A Midyear Look At Key US Sanctions Developments

By Ama Adams, Brendan Hanifin and Emerson Siegle
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Law360 (July 1, 2020, 11:07 AM EDT) --
Ama Adams
Ama Adams
Brendan Hanifin
Brendan Hanifin
Emerson Siegle
Emerson Siegle
While COVID-19 has dominated international attention through the first half of 2020, the U.S. Department of the Treasury's Office of Foreign Assets Control has remained active. Among other steps, OFAC has strengthened existing sanctions programs, issued a range of new guidance documents and announced enforcement actions that underscore OFAC's current sanctions compliance program expectations.

This activity, coupled with the prospect of new sanctions targeting China, presage an active second half of the year, underscoring that sanctions compliance efforts are indispensable, even in the face of a global pandemic.

Regulatory Developments

Iran

The administration of President Donald Trump has continued to ratchet up pressure on Iran, following the U.S.' 2018 withdrawal from the Iran nuclear deal, the Joint Comprehensive Plan of Action.

In January, Trump issued an executive order titled "Imposing Sanctions with Respect to Additional Sectors of Iran," which expanded the scope of OFAC's secondary sanctions authority to additional Iranian industries, including the construction, mining, manufacturing, and textiles sectors.[1]

The Iran executive order expanded the scope of Iran-related activities that may subject non-U.S. parties to U.S. sanctions, a strong deterrent for non-U.S. companies considering dealings with Iran.

More recently, on May 27, Secretary of State Mike Pompeo announced that the U.S. would end sanctions waivers covering all remaining JCPOA-originating nuclear projects in Iran, including the Arak reactor conversion, the provision of enriched uranium for the Tehran Research Reactor, and the export of Tehran's spent and scrap research reactor fuel.[2]

OFAC authorized a 60-day wind-down period — through July 27 — for non-U.S. parties engaged in covered activities, but warned that "[p]ersons engaged in such activities after [July 27] may be exposed to certain sanctions."[3]

Like the Iran executive order, the May 27 announcement expands the U.S. government's arsenal to target non-U.S. parties that provide assistance to the Iranian regime — although the effect of these tools ultimately will depend on how aggressively OFAC chooses to wield them.

Syria

In December 2019, Trump signed into law the National Defense Authorization Act of 2020, which incorporated provisions of the Caesar Syria Civilian Protection Act, or Caesar Act.

The Caesar Act, among other things, authorizes the imposition of sanctions against foreign persons if they engage in certain activities, including knowingly providing significant financial, material, or technological support to, or knowingly engaging in a significant transaction:

  • With the government of Syria, a senior Syrian political figure, certain Syria-related restricted parties, or military contractors, mercenaries, or paramilitary forces that are acting on behalf of the government of Syria (or the governments of Russia and Iran);

  • In support of the government of Syria's domestic production of natural gas, petroleum, or petroleum products;

  • To provide aircraft or spare aircraft parts, or goods or services associated with the operation or aircraft, that are used for military purposes in Syria or by the government of Syria; and

  • To provide significant construction or engineering services to the government of Syria.

On June 17, OFAC and the U.S. Department of State took the first actions to implement the Caesar Act, including to designate over 30 Syrian and Syria-related entities and individuals — including President Bashar al-Assad and his wife, Asma al-Assad — to the specially designated national, or SDN, list. These steps may not have significant immediate legal effect, as Syria is already subject to comprehensive U.S. sanctions.

However, the continued implementation of the Caesar Act nevertheless has the potential to ratchet up sanctions pressure on Syria. Analysts are already noting that "[b]ecause the Caesar Act includes secondary sanctions — punishing non-U.S. people and entities for transactions with regime-held Syria" they may "create 'phobia' and 'panic from banks' around dealing with Syria."[4]

At the very least, non-U.S. persons with direct or indirect touchpoints with Syria will need to carefully consider the impact of these new sanctions.

Venezuela

In early 2020, OFAC continued to leverage existing authorities targeting Venezuela to sanction non-U.S., non-Venezuelan parties that deal in prohibited sectors of the Venezuelan economy. These actions have included, inter alia, designation of affiliates of Russian oil firms and Greece- and Marshall Islands-based maritime companies for their support of Venezuela's oil trade.[5]

In addition to sanctions designations, in April, the U.S. reportedly transferred $342 million in blocked assets of the Central Bank of Venezuela to a separate bank account at the New York branch of the Federal Reserve System, for use by Venezuelan opposition leader Juan Guaido and his government.[6]

Collectively, these developments signify that the U.S. continues to pursue aggressively its sanctions-driven pressure campaign against the Maduro regime, and that U.S. and non-U.S. parties alike may be subject to OFAC scrutiny over their Venezuela-related dealings.

China

In response to COVID-19 and the Chinese parliament's announcement of national security legislation targeting Hong Kong, the Trump administration has pledged new actions targeting the Chinese government. In parallel, various bills have been introduced in Congress that would authorize sanctions against Chinese actors for a variety of perceived misconduct, ranging from failure to cooperate with COVID-19-related investigations, to infringements upon Hong Kong's autonomy, to persecution of Muslim minorities within China.

While it is too early to assess the impact of these developments from a sanctions perspective, there appears to be palpable, bipartisan momentum behind efforts to address Chinese government actions that are contrary to U.S. foreign policy objectives through new sanctions.

International Criminal Court

On June 11, Trump issued Executive Order 13928, authorizing the imposition of sanctions on certain persons associated with the International Criminal Court, or ICC, including any persons determined to have directly participated in, or materially assisted, the ICC's investigation of U.S. personnel (including U.S. military, intelligence, and other personnel for actions in or relating to Afghanistan). To date, no parties have been sanctioned pursuant to Executive Order 13928; however, its issuance underscores the administration's willingness to leverage sanctions in novel and aggressive ways, including against international institutions.

Guidance Documents

OFAC continues to publish a range of comprehensive guidance documents, intended to highlight emerging risks and educate the public regarding OFAC's related expectations:

Guidance to Address Illicit Shipping and Sanctions Evasion Practices

Issued jointly by OFAC, the Department of State and the U.S. Coast Guard on May 14, this guidance was published "to provide those engaged or involved in trade in the maritime industry and energy and metals sectors with further information and tools to counter current and emerging trends related to illicit shipping and sanctions evasion" by Iran, North Korea and Syria.[7]

The guidance sets forth specific, demonstrable recommendations to a broad range of parties involved in the maritime industry, such as insurance companies; flag-registry managers; port-state control authorities; shipping industry associations; commodity-trading, supply, and brokering companies; financial institutions; ship owners, operators, and charterers; classification societies; vessel captains; and crewing companies.

Guidance on North Korean Cybersecurity Threat 

Issued jointly by OFAC, the State Department, the U.S. Department of Homeland Security and the U.S. Department of Justice on April 15, this guidance was published to "highlight[] the cyber threat posed by North Korea ... and provide[] recommended steps to mitigate the threat."[8]

The guidance flags a range of activities conducted by North Korea, and notes, inter alia, that OFAC has the authority to impose sanctions on any person determined to have engaged in a broad range of misconduct, including "one significant importation from or exportation to North Korea of any goods, services, or technology."[9]

Fact Sheet: Provision of Humanitarian Assistance and Trade to Combat COVID-19

Issued by OFAC on April 16, this fact sheet was published to "provide[] consolidated guidance highlighting the most relevant exemptions, exceptions, and authorizations for humanitarian assistance and trade under the OFAC-administered Iran, Venezuela, North Korea, Syria, Cuba, and Ukraine/Russia-related sanctions programs," to assist parties seeking to supply COVID-19 relief items to sanctioned jurisdictions.[10]

Helpfully, the guidance documents provide clear indications of what conduct OFAC is particularly concerned with — and, by extension, most likely to penalize. The documents also provide concrete examples of sanctions compliance program enhancements to help parties mitigate sanctions-related risk.

However, as with last year's framework for OFAC compliance commitments, a potential consequence of OFAC's articulation of specific compliance program recommendations is the possibility of enforcement for companies that do not meet OFAC's expectations, if/when sanctions violations occur.

Enforcement Developments

Year to date, OFAC has announced four enforcement actions, plus one finding of violation, which collectively have netted $9.22 million in penalties. The current pace of enforcement actions is down from recent years, perhaps owing to COVID-19-related delays to the progression of active enforcement actions, and general cyclical decline — as 2019 was one of the most active enforcement years on record.

Park Strategies

On Jan. 21, New York-based lobbying firm Park Strategies LLC agreed to pay $12,150 to resolve apparent violations of the Global Terrorism Sanctions Regulations, or GTSR. According to OFAC, Park Strategies dealt in property of Al-Barakaat Group of Companies Somalia Limited, a SDN, and engaged in lobbying services outside the scope of the general license that would have authorized Park Strategies to provide legal services to Al-Barakaat.

Eagle Shipping International

On Jan. 27, Marshall Islands-based shipping company Eagle Shipping International (USA) LLC agreed to pay $1,125,000 to resolve 36 apparent violations of the Burmese Sanctions Regulations.
According to OFAC, Eagle Shipping dealt in the property of Myawaddy Trading Limited, a SDN, and provided ship management and logistics services for a land reclamation project for the benefit of Myawaddy.

SITA

On February 26, Switzerland-based telecommunications company Société Internationale de Télécommunications Aéronautiques SCRL, or SITA, agreed to pay $7,829,640 to resolve 9,256 apparent violations of the GTSR. According to OFAC, SITA violated U.S. sanctions by providing commercial services and software to airlines included on the SDN list, including Mahan Air, Syrian Arab Airlines and Caspian Air.

BIOMIN America

On May 6, Kansas-based agricultural company BIOMIN America Inc. agreed to pay $257,862 to resolve 44 apparent violations of the Cuban Assets Control Regulations. According to OFAC, BIOMIN attempted to create a transaction structure that would allow it to indirectly deal with a Cuba-based counterparty, incorrectly believing that indirect dealings would be permissible.

American Express Travel Related Services Company

On April 30, OFAC issued a finding of violation to American Express Travel Related Services, or Amex, relating to Amex's issuance of a prepaid card, and processing of 41 transactions, on behalf of Gerhard Wisser, an SDN. Amex was not obligated to pay any penalties.

In most of these settlements, OFAC highlighted the importance of a robust sanctions compliance program that adheres to the guidance provided in OFAC's May 2019 "A Framework for OFAC Compliance Commitments."

For example, the Eagle Shipping enforcement information states that the case "demonstrates the importance for companies operating in high-risk industries (e.g., international shipping and trading) to implement risk-based compliance measures."

Similarly, the BIOMIN enforcement release states that "misinterpreting, or failing to understand the applicability of, OFAC's regulations, including general licenses and authorizations, has previously caused organizations to commit sanctions violations."[11]

While none of the enforcement actions announced to date in 2020 is a blockbuster case by recent OFAC standards, they suggest that OFAC intends to hold parties to the compliance standards it articulated in the May 2019 framework document.

Finally, on May 28, the DOJ unsealed a 50-page federal indictment charging 28 North Korean and five Chinese individuals with facilitating more than $2.5 billion in illegal payments in support of North Korea's nuclear program.[12] While it remains to be seen how the prosecution will play out, the indictment signals that (1) criminal enforcement of U.S. sanctions, although relatively rare, remains a tool available to the U.S. government; and (2) actors based in third countries, including China, face significant consequences for facilitating transactions involving sanctioned countries in violation of U.S. sanctions.

Conclusion

The first half of 2020 has brought an expansion of OFAC country-based sanctions programs, specific guidance documents, and efforts by OFAC to target — including through both designations and enforcement actions — conduct that is of particular concern to the agency. Given global developments and, in particular, growing tension between the U.S. and China, it is foreseeable that the second half of 2020 will continue to be active.



Ama A. Adams is a partner, Brendan C. Hanifin is counsel and Emerson Siegle is an associate at Ropes & Gray LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.


[1] Executive Order Imposing Sanctions with Respect to Additional Sectors of Iran (Jan. 10, 2020), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/20200110_iran_eo.pdf.

[2] Press Release, Michael R. Pompeo, Sec'y of State, Keeping the World Safe From Iran's Nuclear Program (May 27, 2020), available at https://www.state.gov/keeping-the-world-safe-from-irans-nuclear-program/.

[3] OFAC FAQs #829, available at https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_iran.aspx#829.

[4] Tamara Qiblawi, As the US rolls out new sanctions on Assad, Syria braces for economic devastation, CNN (June 17, 2020, 4:23 PM), https://www.cnn.com/2020/06/17/middleeast/syria-caesar-act-us-sanctions-economy-intl/index.html.

[5] OFAC, Venezuela-Related Designations (June 2, 2020), available at https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20200602.aspx.

[6] Venezuela Slams US Over 'Vulgar' Central Bank Funds Seizure, Barrons (Apr. 17, 2020), https://www.barrons.com/news/venezuela-slams-us-over-vulgar-central-bank-funds-seizure-01587160807.

[7] Guidance to Address Illicit Shipping and Sanctions Evasion Practices (May 14, 2020), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/05142020_global_advisory_v1.pdf.

[8] Guidance on the North Korean Cyber Threat (April 15, 2020), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/05142020_global_advisory_v1.pdf.

[9] Id.

[10] Fact Sheet: Provision of Humanitarian Assistance and Trade to Combat COVID-19 (April 16, 2020), available at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/covid19_factsheet_20200416.pdf.

[11] OFAC, Eagle Shipping International (USA) LLC Settles Potential Civil Liability for Apparent Violations of the Burmese Sanctions Regulations (Jan. 27, 2020), https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20200127_eagle.pdf; OFAC, OFAC Settles with BIOMIN America Inc. with Respect to Potential Civil Liability for Apparent Violations of the Cuban Assets Control Regulations (May 6, 2020), https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20200506_biomin.pdf.

[12] Spencer S. Hsu and Ellen Nakashima, U.S. brings massive N. Korean sanctions case, targeting state-owned bank and former government officials, The Washington Post (May 28, 2020, 4:37 PM), https://www.washingtonpost.com/local/legal-issues/us-brings-largest-ever-n-korean-sanctions-case-targeting-state-owned-bank-and-senior-government-officials/2020/05/28/3b23f616-a02b-11ea-b5c9-570a91917d8d_story.html.

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