Articles Tagged with sanctions

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On December 15, 2016, the Office of Foreign Assets Control (OFAC) provided updated guidance on what companies can expect in the event of the “snapback” of sanctions under the Joint Comprehensive Plan of Action (JCPOA).  Previously, OFAC Frequently Asked Questions (FAQs) had only offered the possibility of working with companies in the event of snapback.  The guidance offers assurances of a 180-day wind down period.  OFAC issued this clarification in response to many questions it received, but it is not intended to signal an expectation that the sanctions will snapback.

In addition, OFAC issued a new General License J-1 to replace General License J addressing the temporary sojourn of U.S.-origin aircraft in Iran.  The updated general license authorizes the temporary sojourn of U.S.-origin aircraft as part of a code sharing arrangement with an Iranian air carrier.  Our prior blog post on the issuance of General License J is available here.

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iStock-170069405-north-korea-300x200On November 30, 2016, the United Nations Security Council (UNSC) passed a unanimous resolution strengthening sanctions against North Korea. The Resolution comes in response to the conduct of the latest round of nuclear tests by North Korea in September 2016. The U.S. Government issued additional sanctions listings following the resolution. It will be important to watch how countries, particularly China and other Asian nations, respond to the UN Resolution in implementation and enforcement.

Below we explore the new UN Resolution, U.S. response, and next steps.

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Donald Trump’s victory in the 2016 Presidential election put the Republican Party in charge of the White House and Congress for the first time in a decade. President-elect Trump ran as an anti-establishment candidate who departed from many traditional Republican positions and promised bold and in some respects controversial reforms. How his administration will govern and the extent to which its policies will be supported in Congress are key questions facing companies and investors.

This report comments on aspects of international trade, sanctions and export control policies that are currently at the forefront of discussion.

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Both the U.S. Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) have announced new amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) that continue to build upon existing licenses and authorizations facilitating trade with Cuba.  These amendments, effective October 17, 2016, enhance the flexibility of U.S. companies seeking to do business with Cuba or Cuban nationals across various sectors.

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On September 15, 2016, President Obama announced that U.S. economic sanctions on Myanmar (also known as Burma) would end, but the announcement left many questions as to what would change and what sanctions might remain. On October 7, the Obama Administration provided the answer with an Executive Order that completely removed the Burmese Sanctions Regulations, lifted the U.S. import ban on rubies and jadeites, made the public reporting requirements for investment voluntary, and lifted the bans on visas for certain sanctioned individuals and most sanctions listings of Burmese Specially Designated Nationals (SDNs).

The United States had been removing sanctions in steps since July 2012 as the Myanmar government moved down a path of reform. However, a patchwork of remaining sanctions and a broad set of sanctions listings continued to make business, investment, banking and trade with Myanmar challenging for U.S. as well as non-U.S. companies. Here are four key impacts of the U.S. policy change and four important issues that remain.

How does this removal of sanctions impact business in/with Myanmar?

1.  The sanctions list is nearly gone (see below for what remains). Importantly, this includes removals of (a) the major Myanmar economic conglomerates, businesses and banks; (b) military/economic entities; and (c) the remaining key businessmen, industrialists and military-related figures.

2.  Treasury’s Financial Crimes Enforcement Network (FinCEN) provided “exceptive relief” to the Special Measures imposed for anti-money laundering (AML) purposes under Section 311 of the USA PATRIOT Act. As a consequence, U.S. financial institutions continue to be authorized to provide correspondent banking services to Myanmar banks. Previously, U.S. financial institutions were permitted to provide correspondent services involving Myanmar transactions for non-SDN banks, although in practice U.S. banks have shied away.

3.  The ban on imports to the United States of Myanmar rubies and jadeites, as well as jewelry containing the same, has been completely removed.

4.  The State Department’s Responsible Investment Reporting Requirements for new investment over $5,000,000 (previously $500,000) has been removed, but reports can still be made on a voluntary basis.

What issues still remain for persons doing business in or related to Myanmar?

A.  Over thirty Burmese SDNs continue to be listed under drug trafficking and North Korea sanctions programs. This includes Yangon Air and several gem, mining, textile, agricultural and constructions companies. Thus, although business in Myanmar will be far less burdensome, some sanctioned-party risk remains.

B.  Myanmar banks will need to continue to integrate with the global financial system and establish U.S. correspondent banking relationships to allow dollar transactions. Myanmar’s government and financial system also will have to make continued progress to address FinCEN’s AML concerns. Whether the current FinCEN exception or Myanmar’s continuing reforms will be sufficient to encourage U.S. banks to expand their banking relationships with Myanmar remains to be seen.

C.  The U.S. embargo on exports to Myanmar of defense articles and defense services remains in place.

D.  Although all property and interests in property blocked under the Burmese Sanctions Regulations are now unblocked, the U.S. government made clear that past violations of U.S. sanctions are still subject to enforcement, including action against U.S. and non-U.S. persons who may have “jumped the gun” by conducting business prior to sanctions removal.

The lifting of sanctions for Myanmar marks a watershed in the unwinding of U.S. sanctions. Now, the U.S. and Myanmar governments will observe how the private sector reacts as Myanmar rebuilds and rejoins the international economy.

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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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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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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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The front line of Iran sanctions compliance and enforcement has been the banking sector. With the arrival of “Implementation Day” under the Joint Comprehensive Plan of Action (JCPOA), financial institutions and persons engaging in financial transactions face an adjusted, but still complex, sanctions environment. Continue reading →

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On January 16, 2016, known as “Implementation Day” under the Joint Comprehensive Plan of Action (JCPOA), the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License H, which allows foreign subsidiaries of U.S. companies to engage in business with Iran, but with strict limitation on the extent to which their parent companies can be involved. Prior to 2012, the U.S. embargo did not apply to companies incorporated abroad, including foreign subsidiaries of U.S. companies. Section 218 of The Iran Threat Reduction and Syria Human Rights Act of 2012 extended the reach of U.S. sanctions, making U.S. companies potentially liable if their foreign subsidiaries did business with Iran. As part of the JCPOA, the United States committed to rolling back this sanction.

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