Cuban people: Telecommunications Access to the Internet Use of Internet services Infrastructure creation/upgrade
Iran Sanctions Developments January 16, 2016 Implementation Day for nuclear deal U.S. still maintains comprehensive primary sanctions against Iran: Property blocking Prohibition against exports and reexports of goods, services and technology Prohibition against imports of goods or services of Iranian origin Prohibition against trade-related transactions or dealings Prohibition against new investment in Iran Prohibition against U.S. person facilitation Prohibition against transactions involving Iranian petroleum resources Prohibition against evasions, attempts, conspiracies, and causing violations U.S. lifted most secondary sanctions against Iran European Union lifted most sanctions against Iran
Iran Sanctions Developments General License H Permits non-u.s. subsidiaries of U.S. parents to engage in certain Iranrelated transactions Must be independent of U.S. parent and U.S. persons No use of U.S. financial system (i.e., U.S. Dollars) General License Some Imports Permitted Carpets Foodstuffs (e.g., pistachios, caviar) Favorable Licensing Policy Civil Aircraft Commercial passenger aviation Parts and components BUT... Snapback Potential Sanctions can be re-imposed if Iran is found to be non-compliant Restored sanctions will not apply retroactively But no grandfathering of contracts
Russia Sanctions Developments Russia sanctions (Ukraine-related) come in many flavors List-based sanctions Since March 2014, oligarchs and others (both individuals and entities) added to the SDN List property blocking Geography-based sanctions Since December 2014, the Crimea region subject to a comprehensive ban on trade and investment Primary sanctions Prohibitions against exports and reexports apply to all U.S. persons Secondary sanctions Ukraine Freedom Support Act authorizes President to impose sanctions on non-us companies (e.g., for making significant investments in certain Russian crude oil projects) including one brand new flavor: Sectoral Sanctions and the Sectoral Sanctions Identification (SSI) List
Russia Sectoral Sanctions Ø Key distinction: unlike SDNs, as to which all dealings are prohibited unless permitted, for SSIs all dealings are still permitted unless prohibited Ø The prohibitions are set forth in four OFAC Directives Directives #1 (banking), #2 (energy), and #3 (defense) prohibit US persons from dealing in new debt of the SSI entities (also in new equity for the banks under Directive #1) Directive #4 (energy) prohibits US persons from providing goods, services or technology in support of oil exploration/production projects of three types: deepwater, Arctic offshore, or shale extraction Ø OFAC has issued new guidance on the application of the 50% rule Screening against the SDN and SSI Lists alone is not sufficient
Sectoral Sanctions Identification (SSI) List Sector Entity Name Date Sanctioned Directive No. Bank of Moscow 7/29/14 1 Gazprombank 7/16/14 1 Banking Russian Agricultural 7/29/14 1 Bank Sberbank of Russia 9/12/14 1 Vnesheconombank 7/16/14 1 VTB Bank 7/29/14 1 AK Transneft 9/12/14 2 Energy Gazprom Neft 9/12/14 2 and 4 Novatek 7/16/14 2 Rosneft 7/16/14 2 and 4 Defense Rostec 9/12/14 3 Energy Gazprom 9/12/14 4 Lukoil 9/12/14 4 Surgutneftegas 9/12/14 4 N.B.: Any entity that is 50% or more owned by one or more of the above listed parties is subject to the same Directives.
Questions? Andy Shoyer Sidley Austin LLP 1501 K Street, NW Washington, DC 20005 (202) 736-8326 ashoyer@sidley.com
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