In recent weeks, the United Stated Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) expanded the scope of sanctions against current and former Venezuelan government officials who have supported controversial President Nicholas Maduro and his regime of corruption and human rights abuses.

The first sanctions implemented against Venezuelan individuals and entities were authorized by President Barrack Obama in March 2015 (Executive Order 13692).  Following President Maduro’s re-election to a second six-year term on May 20, 2018, President Donald Trump has expanded the scope of both the prohibited conduct and the designated individuals and entities subject to sanctions.

On November 1, 2018, President Trump issued Executive Order 13850 broadly prohibiting transactions with individuals directly or indirectly involved in the deceptive and corrupt practices of the Government of Venezuela.  President Trump has subsequently issued Executive Orders designating specific individuals and entities subject to the sanctions regime.  On January 28, 2019, Executive Order 13857 revised the definition of “Government of Venezuela” (which is subject to sanctions) to specifically include, among others, the Central Bank of Venezuela and state-run oil company Petroleos de Venezuela, S.A. (“PdVSA”)  Further, in press releases on February 15, 2019 and February 25, 2019, OFAC announced additional individuals and entities with whom transactions are prohibited. Among those named in the recent press releases are Venezuelan military and intelligence officers, the head of the Special Action Force of Venezuela’s police, the President of PdVSA, and, most recently, the Governors of four Venezuelan states that have aligned themselves with President Maduro.

The recent press releases note that sanctions “need not be permanent” and that removal of sanctions is possible for individuals who “take concrete and meaningful actions to restore democratic order, refuse to take part in human rights abuses, speak out against abuses committed by the former Maduro regime, and combat corruption in Venezuela.”

For US companies transacting across borders, it always essential to verify that their business partners are not subject to US sanctions.  With the rapidly changing scope of sanctions relating to Venezula, the need to consult with experienced counsel is even greater and must continue on an ongoing basis throughout the life of a transaction of business venture.

On May 8, President Trump announced that the United States would withdraw from the Iran nuclear deal completed in 2015, otherwise known as the Joint Comprehensive Plan of Action (JCPOA). The scuttling of the deal re-imposes sanctions on the country that had been suspended as part of the agreement. In an Alert published Thursday, partner Nevena Simidjiyska examines this development and the specific sanctions involved, and discusses its impact on U.S. companies doing business with Iran.

The White House, Washington, D.C.Pursuant to the JCPOA, which was signed under President Obama in 2015, Iran agreed to limit its nuclear program by curbing its enrichment of uranium, spent fuel processing, and research and development activities. In exchange, the U.S. lifted most “secondary sanctions” targeting non-U.S. persons and companies that transact business with Iran and allowed the importation of certain Iranian products into the U.S. In addition, the U.S. allowed non-U.S. entities that are owned or controlled by U.S. persons to engage in certain transactions with Iran under OFAC’s General License H. A number of foreign affiliates of U.S. companies started doing business and made investments in Iran pursuant to these authorizations.

The U.S. government will reinstate all sanctions against Iran that were lifted by the JCPOA, including General License H. The reinstatement will take place in two phases – 90 and 180 days after the May 8 withdrawal – to allow U.S. and non-U.S. businesses to wind down their existing business with Iran. The sanctions that will be re-imposed and the authorizations that will be revoked are listed below. All parties engaged in any of the activities listed below should take necessary steps to wind down these activities by the dates indicated to avoid sanctions and enforcement actions under U.S. law.

To read the full text of the Alert, we invite you to visit the Fox Rothschild website.

On January 12, 2018, President Trump issued a statement announcing that he will approve certain sanctions waivers necessary in order to preserve the Iran nuclear deal. At the same time, he called on the U.S.’s European allies to work with the U.S. to fix the flaws of the Iran nuclear deal (the Joint Comprehensive Plan of Action or the JCPOA), or he would terminate the deal.

President Trump began his statement by condemning the Iranian regime as the world’s leading state sponsor of terror. He also added 14 more Iranian individuals and entities to the Specially Designated Nationals and Blocked Persons List.

In his statement, President Trump explained that he is open to working with Congress on bipartisan legislation dealing with Iran. However, any bill must include four critical components. First, the bill must allow immediate inspection by international inspectors at all nuclear sites. Second, it must demand that Iran not come close to possessing nuclear weapons. Third, there must be no expiration date on these requirements. Finally, the bill must subject Iran’s long-range missile program to the same sanctions imposed on its nuclear weapons program.

Although President Trump waived the application of certain nuclear sanctions, he stated that “this is a last chance.” He called on the U.S.’s European allies to fix the Iran deal and made it clear that if the allies cannot agree on a new supplemental JCPOA, President Trump will not waive sanctions again to stay in the deal. The President also reserved the right to withdraw from the deal immediately if he determines that an agreement is not within reach.

The President’s full statement can be found here.

On October 12, 2017, the United States lifted its general commercial embargo on Sudan. Because Sudan has played a role in international terrorism, the U.S. has maintained a comprehensive embargo against Sudan since 1997. These sanctions were contained in executive orders and the Sudanese Sanctions Regulations (SSR).

Following a 16-month diplomatic effort, the United States removed sanctions that had prohibited U.S. persons from engaging in or facilitating most transactions that involved Sudan or its government. U.S. persons may now engage in most transactions without the need for a general or specific license from the Office of Foreign Assets Control (OFAC).

On January 17, 2017, the U.S. temporarily lifted sanctions with respect to Sudan and its government. OFAC issued a general license that temporarily authorized transactions prohibited by the SSR, which was contingent on the U.S. government’s determination regarding Sudan’s developments in key areas. Earlier this month, the Secretary of State provided a determination to President Trump that the government of Sudan has made positive development in the cessation of hostilities in conflict areas, improving humanitarian access throughout Sudan, and addressing regional conflicts and threats of terrorism.

Effective October 12, 2017, the temporary general license is no longer operable and OFAC authorization is not required for proposed transactions that were previously prohibited by the SSR, unless the proposed transaction implicates the Darfur Sanctions Regulations or other OFAC-administered sanctions regulations.

While most sanctions were lifted, significant restrictions remain in place for those seeking to trade with Sudan, primarily with respect to export controls and individuals and entities listed on the Specially Designated Nationals List (SDN List). OFAC sanctions related to the conflict in Darfur still remain in place, and the revocation does not affect OFAC’s designations of any Sudanese persons pursuant to other sanctions authorities.

Additionally, this does not impact Sudan’s status as a state sponsor of terrorism. Pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA), an OFAC license is still required for certain exports and reexports to Sudan of agricultural commodities, medicine, and medical devices as a result of Sudan’s inclusion on the State Sponsors of Terrorism List (SST List).

General License A, which went into effect on October 12, 2017, authorizes exports and reexports of certain TSRA items to Sudan. General License A is available for review here. General License A replaces the need for any existing general or specific licenses currently issued to authorize conduct that was otherwise prohibited under the Sudan sanctions program.

U.S. persons are still required to comply with the export and reexport controls of the Export Administration Regulations (EAR) administered by the U.S. Department of Commerce, Bureau of Industry and Security (BIS). These requirements include restrictions that are maintained as a consequence of Sudan’s inclusion on the SST List and apply to certain exports and reexports of items on the Commerce Control List. BIS also maintains end-use and end-user controls on the export and reexport to Sudan of EAR99 items by U.S. persons and non-U.S. persons.

Despite lifting the general commercial embargo on Sudan, the sanctions revocation does not affect past, present or future OFAC enforcement actions related to violations of the SSR that occurred prior to January 17, 2017. Additionally, the revocation does not mean that sanctions cannot be quickly reimposed by the U.S.

On Thursday, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a $415,350 settlement agreement with COSL Singapore Ltd. (“COSL”). The parties settled a potential civil liability claim for 55 apparent violation of the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR), which took place between October 2011 and February 2013.

COSL is a Singapore-based subsidiary of a Chinese oil field service company. It has several offshore drilling oil rigs and enters into charter agreements with third-party drilling companies to allow those parties to use its oil rigs.

Between October 2011 and February 2013, the procurement specialists for COSL purchased at least 55 orders of supplies from vendors located in the U.S. that were specifically intended for export or re-export to oil rigs located in Iranian territory. These purchases were made despite some warning from U.S. vendors that the goods should not be shipped or re-exported to countries subject to U.S. sanctions, including Iran.

OFAC determined that COSL used its own subsidiary companies, COSL Drilling Pan Pacific (Lbuan) Ltd. and COSL Drilling Pan Pacific Ltd., to export or attempt to export the oil rig supplies from the U.S. to Singapore and the United Arab Emirates before re-exporting or attempting to re-export the supplies to oil rigs located in Iranian territory.

COSL has agreed to pay $415,350 to settle potential civil liability, which is a lot less than what the potential liability could have been for COSL. The statutory maximum penalty amount for the apparent violations is $13,750,000, and the base penalty amount is $923,000.

OFAC considered aggravating and mitigating factors in determining the settlement amount. Some of the aggravating factors included: (1) COSL is a large sophisticated company doing business throughout the world; (2) COSL did not have an OFAC compliance program in place at the time of the transactions; and (3) OFAC determined that the exportation or re-exportation aided in the development of Iran’s energy resources.

The mitigating factors included: (1) COSL did not have any prior sanctions history; (2) COSL took remedial action by instituting an OFAC sanctions compliance program; and (3) COSL displayed substantial cooperation throughout the investigation process.

Companies that are involved in international trade and conduct business in the U.S. or with U.S. companies should have an OFAC compliance program in place. If companies are in a situation where they may have violated Iranian sanctions programs (or other U.S. sanctions programs), full cooperation with OFAC is essential.

Co-Author, Santos Ramos

On June 16, 2017, President Trump announced changes to United States’ Cuban sanctions regime which will stem the tide of liberalization that Obama Administration set in motion 2014. While the regulatory changes have not yet taken effect, the Department of Treasury’s Office of Foreign Assets Control (OFAC) released updated its online resources to reflect the Trump Administration’s forthcoming changes.  Most notably, under the announced changes, individual “people-to-people” travel will no longer be permitted and any trade or business ventures involving Cuba’s military, intelligence and security services is strictly prohibited.

Travel

Trump Administration’s new Cuban travel policies crack down on the potential for individual ‘vacation’ travel to Cuba. Under the Obama Administration’s reforms to the Cuban sanctions, individuals could travel to Cuba as long as they affirmed that they were engaged in permitted activities, such as educational and artistic study, news reporting, or other endeavors designed to promote and aid the Cuban people.  Under the newly announced changes, individuals will no longer be able to travel to Cuba on their own for “people-to-people travel” (i.e., educational travel that does not involve any academic study towards the pursuit of a degree and is not under the auspices of an organization). Group people-to-people travel will still be permitted as long as the group is led by a U.S.-based organization and maintains a full-time schedule of educational or other permitted activities. Unfortunately for those who may have already booked their tickets to Havana, the new regulation will not be prospective, meaning that any travel that does not conform with the new regulations (even if previously planned) will be prohibited.

Trade and Business

Companies seeking to do business in Cuba will also have to navigate stricter regulations. While trade and business ventures with the Cuban government remained restricted under the Obama Administration’s revised sanctions, the new rules will more clearly delineate entities which are associated with Cuban military conglomerate Grupo de Administración Empresarial SA (GAESA). GAESA, which is comprised of Cuban military, intelligence, and security services, has an extensive web of subsidiaries and ownership interests which some estimate touch as much as 60 percent of the Cuban economy. OFAC and Department of Commerce, Bureau of Industry and Security (BIS) will publish an extensive list of prohibited entities when the new regulations are completed. The new trade policy will be prospective, however, meaning that any contracts and licenses executed and issued prior to effective date of the new regulations will not be terminated.

What Should U.S. Companies Do?

U.S. companies which have already entered into contracts with a GAESA-related companies will be able to continue operating without any change. Any U.S. company seeking to begin or expand business in Cuba after the new policy takes effect, however, must heed the warning that any transaction with GAESA-related entities is prohibited. Moreover, while OFAC and BIS will strive to produce a comprehensive list of GAESA-related entities, it may prove to be a difficult and ever-evolving challenge.  Accordingly, despite any published list of entities, it will almost certainly remain the responsibility – and potential liability – of U.S. companies to know with whom they are conducting business. In addition, U.S. companies must be vigilant about any renewals of contracts or licenses with GAESA-related entities, as there has been little guidance as to whether renewing an existing contract will be considered continued operation or a new, prohibited engagement.

Last week the Trump administration announced new Iran-related sanctions imposed against 18 Iranian entities and individuals. The sanctions are the administration’s response to Iran’s ballistic missile program and destabilizing actions in the region.

The actions of the administration were taken pursuant to Executive Order (E.O.) 13382, which targets proliferators of weapons of mass destruction and their means of delivery by freezing the assets of those proliferators, as well as E.O. 13581, which blocks the property of transnational criminal organizations.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) placed sanctions on individuals and entities for their support of the Iranian military and the Islamic Revolutionary Guard Corps, and for engaging in international hacking efforts. The U.S. Department of State placed sanctions on entities for their involvement in ballistic missile research and development for the Iranian government.

These sanctions were announced only a day after the Trump administration recertified Iran’s compliance with the Joint Comprehensive Plan of Action (JCPOA). The JCPOA is a 2015 nuclear deal that was agreed to by the P5+1 (China, France, Germany, Russia, the United Kingdom, and the U.S.), the European Union (EU), and Iran, to ensure a peaceful nuclear program in Iran. The JCPOA offers Iran sanctions relief if it continues to curb its nuclear program and follow the timeline of requirements set forth in the JCPOA.

The JCPOA states that its participants anticipate that the “full implementation of this JCPOA will positively contribute to regional and international peace and security.” However, the U.S. believes that the other actions taken by Iran undermine the positive contributions and goals of the JCPOA to bring about peace and security in the Middle East.

These new sanctions mean that Americans are prevented from doing business with these newly sanctioned entities and individuals. It also means that any assets these entities and individuals have in the U.S. will be frozen.

In a press release issued in connection with the announcement of the sanctions, the State Department also called upon Iran to release Baquer Namazi, Siamak Namazi, and Xiyue Wang, all of whom are U.S. citizens detained by Iran.

Despite the announcement of the new sanctions, the U.S. is still committed to complying with its commitments under the JCPOA, and Iran will continue to receive the same sanctions relief it received under former President Obama.

On Thursday, the Senate passed legislation to impose additional sanctions on Russia. The bill passed by an overwhelming majority, 98-2, with only Senator Rand Paul and Senator Bernie Sanders voting against it.

In addition to the Russian sanctions, Iran sanctions, and the requirement that Congress review any effort by the Trump administration to loosen sanctions against Russia, the bill also includes a reassertion of the United States’ commitment to the North Atlantic Treaty Organization’s Article 5 charter provision that states that an attack on one member of NATO is considered an attack on all members.

The bill will now go to the House of Representatives, where the fate of the bill is less certain. Although the White House has signaled that it wants to improve relations with Russia, it has not yet said whether President Trump would sign the bill into law.

 

Copyright: alexkich / 123RF Stock Photo

On Monday, U.S. senators reached an agreement regarding imposing new sanctions against Russia. The agreement will be filed as an amendment to a larger Iran sanctions bill that is nearing passage in the Senate.

The sanctions are meant to punish Russia for several Russian actions. The sanctions will punish Russia for the alleged meddling in the U.S. 2016 presidential election, its annexation of Ukraine’s Crimea region, and its support of, and supplying weapons to, the government of Syria.

The new measure will also codify existing sanctions and place new economic restrictions on Russia. It will allow new sanctions on Russian mining, metals, shipping and railway industries.

The proposed legislation is backed by both Republicans and Democrats, and it is expected to pass the Senate. It could come to a vote as early as later this week. To pass into law, the legislation will also need to be approved by the House of Representatives and be signed into law by President Donald Trump.

In a statement released late Monday, top Republican and Democratic senators on the Foreign Relations Committee and the Committee on Banking, Housing and Urban Affairs said the agreement would “provide for a mandated congressional review” if the White House sought to ease penalties against Russia unilaterally.

Last week, the D.C. Circuit affirmed the U.S. Treasury Department’s Office of Foreign Assets Control’s (“OFAC”) wide latitude to impose Iran sanctions, but it set aside a $4.07 million penalty against car accessory seller Epsilon Electronics (“Epsilon”). The D.C. Circuit found that the agency cut too many corners in its investigation of Epsilon.

In July 2014, OFAC imposed the $4.07 million penalty on Epsilon, alleging that a series of shipments in 2012 by the company to Asra International Corporation, LLC in Dubai, United Arab Emirates (“Dubai Asra”) were destined for end-use in Iran. Sending products to Iran would violate the Iranian Transactions and Regulations. OFAC is authorized to impose civil penalties against individuals or entities who export to a third party who it has reason to know intends to send those goods to Iran.

The case dealt with the initial question of whether OFAC must prove that the goods ended up in Iran in order to hold the company liable for the breach of U.S. sanctions. The court determined that OFAC had enough evidence to support a finding that the first 34 shipments from Epsilon to Dubai Asra violated the sanctions. However, for the final five shipments, the court found that OFAC failed to explain why it discounted certain evidence and why the conclusion about the first 34 shipments applied to the last five, in light of the countervailing evidence presented. The evidence included several email exchanges between Epsilon’s sales team and Dubai Asra’s manager that indicated that the last five shipment were intended for a Dubai retail store and not Iran.

The U.S. Court of Appeals for the D.C. Circuit remanded the case to the district court, with instructions to remand the matter to OFAC for further consideration of the alleged 2012 violations relating to the final five shipments, and calculation of the total monetary penalty imposed for all liability findings. While the court found that the government does not need to show that the goods actually ended up in Iran, the court did conclude that OFAC did not adequately explain its determination that Epsilon had reason to know that the goods would end up in Iran. Because OFAC failed to justify its conclusion that Epsilon should be held liable for the last five shipments as well as the first 34, the final liability determinations were deemed capricious and arbitrary.

The decision establishes key precedents related to trade compliance. The case shows that OFAC does not need to prove that the goods actually reached the sanctioned country in order to impose penalties. Additionally, the case shows that agency enforcement actions from OFAC can be subject to judicial review. This could lead to enhanced transparency between violators and the government imposing sanctions. For more information about the case, read the opinion here.