New Jersey Software Company Settles with OFAC for Accepting Late Payments from Rosneft

On April 25, 2019, OFAC announced that Haverly Systems, Inc. (“Haverly”), a New Jersey software company, had agreed to pay $75,375 to settle apparent violations from 2014 related to Haverly’s collection of payments from JSC Rosneft (“Rosneft”), a Russian oil major on OFAC’s Sectoral Sanctions Identifications (“SSI”) list. The key issue was OFAC’s finding that Haverly accepted the payments from Rosneft outside of the then-applicable 90-day window and thereby dealt in the restricted “new debt” of Rosneft. This appears to be the first time OFAC has published a settlement involving violations of the SSI list Directives, and underscores the importance for companies subject to US jurisdiction of monitoring invoicing and payments with SSI list entities and their subsidiaries. Non-US companies may also face “secondary sanctions” risk under Section 228 of CAATSA, on which we have previously advised, for certain types of transactions with SSI list designees. See also our previous advisory on OFAC’s SSI list sanctions, along with our previous discussion of the CAATSA-mandated changes to those sanctions.

Pursuant to Directive 2 under Executive Order 13662 and § 589.201 of OFAC’s Ukraine-Related Sanctions Regulations, US persons are prohibited from transacting or otherwise dealing in “new debt” of longer than certain stated maturity periods of SSI list designees or any entities of which they own 50% or more. At the time of this apparent violation, the relevant maturity period was 90 days.[1] “Debt” is defined broadly to include any “extensions of credit.” OFAC has stated in FAQ guidance that open payment terms, such as the time permitted to pay commercial invoices, also fall within the scope of “new debt.” Continue Reading

E-2 Investor Visas Available to Israeli Nationals

Beginning May 1, 2019, Israeli citizens may apply for E-2, investor, visas. This long-awaited US immigration option for Israelis is the culmination of lengthy efforts by both the United States and Israel toward the goal of reciprocal US/Israeli investor visa options. This treaty-based, temporary, category creates options for Israelis to make business investments in the US in any industry and operate the businesses developed through investment. The new visa option is a welcomed development for a country known as the “start-up” nation. The E-2 visa will surely energize Israeli nationals with an entrepreneurial spirit to bring this business drive to the United States.

For more information, please see our advisory.

Recent Unverified List (UVL) Designations in China and Elsewhere – What is the UVL?

On April 11, 2019, the US Commerce Department’s Bureau of Industry and Security (BIS) added 50 names to the Unverified List (UVL) (of which 37 are located in China and 6 in Hong Kong), while also removing 10 names.  The UVL list is found at Supplement No. 6 to Part 744 of the US Export Administration Regulations (EAR).  BIS said that it added these 50 names “on the basis that BIS could not verify their bona fides because an end-use check could not be completed satisfactorily for reasons outside the US Government’s control.”  By “bona fides,” BIS means that it could not confirm whether items previously exported to these parties were used the way the exporting party said they would be used, or was unable to confirm information about the actual end-user in those transactions.  In other words, the US Government is concerned about possible diversion of the exported products to unauthorized end-users or end-uses, because it cannot obtain enough information about the UVL parties or about the ultimate disposition of the items that were sent to them. 

BIS’s export control regulations, the EAR, may impose licensing requirements for any one of three reasons: 1) the item and destination country, 2) the end-user, and 3) the end-use.  The US Government periodically conducts end-use checks to confirm that items exported under BIS’s regulatory authority are being used as stated by the exporter of the item subject to the EAR.  These are typically in the form of either a pre-license check (PLC) occurring before the export takes place, or a post-shipment verification (PSV) occurring afterwards.  If BIS is unable to confirm whether items that were certified upon export as being destined to a particular party for a particular application are in fact to be used by that party for the stated application, BIS may add one or more of the parties who received the export to the UVL and impose restrictions on future exports to the party(ies). Continue Reading

US Decision Not to Renew Iran Oil Waivers Could Have Cascading Effects on Iran Sanctions – If Fully Implemented

Secretary of State Mike Pompeo’s announcement yesterday that the US Government will not renew any of the significant reduction exemptions (SREs), previously granted to eight countries under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (NDAA), could significantly impair Iran’s ability to conduct international trade.  If fully implemented, this move would create a new, high level of risk for those engaging in continued trade in oil and related products with Iran. It also could directly impact ancillary activity such as shipping and insurance.  Moreover, any such move could have indirect effects on other, non-oil sectors that rely on third country banking arrangements to fund trade with Iran.  Although there are broad provisions of US law restricting the President’s authority to impose sanctions for trade with Iran in agricultural commodities, food, medicine, and medical devices, even this trade could be indirectly impacted by reduced availability of funds and banking channels.  No sanctions restrictions have ever been imposed under the NDAA, although the firmness of US policy in this area may now be put to the test, as the current SRE waivers are set to expire on May 2, 2019.

At the same time, even though the US Government will not renew the eight existing SRE waivers, the actual imposition of sanctions under the NDAA could still be delayed.  This blog post provides some brief background on the NDAA and the SRE waivers, what the consequences of non-renewal of these waivers may be, and how the Trump Administration may use other provisions of law to delay action in this area in order to sidestep confrontations with China, India, Turkey or other major Iranian trading partners were they to refuse to back down in the face of US sanctions threats as the “moment of truth” approaches. Continue Reading

Podcast Discussion of Recent CFIUS Fine and Forced Divestment

 

On April 15, Steptoe associate Peter Jeydel commented about recent CFIUS developments on Steptoe’s Cyberlaw Podcast, including the forced divestment of a Russian investor out of Cofense, a US cybersecurity company, and an unprecedented $1M fine for failure to implement a mitigation agreement.

To listen to Pete’s comments, please press play above. To listen to the entire episode, please visit Steptoe’s Cyberlaw Podcast on the Steptoe Cyberblog.

We Finally Have an Export Control Statute – What Does It Mean for Industry?

Steptoe’s Brian Egan and Peter Jeydel authored a Feature Comment in The Government Contractor, a Thomson Reuters publication, discussing the provisions of the Export Control Reform Act of 2018 that are most likely to have a lasting impact on industry. US and international companies should take careful note of the enduring changes to export controls enforcement set out by this statute and prepare for its consequences, including possible changes to China-focused export controls.

To read the full piece, please click here.

Implications of the Designation of Iran’s IRGC as a Foreign Terrorist Organization

Yesterday, Secretary of State Mike Pompeo announced his intent to designate Iran’s Islamic Revolutionary Guard Corps (IRGC) as a Foreign Terrorist Organization (FTO), noting that this is the first time the US government has designated part of another government as an FTO. The announcement explains: “This action underscores that the Iranian regime’s use of terrorism makes it fundamentally different from any other government. Iran employs terrorism as a central tool of its statecraft; it is an essential element of the regime’s foreign policy.” The related State Department fact sheet notes that the designation will occur on April 15, upon publication in the Federal Register. While this long-anticipated move could increase the risk to non-US persons of doing business with Iran, at least in certain sectors or with certain partners, its primary effect at least in the short-term will probably be to add yet another deterrent to commerce with Iran rather than leading to a significant increase in legal actions against entities continuing to engage with Iran.

The US government already maintains strict sanctions on dealings with the IRGC and its agents, including secondary sanctions targeting activity with the IRGC that has no jurisdictional link to the US. Although the FTO designation does provide that US financial institutions must block all transactions involving an FTO or its agents and report them to OFAC, in practice the FTO designation does not lead to any additional “blocking” requirement under US law, because the IRGC as a whole is already listed as a Specially Designated National (SDN) under Executive Order 13224 (i.e., as a Specially Designated Global Terrorist (SDGT)). So there are already broad sanctions in place both for US persons and non-US persons in dealing with the IRGC or its agents.  Continue Reading

When Dating Becomes a National Security Concern: CFIUS Forces Sale of Chinese Owned Dating App

In recent weeks, Reuters and other media outlets have reported that Beijing Kunlun Tech Co., Ltd. (Kunlun), the owner of the popular gay dating app Grindr, was seeking to sell the app due to concerns raised by the Committee on Foreign Investment in the United States (CFIUS). CFIUS is the interagency US government committee with authority to review foreign acquisitions of, and certain investments in, US companies that present US national security concerns.

According to these reports, CFIUS initiated a review of Kunlun’s acquisition of the US-based Grindr based on the sensitive nature of the personal data the app collects on US citizen users. The Grindr case has generated headlines due to the odd paring of a dating app owned by a Chinese gaming company and US national security. In our view, the case confirms the continued validity of several recent trends in US government policy and procedures for reviewing foreign investments in the United States. Continue Reading

Coming Soon: New Export Controls on China?

Lost in the recent US-China trade headlines about tariffs, indictments, trade secrets theft, cyber espionage and other matters is a potentially important development lurking in last year’s US export controls statute. Essentially, Congress has directed the Executive Branch to review the current scope of US export controls on China and other countries subject to arms embargoes, and to implement changes to address any vulnerabilities. This review is supposed to be done and any regulatory changes implemented by May 10.

Specifically, Section 1759 of the Export Control Reform Act of 2018 (ECRA), on which we previously advised, requires the US government to review the scope of export controls currently in place under the Export Administration Regulations (EAR) for arms embargoed countries like China. Specifically, ECRA requires the Commerce Department and other relevant agencies (including the Departments of Defense, State and Energy) to review the scope of export controls on transactions involving “military end uses and military end users” in arms embargoed countries like China, along with, more broadly, the types of goods, software and technology that currently are not controlled for such countries. This is separate from the ongoing review of export controls on “emerging and foundational technologies” that has been the subject of a lot of recent discussion elsewhere.  Continue Reading

USMCA Unlocked: Working Under the New NAFTA

Steptoe’s International Trade group has put together a helpful guide to the new NAFTA (the US-Mexico-Canada Agreement (USMCA)).

The Agreement must still go through ratification and implementation processes in all three countries before it can enter into force. In the coming weeks, the Trump Administration will submit legislation to Congress to implement the USMCA. Before a vote can be taken in the United States, however, the Administration will first need to resolve concerns and objections raised by members of Congress from both parties, making any vote on the USMCA challenging before the congressional summer recess.

Although the USMCA carries over a number of NAFTA’s important market-opening elements, it also introduces a number of changes that carry potentially significant implications for business planning across many sectors. Continue Reading

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