August 16, 2018

Why the EU Blocking Statute will not Save European-Iranian Trade

by Jeremy Paner

The European Union recently updated its Blocking Statute[1] in response to the U.S. withdrawal from the Joint Comprehensive Plan of Action (JCPOA).  The EU revised this regulation to shield its companies from U.S. sanctions on Iran, in part by prohibiting European companies from complying with the sanctions it deems to be “extraterritorial” in nature.

Extraterritorial Sanctions

The U.S. government typically responds to assertions of extraterritoriality by noting that its Iran sanctions prohibitions are only applicable to European companies that “cause” U.S. companies to violate these sanctions.  In other words, the Iran sanctions prohibitions are generally limited to U.S. individuals and companies, including their foreign subsidiaries.  European companies that engage in certain dealings or transactions with Iran could be designated and placed on the SDN List or Part 561 List, but the prohibitions of those sanctions are generally limited to U.S. companies.  Therefore, from the perspective of the U.S. government, the EU Blocking Statute attempts to solve a non-existent problem, because U.S. law does not prohibit European companies from trading with Iran if there is no connection to the United States.  Continue reading

April 13, 2018

Three Significant Misconceptions Regarding the Russian Oligarch Sanctions

by Jeremy Paner

Last Friday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the designations of a number of prominent Russian oligarchs.  The initial reaction of many companies with investment or business ties with these blocked parties was either panic or nonchalance.  In most cases, those extreme reactions arose from confusion about the scope of the Russia sanctions program, OFAC’s broad discretionary powers, and the enforcement process.

Uniqueness of the Russia Sanctions Program

OFAC currently administers and enforces 28 separate sanctions programs.  Each program is governed by its own regulations, with corresponding definitions, prohibitions, exceptions, and exemptions.  These regulations generally prohibit U.S. companies from dealing with designated parties on the Specially Designated Nationals And Blocked Persons List (SDN List), absent a general or specific license.  U.S. law similarly prohibits non-U.S. companies from involving U.S. companies in their dealings with SDNs, irrespective of the sanctions program.  The extraterritorial effect on non-U.S. companies, however, varies greatly depending on the program and specific designation authority.  Non-U.S. companies should be mindful of two Russia sanctions authorities that substantially expand OFAC’s reach.

Section 226 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) authorizes OFAC to place secondary sanctions on non-U.S. financial institutions that knowingly facilitate significant financial transactions on behalf of designated Russian oligarchs, among other designees.  Non-U.S. banks should be familiar with these correspondent or payable-through account sanctions, which mirror various Iran sanctions authorities.[1]

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April 2, 2018

Nearly 75 Percent of OFAC Penalties Have One Commonality

by  Jeremy Paner

Over the past five years, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has assessed 90 civil monetary penalties worth $2,087,207,524 for apparent violations of economic and trade sanctions.  OFAC assessed these penalties against U.S. and non-U.S. companies operating in a wide range of industries.  The most significant commonality among the penalties is not the alleged egregiousness of the apparent violations, or the compliance practices and failures that gave rise to the violations.  The biggest factor in determining OFAC’s enforcement response to sanctions violations may involve a company’s willingness to submit a truthful, timely, and complete disclosure of its violations.    Continue reading

March 12, 2018

Three Simple Questions to Assess OFAC Compliance Programs

by  Jeremy Paner

In the past, many businesses operated under the misconception that banks were solely responsible for sanctions compliance. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has disabused large companies of this misunderstanding through significant monetary penalties against a broad array of businesses outside the financial industry. Today, both U.S.-based international businesses and non-U.S. companies that conduct business in the United States and/or with U.S. companies generally understand the importance of having a sanctions compliance program commensurate with their risk profile.

Most companies, however, do not adequately consider whether they are getting the most out of their compliance programs. Narrowly tailored compliance programs that only serve to avoid sanctions violations do not provide optimal returns on investment. Fully functioning compliance programs have the potential to generate significant revenue, especially for high-risk businesses. For these businesses, compliance functionality should not be judged exclusively on the business opportunities lost because of sanctions compliance concerns. Continue reading

January 30, 2018

Upcoming Russian Corruption Designations Likely to be Challenged

by  Jeremy Paner

Late last month, the U.S. Government sanctioned a number of alleged human rights abusers and corrupt actors located throughout the world.  The White House and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed these sanctions more than a year after Congress delegated the underlying designation authority pursuant to the Global Magnitsky Human Rights Accountability Act.[1] While the annex to the Executive Order implementing these sanctions lists two Russian individuals, the sanctions do not focus on the alleged corruption and human rights abuses of any particular country or region.  OFAC is likely to concentrate future corruption-related sanctions on Russia following the submission of a Congressionally mandated report due by the end of this month.

Section 241 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) requires the U.S. Department of the Treasury to submit a report to Congress by January 29, providing certain information on allegedly corrupt Russian oligarchs and parastatal entities.  Most importantly, this report will opine on the likely effects of various sanctions, including debt and equity restrictions, blocking parastatal entities, and imposing secondary sanctions.[2]  It appears that Congress will use the conclusions of this report to delegate additional corruption-related sanctions authorities in the near future.  Continue reading

November 29, 2017

U.S. Treasury’s Likely Next Steps Against North Korea

by  Jeremy Paner

Over the past few months, the United States government has relied upon its economic sanctions and anti-money laundering authorities to increase pressure on North Korea and its sponsor China. Treasury’s Office of Foreign Assets Control (OFAC), Financial Crimes Enforcement Network (FinCEN), and the State Department have all recently contributed to this effort. Examples from earlier this month include the redesignation of North Korea as a State Sponsor of Terrorism following Secretary Tillerson’s determination that North Korea “has repeatedly provided support for acts of international terrorism,” FinCEN’s Final Rule imposing prohibitions against China’s Bank of Dandong for its alleged sanctions evasion on behalf of North Korea, and OFAC’s designations and identifications of blocked property pursuant to Executive Order 13810.

Irrespective of the press releases announcing these sanctions, the most significant actions by the U.S. government have likely occurred behind the scenes in partnership with financial institutions and foreign partners. This information sharing with non-U.S. regulators and confidential targeted financial intelligence gathering against North Korean cover companies will likely steadily increase for the foreseeable future.   Continue reading

October 18, 2017

How Trump’s Non-Certification of the Nuclear Agreement and Terrorism Designation of the IRGC will Affect International Business

by Jeremy Paner

Last week, Trump announced that he would not certify Iran’s compliance with the Nuclear Deal. Domestic U.S. legislation (the Iran Nuclear Agreement Act of 2015) requires the President to certify Iran’s compliance with the terms of the deal every 90 days.  The President could, however, sign an Executive Order at any time resuming the sanctions suspended pursuant to the agreement.  In other words, if Trump truly wanted to terminate the agreement with Iran, he could do so unilaterally at his discretion. There are no constraints to his abandoning the agreement.

No Immediate Effect

Trump’s October 13 announcement does not represent an immediate change to the U.S. sanctions targeting Iran.  His non-certification does not terminate the agreement, and the secondary sanctions targeting Iran remain suspended.  Congress will ultimately decide if the United States resumes its suspended sanctions and will expedite consideration of any legislation to reinstate the sanctions if such bills are proposed within 60 days of October 13.  Continue reading

September 26, 2017

OFAC Takes Action Against the Retail Jewelry Industry

by Jeremy Paner

Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $334,800 settlement with Richemont North America, Inc., d.b.a. Cartier, to resolve potential civil liability arising from apparent violations of the Kingpin Sanctions Regulations.  According to OFAC, between late 2010 and early 2011, an individual made four purchases of jewelry from Cartier locations in California or Nevada, which Cartier then shipped to Shuen Wai Holding Limited, a designated entity in Hong Kong.

Treasury regulations implementing the Bank Secrecy Act require dealers in precious metals, precious stones, or jewels to establish and maintain anti-money laundering  (AML) programs.[1]  These programs should be part of a larger compliance framework, which enable dealers to identify and prevent sales and shipments involving designated individuals and companies.  Retailers such as Cartier, however, are generally exempt from the AML program requirement.[2]  As a result, retailers that ship products internationally should establish a process to identify prohibited dealings, independently of any legally mandated program requirements.  Continue reading

August 28, 2017

Increased Sanctions on Venezuela Place Heavy Burden on Compliance Programs at Financial Institutions

by Jeremy Paner

On Friday, the United States significantly increased its sanctions targeting the Government of Venezuela.  These new sanctions, authorized under Executive Order, are generally similar to the sectoral sanctions targeting Russia following that country’s purported annexation of the Crimea region of Ukraine.  There is, however, an important distinction between the sanctions programs.  The Russian sectoral sanctions are generally list-based, and the prohibitions are limited to entities contained on the Sectoral Sanctions Identification List, including unlisted companies under the so-called 50 Percent Rule.  Compliance with these sanctions requires efficient resolution of screening hits on large Russian businesses such as Sberbank, Gazprom, and Lukoil.  In contrast with this screening and resolution exercise, Venezuela sanctions now require significant due diligence resources to identify prohibited dealings with the Venezuelan government.[1]  Whereas compliance with the sectoral sanctions on Russia requires banks to drink from a fire hose, the new sanctions on Venezuela require efforts analogous to finding a needle in a haystack.

The Executive Order prohibits United States persons from certain dealings in debt, securities, and distributions of profits involving the Government of Venezuela.  United States persons are prohibited from dealings in new debt with a maturity greater than 90 days of Petroleos de Venezuela, S.A. (PdVSA), and greater than 30 days for debt of the Government of Venezuela, other than PdVSA.  While the term “debt” includes bonds[2], the prohibition on dealings with bonds issued by the Government of Venezuela is not limited to those issued after the effective date of the Executive Order, or by maturity date. Continue reading

July 28, 2017

ExxonMobil Challenges OFAC’s First Russia Sanctions Penalty

by Jeremy Paner

Last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced its assessment of a $2 million civil money penalty against ExxonMobil for alleged egregious violations of the Ukraine-Related Sanctions Regulations.  According to OFAC, the violations arise from May 2014 dealings ExxonMobil had with Igor Sechin, in his official capacity as the President of Rosneft OAO.  OFAC has previously addressed the sanctions compliance risk arising from entering into contracts in which designated individuals bind undesignated entities, but the agency had not previously punished a company under that scenario.

OFAC designated Sechin in April 2014 under one of the Ukraine/Russia blocking authorities.  As of the date of his designation, OFAC generally prohibited U.S. companies from transacting or dealing with Sechin.  U.S. companies were not prohibited, however, from all dealings with Rosneft.  The Russian state-owned oil company is subject to restrictions involving certain debt and Russian oil projects, but unlike Sechin, the company is not blocked.

While OFAC separately defines the prohibitions applicable in each if its sanctions programs, economic sanctions regulations generally prohibit transacting or dealing with blocked individuals.  For example, Executive Order 13661 and § 589.201 of the Ukraine-Related Sanctions Regulations prohibit companies from both dealing with property of designated individuals and providing or receiving services to or from those persons.  ExxonMobil filed a civil complaint in the Northern District of Texas concurrently with the penalty announcement, which challenges OFAC’s determination that it received prohibited services from Sechin.

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