OFAC Issues General License Extending Authorization for Dealings with GAZ Group

Yesterday, OFAC issued General License No. 15 under the Ukraine-Related Sanctions Regulations (31 C.F.R. Part 589), authorizing the maintenance or wind-down of pre-April 6 contracts with GAZ Group and its subsidiaries through October 23, 2018.  Previously, such activity with GAZ Group was permitted only through June 5, 2018 as per General License No. 12B (which has since been superseded, as described below).  OFAC also issued six new Frequently Asked Questions (FAQs).

Similar to the recent easing of restrictions against Rusal as set out in General License No. 14, the new general license extends the period of authorized maintenance/wind-down-related dealings with GAZ Group through October 23, permits exports from the United States to GAZ Group in support of such activity, and removes the requirement that payments to GAZ Group for maintenance/wind-down purposes be made into a blocked account in the United States.  The general license does not authorize divestiture of debt or equity (which is covered by General License No. 13A), dealings with other sanctioned entities (unless permitted by General License No. 12C, described below), or the unblocking of property except for use in maintenance/wind-down-related activity.

As with the general license for Rusal, while the authorization is directly applicable for U.S. persons, it is also of significance to non-U.S. persons.  Continue Reading

Unmanned Systems and Export Controls: What Your Company Needs to Know

Steptoe’s Anthony Rapa authored a piece titled “Unmanned Systems and Export Controls: What Your Company Needs to Know” for the May 2018 edition of Unmanned Systems magazine. The article gives an overview of US commercial and military export controls, discusses the application of export controls to unmanned systems, and offers tips for complying with these controls.

For more information, the full article can be read here.   

A Brief Explanation of the EU Blocking Statute Process in Support of the JCPOA

On May 18, the Commission announced the launch of the formal process to activate the EU “blocking statute” (Council Regulation (EC) 2271/96) by updating the list of US sanctions on Iran falling within its scope.

The Commission starts the formal process after receiving unanimous informal support from the leaders of the EU Member States to a package of measures that the Commission has proposed to protect the interests of EU companies investing in Iran and to demonstrate the EU’s commitment to the Joint Comprehensive Plan of Action (JCPOA). As part of that package, the Commission:

  • Launched the formal process to remove obstacles for the European Investment Bank (EIB) to finance activities in Iran, under the EU budget guarantee.
  • Will continue and strengthen the ongoing sectoral cooperation with and assistance to Iran, including facilitating financial assistance through the Development Cooperation or Partnership Instruments.
  • Is encouraging Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran which would allow the Iranian authorities to receive their oil-related revenues.

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EU Moves to Reactivate Blocking Statute, Launches Other Initiatives Regarding Iran

Here’s the official press release.  The EU Blocking Regulation, which in its heyday was only sparingly (if ever) enforced with respect to Iran, is now coming to the fore as one of the European Union’s key  tools to help EU companies cope with President Trump’s withdrawal from the JCPOA.  The European Union also announced other measures.  Here is the official EU summary of the four action items launched today:

  1. Launched the formal process to activate the Blocking Statute by updating the list of US sanctions on Iran falling within its scope. The Blocking Statute forbids EU companies from complying with the extraterritorial effects of US sanctions, allows companies to recover damages arising from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgements based on them. The aim is to have the measure in force before 6 August 2018, when the first batch of US sanctions take effect.
  2. Launched the formal process to remove obstacles for the European Investment Bank (EIB) to decide under the EU budget guarantee to finance activities outside the European Union, in Iran. This will allow the EIB to support EU investment in Iran and could be useful in particular for small and medium-sized companies. All relevant rules and procedures will apply to individual financial operations.
  3. As confidence building measures, the Commission will continue and strengthen the ongoing sectoral cooperation with, and assistance to, Iran, including in the energy sector and with regard to small and medium-sized companies. As a first step, the Commissioner for Climate Action and Energy, Miguel Arias Cañete, will travel to Tehran already this weekend. Financial assistance through the Development Cooperation or Partnership Instruments will also be mobilised.
  4. The Commission is encouraging Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran. This approach could help the Iranian authorities to receive their oil-related revenues, particularly in case of US sanctions which could target EU entities active in oil transactions with Iran.

It remains to be seen how the United States will respond, and what impact the four action items will have.  The landscape just got murkier, and there are sure to be more twists and turns to come.

The Plot Thickens: EU Prepares to Invoke Blocking Regulation in Response to U.S. Withdrawal from JCPOA

As the world seeks to come to grips with President Trump’s withdrawal from the JCPOA, it appears that the European Union will play one of its strongest cards by invoking its “Blocking Regulation, which would prohibit European companies from complying with U.S. sanctions against Iran.  European Commission President Jean-Claude Juncker had this to say:

As the European Commission we have the duty to protect European companies. We now need to act and this is why we are launching the process of to activate the ‘blocking statute’ from 1996. We will do that tomorrow morning at 1030.

. . . .

We also decided to allow the European Investment Bank to facilitate European companies’ investment in Iran. The Commission itself will maintain its cooperation with Iran.

It remains to be seen exactly how the EU will activate the Blocking Regulation.  The measure potentially could put European companies in a bind, as they could be forced to choose between compliance with the EU measure and U.S. secondary sanctions against Iran.

More details will be available in the days to come.  In the meantime, see here, here, and here for our previous commentary on the Blocking Regulation.


Sportsmanlike Conduct? DOJ Announces Policy to Avoid ‘Piling On’ Monetary Sanctions in Corporate Resolutions

In remarks made at the American Conference Institute’s 20th Anniversary New York Conference on the Foreign Corrupt Practices Act (FCPA) and to the New York City Bar White Collar Crime Institute on May 9, 2018, Deputy Attorney General (DAG) Rod Rosenstein announced two new policy initiatives at the US Department of Justice (DOJ). First, a new “Policy on Coordination of Corporate Resolution Penalties” is intended to avoid the unfair assessment of duplicative fines and penalties – or “piling on”, in football terms – against companies subject to joint or parallel enforcement involving more than one US authority and/or jurisdiction. The US government has received criticism for this issue in the past. In furtherance of the first new policy, the DAG’s second announcement reported the creation of a working group on corporate enforcement designed to ensure consistency among DOJ-resolved white-collar criminal cases and resolutions.

For more information, please see our advisory.

President Tweets About ZTE, Broader U.S.-China Issues

As if there were any doubt that we now live in an age in which the President’s Twitter feed is must-read content for those impacted by U.S. economic sanctions and export controls, it is worth noting that the President recently has been tweeting about ZTE and U.S.-China trade issues.  ZTE, as discussed here on the blog, is subject to a Commerce Department Denial Order that has cut off its access to U.S. components and caused it to cease operations.

President Trump addressed the matter in a tweet on Sunday:

The President next addressed the status of U.S.-China trade relations:

Finally, just yesterday, the President returned to the subject of ZTE:

The last tweet confirms what many observers had believed, that the Trump Administration is using the ZTE matter as a point of leverage in the broader trade negotiations the Administration is conducting with China.

In any event, while it is not clear what “instruction” the President has given to the Commerce Department, it is reasonable to anticipate that there will be further developments in the ZTE matter.  In the meantime, be cool!

AML CDD Rule for Certain U.S. Financial Institutions Effective Today

The FinCEN Customer Due Diligence Requirements for Financial Institutions, known as the CDD Rule or the “Fifth Pillar,” becomes effective today for certain covered U.S. Financial Institutions.  This CDD Rule, which amends U.S. Bank Secrecy Act regulations, seeks to improve financial transparency and prevent money laundering/terrorist financing.  The CDD Rule applies to covered U.S. financial institutions that are banks, mutual funds, brokers or dealers in securities, futures commission merchants, and introducing brokers in commodities.

Most notably, these covered financial institutions must identify and verify the identity the natural persons (known as beneficial owners) of legal entity customers who own, control, and profit from companies when those companies open accounts.  The CDD Rule requires verification and identification of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity.

The CDD Rule’s core requirements for covered financial institutions include establishment and maintenance of written policies and procedures reasonably designed to: (1) identify and verify the identity of customers; (2) identify and verify the identity of the beneficial owners of a legal entity opening an account; (3) understand the nature and purpose of customer relationships to develop customer risk profiles; and (4) conduct ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information.

For more information please see: CDD Final Rule; CDD FAQs July 2016; and CDD FAQs Apr 2018

OFAC Eases Maintenance/Wind-Down and Divestment Restrictions in New General Licenses

On May 1, OFAC issued two amended general licenses under the Ukraine-Related Sanctions Regulations (URSR). General License No. 12B, superseding General License No. 12A, authorizes additional activities necessary to the maintenance and winding down of operations or existing contracts. General License No. 13A, superseding General License No. 13, authorizes certain additional transactions necessary to divest from certain blocked persons. OFAC also issued three new FAQs (583-585) and revised four others (570, 571, 578, and 582).

Under General License No. 12B, funds of identified blocked persons may be used for maintenance or wind-down activities, and U.S. financial institutions are now permitted to process funds related to these maintenance/wind-down activities.

Under General License No. 13A, U.S. persons now have until June 6, 2018 to divest from holdings covered by the license. This is one month longer than the previous May 7, 2018 deadline. U.S. persons may also take actions to divest from entities meeting the following criteria: (a) they are owned (50 percent or more) by EN+ Group plc, GAZ Group, and United Company Rusal and (b) their holdings were issued by Irkutskenergo, GAZ Auto Plant, or Rusal Capital Designated Activity Company. Continue Reading

President Trump Withdraws United States from Iran Nuclear Agreement

Today, President Trump announced “that the United States will withdraw from the Iran nuclear deal” and issued a National Security Presidential Memorandum (NSPM) “to begin reinstating” the “highest level” of economic sanctions on Iran.  Today’s action sets in motion the termination of all or nearly all of the sanctions relief offered by the United States that formed the cornerstone of the Iran nuclear deal, known as the Joint Comprehensive Plan of Action (JCPOA).  While the JCPOA is technically still in force, with the United States no longer a participating party, this move by the Trump Administration could lead to its unraveling in the near future.  In the meantime, any activity relating to Iran is once again subject to a high level of risk and legal uncertainty.

While the narrow authorizations that arose out of the JCPOA for U.S. companies and their foreign subsidiaries to operate in or trade with Iran either will be revoked, it is less clear how the Administration will implement so-called “secondary sanctions” targeting non-U.S. companies’ activity in Iran.  While those secondary sanctions are now back in effect (subject to 90-day and 180-day wind-down provisions described below), other countries remain united in their support for the deal, which could raise challenges for the U.S. Government’s efforts to restrain companies outside the United States from engaging in activity that is not only lawful, but in some cases encouraged, by their own governments.

There are numerous documents explaining these developments including:

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