Archive for the ‘Sanctions’ Category

Denied Party Screening Failures: PayPal Pays $7.7 Million

Monday, April 27th, 2015 by Brooke Driver

By: Brooke Driver

It turns out that one of the world’s most-trusted money services provider, Paypal, Inc., out of San Jose, California, may have committed nearly 500 violations of U.S. Sanctions programs, including the Weapons of Mass Destruction Proliferators Sanctions Regulations, the Iranian Transactions and Sanctions Regulations, the Cuban Assets Control Regulations, the Global Terrorism Sanctions Regulations and the Sudanese Sanctions Regulations.

Due to inadequate screening procedures, between the years of 2009 and 2013, PayPal processed 98 transactions totaling $19,344.89 in violation of the CACR, 125 transactions totaling $8,257.66 in violation of the ITSR, 94 transactions totaling $5,925.27 in violation of the GTSR and 33 transactions totaling $3,314.43 in violation of the SSR. It also participated in transactions involving an account in which Specially Designated Terrorists Interpal or Kahane Chai had an interest.

The company also processed 136 transactions totaling $7,091.77 to or from an account registered to Kursad Zafer Cire, an individual designated in the 2005 executive order “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters.” Apparently, while an automated interdiction filter flagged Cire’s account five times, on each occasion, a PayPal Risk Operations Agent dismissed the alert.

Although the cumulative base penalty for these charges was $17,018,443, OFAC chose to significantly reduce the fine, due to PayPal’s cooperation throughout and the fact that the company took immediate measures to restructure and strengthen its compliance program.

Commerzbank to Pay $258,660,796 for Violating Multiple Sanctions Programs

Monday, March 30th, 2015 by Brooke Driver

By: Brooke Driver

Commerzbank AG recently agreed to settle with OFAC regarding its 1,596 apparent violations of multiple U.S. sanctions programs, including the Iranian Transactions and Sanctions Regulations, the Sudanese Sanctions Regulations, the June 28, 2005 Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters,” the Weapons of Mass Destruction Proliferators Sanctions Regulations, the Burmese Sanctions Regulations and the Cuban Assets Control Regulations.

The bank’s massive $258,660,796 fine reflects the number and enormity of the apparent violations, as does the large scale of its case, with collaboration between OFAC, the U.S. Department of Justice, the New York County District Attorney’s Office, the Federal Reserve Board of Governors and the Department of Financial Services of the State of New York.

Canada Expands Sanctions against Russia to Target Russian Oil Industry

Wednesday, February 4th, 2015 by Brooke Driver

By: Brooke Driver

In solidarity with U.S. and EU energy sector restrictions placed on Russia, Canada announced this December its decision to impose restrictions on the export of certain goods and services related to Artic shale oil exploration or production. The December order reflects the August 6, 2014 Harper government announcement that it would impose export restrictions on technologies used in Russian oil exploration activities. Specifically, the sanction prohibits entities located in Canada or Canadian entities located outside the country from exporting or supplying any listed goods that to a Russian entity that would be used in offshore oil exploration or production at a depth greater than 500 meters, in oil exploration or production in the Arctic or in shale oil exploration or production. Canada has also added 20 Russian and Ukrainian individuals to its lists of designated persons.

US Relaxes Export Controls on India: Bayonets, Shields and Pepper Spray No Longer Require a License

Wednesday, February 4th, 2015 by Brooke Driver

By: John Black

In the January 23, 2015 Federal Register the Commerce Department revised the Export Administration Regulations (EAR) to reduce US export controls on exports and reexports to India of certain items on the Commerce Control List controlled for regional stability and crime control reasons.  Despite the hoopla and the pageantry of the “US-India Bilateral Understanding,” the impact of this relaxation is focused on a relatively small group of products.

Specifically, the regional stability RS 2 and crime control CC 1 and CC 3 license requirements no longer apply to exports and reexports to India.  Here are some examples of items now eligible for export and reexport to India as no license required:

  • 0A918 Bayonets
  • 0A979 Police helmets and shields
  • 1A984 Tear gas, pepper spray, smoke bombs
  • 0A984 Shotguns with barrels over 18 inches and related items
  • 0A987 Optical sighting devices
  • 3A980 Voice print analysis equipment
  • 3A981 Polygraphs
  • 6A002 police infrared viewers
  • 0A606.b Unarmed military vehicles derived from commercial vehicles
  • 1A004.d Explosive detection equipment
  • 2A293 Explosive or detonator detection equipment
  • 2A294 Concealed object detection equipment
  • 6A002.c police infrared viewers
  • 6A003 certain cameras

New Export Clearance Requirements:  Before you have the party for your license-free million dollar export of bayonets, shields, pepper spray and smoke bombs to India, make sure you note that the EAR has new special rules related AES filing and destination control statements.

Specifically, 758.1(b)(9) requires that you always  file your Electronic Export Information through the Automated Export System for all RS2, CC1 and CC2 exports to India even though such exports no longer require an export license.

BIS Announces Significant Amendments to Cuba Sanctions

Wednesday, February 4th, 2015 by Brooke Driver

Source: Commerce.gov

On December 17, 2014 the President announced a set of diplomatic and economic changes to chart a new course in U.S. relations with Cuba and to further engage and empower the Cuban people. The U.S. Department of the Treasury and the U.S. Department of Commerce today are announcing the forthcoming publication of the revised Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR), which implement the changes announced on December 17 to the sanctions administered by Treasury’s Office of Foreign Assets Control (OFAC) and Commerce’s Bureau of Industry and Security (BIS). The changes take effect tomorrow, when the regulations are published in the Federal Register.

These measures will facilitate travel to Cuba for authorized purposes, facilitate the provision by travel agents and airlines of authorized travel services and the forwarding by certain entities of authorized remittances, raise the limits on and generally authorize certain categories of remittances to Cuba, allow U.S. financial institutions to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, authorize certain transactions with Cuban nationals located outside of Cuba, and allow a number of other activities related to, among other areas, telecommunications, financial services, trade, and shipping. Persons must comply with all provisions of the revised regulations; violations of the terms and conditions could result in penalties under U.S. law.

To see the Treasury regulations, which can be found at 31 Code of Federal Regulations (CFR), part 515, please see here. To see the Commerce regulations, which can be found at 15 CFR parts 730-774, please see here. The regulations will be effective as of Friday, January 16. Major elements of the changes in the revised regulations include:

Travel –

  • In all 12 existing categories of authorized travel, travel previously authorized by specific license will be authorized by general license, subject to appropriate conditions.  This means that individuals who meet the conditions laid out in the regulations will not need to apply for a license to travel to Cuba.
  • These categories are: family visits; official business of the U.S. government, foreign governments, and certain intergovernmental organizations; journalistic activity; professional research and professional meetings; educational activities; religious activities; public performances, clinics, workshops, athletic and other competitions, and exhibitions; support for the Cuban people; humanitarian projects; activities of private foundations or research or educational institutes; exportation, importation, or transmission of information or information materials; and certain authorized export transactions.
  • The per diem rate previously imposed on authorized travelers will no longer apply, and there is no specific dollar limit on authorized expenses. Authorized travelers will be allowed to engage in transactions ordinarily incident to travel within Cuba, including payment of living expenses and the acquisition in Cuba of goods for personal consumption there.
  • Additionally, travelers will now be allowed to use U.S. credit and debit cards in Cuba.

Travel and Carrier Services

  • Travel agents and airlines will be authorized to provide authorized travel and air carrier services without the need for a specific license from OFAC.

Insurance –

  • U.S. insurers will be authorized to provide coverage for global health, life, or travel insurance policies for individuals ordinarily resident in a third country who travel to or within Cuba. Health, life, and travel insurance-related services will continue to be permitted for authorized U.S. travelers to Cuba.

Importation of Goods

  • Authorized U.S. travelers to Cuba will be allowed to import up to $400 worth of goods acquired in Cuba for personal use. This includes no more than $100 of alcohol or tobacco products.

Telecommunications –

  • In order to better provide efficient and adequate telecommunications services between the United States and Cuba, a new OFAC general license will facilitate the establishment of commercial telecommunications facilities linking third countries and Cuba and in Cuba.
  • The commercial export of certain items that will contribute to the ability of the Cuban people to communicate with people within Cuba, in the United States, and the rest of the world will be authorized under a new Commerce license exception (Support for the Cuban People (SCP)) without requiring a license. This will include the commercial sale of certain consumer communications devices, related software, applications, hardware, and services, and items for the establishment and update of communications-related systems.
  • Additional services incident to internet-based communications and related to certain exportations and reexportations of communications items will also be authorized by OFAC general license.

Consumer Communications Devices –

  • Commercial sales, as well as donations, of the export and reexport of consumer communications devices that enable the flow of information to from and among the Cuban peoplesuch as personal computers, mobile phones, televisions, memory devices, recording devices, and consumer software – will be authorized under Commerce’s Consumer Communication Devices (CCD) license exception instead of requiring licenses.

Financial Services

  • Depository institutions will be permitted to open and maintain correspondent accounts at a financial institution that is a national of Cuba to facilitate the processing of authorized transactions.
  • U.S. financial institutions will be authorized to enroll merchants and process credit and debit card transactions for travel-related and other transactions consistent with section 515.560 of the CACR. These measures will improve the speed and efficiency of authorized payments between the United States and Cuba.

Remittances –

  • The limits on generally licensed remittances to Cuban nationals other than certain prohibited Cuban Government and Cuban Communist Party officials will be increased from $500 to $2,000 per quarter.
  • Certain remittances to Cuban nationals for humanitarian projects, support for the Cuban people, or development of private businesses will be generally authorized without limitation. These general licenses will allow remittances for humanitarian projects in or related to Cuba that are designed to directly benefit the Cuban people; to support the Cuban people through activities of recognized human rights organizations, independent organizations designed to promote a rapid, peaceful transition to democracy, and activities of individuals and non-governmental organizations that promote independent activity intended to strengthen civil society in Cuba; and to support the development of private businesses, including small farms.
  • Authorized travelers will be allowed to carry with them to Cuba $10,000 in total family remittances, periodic remittances, remittances to religious organizations in Cuba, and remittances to students in Cuba pursuant to an educational license.
  • Under an expanded general license, banking institutions, including U.S.-registered brokers or dealers in securities and U.S.-registered money transmitters, will be permitted to process authorized remittances to Cuba without having to apply for a specific license.

Third-Country Effects

  • U.S.-owned or -controlled entities in third countries, including banks, will be authorized to provide goods and services to an individual Cuban national located outside of Cuba, provided the transaction does not involve a commercial exportation of goods or services to or from Cuba.
  • OFAC will generally authorize the unblocking of accounts of Cuban nationals who have permanently relocated outside of Cuba.
  • OFAC is issuing a general license that will authorize transactions related to third-country conferences attended by Cuban nationals.
  • In addition, a general license will authorize foreign vessels to enter the United States after engaging in certain trade with Cuba.

Small Business Growth –

  • Certain micro-financing projects and entrepreneurial and business training, such as for private business and agricultural operations, will be authorized.
  • Also, commercial imports of certain independent Cuban entrepreneur-produced goods and services, as determined by the State Department on a list to be published on its website, will be authorized.

“Cash in Advance” –

  • The regulatory interpretation of “cash in advance” is being redefined from “cash before shipment” to “cash before transfer of title to, and control of,” the exported items to allow expanded financing of authorized trade with Cuba.

Supporting Diplomatic Relations and USG Official Business –

  • The President announced the reestablishment of diplomatic relations with Cuba. To facilitate that process, OFAC is adding a general license authorizing transactions with Cuban official missions and their employees in the United States.
  • In addition, in an effort to support important U.S. government interests, an expanded general license will authorize Cuba-related transactions by employees, grantees, and contractors of the U.S. government, foreign governments, and certain international organizations in their official capacities.

Support for the Cuban People –

  • Exports and reexports to provide support for the Cuban people in three areas:  improving living conditions and supporting independent economic activity; strengthening civil society; and improving communications – will be eligible under Commerce’s SCP license exception.
  • To improve living conditions and support independent economic activity, SCP will authorize: (1) building materials, equipment, and tools for use by the private sector to construct or renovate privately-owned buildings, including privately-owned residences, businesses, places of worship, and building for private sector social or recreational use; (2) tools and equipment for private agricultural activity; and (3) tools, equipment, supplies, and instruments for use by private sector entrepreneurs.
  • To strengthen civil society, SCP will authorize export and reexport of donated items and temporary export and reexport by travelers to Cuba of items for use in scientific, archaeological, cultural, ecological, educational, historic preservation, or sporting activities. SCP will also authorize exports and reexports to human rights organizations, individuals, or non-governmental organizations that promote independent activity intended to strengthen civil society.
  • Travelers will also be able to export temporarily items for use in professional research in the traveler’s profession or full time field of study under SCP. The activities or research must not be related to items on the United States Munitions List or items controlled for sensitive reasons on the Commerce Control List.
  • To improve communications, SCP will authorize exports and reexports of items for use by news media personnel and U.S. news bureaus.
  • SCP will not authorize the export of items on the Commerce Control List for sensitive reasons such as national security, nuclear proliferation, regional stability, missile technology, and other reasons of similar sensitivity.

Gift Parcels –

  • Consolidated shipments of gift parcels will be eligible for the same Commerce license exception that authorizes individual gift parcels.

Liberalizing License Application Review Policy –

  • Commerce will set forth a general policy of approval for applications to export or reexport items necessary for the environmental protection or enhancement of U.S. and international air and water quality or coastlines (including items that enhance environmental quality through energy efficiency).

Senate Bill Extends U.S. Sanctions against Russia to Include Non-U.S. Persons

Tuesday, December 30th, 2014 by Brooke Driver

By: Brooke Driver

On December 2, 2014, U.S. Senator Bob Corker introduced Senate Floor Amendment No. 3966 to S. 2828 Ukraine Freedom Support Act of 2014. If imposed, the amendment would significantly expand the scope of U.S. sanctions against Russia; the current sanctions only affect U.S. entities or shipments consisting of a certain amount of U.S. content, but the proposed amendment would alter them to impose severe sanctions on foreign persons if the President of the United States “determines that the foreign person knowingly makes a significant investment in a special Russian crude oil project.” The only comparable U.S. sanctions currently are those imposed against non-U.S. banks and companies participating in transactions with Iran.

The proposed amendment does not specify what “significant” or “investment” mean, and, if passed, would grant the President a great deal of control in determining the meaning of these terms and in doling out corresponding punishments, which could include:

  • Revocation of Export-Import Bank Assistance: The President could demand that the Export-Import Bank of the United States not approve any transaction with the foreign person.
  • Procurement Sanction: The President may prohibit the head of any executive agency from doing business with the foreign person.
  • Arms Export Prohibition: The President may prohibit the issuance of any export license or suspend any license for the foreign person.
  • Property Transactions: The President may prohibit the foreign person from
  1. acquiring, holding, withholding, using, transferring, withdrawing, transporting, or exporting any property that is subject to the jurisdiction of the United States and with respect to which the foreign person has any interest;
  2. dealing in or exercising any right, power, or privilege with respect to such property; or
  3. conducting any transaction involving such property.
  • Banking Transactions: The President may prohibit any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the foreign person.
  • Prohibition on Investment in Equity or Debt of a Sanctioned Person: The President may  prohibit any U.S. person from transacting in, providing financing for or otherwise dealing in debt:
  1. of longer than 30 days’ maturity of a foreign person, with respect to which sanctions are imposed under subsection (a) or of longer than 90 days’ maturity of a foreign person, with respect to which sanctions are imposed under subsection (b); and
  2. issued on or after the date on which such sanctions are imposed with respect to the foreign person.
  3. equity of the foreign person issued on or after that date.
  • Exclusion from the United States and Revocation of Visa or Other Documentation: In the case of a foreign person who is an individual, the President may direct the Secretary of State to deny a visa to, and the Secretary of Homeland Security to exclude from the United States, the foreign person, subject to regulatory exceptions to permit the United States to comply with the agreement regarding the headquarters of the United Nations, signed at Lake Success on June 26, 1947 and entered into force on November 21, 1947, between the United Nations and the United States, or other applicable international obligations.
  • Sanctions on Principal Executive Officers: In the case of a foreign person that is an entity, the President may impose on the principal executive officer or officers of the foreign person, or on individuals performing similar functions and with similar authorities as such officer or officers, any of the sanctions described in this subsection applicable to individuals.

Currently, there is no scheduled vote for the amendment, but if the House and Senate do not vote on the proposed legislation before the lame duck session of Congress ends, it will likely be reintroduced for a vote in the new Republican-weighted Congress in January 2015.

Foreign Subsidiary of Robbins & Myers Pleads Guilty to Illegal Export of Drilling Equipment to Syria

Monday, November 24th, 2014 by Brooke Driver

By: Brooke Driver

Robbins & Myers Belgium S.A., a subsidiary of Myers & Robbins Inc. has agreed to pay a total of $1 million in criminal fines and to serve a term of corporate probation for four separate violations of the International Emergency Economic Powers Act and the Export Administration Regulations.

Around the date of May 2006, an internal auditor of the U.S. parent company to the Belgium branch discovered that Robbins & Myers Belgium had illegally shipped stators made from U.S. steel to a Syrian customer. Although, after this discovery, the parent company informed the foreign branch of the violation and ordered that it stop these shipments, the subsidiary to do business with the Syrian customer between August and October 2006 and attempted to hide related documents from government investigators.

Under Secretary of Commerce Eric L. Hirschhorn said of the case that it:

“…shows that the United States will vigorously enforce its export laws against companies doing business with Syria, a state-sponsor of terrorism and home to one of the most brutal regimes on earth…The Department of Justice will hit companies that do business with Syria where it hurts most: the bottom line. This company will pay fines, penalties, and forfeitures more than 50 times greater than the proceeds of the sales.”

“The significant civil and criminal penalties in this case show our resolve to pursue and prosecute those who flout our export control laws. We will continue to work in concert with our partner agencies to ensure that U.S. technology stays out of the wrong hands.”

Commerce Department Tells Specific Exporters Not to Use STA for Arabsat

Monday, November 24th, 2014 by Brooke Driver

By: John Black

Over the past month or so, the Bureau of Industry and Security in the US Department of Commerce has been sending letters to individual exporters informing them that they may not use License Exception STA to export for 9X515 items for use in the Arab Satellite Communications Organization (Arabsat) 6th Generation satellite project.  BIS sent the letters to individual addresses of specific exporters, and not necessarily to their corporate headquarters.  If a single location of your corporation received this notice, it should be passing the warning on to all other locations who could be involved in similar activities.

If your location received this letter, you would be well advised to share it with any other location of your corporation that may be dealing with Arabsat 6th Generation satellite.  Nothing in the letter says, after all, that it is applicable only to the location at the address at the top of the letter.

U.S. Russia Sanctions—What You Need to Know and Do Now

Tuesday, October 7th, 2014 by Brooke Driver

By: John Black

As U.S. trade sanctions on Russia continue to evolve and expand, they are beginning to have an increasingly significant impact on U.S. and non-U.S. exporters and financial institutions.  As the rules expand, their complexity increases a bit.  Nonetheless, the current rules remain focused on a small number of important Russian entities and on Russian military end uses and military end users.  It’s high time for a summary of where the rules stand today.

As a result of the Russian invasion and military actions in Ukraine, the U.S. imposed its first round of trade sanctions against Russia in March 2014.  As Russian military forces continue at least to stay in, if not be active in, Ukraine (depending on the state cease-fire at any given moment), the U.S. is continuing to expand its trade sanctions and export/reexport controls on Russia.  Canada, the European Union and other countries that have export controls also have imposed ever-expanding sanctions and export controls on Russia—in some cases, these other countries have restrictions that are broader than the U.S. restrictions.

While the initial round of U.S. actions might not have had a significant impact on exporters and reexporters, each subsequent expansion of U.S. restrictions is gradually and significantly expanding the impact.  At one level, the U.S. rules are complex, but before digging into the complex details (and in order to know if you should dig into the complex details), take a look at the following breakdown of current U.S. restrictions aimed at Russia.

1)  General Focus on Russia Defense, Financial and Energy Sectors:  The U.S., along with many other countries, is focusing its restrictions on the defense, financial and energy sectors in the Russian economy.  The U.S. has put some significant Russian entities in these sections on special restricted parties lists.

2) Export/Reexport License Review Policy:  The United States has a stricter license approval policy for Russia.  In short, if you apply for a license for a listed party or for activities involving the Russian defense, energy and financial sectors, you should expect that there is a good chance it will not be approved.  There certainly may be some cases where licenses will be approved, but those likely are the exceptions to the rule.  License applications for other exports/reexports to other sectors of the Russian economy will be reviewed on a case-by-case basis, which means that certain applications that were routinely approved in the past may not be approved now.

3) It Starts with Russian Parties Added to Restricted Parties Lists:  Both the Office of Foreign Assets Control and the Bureau of Industry and Security have added Russian entities that are primarily in the defense, energy and financial sectors to their respective restricted parties list.   OFAC new rules are largely focused on its new list known as the Sectoral Sanctions Identification (SSI) List.  BIS added Russian parties of concern to its Entities List.

While U.S. prohibited parties lists include a wide range of obscure persons, companies and entities around the world, the newly added Russian entities include leading Russia energy, defense and financial entities.  This means that the odds of you dealing with a newly listed Russia entity are significantly higher than the odds of you dealing with an obscure terrorist entity located in remote areas of Yemen.  If you are using a third party screening tool, such as mkdenial.com or a constantly updated internal prohibited parties list, you are already in a position to ensuring you are screening all known names of all known parties you do business with against the most up-to-date lists.  That is the critical first step.

The critical second step is to go to the OFAC and BIS websites and look at the names of the newly listed parties to see if they are parties with which you have done business or you may soon do business.  Share the lists of the new parties with other people in your organization that should know about the new listings.   Compare the lists to what you are doing in Russia, especially in light of OFAC’s rule that its restrictions apply to entities that are not listed if one or more listed entities owns a combined 50% or more of the unlisted entity.

If you find out you are dealing (or might soon deal or have dealt) with a new listed party, you need to know what the new rules are for those parties.

4) OFAC Rules for the SSI Parties:  The rules are not as simple as “you may not do business with a newly listed SSI.”  Operating under several executive orders OFAC has issued directives that describe its new, limited restrictions on dealing with these parties.  In short:

  • SSI Financial Services Entities:  You may not be involved in financing for debt longer than 30 days maturity or new equity to listed financial sector entities according to the July 16, 2014 amended Directive 1.  You may not be involved in activities prohibited by the prior version of Directive 1 which had a 90 day rule.
  • SSI Energy Entities:  You may not be involved in financing for debt longer than 90 days maturity to listed energy sector entities according to the July 16, 2014 amended Directive 2.  You may not be involved in activities prohibited by the prior Directive 2.In addition, Directive 4 says you may not export or reexport anything in support of exploration or production for deep water, Artic offshore, or shale projects that have the potential to produce oil in the Russian Federation when listed energy section entities are involved.
  • SSI Defense and Related Materiel Entities:  You may not provide financing for debt longer than 30 days maturity to listed defense and related material entities according to Directive 3.

As you see, the OFAC directives do not prohibit all exports or reexports.  In some cases, a problem would involve making an otherwise legitimate export with a problematic 90 day payment term that would exceed the 30 day limit.  In other cases, the comprehensive ban on exports and reexports to energy sector entities applies only when the activities involve deep water, Arctic offshore or shale projects.

5) BIS Rules for Parties on the Entities List:  BIS rules for its newly listed entities depend on the entity.  For many certain newly listed entities, all items subject to the EAR require an export/reexport license.  For other newly listed items, such as Gazprom OAO, a license is required only when items are destined for deep water, Arctic offshore, or shale oil or gas exploration or production operations in Russia as described in 746.5.  When you find a listed entity, the Entity List will give you the rules applicable to that entity.

6)  BIS Controls on Certain Items to Certain Energy Activities:  The EAR has new rules that prohibit the export, reexport or in-country transfer of items in ECCNs 0A988, 1C992, 3A229, 3A231, 6A991, 8A992 or 8D999, or items in the new Supplement No. 2 to 746 when those items are destined to either unknown end use or for use directly or indirectly related to the exploration or production of oil or gas in Russian deep water, Arctic offshore or shale formations.  Supplement No. 2 to 746 uses Schedule B Numbers to identify the items it controls.  Importantly, these new rules apply even when the items are not destined for a Russian energy entity on a BIS or OFAC list.

7)  BIS Imposes Military End-Use Export/Reexport Controls on Russia:  BIS now applies the long standing 744.21 China military end use rule to Russia.  As with China, this rule requires a license for normally NLR items in ECCNs in Supplement No. 2 to 744 when destined for certain limited “military end use” activities as defined in 744.21.  These uses include delivery to activities involving the production of military items, but do not include a complete ban on delivery to military entities, as it focuses on the nature of the end use, not on the end user.

BIS also created a military end user rule for Russia in 744.21 that does not apply to China.  This rule is a complete ban on delivery of the Supp. 4 ECCNs to military end users in Russia, which include national armed services (army, navy, marine, air force or coast guard), as well as the national guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support “military end uses” as defined in 744.21.

Finally, a license is required for Russia, like China, for all items controlled in 9X515 and 600 series ECCNs including the y. paragraphs that are No License Required for most other countries.

8)   What Should You Do?  The first thing you need to do is make sure you take a close and thorough look at the new rules to determine the extent to which you are involved in activities with the listed parties or subject to the new energy sector end use restrictions, the military end-use restrictions, or the military end user restrictions.  Take immediate measures to comply with the current rules as they apply to your current activities.  This includes non-traditional export compliance issues, such as looking at payment terms when dealing with OFAC listed entities.

Next, take a look at your current and near future activities in Russia to see which things you are doing that might be hit by future expansions of U.S. restrictions.  I do not know what is next, but certain potential areas where we could see new restrictions come to mind.  For example, you might want to consider what you would do if future restrictions would apply to one or more of the following that you are currently engaged in:

  • Activities with currently unlisted parties in the defense, energy or financial sectors
  • Non-military business with Russian entities who are engaged in both military and non-military activities
  • Dealings with the Russian Government
  • Russian energy activities that are not currently the targeted activities
  • Russian entities that are not listed but are related to listed entities or are similar to listed entities

8)  The Future of U.S. Sanctions and Export/Reexport Controls on Russia:  It looks like Russia might be moving ahead of China on the list of U.S. export controls biggest concerns.  I don’t know what is next or who is next, but I did give some ideas about potential areas where the U.S. could expand restrictions.   Right now the U.S. and other countries seem to be ratcheting up trade sanctions as Russian forces continue to stay in, or be active in, Ukraine.  If Russia does not change its actions, it is reasonable to expect the United States to continue to expand its sanctions and export/reexport controls on Russia.  It is not likely that the United States will impose on Russia sanctions and export/reexport controls similar to U.S. rules for Cuba, Iran, North Korea, Sudan and Syria.

On the other hand, the United States very well could lift all of its sanctions and controls on Russia if Vladimir Putin and the leaders of the United States, Canada and the EU make amends and sit down around the campfire singing Kumbayah while President of the United States John Black plays accompaniment on guitar.

OFAC Releases Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked

Tuesday, October 7th, 2014 by Brooke Driver

Source: Federal Register

In response to inquiries, the Office of Foreign Assets Control released revised guidance regarding OFAC’s position on entities owned 50 percent or more in the aggregate by more than one blocked person. According to OFAC, “Property blocked pursuant to an Executive order or regulations administered by OFAC is broadly defined to include any property or interest in property, tangible or intangible, including present, future or contingent interests. A property interest subject to blocking includes interests of any nature whatsoever, direct or indirect.

Persons whose property and interests in property are blocked pursuant to an Executive order or regulations administered by OFAC (blocked persons) are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person. The property and interests in property of such an entity are blocked regardless of whether the entity itself is listed in the annex to an Executive order or otherwise placed on OFAC’s list of Specially Designated Nationals (“SDNs”). Accordingly, a U.S. person generally may not engage in any transactions with such an entity, unless authorized by OFAC. In certain OFAC sanctions programs (e.g., Cuba and Sudan), there is a broader category of entities whose property and interests in property are blocked based on, for example, ownership or control.

U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest. Such entities may be the subject of future designation or enforcement action by OFAC. Furthermore, a U.S. person may not procure goods, services, or technology from, or engage in transactions with, a blocked person directly or indirectly (including through a third-party intermediary).”