U.S. Economic Sanctions: A 3/4-Year Review
Aside from one last mid-January initiative by the Obama Administration to begin rolling back sanctions targeting Sudan, the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC") was quiet at the start of 2017 and during the first 100 days of the transition.
However, whether because of long-running investigations coming to a close or as a result world events, there have been a number of intriguing and important sanctions developments over the last several months both in the realm of enforcement and in the imposition of new sanctions.
New Sanctions: North Korea and Venezuela
Aside from a modest rollback regarding the Obama Administration’s effort to allow Americans to travel to Cuba, a number of enforcement cases relating to Iran, some additional designations with respect to Syria, and sanctions-enabling legislation relating to Russia, much of the recent news in economic sanctions has been dominated by two countries: North Korea and Venezuela.
Increased tensions between the U.S. and North Korea, prompted by North Korea’s recent missile and nuclear tests, as well as a war of words between Pyongyang and the White House, have led to a flurry of additions of North Korean entities and individuals to OFAC's List of Specially Designated Nationals (the "SDN List"). OFAC has added a number of Russian and Chinese entities and individuals to the SDN List under its North Korea sanctions program on the grounds that these entities and individuals are involved in or supportive of North Korea's nuclear and ballistic missile programs.
Finally, on September 20, 2017, President Trump issued a new Executive Order (“EO”) imposing additional sanctions on North Korea. Among other steps, this new EO expanded the grounds on which OFAC is authorized to designate SDNs to include entities that engage in significant transactions with North Korea, initiated restrictions on immigrant and non-immigrant entry into the United States from North Korea, and banned aircraft from landing in the United States and vessels from entering U.S. ports if they have, within the last 180 days, landed or entered ports in North Korea. While the real force of this new EO may not be felt unless and until OFAC identifies new entities and individuals to designate, the inclusion of the travel ban and port restrictions strongly resemble prohibitions copied from the more restrictive days of the Cuba embargo.
In this respect, the situation with North Korea seems likely to continue to deteriorate as the Trump Administration uses additional designations and, where possible, additional sanctions measures to increase pressure on Moscow, Beijing, and other governments to more effectively counter the North Korea threat. For this reason, we anticipate that more Chinese companies, in particular, may be added to the SDN List over the coming months, potentially including companies with significant partnerships in the United States and elsewhere. In this regard, it is critical that companies screen their Chinese and Russian business partners on a regular basis in order to ensure they are not doing business with any newly designated SDNs.
As to Venezuela, early in 2017, the Trump Administration identified the Venezuelan Executive Vice President, Tareck El Aissami, as a narcotics trafficker under the Foreign Narcotics Kingpin Designation Act. Subsequently, following months of civil unrest in the country, the Trump Administration added a number of other Venezuelan government officials to the SDN List, most notably including President Nicolas Maduro, several members of his cabinet, and much of the Venezuelan Supreme Court.
And then on August 24, President Trump issued an EO imposing sectoral sanctions similar to those used to target Russia. These sectoral sanctions prohibit certain extensions of credit and other investments involving the government of Venezuela and the state-owned oil company, Petroleos de Venezuela, S.A. ("PdVSA"). Along with the EO, OFAC issued a number of general licenses, the most intriguing of which authorized transactions involving Citgo, the retail presence of PdVSA.
Old Sanctions: Sudan
As noted, in January 2017, the Obama Administration, acknowledging the progress that had been made in resolving the conflict in Sudan, began the process of rolling back the Sudan sanctions. Specifically, President Obama issued an EO establishing a general license to authorize all activities that would otherwise be prohibited under the Sudanese Sanctions Regulations. The January 2017 EO further initiated a six-month review after which, provided the peace process continues, the original EO would be formally revoked.
In July, however, President Trump issued a new EO extending the review period for another three months and, essentially, delaying the formal lifting of sanctions. Further, while the general license remains in place and U.S. companies could technically do business with Sudan, the country remains designated a State Sponsor of Terrorism and is still the subject of divestment legislation in a number of U.S. states. For this reason, business involving Sudan continues to carry a heightened level of risk.
Enforcement, Enforcement, and More Enforcement
In addition to developments in these sanctions programs, both old and new, OFAC was busy during the summer months wrapping up a number of enforcement cases. The most prominent case, which has been discussed widely, is the $1.19 billion penalty issued to Chinese telecom company, ZTE. However, other highlights include:
• A $2 million penalty issued to ExxonMobil for transactions with a Russian SDN. In particular, in 2014, Exxon signed a number of deals with the Russian oil company, Rosneft. While Rosneft itself was not an SDN at the time, the company's CEO and the signatory for Rosneft, Igor Sechin, had been designated under one of the Ukraine-related sanctions programs. This case highlights the need to screen both business partners and, to the extent feasible, any executives or counterparties involved in a transaction.
• American Export Lines paid a more than $500k penalty for transshipping goods through Iran. Specifically, the company had shipped a number of used and junked cars and parts from the United States to Afghanistan. During transit, the cars and parts transited through Iran in violation of the Iranian Transactions and Sanctions Regulations. As this case illustrates, as a general matter, OFAC's sanctions programs prohibit any business involving sanctioned countries. This includes not only sourcing goods from or supplying goods to sanctioned territories, but simply transiting goods through sanctioned territories, as well.
These are just a few of the many enforcement notices issued during the summer. Additional cases can be found on OFAC's Recent Actions page.
While it is impossible to predict how tensions with North Korea or the domestic situation in Venezuela will play out, the Trump Administration has made clear that sanctions—specifically, denying certain parties access to the U.S. financial system—are a preferred method both for countering instability and deterring aggression. As a tool of foreign policy, sanctions developments can happen quickly and often take effect immediately. In this respect, it is critical for all U.S. and non-U.S. companies with significant business in the United States to maintain an effective risk-based compliance program.
ABOUT THE AUTHOR: Matt Fogarty
Matt Fogarty is a Consulting Attorney at Torres Law, PLLC.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.