More Sanctions on Iran’s Central Bank – What’s New This Time?

On September 20, 2019, OFAC announced the designation of the Central Bank of Iran (“CBI”), the National Development Fund of Iran (Iran’s sovereign wealth fund), and an Iran-based company allegedly involved in concealing financial transactions on behalf of Iran’s military.  These designations were made under Executive Order 13224, as recently amended, which is OFAC’s main counterterrorism sanctions authority.  OFAC said in its press release that “Iran’s Central Bank has provided billions of dollars to the Islamic Revolutionary Guards Corps (IRGC), its Qods Force (IRGC-QF) and its terrorist proxy, Hizballah.”  These designations were announced in response to aerial strikes against oil facilities in Saudi Arabia, although a designation of the CBI may not come as a complete surprise given the multiple U.S. sanctions designations in the past several months of senior CBI officials including the CBI Governor for alleged involvement in financial support to the IRGC-QF and Hizballah.  President Trump tweeted that, in response to the strikes in Saudi Arabia, he had directed Secretary of the Treasury Steven Mnuchin “to substantially increase Sanctions on the country of Iran.”  Secretary of State Mike Pompeo called the attacks an “act of war.”   At a press event President Trump characterized these sanctions as “[t]he highest sanctions ever imposed on a country. We’ve never done it to this level.”  Secretary of the Treasury Steven Mnuchin specified that “this is very big — we’ve now cut off all source of funds to Iran.”

So what do these new sanctions against the CBI actually do?  To be clear, the CBI was previously subject to U.S. sanctions, including secondary sanctions that apply to non-U.S. persons.  However, these previous sanctions against the CBI were imposed only under OFAC’s authority targeting parties associated with the Government of Iran.  Now an additional layer of sanctions have been imposed on the CBI – this time under OFAC’s counterterrorism authority in EO 13224.  The conventional wisdom seems to be that this added layer of counterterrorism sanctions against the CBI will now make it unlawful or sanctionable to deliver humanitarian goods to Iran.  In practice, that could be the way things develop, as this additional sanctions designation against the CBI could heighten the already considerable level of anxiety many international banks face in considering whether to engage with Iran, by creating yet more complexity and uncertainty.  However, it is worth examining more closely the extent to which U.S. law still contemplates lawful humanitarian trade with Iran in agricultural commodities, medicine and medical devices.

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OFAC’s Case Against British Arab Commercial Bank and Offshore Use of the US Dollar

On September 17, 2019, OFAC released a settlement with UK-based British Arab Commercial Bank (BACB) in a case regarding offshore use of the dollar, demonstrating how challenging and complex it can be to assess whether offshore transactions in US dollars (USD) that involve US sanctions targets are in all respects outside of OFAC’s enforcement jurisdiction. This case indicates that OFAC expects non-US institutions like BACB to look comprehensively at their USD funding arrangements, including investigating whether other non-US banking partners are themselves transacting with the US financial system, prior to concluding that OFAC’s jurisdiction does not apply. When transacting in USD with US-sanctioned countries (or sanctioned parties), even if those transactions themselves do not touch the US financial system, this case shows that banks may be at risk if they limit their diligence into the provenance of such offshore USD pools and fail to confirm that the funds did not pass through the United States. This is a complex and novel case, but one worthy of careful analysis by non-US banks engaged in potentially higher risk transactions in USD that rely on a determination that the arrangements are outside of OFAC’s jurisdiction.

For more information, please see our advisory.

US to Impose Tariffs on $7.5bn of European Goods

On October 2, 2019, an arbitrator of the World Trade Organization (WTO) issued a decision on the level of countermeasures the United States (US) is authorized to impose to offset European Union (EU) subsidies in support of aircraft manufacturer Airbus. The arbitral award concluded the nearly 15-year-old dispute between the two parties, in which the United States challenged various subsidies provided by the European Communities and the governments of France, Germany, Spain, and the United Kingdom to Airbus. The award authorized the United States to impose duties of up to 100% on $7.5bn worth of goods from the European Union per year – less than the $10.5bn requested by the United States, but still the largest award granted in the history of the WTO.

On the same day, the Office of the United States Trade Representative (USTR) announced the list of goods on which duties will be assessed and that the duties will be imposed effective October 18, 2019. Although the list targets principally goods from France, Germany, Spain, and the United Kingdom, merchandise from every EU member country is affected. The list includes products such as French wine, British sweaters and whiskies, Spanish olives, German coffee and industrial goods, and a range of agricultural products from across the EU member states. Notably, aircraft parts will not be subject to the additional duties. A 10% duty will be applied to large civil aircraft, the subject of the dispute, while a 25% duty will be applied to all other goods listed – far less than the 100% duty rate authorized by the arbitral award. The list is expected to be published in the Federal Register in the coming days.

Although the United States can impose the countermeasures as soon as they are authorized by the WTO’s Dispute Settlement Body (which is likely to occur by mid-October), the question of whether the EU subsidies have, in fact, been removed, which is currently being examined by a WTO compliance panel, could cause the additional duties to be short-lived. Should the compliance panel determine that the EU has appropriately removed the subsidies in question, the United States would be forced to remove the countermeasures.

The European Union’s parallel case against US subsidies in support of Boeing is still underway, and is expected to conclude in the first half of 2020. A favorable outcome in the case for the European Union would permit the EU to impose its own set of duties on US goods at this time. Government officials from the US and the EU have expressed some interest in a negotiated settlement of the Boeing – Airbus subsidization issue, though to date those negotiations have not been fruitful.

CFIUS Proposes Dramatic Expansion of US Foreign Investment Review, Seeks Public Input

The US Department of the Treasury (“Treasury”) published two proposed rules on September 24, 2019 that would significantly expand the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to review inbound U.S. foreign investment for national security risks.  The proposed rules, which have been in the works for months, would implement the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) by expanding CFIUS’s jurisdiction over transactions involving foreign government-controlled investors, U.S. critical infrastructure and critical technology companies, companies that hold significant amounts of sensitive personal data, and certain U.S. real estate.  The rules would also make relatively modest changes to CFIUS’s procedures.  Interested parties must submit written comments to Treasury on or before October 17, 2019.

For more information, please see our advisory.

China as a Currency Manipulator: What Does It Mean for US Businesses?

On August 5, 2019, the Trump Administration labeled China a “currency manipulator” after the US-China exchange rate fell below 7 RMB per 1 USD. This was the first time in more than a decade that the RMB had broken through this level, and it was viewed by President Trump as a direct response to his administration’s decision to impose additional tariffs on imports from China under the ongoing Section 301 investigation into China’s industrial practices.

In this client alert, we review the legal, political, and economic implications of the US Treasury Department’s decision to label China a currency manipulator. In short, while the direct legal implications of this move are limited, this decision sends a clear signal that a resolution of the US-China trade dispute is unlikely to be achieved soon, and that US businesses should prepare for more commercial disruption.

Read the alert here.

Treasury tightens remittances to Cuba and prohibits “U-turn” transactions

Today the Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued new restrictions on remittances and “U-turn” transactions to Cuba, which will come into effect on October 9, 2019.  These restrictions are intended to further implement President Trump’s June 2017 National Security Presidential Memorandum, in which he outlined US policy toward Cuba under his administration and various policy actions to be taken by a number of agencies and departments.

These new restrictions build upon those announced on June 4, 2019, in which the US government prohibited US travelers from going to Cuba under the previous ‘group people-to-people educational’ travel authorization and further restricted travel by no longer permitting visits to Cuba via passenger and recreational vessels, including cruise ships and yachts, and private and corporate aircraft.

In addition to amending the Cuban Assets Control Regulations, OFAC issued 46 updated or new FAQs on Cuba. Although many of the changes were either cosmetic or to provide the relevant regulatory citations, some are worth noting.  In particular, FAQs 1, 40, 44, and 65 provide guidance on today’s amendments.  Additionally, FAQ 12 provides guidance on OFAC’s June 5 amendments related to “people-to-people travel.”

The amendments to OFAC regulations on remittances and U-turn transactions to Cuba represent the reinstatement of certain restrictions that were eased under the Obama administration as we described in our 2016 advisory. Continue Reading

OFAC Issues regulations implementing Nicaragua sanctions

On September 5, OFAC issued regulations to implement Executive Order (EO) 13851 related to the situation in Nicaragua.  Signed on November 27, 2018, EO 13851 blocks the property of persons who served as Nicaraguan government officials at any time on or after January 10, 2007, persons who are responsible or complicit in serious human rights abuses, undermining democracy, threatening peace and security, or corruption and expropriation.  It also blocks leaders or officials of entities that have engaged in such practices, as well as entities owned by persons blocked by the EO.

EO 13851 does not restrict general exports or imports involving Nicaragua.  Rather it is targeted at prohibiting US persons from engaging in transactions with designated persons and entities, and any undesignated entities that are owned 50 percent or more by one or more designated entities or persons.

The order also authorizes the US government to block the property of any persons, including non-U.S. persons, that materially assist, or provide financial, material, or technological support for, or goods or services in support of, persons and entities blocked by the order, as well as persons that provide support for human rights abuses, threats to peace and security, corruption and other activities described in the order. Continue Reading

New Round of Sanctions Block Government of Venezuela, Issue General Licenses

On August 5, President Trump issued executive order (EO) 13884 expanding sanctions in Venezuela by blocking the property of the Government of Venezuela as a whole. In connection with this step, OFAC issued 12 amended and 13 new general licenses and published interpretive guidance pertaining to the provision of humanitarian assistance and support for the Venezuelan people. According to an OFAC press release, the new EO and general licenses “allow U.S. persons to continue to provide humanitarian support to the Venezuelan people” while putting pressure on the Maduro regime. Continue Reading

US Sanctions Chinese Company for Buying Oil from Iran

On July 22, 2019, Secretary of State Mike Pompeo announced that the US Government would impose sanctions on Chinese state-owned oil trading company Zhuhai Zhenrong Company Limited and its chief executive Youmin Li for knowingly purchasing or acquiring oil from Iran.  Zhuhai Zhenrong was previously sanctioned in 2012 due to alleged dealings with Iran, but those sanctions were far less extensive, and were removed in 2016 pursuant to the Iran nuclear deal. This action announced by Secretary Pompeo involves the addition of these parties to the Specially Designated Nationals (SDN) list, as a result of which any transactions or dealings involving US persons with these parties or their “interests in property” are prohibited, and US persons are required to freeze any such property pursuant to specific rules promulgated by the US Treasury Department’s Office of Foreign Assets Control (OFAC). In addition, Youmin Li is subject to a US visa ban.

According to the Department of State, these sanctions resulted from Zhuhai Zhenrong’s purchase or acquisition of crude oil from Iran after the expiration of China’s Significant Reduction Exception (SRE), which we have previously discussed and which allowed China to continue buying oil from Iran until May 2, 2019 without the risk of sanctions for companies and financial institutions involved in that trade. These sanctions were imposed under Executive Order (EO) 13846. Section 3(a)(ii) of EO 13846 authorizes the imposition of different types of sanctions, ranging from less severe measures to the most severe measure of designation on the SDN list, for persons determined to have, “on or after November 5, 2018, knowingly engaged in a significant transaction for the purchase, acquisition, sale, transport, or marketing of petroleum or petroleum products from Iran.” Section 3 also authorizes sanctions on a person determined to be a “successor entity to,” or, if there is some knowledge or participation in the relevant activity, a person that “owns or controls” or “is owned or controlled by or under common ownership or control with,” a person designated under Section 3 of EO 13846.  Continue Reading

E-2 Investor Visa Webinar

On June 12, 2019, Steptoe’s immigration practice offered a webinar on the recent E-2 treaty investor visas for Israeli nationals. The E-2 investor visa is the culmination of lengthy efforts by both the United States and Israel, allowing Israelis to obtain a non-immigrant visa when they make business investments in the US.

If you missed the webinar, you can request a recording here.

For more information on the E-2 Investor Visas, please see our previous blog post.