Archive for the ‘Countries’ Category

CEO Pleads Guilty to Export Violations and Agrees to Pay $17 Million

2018/12/23

By: Danielle Hatch

Eric Baird, former owner and CEO of Access USA Shipping, LLC d/b/a MyUS.com (Access USA), had his criminal plea accepted by the Bureau of Industry and Security (BIS) on December 12, 2018. BIS imposed a civil penalty of $17 million, with $7 million suspended, along with a 5-year denial of export privileges with one year being suspended. This is historically the largest penalty to be paid to BIS by an individual.

Are you wondering what this guy must have done to get the largest personal penalty? He went out of his way to hide illegal exports from the government…something they really frown upon. Baird founded Access USA and developed the business model of providing foreign customers with a US address so that they could acquire US origin items for export without alerting US merchants of the item’s ultimate destinations. Baird created policies and practices where it was normal for the values and descriptions of items on export documentation to be falsely identified. At one point, laser sights for firearms were described as “tools and hardware,” and rifle scopes were described as “sporting goods” or “tools, hand tools.” Baird even created a personal shopper program where Access USA employees purchased items for foreign customers from a shopping list and presented themselves as the domestic end users. At one point, Baird and Access USA employees were personally paying for the items and being reimbursed later by their foreign customers.

Access USA’s Chief Technology Officer emailed Baird in 2011 saying, “I know we are WILLINGLY AND INTENTIONALLY breaking the law.” In the same email thread Baird said, “if warned by the government,” then the company “can stop ASAP.”

Access USA settled with BIS in 2017 and agreed to a penalty of $27 million with $17 million suspended. You can read an article outlining the charges at: https://www.learnexportcompliance.com/blog/2017/03/30/florida-company-fined-27-million-for-150-intentional-ear-violations/

Department of Justice: https://www.justice.gov/usao-mdfl/pr/former-florida-ceo-pleads-guilty-export-violations-and-agrees-pay-record-17-million


OFAC Dings U.S. Defense Contractor for Sanctions Violations, Inadequate Screening

2018/12/23

By: Thad McBride on December 12, 2018

POSTED IN INTERNATIONAL TRADESANCTIONS (OFAC)

  • Penalties imposed for violations of U.S. sanctions on Russia and Ukraine
  • Violations identified during pre-acquisition due diligence on contractor
  • Denied persons screening was conducted but missed prohibited parties

In late November 2018, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that Cobham Holdings, Inc. agreed to pay $87,507 to settle violations of U.S. sanctions on Ukraine and Russia.

Violations Identified During Pre-acquisition Due Diligence

According to OFAC, the violations were committed by Cobham’s former subsidiary, Metelics, prior to the sale of Metelics to MACOM. It was MACOM that identified the violations during due diligence related to its acquisition of Metelics. And it was presumably MACOM that required Cobham to make the voluntary disclosure to OFAC that led to the penalty in this matter.

The penalty is small by recent OFAC standards. (For example, it is about 620 times less than Societe Generale paid to OFAC as part of its global settlement of sanctions violations.)

But as a cautionary tale, the Cobham matter is important to any exporter.

Products Sold to Entity Blocked Under U.S. Sanctions

According to OFAC, during a six-month period in 2014 and 2015, Metelics sold products through distributors in Canada and Russia to a blocked entity under U.S. sanctions. That entity – Almaz Antey Telecommunications LLC (AAT) – was not explicitly named as a blocked party on the OFAC List of Specially Designated Nationals and Blocked Persons (the SDN List).

Yet AAT was nonetheless a blocked person because it was 51 percent-owned by a party – JSC Almaz-Antey – that was named on the SDN List. As OFAC has made abundantly clear, any entity that is owned 50 percent or more by one or more blocked persons is a blocked entity itself.

Any blocked person, whether named on the SDN List or not, is effectively off limits to U.S. companies and individuals.

Screening Challenges Lead to Violations

The chronology of this matter demonstrates the challenges exporters face when screening third party business parties.

According to OFAC, on June 18, 2014, Metelics agreed to sell products to AAT through a Canadian distributor. On June 19, Metelics screened AAT against its prohibited parties screening software. At that time, JSC Almaz-Antey was not a prohibited party – and thus neither was AAT.

On June 27, Metelics shipped products to AAT. In connection with that shipment, Metelics again conducted denied parties screening and identified no match for AAT.

None of this is surprising or problematic from OFAC’s standpoint because JSC Almaz-Antey was not designated as an SDN until July 16, 2014. That is when things get more interesting.

On July 31, 2014, Metelics made another shipment to AAT. In connection with this shipment, Metelics again conducted denied parties screening for AAT and again did not identify any matches – even though JSC Almaz-Antey, the majority owner of AAT, was now named on the SDN List.

Based on this, OFAC deemed the screening effort to be insufficient. OFAC emphasized that Metelics proceeded with shipment to AAT “despite the inclusion of two uncommon terms [‘Almaz’ and ‘Antey’] in the names of both the SDN and [AAT].” OFAC’s statement suggests that the screening software should have identified at least a potential match, which Metelics would presumably have reviewed further before continuing with the transaction.

Notably, there is no indication that Metelics somehow set the software or screening mechanism to avoid identifying a match with AAT. In fact, in its press release, OFAC states that the screening software was set-up to identify “fuzzy” search criteria yet missed the similarities between AAT and JSC Almaz-Antey.

It thus appears that Metelic was not entirely to blame for these apparent violations. Yet in explaining the penalty in this case, OFAC also notes that Metelics “was subject to a consent agreement for violations of the International Traffic in Arms Regulations [ITAR]… resulting from recurring compliance failures.” Arguably those ITAR compliance failures should have made Metelics particularly vigilant about protecting against failures with its screening system.

While OFAC does not name the provider of the screening software in this case, the agency does state that “[p]ersons employing sanctions screening software should take steps to ensure it is sufficiently robust.” In other words, simply because a company uses software to conduct screening does not mean that software is adequate to protect against violations.

Analysis

This may be a tough lesson for exporters to absorb.  It’s not clear that many exporters conduct quality control checks of their screening software. The raison d’etre for such software is to identify actual or potentially prohibited parties based on name similarities. That is exactly what Metelics expected its software to do.

The proliferation of prohibited and restricted parties – and the lists of such parties – makes it impossible for most companies to keep up-to-date with those lists on their own. That’s the reason so many companies seek software solutions to help meet their compliance obligations. It is the responsible thing to do.

Which makes it a little jarring to read the following exhortation from OFAC:

It is essential that companies engaging in international transactions maintain a culture of compliance where front line staff are encouraged to follow up on sanctions issues, including by promptly reporting to compliance personnel transactions suspected to involve sanctioned parties.

That is surely good advice but it is not clear how it pertains to the facts in the Cobham matter. There is no indication that any Metelics employee was aware of a transaction suspected to involve sanctioned parties – or that any employee ducked their head in the sand.

Nevertheless, it is useful to remember the value of periodic risk assessments during which compliance policies, procedures, and processes are reviewed. Potential weaknesses can be identified and addressed before they lead to violations.

The Bass, Berry & Sims trade lawyers work closely with clients to assist in risk assessments and other compliance exercises. Our targeted, efficient approach to such matters leads to practical, effective solutions. Feel free to contact us anytime if we can assist you.

Article: https://www.bassberrygovcontrade.com/ofac-dings-u-s-defense-contractor-for-sanctions-violations-inadequate-screening/


BIS Denies Export Privileges and OFAC Announces $2,774,972 Settlement with Jereh Group

2018/12/23

By: Danielle Hatch

The Bureau of Industry and Security (BIS) announced a settlement with Yantai Jereh Oilfield Services Group Co., Ltd., of Yantai Shandong Province, China (“Yantai Jereh”) in conjunction with the Office of Foreign Assets Control (OFAC).

BIS alleges that the company committed four violations of the EAR (Acting with knowledge of a violation and making false statements to BIS during the course of an investigation. Yantai Jereh has agreed to pay $600,000 to BIS and the company’s 5-year denial period will be suspended if the company pays the BIS fine, in addition to the penalty under their OFAC Settlement Agreement (details below). If at any time, the company commits any violations of the Regulations or fails to pay its penalties on time, BIS can revoke the denial suspension.

The settlement between the OFAC and Yantai Jereh is concurrent with the BIS settlement. The main difference is that the company had 11 violations of the Iranian Transactions and Sanctions Regulations causing a much larger fine of $2,774,972. All 11 violations involved exportation or rexxeportation or the attempted exportation or reexportation of US goods to Iran by way of China. Two of the 11 shipments of oilfield equipment spare parts (coiled tubing strings and pump sets) were seized by US Customs and Border Protection before they left the US.

OFAC determined that the violations constituted an egregious case and the company did not voluntarily disclose their violations.

BIS Charging Letter: https://efoia.bis.doc.gov/index.php/documents/export-violations/export-violations-2018/1206-e2573/file

OFAC Settlement: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20181212.aspx


Washington Must Wake Up to The Abuse of Software That Kills

2018/12/23

By: Josh Rogin (Josh.Rogin@washpost.com)

Dictators are using spyware to persecute dissidents and journalists at an alarming rate, while the foreign firms that sell these tools assure the public that everything is just fine. It’s time Washington policymakers and lawmakers rein in the proliferation and abuse of software that ends up killing innocent people. This isn’t just a human rights issue. It’s also a matter of U.S. national security.

Israel-based NSO Group is only one in a growing group of companies that has put powerful spyware tools previously available only to a few governments out on the open market. Its Pegasus software, according to human rights groups and independent investigators, has been used in as many as 45 countries, often by authoritarian leaders to aid the persecution of dissidents, journalists and other innocent civilians.

Read Full Article: https://www.washingtonpost.com/opinions/2018/12/12/washington-must-wake-up-abuse-software-that-kills/?noredirect=on&utm_term=.0a610535c165


Huawei CFO Arrested at Request of US

2018/12/23

By: Danielle Hatch

On December 1, 2018 Huawei Chief Financial Officer Meng Wanzhou was arrested in Vancouver, Canada at the request of the United State. Huawei is the world’s biggest supplier of telecom network equipment and the second biggest smartphone seller across many countries in Europe, Asia and Africa.

The US is accusing Meng and Huawei of defrauding several banks such as HSBC and Standard Chartered, by hiding payments from Iran in violation of US sanctions regulations. US officials believe that Huawei was trying to use the banks to move money out of Iran in addition to possible illegal exports to Iran and other sanctioned countries since 2016. The US case against Meng involves Skycom Tech Co. Ltd, which has been described as one of Hauawei’s “major local partners” in Iran, the company often used Skycom Tech’s Tehran office to provide mobile network equipment to major telecommunications companies in Iran. Reuters has reported that Skycom was more of an “unofficial subsidiary” of Huawei and basically conducted business in Iran for Huawei. The US believes that Meng and other Huawei representatives misled banks about Huawei’s control of Skycom so that they could gain access to more than $100 million worth of transactions related to Skycom.

Huawei has said that its Iran operations were “in strict compliance with applicable laws, regulations and sanctions” of the United Nations, United States and European Union, according to Canadian court documents that were released earlier this month. Chinese Vice Foreign Minister Le Yucheng said, “The actions of the US seriously violated the lawful and legitimate rights of the Chinese citizen, and by their nature were extremely nasty.”

If the case makes it to the US (depending on Canada), it will likely involve several government forces including the Department of Justice (DOJ), the Office of Foreign Assets Control (OFAC), the Commerce Department’s Bureau of Industry and Security (BIS), and US Customs Enforcement.

More information: https://www.reuters.com/article/us-usa-china-huawei/huawei-cfo-seeks-bail-on-health-concerns-canada-wants-her-in-jail-idUSKBN1O80GL

https://www.cnbc.com/2018/12/18/huawei-cfo-meng-wanzhou-extradition-case-what-happens-next.html


US Announces Bilateral Tariff Ceasefire

2018/12/23

The G-20 summit concluded at the beginning of this month and provided some relief to Chinese and American importers for 2019 as a 90-day ceasefire from the current tariff wars. A White House press release explained that on January 1, 2019, tariffs on $200 billion worth of imported Chinese products will not be raised to 25% from the existing 10%. In response, China agreed to purchase a substantial amount of agricultural, industrial, and energy products from the US, although an exact amount has not been determined. This is only a 90-day ceasefire and if the US and China cannot reach an agreement on issues like forces transfer of technology, intellectual property protection, non-tariff barriers, cyber intrusion and a whole other host of issues by March 1, 2019 the tariffs will be raised from the 10% to the 25%.

In March of this year the Trump administration raised the import duties on aluminum and steel from 10% to 25% which caused China to create retaliatory tariffs, creating a trade war. Since this change, the US has imposed tariffs on $250 billion worth of Chinese goods and China has imposed tariffs on $110 billion worth of US goods.

More Information: https://blogs.integrationpoint.com/en-us/25-global-trade-management-gtm/8019-amidst-the-trade-war-china-u-s-announce-bilateral-tariff-ceasefire.html


Reimposition of Iran Sanctions Starts

2018/12/23

On November 5, 2018 the Office of Foreign Assets Control (OFAC) began to re-impose several sanctions on Iran related to the 180-day wind-down period and the reimposition of US sanctions that had been lifted or waived in connection with the Joint Comprehensive Plan of Action (JCPOA).

The biggest change you will see is that over 700 people have been designated or identified and added to the SDN list, including those that had been recently removed from the list in connection with JCPOA. In addition, person and associated block property that was previously identified on Executive Order (EO) 13599 have been moved to the SDN list and OFAC has removed EO 13599 from its website.

An amendment to the Iranian Transactions Sanctions Regulations (ITSR) has taken affect and will reimpose certain sanctions pursuant to EO 13846 and technical changes that remove references to EO 13599.

OFAC Frequently Asked Questions: https://www.treasury.gov/resource-center/faqs/Sanctions/Pages/faq_iran.aspx#630

Notice: https://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20181105.aspx


US Government Wants Hong Kong to Enforce Export Controls

2018/12/23

The US has been pushing Hong Kong to enforce more of the United Nations sanction on North Korea and Iran, as well as export controls on controlled items. The US Department of State and US Department of Commerce met with Hong Kong government agencies this month to look over recent steps that Hong Kong has taken to implement the sanctions. Hong Kong has passed new laws that will make it harder to register and operate shell companies in the city in hopes of keeping people from using the city as a “safe harbor” for illicit trade with North Korea.

In November, an annual report of the US-China Economic and Security Review Commission suggested that the US Department of Commerce review its export control policy for civilian technology with military applications in relation to Hong Kong and China. The report said that Hong Kong was moving closer to becoming “more like any other Chinese city,”

More Details: https://www.hongkongfp.com/2018/12/10/us-urges-hong-kong-better-enforce-export-controls-un-sanctions-north-korea-iran/


A Crude Awakening: U.S. Sanctions on the Russian Oil Sector

2018/11/26

By: Olga Torres, Esq. and Derrick Kyle, Esq. All of Torres Trade Law.

Introduction
This article will discuss U.S. economic sanctions on Russia as enforced by the Office of Foreign Assets Control (“OFAC”), a government agency within the U.S. Department of the Treasury. Specifically, we will provide an overview of Directive 4 to Executive Order 13662 (“Directive 4”), which prohibits certain transactions related to the Russian oil sector.1 While Directive 4 does not prohibit all oil sector transactions with companies in Russia, it does create many potential obstacles for U.S. businesses. We will also briefly discuss Russian oil sector prohibitions administered by the Department of Commerce Bureau of Industry and Security (“BIS”).2 Russia and Texas are two of the largest producers of oil and gas in the world, and, because many companies involved in the petroleum industry in Texas have dealings with Russian entities or individuals, they are likely to be faced with sanctions issues. Below we describe some of the issues that need to be addressed prior to the commencement of transactions involving Russian parties in the context of certain oil exploration and production activities.

Background
U.S. economic sanctions are a tool of foreign policy that target countries as well as activities related to national security and other foreign policy-based concerns, such as terrorism, narcotics trafficking, human rights, and cybersecurity. In 2014, the Obama Administration implemented various economic sanctions against Russia in response to Russia’s occupation of the Crimea region of Ukraine. These sanctions programs included: 1) a trade embargo against Crimea; 2) blocking sanctions against persons listed on the Specially Designated Nationals and Blocked Persons (“SDN”) List; and 3) sectoral sanctions prohibiting certain transactions with persons identified on the Sectoral Sanctions Identification (“SSI”) List.3 President Obama’s sanctions were implemented primarily through a series of Executive Orders.

In August 2017, President Trump signed the Countering America’s Adversaries Through Sanctions Act (“CAATSA”). This comprehensive, bipartisan sanctions regime targeted Russia, North Korea, and Iran. The part of CAATSA that focuses on Russia, the Countering Russian Influence in Europe and Eurasia Act of 2017 (“CRIEEA”), codified many of the Executive Orders implemented during the Obama Administration.4 Additionally, CRIEEA expanded the existing scope of sanctions on Russia as well as implemented new secondary sanctions (sanctions that apply to activities by non-U.S. individuals and entities).5 The sanctions on Russia were passed in response to Russia’s cyber meddling in the 2016 elections as well as their continued occupation of the Crimea region of Ukraine.

Specifically, the relevant Russian sectoral sanctions are implemented through four directives. Directives 1 through 3 prohibit and impose restrictions on various kinds of financial transactions between U.S. persons and individuals or entities identified on the SSI List. Directive 4 is slightly different from the other Directives in that it provides more tangible restrictions on exports of goods and non-financial services related to the Russian oil industry.

Directive 4
Directive 4 prohibits:
The provision, exportation, or reexportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that:

(1) have the potential to produce oil in the Russian Federation, or in a maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to this Directive […]; or

(2) are initiated on or after January 29, 2018, that have the potential to produce oil in any location, and in which any person determined to be subject to this Directive… has (a) a 33% or greater ownership interest, or (b) ownership of a majority of the voting interests.

There is a lot to unpack in Directive 4. To start, “persons subject to this Directive” means persons that are listed on the SSI List and specifically identified as subject to Directive 4. The list of parties subject to Directive 4 includes several prominent Russian energy companies, such as Gazprom, Lukoil, and Rosneft. Notably, OFAC’s 50% rule applies for purposes of the SSI List. The 50% rule states that an entity that is owned 50% or more by an individual or entity on the SSI List will also be treated as being on the SSI List. So, if Company A is listed on the SSI List and owns 80% of Company B, then Company B will also be considered to be on the SSI List. OFAC also applies the 50% Rule in conjunction with aggregation rules when determining which transactions are prohibited. For example, Company A and Company B are both listed on the SSI List. Company A owns 30% of Company C, while Company B owns 25% of Company C. Company C would be considered to be on the SSI List, because it is owned 55% by entities on the SSI List.7

Further, Directive 4 was amended by CAATSA in October 2017 to add the second section of the directive related to oil produced in any location. This updated prohibition is interesting for a couple of reasons. First, the prohibition potentially now applies to oil projects anywhere in the world. Second, this part of the prohibition focuses on ownership of or voting interests in the project by a Directive 4-subject person, rather than just the involvement of a Directive 4-subject person. Importantly, this portion of the Directive 4 prohibition applies to listed persons having only a 33% ownership interest in the specified projects. Therefore, a project with a Russian company as a minority owner in a country other than Russia could be subject to the prohibitions of Directive 4.

Another important aspect of Directive 4 is the meaning of the terms used in the directive. As with many other sanctions regimes, the terms used do not necessarily carry their ordinary meanings. OFAC provided the definitions of some important terms in the Frequently Asked Questions (“FAQs”) section of its website:

  • Initiated. Part of Directive 4 applies only to projects initiated on or after January 29, 2018. According to OFAC, a project is initiated when, “a government or any of its political subdivisions, agencies, or instrumentalities (including any entity owned or controlled directly or indirectly by any of the foregoing) formally grants exploration, development, or production rights to any party.”
  • Services. OFAC defines services to include, for example, drilling services, geophysical services, geological services, logistical services, management services, modeling capabilities, and mapping technologies. Importantly, for purposes of Directive 4, services does not include the provision of financial services, clearing transactions or providing insurance related to such activities.
  • Deepwater. OFAC defines deepwater as underwater activities at depths of 500 feet or more.
  • Shale projects. The term “shale projects” applies to projects that have the potential to produce oil from resources located in shale formations.
  • Artic offshore projects. This phrase applies to projects that have the potential to produce oil in areas that (1) involve operations originating offshore, and (2) are located above the Arctic Circle.

While the above focuses on primary sanctions, CAATSA also implements secondary sanctions. Under Section 225 of CAATSA, the President is required to impose sanctions on non-U.S. persons that knowingly make a significant investment in a “special Russian crude oil project,” which is a deepwater, Arctic offshore, or shale oil project in Russia.13 The Department of State (“State”) is tasked with administering Section 225 and has stated it will determine what is “significant” on a case-bycase basis. In published guidance,14 State has explained that it will not consider an investment significant if a U.S. person would not require specific licenses from OFAC to participate in the same conduct.15 Section 226 of CAATSA, administered by OFAC, also now requires the imposition of secondary sanctions on Russian or other foreign financial institutions that knowingly engage in or facilitate significant transactions involving Russian deepwater, Arctic offshore, or shale oil projects.

The penalties for violations of Directive 4 can be steep. Civil penalties can be up to $295,141 per violation, or up to twice the value of the transaction that was the basis for the violation. Criminal, willful or knowing violations, can lead to penalties of up to $1 million per violation and imprisonment up to 20 years for individuals.

Screening of Parties
Because the Directive 4 prohibitions hinge on the involvement of a party on the SSI List, it is important that companies engage in the screening of all parties involved in potential transactions. Various government agencies maintain lists of entities and individuals with whom U.S. (and sometimes non-U.S.) persons are restricted or prohibited from transacting. These lists include, but are not limited to, OFAC’s SSI and SDN Lists, and the BIS Entity List. Entering into a transaction with a party on a denied party list can have grave consequences, such as sanctions, fines, or the denial of export privileges.

As such, companies should ensure that all parties to a transaction are screened. The U.S. Government provides a free screening search function that consolidates multiple government screening lists, aptly named the Consolidated Screening List (“CSL”).17 By searching for the name and address of an individual or company on the CSL, parties are able to screen against multiple government lists at once.

Example
Because the minutia of the above can be complex, the following example aims to highlight the issues encountered during a Directive 4 analysis. Suppose Company A (a Texas company) plans to enter into an agreement to sell fracking fluid to Company B (a Russian company). Based on the sales agreement, Company A knows the fracking fluid will be used in a hydraulic fracturing project in Russia, and hydraulic fracturing is most often associated with shale projects. Company B is a subsidiary of Company C, which is on the SSI List and owns an unknown percentage of Company B. Finally, assume it is not clear from the sales agreement who the owner of the specific fracking project is. Company A should resolve several questions before exporting any fracking fluid to Company B in Russia. These questions include:

  • Is Company B subject to Directive 4 based on Company C’s listing on the SSI List?
  • When was this project initiated?
  • Who are the owners of the specific project, and how is this ownership structured? Is a 33% or greater owner listed on the SSI List?
  • Is this project a shale project? Even if not, how can Company A be sure the fracking fluid will not be used in a shale project?

End-use statements and other assurances from Company B stating that the project is not a shale project or subject to any U.S. sanctions would be helpful to show due diligence on the part of Company A. But OFAC sanctions violations are viewed under a strict liability standard, so if OFAC determines the fracking fluid has been used in activities prohibited by Directive 4, Company A could face an enforcement action. Additionally, it is notoriously difficult to determine the ownership structure of some Russian companies and oil projects, so Company A may not be able to obtain a verifiable answer regarding the applicability of Directive 4 to Company B or the proposed transaction. Ultimately, companies working in this space must conduct a cost-benefit analysis with regards to each proposed transaction and determine the level of risk with which they are comfortable. A legal opinion from international trade counsel can be helpful in deciding whether or not a transaction is permissible.

BIS Rule
As if the above was not complicated enough, the Department of Commerce’s export control agency, BIS, has its own prohibitions on exports to the Russian oil industry. Section 746.5 of the Export Administration Regulations (“EAR”) imposes specific licensing requirements for certain parts identified in Supplement No. 2 to part 746 of the EAR as well as specific parts identified in the regulation. These parts cannot be exported, reexported, or transferred without a license if the party knows the item will be used directly or indirectly in the exploration for, or production of, oil or gas in Russian deepwater or Arctic offshore locations or shale formations in Russia.

Additionally, if the party is unable to determine whether the item will be used in such projects, then a BIS license is required for export. Parties should also be aware that BIS may inform persons individually or through amendment to the EAR that a license is required for a specific end-use or end-user because there is a high risk of use in the activities specified above. Any request for such a license will likely be denied as BIS maintains a general policy of denial for such license requests.

Latest Developments
In the latest string of Russian sanctions related developments, the State Department announced on August 8, 2018 that it would be imposing new sanctions on Russia pursuant to the Chemical and Biological Weapons Control and Warfare Elimination Act (CBWA), as a result of Russia’s attempted assassination of former Russian intelligence officer Sergei Skripal and his daughter. A Federal Register notice was published on August 27, 2018 and more significant sanctions must be imposed in the next three months if the U.S. government finds that Russia does not meet certain conditions, absent a waiver by the President of the United States.20 These potential additional sanctions should be closely monitored because there is an option for a very punitive track of sanctions depending on how the Russian government responds.

Conclusion
Overall, Directive 4, CAATSA sanctions, and other U.S. Government regulations impose a complex network of restrictions on U.S. parties seeking to do business with the Russian oil industry. Even when OFAC and other relevant agencies provide guidance, few bright line rules exist. Whether a transaction is covered by the specific authority is determined by the facts of the specific case.

As such, it is important that parties who want to engage in transactions with the Russian oil industry conduct their due diligence. All parties to the transaction should be screened against the SSI and SDN Lists, as well as any other denied party lists maintained by U.S. government agencies. The ownership of these parties and the interests held in oil projects must also be investigated to determine the potential involvement of sanctioned parties. Additionally, although this article focuses on Russian sanctions, other oil-producing nations, including Iran and Venezuela, among others, are subject to OFAC-administered sanctions. This means that any company engaged in oil and gas transactions with foreign companies or countries should make sure that there are no prohibitions on the transaction and conduct a review of any applicable sanctions programs.

Full Article: http://www.torrestradelaw.com/blog_images/4%20Article-ILS_%20Torres%20Law_%20A%20Crude%20Awakening%20U.S.%20Sanctions%20on%20%20Russias%20Oil%20Sector.pdf


OFAC Releases Changes to Iranian Transactions and Sanctions Regulations

2018/11/26

The Office of Foreign Assets Control (OFAC) published a final rule effective November 5, 2018 which makes changes to the Iranian Transactions and Sanctions Regulations (ITSR) to further implement President Trump’s decision to end the United State’s participation in the Join Comprehensive Plan of Action (JCPA) back in May of this year. These changes basically reimpose certain sanctions as well as change an existing general license to ITSR to allow US person to sell personal property in Iran and transfer the proceeds to the US.

Changes:

  • 560.211 by revising paragraph (c), adding a note to paragraph (c)(2), and revising notes 1 and 2 to paragraphs (a) through (c) to read as follows:
  • 560.211 Prohibited transactions involving blocked property.

(c)(1) All property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, including any foreign branch, of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in:

  • Any person determined by the Secretary of the Treasury, in consultation with the Secretary of State, to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to paragraphs (a) through (c)(1)(i) of this section; or
  • Any person determined by the Secretary of the Treasury, in consultation with the Secretary of State:

(A) To have, on or after August 7, 2018, materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the purchase or acquisition of U.S. bank notes or precious metals by the Government of Iran; or

(B) To have, on or after November 5, 2018, materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the National Iranian Oil Company (NIOC); the Naftiran Intertrade Company (NICO); any entity owned or controlled by, or operating for or on behalf of, NIOC or NICO; or the Central Bank of Iran.

(2) Paragraph (c)(1)(ii) of this section shall not apply with respect to any person for conducting or facilitating a transaction involving a project—

(i) For the development of natural gas and the construction and operation of a pipeline to transport natural gas from Azerbaijan to Turkey and Europe;

(ii) That provides to Turkey and countries in Europe energy security and energy independence from the Government of the Russian Federation and the Government of Iran; and

(iii) That was initiated before August 10, 2012 pursuant to a production sharing agreement, or an ancillary agreement necessary to further a production-sharing agreement, entered into with, or a license granted by, the government of a country other than Iran before August 10, 2012.

  • Revise Note 1 to § 560.304 to read as follows:
  • 560.304 Government of Iran.
    Note 1 to § 560.304: The names of persons that the Office of Foreign Assets Control (OFAC) has identified as meeting this definition are published in the Federal Register and incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) with the identifier ‘‘[IRAN].’’ The SDN List is accessible through the following page on OFAC’s website: www.treasury.gov/sdn. However, the property and interests in property of any persons meeting the definition of the term Government of Iran are blocked pursuant to § 560.211 regardless of whether the names of such persons are published in the Federal Register or incorporated into the SDN List.
  • Revise Note 1 to § 560.324 to read as follows:
  • 560.324 Iranian financial institution.
    Note 1 to § 560.324: The names of persons that the Office of Foreign Assets Control (OFAC) has identified as meeting this definition are published in the Federal Register and incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) with the identifier ‘‘[IRAN].’’ The SDN List is accessible through the following page on OFAC’s website: www.treasury.gov/sdn. However, the property and interests in property of any persons meeting the definition of the term Iranian financial institution are blocked pursuant to § 560.211 regardless of whether the names of such persons are published in the Federal Register or incorporated into the SDN List.
  • Add a Note to § 560.518 to read as follows:
  • 560.518 Transactions in Iranian-origin and Iranian government property.

Note to § 560.518: See § 560.543 for an authorization to engage in all transactions necessary and ordinarily incident to the sale of certain real and personal property located in Iran.

  • Amend § 560.543 by revising the section heading, paragraph (a), and paragraph (b)(2) to read as follows:
  • 560.543 Sale of certain real and personal property in Iran and transfer of related funds to the United States.
    (a) Individuals who are U.S. persons are authorized to engage in transactions necessary and ordinarily incident to the sale of real and personal property in Iran and to transfer the proceeds to the United States, provided that such real and personal property was acquired before the individual became a U.S. person or inherited from persons in Iran. Authorized transactions include engaging the services of any persons in Iran necessary for the sale, such as an attorney, funds agent, or broker.

(b) * * *

(1) * * *

(2) The re-investment in Iran of the proceeds from the real or personal property sales authorized in paragraph (a) of this section; or

Federal Register Notice: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/fr83_55269.pdf