Archive for the ‘Countries’ Category

U.S. Slaps Export Controls on Dozens of Chinese Firms Over ‘Threat To National Security’ As Trade Tensions Escalate

2018/08/30

(Source: South China Morning Post, 2 Aug 2018.) [Excerpts.]

Trade tensions continue to rise between the world’s two largest economies as the US added dozens of export control restrictions to Chinese companies and added 44 Chinese entities to its export control list for posing “significant risk” to US national security or foreign policy interests. These controls will limit access to products that the US commerce department believes could have dual military or civilian use and may deny companies key components such as nuclear materials, telecoms equipment, lasers, and sensors.

The new restrictions impact key parts to China’s Made in China 2025 policy including air defense systems, satellite communications systems, semiconductors, and aerospace products. The Made in China 2025 policy was created to further China’s initiatives to become a hi-tech powerhouse, but the US views it as a threat to its global technological supremacy.

After announcing the latest US moves, US trade representative Robert Lighthizer said that Washington needs to “take strong defensive actions to protect America’s leadership in technology and innovation” and added: “China’s government is aggressively working to undermine America’s hi-tech industries and our economic leadership through unfair trade practices and industrial policies like Made in China 2025.”

Source: https://www.scmp.com/news/china/diplomacy-defence/article/2157932/us-slaps-export-controls-dozens-chinese-firms-over

 


Jet Sale to Egypt Is Being Blocked By a U.S. Regulation, And France Is Over It

2018/08/30

(Source: Defense News, 1 Aug 2018.) [Excerpts.]

The U.S. is currently withholding clearance of an American component on the French Scalp cruise missile, which prevents the sale of additional Rafale fighter jets to Egypt. France is looking for ways to reduce its dependence on U.S. approval, but lacks the means to be completely autonomous.

“It is true that we depend on this [U.S. International Traffic in Arms Regulations] mechanism: We are at the mercy of the Americans when our equipment is concerned,” French Armed Forces Minister Florence Parly told the Committee for National Defense and Armed Forces of the lower-house National Assembly, according to recently released transcripts from July 4.

Parly said that the ministry needs “to analyze” French dependence on the U.S. and should be discussing with industry as well as the Economy and Finance Ministry ways for France to protect itself from American legislation.

When French President Emmanuel Macron attempted to convince President Donald Trump to provide clearance for the cruise missile component Trump recommended French experts talk to their American counterparts to work out the clearance, but the issue was not resolved according to a French defense source.

The U.S. has been the world leader in arms exports for more than 70 years, accounting for more than a third of total foreign military sales, Parly told parliamentarians. She added that European nations need to buy less American equipment to help reduce U.S. supremacy and take actions to promote European defense.

Macron has requested a French equivalent of the U.S. Foreign Military Sales program, which handles government-to-government deals, she said. Client nations prefer this approach rather than dealing with companies. The French Armed Forces and Economics and Finance ministries have created a framework agreement that will likely be adopted as the model for an intergovernmental arms contract, backed by a public tender and observing national and European law, she said.

The U.S. has been relaxing its rules on arms exports, with the State Department adopting the Conventional Arms Transfer policy, which eases the way for companies to directly pitch some types of weapons and drones without having to go to Washington for official approval.

Source: https://www.defensenews.com/global/europe/2018/08/01/a-jet-sale-to-egypt-is-being-blocked-by-a-us-regulation-and-france-is-over-it/


President Signs Export Controls Legislation Subjecting Emerging and Foundational Technologies to Enhanced Controls

2018/08/30

(Source: Vinson & Elkins LLP, 14 Aug 2018.)

By: David R. Johnson, Esq., drjohnson@velaw.com, +1 202-639-6706; and Daniel J. Gerkin, Esq., dgerkin@velaw.com, +1 202-639-6654. Both of Vinson & Elkins LLP.

The President has signed the National Defense Authorization Act of 2019 (“NDAA”), which, in addition to expanding the jurisdiction of the Committee on Foreign Investment in the United States (“CFIUS”) to review foreign direct investment,1 implements the Export Control Reform Act of 2018 (“ECA”), which sharpens the focus of the U.S. government on emerging and foundational technologies that are deemed not to have been adequately addressed by the prevailing U.S. export control regimes. The NDAA also places limits on the procurement of equipment and services from certain Chinese entities, though certain Members of Congress had adamantly advocated for much more stringent restrictions.

Please find a more detailed discussion of certain of the key aspects of the ECA, as well as the procurement-related restrictions set forth in the NDAA, below.

Export Controls Act of 2018

Permanent Statutory Authority for U.S. Export Controls. With limited exceptions, the ECA repeals the Export Administration Act of 1979, which lapsed several years ago and has been statutorily authorized each year since pursuant to Executive Orders issued under the International Emergency Economic Powers Act (“IEEPA”). Accordingly, the ECA now serves as the permanent statutory authority for the U.S. Export Administration Regulations (“EAR”), which generally govern the export, reexport, and in-country transfer of commercial and dual-use commodities, software and technology, and which are administered by the Bureau of Industry and Security, U.S. Department of Commerce (“BIS”).2

Treatment of Emerging and Other Types of Critical Technologies. In addition to ensuring permanent statutory authority for the existing commercial and dual-use export controls regime, the ECA directs the President, in coordination with the Departments of Commerce, Defense, State, and Energy to develop a “regular and robust process to identify the emerging and other types of critical technologies of concern and regulate their release to foreign persons as warranted regardless of the nature of the underlying transaction.” Specifically, these agencies are tasked by the ECA with identifying “emerging and foundational technologies” that are essential to the national security of the United States, but which are not currently controlled for export purposes.3

The process for identifying such technologies will be informed by publicly available information, classified information, information arising out of the CFIUS review process, and information generated by the various BIS advisory committees, and will take into account the development of such technologies in foreign countries, the effect export controls might have on continuing U.S. development efforts, and the effectiveness of export controls with respect to limiting the proliferation of such technologies to foreign countries.

The identified technologies will, following a notice and comment period, be subjected to enhanced U.S. export controls, possibly to include licensing requirements, and will be proposed for inclusion in multilateral export control regimes. At a minimum, licenses will be required for countries subject to a U.S. embargo, including those that solely are arms embargoed, such as China.4 Please note that license applications submitted by or on behalf of a joint venture, joint development agreement, or similar collaborative arrangement may require the identification of any foreign person with a significant ownership interest in a foreign person participating in the arrangement.

The following activities will be excepted from any licensing requirements:

  • The sale or lease of a finished item and the provision of associated technology if such items and technology are generally made available to customers, distributors, or resellers;
  • The sale or license to a customer of a product and the provision of integration or similar services if such services generally are made available to customers;
  • The transfer of equipment and provision of associated technology to operate the equipment if the foreign person could not use the equipment to produce critical technologies;
  • The procurement by a U.S. person of goods or services, including manufacturing services, from a foreign person if the foreign person has no rights to exploit any technology contributed by the U.S. person other than to supply the procured goods or services; and
  • Contributions and associated support provided by a U.S. person to an industry organization related to a standard or specification, whether in development or declared, including any license of, or commitment to license, intellectual property in compliance with the rules of any standards organization.

The ECA requires reporting to Congress and to CFIUS every 180 days regarding actions taken to identify and control emerging and foundational technologies.

Changes to Licensing Process. The ECA mandates that applications for licenses address “the impact of a proposed export of an item on the United States defense industrial base” and an assessment of whether “the denial of an application for a license or a request for an authorization of any export that would have a significant negative impact on such defense industrial base.” By significant negative impact, the ECA means:

  • “A reduction in the availability of an item produced in the United States that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States, or for the production of an item in the United States for the Department of Defense . . . for the advancement of the national security of the United States.”
  • “A reduction in the production in the United States of an item that is the result of research and development carried out, or funded by, the Department of Defense . . . to advance the national security of the United States, or a federally funded research and development center.”
  • “A reduction in the employment of United States persons whose knowledge and skills are necessary for the continued production in the United States of an item that is likely to be acquired by the Department of Defense . . . for the advancement of the national security of the United States.”

Criminal and Civil Penalties. Like the IEEPA, the ECA authorizes criminal penalties of up to $1 million and imprisonment for not more than 20 years. However, the ECA increases the current inflation-adjusted maximum civil penalty to the greater of $300,000 or twice the value of the underlying transaction. These also are the criminal and civil penalties set forth in the Anti-Boycott Act of 2018.

Treatment of Certain Chinese Telecommunications Equipment Manufacturers and Service Providers

Over the objections of Sen. Marco Rubio, among others, the NDAA ultimately did not reimpose sanctions on Chinese telecommunications equipment manufacturer and service provider, Zhongxing Telecommunications Equipment Corporation (“ZTE Corporation”), and certain of its affiliates, which were subject to a BIS denial order arising out of U.S. export control violations stemming from transactions involving Iran and North Korea. That denial order was terminated, effective July 13, 2018.

The ECA does, however, prohibit federal agencies from procuring or obtaining, or entering into contracts with entities using, equipment, systems, or services that, in turn, use Chinese-origin telecommunications equipment or services deemed to be a “substantial or essential component of any system” or “critical technology as part of any system.” The targeted Chinese-origin telecommunications equipment or services are:

  • Telecommunications equipment produced by Huawei Technologies Company or ZTE Corporation or any subsidiary or affiliate of such entities;
  • For the purpose of public safety, security of government facilities, physical security surveillance of critical infrastructure, and other national security purposes, video surveillance and telecommunications equipment produced by Hytera Communications Corporation, Hangzhou Technology Company, Dahua Technology Company, or any subsidiary or affiliate of such entities;
  • Telecommunications or video surveillance services provided by any of the above-named entities or using the above-described equipment; and
  • Telecommunications or video surveillance equipment or services produced or provided by an entity reasonably believed to be owned or controlled by, or otherwise connected to, the Chinese government.

 

Visit our website to learn more about V&E’s Export Controls and Economic Sanctions practice. For more information, please contact Vinson & Elkins lawyers Dave Johnson or Daniel Gerkin.

The changes to the CFIUS review process are discussed in greater detail at http://www.velaw.com/Insights/President-Signs-Sweeping-Expansion-of-CFIUS-Review-of-Foreign-Direct-Investment/.
2 The EAR also encompass the regulations that govern the participation of U.S. persons in unsanctioned foreign boycotts. These regulations now are permanently authorized by the Anti-Boycott Act of 2018.
Please note that the EAR currently allow for the imposition of temporary controls on items in accordance with their interim classification within Export Control Classification Number 0Y521.
4 The ECA also requires a review of the current controls on exports, reexports, and in-country transfers for military end uses and military end users in U.S. and United Nations arms-embargoed countries, as well as a review of the Commerce Control List of items that currently are not subject to any licensing for U.S. arms-embargoed countries.


Swedish Telecom Company Pays Penalty for Sanctions Violation

2018/08/30

By: Thad McBride on July 19, 2018

Thad McBride is a member at Bass, Berry & Sims PLC (Washington, DC) and leads the firm’s International Trade Practice Group. He regularly counsels clients on compliance matters related to economic sanctions and embargoes, export controls, CFIUS, US anti-boycott controls, customs, and other import controls. In addition, he guides clients through internal audits and investigations and represents companies facing government investigations and enforcement actions. He is a regular contributor to the firm’s Government Contracts and International Trade blog and can be reached at tmcbride@bassberry.com

POSTED IN INTERNATIONAL TRADESANCTIONS (OFAC)

  • Ericsson Caused Violation by Having U.S. Party Ship Equipment to Sudan
  • U.S. Employee Facilitated Sudan Business
  • OFAC Expects Parties Conducting International Business to Have Robust Compliance Processes

In June 2018, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that Ericsson, a Swedish telecommunications company, agreedto pay approximately $145,000 for violating U.S. sanctions on Sudan.  Among other things, this is one of the few OFAC enforcement actions explicitly premised on a non-U.S. actor causing a U.S. company to violate U.S. sanctions.

Non-U.S. Companies Can Violate Sanctions If They Cause a Violation

According to OFAC, the violations involved Ericsson, AB (EAB), which is based in Sweden, causing a U.S. seller of a satellite hub to export that hub from the United States to Sudan.  Interestingly, in connection with EAB’s purchase of the satellite hub, an EAB employee communicated about the matter with Ericsson’s compliance department.  In those communications, the EAB employee was informed that the purchase of the satellite would violate Ericsson’s sanctions compliance policy.

Yet the EAB employee proceeded with the acquisition, with support from an Ericsson employee in the United States.  OFAC asserted that the two Ericsson employees agreed to identify “Botswana” as the destination of the satellite hub.  The EAB employee then structured the acquisition so that the satellite hub was shipped through several other countries, including with help from a third party in Lebanon, before eventually arriving in Sudan.

U.S. Employee Facilitated Transaction by Supporting the Sudan Business

It appears that, when the Ericsson U.S. employee was first contacted by his counterparts at EAB, he informed them that he could not be involved in any Sudan business.  But subsequently, he did assist his EAB counterparts by providing technical guidance related to the Sudan project.  (The U.S. employee sent one e-mail related to Sudan in which “East Africa” was listed as the subject of the e-mail.)  The U.S. employee also met in person with an EAB employee to discuss the project.

There is no indication that the U.S. employee had any role in purchasing or shipping the satellite hub to Sudan.  Nonetheless, by providing guidance and advice about the Sudan project, the U.S. employee facilitated that project and thereby violated U.S. sanctions on Sudan.  Like other U.S. sanctions programs, under U.S. sanctions on Sudan, U.S. persons were prohibited from indirectly supporting (or facilitating) a project in Sudan that the U.S. person could not engage in directly.

Conduct Occurred Well Before Recent Lifting of U.S. Sanctions on Sudan

As we have discussed in prior blog posts (see this January 2018 blog post), it typically takes a long time for OFAC to impose penalties for sanctions violations.  The conduct at issue in the Ericsson matter occurred in 2011 and 2012.  Ericsson tolled the statute of limitations during OFAC’s investigation of the matter.

In fact, by the time Ericsson agreed to settle the matter, U.S. sanctions on Sudan had been lifted.  However, the U.S. government does maintain export controls on Sudan under the Export Administration Regulations.  As a result, an export license is needed to export most U.S.-origin items to Sudan, even though economic sanctions have been lifted.

This illustrates one of the practical challenges for U.S. companies considering business in Sudan.  Discussions about that business and even the provision of business services are generally permitted without a license.  Actual exports of products still usually require a license.  So Sudan is not entirely open for business from a U.S. perspective.

Compliance Is Complicated, Appropriate Resources Are Needed

The compliance narrative in this matter is jumbled.  As detailed above, the Ericsson compliance department advised the EAB employee – correctly – about the potential liability associated with Sudan business.  The U.S. employee of Ericsson originally responded to requests related to Sudan by stating his inability to work on a Sudan project.  Yet both the EAB employee and the Ericsson U.S. employee proceeded with the Sudan business.

This seems on its face like a situation in which company employees went rogue.  Notably, the company disclosed the violation to OFAC, which is one reason that OFAC imposed a penalty well below the statutory maximum amount (roughly $360,000).

Yet in imposing any penalty, OFAC indicates that Ericsson could have done better.  In particular, in the press release related to the matter, OFAC states the following:

This enforcement action highlights the importance of empowering compliance personnel to prevent transactions prohibited by U.S. economic and trade sanctions.  Entities should ensure their sanctions compliance teams are adequately staffed, receive sufficient technology and other resources, and are delegated appropriate authority to ensure compliance efforts meet an entity’s risk profile.

The Bass, Berry & Sims international trade team works closely with clients to assess their risks and put in place effective, cost-efficient measures to prevent and detect trade compliance violations.  OFAC clearly expects such measures.  Feel free to contact us anytime if we can assist in developing and implementing them.


BIS Amends EAR, Eases Restrictions on Exports to India

2018/08/30

Effective August 3, 2018 the Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to formally recognize and implement India as a new member of the Wassenaar Arrangement as well as move India from Country Group A:6 to A:5. This rule follows a series of rules with the intention of furthering reforms agreed upon by the United States and India to promote global nonproliferation, expand high technology cooperation and trade, and ultimately facilitate India’s full membership in the four multilateral export control regimes (Nuclear Suppliers Group, MTCR, WA, and AG).

Specific EAR Amendments Recognizing and Implementing India’s Membership in Wassenaar and Adding India to Country Group A:5

  • PART 738 – BIS amends Supplement No. 1 to Part 738, Commerce Country Chart, by removing the license requirements for National Security Column 2 (NS2) reasons. Accordingly, this rule removes the “X” in NS Column 2 for India.
  • PART 740 – BIS amends Supplement No. 1 to Part 740 to add India to Country Groups A:1 and A:5.

CONFORMING AMENDMENTS

  • PART 738 – Consistent with India’s new multilateral export control regime status, this rule also removes the first sentence of footnote 7 to the Commerce Country Chart in Supplement No. 1 to Part 738, related to India. This amendment removes the requirement that exporters file in the Automated Export System when items controlled for Crime Control Columns 1 and 3 reasons, and Regional Stability Column 2 reasons were destined to India. As a conforming change, this rule removes the word “Also” from the second sentence of footnote 7 and capitalizes the “n” in “note” since it begins the sentence.

– Also, as a conforming change in Part 738, BIS amends paragraph (b)(3) of §738.4, related to a sample analysis using the Commerce Control List and Country Chart to determine when a license is required, to remove the name “India” and replace it with the name “Chad.” The sample analysis used India as an example of a country with NS Column 2 controls. That reason for control no longer applies to India but currently applies to Chad.

  • PART 740 – In adding India to Country Group A:5, BIS removes India from Country Group A:6 to avoid creating conflicting eligibility criteria for STA provisions.
  • PART 743 – As a member of Wassenaar, India now is subject to reporting requirements for items controlled under Wassenaar, as set forth in Part 743, Special Reporting and Notification. Specifically, India is added, in alphabetical order, to Supplement No. 1 to Part 743, Wassenaar Arrangement Participating States.
  • PART 758 – Consistent with India’s achievements and status as a Major Defense Partner, BIS removes the requirement that exporters file certain Electronic Export Information in AES as set forth in §758.1(b)(9). Specifically, this removes the requirement that exporters file in AES when items controlled for CC Columns 1 and 3 reasons and RS Column 2 reasons are destined to India. This reporting requirement had been instituted when the license requirement for such items was removed (see U.S.-India Bilateral Understanding: Additional Revisions to the U.S. Export and Reexport Controls Under the Export Administration Regulations; January 23, 2015; 80 FR 3463). BIS has determined that this reporting requirement is no longer necessary.
  • PART 772 – In this rule, BIS also adds India, in alphabetical order, to the list of countries under the term Australia Group in §772.1, Definitions of terms as used in the Export Administration Regulations (EAR). This updates the definition consistent with formal recognition of India’s membership in the AG in a BIS final rule, entitled “Implementation of the February 2017 Australia Group (AG) Intersessional Decisions and June 2017 Plenary Understandings; Addition of India to the AG” (83 FR 13849, April 2, 2018)

Richard E. Ashooh, Assistant Secretary for Export Administration.

Source (Federal Register): https://www.gpo.gov/fdsys/pkg/FR-2018-08-03/pdf/2018-16691.pdf


Sanctions in Name Only Imposed on Russia for Nerve Gas Attack

2018/08/30

(Source: Export Law Blog, 8 Aug 2018. Reprinted by permission.)

By: R. Clifton Burns, Esq., Bryan Cave LLP, Washington DC, Clif.Burns@bryancave.com, 202-508-6067.

Clif Burns, Bryan Cave Leighton Paisner, Washington, DC. Copyright Clif Burns 2018

According to a State Department press release released today, the United States has made a determination that Russia used novichok, a chemical warfare agent, in an attack on British soil and, as a result, the US will impose sanctions on Russia under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the “CBWC Act”), 22 U.S.C. § 5601 et seq.  The text of these sanctions was not released.  Instead, the text will be in a Federal Register notice expected to be published on or around August 22.  The sanctions will be effective as of the date of the publication of that notice.

Because these sanctions are being imposed under the CBWC Act, we can already get a good idea of what these sanctions will be.   The Act contemplates sanctions being imposed in two stages.  The first stage, described in section 5605(a), sets forth the following sanctions, all of which are required to be imposed upon the offending country:

  • Termination of all foreign assistance
  • Termination of all arms sales
  • Termination of all foreign military financing
  • Denial of U.S. government credit or assistance
  • Termination of all exports of items controlled on the Commerce Control List for NS reasons

To be honest, none of these sanctions will have any significant impact on Russia.  Arms sales to Russia have been prohibited for some time now.   The country chart already has Russia controlled for both columns of NS controls.  Of course, you could say that the new sanctions will mean that NS items will not be considered for licenses under any circumstances.  But I don’t think licenses to export NS items to Russia are being readily granted now.

The second stage, if it happens, would take place on November 8 of this year unless the President determines that Russia is no longer using chemical or biological weapons.  If that determination is not made, the President is required to impose three sanctions from a set of six possible sanctions.  Those six possible sanctions are:

  • Opposing multilateral bank financial assistance to Russia
  • Prohibition of U.S. bank loans to the government of Russia
  • Prohibition of all exports of all U.S. goods and technology to Russia
  • Downgrading or suspending diplomatic relations with Russia
  • Termination of all service to and from the United States by Russian airlines

Whether the President will make the findings necessary to impose this second stage and which three of the six will be imposed is anyone’s guess, although I suspect that most people likely have a pretty good guess.   The upcoming Federal Register notice will probably not even address the second stage sanctions.   If the United States does in fact impose the three second stage sanctions, the best guess is probably that he will impose the least restrictive of those, i.e., opposing multilateral bank loans, prohibiting U.S. bank loans, and expelling a few more diplomats.

 


Company Fined $155,000 for Screening Related Violations

2018/08/30

By: Danielle Hatch

Mohawk Global Logistics Corp. has been fined $155,000 for 3 violations of the Export Administration Regulations (EAR) related to exporting to companies on the Entity List.

Around August 2012 Mowhawk exported an LNP-20 Liquid Nitrogen Plant (EAR99 and valued at $33,587) to the All-Russian Scientific Research Institute of Experimental Physics (VNIIEF). The company had a screening process in place and when they screened VNIIEF they got a hit and the shipment was initially flagged. During the BIS investigation Mowhawk acknowledged that the export supervisor accidently overrode (or ignored) the red flag and the shipment was processed. Mowhawk filed EEI and listed the shipment as No License Required (NLR) which would have been accurate had the end user not been on the Entity List. Since VNIIEF is a denied party a license is always required to export any items subject to the EAR. This was the 1st of 3 total charges.

In February 2014 and August 2015, Mokhawk once again exported to an organization on the Entity List, but this time they were in China. The company exported Real-Time Back Reflection Laue Camera Detectors and Accessories (EAR99 and valued at $177,156) to the University of Electronic Science and Technology of China (UESTC). Once again, Mowhawk used screening software, but this time it failed to flag the transaction because Mowhawk didn’t screen UESTC’s full, unabbreviated name. This could be a common mistake, however, all of the documents that UESTC provided to Mowhawk clearly identified UESTC’s full name as it was listed on the Entity List along with an almost exact matching address. The shipment was processed in February 2014 and they filed EEI as NLR. As with the first charge, had the export not gone to someone on the Entity List a license likely would not have been required.

In August 2015 Mowhawk exported the same exact items to UESTC after they had been returned for warranty repair. This time, Mowhawk didn’t screen the transaction at all using their screening software and there was no EEI filed in connection with this particular export to UESTC. These transactions were charges 2 and 3.

Settlement Agreement:

  • Pay $135,000 in 3 separate payments
  • Payment of the remaining $20,000 is suspended as long as the company pays the $135,000 on time.
  • If payments are not received on time, BIS may issue an order denying all of Mowhawk’s export privileges
  • Mowhawk can’t take any action or make any public statement denying the allegations in the BIS Charging Letter or Order

Order and Charging Letter: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2018/1193-e2561/file


President Trump Re-Imposes First Wave of Sanctions Against Iran and EU Expands Blocking Regulation to Cover US Secondary Sanctions Legislation on Iran

2018/08/30

(Source: Arent Fox LLP, 8 Aug 2018.)

By: Kay C. Georgi, Esq., kay.georgi@arentfox.com, +1 202-857-6293; Marwa M. Hassoun, Esq., marwa.hassoun@arentfox.com, +1 213-443-7645; and Regan K. Alberda, Esq., regan.alberda@arentfox.com, +1 202-775-5771.  All of Arent Fox LLP.

The President issued an Executive Order on August 6, 2018, “Reimposing Certain Sanctions With Respect to Iran” (the New Iran EO), which re-imposes relevant provisions of five Iran sanctions EOs (EOs 13574, 13590, 13622, and 13645). Additionally, the New Iran EO implements provisions in two former EOs (EOs 13716 and 13628) and revokes those EOs.

Additionally, the New Iran EO implements provisions in two former EOs (EOs 13716 and 13628) and revokes those EOs.

August 6, 2018 marked the end of the 90-day wind-down period following the President’s decision to end the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA). Effective August 7, 2018, the US government can re-impose secondary sanctions that had been suspended under the Iran nuclear deal on persons who engage in specified transactions involving any of the following sectors/activities:

  • The purchase or acquisition of US dollar banknotes by the Government of Iran;
  • Iran’s trade in gold or precious metals;
  • The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes;
  • Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial;
  • The purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
  • Iran’s automotive sector.

Following the end of the 90-day wind-down period on August 6, 2018, the US government is also revoking the below JCPOA-related authorizations under US primary sanctions regarding Iran:

  • The importation into the United States of Iranian-origin carpets and foodstuffs and certain related financial transactions pursuant to general licenses under the Iranian Transactions and Sanctions Regulations;
  • Activities undertaken pursuant to specific licenses issued in connection with the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (JCPOA SLP); and
  • Activities undertaken pursuant to General License I relating to contingent contracts for activities eligible for authorization under the JCPOA SLP.

The remaining secondary sanctions can be re-imposed on November 5, 2018, following the end of the 180-day wind down period on November 4, 2018, on persons who engage in specified transactions involving any of the following sectors/activities:

  • Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines, South Shipping Line Iran, or their affiliates;
  • Petroleum-related transactions with, among others, the National Iranian Oil Company, Naftiran Intertrade Company, and National Iranian Tanker Company, including the purchase of petroleum, petroleum products, or petrochemical products from Iran;
  • Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the National Defense Authorization Act for Fiscal Year 2012;
  • The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of the Comprehensive Iran Sanctions and Divestment Act of 2010;
  • The provision of underwriting services, insurance, or reinsurance; and
  • Iran’s energy sector, including a variety of separate specific activities related to the petroleum and petrochemical industries under the Iran Sanctions Act as amended.

Additionally, on or by November 5, 2018:

  • The US government will revoke the General License H wind-down authorization that had allowed US-owned or-controlled foreign entities to wind down certain activities with the Government of Iran or persons subject to the jurisdiction of the Government of Iran that were previously authorized by General License H; and
  • The US government can re-impose, as appropriate, the sanctions that applied to persons removed from the List of Specially Designated Nationals and Blocked Persons (SDN List) and/or other lists maintained by the U.S. government on January 16, 2016.

OFAC’s FAQs about the re-imposition of Iran sanctions can be found on OFAC’s website.

One question that OFAC answers in its updated FAQs (FAQ 601) is whether the New Iran EO expands the scope of sanctions that were in effect prior to January 16, 2016 (Implementation Day of the JCPOA), and the answer is:

  • Yes. The New Iran EO broadens the scope of the sanctions that were in effect prior to January 16, 2016 and provides for greater consistency in the administration of Iran-related sanctions provisions.

OFAC provides a list of added measures, but they are largely in the nature of tweaking the authorities for providing new blocking sanctions and slightly expanding the sanctions that can be imposed for activities involving petroleum and petrochemical sectors in Iran. More specifically, according to OFAC, the new Iran EO:

  • Provides new authority for: (i) blocking sanctions on persons who provide material support for, or goods and services in support of, persons blocked for various already existing sanction activities, such as being part of the energy, shipping, or shipbuilding sectors of Iran; (ii) correspondent and payable-through account sanctions on foreign financial institutions determined to have knowingly conducted or facilitated any significant financial transaction on behalf of the persons blocked under the new authorities;
  • Expands the menu of sanctions available to impose on persons determined to have engaged in certain significant transactions relating to petroleum, petroleum products, or petrochemicals from Iran by authorizing the imposition of:
    • Visa restrictions on corporate officers, principals, or controlling shareholders of a sanctioned person;
    • Additional sanctions on principal executive officers of a sanctioned person; and
    • Prohibitions on US persons investing in or purchasing significant amounts of equity or debt instruments of a sanctioned person.
  • Expands the prohibition on US-owned or -controlled foreign entities by prohibiting transactions with persons blocked for:
    • Providing material support for, or goods and services in support of, Iranian persons on the SDN List and certain other designated persons; or
    • Being part of the energy, shipping, or shipbuilding sectors of Iran or a port operator in Iran or knowingly providing significant support to certain other persons blocked or on the SDN List.

Since these last activities were already prohibited under Section 218 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and OFAC’s implementing regulations, it is unclear whether in fact this last is a true expansion or an adjustment of authority.

EU Reaction – Amendment of Blocking Regulation

As anticipated, the EU reacted by publishing, and thereby bringing into effect, an amendment to the Annex to Council Regulation No 2271/96 protecting against the effects of extra-territorial application of legislation adopted by a third country, and actions based thereon or resulting therefrom.

The revised Annex increases the number of laws subject to the blocking regulations, including, notably:

  • The energy sanctions contained in the Iran Sanctions Act of 1996 as amended;
  • The Iran Freedom and Counter-Proliferation Act of 2012;
  • The National Defense Authorization Act for Fiscal Year 2012;
  • The Iran Threat Reduction and Syria Human Rights Act of 2012; and
  • The Iranian Transactions and Sanctions Regulations.

According to the guidance published by the EU, the Blocking Statute:

  • Prohibits EU operators from complying with the listed extra-territorial legislation, or any decision, ruling or award based thereon, given that the EU does not recognize its applicability to/effects towards EU operators (Article 5, paragraph 1);
  • Requires EU operators to inform the European Commission within 30 days of any events arising from listed extra-territorial legislation or actions based thereon or resulting thereof, that affect, directly or indirectly, their economic or financial interests;
  • Nullifies the effect in the EU of any foreign decision, including court rulings or arbitration awards, based on the listed extra-territorial legislation or the acts and provisions adopted pursuant to them (Article 4);
  • Allows EU operators to recover damages arising from the application of the listed extra-territorial legislation from the natural or legal persons or entities causing them (Article 6). Damages are defined as ‘any damages, including legal costs, caused by the application of the laws specified in its Annex or by actions based thereon or resulting therefrom’; and
  • Allows EU operators to request an authorization to comply with the listed extra-territorial legislation, if not doing so would cause serious harm to their interests or the interests of the EU (Article 5, paragraph 2).

The Blocking Regulation applies to the EU subsidiaries of US companies, thereby placing them in a potentially difficult position. Moreover, the EU Guidance specifically states that EU operators cannot, consistent with the EU Blocking Regulations, request licenses from the United States unless they request the European Commission to authorize them to apply for such a license. At the same time, the EU Guidance specifically notes that EU companies remain free to do or not to do business with Cuba and Iran, provided such business decisions are not forced on the EU companies by the listed US legislation.


Germany Launches Iran Advice Office Over U.S. Sanctions

2018/07/30

(Source: European Sanctions Blog, 19 June 2018.)

By:  Maya Lester, Esq., Brick Court Chambers, maya.lester@brickcourt.co.uk, +44 20 7379 3550.

In June the German government announced that it has created an “Iran contact point” to guide companies in their business transactions with Iran, given President Trump’s recent decision to reimpose US sanctions on Iran. The German government also stated that EU sanctions relief for Iran, one of the terms under the JCPOA, remained in place, and that government-backed export credit guarantees were still available.

Details: https://europeansanctions.com/2018/06/19/germany-launches-iran-advice-office-over-us-sanctions/


Strict Export Regulations May Be Costing Us Industry Billions in Foreign Sales

2018/07/30

(Source: Defense News, 18 June 2018.)

A new RAND report (a source for research on policy ideas and analysis) studying the spread of unmanned aerial vehicles suggests that the current export controls for drones might be hurting the US more than helping.

US competitors like China and Russia are filling the void that has been left by the limitation on US drone exports in markets like the Middle East where the US historically dominated in sales. Over the past several years, Jordan, Saudi Arabia, and United Arab Emirates (UAE) were denied requests to buy American drones, and have since turned to China to purchase similar systems. The Trump administration recently revealed a new set of export policies concerning military technology in an attempt to facilitate the transfer of military technology, but the changes do not change the status of drones under the Missile Technology Control Regime.

How does the MTCR work?

The MTCR is a voluntary export control group of 35 nations who collaborate to prevent signatories from proliferating longer-range cruise and ballistic missile technology. The arms control regime was extended to UAVs because early iterations of drones were considered a subset of cruise missile technology due to their active guidance system.

The regime divides missiles into two categories. This article will cover Category I.

Category I:

  • Capable of delivering a 500 kg payload more than 300 km
  • Sale of category I systems is restricted by a “strong presumption of denial” (meaning they are only exported in rare circumstances)
  • MQ-9 Reaper, RQ-4 Global Hawk and MQ-4 Triton are well-known unmanned systems that fall under this category

Drone proliferation

RAND found that 10 nations use category I drones, and more than 15 use near-category I systems that register just below the MTCR’s payload and distance restrictions. The report states that these increased proliferation rates are due to countries like China, Israel, and the UAE who are not part of the MCTR. More countries are expected to follow suit which will cause a “growing threat to U.S. and allied military operations,” the report says.

While category I systems can deploy missiles, their main threat lies in “their ability to conduct intelligence, surveillance, and reconnaissance (ISR) operations against U.S. forces prior to hostilities,” according to RAND. “Adversaries that would otherwise have difficulty detecting U.S. force deployments, monitoring U.S. operations, and maintaining targeting data on U.S. units can employ UAVs to maintain situational awareness of U.S. capabilities.”

The report identifies Russia, China, and Iran as unfriendly nations that will try to utilize drones to complicate US military operations.

A US-sized hole

Due to restrictions on US drone exports, competitors have established themselves in a market Rand expects to “grow from about $6 billion in 2015 to about $12 billion in 2025.”

“What you are enabling the competition to do is not just to sell some hardware,” Linden Blue, General Atomic’s chief executive, told reporters during an Aug. 16, 2017 roundtable at the company’s headquarters in Poway, California. “You’re enabling it to build a customer base for at least 20 years, I would say. You’re enabling them to build a logistics system. It will take them many years to get to where we are right now, but you’re helping them start out. They should be very thankful.”

Details: https://www.defensenews.com/newsletters/unmanned-systems/2018/06/18/strict-export-regulations-may-be-costing-us-industry-billions-in-foreign-sales/