Archive for the ‘Sanctions’ Category

Impact of President Trump’s Iran Policy Announcement: No Changes for Now, but the Future of the JCPOA Remains Uncertain

Wednesday, November 15th, 2017 by Danielle McClellan

By: Glen Kelley, Doug Jacobson, Michael Burton & David Brummond Jacobson Burton Kelley PLLC

www.jbktradelaw.com

On October 13, 2017 President Trump announced the long-awaited results of his Administration’s Iran policy review. The key aspect of the announcement was that President Trump will not renew certification of Iranian compliance with the Joint Comprehensive Plan of Action (“JCPOA”) as required by the Iran Nuclear Agreement Review Act of 2015 (“INARA”), a law passed by the US Congress to provide oversight of the JCPOA. President Trump stated that his decision was made because Iran “has committed multiple violations of the JCPOA” and “has not lived up to the spirit of the agreement.”

President Trump also stated that he will “terminate” US participation in the JCPOA unless the parties to the JCPOA agree to make various changes to the JCPOA and that he will request the US Congress to modify INARA to reflect the Administration’s concerns. Following President Trump’s announcement, OFAC designated the Iranian Revolutionary Guard Corps (“IRGC”) as a Specially Designated Global Terrorist (SDGT) as required by Congress in a law passed in August 2017. While there has been much discussion on the designation of the IRGC as a SDGT, in practice the designation was purely symbolic as the IRGC has been listed on OFAC’s Specially Designated National List since 2007 under various Executive Orders.

Though significant, these announcements do not trigger any changes in the status of the JCPOA or to existing US sanctions.

Following the President’s announcement, Secretary of State Rex Tillerson indicated that staying in the JCPOA “was in the best interests of the US.” In addition, Treasury Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker said yesterday that it “is important not to confuse the internal US legal process of certification under INARA with our continued implementation of the JCPOA.”

President Trump’s decision not to certify Iran’s compliance with the JCPOA under Inara now shifts the burden to the US Congress, which could in the coming months reimpose some or all of the secondary sanctions on Iran that were waived on January 16, 2016 when the JCPOA was implemented. In addition, President Trump could in the future refuse to waive the secondary sanctions on Iran that remain suspended and could direct OFAC to terminate OFAC General License H.

While the US position on Iran should become clearer in the coming months, President Trump’s continued criticism of the JCPOA increases the uncertainty regarding (1) the future of US sanctions relief that was a key part of the nuclear agreement with Iran, and (2) whether non-US companies will continue to be able to conduct business with Iran without fear or being subject to US sanctions.

Increased Risk of US Withdrawal from JCPOA and “Snap-Back” of US Sanctions on Iran

It is important to recall that the US has suspended only a small portion of its Iran sanctions for US companies (relating to commercial aircraft), and “US persons” remain prohibited from nearly all transactions involving Iran or its government.

Nearly all of the suspended US sanctions were “secondary” sanctions primarily directed at non-US companies and individuals. The recent events increase the risk of reimposition or “snap-back” of US sanctions, which could be done in one of the following ways:

1. Reimposition of Sanctions Within Next 60 Days – Once the President fails to certify Iran’s compliance with the JCPOA, Congress can pass “qualifying legislation” under INARA in 60 days choosing to reimpose all or some of the Iranian sanctions that have been suspended. However, there does not appear to be significant interest by Congress to proceed in this direction at this time and it is not likely that the necessary votes can be obtained to proceed under this route.

2. Contingent Future Sanctions – Another scenario that is being contemplated by congressional leadership (the Corker-Cotton proposal) is to amend INARA to automatically reimpose US sanctions on Iran’s nuclear program in the future if Iran crosses key thresholds. Among the thresholds being considered is if weapons-grade nuclear material accumulates to the point where there is less than a one-year “breakout” period for obtaining a nuclear weapon.

3. Failure to Waive Suspended Sanctions – Under the JCPOA the President must waive the various sanctions that were suspended. Depending on the underlying law, these waivers must be renewed every 120 days to every six months. It is possible that the Trump Administration could simply choose not to renew one or more of the waivers, which would automatically reimpose the US sanctions. The next waiver deadline is in mid-January 2018. Such action would not require congressional approval and would effectively snap-back sanctions on Iran.

4. Unilateral Withdrawal from JCPOA – The JCPOA does not specifically authorize any party to the agreement to “withdraw.” However, the US could choose to cease implementing its commitments under the agreement, which would effectively lead to US abrogation of the JCPOA.

Next Steps and Practical Impact

Because the JCPOA is a multilateral arrangement, a decision by the US to withdraw from the agreement or to reimpose sanctions would have significant ramifications. Iran has threatened to stop complying with its commitments to curtail its nuclear program if the US reimposes sanctions. The costs of Iran’s reinitiating its nuclear program, however, could undercut the sanctions relief it has received from trading partners other than the US. The EU has made clear that if the suspended US sanctions are reimposed, the EU intends to continue to abide by the terms of the JCPOA so long as Iran does. If US sanctions are reimposed, the EU member states would likely support their companies in their Iranian activity and would strongly oppose any US government move to penalize them under reimposed sanctions. There is also the possibility that the EU would expand its sanctions blocking legislation (sometimes referred to in the EU as antiboycott laws) to cover US secondary sanctions on Iran. If Iran stopped complying with the JCPOA, the EU member states would likely withdraw their support for their companies’ activities in Iran, and might even move to the dispute resolution procedures of the JCPOA or a UN Security Council review, which could lead to the reimposition of EU sanctions.

While we are currently in uncharted waters and are dealing with an unpredictable US Administration, the following is a summary of the possible changes to impact on the JCPOA and US sanctions:

1. Incremental non-nuclear additional sanctions are likely, but the reimposition of the suspended US secondary sanctions or other major changes in the near future seem unlikely at this time. It is important to recall that there have been no immediate changes to US sanctions on Iran.

2. The Trump Administration could terminate US participation in the JCPOA and reimpose sanctions in the future, if insufficient progress is made with the parties to the JCPOA to address certain concerns relating to Iran. There are early indications that EU leaders might try to find a way to provide these additional assurances from Iran regarding their activities of concern.

3. The US could reimpose the suspended secondary (extraterritorial) sanctions. While appearing dramatic, this may not have much practical impact on many non-US companies. Moreover, if discreet secondary (extraterritorial) sanctions are “snapped-back”, it seems likely the EU and its member states would defend EU-based companies from the adverse economic consequences of a reimposition of sanctions.

4. If US sanctions are reimposed, there is reason to believe that Iran, after protesting, would continue to abide by its JCPOA commitments, particularly if it remains clear that the EU and other countries involved in the JCPOA intend to continue to abide by its terms and authorize business with Iran. Of course it is possible that Iran would follow through on its threat to pull out, and this likely would have a more dramatic practical impact.

Whatever the outcome, the OFAC policy that authorizes the export of US-origin humanitarian products to Iran, including medicine, medical devices, and agricultural products, will remain unchanged, just as it was during the height of US sanctions. However, payments for these transactions remains difficult due to the reluctance of many non-US banks to handle Iran-related payments.

Expanded Russia, Iran, and North Korea Sanctions: Top 10 Takeaways

Monday, October 16th, 2017 by Danielle McClellan

(Source: Latham & Watkins LLP)

Authors: Les P. Carnegie, Esq., les.carnegie@lw.com, 202-637-1096; and William M. McGlone, Esq., william.mcglone@lw.com, 202-637-2202

President Trump signs the “Countering America’s Adversaries Through Sanctions Act,” which – among other measures – requires Congressional review to ease Russia-related sanctions.

On Wednesday, August 2, 2017, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act (the Act). The Act significantly expands and codifies US sanctions targeting Russia, and it adds several measures to the already comprehensive US sanctions on Iran and North Korea. The Act passed both houses of Congress last week, with a vote of 419-3 in the House of Representatives and 98-2 in the Senate.

The Act is particularly significant because it codifies many of the Russia-related sanctions measures introduced by President Obama through executive orders, effectively requiring President Trump to secure Congressional approval before easing the targeted US sanctions relating to Russia. Russian President Vladimir Putin has announced his intention to impose retaliatory sanctions in response to the Act, and the Russian Foreign Ministry reportedly ordered a more than 60% cut in US diplomatic staff and suspended use of two US facilities in Russia.

Here are the top 10 takeaways from the Act:

RUSSIA-RELATED SANCTIONS

(1) Codifying and Expanding Existing Sanctions.

The Act codifies the following Executive Orders issued by President Obama: Executive Orders 1366013661136621368513694, and 13757. Among other measures, these Executive Orders imposed a virtual embargo on the Crimea region of Ukraine; imposed sanctions against perpetrators of malicious cyber activity and designated Russian and Ukrainian individuals, including government officials and oligarchs; and provided the underlying authority for Office of Foreign Assets Control (OFAC) Directive 1Directive 2Directive 3, and Directive 4.

The first three OFAC Directives prohibit US persons from extending medium- to long-term credit, or otherwise dealing in “new” debt (and in some cases “new” equity), of designated Russian financial institutions, energy firms, and companies in the defense sector. Directive 4 prohibits US persons from providing goods, software, technology, and services in support of certain non-conventional oil projects in Russia.

The Act expands certain of these Executive Orders and Directives:

* The Act gives the US Treasury Secretary the power to impose sanctions pursuant to Executive Order 13662, including the financing-type sanctions found in the OFAC Directives, against state-owned parties in Russia in the railways, metals, and mining sectors of the Russian economy. Prior to the Act, the targeted sectors were limited to the financial, energy, and defense sectors.

* No later than 60 days after enactment of the Act (or approximately the beginning of October), the US Treasury Secretary must modify Directive 1 to reduce the “new” debt prohibition to 14 days, down from the current 30 days, and Directive 2 from the current 90 days to 60 days. These 14-day and 60-day changes will be effective 60 days after the Directives are modified, which provides some time for US parties to adjust to this change. Notably, current OFAC interpretation (see OFAC FAQ # 419) is that extending payment terms of more than 30 days to a Directive 1 target violates the “new debt” prohibition, meaning that payment terms to Directive 1 parties will need to be reduced to no more than two weeks. The same is the case with respect to Directive 2 targets, for which the payment term requirement will be reduced to 60 days.

– The Act also requires the US Treasury Secretary to, within 180 days of enactment, submit to Congress a report “describing in detail the potential effects of expanding sanctions under Directive 1 … to include sovereign debt and the full range of derivative products.”

* No later than 90 days after the Act’s enactment (or approximately the beginning of November), the US Treasury Secretary must modify Directive 4, to prohibit US persons not only from providing goods, services (other than financial services), and technology to projects in Russia relating to the exploration or production for oil for deepwater, Arctic offshore, or shale projects, but to such projects anywhere in the world. Notably, the Directive’s expansion appears to reach non-conventional exploration and production beyond Russia, applies only to “new” deepwater, Arctic offshore, or shale projects, and only those projects where the Directive 4 target “has a controlling interest or a substantial non-controlling ownership interest in such a project defined as not less than a 33 percent interest.”

– This “new” and “substantial non-controlling ownership interest” language was added by the House to the Senate version, in an attempt to ease concerns raised by US energy firms and European allies regarding the breadth of the provision. This new provision will be effective 90 days after the US Treasury Secretary modifies Directive 4.

(2) Congressional Oversight of the President’s Russia-Related Actions.

Notably, the Act gives the US Congress the opportunity during a 30-day review period to disapprove of any effort by the President to reduce, waive, or eliminate US sanctions relating to Russia. Section 216 of the Act gives Congress the power to review (i) any action to terminate the application of the sanctions in the Act, the codified Executive Orders mentioned above, and certain other statutes; (ii) any action to waive the application of sanctions targeted at certain persons, such as parties added to the Specially Designated Nationals and Blocked Persons list (SDN List) or the List of Sectoral Sanctions Identifications parties (SSI List), or (iii) any “licensing action that significantly alters United States’ foreign policy with regard to the Russian Federation.”

(3) Energy Pipeline Secondary Sanctions.

The Act gives the President the power to impose, but does not require, secondary sanctions on foreign persons that knowingly (i) make an investment of US$1 million or more (or US$5 million or more over a 12-month period) that directly and significantly contributes to enhancing Russia’s ability to construct energy export pipelines or (ii) sell, lease, or provide to the Russian Federation, goods, services, technology, information, or support (valued at US$1 million or more, or during a 12-month period with an aggregate value of US$5 million or more) that could directly and significantly facilitate the maintenance or expansion of the construction, modernization, or repair of energy pipelines.

* The Act appears to require the President to impose any such sanctions “in coordination with allies of the United States.” This language was added to the House version of the Act in response to concerns raised by European allies, in light of such projects as the proposed Nord Stream 2 natural gas pipeline from Russia to Germany.

(4) Cybersecurity Sanctions.

On or after 60 days of enactment, the Act requires the President, subject to a national security interest waiver, to impose asset-blocking as well as travel sanctions, including certain secondary sanctions, on any person who knowingly engages in significant activities that undermine the cybersecurity of any person or government, including a democratic institution, on behalf of the Russian government. Any national security interest waiver submitted by the President to avoid the imposition of sanctions must be accompanied by a certification that the Russian government has “made significant efforts to reduce the number and intensity of cyber intrusions conducted by that Government.” The Act includes a definition of what constitutes “significant activities undermining cybersecurity,” which includes, among other activities, significant destructive malware attacks.

(5) Secondary Sanctions Targeting Certain Activities Relating to Russian Intelligence and Defense Sectors, Sanctions Evaders, and Privatizations.

The Act requires the President to impose secondary sanctions on those (including non-US persons) who he determines:

* Have knowingly engaged in a significant transaction with “a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation, including the Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation or the Federal Security Service of the Russian Federation.” Secondary sanctions are to be imposed 180 days after enactment of the Act. The Act requires the President to issue guidance or regulations no later than 60 days after the date of the Act’s enactment to “specify the persons that are part of, or operate for or on behalf of, the defense and intelligence sectors of the Government of the Russian Federation.”

* Are responsible for, complicit in, or have supported serious human rights abuses in any territory forcibly occupied or otherwise controlled by the Russian government. The Act also requires sanctions on foreign persons that (i) knowingly have materially violated, attempted to violate, or conspired to violate or caused a violation of US sanctions or the Ukraine Freedom Support Act of 2014, or (ii) “facilitates a significant transaction or transactions, including deceptive or structured transactions” for or on behalf of a person that is a target of US sanctions, or for that person’s child, spouse, parent, or sibling.

* With actual knowledge make an investment of US$10 million or more (or any combination of investments not less than US$1 million each, which in the aggregate equals or exceeds US$10 million in a 12-month period), or facilitate such an investment, if the investment “directly and significantly” contributes to the ability of the Russian government to “privatize state-owned assets in a manner that unjustly benefits” Russian government officials or “close associates” or family members of those officials. The Act does not define the terms “investment,” “unjustly benefit,” and “close associates.”

(6) Sanctions Targeting Crude Oil Projects and Corruption.

The Act limits the discretion of the President under the Ukraine Freedom Support Act of 2014 by requiring the President to impose secondary sanctions on a foreign person that knowingly makes a “significant investment” in a “special Russian crude oil project” as well as foreign financial institutions that support such investments. The Ukraine Freedom Support Act does not define the term “significant investment” and defines a “special Russian crude oil project” to be a crude oil extraction project in Russian deepwater (i.e., more than 500 feet deep), Arctic offshore locations, or shale formations. The President can waive the imposition of such secondary sanctions by invoking a national interest waiver.

* The Act also limits the President’s discretion under the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, requiring him to impose secondary sanctions against a Russian government official or close associate or family member involved in an act of significant corruption in Ukraine, Russia, or elsewhere.

(7) Sanctions Relating to Support for the Syrian Government.

The President is required to impose asset-blocking and travel sanctions on any person determined by the President to have knowingly exported, transferred, or otherwise provided significant financial, material, or technological support to the Syrian government in acquiring or developing advanced conventional weapons, ballistic, or cruise missile capabilities, as well as biological, chemical, and nuclear weapons and related technologies.

(8) Secondary Sanctions Described.

The so-called “secondary sanctions” described in the Act target the activities of non-US persons. These secondary sanctions can be applied to parties beyond the jurisdiction of the United States, and they effectively take the form of a denial of US benefits, as opposed to monetary penalties available under US “primary” sanctions (which apply to US persons).

* In the context of the Act, the menu of secondary sanctions from which the President can select (generally, he must select up to five) includes the following:

– Denial of export-import bank financing and assistance

– Denial of US export licensing

– Prohibition against US financial institution making loans or providing credits of more than US$10 million in any 12-month period

– Use of US government power to oppose a loan from a non-US financial institution to the sanctioned party

– Denial of US Government procurement

– Prohibition against transactions in foreign exchange that are within US jurisdiction

– Prohibition against transfers of credit or payments between financial institutions or by, through, or to any financial institution, if within US jurisdiction

– For foreign financial institutions, (i) loss of designation as a primary dealer in US Government debt instruments by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York and/or (ii) revocation of right to serve as an agent of the US Government or to serve as repository for US Government funds

– Effect on the property rights of sanctioned persons for property within US jurisdiction (i.e., asset blocking similar to those on OFAC’s SDN List)

– Prohibition against US persons investing in or purchasing significant amounts of equity or debt instruments of the sanctioned persons

– Travel prohibitions directed at corporate officers, principals, or controlling shareholders or principal of, or a shareholder with a controlling interest in

– Placement of any of these secondary sanctions on the principal executive officer or similar officers of the sanctioned person

IRAN

Largely in response to Iran’s ballistic missile tests, the Act imposes new sanctions targeting Iran’s defense sector and the Islamic Revolutionary Guard Corps (IRGC).

(9) Asset-Freezing and Terrorism-Related Sanctions.

The Act requires the President to impose asset-freezing sanctions (and for non-US persons, a travel ban) against any US or foreign person that knowingly engages “in any activity that materially contributes to the activities of the Government of Iran with respect to its ballistic missile program” or programs to develop, deploy, or maintain weapons of mass destruction. Subject to his exercise of a national security interest waiver, the President must also impose asset-freezing sanctions (and for non-US persons, a travel ban) against any US or foreign person who knowingly contributes to the “supply, sale, or transfer” to Iran of “battle tanks, armored combat vehicles, large caliber artillery systems, combat aircraft, attack helicopters, warships, missiles or missile systems … or related materiel, including spare parts.”

* The Act also requires the President to impose the same sanctions on those who knowingly provide “technical training, financial resources or services, advice” or other services in supporting the use of the material listed. 90 days after the Act’s enactment, the President must impose terrorism-related sanctions pursuant to Executive Order 13224 against the IRGC and its “officials, agents or affiliates.” Notably, significant transactions with the IRGC can already subject non-US persons to US secondary sanctions, which survived the implementation of the Nuclear Agreement with Iran in January 2016.

NORTH KOREA

Largely in response to North Korea’s successful test of an intercontinental ballistic missile on July 4, 2017, the House of Representatives recently introduced certain North Korea-related provisions to the Act. Among other measures, the Act requires the US Secretary of State to provide Congress, within 90 days of enactment, a determination as to whether North Korea should be considered a state sponsor of terrorism.

(10) Additional Designation Authority and Human Rights Provisions.

The Act broadens the list of persons the President must impose asset-blocking measures under the North Korea Sanctions and Policy Enhancement Act of 2016 (NKSPEA). These additional targets include those who knowingly procure certain precious metals from North Korea; sell or transfer rocket, aviation or jet fuel to North Korea; provide fuel or supplies for designated North Korean vessels or aircraft; provide insurance services to vessels owned or controlled by the North Korean government; or maintain a correspondent account with any North Korean financial institution.

* The Act also expands the President’s discretionary authority to designate parties under the NKSPEA, including parties who knowingly acquire coal, iron, or iron ore from the North Korean government; purchase significant amounts of textiles from North Korea; or sell or transfer significant amounts of crude oil, condensates, petroleum products, or natural gas resources to the North Korean government, among other activities. Under the human rights-related provisions, the Act prohibits most goods produced by North Korean labor from entering the US and allows for the imposition of sanctions on most parties who knowingly employ North Korean labor.

* These new North Korea sanctions presumptively increase the prospects of designations of parties from China in the coming weeks.

CSE Global Limited and CSE TransTel Pte. Ltd. Pay Settlement for Apparent Violations Involving Iranian Companies

Monday, October 16th, 2017 by Danielle McClellan

By: Ashleigh Foor

A solely-owned subsidiary of CSE Global Limited (an international technology group), CSE TransTel Pte. Ltd., appears to have violated § 1705 (a) of IEEPA and § 560.203 of the ITSR and has agreed to pay a $12,027,066 settlement for the apparent 104 violations of the International Emergency Economic Powers Act 1 (IEEPA) and the Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 (ITSR). The apparent violations occurred on or around June 4, 2012 through March 27, 2013 when TransTel appears to have involved at least six different financial institutions in the unauthorized exportation or re-exportation of services from the United States to Iran, a prohibition of § 560.204 of the ITSR.

OFAC concluded that TransTel did not voluntarily make known these apparent violations, which OFAC found to be grounds for a serious case. The maximum and base civil monetary penalty for the apparent violations was $38,181,161.

TransTel first signed contracts with and received purchase orders from Iranian companies starting August 25, 2010 through November 5, 2011. The purchase orders were for multiple energy projects taking place in Iran and/or Iranian territory. In order to carry out the orders to deliver and install telecommunications equipment, TransTel hired several Iranian companies to deliver these goods and services on its behalf.

Preceding these interactions with Iranian companies, CSE Global and TransTel opened separate Singapore bank accounts (the “Bank”). Then-Managing Director and CSE Global’s then-Group Chief Executive Officer signed and sent a letter titled “Sanctions – Letter of Undertaking” to the Bank with the following statement: “In consideration of [the Bank] agreeing to continue providing banking services in Singapore to our company, we, CSE TransTel Pte. Ltd … hereby undertake not to route any transactions related to Iran through [the Bank], whether in Singapore or elsewhere.”  The Bank continued to provide financial services to the company after receiving the Letter of Undertaking and around June 2012, less than two months after the Letter of Undertaking was delivered, TransTel began transferring USD funds related to its Iranian business.

On or around the dates of June 4, 2012 to March 27, 2013 Transtel appears to have violated § 1705 (a) of IEEPA and/or § 560.203 of the ITSR when it initiated 104 USD wire transfers totaling more than $11,111,000 involving Iran. Transfers from the Bank went to several different third-party contacts including Iranian vendors. There was never any mention of Iran, the Iranian projects, or any Iranian parties on documentations involved in these transactions.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. part 501, app. A. OFAC considered the following to be aggravating factors:

(1) TransTel willfully and recklessly caused apparent violations of U.S. economic sanctions by engaging in, and systematically obfuscating, conduct it knew to be prohibited, including by materially misrepresenting to its bank that it would not route Iran-related business through the bank’s branch in Singapore or elsewhere, and by engaging in a pattern or practice that lasted for 10 months;

(2) TransTel’s then-senior management had actual knowledge of – and played an active role in – the conduct underlying the apparent violations;

(3) TransTel’s actions conveyed significant economic benefit to Iran and/or persons on OFAC’s List of Specially Designated Nationals and Blocked Persons by processing dozens of transactions through the U.S. financial system that totaled $11,111,812 and benefited Iran’s oil, gas, and power industries; and

(4) TransTel is a commercially sophisticated company that engages in business in multiple countries.

 

OFAC considered the following to be mitigating factors:

(1) TransTel has not received a penalty notice, Finding of Violation, or cautionary letter from OFAC in the five years preceding the date of the earliest transaction giving rise to the apparent violations;

(2) TransTel and CSE Global have undertaken remedial steps to ensure compliance with U.S. sanctions programs; and

(3) TransTel and CSE Global provided substantial cooperation during the course of OFAC’s investigation, including by submitting detailed information to OFAC in an organized manner, and responding to several inquiries in a complete and timely fashion.

This enforcement action reflects compliance obligations for all companies that conduct business in OFAC-sanctioned jurisdictions or process transactions through or related in any way to the United States. Prior to signing agreement letters, representatives should be certain they and their company are willing and able to abide by rules set forth.

Treasury Fingers Countries Enforcing the Arab League Boycott of Israel

Monday, October 16th, 2017 by Danielle McClellan

Editorial By: John Black

Note:  I love this list.  It gives me a chance to say tertiary.   As my career winds down its things like this that I will miss.

N.B.:  I don’t remember ever seeing anybody write an editorial piece about Treasury publishing this list, probably for good reason.  If I don’t do this now, nobody ever will. 

Once again the Treasury Department has published its list of countries that more or less enforce certain aspects of the Arab League Boycott of Israel. Or, as Treasury clearly states, they are countries “which may require participation in, or cooperation with, an international boycott (within the meaning of section 999(b)(3) of the Internal Revenue Code of 1986).”

You see, way back whenever, the US Congress decided it doesn’t like US persons cooperating with the secondary and tertiary elements of the Arab Boycott of Israel so it told the Treasury Department to put something in the tax code so that US person who illegally cooperate can’t claim foreign tax credits. Congress also told the Commerce Department to put something in its export control regulations so the Commerce rules make such cooperation illegal without telling anybody which countries it applies to.

You see, Congress and the US Government don’t want to have actual rules that say Arab League Boycott of Israel to make it clear that US person can’t cooperate with the unmentionable boycott on the unmentionable close ally of the United States.  Because, what the wizards* in Washington figured out is, if they don’t write little known rules that ban cooperation with the “Arab Boycott of Israel,” nobody will know that US foreign policy in many ways has long favored Israel over the Arab League.

(*Sorry, I did not mean to disparage indirectly the Washington Wizards NBA basketball team but this raises an important issue.  Years ago the Washington Bullets NBA team decided to change their name to the Washington Wizards. I always knew that they dropped the Bullets name to reduce violent crime in the capital city (how is that working?)  But, after wondering for years why the Washington team chose “Wizards,” I just now realized it is because most of the people in Congress and the US Government are wizards—either, if you are old like me, the type of wizards who wear pointy hats and robes with stars on them and have a magic wand or, if you are not old, those in Harry Potter movies; or, if you ask Congress, the type of wizards who are generally highly adept at what they do.  Now that’s another life knowledge breakthrough thanks to export regs.)

Treasury noted that this list is “based on currently available information,” which, I personally found to be a great relief because if the list had been based on only information available prior to 1975, it would have looked quite different.  And who knows what the list would have looked like if it were based on information that is not currently available—We could have ended up with Mexico and China on the list, seriously.

FYI, this paragraph contains information that is important:  Treasury listed these countries:

  • Iraq
  • Kuwait
  • Lebanon
  • Libya
  • Qatar
  • Saudi Arabia
  • Syria
  • United Arab Emirates
  • Yemen

The Commerce Department traditionally does not publish a similar list of countries for its antiboycott rules in Part 760 of the Export Administration Regulations (“EAR”).  EAR 760 prohibits a US person from cooperating with (or agreeing to do so) the secondary and tertiary elements of the Arab League boycott of Israel.  Instead of ever mentioning the Arab League or Israel, Commerce and the EAR brandish the terms “boycotting countries” and “boycotted countries” to adeptly hide the US pro-Israel foreign policy bias.

A reasonable person might assume that since the Commerce and Treasury rules have the same objective and are implemented by the same US Government, the Commerce Department considers its rules are applicable to the same countries as Treasury.

Editorial Note: I am not saying that the EAR rules are limited to the list of countries Treasury published. I am merely pointing out what a reasonable person might assume.

Useful Information:  In any event, when you do a risk based assessment of your EAR compliance issues and, based on that, decide how to allocate your limited compliance resources, it may be cost-effective to focus your EAR antiboycott rules compliance on the countries on the Treasury list.  And while you are doing risk assessments and deciding how to cost-effectively allocate your limited resources for EAR compliance, you may decide to allocate only a small portion of your total EAR compliance resources to compliance with the EAR antiboycott rules.  That is because antiboycott EAR fines are frequently well under $100k.  I recommend you allocate most of your EAR compliance resources to focus on compliance with the standard EAR export controls where it is not unusual for Commerce (along with OFAC) to impose fines of hundreds of millions of dollars, or in the case of ZTE, $1 billion and membership on an export denial list.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2017-08-02/pdf/2017-16290.pdf

Russia Will Struggle to Turn on Siemens Turbines in Sanctions-Bound Crimea

Thursday, August 3rd, 2017 by Danielle McClellan

(Source: Reuters, 19 July 2017.)

MOSCOW (Reuters) – Russia outfoxed European Union sanctions by delivering gas turbines made by Germany’s Siemens to the annexed Ukrainian region of Crimea. Now for the hard part, switching them on.

No Russian company, according to Reuters data, has ever got a Siemens turbine working without the help of the manufacturer.

In this case, Siemens said the turbines were shipped to Crimea behind its back and is refusing to be involved, leaving Moscow to work out how to start them up to fulfill President Vladimir Putin’s promise to give Crimea a stable power supply.

Siemens has filed a lawsuit against its Russian customer over the delivery of the turbines to Crimea and says it will do everything in its power to block their installation and commissioning.

If Russia can somehow get the turbines operating at the two new power plants under construction, having already irked Europe by delivering them, it will again demonstrate its ability to thumb its nose at the sanctions.

Ten industry specialists who spoke to Reuters said starting up the turbines without engineers from Siemens or its partners would be a tough test of the country’s engineering resourcefulness, fraught with technical problems, expensive and a legal minefield.

“Without Siemens it will be very hard to do it,” said an industry source.

But the majority of the specialists said it can be done — even if it has never been attempted before.

Hunt for a Contractor

A firm involved in building the Crimean power plants had hired a Russian company called Interavtomatika, which is 45.7 percent owned by Siemens, to help turn on the turbines, according to three sources familiar with the project.

Since then, Siemens said it has got a written undertaking from Interavtomatika that it will halt any activities connected to Crimea.

In an implied threat to pull out of the venture, a company source familiar with the matter has also said Siemens is reviewing its engagement in its Russian businesses. The source declined to say whether that could affect Interavtomatika and Siemens declined to comment.

EU companies are banned from transferring energy technology to Crimea under the sanctions, imposed after Moscow seized the peninsula from Ukraine in 2014. But, in a loophole Moscow seems to have exploited, their Russian subsidiaries are not directly liable.

When asked if its turbines could be assembled, installed, and commissioned without its cooperation, Siemens said it was unwilling to speculate about future developments and did not want to fuel such speculation. Russia’s Energy Ministry did not respond to a Reuters request for comment.

Several of the industry sources said a Russian firm called ROTEK had experience with Siemens turbines. It is part of the Renova conglomerate controlled by billionaire Viktor Vekselberg.

The company, along with its partners, services 13 Siemens gas turbines in Russia similar to the model delivered to Crimea, according to ROTEK’s website. The company, asked by Reuters if it has been approached to help with the Crimea turbines, declined to comment.

Some of the Siemens turbines ROTEK services are installed at power stations owned by gas giant Gazprom and ROTEK services those ones with a Gazprom-owned firm called Teploenergoremont-Servis. That company, via a representative in Gazprom’s power division, declined to comment.

High Risk

Any Russian company that agrees to set up the Crimea turbines must weigh the “very high” risk of sanctions being imposed on any EU or US business it has, according to Artyom Zhavoronkov, partner in the Russian office of law firm Dentons.

Renova has assets in the European Union and the United States. Gazprom has assets in the European Union.

Russian officials have not acknowledged shipping Siemens turbines to Crimea. They say the turbines were obtained second hand and were Russian-made. Siemens makes turbines at a factory it co-owns in Russia.

Technopromexport, the Russian company building the Crimean power plants, has also not confirmed the turbines are made by Siemens. It declined to go into detail on how they would be serviced, beyond saying it would be “by Russian specialists and contractors”.

If no firm wants to take on the job, Technopromexport and its partners could instead assemble a team of specialists themselves to get the task done, several of the industry specialists said.

One person close to the Crimea power plants project said a recruitment drive was already underway to find people in the Russian power sector who had experience of launching Siemens gas turbines.

According to one industry specialist, 18 turbines of the same model now in Crimea have previously been launched in Russian power stations. As a result, there is a pool of people who have at least observed the turbines being commissioned.

“In theory you can try to launch them without Siemens,” said one industry specialist, who, like all the other people in the sector who spoke to Reuters, requested anonymity because of the sensitivity of the subject.

The turbines can be launched if you “gather up the people and the know-how from when these turbines were already used, in Russia and abroad,” said the first industry source.

The model of Siemens turbines the German firm and the three sources close to the power plant say is now in Crimea — the SGT5-2000E — is not the latest word in turbine technology, but is highly sophisticated.

It is run by an automatic control system that uses Siemens proprietary software. It contains highly-engineered parts — such as the blades that turn the turbine — which up to now have only ever been bought from Siemens or its partners.

The blades need to be replaced after between three and four years and no home grown Russian company manufactures blades compatible with the Siemens turbines in Crimea, several of the specialists told Reuters.

Workarounds mentioned by people in the industry included sourcing non-original spare parts from manufacturers in China, Russian engineers attempting to replicate the blades themselves or trying to buy them via intermediaries.

“There are organisations in Russia that, in principle, can make the blades,” said an energy sector source in ex-Soviet Belarus who has experience of working with Siemens equipment. “How reliable they are, that’s another matter.”

Beware of Contracts Signed by Specially Designated Nationals

Thursday, August 3rd, 2017 by Danielle McClellan

(Source: Commonwealth Trading Partners)

By: Chalinee Tinaves, Esq., Commonwealth Trading Partners, ctinaves@ctp-inc.com.

On July 20, 2017, the Office of the Foreign Assets Control (OFAC) announced a $2 million penalty against ExxonMobil Corporation and two of its subsidiaries for violating the Ukraine-Related Sanctions Regulations. According to OFAC, ExxonMobil violated the sanctions when its execs dealt in services with Igor Sechin, President of Rosneft OAO, when they signed eight legal documents relating to oil and gas projects in Russia between May 14, 2014, and May 23, 2014.

If you’ll travel back in time to March 2014, as tensions were heating up regarding Russian deployment of military forces in the Crimea region of Ukraine, President Obama issued Executive Order 13661, “Blocking Property of Additional Persons Contributing to the Situation in Ukraine,” in response to actions deemed to constitute an unusual and extraordinary threat to the national security and foreign policy of the U.S. Section 1(a)(ii) authorized the Secretary of the Treasury to designate officials of the Government of the Russian Federation, block any property or interests in property, and prohibit dealing in any property and interests in property of a person listed on the Specially Designated Nationals and Blocked Persons List (SDN List). Section 4 of E.O. 13661 prohibited US persons from making “any contribution or provision of funds, goods, or services by, to, or for the benefit of any person whose property and interests in property are blocked pursuant to this order” as well as receiving “any contribution or provision of funds, goods, or services” from a designated person.

On April 28, 2014, OFAC designated Igor Sechin as an official of the Russian government, thereby generally prohibiting US persons from conducting transactions with him. Although Rosneft OAO is:

  • designated on the Sectoral Sanctions Identifications List (SSI List) pursuant to Executive Order 13662 “Blocking Property of Additional Persons Contributing to the Situation in Ukraine;”
  • subject to Directive 2 (prohibiting transacting in, providing financing for, or otherwise dealing in new debt of greater than 90 days maturity if that debt is issued on or after the sanctions effective date by, on behalf of, or for the benefit of the persons operating in Russia’s energy sector); and
  • subject to Directive 4 (prohibition against the direct or indirect provision of, exportation, or reexportation of goods, services, or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation or in maritime area claimed by Russian Federation and extending from its Territory); nonetheless, Rosneft OAO is not designated on the SDN List and is therefore not subject to blocking sanctions.

As you can see, the conflict lies in how to conduct business transactions with an organization that is not blocked with an executive who is. According to the release, OFAC rejected ExxonMobil’s position that Sechin was acting in his professional capacity as President of Rosneft OAO when they signed the legal documents. Specifically, ExxonMobil referenced comments by a Treasury Department spokesman in April 2014 allowing BP Plc Chief Executive, Bob Dudley, to remain on the board of directors of Rosneft OAO so long as he did not discuss personal business with Sechin. In rejecting this argument, OFAC indicated that statement did not address ExxonMobil’s conduct nor did the plain language of Ukraine-Related Sanctions Regulations include a distinction between “personal” or “professional.” Further, OFAC has not interpreted the Regulations to create a carve-out for designated parties acting in their professional capacity.

Interestingly, in support of its position, OFAC pointed to its Frequently Asked Question #285 published on March 18, 2013, regarding the Burma Sanctions Program. Although conveniently now removed from OFAC’s FAQs and website following the termination of the Burma Sanctions Regulations, an archived link detailing FAQ #285 captured the full text of OFAC’s response to ministry dealings with a designated Burmese Government minister. According to OFAC:

A government ministry is not blocked solely because the minister heading it is an SDN. U.S. persons should, however, be cautious in dealings with the ministry to ensure that they are not, for example, entering into any contracts that are signed by the SDN.

However, in Treasury’s restatement of FAQ #285 in the ExxonMobil announcement, OFAC indicated that US parties should “be cautious in dealings with [a non-designated] entity to ensure that they are not providing funds, goods, or services to the SDN, for example, by entering into any contracts that are signed by the SDN.”

Rejecting ExxonMobil’s rebuttal that OFAC regulations state that different interpretations may exist among and between the sanctions programs that it administers, FAQ #285 “clearly signaled” that OFAC views the signing of a contract with an SDN as prohibited, even if the entity on whose behalf the SDN signed was not sanctioned in situations where sanctions programs also involve SDNs. These reasons, in addition to the definitions of “property” and “property interest” in the Ukraine-Related Sanctions Regulations, E.O. 13661, and statements issued by the White House and the Department of Treasury, served to provide ExxonMobil with notice that signing the legal documents with Sechin would violate the prohibitions in the Ukraine-Related Sanctions Regulations.

In assessing the penalty based on OFAC’s Economic Sanctions Enforcement Guidelines, among other aggravating factors, OFAC viewed ExxonMobil’s transaction to be a show of “reckless disregard for U.S. sanctions requirements when it failed to consider warning signs associated with dealing in the blocked services of an SDN” and contributed “significant harm” to the objectives of the Ukraine-Related Sanctions Program. Following the announcement, ExxonMobil stood by its position that it acted in full compliance with the sanctions guidelines in 2014 and argued that the Treasury Department is “trying to retroactively enforce a new interpretation of an executive order that is inconsistent with the explicit and unambiguous guidance from the White House and Treasury issued before the relevant conduct and still publicly available today.”

What does all this mean for U.S. companies? While FAQ #285 was initially crafted to address contracts with a designated government official (which Sechin satisfied based on his designation as a Russian official), it is unclear whether this interpretation would also be applicable in situations involving non-government SDNs and their corporate dealings. Further, the prohibited conduct of entering into a contract signed by an SDN in FAQ #285 was listed as an example. It is entirely possible that a range of other contract activities are prohibited by SDNs like negotiating a contract. Companies must be aware of the risks associated with projects that would require authorization by an SDN. Further, companies can mitigate their risk by screening all the parties involved in a transaction to avoid potentially violating a sanctions program.

Treasury/OFAC Publishes New Cuba-Related FAQs

Wednesday, July 19th, 2017 by Danielle McClellan

(Source: Treasury/OFAC)

Frequently Asked Questions on President Trump’s Cuba Announcement

 

(1) How will OFAC implement the changes to the Cuba sanctions program announced by the President on June 16, 2017?  Are the changes effective immediately?

OFAC will implement the Treasury-specific changes via amendments to its Cuban Assets Control Regulations.  The Department of Commerce will implement any necessary changes via amendments to its Export Administration Regulations.  OFAC expects to issue its regulatory amendments in the coming months.  The announced changes do not take effect until the new regulations are issued.

 

(2) What is individual people-to-people travel, and how does the President’s announcement impact this travel authorization?

Individual people-to-people travel is educational travel that: (i) does not involve academic study pursuant to a degree program; and (ii) does not take place under the auspices of an organization that is subject to U.S. jurisdiction that sponsors such exchanges to promote people-to-people contact.  The President instructed Treasury to issue regulations that will end individual people-to-people travel.  The announced changes do not take effect until the new regulations are issued.

 

(3) Will group people-to-people travel still be authorized?

Yes.  Group people-to-people travel is educational travel not involving academic study pursuant to a degree program that takes place under the auspices of an organization that is subject to U.S. jurisdiction that sponsors such exchanges to promote people-to-people contact.  Travelers utilizing this travel authorization must maintain a full-time schedule of educational exchange activities that are intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities, and that will result in meaningful interaction between the traveler and individuals in Cuba.  An employee, consultant, or agent of the group must accompany each group to ensure that each traveler maintains a full-time schedule of educational exchange activities.

 

(4) How do the changes announced by the President on June 16, 2017 affect individual people-to-people travelers who have already begun making their travel arrangements (such as purchasing flights, hotels, or rental cars)?

The announced changes do not take effect until OFAC issues new regulations.  Provided that the traveler has already completed at least one travel-related transaction (such as purchasing a flight or reserving accommodation) prior to the President’s announcement on June 16, 2017, all additional travel-related transactions for that trip, whether the trip occurs before or after OFAC’s new regulations are issued, would also be authorized, provided the travel-related transactions are consistent with OFAC’s regulations as of June 16, 2017.

Department of the Treasury Office of Foreign Assets Control (OFAC)

 

(5) How do the changes announced by the President on June 16, 2017 affect other authorized travelers to Cuba whose travel arrangements may include direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy?

The announced changes do not take effect until OFAC issues new regulations.  Consistent with the Administration’s interest in not negatively impacting Americans for arranging lawful travel to Cuba, any travel-related arrangements that include direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted provided that those travel arrangements were initiated prior to the issuance of the forthcoming regulations.

 

(6) How do the changes announced by the President on June 16, 2017 affect companies subject to U.S. jurisdiction that are already engaged in the Cuban market and that may undertake direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy?

The announced changes do not take effect until OFAC issues new regulations.  Consistent with the Administration’s interest in not negatively impacting American businesses for engaging in lawful commercial opportunities, any Cuba-related commercial engagement that includes direct transactions with entities related to the Cuban military, intelligence, or security services that may be implicated by the new Cuba policy will be permitted provided that those commercial engagements were in place prior to the issuance of the forthcoming regulations.

 

(7) Does the new policy affect how persons subject to U.S jurisdiction may purchase airline tickets for authorized travel to Cuba?

No. The new policy will not change how persons subject to U.S. jurisdiction traveling to Cuba pursuant to the 12 categories of authorized travel may purchase their airline tickets.

 

(8) Can I continue to send authorized remittances to Cuba?

Yes.  The announced policy changes will not change the authorizations for sending remittances to Cuba.  Additionally, the announced changes include an exception that will allow for transactions incidental to the sending, processing, and receipt of authorized remittances to the extent they would otherwise be restricted by the new policy limiting transactions with certain identified Cuban military, intelligence, or security services.  As a result, the restrictions on certain transactions in the new Cuba policy will not limit the ability to send or receive authorized remittances.

 

(9) How does the new policy impact other authorized travel to Cuba by persons subject to U.S. jurisdiction?

The new policy will not result in changes to the other (non-individual people-to-people) authorizations for travel.  Following the issuance of OFAC’s regulatory changes, travel-related transactions with prohibited entities identified by the State Department generally will not be permitted. Guidance will accompany the issuance of the new regulations.

 

(10) How will the new policy impact existing OFAC specific licenses?

The forthcoming regulations will be prospective and thus will not affect existing contracts and licenses.

 

(11) How will U.S. companies know if their Cuban counterpart is affiliated with a prohibited entity or sub-entity in Cuba?

The State Department will be publishing a list of entities with which direct transactions generally will not be permitted.  Guidance will accompany the issuance of the new regulations.  The announced changes do not take effect until the new regulations are issued.

 

(12) Is authorized travel by cruise ship or passenger vessel to Cuba impacted by the new Cuba policy?

Persons subject to U.S. jurisdiction will still be able to engage in authorized travel to Cuba by cruise ship or passenger vessel.

Following the issuance of OFAC’s regulatory changes, travel-related transactions with prohibited entities identified by the State Department generally will not be permitted.  Guidance will accompany the issuance of the new regulations.

For more information on the National Security Presidential Memorandum visit: https://www.whitehouse.gov/blog/2017/06/16/fact-sheet-cuba-policy.

Trump Calls for Slight Rollback on Obama’s Slight Relaxations for Cuba

Wednesday, July 19th, 2017 by Danielle McClellan

(Source: Reuters, 16 June 2017.)

President Donald Trump on Friday ordered tighter restrictions on Americans traveling to Cuba and a clampdown on U.S. business dealings with the island’s military, saying “with God’s help a free Cuba is what we will soon achieve.”

As Trump laid out his new Cuba policy in a speech in Miami, the White House announced plans to roll back parts of former President Barack Obama’s historic opening to the communist-ruled country after a 2014 diplomatic breakthrough between the two former Cold War foes. But Trump was leaving many of Obama’s changes, including the reopened U.S. embassy in Havana, in place even as he sought to show he was making good on a campaign promise to take a tougher line against Cuba. “We will not be silent in the face of communist oppression any longer,” Trump told a cheering crowd in Miami’s Cuban-American enclave of Little Havana, including Republican Senator Marco Rubio, who helped forge the new restrictions on Cuba.

Trump’s revised approach, which will be enshrined in a new presidential directive, calls for stricter enforcement of a longtime ban on Americans going to Cuba as tourists and seeks to prevent U.S. dollars from being used to fund what the new U.S. administration sees as a repressive military-dominated government.

But facing pressure from U.S. businesses and even some fellow Republicans to avoid turning back the clock completely in relations with communist-ruled Cuba, the Republican president chose to leave intact many of his Democratic predecessor’s steps toward normalization. The new policy bans most U.S. business transactions with the Armed Forces Business Enterprises Group, a Cuban conglomerate involved in all sectors of the economy, but makes some exceptions, including for air and sea travel, according to U.S. officials. This will essentially shield U.S. airlines and cruise lines serving the island. However, Trump will stop short of breaking diplomatic relations restored in 2015 after more than five decades of hostilities. He will not cut off recently resumed direct U.S.-Cuba commercial flights or cruise-ship travel, though his more restrictive policy seems certain to dampen new economic ties overall.

The administration, according to one White House official, has no intention of “disrupting” existing business ventures such as one struck under Obama by Starwood Hotels Inc., which is owned by Marriott International Inc., to manage a historic Havana hotel. Nor does Trump plan to reinstate limits that Obama lifted on the amount of the island’s coveted rum and cigars that Americans can bring home for personal use. While the changes are far-reaching, they appear to be less sweeping than many U.S. pro-engagement advocates had feared. Still, it will be the latest attempt by Trump to overturn parts of Obama’s presidential legacy. He has already pulled the United States out of a major international climate treaty and is trying to scrap his predecessor’s landmark healthcare program.

The following article provides OFAC’s recent FAQs regarding President Trump’s statement about Cuba.

OFAC Investigating Smartphone Company…Were They Working with ZTE?

Thursday, May 11th, 2017 by Danielle McClellan

By: Danielle McClellan

Huawei, one of the world’s biggest sellers of smartphones and the back-end equipment that makes cellular networks work has received an administrative subpoena from the United States Treasury Department’s Office of Foreign Assets Control (OFAC).  This subpoena was sent out in December 2016, following the Department of Commerce’s subpoena which was sent out in the summer of 2016 asking for the company to describe technology and services provided to Cuba, Iran, Sudan, and Syria over the past 5 years. North Korea was named in the Commerce Department subpoena, but not the OFAC subpoena. At this point Huawei has not been accused of any wrong doing and the subpoenas do not indicate that the company is part of any criminal investigations.

Not long ago the Chinese company, ZTE agreed to pay $1.2 billion after pleading guilty to shipping US-origin items to Iran (http://www.learnexportcompliance.com/News/The-Export-Control-Update-March-2017.aspx#ZTE). That investigation released documents that showed ZTE executives mapping out plans to work around, or break, US export control regulations. Further investigation found that ZTE learned about the plan from a company labeled as, F7, which closely mimics Huawei. Last month, ten members of Congress sent a letter demanding that F7 be publically identified and fully investigated, “We strongly support holding F7 accountable should the government conclude that unlawful behavior occurred,” read part of the letter.

It’s uncertain if the government believes that Huawei is F7 and that’s why the subpoenas were sent out or if they are just probing for other violations. Only time will tell.

More information: https://www.nytimes.com/2017/04/26/business/huawei-investigation-sanctions-subpoena.html?_r=0

Company Fined $500K for 56 ITSR Violations by OFAC

Thursday, March 30th, 2017 by Danielle McClellan

By: Danielle McClellan

United Medical Instruments, Inc. (UMI) agreed to a settlement of $515,400 with the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) based on 56 alleged violations of the Iranian Transactions and Sanctions Regulations (31 C.F.R. Part 560). Between 2007 and 2009 it was found that UMI sold medical imaging equipment with knowledge that the goods were going to be reexported from the United Arab Emirates to Iran. The total value of the goods associated with the transactions was approximately $2,493,597.

OFAC considered the following to be mitigating factors:

  1. The alleged violations occurred due to the actions of a single UMI employee rather than a systemic pattern of company-wide conduct;
  2. UMI took remedial action in response to the alleged violations, including by voluntarily ceasing transactions involving Iran and by implementing new procedures and updating its compliance program to prevent the recurrence of similar sanctions violations;
  3. UMI has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the alleged violations;
  4. UMI cooperated with OFAC’s investigation by providing timely responses to OFAC’s correspondence and by entering into multiple statute of limitations tolling agreements; (5) UMI is a small business, as determined by the size standards set forth by the Small Business Administration; and (6) based on the financial condition of UMI, including significant financial difficulties experienced by the company in recent years, additional mitigation is warranted.

Settlement: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20170228.aspx