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September 1st marked an important date for companies affected by EAR and ITAR, as significant amendments to the definitions of both regulations went into effect. In a recent alert providing key takeaways on these changes to U.S. export controls, colleagues Nancy Fischer, Stephan Becker, Aaron Hutman, Benjamin Cote, Matthew Rabinowitz and Moushami Joshi discuss the Cloud, passwords and access information, modification technology and other changes that could impact international business, as well as revisions we are still waiting for.

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Today, OFAC issued new General License J (“GL J”) authorizing non-U.S. persons to reexport certain “Eligible Aircraft” to Iran. Importantly, GL J only applies to temporary sojourns, meaning that any sales or leases (including wet leases) of aircraft to Iran would still require a specific license. Please click here to view OFAC’s new General License J.

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On May 23, 2016, during President Obama’s visit to Ho Chi Minh City, the United States announced the termination its long-standing arms embargo policy for Vietnam. Exports of defense articles and defense services to Vietnam will still require a license, but the Directorate of Defense Trade Controls (DDTC) will now consider license applications on a case-by-case basis.

DDTC issued an Industry Notice stating that the change is effective immediately, with conforming changes to Section 126.1 of the International Traffic in Arms Regulations (ITAR) to be published soon. The lifting of the embargo also will apply to items transitioned to control under the Export Administration Regulations, including 600-series (military-related) and 9×515 (spacecraft-related) items.

The arms embargo had been in effect for approximately 50 years. The countries have worked to improve relations, however, with the U.S.-Vietnam Bilateral Trade Agreement in 2001 and more recently with Vietnam becoming a signatory to the Trans-Pacific Partnership (TPP) trade agreement. Lifting the embargo opens the door to additional trade with Vietnam, which is currently the world’s eighth-largest arms importer per World Bank SIPRI data.

This announcement follows similar changes in policy with respect to the arms embargoes for Sri Lanka and Cote d’Ivoire earlier this month.

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The Office of Foreign Assets Control (OFAC) updated its FAQs for Cuba on April 21, 2016 with substantive guidance that addresses U-turn transactions, export policy, insurance, educational and humanitarian activities and leasing of property in Cuba.

U-Turn Rules. OFAC amended the Cuban Assets Control Regulations (CACR) on March 16, 2016 to permit funds transfers from a bank outside the United States that pass through 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 (so called “U-turn transactions”).

  • FAQ 62 clarifies that this authorization allows transactions originating and terminating at accounts in foreign branches or non-U.S. subsidiaries of U.S. banks (which are subject to U.S. jurisdiction), so long as the account-holder is not.
  • FAQ 63 clarifies that U.S. banks may process U-turn transactions where the Cuban party is a Specially Designated National (SDN).

FAQ 63 also provides guidance for U.S. banks on the due diligence expected when processing Cuba U-turn transactions.  Where a U.S. bank is only an intermediary, it may rely on the information provided by the remitting and receiving banks to determine if the parties are persons subject to U.S. jurisdiction. Where the transfer involves a direct customer, OFAC expects more substantial customer due diligence. In either case, the bank should conduct screening. If a U.S. bank fails to identify and block a prohibited transaction, despite following this guidance, OFAC indicated it would consider the totality of the circumstances in determining how to enforce.

Export Clarifications. FAQ 67 addressed the licensing requirements for removal of items from Cuba for repair or servicing. For items previously exported to Cuba under an authorization, an import from Cuba to the U.S. or a third country for repair/servicing requires OFAC authorization, which will be considered on a case-by-case basis. Separate Bureau of Industry and Security (BIS) authorization would be required for return of the items to Cuba after servicing where subject to the Export Administration Regulations (EAR). However, where the import back to the United States is required under the terms of BIS authorizations used for export/reexport to Cuba, no further OFAC specific license is necessary.

FAQ 68 clarifies that the authorization under section 515.533 of the CACR for persons subject to U.S. jurisdiction to engage in transactions incident to the reexport of 100 percent U.S.-origin items from a third country to Cuba where consistent with BIS licensing policy only applies where the items are 100 percent U.S.-origin.

Insurance. Transactions directly incident to authorized activity generally are permitted under the CACR, and OFAC clarified this authorization includes a variety of types of insurance for individuals traveling to Cuba and exports to Cuba (e.g. cargo or hull insurance).  Insurance companies also may pay or settle claims to Cuban nationals for insurance incident to authorized activities. Providing insurance is otherwise prohibited, including reinsurance for activities in Cuba by foreign parties not subject to U.S. jurisdiction. See FAQs 80 & 81.

Grants to State-Owned Entities. Cuban state-owned entities may be the recipients of certain grants authorized under sections 515.565 and 515.575 of the CACR for education, scholarships, awards and certain humanitarian projects designed to benefit the Cuban people. See FAQ 93.

Leasing of Real Property.  Persons subject to U.S. jurisdiction may lease real property in Cuba where they are authorized to travel to or reside in Cuba. This would include, for example, short-term leases of residences in lieu of hotels when on authorized travel, or the rental of apartments when employed by a business authorized to have a physical or business presence in Cuba. OFAC cautioned that the ability to lease is limited to the time the person is permitted to be in Cuba and real property rights may not be retained thereafter. See FAQ 97.

The updated FAQs are available at:

https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_new.pdf.

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In advance of President Obama’s highly publicized trip to Cuba, the Administration took additional steps to ease restrictions on trade and travel with Cuba. These changes to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) have implications for the banking sector, shippers, the travel industry and other businesses.

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The United Nations and United States recently took significant new steps to expand sanctions on North Korea, with implications for international banking; shipping and port activities; air transport; energy and mining sectors; trade in labor and specified metals, minerals and commodities; aviation fuels; and software. The new rules will have a particular impact on companies conducting business in Asia, most importantly China, but also including South Korea, India, Russia and shipping hubs like Singapore and Hong Kong.

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There has been much discussion of U.S. and EU sanctions changes following Implementation Day under the Joint Comprehensive Plan of Action (“JCPOA”), but a number of countries had imposed sanctions for Iran and it is worth examining how other key markets are adjusting policy. In particular, Canada and Australia recently implemented amendments to their sanctions regimes pertaining to Iran.

Canada

Canada had maintained a broad and complex sanctions regime for Iran, as described below. Following the arrival of Implementation Day, Canada took action on February 5, 2016 to remove many of these sanctions, opening a wide variety of permitted economic activity.  The sanctions and export controls still in place include:

  • A reduced, but still substantial list of designated parties subject to asset freezes.
  • Export controls on dual-use and certain other strategic goods and technology. Applications for export permits will be considered on a case-by-case basis, but exports of more sensitive items normally will be denied.
  • Prohibition on trade in arms and related material as well as the export of goods, items, material and technology related to uranium enrichment.
  • The provision of property, technical or financial assistance and services to Iranian persons for the supply sale, transfer, manufacture or use of products whose export is prohibited.

These rules apply to persons in Canada and Canadian citizens and corporations wherever situated.

Canada’s sanctions regime has been imposed under the United Nations Act implemented by the Regulations Implementing the United Nations Resolutions on Iran (“UN Regulations”) and the Special Economic Measures Act, implemented by the Special Economic Measures (Iran) Regulations (“SEMA Regulations”).  With the reforms of February 5, 2016, the following key restrictions have been removed:

  • Prohibitions against engaging in and financing the Iranian oil and gas sector or providing services to Iranian vessels.
  • Prohibitions against engaging with the Iranian financial sector including the prohibition on opening of correspondent banking accounts in Canada.
  • The blanket prohibition on exports to Iran and imports from Iran expect for sensitive items discussed above.
  • The prohibition on making investments in Iranian entities.

Australia

Like Canada, Australia had maintained a complex sanctions regime for Iran. Australia’s Department of Foreign Affairs and Trade (DFAT) has announced that it will implement plans to lift nuclear-related economic and financial sanctions by making changes to the Charter of the United Nations (Sanctions-Iran) Regulations 2008 and suspending certain provisions of the Autonomous Sanctions Regulations 2011.  Australian law will generally permit business with Iran with the following continuing limitations:

  • There will be a reduced, but still substantial list of designated parties subject to asset freezes.
  • Australia will continue to maintain anti-money laundering controls for Iran. Under the Anti-Money Laundering and Counter-Terrorism Financing (Iran Countermeasures) Regulations 2014, Australian financial institutions are prohibited from providing certain designated services to Iranian persons and entities for transactions exceeding AUD 20,000 unless exempted by the DFAT.
  • Restrictions on export to Iran of arms and related material, including some dual use goods, remains in place.

Australia’s revised rules with respect to Iran will no longer prohibit:

  • Exports, including – equipment and technology for the oil, gas and petrochemical industry; vessels for transport and storage of oil and gas; gold, diamonds and precious metals; newly issued Iranian bank notes; and certain naval equipment and technology.
  • Imports, including – crude oil, petroleum, petrochemical and natural gas products; and gold, diamonds and precious metals from the Government of Iran.
  • Provision of technical advice or financial assistance and service for the export of certain goods such as oil and gas, naval equipment or gold, diamonds and precious metals.
  • Investment in Iranian companies in the oil, gas and petrochemical sector. Likewise, Iranian entities will be able to invest in Australia’s oil, gas and financial services sector including the establishment of representative offices, subsidiaries and correspondent banking relationships with Australian financial institutions.

Continued monitoring of legal risk

The amendments to the Australian and Canadian sanctions regimes, and continuing sanctions, should be considerations for businesses and banks with exposure to Iran-related transactions or Iranian customers.

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On January 13, 2016 the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued Geographic Targeting Orders (GTOs) requiring reporting by title insurance companies and their subsidiaries and agents on certain high-value real estate transactions starting on March 1, 2016. The GTOs require reporting on “all-cash” residential real estate deals made through shell companies in Miami Dade County, Florida and the Borough of Manhattan in New York City.

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In January the EU and the US lifted economic and financial sanctions against Iran in a ground-breaking deal that unfroze billions of pounds of assets and opened up new markets for the first time since 2010.

Despite the fanfare surrounding the deal, in the small print a warning remains: some EU and US financial sanctions nevertheless remain in place against certain Iranian businesses and individuals.

Read more at City A.M.

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On January 27, 2016 the Department of Commerce, Bureau of Industry and Security (“BIS”) and the Department of Treasury, Office of Foreign Assets Control (“OFAC”) published amendments to the Export Administration Regulations (EAR) (Link) and Cuban Assets Control Regulations (CACR) (Link).  These amendments further loosen aspects of the Cuba embargo in line with the President’s December 2014 initiative:

  • Trade Finance – OFAC added a new general license authorizing payment and financing terms, including letters of credit, for U.S. exports and reexports of 100 percent U.S.-origin items from a third country so long as they (a) are authorized by the BIS and (b) not related to agriculture or commodities.  OFAC’s previous policy restricted financing for exports to cash-in-advance or third-country financing.

 

  • Trade and Business Licensing Opportunities – BIS established a new case-by-case licensing policy to permit exports and reexports “meeting the needs of the Cuban people,” including exports and reexports destined for state-owned enterprises, agencies and other organizations of the Cuban government.  BIS provided a list of examples including agricultural production, artistic endeavors, education, food processing, disaster preparedness, relief and response, public health and sanitation, residential construction/renovation and public transportation.  BIS suggested that the types of eligible items could include water treatment, electrical generation facilities, athletic facilities and other infrastructure beneficial to the Cuban people.  The new licensing policy opens the door for U.S. companies to consider a range of possible exports.  Areas that are still off-limits include items that primarily generate revenue for the state (including tourism and extractive industries) or are destined to Cuban intelligence and security services.

 

  • Travel Authorizations for Business – OFAC expanded the general license for travel to Cuba to include travel-related transactions for market research, commercial marketing, sales or contract negotiations, accompanied delivery, installation, leasing, or servicing in Cuba of items consistent BIS export and licensing policy.  In addition, OFAC expanded its previous authorization for attending professional meetings to also allow organizing such meetings.

 

  • Aviation and Vessels – OFAC expanded the general license relating to carrier services between the United States and Cuba to allow the entry into blocked space, code-sharing, and leasing arrangements, including with Cuban nationals.  Transactions related to travel between the United States and Cuba by aircraft or vessel on temporary sojourn and transactions by personnel required for normal operation and service of such aircraft and vessel also are authorized.  BIS has adopted a general policy of approval for items necessary for safety of civil aviation including the export or reexport of aircraft leased to state-owned enterprises.

 

  • Telecom / Electronics – BIS now “will generally approve license applications for exports and reexports of telecommunications items that would improve communications to, from, and among the Cuban people.”  BIS policy will also be more favorable with respect to items and software related to civil society and news gathering.

 

  • Public Performances.  OFAC expanded the general license for public performances, clinics and workshops to not only those participating in the event but to those organizing it, provided the event is open for attendance and, in relevant situations, participation by the Cuban public.

 

  • Media and Artistic Activities.  OFAC expanded the general license for travel related transactions directly incident to the exportation, importation or transmission of informational materials.  This includes transactions directly incident to professional media or artistic productions, including filming movies and television programs, music recording and the creation of art works in Cuba by travelers with professional experience in these areas.

 

Notwithstanding these changes to the Cuba regulations, it is important to emphasize that the Cuba embargo still remains in force and cannot be lifted without congressional authorization.  Transactions outside the scope of BIS license exceptions or OFAC general licenses remain prohibited unless specifically licensed.