Archive for the ‘Sanctions’ Category

U.S. Antiboycott Compliance: New Federal List Published

Tuesday, January 31st, 2017 by Danielle McClellan

By: Melissa Proctor, Polsinelli PC

Companies doing business in the Middle East take note: The Treasury Department recently published its quarterly list of countries that currently require participation or cooperation with an international boycott, such as the Arab League‘s boycott of Israel.

Even though many of these countries are WTO members and were required to shut down their Arab League offices as a condition of membership, many boycott-related requests are still being issued by government agencies and companies in these countries. The countries that are designated on this list, which by the way are the very same countries that were listed in the Third Quarter list, are:

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

To view the list, click here.

If you are not familiar with U.S. antiboycott requirements, Part 750 of the Export Administration Regulations (EAR) prohibits U.S. companies and their foreign affiliates from complying with requests related to a foreign boycott that is not sanctioned by the U.S. Government. Specifically, U.S. companies and their overseas affiliates are prohibited from agreeing to:

  1. Refuse to do business with or in Israel or with blacklisted companies
  2. Discriminate against other persons based on race, religion, sex, national origin or nationality
  3. Furnish information about business relationships with or in Israel or with blacklisted companies, or
  4. Furnish information about the race, religion, sex, or national origin of another person

Foreign boycott-related requests can take many forms, and can be either verbal or written. They can appear in bid invitations, purchase agreements, letters of credit and can even be seen in emails, telephone conversations and in-person meetings. Some recent examples of boycott-related requests include:

  • “Provide a certificate of origin stating that your goods are not products of Israel.”
  • “Provide the religion and nationality of your officers and board members.” 
  • “Suppliers cannot be on the Israel boycott list published by the central Arab League.”  
  • “Provide a signed statement from the shipping company or its agent containing the name, flag and nationality of the carrying vessel and its eligibility to enter Arab ports “

In addition, implementing letters of credit that contain foreign boycott terms or conditions is also prohibited under the EAR.

Antiboycott compliance is a key issue for U.S. companies doing business in the Middle East, and personnel on the front lines with customers and supply chain partners in these countries should be trained to identify potential foreign boycott-related requests and escalate them to senior compliance personnel or in-house counsel to determine the applicable OAC and IRS reporting requirements.

Companies that receive boycott-related requests must submit quarterly reports to the Office of Antiboycott Compliance (OAC) unless an exemption applies. Failing to timely report a boycott request or complying with the request itself can lead to the imposition of civil penalties by the OAC. The IRS also requires U.S. taxpayers to report their operations in countries that require participation or cooperation with an international boycott on IRS Form 5713 (International Boycott Report) – the forms are submitted annually with U.S. tax returns.  Failure to comply with the Internal Revenue Code’s antiboycott requirements can lead to the revocation of certain international tax credits and benefits.

© Polsinelli PC, Polsinelli LLP in California

US Oil & Gas Company Fined $25 Million from BIS & OFAC

Tuesday, December 20th, 2016 by Danielle McClellan

National Oilwell Varco, Inc., a Delaware corporation, and its Canadian subsidiaries, Dreco Energy Services, Ltd (Dreco) and NOV Elmar (NOV) have agreed to pay a combined $25 Million for violations of the Cuban Assets Control Regulations, the Iranian Transactions and Sanctions Regulations, and the Sudanese Sanctions Regulations.

The charges are as follows:

  • Between 2002 and 2005, National Oilwell Varco approved four Dreco commission payments to a UK based entity related to the sale and exportation of goods from Dreco to Iran. The four commission payments had a combined value of $2,630,091.
  • Between 2006 and 2008 National Oilwell Varco was involved in two transactions involving the sale and exportation of goods to Iran that totaled $13,596,980.
  • Between 2003 and 2007, Dreco knowingly exported (indirectly) goods from the US to fill seven orders from Iranian customers. The transactions totaled $526,480.
  • During 2007 and 2009, Dreco engaged in 45 transactions involving the sale of goods to Cuba totaling $1,707,964.
  • NOV engaged in two transactions between 2007 and 2008 involving the sale of goods or services to Cuba that totaled $103,119.
  • Finally, between 2005 and 2006 NOV engaged is a $20,928 transaction involving the exportation of goods from the US to Sudan.

OFAC considered the violations to be egregious since senior-level executives approved the commission payments and the NOV “willfully blinded” itself of the regulation violations by continuing to approve payments and communications. NOV will pay OFAC a settlement of $5,976,028, this will be deemed satisfied with its payment of $25,000,000 in relation to its settlement agreement between OFAC, BIS, and a Non-Prosecution Agreement (NPA).

OFAC considered the following to be aggravating factors:

  1. NOV’s conduct that gave rise to the Apparent Violations demonstrated at least reckless disregard for U.S. sanctions requirements;
  2. Senior managers at National Oilwell Varco, Inc. and Dreco knew or had reason to know that their respective business transactions giving rise to the ITSR-related apparent violations involved Iran;
  3. NOV’s conduct caused harm to sanctions program objectives by providing a significant and sustained economic benefit to the petroleum industries in Cuba, Iran, and Sudan;
  4. NOV is a large and sophisticated company that is engaged in the business of providing oilfield services around the world, including regions with high sanctions risk; and
  5. NOV’s compliance program at the time of the Apparent Violations was wholly inadequate.

OFAC considered the following to be mitigating factors:

  1. NOV had not received a Penalty Notice or Finding of Violation in the five years preceding the date of the earliest transaction giving rise to the Apparent Violations;
  2. NOV cooperated with OFAC’s investigation, including by agreeing to toll the statute of limitations for more than 2,600 days; and
  3. NOV has made efforts to remediate its compliance program and agreed to further compliance enhancements.

More Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20161114_varco.pdf

Company Fined $4 Million for Exporting Seeds to Iran

Wednesday, October 12th, 2016 by Danielle McClellan

By: Danielle McClellan

PanAmerican Seed Company (PanAm) of West Chicago, Illinois, a division of Ball Horticultural Company has agreed to pay $4,320,000 to settle potential civil liability for alleged violations of the Iranian Transactions and Sanctions Regulations (31 C.F.R. part 560 ITSR). Its alleged that the company exported seeds, primarily of flowers, to two Iranian distributors on 48 different occasions between May 2009 and March 2012.

PanAm and Ball Horticultural employees (including several mid-level managers) were aware of the US economic sanctions involving Iran and the requirement to apply for licenses to export the seeds to Iran. PanAm concealed the shipments by shipping the seeds to consignees based in two third countries located in Europe or the Middle East, and then the Iranian customers arranged for the re-exportation of the seeds to Iran.

The maximum penalty for the violations would be $12 million, OFAC considered the following when applying the $4 million penalty:

OFAC considered the following to be aggravating factors:

  1. PanAm Seed willfully violated U.S. sanctions on Iran by engaging in, and systematically obfuscating, conduct it knew to be prohibited;
  2. PanAm Seed demonstrated recklessness with respect to U.S. sanctions requirements by ignoring its OFAC compliance responsibilities, despite substantial international sales and warnings that OFAC sanctions could be implicated;
  3. Multiple PanAm Seed and Ball Horticultural employees, including mid-level managers, had contemporaneous knowledge of the transactions giving rise to the Alleged Violations. They were aware that the seeds were intended for reexportation to Iran, and PanAm Seed continued sales to its Iranian distributors for nearly eight months after its Director of Finance learned of OFAC’s investigation;
  4. PanAm Seed engaged in this pattern of conduct over a period of years, providing over $770,000 in economic benefit to Iran;
  5. PanAm Seed did not initially cooperate with OFAC’s investigation, providing some information that was inaccurate, misleading, or incomplete; and
  6. PanAm Seed is a division of Ball Horticultural, a commercially sophisticated, international corporation.

OFAC considered the following to be mitigating factors:

  1. PanAm Seed 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, making it eligible for “first offense” mitigation of up to 25 percent;
  2. The exports at issue were likely eligible for an OFAC license under the Trade Sanctions Reform and Export Enhancement Act of 2000;
  3. PanAm Seed took remedial steps to ensure future compliance with OFAC sanctions, including stopping all exports to Iran, implementing a compliance program, and training gat least some of its employees on OFAC sanctions; and
  4. PanAm Seed cooperated with OFAC by agreeing to toll the statute of limitations for a total of 882 days.

OFAC Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20160913_panam.pdf

It’s Not A Good Time for Iran Violations: Company Fined Over $16 Million for Medical Supplies Exported to Iran, Sudan and Syria

Tuesday, August 9th, 2016 by Danielle McClellan

By: Danielle McClellan

Alcon Laboratories, Inc., (Fort Worth), Alcon Pharmaceuticals Ltd. (Fribourg, Switzerland) and Alcon Management, SA (Geneve, Switerland) (collectively, “Alcon”) have agreed to settle a potential civil liability with the US Department of Treasury’s Office of Foreign Assets Controls (OFAC) and with the Department of Commerce’s Bureau of Industry and Security (BIS).

Between 2008 and 2011 Alcon exported end-use surgical and pharmaceutical products from their United States location to their sister companies in Switzerland and then along to distributors in Iran, Sudan and Syria. The charges are broken down as follows:

OFAC Charging Details

On 452 occasions Alcon violated the Sudanese Sanctions Regulations (SSR) when they sold and exported medical supplies to distributors in Sudan. On 61 occasions they violated the Iranian Transactions and Sanctions Regulations (ITSR) when they sold and exported their products to Iranian distributors. Alcon will pay $7,617,150 related to the OFAC violations. The statutory maximum monetary penalty amount was $138,982,584 and the base penalty amount for the Apparent Violations was $16,927,000.

OFAC considered the following to be aggravating factors in this case:

  1. Alcon demonstrated reckless disregard for U.S. sanctions requirements by having virtually no compliance program, despite significant business involving the exportation of goods from the United States to Iran and Sudan, and by failing to take adequate steps to investigate a third-party freight forwarder’s cessation of shipments to Iran on behalf of Alcon;
  2. Alcon and its then-senior management knew of the conduct giving rise to the Apparent Violations; and
  3. Alcon is a sophisticated multinational corporation with extensive experience in international trade.

OFAC considered the following to be mitigating factors in this case:

  1. The harm to U.S. sanctions program objectives was limited because the exports involved medical end-use products that were licensable under the Trade Sanctions Reform and Export Enhancement Act of 2000, and in fact had been previously and subsequently licensed by OFAC for Alcon;
  2. Alcon has no prior OFAC sanctions history, including receipt of a Penalty Notice or Finding of Violation in the five years preceding the date of the earliest transaction giving rise to the Apparent Violations, making it eligible for “first violation” mitigation of up to 25 percent;
  3. Alcon took remedial action by ceasing the unlicensed exports to sanctioned countries, initiating an internal investigation of the Apparent Violations, and instituting a robust compliance program that now includes:
    1. Updated or newly-created corporate export and trade sanctions compliance documents,
    2. Enhanced trade compliance training, and (c) enhanced compliance procedures for requesting OFAC licenses; and (4) Alcon substantially cooperated with OFAC’s investigation, including by providing detailed and well-organized information and entering into several statute of limitations tolling agreements with OFAC.

BIS Charging Details

Alcon has received 100 charges of Acting with Knowledge of a Violation, 45 charges of Unlicensed Reexports to Syria, and 43 Charges of Unlicensed Exports to Iran. In the cases of unlicensed exports, Alcon Pharmaceuticals (Switzerland) sent orders and invoices to Alcon labs (United States) with instructions to ship the orders to warehouses and distribution centers that it used in various countries, most specifically Switzerland. The facilities would receive the products and then Alcon Pharmaceuticals transferred and/or forwarded the items to Iran and Syria without required government licenses.

Alcon collectively has been accessed a civil penalty from BIS in the amount of $8,100,000, all of which is due, and will accrue interest if not paid on time. Alcon must also pay the penalty amount due to OFAC in a timely manner and comply with all of the terms related to the OFAC Settlement Agreement.

OFAC Information: https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20160705_alcon.pdf

BIS Information: https://efoia.bis.doc.gov/index.php/component/docman/doc_download/1068-e2466?Itemid=

3 Men & Illegal Exports to Syria

Tuesday, July 12th, 2016 by Danielle McClellan

By: Danielle McClellan

In November 2012, three individuals and one company were indicted with charges of criminal conspiracy, wire fraud, illegal export of goods, money laundering, and false statements. Until now the indictment remained under seal pending the arrest of the defendants.

Between 2003 and 2012, d-Deri Contracting & Trading (owned by Ahmad Feras Diri of London) was exporting goods originally from the US from Global Parts Supply (owned by Harold Rinko of Hallstead, PA) to his brother and business partner Moawea Deri who was located in Syria.  The goods purchased from Rinko’s US company were done so based on false invoices, undervalued and mislabeled goods.  Then the purchased goods were exported by falsely listing their identity and final geographic location on all documentation. The items would be shipped from the US to Jordan, the UAE, and the UK, and finally transshipped to Syria.

The items exported allegedly included:

  • a portable gas scanner used for detection of chemical warfare agents by civil defense, military, police and border control agencies;
  • a handheld instrument for field detection and classification of chemical warfare agents and toxic industrial chemicals;
  • a laboratory source for detection of chemical warfare agents and toxic industrial chemicals in research, public safety and industrial environments;
  • a rubber mask for civil defense against chemicals and gases;
  • a meter used to measure chemicals and their composition;
  • flowmeters for measuring gas streams;
  • a stirrer for mixing and testing liquid chemical compounds;
  • industrial engines for use in oil and gas field operations and a device used to accurately locate buried pipelines

Note: Nearly all exports to Syria will be denied, other than a few items categorized under humanitarian food and medicine. The goal of the embargo on Syria is to shut down the supply chain used by the Syrian state to support terrorism and create proliferate weapons of mass destruction, and in this specific case, chemical weapons.

Fast forward to this month, Ahmad Feras Diri (age 43) of London has plead guilty to conspiracy to illegally export items used to detect chemical warfare agents to Syria. He lost his extradition fight in the UK in November 2015 at which point he was brought to the US to face the charges. Diri admitted that he conspired to export items from the US through third party countries to customers in Syria without obtaining the required US Commerce Department licenses.

Harold Rinko (age 73 of Hallstead, PA) was indicted by a grand jury in November 2012 and admitted in court that he conspired to export the items from the US through third party countries to customers in Syria without an export license.

Moawea Deri remains at large and is considered a fugitive but will likely remain in Syria as extradition is unlikely to occur.

“This extradition demonstrates HSI’s commitment to use all its resources to prevent sensitive and restricted technology from being exported to Syria through the black market,” said HSI Philadelphia Special Agent in Charge John Kelleghan. “No good comes of illegal exports to Syria, especially during this time of gross misgovernment and civil strife. As the principal enforcer of export controls, HSI will continue to do everything in its power to ensure that sensitive technology doesn’t fall into the wrong hands in Syria. I applaud our colleagues at the Department of Commerce, the U.S. Attorney’s Office for the Middle District of Pennsylvania, along with our law enforcement counterparts in the United Kingdom. This coordinated effort helped us make this complex investigation a success.”

More Information: https://www.ice.gov/news/releases/uk-resident-connected-syrian-export-scheme-extradited-us-face-federal-charges

Belgium Company Pays $350,000 after Exporting Coatings, Pigments and Paints to Iran

Wednesday, April 6th, 2016 by Danielle McClellan

By: Danielle McClellan

Chemical Partners Europe (CPE) S.A. of Brussels, Belgium has been charged with 6 counts of Evasion after exporting coatings, pigments and paints from the US to their facility in Brussels  and then to Iran. The exported items were suitable for use in nuclear facilities and had marine applications, making them subject to the Export Administration Regulations (EAR) as well as the Iranian Transactions Regulations (Governed by the Department of Treasury’s Office of Foreign Assets Control (OFAC)).

Between January 2010 and March 2011, the company purchased the coatings, pigments and paints, valued at $244,358, from a US company and concealed the fact that the ultimate destination was actually Iran. The shipper’s export declarations filed listed CPE as the ultimate consignee and Belgium as the country of ultimate destination. Once CPE received the items they transferred them directly to Iran without proper authorization.

CPE has agreed to pay $350,000 to settle the charges; they will not be debarred. Charging Letter

BIS & OFAC Slightly Relax Controls on Cuba

Wednesday, April 6th, 2016 by Danielle McClellan

By: Danielle McClellan

On March 16, 2016, the Bureau of Industry and Security (BIS) published a final rule amending the Export Administration Regulations (EAR) by allowing vessels departing the US on temporary sojourn to Cuba with cargo for other destinations to travel to Cuba under a license exception instead of having to obtain a license for the cargo. The rule also allows exports of certain items to persons authorized by the Department of the Treasury to establish and maintain a physical or business presence in Cuba. Finally, the rule adopts a licensing policy of case-by-case review for exports and reexports of items that would enable or facilitate export of items produced by the private sector in Cuba (subject to certain limitations).

Specific Changes to the EAR:

This rule revises § 736.2(b)(8) of the EAR, which prohibits shipments from transiting certain destinations, to explicitly state that the prohibition does not apply if a license or license exception authorizes the in-transit shipment.

  • This rule revises § 740.15(d)(6) of the EAR to authorize temporary sojourn to Cuba of a vessel carrying cargo destined to other countries provided that such cargo departs with the vessel at the end of its temporary sojourn to Cuba, does not enter the Cuban economy and is not transferred to another vessel while in Cuba.
  • This rule revises § 740.21(e) to remove the individual references to categories of persons authorized by OFAC to establish and maintain a physical or business presence in Cuba pursuant to 31 CFR 515.573, and to authorize exports and reexports to all such persons and to persons whose physical or business presence is authorized by a specific license issued by OFAC.
  • This rule revises § 746.2(b)(3)(i), to add a paragraph(b)(3)(i)(D), which sets a policy of case-by-case review of items that will enable or facilitate export from Cuba of items produced by the Cuban private sector.
  • It also revises Note 1 to clarify that the license condition described therein is intended to preclude use of items authorized by licenses bearing that condition from being reexported from Cuba or being used to enable or facilitate exports from Cuba that primarily generate revenue for the state.

Federal Register Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-03-16/pdf/2016-06019.pdf
In addition to the changes to the EAR, The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending the Cuban Assets Control Regulations to further implement these changes along with facilitating travel to Cuba for authorized financial transactions, and authorize additional business and physical presence in Cuba.

Specific Changes to the Cuban Assets Control Regulations:

  • OFAC is amending section 515.565(b) to remove the requirement that people-to-people educational travel be conducted under the auspices of an organization that sponsors such exchanges. This section now authorizes individuals to travel to Cuba provided that, among other things, the traveler engage while in Cuba in 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.
  • OFAC is amending section 515.571 to remove the limitation on the receipt of compensation in excess of amounts covering living expenses and the acquisition of goods for personal consumption by a Cuban national present in the United States in a non- immigrant status or pursuant to other non-immigrant travel authorization issued by the U.S. government. New section (a)(5)(i) explicitly authorizes the receipt of any salary or other compensation consistent with the individual’s non-immigrant status or other non-immigrant travel authorization, provided that the recipient is not subject to any special tax assessment by the Cuban government in connection with the receipt of the salary or other compensation.
  • New section 515.571(e) authorizes all transactions related to the sponsorship or hiring of a Cuban national to work in the United States and provides that an employer may not make additional payments to the Cuban government in connection with the sponsorship or hiring of a Cuban national. Section 515.571(e) also authorizes transactions in connection with the filing of an application for non- immigrant travel authorization. OFAC is also making conforming edits in section 515.560(d)(3) and the Note to section 515.565(a)(5).
  • OFAC is adding section 515.585(c) to authorize individuals who are persons subject to U.S. jurisdiction and who are located in a third country to engage in the purchase or acquisition of merchandise subject to the prohibitions in section 515.204, including Cuban-origin goods, for personal consumption while in a third country, and to receive or obtain services from Cuba or a Cuban national that are ordinarily incident to travel and maintenance within a third country. This provision does not authorize the importation of such merchandise into the United States, including as accompanied baggage. OFAC is making a conforming change to section 515.410.
  • OFAC is amending section 515.584(d) to authorize U-turn transactions in which Cuba or a Cuban national has an interest to be conducted through the U.S. financial system. This provision authorizes funds transfers from a bank outside the United States that pass through one or more U.S. financial institutions before being transferred to a bank outside the United States where neither the originator nor the beneficiary is a person subject to U.S. jurisdiction. Transactions through the U.S. financial system that do not meet these criteria, including all transactions where the originator or beneficiary is a person subject to U.S. jurisdiction, remain prohibited unless otherwise authorized or exempt under the Regulations.
  • OFAC is also making conforming edits to section 515.584(e), regarding unblocking of certain previously blocked funds transfers.
  • OFAC is adding new section 515.584(g) to authorize U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions. Correspondent accounts used for transactions authorized pursuant to this section may be denominated in U.S. dollars. This section does not authorize banking institutions subject to U.S. jurisdiction to open correspondent accounts for banking institutions that are nationals of Cuba.
  • OFAC is adding new section 515.584(h) to authorize banking institutions to open and maintain accounts solely in the name of a Cuban national located in Cuba for the purposes only of receiving payments in the United States in connection with transactions authorized pursuant to or exempt from the prohibitions of this part and remitting such payments to Cuba. This provision would allow, for example, a Cuban national author located in Cuba to open an account with a bank or online payment platform in the United States to receive payments for sales of her book. This provision is in addition to the two existing authorizations for banking institutions to operate certain accounts on behalf of certain Cuban nationals. See Note to paragraph (a) of section 515.571(a)(5) and section 515.585(b).
  • To avoid confusion, OFAC also is making conforming edits to the Note to section 515.571(a)(5) to clarify that all three account authorizations extend to banking institutions.
  • OFAC is amending section 515.573 to authorize additional persons subject to U.S. jurisdiction to establish a business and physical presence in Cuba.
  • OFAC amended section 515.573 to authorize certain persons subject to U.S. jurisdiction to establish a physical presence, such as an office or other facility, in Cuba, to facilitate authorized transactions. OFAC is now expanding this authorization to include the following additional categories of persons subject to U.S. jurisdiction: entities engaging in non-commercial activities authorized by section 515.574 (Support for the Cuban People); entities engaging in humanitarian projects set forth in section 515.575(b) (Humanitarian projects); and private foundations or research or educational institutes engaging in transactions authorized by section 515.576.
  • OFAC is also adding a note to clarify that the activities that may be carried out by exporters of items exported or reexported pursuant to authorization by the Department of Commerce or OFAC, or that are otherwise exempt, at a physical presence authorized by this section include the assembly of such items.
  • OFAC is adding a new provision in section 515.565 to authorize the provision of educational grants, scholarships, or awards to a Cuban national or in which Cuba or a Cuban national otherwise has an interest. This could include, for example, the provision of educational scholarships for Cuban students to pursue academic studies for a degree. OFAC is also adding a note to section 515.575(b) to clarify that the existing authorization includes provision of grants or awards for humanitarian projects in or related to Cuba that are designed to directly benefit the Cuban people as set forth in that section. Telecommunications and internet- related services.
  • OFAC is amending section 515.578 to allow the importation of Cuban-origin software. OFAC is also making several technical and conforming edits. In particular, OFAC is correcting a typographical error in section 515.533(d)(2).
  • OFAC is also conforming the language of the general authorization in section 515.559(d) to the corresponding authorization in section 515.533(d).

Federal Register Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-03-16/pdf/2016-06018.pdf

A Few Things That Can Be Exported to Cuba

Tuesday, March 29th, 2016 by Danielle McClellan

By: Danielle McClellan

BIS has released a final rule revising the licensing policy from possible approval on a case-by case-basis to a general policy of approval for exports and reexports of the following to Cuba:

  • Telecommunications items that would improve communications to, from, and among the Cuban people;
  • Certain commodities and software to human rights organizations or to individuals and non-governmental organizations that promote independent activity intended to strengthen civil society in Cuba;
  • Commodities and software to U.S. news bureaus in Cuba whose primary purpose is the gathering and dissemination of news to the general public; and
  • Agricultural items that are outside the scope of “agricultural commodities” as defined in part 772 of the EAR (such as insecticides, pesticides and herbicides) as well as agricultural commodities not eligible for License Exception Agricultural commodities (AGR) (such as those that are specified in an entry on the Commerce Control List, i.e., are not designated EAR99).
  • Items that are necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air transportation, including the export or reexport of such aircraft leased to state-owned enterprises. Given a substantial increase in air travel to and from Cuba, BIS is making the change to emphasize the importance of civil aviation safety and to recognize that access to aircraft used in international air transportation that meet U.S. Federal Aviation Administration and European Aviation Safety Agency operating standards by Cuban state-owned enterprises contributes to that safety.

This rule also amends the exceptions to the general policy of denial by also adopting a case-by-case review policy for exports and reexports of some of the following:

  • Exports and reexports to state-owned enterprises, agencies, and other organizations of the Cuban government that provide goods and services for the use and benefit of the Cuban people.
  • Exports and reexports of items for agricultural production, artistic endeavors (including the creation of public content, historic and cultural works and preservation), education, food processing, disaster preparedness, relief and response, public health and sanitation, residential construction and renovation and public transportation.
  • Exports and reexports of items for use in construction of: facilities for treating public water supplies, facilities for supplying electricity or other energy to the Cuban people, sports and recreation facilities, and other infrastructure that directly benefits the Cuban people.
  • Additionally, it includes exports and reexports to wholesalers and retailers of items for domestic consumption by the Cuban people.

The rule also adds the term “reexport” to the existing statement of a policy of case-by-case review of applications for aircraft or vessels on temporary sojourn to Cuba. Finally, this rule will consolidate the statements of licensing policy for exports and reexports to Cuba (previously the policies were in six different paragraphs spread in different places with inconsistent wording).

Additionally, OFAC released a final rule coordinating with these changes set forth by BIS. OFAC is making amendments to the Cuba Sanctions Regulations with respect to non-agricultural export trade financing and travel and related services:

  • Section 515.533(a) will remove the former limitations on payment and financing terms for all exports from the United States or reexports of 100 percent U.S.-origin items from a third country that are licensed or otherwise authorized by the Department of Commerce, other than exports of agricultural items or commodities. As required by the Trade Sanctions Reform and Export Enhancement Act of 2000, 22 U.S.C. 7207(b)(1), such agricultural exports continue to be authorized only if one of the payment and financing terms specified in the statute are used.
  • Section 515.584 will add an authorization for depository institutions to provide financing for such authorized exports and making a conforming change to section 515.421.
  • Carrier services by air: section 515.572 will be amended to authorize the entry into blocked space, code-sharing, and leasing arrangements to facilitate the provision of carrier services by air authorized pursuant to section 515.572(a)(2), including the entry into such arrangements with a national of Cuba.
  • Temporary sojourn: section 515.533 will be amended to authorize travel-related and other transactions directly incident to the facilitation of the temporary sojourn of aircraft and vessels as authorized by the Department of Commerce for travel between the United States and Cuba, including by certain personnel required for normal operation and service on board a vessel or aircraft or to provide services to a vessel in port or aircraft on the ground.
  • Transactions related to information and informational materials: section 515.545 will be  expand the general license authorizing travel- related and other transactions that are directly incident to the export, import, or transmission of informational materials to include professional media or artistic productions in Cuba. Such productions include media programs (such as movies and television programs), music recordings, and the creation of artworks. OFAC is removing a restriction in an existing general license and explicitly authorizing transactions relating to the creation, dissemination, or artistic or other substantive alteration or enhancement of informational materials, including employment of Cuban nationals and the remittance of royalties or other payments. OFAC also is making a conforming change to section 515.206.
  • Professional meetings: section 515.564 will now authorize travel-related and other transactions to organize professional meetings or conferences in Cuba.
  • Public performances, clinics, workshops, athletic and other competitions, and exhibitions: section 515.567 will now authorize travel-related and other transactions to organize amateur and semi-professional international sports federation competitions and public performances, clinics, workshops, other athletic or non-athletic competitions, and exhibitions in Cuba. OFAC is also removing the existing requirements for certain events that all U.S. profits from the event after costs be donated to an independent nongovernmental organization in Cuba or a U.S.-based charity and that workshops and clinics be organized and run, at least in part, by the authorized traveler.
  • Humanitarian projects: section 515.575 will expand the list of authorized humanitarian projects to include disaster preparedness and response.

BIS Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-01-27/pdf/2016-01557.pdf

OFAC Notice: https://www.gpo.gov/fdsys/pkg/FR-2016-01-27/pdf/2016-01559.pdf

Executive Order Revokes Iran Sanctions…but Iran Isn’t out of The Woods Yet

Wednesday, February 3rd, 2016 by Danielle McClellan

By: Danielle McClellan

On January 16, 2016, President Obama signed an executive order revoking the 20-year system of sanctions against Iran for pursing a nuclear weapons program in the past. The new Executive Order revokes the following Executive Orders: 13574, 13590, 13622, and 13645 with regards to Iran. An amendment to Executive Order 13628 was also made.

These changes come about after it was found that Iran has continued to comply with an international nuclear agreement that required them to abstain from obtaining nuclear weapons. Part of this agreement included that the US would lift sections on Iran as long as it refrained from building a nuclear program for a decade or more.

Most of the sanctions relief will apply to non-US citizens doing business with Iran; US citizens will still be unable to do business with Iran (this has not changed). The following has occurred due to the executive order:

  • Iranian assets will also be freed up and no longer held in the internarial financial system.
  • OFAC has also removed nearly 400 Iranians from its blocked persons list
  • OFAC will grant waivers for Americans to import food, carpets and other floor coverings from Iran.
  • A presidential memorandum was signed that will allow the export of a commercial passenger aircraft to Iran on a case by case basis.

Although these changes sound nice, it’s important to remember that all other US sanctions against Iran are still in place and will continue to be in place as long as Iran’s support for terrorism, regional destabilization, human rights abuses, and ballistic missile development occur.

Federal Register: https://www.gpo.gov/fdsys/pkg/FR-2016-01-21/pdf/2016-01325.pdf

US Relaxes Sanctions on Iran: Put on Your Party Hat, because You Can’t Export It to Iran

Wednesday, February 3rd, 2016 by Danielle McClellan

By: John Black

Implementation Day has arrived.  Iran reached a nuclear non-proliferation milestone and the US relaxed some of its sanctions on Iran.  As reported in the media, President Obama has removed strict US trade controls on sanctions on Iran.  As reported in other media sources, the US has capitulated and freed Iran to have an unfettered path to development of nuclear weapons.

So, US exporters, you can put on your “US hearts Iran” party hat if you want, but you may not export that party hat to Iran because it is classified as EAR99 which still requires an export license for Iran, as does nearly every other product known to man other than medicine, medical devices and agricultural products.

The Obama Administration did remove the requirement that foreign parties that are owned or controlled by US parties obtain a US Government approval  before they do business with Iran, such as sending EAR99 “US hearts Iran” party hats to Iran.  No doubt, those cone shaped paper hats with the rubber bands that always get stuck in your hair are going directly to the Iranian nuclear scientist and engineers who, upon wearing the cone hats, will be able to work faster, smarter and more effectively in developing nukes.

In the final analysis, the actual scope of the changes to US export and reexport controls is very narrow, and typically tricky.

More specifically, to make the changes President Obama issued an executive order revoking sanctions imposed under other executive orders.  Since no new regulations have been published to do this, to figure out what happened, you have to read the new executive order and see what it eliminated in the previous executive orders and subtract those from OFAC’s Iran regulations.  Before you do that, I can give you a key overview of what happened that is most important to most US parties and foreign entities owned or controlled by US parties.

To implement the executive order, the Office of Foreign Assets Control (OFAC) created a new General License H to cancel existing rules.  Here are the key aspects of the General License H for foreign entities owned or controlled by US entities, and for US entities:

General License H Authorizes Foreign Entities Owned or Controlled by US Entities To:

  • Transfer to Iran foreign made items not subject to US jurisdiction—this includes purely foreign made items and foreign made items with US content that are exempt from US jurisdiction under the EAR de minimis rules; or
  • Transfer to Iran certain US made items (mainly EAR99 items, see exclusion 6 below) as long as the transfer is not a direct or indirect export from the United States.

Excluded from those two authorizations are:

  1. Direct or indirect exports from the United States to Iran;
  2. Movement of funds involving US financial institutions
  3. Activities involving parties on the SDN or activities prohibited non-Iran OFAC rules;
  4. Activities involving any entity on the FSE list;
  5. Activities for which the Export Administration Regulations (EAR) require a license—for example, most items with an EAR classification other than EAR99;
  6. Any military, paramilitary, intelligence or law enforcement entity of the Government of Iran;
  7. Activities otherwise prohibited or sanctionable by executive orders (EO):
    1.  12938 or 13382: Proliferation of weapons of mass destruction and their delivery systems;
    2. 13224:  International terrorism;
    3. 13572 or 13582:  Syria;
    4. 13611: Yemen; or
    5. 13553, 13606 or section 2 or 3 of 13628:  Iran’s human rights abuses
  8. Certain nuclear activities

 

General License H Authorizes Parties in the US to Be Involved In:

  • Activities Related to the establishment or alteration of corporate policies and procedures to the extent necessary to allow US owned or controlled foreign entities to engage in activities that General License H authorizes for the foreign entities; or
  • Activities to make available to US owned or controlled foreign entities automated and globally integrated computer, accounting, email, telecommunications or other business support systems, platform, database application, or server necessary to store, collect, transmit, generate, or other process documents of information related to activities that General License H authorizes for the foreign entities.

In addition, to the General License H, OFAC also announced a more formal safety of flight licensing policy for Iran.  Specifically, there is a good chance OFAC will approve licenses:

  • To export, reexport, sell, lease or transfer to Iran commercial passenger aircraft for exclusively civil aviation end-use
  • To export, reexport, sell, lease or transfer to Iran spare parts and components for commercial passenger aircraft
  • Provide associated services, including warranty, maintenance, and repair services and safety inspections for the above, as long as licensed items and services are used exclusively for commercial passenger aviation.

OFAC has stated that if it approves such licenses, it will require that the licensed activities do not involve SDN listed parties.

Before you have an export control party, including “I heart Iran” party hats, remember that the US can revoke General License H and all of the changes it made at the drop of a hat for any reason whenever it wants to do so.

Secondary Sanctions:  A big part of the OFAC relaxation does not apply to export or reexport controls, but comes in the area of secondary sanctions.   For example, OFAC has the authority to penalize a foreign entity with no ties to the US who is involved in the petroleum business in Iran, even if that purely foreign party is not transferring any items subject to US jurisdiction.   For non-US parties who are not owned or controlled by US parties and are not dealing in products subject to US jurisdiction, OFAC announced that it will no longer enforce its secondary sanctions on these sectors:

  • Financial and bank
  • Petrochemical and energy
  • Gold and precious metals
  • Automotive
  • Shipping, shipbuilding and ports

For companies outside of the scope of US export and reexport controls, the OFAC secondary sanctions are important.  For example, under US secondary sanctions, a French company with no US ties, could have a French export license to send 100% French machines to an Iranian oil site and still get penalized by US secondary sanctions.  So, if the US did not lift its secondary sanctions, it could have largely cancelled out the relaxations other countries made in their trade controls on Iran.

And, before anybody in France, or anywhere else in the world, dons their foreign-made made “I heart Iran” berets, remember OFAC can re-impose any or all of its secondary sanctions at the drop of a hat for any reason whenever its wants to do so.

These dramatic, yet limited, changes have created new business opportunities, but I recommend that everybody proceed with caution.  The US Government made it clear it will continue to enforce the existing rules.  The US Government does not want to be seen as being too lax regarding Iran, and a big, new enforcement case would give the US Government the publicity it needs to continue to convince Congress and companies everywhere that it remains tough on Iran and violations carry with them huge business risks.

For further guidance from OFAC, there is a lot of information at: https://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx

For the OFAC safety of flight guidance go to:  https://www.treasury.gov/resource-center/sanctions/Programs/Documents/lic_pol_statement_aircraft_jcpoa.pdf