On April 20, 2017 the Department of Treasury’s Office of Foreign Assets Control (OFAC) offered new guidance for individuals and entities (and their counsel) who seek to have their names removed from OFAC’s list of Specially Designated Nationals (SDN).

The guidance comes in the form of updates to OFAC’s Frequently Asked Questions and sets forth the procedures for petitioning for removal from the SDN list.  The petition itself appears quite simple.  In fact, the only requirements are that it include: (1) the name and contact information of the SDN; (2) the date of the relevant OFAC listing action; and (3) a “detailed description” of the reasons that individual or entity should be removed from the SDN list. Parties may also submit additional evidence or argument as to why the SDN designation is not appropriate.

While OFAC notes that all petitions are unique, OFAC announces a goal to send its first questionnaire within 90 days of receiving a petition.  The time a party takes to respond to the questionnaire (and any subsequent questionnaires) can, of course, significantly draw out the overall petition process.

Although individuals may submit their own petitions, hiring proper counsel is likely a wise decision.  Not only can knowledgeable counsel navigate the grounds on which OFAC is likely to remove a person from the SDN list (i.e., positive change in behavior, change in the basis for the designation, mistaken identity, or death), counsel can help ensure that information disclosures will comport with OFAC’s expectations (ideally limiting the number of follow-up questionnaires).

Counsel should be cautioned not to run afoul of OFAC’s sanctions regimes while representing an SDN.  Although there are general licenses under most of OFAC’s sanctions regimes permitting legal services to aid a person in contesting SDN status, restrictions on the origin of payments may complicate matters.

New clarity on the path off of the sanctions black list is encouraging evidence of OFAC’s commitment to ensuring that the SDN list encourages good behavior and is not a heavy-handed punishment.  While the reality of the petition process may not be as simple as the FAQ suggests, clear guidelines are a great aid to targeted individuals and their counsel.

Today the Office of Foreign Assets Control (“OFAC”) updated its Specially Designated Nationals List (“SDN List”). OFAC frequently updates the SDN List to add or remove names as necessary and appropriate.

The SDN List is a list published by OFAC that includes the names of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific.

OFAC implements and imposes sanctions against those companies and individuals on the SDN List. Any US citizen, permanent resident alien, entity organized under the laws of the United States (including foreign branches), or any person (i.e., individual or entity) in the United States (collectively, “U.S. persons”) are generally prohibited from dealing with these companies and individuals, including transactions involving commerce, business, trade or finance. U.S. persons must block any property in their possession or under their control in which a company or individual on the SDN List has an interest.

When doing business with a foreign company or individual, it is important to access the SDN List to ensure that transactions with that foreign party are permissible. U.S. persons are expected to exercise due diligence in determining whether any such persons are involved in a proposed transaction. A failure to review the most up-to-date SDN List and review current sanctions can lead to serious consequences.

For more information on OFAC’s update and to review those added to the SDN List, please visit this page.  To review the current SDN List, click here.

The 15-member U.N. Security Council (the Council) imposed new sanctions on North Korea (also known as the Democratic People’s Republic of Korea or DPRK) on November 30, 2016 by unanimously approving a resolution imposing new sanctions — UN Security Council Resolution (UNSCR) 2321.

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The resolution is a clear response to North Korea carrying out its fifth and largest nuclear test so far in September 2016. The resolution tighten the sanctions adopted by the Council in March 2016 and is aimed at cutting North Korea’s hard currency that it uses to fund its prohibited weapons programs.

The sanctions impose a cap on coal exports, which is North Korea’s chief source of hard currency and constitutes about one third of North Korea’s export revenue. Pursuant to the resolution, North Korea can sell no more than 7.5 million metric tons of coal a year, or bring in no more than $400 million in sales, whichever comes first. In addition to restricting the export of coal, the resolution also bans North Korean copper, nickel, silver and zinc exports.

Two of the five permanent members of the Council, China and the United States, have been working together to pass the resolution. China is North Korea’s principal patron and coal customer. China’s permanent representative to the United Nations, Liu Jieyi, called on North Korea to halt its nuclear tests. He said the resolution demonstrated “the uniform stance of the international community.”

The U.S. Ambassador to the United Nations, Samantha Power, said that “the United States recognizes that China is working closely with us.” Power stated that “[n]o resolution in New York will likely, tomorrow, persuade Pyongyang to cease its relentless pursuit of nuclear weapons. But this resolution imposes unprecedented costs on the DPRK regime for defying this council’s demands.”

The resolution also requires countries to tell the United Nations how much North Korean coal they are buying and expands the list of banned items for import by North Korea, including luxury goods like rugs and tapestries valued over $500 and porcelain and bone china worth more than $100.

In addition to other export controls, the resolution also imposes banking restrictions and transportation restrictions. The resolution includes an expanded list of individuals and entities that are subject to travel bans and asset freezes, including North Korea’s ambassadors and envoys to Egypt, Sudan, Syria and Myanmar.

On December 2, 2016, the US Treasury Department’s Office of Foreign Assets Control announced related sanctions designations of additional individuals and entities with ties to the Government of North Korea or its nuclear and weapons proliferation efforts, and aircrafts blocked as property of a designated entity.

North Korea has been under United Nations sanctions since 2006 over its nuclear and ballistic missile tests. For United States businesses the resolution does not significantly change the status quo, as US law already prohibits nearly all activity involving North Korea. The resolution will primarily impact areas where North Korea has a strong international presence, including banking, transportation and commodities trade.

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On September 13, 2016, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) announced a $4.3 million settlement with international seed producer and exporter PanAmerican Seed Company (“PanAm Seed”). In its official statement regarding the enforcement action, OFAC alleges that PanAm Seed faced statutory and civil penalties in the amount of $12 million for “egregious” violations of US sanctions against Iran.

OFAC alleges that between May 2009 and May 2012, PanAm Seed repeatedly violated US export controls by exporting seeds to two Iranian distributors. As part of the alleged scheme, PanAm Seed made 48 sales to consignees in unrestricted countries who would then reexport the seeds the Iranian distributors. Among the aggravating factors which led this case to be labeled “egregious,” OFAC noted that the Iranian sanctions program permits the export of certain agricultural products (likely including the seeds in question) under a specific license; however, PanAm Seed knowingly chose not apply for a specific license and instead chose to pursue its reexportation scheme. OFAC also cited PanAm Seed’s sophistication and substantial international sales when discussing its reckless disregard for its OFAC compliance responsibilities and knowledge of its mid-level managers of the intent to reexport seeds to Iran. Finally, despite mitigating efforts to implement compliance programs and PanAm Seed’s history of compliance, OFAC repeatedly noted that PanAm Seed did not self-report these violations and initially refused to cooperate in OFAC’s investigation.

It is difficult to understand why PanAm Seed chose not to seek a specific license which would have permitted the exports in question and avoided this significant fall out. Whether it was a lack of clarity regarding the scope of the Iranian sanctions program, a failure of the company’s employees to appreciate the ramifications of violating OFAC sanctions, or some combination of the two, this “egregious” case likely could have been avoided with comprehensive training and compliance structures which could not be evaded by transparent sales to consignees. Ensuring that training and compliance programs are up-to-date and genuinely robust may be the single most important thing a company to do to protect itself against future claims of misconduct, egregious or otherwise.

The Miami Herald is reporting that the Cuban government used the Panamanian law firm Mossack Fonseca to create at least 25 corporations registered in the British Virgin Islands, Panama and the Bahamas. Mossack Fonsenca, and its clients, have come under immense scrutiny since the leak of hundreds of thousands of pages of the firm’s files, which have been come known as the “Panama Papers”, revealed elaborate tax shelters used by some of the world’s wealthiest individuals and organizations.

In a June 7, 2016 report, the Miami Herald alleges that at the Cuban government used Mossak Fonseca to set up numerous corporations and then used these off-shore entities to conduct business, including numerous exchanges of oil for Cuban goods, which was prohibited by the US embargo on Cuba. Although the Panamanian firm’s aid or involvement with the Cuban government is likely beyond the jurisdiction of US officials, the potential ramifications for US corporations who may have dealt with the alleged off-shore Cuban entities is uncertain.

Under Cuban Assets Control Regulations (31 C.F.R. Part 515), an entity can potentially avoid penalties if it is able to demonstrate that is did not willfully violate the regulations, had no reason to know or suspect that it was involved in a prohibited transaction, and the entity reported the prohibited transaction to the Office of Foreign Assets Control (OFAC) as soon as it became aware of the violation. (31 C.F.R. 515.203). It is also possible that individual transactions may have been authorized pursuant to specific licenses issued by OFAC. The critical issue, therefore, is whether any US entities knew or should have known that they were dealing with an entity connected to the Cuban government. As investigations of the Panama Papers continue, correspondence contained therein could potentially demonstrate knowledge by US companies about the Cuban connections of the off-shore entities identified in the Miami Herald report.

US companies who may have engaged the Cuban off-shore entities should be proactive and investigate what, if any, contact they may have had with these entities as self-reporting any transactions to OFAC is a necessary first step in cooperation. Depending on the size of the organization, using a third-party investigator, such a law firm, may ensure the preservation of documents and, in turn, the integrity of the investigation should an investigation by OFAC become necessary.

U.S. President Barack Obama announced that the U.S. would fully lift a ban on the sale of lethal arms and military equipment to Vietnam. President Obama announced this change in U.S. policy, which has been in place for about fifty years, during his visit to Vietnam on Monday, May 23, 2016. At a joint news conference with Vietnamese President Tran Dai Quang, President Obama said this move would remove a lingering “vestige of the Cold War” and complete what has been a lengthy process towards normalization with Vietnam, which began in 1995.

Despite the complete embargo lift, sales with Vietnam will still need to meet strict trade requirements. The sale of arms will still depend on Vietnam’s human rights commitments and will be made on a case-by-case basis.

Reporters suspect that this measure is a response to the activity of China in the South China Sea. China has claimed several contested reefs in the South China Sea and constructed military capable airfields. Critics claim that the decision to lift the arms ban suggests that the U.S. is more concerned with China’s activity in the South China Sea than it is with Vietnam’s record of improving human rights in Vietnam. However, President Obama said the arms lift was not related to China.

The trip to Vietnam is meant to strengthen the bond between the U.S. and Vietnam. Both imports and exports between the two countries have steadily increased in recent years. Security experts see the U.S. decision to lift the arms embargo as an effort to form a bond with Vietnam as a trade and security partner in that region.

Copyright: lkunl / 123RF Stock Photo
Copyright: lkunl / 123RF Stock Photo

On Tuesday, the U.S. Department of Treasury continued its effort to ease sanctions against Myanmar, which the U.S. refers to as Burma, by creating and extending general licenses for banking services, personal transactions and other trade that impacts state-owned banks and businesses. The sanctions relief is intended to allow American individuals, banks and companies to do business with Burmese financial institutions.

The sanctions relief is in response to Burma’s political and economic progress. Burma held historic elections last November and transitioned away from the military ruling party toward a democratic government in April of this year. It has also shown steady improvement of its record on human rights.

The U.S. had waived its longstanding bans on investment and trade in 2012 after Burma began political and economic reforms, but has retained restrictions on dozens of companies and individuals because they oppose reform or were implicated in human rights abuses and military trade with North Korea. With the new sanctions relief that started in 2012 and that has been expanded by the Treasury yesterday, U.S. companies can gain a foothold in the Burmese market.

In a statement about the sanctions relief, President Obama said:

“The Government of Burma has made significant progress across a number of important areas since 2011, including the release of over 1,300 political prisoners, a peaceful and competitive election, the signing of a Nationwide Ceasefire Agreement with eight ethnic armed groups, the discharge of hundreds of child soldiers from the military, steps to improve labor standards, and expanding political space for civil society to have a greater voice in shaping issues critical to Burma’s future.”

President Obama also recognized that Burma still poses a threat to the U.S., and the U.S. continues to have concerns regarding human rights violations. Despite the sanctions relief, the U.S. will continue to keep restrictions on trade and investment with the military in place.

As part of the sanctions relief, the Treasury’s Office of Foreign Assets Control (OFAC) updated an existing general license that frees up the ability to transact business with entities that were on OFAC’s Specially Designated Nationals (SDN) List. The Treasury also removed 10 state-owned businesses and banks from the SDN List, allowing those entities to trade and invest with their U.S. counterparts.

However, OFAC also added several entities to the SDN List, blocking the assets of six different companies that are more than 50 percent owned by other SDN entities: Steven Law and Asia World, which were initially blocked for supporting the former military-led government in Burma.

You can learn more about the current Burma sanctions at the Treasury’s website.

The U.N. Security Council unanimously approved sanctions that will toughen penalties against North Korea. The approved resolution contains the most stringent measures ever passed against North Korea, which will undermine North Korea’s ability to raise money and secure technology and other resources for its nuclear program.

The sanctions include the following:

  • All countries are required to inspect all North Korean cargo entering or leaving that country.
  • North Korea cannot sell gold, titanium ore, vanadium ore and rare earth minerals.
  • A ban on aviation fuel exports to the country, including “kerosene-type rocket fuel.”
  • Watercraft, snowmobiles and other recreational sports equipment have been added to a ban on luxury goods.
  • North Korea cannot send martial arts experts to train police officers in foreign countries.
  • Countries are required to expel North Korean diplomats accused of illicit activities.

The U.S. administration also announced related actions by the Treasury and State Department that levied sanctions against additional individuals and entities. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated two entities and ten individuals with ties to the Government of North Korea and its nuclear and weapons proliferation efforts.  In a related action, the State Department designated three entities and two individuals for activities related to weapons of mass destruction proliferation. These designations freeze any properties the individuals or entities may have under U.S. jurisdiction and bars U.S. citizens from doing business with them.  For information on the designated individuals and entities, see OFAC’s SDN List update.

Treasury Secretary Jacob J. Lew commented on the resolution, stating: “Today the United Nations Security Council approved a historic Resolution which included key designations against North Korea, and the United States issued sanctions also targeting supporters of this repressive regime.  Together, these actions reflect a strong and unified response to North Korea’s provocative, destabilizing, and dangerous activities…. Our coordinated efforts send a clear message: the global community will not tolerate North Korea’s illicit nuclear and ballistic missile activities, and there will be serious consequences until it modifies its reckless behavior.”

The U.N. Security Council has delayed its vote on the proposed sanctions against North Korea until Wednesday, at the request of Russia.

Last week, the United States and China proposed expanded sanctions against North Korea, which include mandatory inspection of cargo leaving or entering North Korea, by sea or air. The United States and China had spent seven weeks negotiating the new sanctions in response to North Korea’s nuclear tests.

The U.N. Security Council, composed of 15 member nations, will vote on the resolutions on Wednesday. The vote was delayed after Russia invoked a procedural 24-hour review of the resolutions.  Russia has requested more time to review the lengthy text of the resolutions and consider the changes to the current sanctions.

President Obama announced on Thursday that he would travel to Cuba in March and meet with Cuban President Raúl Castro. The two men first met face-to-face during a summit in Panama last year, but President Obama has never visited Cuba. In fact, President Obama will be the first sitting American president to visit Cuba in 88 years. The last president to visit Cuba was President Coolidge who attended the Pan American Conference in Havana in January 1928.

Recently, there has been significant communication between the two countries, including American officials traveling to Havana on Tuesday to sign a pact that will for the first time in decades allow scheduled commercial flights between the two countries. Cuban officials are also in Washington this week to discuss ways of expanding business ties between the two countries.

Despite the President’s announcement in December 2014 regarding significant changes in the U.S. policy toward Cuba to normalize relations between the two countries, the Cuba embargo remains in place. Most transactions between the United States, or persons subject to U.S. jurisdiction, and Cuba continue to be prohibited, and OFAC continues to enforce the prohibitions of the Cuban Assets Control Regulations (CACR).

Effective on January 27, 2016, there have been several changes to the trade relationship between the two countries. These changes are targeted at further engaging and empowering the Cuban people by facilitating authorized travel to Cuba; certain authorized commerce; and the flow of information to, from, and within Cuba.  For more information about the loosening of Cuban sanctions, see our earlier post here.