4 column emplate@@@(9;6.˘ $-97 WorldECR India joins the Wassenaar Arrangement 2 US declares North Korea a state sponsor 4 of terrorism A ‘Catch 22’ for Canadian corporations 8

ISSUE 65. DECEMBER 2017

www.WorldECR.com

WorldECRIndia joins the Wassenaar Arrangement 2

US declares North Korea a state sponsor 4of terrorism

A ‘Catch 22’ for Canadian corporations 8trading with Cuba: FEMA

EU introduces legislation imposing targeted 9sanctions against Venezuela

US export controls and economic sanctions 13enforcement – seven trends to watch in 2018

Export control legislation and enforcement in 17Scandinavia

The Arms Trade Treaty: is it making a difference? 26

SPECIAL REPORT: THE GLOBAL AGENDA

2 WorldECR www.worldecr.com

News and alerts News and alerts

Multilateral export controlregime, the WassenaarArrangement has agreed toadmit a new member, India,bringing the total number ofmembers to 42. Thedecision to admit India wasmade at the Arrangement’splenary session held inVienna on 6 and 7December.

The WassenaarArrangement was establish -ed in 1996 to promotetransparency and respons -ibility in the transfer ofconventional arms anddual-use goods andtechnologies. Particip atingstates seek to ensure thatsuch transfers do notcontribute to thedevelopment or enhance -ment of military capabilitiesthat undermine regionaland international security.

‘India's membership [of the WassenaarArrangement] is expected tofacilitate high technologytie-ups with Indian industryand ease of access to high-tech items for our defenceand space programs,’ saidRaveesh Kumar, aspokesperson for the IndianMinistry of External Affairs.

India anticipates thatmembership will ‘create the

grounds for the realignmentof India in the export controlpolicy framework’, includingeligibility for certainlicensing exemptions.

‘India's entry into theArrangement would bemutually beneficial andfurther contribute tointernational security andnon-proliferation object ives,’Kumar added.

India joined the MissileTechnology Control Regimein June 2016, but is notcurrently a member of theNuclear Suppliers Group orthe Australia Group. Inrecent years, India’s effortsto join the WassenaarArangement had beenblocked by Italy, the two

countries having suffered adispute over the allegedshooting of Indian fisher menby Italian marines and thesubsequent arrest of thelatter. However, ItalianPrme Minister PaoloGentiloni’s visit to India inOctober led to a thaw.

Admission to theWassenaar Arrangement isalso being seen as reward fora major overhaul of theSCOMET (Special Chemical,Organisms, Materials,Equipment andTechnologies) List relating todual-use goods and

technologies that Indiaundertook earlier this year.

Writing in WorldECR thissummer, Sanjay Notani,export control expert atIndian law firm EconomicLaws Practice (‘ELP’), noted:‘Export control laws in Indiahave been significantlyoverhauled by theDirectorate General ofForeign Trade (‘DGFT’) witheffect from 1 May 2017. Theamendments, among otherthings, seek to revise theSpecial Chemical,Organisms, Materials,Equipment and Technologiescategory (‘SCOMET) relatingto dual-use goods andtechnologies. These changeshave been brought about aspart of India’s continuingobligations as a member ofthe Missile TechnologyControl Regime and as anadherent to the NuclearSuppliers Group Guidelines.It also seeks to align with theguidelines and control lists ofthe Wassenaar Arrangementand the Australia Group, twomultilateral export controlregimes that India wishes tojoin.’

Wassenaar Arrangement finally admitsIndia as a member

The overhaul of the SCOMET list and an improvement in relations withItaly are the background for India’s admission to the Arrangement.

For details of India’s SCOMET overhaul, see:

https://www.worldecr.com/archives/indias-dgft-overhauls-scomet/

Free with this issue: The Global Agenda� ��

��

��

��

��

��

��

We are delighted to include with this issuea unique special report on the currentstate of play of all things internationalsanctions and export controls.

The Global Agenda brings together theinsight and experience of seniorexport/trade compliance professionalsand leading sanctions and export controllawyers and advisers from both sides ofthe Atlantic, to create a valuable review ofthe issues likely to drive trade compliancein 2018 and the lessons to be learnedfrom the headline-grabbing developmentsof 2017. At a time of considerable

uncertainty and against a background ofmore and increasingly varied sanctions,export control reforms and Brexit, readerswill find The Global Agenda a usefulresource in preparing for tomorrow’schallenges.

We hope that you enjoy the report. Ifyou would like any friends and contacts toreceive a copy, please ask them to [email protected] and we’ll behappy to send one through.

We hope that you’ve enjoyed ourcoverage in 2017 and we wish you all asafe and prosperous 2018.



In October in the UK, HMTreasury’s Office ofFinancial SanctionsImplementation (‘OFSI’)issued simplified guidancefor charities and NGOs oncomplying with financialsanctions, after receivingmany requests forclarification from smallercharities.

‘The production of NGO-specific guidance is likely tobe in response to NGOsexperiencing problems indelivering money or aid totarget countries as a resultof third parties, especiallybanks, acting on their ownconcerns about sanctionscompliance,’ says RogerMatthews from the Londonoffice of law firm Dechert.

Banks have focused on‘de-risking’ since USregulators levied hefty fineson Standard Chartered,HSBC Holdings and BNPParibas for non-compliancewith sanctions. This hasresulted in the bankaccounts of between 200and 300 charities being

closed, according to theLondon-based CharityFinance Group, as well aslong delays or the rejectionof money transfers.

The OFSI guidanceprovides an overview offinancial sanctions andexplains how to use theOFSI lists; how financialsanctions restrictions suchas asset freezes work;ownership and control; aswell as covering reportingrequirements and compli -ance and enforce ment. Italso outlines what activitymay be permitted under an

OFSI licence and how toapply.

‘The guidance is verylargely a re-statement of thelaw, focused on charities,’says Matthews. ‘Although itis useful to have theclarification – for example,of when certain types ofpayment model areconsidered lawful orunlawful – it does not gomuch further in term ofclarifying uncertainties.’

It is not OFSI’s policy togive advance clearance onwhether a proposedoperation will breach

sanctions law, or providetransaction-specific practicaladvice.

‘Charities still have to usetheir own judgement and itis tricky for them, forexample, to know when theyhave done enough duediligence (in OFSI’s eyes)before proceeding to dealwith the entity in asanctioned target country’,says Matthews.

The consequences ofserious financial sanctionsbreaches can be significant.Since April 2017, OFSI hasthe power under the Policingand Crime Act 2017 toimpose penalties of up to £1 million or 50% of thebreach, whichever is higher.

‘We realise that charitiesoften operate in challengingenvironments,’ says RenaLalgie, head of OFSI. ‘Thispractical guidance is animportant step in our effortsto raise awareness offinancial sanctions and helpcharities and NGOs betterunderstand theirresponsibilities.’

Charities face compliance struggledespite OFSI sanctions guidance

The bank accounts of more than 200 charities in the UK are thoughtto have been closed as a result of economic sanctions.

The US House ofRepresentatives has passed aresolution (423-3)condemning the ‘ethniccleansing of the Rohingya’and calling for an end toattacks against the Muslimminority in Myanmar.

The vote on 6 Decemberpaves the way for possiblesanctions against Myanmar.

‘This is a moral issue anda national security issue,’said House Foreign AffairsChairman Ed Royce in thedebate. ‘No one is securewhen extremism andinstability is growing in thispart of the world.’

More than 600,000

Rohingya have fled Rakhinestate into Bangladesh inrecent months, followingaggression from theMyanmar military, whichhas created a humanitariancrisis.

‘This resolution calls onBurmese authorities to work

with the internationalcommunity to resolve thecrisis while also calling onSecretary Tillerson to imposesanctions on thoseresponsible for human rightsabuses,’ said RepublicanSteve Chabot of Ohio, who isco-sponsor of the resolution,

together with Democrat JoeCrowley of New York.

A bipartisan sanctionsbill, spearheaded by theRepublican Senate ArmedServices Committeechairman John McCain andBen Cardin, lead Democraton the Senate Foreign AffairsCommittee, has already beenintroduced into the Senate,on 2 November.

The proposed sanctionswould withdraw US financialassistance from theMyanmar military, imposetravel bans on Myanmarmilitary officials and re-impose a ban on jade andrubies from Myanmar.

House of Representatives calls for Burma sanctions

More than 600,000 Rohingya are estimated to have fled Rakhinestate into Bangladesh in recent months.



The US has upped thepressure on North Korea(‘DPRK’) by officiallydesignating it as a statesponsor of terrorism, andimposing further third-country sanctions.President Trumpannounced the move duringa public meeting with hiscabinet at the White Houseon 20 November. DPRKjoins Sudan, Syria and Iranas countries identified bythe US Department of Stateas those that have‘repeatedly providedsupport for acts ofinternational terrorism’.

DPRK was removedfrom the list by PresidentGeorge W Bush in 2008. Astate sponsor of terrorism issubject to variousrestrictions, including thecurtailment of US foreignassistance; a ban on defenceexports and other sales;controls over exports ofdual-use items, as well asother sanctions measuresthat penalise individualsand countries who tradewith state sponsors.

The Department of theTreasury’s Office of ForeignAssets Control (‘OFAC’) hasalso sanctioned oneindividual, 13 entities and20 North Korean vessels.The sanctions target thosewith ‘long-standingcommercial ties’ to DPRK.They also target thetransportation networksthat aid the generation ofrevenue for Pyongyang,revenue which is used tofund the country’s nuclearand ballistics weaponsprogrammes.

Those sanctioned includethree Chinese trading

companies that export atotal of around $650mworth of goods to DPRK,and import around $100min goods, includingcomputers, iron, zinc oreand other minerals,according to OFAC.

‘As North Koreacontinues to threateninternational peace andsecurity, we are steadfast inour determination tomaximise economic

pressure to isolate it fromoutside sources of trade andrevenue while exposing itsevasive tactics,’ saidTreasury Secretary StevenMnuchin. ‘These designat -ions include companies thathave engaged in trade withNorth Korea cumulativelyworth hundreds of millionsof dollars.’

The escalation of USsanctions follows tough newUN sanctions approved inSeptember, followingPyongyang’s sixth nucleartest and the launch of aseries of ballistic missiles,two of which flew overJapan. The UN measuresban the export of textiles andplace a cap on oil importsinto the country, as well asprohibiting commercial jointventures with North Koreanentities and the future hire ofNorth Korean workers, in anattempt to cut off revenue tothe regime.

US declares North Korea a state sponsorof terrorism

North Korea joins Sudan, Syria and Iran on list of countries whichhave ‘repeatedly provided support for acts of international terrorism’.

The Otto Warmbier BankingRestrictions Involving NorthKorea Act has beenunanimously approved by aUS Senate committee.

The Committee onBanking, Housing andUrban Affairs voted for theBill, which designatesforeign financial institutionsin China and elsewherewhich help North Korea(‘DPRK’) to evade US andUN sanctions.

Existing US sanctions onDPRK are stepped up byallowing the Secretary of theTreasury, currently Steven

Mnuchin, leeway to imposesanctions on foreignorganisations that facilitateand support the NorthKorean regime, includingthose that ‘knowingly’import coal, iron, lead,textiles or seafood productsfrom DPRK; facilitate asignificant transfer of fundsor property from DPRK; andthose involved in thetransfer of workers fromDPRK to other countries togenerate funds forPyongyang.

The Bill also strengthensCongressional oversight by

requiring the President tonotify Congress beforesuspending or terminatingthe sanctions. This is similarto the Russia Sanctions Bill,signed into law in August,along with sanctionsmeasures against DPRK andIran, in the CounteringAmerica’s AdversariesThrough Sanctions Act(‘CAATSA’). The Senate

Committee’s approval cameahead of President Trump’svisit to Beijing, where heurged the Chinese presidentXi Jinping to ‘act faster andmore effectively’ toextinguish North Korea’snuclear ‘menace’. Acompanion Bill has beenintroduced into the House ofRepresentatives. The Billnow moves to the US Senate.

US approves banking restrictions against DPRK

The text of the Bill can be found here:

https://www.banking.senate.gov/public/_cache/files/70dcbe1f-41ec-4e74-9187-a51de2557531/46F54982E5C0933F0D209D9D3D5FE9BB.otto-warmbier-brink-act.pdf

For a list of those designated see:

https://www.treasury.gov/resource-center/sanctions/OFAC-

Enforcement/Pages/20171121.aspx



American Express(‘AMEX’) has agreed a pay-ment of $204,277 to the USDepartment of the Trea-sury’s Office of Foreign As-sets Control (‘OFAC’) tosettle apparent violations ofthe Cuban Asset ControlRegulations (‘CACR’) by itsindirect subsidiary BCCCorporate SA (‘BCCC’), aBelgian-based credit cardissuer (17 November).Be-tween 2009 and 2014,credit cards issued by BCCCto its corporate customerswere used to make pur-chases in Cuba – or wereused in a transaction in-volving Cuba – at a timewhen such use was prohib-ited by US economic sanc-tions. Although thecompany had both policies

and procedures in place tomatch transactions againstOFAC’s Specially Desig-nated Nationals andBlocked Persons (‘SDN’)List, these failed to preventthe credit cards being usedcontrary to US regulations.In total, 1,818 transactionstotaling $583,649.43 forover 100 distinct corporatecustomers were processedin or involving Cuba.At thetime, the processing of suchtransactions by ‘any corpo-ration, partnership, associ-ation, or other organization,wherever organized ordoing business, that isowned or controlled by’ aUS person was prohibitedby the CACR. In January2015, OFAC revised theCACR to allow US financial

institutions to processtransactions involving Cubaand for the cards to be usedfor certain travel to Cuba byUS nationals and third-country nationals.AMEXhas agreed to pay $204,277to settle potential civil lia-bility. The total base penaltywas $291,825. Mitigating

AMEX reaches settlement with OFACover credit card use in Cuba

factors were that AMEXvoluntarily self-disclosedthe apparent violations toOFAC; it took ‘swift and re-medial action’ and it has notreceived a penalty notice inthe five years leading up tothe first transactions.In aclient briefing on the action,law firm Hunton &Williams warned:‘OFACwill continue to bring ac-tions against US personswho apparently violated theCuban Assets Control Reg-ulations, even if such ac-tions have subsequentlybecome generally licensedor otherwise permissible.’

OFAC’s enforcement notice can be found at:

https://www.treasury.gov/resource-center/sanctions/CivPen/Docu-ments/20171117_BCCC.pdf


Out in late December, Dual-Use Export Controls inInternational Transit andTranshipment is the newbook from the publishers ofWorldECR.

This book updates a reportWorldECR originally publishedin 2012 on the transit andtranshipment regimes ofcountries in the Americas,Europe, the Middle East andAsia. At the suggestion of someof our readers, we are re-publishing in hard copy, andexpanding its coverage toinclude a much larger numberof jurisdictions.

Writing in the Foreword,WorldECR editor, Tom Blass,notes notes the importance of asolid understanding of the oftendifferent regulations as theypertain to the types of carriage:‘“Transit” and “transhipment”are frequently used in closeproximity to each other, butthey shouldn’t be usedinterchangeably. Goods are intransit when they cross landborders but without being moved from their originalconveyance. They are transhipped when they’re movedfrom one form of conveyance to another: a pallet of widgetsoriginating in France is in transit as it travels throughBelgium on the back of a truck, but is transhipped on beingunloaded from the truck in Hamburg and placed aboard aship bound for the United States. Modern freight journeysare complex. Each point in the journey potentially hasimplications for a cargo’s licensing, customs inspection,and ultimately the success of the transaction.’

In keeping with the remit of WorldECR, the emphasis ofthe book is on transit and transhipment laws as they applyto dual-use goods. But clear demarcations are notrecognised in all regimes.

Each chapter is written by an expert in export controlsin his/her jurisdiction. Chapter authors detail the exportcontrol regime/framework in their country, explaining howtransit and transhipment are locally defined and controlledand how controlling regulations are enforced. Usefulinformation on competent authorities, procedures, andpenalties for breach is included in most country chaptersalong with contact details for licensing authorities.Information on Free Trade Zones and Special EconomicZones is included for some countries.

ContentThe chapters and contributing authors are:

l The Americas: Argentina by L. Augusto Vechio;

Brazil by Alessandra Machadoand Marcelle Silbiger; Canadaby Wendy Wagner; Chile byGaston Medina; Colombia byCésar Camilo Cermeño; Mexicoby Horacio A. López-Portillo;Peru by Julio Guadalupe; USAby Tamer Soliman, Jing Zhangand Bernd Janzen

l Europe and the EU:Albania by Besnik Duraj andBojana Hajdini; Belgium byFabienne Vermeeren andCharlotte Van Haute; Cyprusby Elena Christodoulou;Denmark by Anders Hedetoftand Anna Martine Stubben;France by Diederik Cops andNils Duquet; Germany by Dr.Bärbel Sachs; Greece byMichalis Kosmopoulos andMariliza Kyparissi; Italy bySilvia Salmaso; Netherlands byJikke Biermasz and PetraChao; Norway by HugoMunthe-Kaas and PernilleEngstrøm Skaug; Poland byKrzysztof Korwin-Kossakowskiand Kuba Ruiz; Portugal by

Tiago Marreiros Moreira and Catarina Belim;Romania by Adrian Roseti and Claudia Hutina; Spainby Diego Pol and Valeria Enrich; Sweden by MattiasHedwall; Switzerland by Peter Henschel and Prof. Dr.Andreas Furrer; Ukraine by Gleb Bialyi and OleksandrMaydanyk; United Kingdom by Rhys Williams

l Asia and the Middle East: Australia by DavidHoward and Alexandra Shearer; China by Bo Xie;Egypt by Yulia V. Akinfiev; Hong Kong by George Tanand Cecil Leong; India by Sanjay Notani and RohitJain; Iran by Ali Pirmoradi and Zahra Darvish; Israelby Gil Rosen; Japan by Tamotsu Aoi; Malaysia byCynthia Lian; Singapore by George Tan; South Koreaby Jaewon Lee; Turkey by S. Mustafa Durakoğlu;United Arab Emirates by Ryan Cathie

New: Dual-Use Export Controls inInternational Transit and Transhipment

How to orderDual-Use Export Export Controls in International Transit

and Transhipment will be available from late December2017 directly from WorldECR. Copies cost £85 (pluspostage and packing). For further information and toorder your copy, please email [email protected] withyour order requirements. Discounts for bulk orders areavailable (email for details).




Tank TalkNews and research from the export control,

non-proliferation and policy world

www.ecfr.eu/article/commentary_the_zarrab_affair

A report published by ProjectAlpha of Kings CollegeLondon (authored by DrJonathan Brewer) analyses60 WMD proliferationfinance case studies relatingto North Korea, Iran, Syriaand India, with a view tohelping identify financing of

proliferation (‘FoP’) typo -logies.

The report notes that‘Disrupting the financing ofproliferation (FoP) ispotentially a key tool tocombat state sponsoredWMD programs. However,detecting FoP is difficult.

Project Alpha: WMD proliferation and illicit finance

Writing in Survival: GlobalPolitics and Strategy(published by the Instituteof International StrategicStudies – ‘IISS’), Richard G.Whitman argues that itcannot be assumed that theUK and EU shared foreignpolicy interests will be savedfrom the broader disruptionof BREXIT.

Whitman points to the 13October joint response toPresident Trump’s refusal torecertify the JCPOA by EUleaders May, Merkel andMacron as ‘a timelyreminder of the sharedsecurity interests of the EU’smember states and the UK,’but warns that in the eventof a ‘hard’ BREXIT, ‘Inforeign policy, the UK wouldleave the formal structuresof policymaking and losedirect access to information-sharing between EUmember states. With noformal structures of foreign-policy consultation with the

EU in place, the UK wouldfall back on informalinformation-gathering inBrussels and seekinginfluence via member-statecapitals, which would likelyrequire a greater investmentof UK time and personnel.’

He adds: ‘The use ofsanctions as a foreign-policyinstrument, to the extentthat they are currentlyconducted through the EU,would face legal andoperational challenges. TheUK has been a leading playerin defining and promotingthe development of the EU’ssanctions regimes. UKinfluence was significant inthe sanctions imposed onIran to counter its nuclearprogramme, and those inresponse to Russia’s annex -ation of Crimea and thedestabilisation of Ukraine. Aloss of access to UK expertiseon sanctions regimes wouldimpinge significantly on theEU’s policymaking.’

The majority of governmentsand financial institutions areunclear about what FoPlooks like and how to identifyit. The tool is rarelyexploited. The mostcomprehensive study of FoPto date was published by theFinancial Action Task Force(FATF) in 2008. Thisincludes a list of 20“indicators of possibleproliferation financing,”including for exampletransactions connected withdesignated individuals orentities or with countries ofproliferation concern. Sincethen, more information hasbecome available,particularly related to the

proliferation programs ofDPRK and Iran, as well asother countries.’

He concludes: ‘Many ofthe cases described heredemonstrate that FoPnetworks can be persistent,resilient and adaptable topressures imposed bysanctions and other controls.Identifying and disruptingFoP is potentially a key toolto combat WMD, but is mostlikely to be successful whengovernments and privatesector cooperate andcoordinate in sharinginformation. By illustratingwhat FoP currently looks likethis report actively facilitatesthis goal.’

http://www.iiss.org/en/publications/survival/sections/2017-579b/sur-

vival--global-politics-and-strategy-december-2017-january-2018-a19c/59-

6-04-whitman-cm-fcb2

https://projectalpha.eu/wp-content/uploads/sites/21/2017/10/FoP-13-

October-2017-Final.pdf

Institute of International Strategic Studies: HardBREXIT would hit UK foreign policy hard

In a piece for the EuropeanCouncil on ForeignRelations, ECFR fellow AsliAydıntaşbaş says that theongoing saga around goldtrader Reza Zarrab hasprofound implications notonly for Turkey’s domesticpolitics, but regional politicsalso.

Zarrab was arrested byUS government agents in2016 in Florida and chargedwith sanctions breaches.Having cut a plea deal withprosecutors, Zarrab is now awitness, testifying in a NewYork courtroom in a USinvestigation into Iraniansanctions busting by Turkishbanks. On 1 December, hetold the court that TurkishPresident Recep TayyipErdogan had personallyintervened to help launderthe proceeds of Iranian oiland gas sales which were inbreach of US and UNsanctions.

Asli Aydıntaşbaş writes:‘Ankara’s fear is that adamning verdict will resultin the US Treasury slappingHalkbank and several otherTurkish banks with hefty

fines, rumored to be in thebillions of dollars, triggeringan earthquake in Turkey’sfragile financial markets...

‘It was possibly a bigmistake for Erdogan and theTurkish government todefend Zarrab so publicly.Instead of burying the 2013investigation entirely,Ankara should at least haveallowed a trial on corruptionallegations. After all, Turkeycould have done what Irandid – find a scapegoat, startdomestic proceedings aboutcorruption, and wash itshands of the scheme.

‘But it’s too late for thatnow. All that Ankara can do– and is doing – is try todelegitimize the case, atleast in the eyes of theTurkish public, as a foreignplot against Erdogan...

‘Internally, the Turkishgovernment is deliberatingwhat to do – whether toquietly accept the verdictwhile continuing the US-bashing for domesticaudience, or defy the courtdecision and refuse to paythe penalties levied againstTurkish banks.’

ECFR: Istanbul intrigue


Bulletins Bulletins

It is legal under Canadian law forCanadian persons, including Canadiancorporations, branches of UScompanies and subsidiaries of UScompanies to do business with Cuba.Canadian persons and Canadiansoutside Canada may sell goods andservices to Cuba, with the exception ofgoods covered by Canada’s exportcontrol and economic sanctions laws.For example, there are restrictionsunder Canadian laws relating to thesale of US-origin goods to Cuba.Because it is legal under Canadian lawto sell goods and services to Cuba andCanada is a sovereign country, thesanctions under US anti-Cuba lawspose a dilemma under Canadian law.The interplay between the US anti-Cuba laws and Canadian law creates a‘Catch 22’ situation for certainCanadian organisations.

For example, Canada’s ForeignExtraterritorial Measures Act (‘FEMA’)creates requirements and reportingobligations in the context of certaininternational trading activities. FEMAis also known as Canada’s ‘blocking’legislation as it was enacted in 1985 toblock the extra-territorial applicationof foreign laws to Canadian business.More specifically, FEMA was enactedto block the extra-territorialapplication of United States anti-Cubalaws to Canadian corporations.

Under FEMA, where Canada’sAttorney General is of the opinion thatanother country’s laws or rulings (itsmeasures) may adversely affectCanadian interests in relation tointernational trade or commerce,he/she may issue an order prohibitingany person in Canada from complyingwith those laws or rulings. Only onesuch order has been issued, the orderissued in respect of the United Statesanti-Cuba laws (the ForeignExtraterritorial Measures (UnitedStates) Order, 1992 – the ‘FEMAUnited States Order’).

So, what does this mean forcorporations carrying on business inCanada? The FEMA United StatesOrder:

1. Requires a Canadian corporationand its officers and directors toforthwith give notice to the AttorneyGeneral of Canada of any directive,instruction, intimation of policy orother communication relating to theUnited States anti-Cubaextraterritorial measures (‘Policiesor Directives’) where such Policiesor Directives are received from aperson who is in a position to director influence the policies of theCanadian corporation in Canada;and

2. Prohibits any Canadian corporation,director, officer, manager oremployee in a position of authorityfrom acting or omitting to act for thepurpose of complying with thePolicies or Directives or any of theUS anti-Cuba laws (including theUS Cuban Assets ControlRegulations) to the extent that theyoperate or are likely to operate toprevent, impede or reduce trade orcommerce between Canada andCuba. The action taken or omissionto act is prohibited even ifcompliance is only one of itspurposes.

Many organisations, particularlythose with a US parent, may beunaware of the FEMA United StatesOrder requirements and prohibitions,unwittingly and in good faithimplementing North American, orperhaps global complianceprogrammes that require fullcompliance with all applicable laws,including US export compliance laws.Does this sound familiar?

For organisations with roots orconnections or activities in the US, it isnot unusual to see this type of policy.

Often, contracts with US parties, bethey suppliers, purchasers, jointventure partners or other persons,include similar provisions to protectthe US person from violations of USlaw. While these provisions seem wellintentioned and consistent with acorporate policy to comply with allapplicable laws, the very fact that youhave agreed to ensure that you do notviolate any of the US anti-Cuba laws,may be a notifiable event under theFEMA United States Order.

So, what can you do? There is littleguidance and no case law to providedirection and neither FEMA nor theFEMA United States Order providesfurther clarification as to when anaction/omission taken for bona fidebusiness purposes will constitute aprohibited or notifiable action.However challenging, Canadiancorporations need to find ways tocomply with both sets of requirements.It is important that policies andcontracts make clear that complianceefforts will be undertaken only to theextent permitted under and otherwisein full compliance with all applicableCanadian laws.

Additionally, in-house counselshould:

1. Review corporate policies forviolating directives;

2. Review and revise trainingprogrammes to ensure that thereare no notifiable requirements/directives and the training clearlyidentifies the FEMA obligations;

3. Review standard form contracts toensure compliance with FEMA; and

4. Ensure that your officers, directors,managers and employees in aposition of authority or those whoare in any manner involved in yourexport activities or yourprocurement process are aware ofthe FEMA requirements andprohibitions and know who to call

A ‘Catch 22’ for Canadiancorporations trading with Cuba:FEMA By Heather Innes, Lexsage

www.lexsage.com

CANADA


Bulletins Bulletins

when they have questions orconcerns. Those who may beinvolved in mergers andacquisitions or joint ventures alsoneed to be fully aware of the FEMAobligations.

If you aren’t sure if you arecompliant with the FEMA

requirements, seek the assistance of anexternal trade law specialist. Failure tocomply with FEMA requirements andprohibitions carries penalties rangingfrom:

(a) for individuals:i. on summary conviction, a fine upto Can$15,000 and/or imprison-

ment for up to two years; andii. on conviction on indictment, afine up to Can$150,000 and/orimprisonment up to five years; and(b) for corporations:i. on summary conviction, a fine upto Can$150,000; andii. on conviction on indictment, afine up to Can$1,500,000.

Following on from a meeting of the EUForeign Affairs Council (‘FAC’) on 15November, at which the FACunanimously agreed to imposerestrictive measures on Venezuela, theEU published Council Decision2017/2074 and Council Regulation(EU) 2017/2063 (together, the‘Legislation’) on 16 November. TheLegislation prescribes targetedsanctions against Venezuela, includingan arms embargo, with immediateeffect.

The Legislation has beenformulated in response to thecontinuing crisis in Venezuela and theperceived deterioration of democracy,the rule of law and human rights. Inparticular, the EU has expressedconcern over the opaque and irregularelection by which the ConstituentAssembly was elected, and reportedviolations of human rights andfundamental freedoms. The EUtherefore views the Legislation as ajustified tool to help foster a credible

and peaceful negotiated solution. TheLegislation has two primary aspects:

1. Extensive export restrictionsagainst the Venezuelan regime.These consist of a tripartiteembargo on the following:

n Arms and related material of all

types as well as the financing ofmilitary activities and provision ofrelated services, such as technicalassistance;

n Equipment which might be used

for internal repression as well asfinancial assistance relating tosuch equipment and provision ofrelated services such as technicalassistance;

n Equipment, technology or

software intended primarily foruse in telecommunicationsmonitoring or interception by theVenezuelan regime, as well asfinancial or technical assistance toinstall, operate or update such

equipment, technology orsoftware.

2. A legal framework for designatedparty controls, comprising travelbans and asset freezes, to be appliedto persons who are responsible for(i) serious human rights violations;(ii) the repression of civil societyand democratic opposition inVenezuela; or (ii) actions, policies oractivities that otherwise underminedemocracy or the rule of law.

The Legislation states that a list ofdesignated parties will be establishedand amended by the EU Council actingby unanimity upon a proposal by aMember State or the EU HighRepresentative for Foreign Affairs andSecurity Policy.

The Legislation will remain in forceuntil 14 November 2018, and will bekept under review. The EU reserves theright to renew or amend the Legislationas appropriate if the EU Council deemsthat its objectives have not been met.

EU introduces legislationimposing targeted sanctionsagainst VenezuelaBy Baker McKenzie

www.bakermckenzie.com

EUROPEAN UNION

The WorldECR Archive at

www.worldecr.com includes all past

journal and website news PLUS every

article that has ever appeared in

WorldECR. If you would like to find out

more about Archive Access, contact

Mark Cusick, WorldECR’s publisher at

[email protected]


On 23 November 2017, a Dutch courtfined Dutch transporting company U-Freight Holland B.V. EUR 50,000 fortransiting military items to Russia. Thedirector of the company was alsoprosecuted, but was acquitted as hewas unaware of the transactions.

On 17 March 2017, the Dutchcompany forwarded two defectiveradar systems from the Malaysianmilitary via the Netherlands to Russiafor repair. The freight was stopped atDutch customs because, under thecurrent European sanctions whichcontain an arms embargo, it is

prohibited to transit or export militaryitems to Russia.

The defence put forward severalarguments, mainly relating to theclassification of the goods and the factthat the goods were ultimately nottransited to Russia, as they werestopped prior to the transit. The court,however, rejected these arguments andheld the company liable for violation ofthe embargo. Interestingly, the courtstated that no transit licence wasavailable, whereas under the currentembargo, a general prohibition of theexport or transit of military items to

Russia exists, so no licence can beobtained at all.

In a simultaneous case against themanager of the company, the managerwas acquitted as he was unaware of thetransit and e-mails related thereto hadnot reached him.

This case is one of many such casesin the past year. In fact, three othertransporting companies, includingKLM, have been fined for violation ofsimilar clauses. The Dutch publicprosecutor has become much moreactive in enforcement of exportcontrols and sanctions regulations.

Bulletins Bulletins

Dutch transporting companyfined EUR 50,000 for transitingmilitary items to RussiaBy B&A Law, Amsterdam

www.balaw.nl

THE NETHERLANDS

COMING TO: AMSTERDAM SINGAPORE LONDON WASHINGTON DC OCTOBER 2017 MARCH 2018 MAY 2018 JUNE 2018

“US Export Controls on Non-US Transactions”NEW EAR & ITAR De�nitions and all Reform Changes

EAR / ITAR & OFAC COMPLIANCE FOR NON-US COMPANIES

www.LearnExportCompliance.com

Persons and Items Subject to US Jurisdiction (ITAR, OFAC & EAR)United States De Minimis Content CalculationTrump Administration Regulation and Enforcement PrioritiesTechnical Data ConsiderationsEnforcement Issues, Practical Advice...and MUCH MORE

Visit www.LearnExportCompliance.com/schedule or call +1 540 433 3977 (USA) for details or registration

SPEAKER PANEL

Greg CreeserITC Strategies

Scott GearityBSG Consulting

John BlackBSG Consulting

transferred from a non-US subsidiaryto the end-user in accordance with thelicence.

Access to the products is controlledby storing them in separate ‘caged’areas and only certain trainedpersonnel are allowed access.

As regards technology, technology isgenerally segregated betweencontrolled and uncontrolled. The sitescontrol who has access to theirtechnology. Gaining access to thecontrolled technology requires either alicence or that that person is a nationalof a country that does not require alicence.

If a non-US person is given access tocontrolled technology due to having alicence in place, the person must betrained, follow licence conditions, andthe facility technology control plan.

At Accenture, we control access tosoftware products based on theirexport classification. First, we classifysoftware products by performingrigorous classification assessments tothen have them registered in ourExport Compliance & Tracking Tool(‘ECATT’). In ECATT, we post wherethe software product may beexported/transferred (which includesaccess) FROM and TO as well as anyapplicable export authorisations,exceptions and record-keepingrequirements. Access to softwareproducts may be provided afterchecking they have been pre-cleared inECATT. All employees are responsiblefor confirming trade controls forsoftware products using the tool. If thesoftware product and FROM/TOcountry is not listed or requires anexport authorisation, employees mustrefrain from the activity and consultAccenture’s trade compliance team.

In ECATT, controlled softwareproducts have specific informationrelating to export authorisations,exceptions, record-keeping require -ments, and that they may require tradecompliance plans if involved in highlyregulated industries (e.g., defence,nuclear) or certain countries/regions.In most cases where a tradecompliance plan is needed, a tradecompliance steward is designated tomanage export/trade activities andcompliance with the plan includingapplicable licence and regulatoryrequirements. When a specific exportlicence is obtained, cyclical internalcompliance reviews are conducted to

ensure employees adhere to the planand remain in compliance with exportlicence requirements and conditions.

Good Practice Good Practice


How to control access to USproducts warehoused abroadHere’s the dilemma: You’re working in the compliance function in a multinational company, sowhat kind of strategies/protocols do you need to have in place in order to make sure that theway that foreign subsidiaries use controlled products/technology in a way that is compliant? Forexample, how do you control access to US products warehoused at your subsidiary in China?

Timothy LeeAccenture

Jeff OdenwaldFlowserve

At our company, products are stockedonly in countries that do not require alicence. On rare occasions where we dohave them in a country that requires alicence, the end-user needs to beknown. The only exception to this iswhere a licence for multiple end-usersis obtained so the product can be


Editorial Editorial

One of the questions that I foundmyself asking as I and mycolleagues conducted inter -

views across the ‘three estates’ ofexport controls and sanctions –industry practitioners, lawyers,government people – for the GlobalAgenda Special Report this issue was:What does ‘good compliance’ mean?

It’s not such a ‘how many angels candance on the head of a pin’ kind of aquestion as it seems at first blush.

Clearly, it isn’t as straightforward astrying to make sure you don’t break thelaw. Because the compliance minefieldis now so complex that such a facileinterpretation doesn’t suit it. (And inany case, which law? This is a worldwhere all too frequently, keeping thingsclean with one government meansstirring things up with another.)

So, does it demand that businessesidentify the intention underlying thelaw, and enshrine that as theircompliance principle? Or should theyinterpret any grey zones in thelegislation as a veiled injunction to ‘stay

out of Bad Country X to the extent youcan help it’?

Or do they invest the right resourcesin the right people to help them do as

much business as they can withoutfalling foul of the law?

It doesn’t take much to be non-compliant. Brexit could potentiallycreate thousands of non-compliant UKcompanies overnight if thosebusinesses continue to distribute dual-use products in the EU after the UKleaves (if it ever does).

There’s no right answer. And in theworlds where policy is made, there aremany different agendas. CAATSA,

arguably, is as much about USdomestic politicking as it is aboutfinding effective responses to thethreats posed by the countries ithighlights. And there are fears in somequarters that China’s new exportcontrol reform is as much about givingthe US a taste of its own medicine (itsown deemed export rule, and entitylist, for example) as it is aboutadvancing the global non-proliferationagenda.

We each have our thoughts aboutwhat lies in store for next year, whetherpersonal, professional or political.(Jerusalem, Caracas, Pyongyang,Saana, Brussels – will all be generatingheadlines. Where else?)

For our part, we have only onecompliance obligation to impose. Tryto take a break from it all, and enjoy theholidays.

Thank you all for your support in2017. We wish you all a happy andprosperous new year.

Tom Blass, December [email protected]

Happy (i.e., compliant) new year!

Raphaël BarazzaAvocat à la Cour33 rue Galilée, 75116 Paris, France

Phone + 33 (0) 1 44 43 54 63

www.customs-lawyer.fr

Customs

Transportation

International trade

Tariff classification

Origin and Duty Preference

regimes

Antidumping

Technical compliance

Dual-use items

Encryption

Counterfeit

Excise tax

International sales contracts

Licences

Representation before the

French and European Courts

It doesn’t take much to

be non-compliant.

Brexit could potentially

create thousands of non-

compliant UK

companies overnight.


Enforcement Enforcement

US export controls and economicsanctions enforcement – seven trendsto watch in 2018

If 2017 was a busy – and possibly landmark – year for export control and sanctionsenforcement, 2018 may prove even more remarkable. And so, as the TrumpAdministration consolidates its positions and policies, what trends can tradecompliance professionals expect to characterise 2018? Tim O’Toole looks into hiscrystal ball and offers his predictions.

Trying to predict US exportcontrols and economic sanctionsenforcement trends can be a

slippery business, especially when theleadership at US enforcement agenciesis going through a period of significantchange. Nonetheless, based on what wehave already seen from the newadministration, and what we haveconsistently seen over the past fewyears from the US government’s exportcontrols and economic sanctionsenforcement agencies, the followingseven trends seem likely to dominatethe export controls and sanctionslandscape for the foreseeable future.

Trend One: Iran has been andwill likely remain the USenforcement focus Recent headlines have highlighted thenew administration’s change in policytoward the Iran Nuclear Deal (officiallyknown as the Joint ComprehensivePlan of Action or ‘JCPOA’). From those

headlines, a reader could come awaybelieving that the previousadministration had been ‘soft’ on Iran,but the new one is taking a harder line.This story line is a bit simplistic,however, because although the previous

administration did (along with the restof the world community) enter into theJCPOA, its enforcement of the Iransanctions remained the highest priorityover at least the past five years.

That priority has remained steadyinto the new administration. In March2017, the new Commerce Secretary,

Wilber Ross, personally announced themost significant penalty ever for the re-export of US-origin goods to Iran, $1.2 billion, in a criminal and civilaction brought against Chinesetelecommunications companyZhongxing TelecommunicationsEquipment Corporation (‘ZTE’) and itssubsidiaries.

1The penalty was imposed

after a joint investigation by theCommerce Department’s Bureau ofIndustry and Security (‘BIS’), theTreasury Department’s Office ofForeign Assets Control (‘OFAC’), andthe US Department of Justice (‘DOJ’).

The nature of the underlyingconduct in the ZTE action is significantbecause, while US enforcementagencies had previously imposed suchenormous penalties against foreignfinancial institutions that utilised theUS financial system in the Iran trade,they had never before imposed asimilarly large penalty based on the saleby a foreign company of US-origin

As tension surrounding

the JCPOA continues to

rise, it seems likely that

US regulators will, if

anything, intensify their

focus on Iran.


goods to Iran. The announcementpotentially signalled a new era for USenforcement of the Iran embargo,putting companies around the world onnotice – even after the JCPOA – of theserious risk posed by the resale of US-origin goods to Iran. The ZTEenforcement action also reaffirms along-standing message from BIS,OFAC, and DOJ about the risks ofaffirmatively concealing transactionswith sanctioned jurisdictions from USenforcers. Such concealment, as it hadin connection with previous sanctionsagainst foreign financial institutions,factored heavily into the size and thescope of the ultimate remedy.

The ZTE penalty was one of a host ofrecent enforcement actions taken by USregulators in connection with the USembargo on Iran. Over the Summer andinto the Fall of 2017, US enforcersresolved a series of matters related tothe Iran sanctions, imposing penaltiesagainst US insurer AIG for insuringIran (and other) transactions inviolation of US embargoes, and forfailing to scrutinise its policies to ensurethat they excluded such insurance.OFAC also imposed a significant fineagainst a company that shipped usedcars through Iran on the way toAfghanistan (American Export Lines)

2

and another against a Chinese oil andgas company (China Oilfield ServicesLimited or ‘COSL’)

3that supplied US-

origin goods to Iranian oil fields. OFACalso imposed several other penaltiesagainst US parent companies that hadattempted to allow their subsidiaries toconduct lawful business in Iran, but hadparticipated in that businessnonetheless, through supervising orotherwise facilitating Iran transactions.

Finally, in perhaps the mostsignificant post-ZTE enforcementaction, US regulators imposed a $12 million civil penalty against twoSingapore companies, CSE Global/CSETranstel, which used US dollaraccounts in Singapore to processtransactions arising out of otherwiselawful telecommunications equipmentsales to Iran.

4As we discuss more fully

below, this enforcement action took avery broad jurisdictional theoryapplying US sanctions to Iran-relatedsales that did not involve US-origingoods, were lawful in the country oforigin, and the Iran transactionsthemselves were not processed throughthe US financial system.

Such a jurisdictional theory is evenbroader than the one the US is

pursuing in a criminal prosecution inNew York involving Turkish bankersReza Zarrab and Mehmet Atilla whoallegedly used the US banking systemto process Iranian transactions thatotherwise had no connection to the

United States.5

The trial court hasupheld such a theory. In the eventconvictions are obtained, it is likelythat that ruling will be scrutinised onappeal.

Taken together, these enforcementactions make clear that the Iranianembargo will remain the top priority ofUS enforcers for the foreseeable future.Violations of the US sanctions againstIran remain the source of the mostsignificant fines and many criminalprosecutions. Indeed, as tensionsurrounding the JCPOA continues torise, it seems likely that US regulatorswill, if anything, intensify their focus onIran.

Trend Two: Targetedenforcement actions against agrowing number of industries Another trend to watch is the nature ofthe industries being targeted by USenforcers. For several years, OFAC, BIS,and DOJ have focused largely on theworld financial community and the oiland gas industry. This focus remainedtrue in 2017, when penalties were againimposed against several oil and gascompanies, mostly in connection withdrilling operations in Iran that involvedUS-origin goods, and against financialinstitutions that utilised the USfinancial system to process transactionswith embargoed countries.

But the real enforcement story of2017 was the expansion of significantpenalties into new industries. The ZTEpenalty in March was the most obviousexample of this trend, as it sent apowerful message to the worldwidecommunity that US enforcers stand

ready to impose massive punishmentsfor the re-export of US-origin goods toIran. The ZTE enforcement action is byfar the largest of its kind, and the factthat it was mostly led by BIS and DOJ(not OFAC) suggests that the worldbusiness community now has to worrymore about three powerful USenforcers in this area, not just two.

OFAC’s penalty in June of 2017against AIG was also significant.

6

Though much smaller than the penaltyagainst ZTE (‘only’ $150,000 USD), theOFAC announcement in conjunctionwith the AIG penalty signals that OFACwill be closely monitoring the insurancecommunity’s conduct with respect tocountries subject to US sanctions.OFAC specifically criticised AIG bothfor entering into insurance contractsthat did not exclude sanctionedcountries, and also for what OFACdescribed as ‘defective’ exclusionclauses that did not sufficiently rule outproviding insurance for shipments tosanctioned countries. This detailedlevel of criticism suggests that OFAC isclosely monitoring the insuranceindustry and will likely continue tofocus on that industry more generally.

Trend Three: Ever-expansivetheories of US export controlsand sanctions jurisdictionAnother trend to watch in 2018 is theever-expansive theories of US exportcontrols and sanctions jurisdiction. USenforcers already take a broad view ofwhat conduct can give rise to USjurisdiction, applying US enforcementpowers to all sales or resales of US-origin goods, even when conductedoutside the US by entirely non-USparties. Likewise, the US takes theposition that any involvement of the USfinancial system in a transaction, evenif it involves nothing more than dollarclearing in New York or replacement inthe US of dollars that were, in theaggregate used in Iran transactions,triggers both civil and criminaljurisdiction over the entire transaction– including all foreign parties to thetransaction – in the United States.These expansive theories of jurisdictionhas been subject to criticism outside theUnited States, but two additionalenforcement actions in 2017, suggestthat US regulators’ views of theirextraterritorial powers are growing, notshrinking.

First, in an action involving aTaiwanese company, B WhaleCorporation, OFAC found a violation of

The OFAC

announcement in

conjunction with the

AIG penalty signals that

OFAC will be closely

monitoring the

insurance community’s

conduct with respect to

countries subject to US

sanctions.



US law for a sale of Iranian oil in theMiddle East to a non-US ship owned byB Whale because that ship had becomea ‘US person’ under US law.

7How did

this occur? It occurred because theTaiwanese company was before USbankruptcy courts at the time the saleoccurred, and OFAC took the positionthat as a result, the ship was legally‘within the US’ at the time oftransaction. It remains to be seenwhether this US person theory isunique to the facts of that case orwhether it will be expanded.

Second, as noted briefly in aprevious section, OFAC imposed a $12 million penalty imposed againsttwo Singapore companies, CSE GlobalLimited and CSE TransTel Pte. Ltd., forusing US dollars in connection withsales of non-US telecommunicationsequipment in Iran.

8

From OFAC’s report on theenforcement action, it does not appearthat any US person was involved in thedollar clearing of particular Irantransactions. Singapore banks conductdollar clearing outside the UnitedStates and often have sufficient dollarreserves to do so. However, after dollartransactions have cleared, these banksreplenish their reserves at the end of theday by obtaining more dollars from theUS system. The transactions at issue inCSE appeared to fit this pattern; theywere not cleared in the US, but theSingapore bank did utilise the USfinancial system to replace its dollarreserves (expended by processing anydollar transaction) at the end of the day.Even though no US person could besaid to have ‘serviced’ any particularIran transaction, OFAC took theposition that CSE’s use of dollaraccounts in Singapore banksimproperly ‘caused’ a US person toviolate sanctions by providing afinancial service to Iran. In doing so,OFAC relied on its position that CSE’suse of dollars for these transactionsviolated CSE’s agreements with itsSingapore banks; it also suggests thatthe USD transfers intentionally omittedreferences to Iran. These enforcementactions continue to expand the limits ofUS enforcement jurisdiction. In 2018,expect US authorities to push theselimits even further.

Trend Four: Enforcement of USsanctions against RussiaexpandsIn 2014, the US and the EU imposedeconomic sanctions against Russia

based on its conduct in the Ukraine. Inthe past few months, the US Congresshas codified and potentially expandedthose sanctions. But because thesanctions are so new, we have not hadmany signals about the vigour withwhich US enforcers will enforce them.Over the summer of 2017, OFACimposed its first penalty under thesanctions, providing its first signal thatUS enforcers are going to moveaggressively to enforce US sanctionsagainst Russia. Look for the trend tocontinue in 2018.

Trend Five: Growing USenforcement actions involvingChinaChina will also likely be a growingsubject for US sanctions enforcement in2018. During previous years,enforcement actions involving Chinahave been relatively common with themost focus on the embargo of militarysales to China and unlicensed sales ofUS-origin goods to Chinese entities onthe US Commerce Department’s EntityList. Nonetheless, enforcement of USsanctions and export controls inconnection with shipments to Chinahad not been on the scale ofenforcement actions related to the Iranembargo or even the Syrian or Sudanembargoes.

But two things happened in 2017 tobring China more into play. First, themassive ZTE enforcement action putthe spotlight on re-exports of US origingoods from China to countries subjectto US embargo, in particular Iran.Expect that to continue in 2018, andpotentially grow into a focus on salesfrom China in violation of the Russiansanctions.

Second, in September 2017, the USdramatically expanded sanctionsagainst North Korea by significantlybroadening secondary sanctions.

9

Secondary sanctions target non-USpersons for conduct outside the UnitedStates that is generally outside of theenforcement jurisdiction of USregulators. They are imposed throughan order to the US financial system toavoid doing business with the target. Asthe US Secretary of the Treasury statedin September, foreign companiestargeted by secondary sanctions nowmust choose between access to the USfinancial system and doing business inNorth Korea. Since China, andparticularly the Chinese financialsystem, reportedly has significantconnections to the North Korean

economy, it will be interesting to watchwhether US regulators target theChinese financial community withNorth Korean secondary sanction in2018.

Indeed, already this year, the USTreasury has taken action against atleast one Chinese bank based on itsactivities in North Korea. In June 2017,Treasury's Financial CrimesEnforcement Network (‘FinCen’)proposed to prohibit US financialinstitutions from opening ormaintaining US correspondentaccounts for Bank of Dandong, afterhaving concluded that the Bank wasacting ‘as a conduit for illicit NorthKorean financial activity’ and was a‘foreign financial institution of primarymoney laundering concern’. Morerecently, on 2 November 2017, FinCenpublished a final rule on this samesubject that prohibits US financialinstitutions from opening ormaintaining US correspondentaccounts for Bank of Dandong, and alsorequires US financial institutions to

apply special due diligence measures totheir foreign correspondent accounts toguard against such accounts being usedto process transactions involving Bankof Dandong. According to USregulators, ‘restricting Bank ofDandong from accessing the USfinancial system – directly or indirectly– helps protect the US financial systemfrom the illicit finance risks posed byBank of Dandong and serves as anadditional measure to prevent NorthKorea from accessing the US financialsystem.’

Trend Six: Continued focus onname and address screeningpracticesAnother trend to watch in 2018pertains to US enforcement focus onelectronic name and address screening.Over the past few years, OFAC hasimposed significant penalties against


The massive ZTE

enforcement action put

the spotlight on re-

exports of US origin

goods from China to

countries subject to US

embargo, in particular

Iran.


companies in the financial industry thathave failed (in OFAC’s view) tosufficiently screen transactions toensure that individuals and entities onOFAC’s SDN list are not able to conductany transactions. As a practical matter,however, there are limits to how far thisdenial of access can go. If an SDNenters a fast-food restaurant and paysfor a meal with cash, the fast-foodcompany has theoretically violated USsanctions by making the sale, but suchsmall commercial sales had beenviewed as unlikely targets of enforcers.

Instead, it has been the expectationthat such penalties would be targetedagainst the US financial system, placingthe burden on the banking industry togenerally deny access to persons andcompanies on OFAC’s lists. This reflectsnot only the challenges of policing smalltransactions at the retail level, but alsothe considerable resources thatsystematic screening of suchtransactions requires. An electronicscreening process requires companiesto purchase and monitor softwaredesigned to identify SDNs, and it alsorequires a significant expenditure ofhuman capital since ultimatelycompliance personnel must review any‘hit’ in order to determine whether itconstitutes an actual match to an entityon the SDN list.

A recent OFAC enforcement action– against Richemont, the parent of thejeweller Cartier – suggests that thesecompliance burdens may extend wellbeyond the financial industry. In lateSeptember 2017, OFAC finedRichemont $334,000 for sending fourshipments of jewellery to Shuen WaiHolding Limited in Hong Kong, whichwas on OFAC’s SDN List.

10The

imposition of sanctions for retail salesof this sort could become a new trend,and could force all retailers to beginsome sort of monitoring programmeeven for relatively small retail sales.

Trend Seven: Enforcementdangers posed by US persons,even where the underlyingtransaction appears to have littleto no US connection A final trend to watch in 2018 involvesthe enforcement dangers posed by USpersons in multi-national transactions,even where the underlying transactionappears on the surface to have little orno US connection. This was a lessonlearned most recently in anenforcement action brought against a

US parent, White Birch Paper. On thesurface, the penalised transactionsappeared to involve only White Birch’sCanadian subsidiary, which sent overhalf a million tons of Canadian-originpaper to Sudan pursuant to contactsbetween only the Canadian companyand Sudanese customer. Had that beenthe entirety of the transaction, it wouldhave been completely lawful. However,a penalty against the US parent wasimposed after OFAC determined thatpersonnel from the US parent wereinvolved in ‘discussing, arranging, andexecuting the export transactions toSudan…’ a violation of US sanctionshad occurred.

11There were other

features of the conduct that were in playas well, especially the Canadiansubsidiary’s alteration of financialdocuments to prevent banks fromknowing the intended destination of thepaper.

A similar blurring of the linebetween US parent and foreignsubsidiary also occurred when OFACimposed a $259,200 civil penaltyagainst IPSA International Services,whose Canadian and Dubai subsidiariesobtained due diligence services in Iranbut the US parent ‘facilitated theforeign subsidiaries’ engagement insuch transactions because IPSAreviewed, approved, and initiated theforeign subsidiaries’ payments toproviders of Iranian-origin services.’

12

This trend reinforces the advice thatis often provided to foreignmultinational companies seeking to dolawful business in jurisdictions that areunder US embargo. Such transactionsmay be legal on their face, but extremediligence is needed to ensure that theydo not run afoul of US law by includingUS persons (entities or individuals) orthe US financial system at some pointin the chain. That risk is very hard tomanage, and will likely continue to beso going forward.


Links and notes1 Press Release, Dep’t of Comm., Secretary of

Commerce Wilbur L. Ross, Jr. Announces $1.19

Billion Penalty for Chinese Company’s Export

Violations to Iran and North Korea (7 March 2017):

https://www.commerce.gov/news/press-

releases/2017/03/secretary-commerce-wilbur-l-ross

-jr-announces-119-billion-penalty .

2 Enforcement Action for 17 August 2017: American

Export Lines Settles Potential Civil Liability for

Apparent Violations of the Iranian Transactions and

Sanctions Regulations, OFAC:

https://www.treasury.gov/resource-center/

sanctions/CivPen/Documents/20170817_ael.pdf

3 Enforcement Information for 24 August 2017: COSL

Singapore Ltd Settles Potential Civil Liability for

Apparent Violations of the Iranian Transactions and



sanctions/CivPen/Documents/20170824_cosl.pdf

4 Enforcement Information 27 July 2017: CSE Global

Limited and CSE TransTel Pte. Ltd. Settle Potential

Civil Liability for Apparent Violations of the

International Emergency Economic Powers Act and

the Iranian Transactions and Sanctions Regulations,

OFAC: https://www.treasury.gov/resource-

center/sanctions/CivPen/Documents/20170727_tr

anstel.pdf .

5 Indictment, United States of Am. v. Zarrab, No. 1:15-

cr-00867-RMB (S.D.N.Y. filed 15 December 2015).

6 Enforcement Information for 26 June 2017:

American International Group, Inc. Settles Potential

Liability for Apparent Violations of Multiple Sanctions

Programs, OFAC: https://www.treasury.gov/resource-

center/sanctions/CivPen/Documents/20170626_ai

g.pdf

7 Enforcement Information for 3 February 2017: OFAC

Issues a Finding of Violation to B Whale Corporation,

a Member of the TMT Group of Shipping Companies,

for a Violation of the Iranian Transactions and

Sanctions Regulations:


sanctions/CivPen/Documents/20170203_bwc.pdf

8 Enforcement Information for 27 July 27: CSE Global

Limited and CSE TransTel Pte. Ltd. Settle Potential

Civil Liability for Apparent Violations of the

International Emergency Economic Powers Act and

the Iranian Transactions and Sanctions Regulations,

https://www.treasury.gov/resource-

center/sanctions/CivPen/Documents/20170727_tr

anstel.pdf

9 Press Release, Office of the Press Secretary, Press

Briefing by Treasury Secretary Steven Mnuchin (21

September 2017), https://www.whitehouse.gov/the-

press-office/2017/09/21/press-briefing-treasury-se

cretary-steven-mnuchin.

10 Enforcement Information for 26 September 2017:

Richemont North America, Inc., d.b.a. Cartier

(‘Richemont’), Settles Potential Civil Liability for

Apparent Violations of the Foreign Narcotics Kingpin



center/sanctions/CivPen/Documents/20170926_ri

chemont.pdf.

11 Enforcement Information for 5 October 2017: BD

White Birch Investment LLC (‘White Birch USA’)

Settles Potential Civil Liability for Apparent Violations

of the Sudanese Sanctions Regulations, OFAC:


center/sanctions/CivPen/Documents/20171005_w

hite_birch_investment.pdf.

12 Enforcement Information for 10 August 2017: IPSA

International Services, Inc. Settles Potential Civil

Liability for Apparent Violations of the Iranian

Transactions and Sanctions Regulations, OFAC:


center/sanctions/CivPen/Documents/20170810_ip

sa.pdf

Timothy P. O'Toole is a memberof Miller Chevalier Chartered inWashington, DC. He hassubstantial experience in allareas of white collar practice, hismain focus being on economicsanctions and export controls.

[email protected]


Scandinavia Scandinavia

Export control legislation andenforcement in Scandinavia

The countries in Scandinavia are well known for their business-friendly environment andcooperative supervisory authorities, which have traditionally had a low level of enforcementagainst violations of export control regulation. However, recent trends underline thatcompanies operating in the Nordic region should implement and follow proper procedures tomitigate the risk of non-compliance with relevant national and international export controllegislation. This article provides an overview of the general national regimes and the ongoingtrends in relation to export control in Denmark, Norway and Sweden.

The area of export control has beenone of growing interest inDenmark in recent years, peaking

in 2017. This is mainly due to the factthat several companies operating fromDenmark were publicly exposed ashaving sold mass-surveillance systemsto oppressive governments in theMiddle East, including during the ‘ArabSpring’. This led to extensive media

coverage and intense public debate. Atthe same time, several governmentalinvestigations were initiated, includingan interesting case before the DanishParliamentary Ombudsman concern -ing the right of access to the name ofone of the involved companies.1

Danish journalists also published astory this year2 on branded Westernsoft drinks that were sold from a NorthKorean grocery store which originatedfrom a production facility in Fredericia,a Danish city in the southern part ofJutland. The soft drinks had somehowreached North Korea despite theextensive international sanctionsregime imposed on the country.

In August, Denmark was heavilycriticised by the inter-governmental

body, the Financial Action Task Force(‘FATF’), for the government’sinsufficient efforts in relation to theimplementation and enforcement offinancial sanctions.3

These events have all contributed toenhance the attention paid by politicalparties and private corporationsoperating in Denmark to the exportcontrol supervisory powers andobligations of exporting companies,including authorisation andcompliance procedures under therelevant Danish (and European)legislation.

Danish legislationDenmark has signed and ratified anumber of international codes of

DENMARKby Simon FasterkjærKjeldsen, Assistant Attorney,Kromann Reumert



conduct, conventions and treaties andaccordingly participates in variousinternational forums and coordinatingarrangements with regard to exportcontrol.4

As one of the current 28 MemberStates of the European Union,Denmark is also subject to the relevantEuropean legislation. This, naturally,includes the EU Dual-Use Regulation5

and other EU regulations (includingsanctions) adopted under the CommonForeign and Security Policy of theEuropean Union. These regulationshave direct effect on governmentalauthorities and on private partiesoperating in Denmark and they apply(often with short notice for thesanctions) to any actions within theterritory of the Kingdom of Denmarkand to Danish companies,organisations and individuals in anylocation; and on board aircraft orvessels under Danish jurisdiction.

Certain national acts and specialprovisions have been adopted in orderto apply, administer and enforce theharmonised legal regime. The Danishenabling act6 provides the legal basisfor the Danish government to apply,administer and enforce the commontrade-related regulations of theEuropean Union. In addition, theDanish Export Executive Order7

provides supplementing provisionswith regard to export control of dual-use goods and appoints the DanishBusiness Authority (‘DBA’) as thecompetent national authority foradministering and overseeing the areaof export control in Denmark.

The Danish Criminal Act8 containsadditional criminal provisions onexport control. Intended violation ofEU sanctions are subject to fines andimprisonment of up to four months (orfour years under aggravatingcircumstances), see section 110 c (2)and (3). In cases involving only grossnegligence, the consequences are finesand imprisonment of up to two years.Furthermore, non-compliance with theexport authorisation requirementrelated to dual-use goods andtechnologies may involve criminalliability in the form of a fine orimprisonment of up to two years (orsix years under aggravating circum -stances). Cases involving intentionalassistance relating to funding ofterrorism are covered by specialprovisions in section 114 b of theDanish Criminal Act, which stipulatesimprisonment of up to 10 years.

Dual-use goods/technologiesGenerally, companies exporting fromDenmark and out of the customs zoneof the EU must apply for anauthorisation when exporting dual-usegoods or technologies listed in AnnexesI or IV of the EU Dual-Use Regulation.When exporting within the EuropeanUnion, only the dual-use goods andtechnologies listed in Annex IV requiresuch an authorisation. The exportauthorisations can be obtained fromthe DBA, which aims to respond within14 business days.

Three types of authorisation can beobtained by use of an easily accessibledigital application procedure:9

l Individual authorisation – which

can be obtained for one-off exportsof dual-use goods and technologies,critical exports and by application ofthe catch-all regime;

l EU authorisation – which can be

obtained under an eased regime forexports to specified closely-relatedcountries; Australia, Canada, Japan,New Zealand, Norway, Switzerland(including Liechtenstein) and theUnited States;

l Global authorisation – which can

be obtained for regular less critical

exports of specified products to civilend-users in specified countries.

The DBA receives more than 700enquiries a year related to exportcontrol. However, the authoritymaintains a high response rate, and theTeam for Global Trade & Security isoften able to provide guidance on shortnotice, e.g., about the requiredauthorisation for a specific export.

The high level of pre-applicationguidance and responsiveness from theDBA is also reflected in thecorrespondingly few declinedapplications for individual authoris -ations.

In addition, the general trendindicates an increase in the number ofissued authorisations reflecting theenhanced awareness in recent years(see table below).

Catch-all provisionPursuant to the option stipulated inarticle 4(5) of the Dual-Use Regulation,Denmark has adopted national catch-all provisions. These require that theexporter must apply for an exportauthorisation for a product even if it isnot listed in Annex I to the Dual-UseRegulation, if:

2012 2013 2014 2015 2016

Approved 293 339 468 493 411

Declined 10 11 26 17 12

Total 303 350 494 510 423

Source: The Danish Business Authority, November 2017



l The product, in whole or in part, is

or may be intended for use inconnection with weapons of massdestruction (or missiles capable ofcarrying such weapons), or

l The product, in whole or in part, is

or may be intended for military enduse in countries under aninternational arms embargo.

As a result of an amending act to theenabling act in force from 1 August2003,10 the catch-all provisions apply ifthe exporter is aware of suspiciouscircumstances causing it to suspect thatthe product will be used in relation toweapons of mass destruction, or if ithas reason to believe that the export isrelated to military purposes incountries under an international armsembargo. The DBA has indicated11 thatsuch suspicious circumstances andissues relating to the export can be, forexample, that:

l the customer provides a particularly

favourable contract, or that thecontract contains unusual paymentterms.

l the customer demands special

diversion of delivery routes, or thatrequirements for the order size,packaging, delivery route or place ofdelivery seem unusual.

l the customer requests customis -

ation of the product, which iscontrary to the normal usage,design or industry of the orderedproduct.

l the customer refuses to sign and/or

issue an end-user certificate

Military goods/weaponsConventional military goods, e.g.,weapons, ammunition, warfareequipment, military simulation,explosives and software/technologyrelated thereto, do not fall under theDanish dual-use regime and thereforedo not fall under the supervisorypowers of the DBA.

Instead, section 6 of the DanishWeapons Act12 entails a requirementfor the exporter to obtain a licence fromthe Ministry of Justice ahead of anexport for the products listed on theCommon Military List of the EuropeanUnion.13

However, the provision covers moreproducts than are listed on theCommon List; hence, hunting weaponsand ammunition for hunting purposesare also subject to an export licence.

Sanctions/embargoesThrough membership of the UnitedNations and the European Union,Denmark has entered into aninternational commitment to complywith the sanctions and embargoesadopted by these internationalcommunities. Denmark meets thesecommitments without imposingunilateral or additional sanctions.Accordingly, relevant nationalmeasures are being adopted to ensurethat UN and EU sanctions andembargoes can be enforced. TheDanish Ministry of Foreign Affairsmaintains a website14 of the UN and EUsanctions that Danish companies andindividuals are currently required tocomply with.

As a special curiosity, it can howeverbe observed, that Denmark unilaterallyhas adopted a special national regimeimposing a travel ban on (currently) 11named religious preachers who areviewed by the authorities as ‘hatepreachers’.15 These persons arerestricted from entering Denmark.

Enforcement The enforcement of export controls inDenmark is relatively mild both interms of the level of fines in the eventof unintended non-compliance and interms of the dedicated resources andpriority agenda of the relevantauthorities.

The DBA has a clear objective toprovide guidance in order to preventviolations. Accordingly, the DBA willtypically sanction misunderstandingsand/or minor (procedural) mistakeswith an administrative warning(subject to disclosure and mitigating

acts to prevent recurrence). Violationsof a more serious nature will, however,be reported to the State Prosecutor forSerious Economic and InternationalCrime (‘SØIK’), which will pursueimposition of a fine, and imprisonmentunder very aggravating circumstances.

SØIK has various investigative toolsthat are not available to the DBA; e.g.,surveillance, interception ofcommunication, seizure of evidence,and so on. SØIK also has the legalpowers to conduct searches of privatepremises following a court decision.The DBA does not have such an optionbut does contingently conduct pre-announced site visits to all knownproducers and exporters of dual-use

Denmark: authorities and

their competencies

Danish Business Authority DBA is the

competent national export control

authority and administers and provides

information about the rules.

www.eksportkontrol.dk

Ministry of Justice Authority over

weapons and military-related goods.

www.jm.dk

Ministry of Foreign Affairs Responsible

for adoption, coordination and

interpretation of legislation. www.um.dk

The State Prosecutor for Serious

Economic and International Crime

(SØIK) Responsible for the enforcement

of export control violations under Danish

criminal law.

www.anklagemyndigheden.dk

Tax and Customs Authority Border-

related tasks. www.skat.dk

The ‘Oil-for-food’ case The case involved a Danish company that had agreed to sell and export trucks from

Denmark and other places for a value of DKK 125,000,000 (approx. US $20m) to the

authorities in Iraq at a time when the country was subject to the UN embargo named the

‘Oil-for-food’ programme (‘OFF’).

The OFF programme was administered by the United Nations and entailed that funds

from the sale of oil from Iraq could only be used for the purchase of food, medicine and

humanitarian necessities.

However, the payment for the trucks derived from a UN-administered account related

to the sale of oil from Iraq. In addition, the truck sales agreement contained a surcharge

of 10% named ‘aftersales services’ that was to be retransferred to the Iraqi authorities

following the payments. This surcharge was deemed by the Danish police to be in

violation of the UN embargo, following an exposure of the company’s involvement and

knowledge in the official report issued in 2005 by the independent investigative

commission, the Independent Inquiry Committee. At this time, the criminal liability was

however time-barred, but the company was deemted to have gained an estimated profit

of DKK 10,000,000 (US $1.6m), and this was forfeited pursuant to the judgment of the

Danish Supreme Court.



goods and technologies in Denmark.Such site visits serve as a goodopportunity to provide counselling andobtain guidance in order to ensurecompliance with the requirements ofthe applicable export controllegislation.

Most cases concerning violations ofexport control rules in Denmark aresettled out of court with a fixed-penaltynotice. With the exception of the ‘Oil-for-Food’ case (see box, previous page),there are, to my knowledge, nopublished cases involving criminalliability for export control violation onthe part of a Danish company orindividual. However, a number ofdecisions on fines, known topractitioners, are indicative of thegeneral level of the potential economicconsequences following the impositionof criminal liability under Danish law.

In accordance with that practice, acompany that fails to obtain therequired export controlauthorisation(s) will generally besubject to a fine most likely in the rangeof DKK 25,000-50,000 (approximatelyUS $4,000-8,000) depending on thedegree of negligence. Failure to complywith sanctions and/or an armsembargo is punished significantly moreheavily and will generally trigger a fineof a substantially higher amountdepending on the circumstances.

Future trendsDanish authorities have traditionallynot enforced export controlsrigorously, and it has been an

(informal) objective of the legal andstructural set-up of the Danishgovernment to assure fulfilment ofinternational obligations without over-complying. Recent trends suggest ashift in this approach is taking place,and this can also be detected in theincreased awareness amongcompliance officers of export controlobligations.

Following the intense mediacoverage as well as the significantpublic debate in 2017 concerningexport control plus the FATF’scriticism of Denmark’s efforts as beinginsufficient, it would be reasonable toexpect that the area of export controlwill receive even greater attentionfrom the Danish authorities in thefuture. Accordingly, more investig -ations are likely to be initiated, andcompanies are more likely to facescrutiny of their export controlcompliance procedures.

Simon Fasterkjær Kjeldsen is anassistant attorney in theCopenhagen office of KromannReumert. He is associated withthe firm’s International Tradepractice group and has extensiveexperience in the area of exportcontrol. He holds a position as anexternal lecturer in EU Law atthe University of Copenhagen.

[email protected]

Links and notes

http://www.ombudsmanden.dk/find/udtalelser/bere

tningssager/alle_bsager/2017-11/ (available in

Danish only)

http://nyheder.tv2.dk/udland/2017-10-29-

sanktioner-har-ikke-den-store-effekt-paa-nordkoreas-

styre-tv-2-fandt-dansk (available in Danish only)

http://www.fatf-gafi.org/countries/d-

i/denmark/documents/mer-denmark-2017.html

Including The Australia Group, Missile Technology

Control Regime, Nuclear Suppliers Group and The

Wassenaar Arrangement

Council Regulation no. 428/2009 and subsequent

amendments

Consolidated Act no. 635 of 9 June 2011 concerning

the use of certain legislative acts of the European

Community about economic connections to third

countries etc.

Executive Order no. 475 of 14 June 2005 on control

of exports of goods and technology with double

usage (‘dual-use’) and control of technical assistance

Consolidated Act no. 977 of 9 August 2017

https://indberet.virk.dk/myndigheder/stat/ERST/An

soegningsskema_til_ansoegning_om_tilladelse_til_u

dfoerelse_af_produkter_og_teknologi_med_dobbelt_

anvendelse

Act No. 407 of 28 May 2003 concerning the

amendment of the Act on the use of certain

legislative acts of the European Community about

economic connections to third countries etc.

cf. the prepatory works to the Act No. 407 of 28 May

2003 concerning the amendment of the Act on the

use of certain legislative acts of the European

Community about economic connections to third

countries etc.

Consolidated Act no. 1005 of 22 October 2012

Notice on equipment covered by Council Common

Position 2008/944/CFSP defining common rules

governing the control of exports of military

technology and equipment, 2015 O.J. C 129/1

http://um.dk/da/Udenrigspolitik/folkeretten/sanktio

ner/gaeldende-sanktioner/

A list of restricted ‘hate preachers’ is available here:

https://www.nyidanmark.dk/da-

dk/Ophold/religioese-forkyndere/den_nationale-san

ktionsliste/religiose_forkyndere_med_indrejseforbud

.htm

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

The public focus on Norwegianexport controls has graduallybecome more intense, partly due

to certain mistakes made public inrecent years. For example, in 2011 itwas revealed that the Norwegiangovernment indirectly suppliedMuammar al-Gaddafi’s elite soldierswith military equipment.

Another important episode was thesale of seven decommissioned militaryvessels/combat boats to a former

warlord in Nigeria, which becameknown as the ‘Nigerian Combat Boat’matter. Amongst other examples, theseevents have led to a continuous andsystematic examination of Norwegianexport policies. The tendency for astricter export policy has not only beenapplied to the export of weapons andmilitary equipment, but also to theexport of goods which can be used forboth civil and military purposes (‘dual-use items’).

Norwegian legislationNorwegian export controls areadministered by the NorwegianMinistry of Foreign Affairs (the‘Foreign Ministry’), Section for ExportControl, on the basis of nationallegislation. The legal basis for exportcontrol is the Norwegian Export

Control Act.16 The provisions in theNorwegian Export Control Act arerelatively general and give the ForeignMinistry responsibility for drawing upregulations and guidelines with moredetailed descriptions for the exportcontrol of defence-related items anddual-use items. The Foreign Ministry isgiven such authority to ensure thatexport controls are implementedeffectively. Furthermore, the ForeignMinistry may set conditions forgranting licences under theseregulations that are compatible withthe purpose of the Norwegian ExportControl Act.

More detailed provisions laid downby the Foreign Ministry are found inthe Export Control Regulation,17 whichgives a detailed description ofprovisions governing the export control

NORWAYby Hugo Munthe-Kaas, Lawyer, Managing Associate,Thommessen



of defence-related and dual-use items.In addition, detailed provisions

regarding the consideration ofapplications for export licences drawon the Export Control Guidelines of theForeign Ministry.18

The Export Control RegulationPursuant to clause 4 of the ExportControl Regulation, an export licencefrom the Foreign Ministry is requiredfor selected products and relatedtechnology. The products andtechnology which are subject tolicensing requirement are specified inList I (defence-related products) andList II (dual-use items), whichconstitute Appendix I and Appendix IIto the Export Control Regulation. (ListII includes civilian products andrelated technology and services notincluded in List I that may also havemilitary uses.) The lists are the result ofnegotiations within the multilateralexport control regimes in whichNorway participates. The lists form anintegral part of the legislation and areupdated regularly.

In addition to the licensingrequirement for defence and dual-useitems, it is specified in clause 5 of theExport Control Regulation that anexport licence from the ForeignMinistry is also required for servicesrelated to the same items. An exportlicence is also required for otherservices that may serve to develop themilitary capability of a country, andthat are provided abroad or in Norwayfor use abroad.

Where there is doubt, the ForeignMinistry will, according to clause 3 ofthe Export Control Regulation, decidewhether or not the products,technology or services are subject tothe licensing requirement. Thelicensing requirement also applies tothe export of products from customswarehouses.

Pursuant to clause 8 of the ExportControl Regulation, some items areexempted from the licensingrequirement. Examples of productsthat are exempted include:

l dual-use items that are returned to

a foreign owner after temporaryimport to Norway for exhibition ordemonstration or repair;

l rescue equipment and oil spill

response equipment exported inconnection with rescue operations;

l products, services and technology

for use on the Norwegiancontinental shelf.

Guidelines for the ExportControl ActThe purpose of the Export ControlGuidelines is to set out the proceduresand criteria used by the Ministry ofForeign Affairs, when dealing with anexport licence application. Pursuant toClause 2.3 of the Guidelines, anapplication shall be rejected, inter alia,if the export of the goods isinconsistent with Norway’sinternational obligations or if theexport would provoke or prolongarmed conflicts or aggravate existingtensions or conflicts in the country offinal destination. An application shallalso be rejected if there is a clear riskthat the intended recipient would usethe military technology or equipmentto be exported aggressively againstanother country or to assert by force aterritorial claim.

When dealing with applications, theForeign Ministry shall take particularaccount of the national security ofNorway, as well as that of friendly andallied countries. In the evaluation, thebehaviour of the buyer country withregard to the international community,should also be taken intoconsideration; in particular, its attitudeto terrorism, the nature of its alliances,and respect for international law. Aspecific assessment shall also be madeto determine whether there is a riskthat the military technology or

equipment will be diverted within thebuyer country or re-exported underundesirable conditions.

The Foreign Ministry shall alsoconsider the compatibility of theexports of the military technology orequipment with the technical andeconomic capacity of the recipientcountry, taking into account thedesirability that states should meettheir legitimate security and defenceneeds with the least diversion ofhuman and economic resources forarmaments.

When considering whether to granta licence, an assessment shall also bemade as to whether there is a risk of thearms or items being used to commit orfacilitate serious acts of gender-basedviolence or serious acts of violenceagainst women and children.

Catch all provisionsEven though an item is not listed in ListI or II, it may be subject to Norwegianexport control. This may be the case ifthe goods fall within the scope of the‘catch-all’ provisions in the ExportControl Regulation. Regardless of thelists, an authorisation is alwaysrequired for the export of goods toareas where there is war or the threatof war. The same applies in cases wherethe exporter knows that the goods willbe used in connection with thedevelopment, production or mainten -ance of nuclear, chemical or biologicalweapons, or missiles capable oflaunching such weapons. In other


words, the ‘catch-all’ provisions focuson the end use/end-users of the goods.If the goods are considered to fallwithin the scope of any ‘catch-all’provision, the Foreign Ministry willorder the exporter to apply for anauthorisation pursuant to the ‘catch-all’provision.

Sanctions/embargoesEconomic sanctions are a foreignpolicy tool that Norway historically hasnot often used unless the restrictivemeasures have been based onresolutions by the UN Security Council.

Norway is not a member of the EUand is therefore not formally obliged tofollow EU sanctions. However, inrecent years there has been adevelopment in this area, and since thebeginning of the 2000s Norway hasincreasingly joined EU sanctions, evenin instances where there has not beenany resolution by the UN SecurityCouncil. Today, adherence to EUsanctions has become the rule ratherthan the exception.

In 2001, Norway adopted newleigslation that gave the Norwegiangovernment authority to implementEU sanctions. Since the act wasintroduced, Norway has adhered to EUsanctions against countries such asMyanmar, Belarus, Iran and Syria, andmore recently those against Russia andUkraine. Following the new act, the

Norwegian government has alsoestablished a system securing rapidand efficient implementation of EUsanctions as soon as they have beendecided upon in the EU.

For Norway, it is not easy to see anyother option than to follow EUsanctions. Without sanctions, Norwaywould serve as a loophole for those whowant to circumvent sanctions and thusundermine the unifying pressure theEU Member States are trying toexercise. However, in the case of Russiathe sanctions have been directedagainst one of Norway’s neighboursand the effect of the sanctions havebecome more noticeable for Norwegianbusinesses, especially within the oiland gas industry. In this new situation,the problematic sides of rapidlyimplementing EU sanctions havebecome more apparent and the saidNorwegian practice has become subjectto criticism.

EnforcementAs mentioned above, one of the morerecent export control cases in Norwayconcerned the sale in 2012 by theNorwegian Armed Forces of a fleet ofits decommissioned, but stillsophisticated, motor torpedo boats to aformer Niger Delta militant leader andwarlord, Government Ekpemupolo,who for years led a devastatinginsurgency against the Nigeriangovernment. Among them were sixfast-speed motor torpedo boats and thewarship KNM Horten (see box, below).When the sale became known to thepublic through news articles some timelater, it lead to a political outcry. Theperson responsible for the sale was (inMay 2017) sentenced to jail for fouryears and eight months. Further, about NOK 1 million (approximately US$120,000) of his funds wereconfiscated by the state, and he wassentenced to pay about NOK 3 millionin damages.

Clause 5 of the Norwegian ExportControl Act contains a penalty

provision concerning violation of theexport control provisions. Unless thematter is subject to more severe penalprovisions, pursuant to provisions inthe Norwegian Criminal Code, anexporter is liable to fines or a term ofimprisonment not exceeding five years,or both, if he export items contrary tothe provisions in the Norwegian ExportControl Act or any regulation issuedpursuant thereto. The NorwegianPolice Security Service is theprosecuting authority in the event ofcontraventions of the export controllegislation.

Pursuant to clause 2 of theNorwegian Export Control Act, everyperson has a duty to provide theForeign Ministry with any assistance orinformation required in order to ensurecompliance with the provisions in theact or any regulation issued pursuantthereto. For this purpose, the ForeignMinistry may conduct inspections andrequire access to recorded accountinginformation, accounting records,business documents and otherdocuments that may be of importance.If an enterprise or person does notcomply with the duty to provideinformation set out in clause 2, theForeign Ministry may order thepayment of a continuous daily fineuntil this duty has been fulfilled. Theamount of the coercive fine to be paidis set taking into account howimportant it is to ensure thecompliance with the order.

Breach of the Norwegian sanctionrules may be punishable by way of finesand/or prison up to three years.

Breach of the exportcontrol/sanction rules by a person whohas acted on behalf of a company mayalso lead to criminal liability for thecompany. The penalty for thecompany, if liable, is a fine and mayapply even if no individual person isidentified and punished for the breach.The company may also, by a courtjudgment, be deprived of the right tocarry on business or may be prohibitedfrom carrying it on in certain forms.

Future trendsThere is broad political consensus thatNorway should have a viable defenceindustry. This is important to maintainjobs, Norway’s defence capability, andan important industrial sector which isdriving technology development, bothin military and civilian sectors.

In 2016, Norway exported arms andmilitary equipment for around NOK

Norway: authorities and

their competencies

Norwegian Ministry of Foreign Affairs

MFA is the national authority in charge

of export control (both defence-related

and dual-use). www.mfa.no

Norwegian Customs In charge of

controlling import and export across

Norwegian borders. www.toll.no/en

Norwegian Police Security Service

Enforcement of the export control rules.

www.pst.no


The ‘Nigerian Combat Boat’ matter A former lieutenant commander in the Armed Forces Logistics Organization was charged

with several cases of gross economic crime in connection with the sale of seven

decommissioned navy vessels/combat boats to a former warlord in Nigeria. He was

found guilty of the charge. The sentence was set at prison for four years and eight

months, which was eight months longer than the prosecution had requested. He was

also sentenced to pay damages to the Armed Forces and the KNM Narvik Foundation for

a total of NOK 3,098,750 (approx. US $380,000) and confiscation of NOK 1,041,381

(approx. US $128.000).


3.6 billion (US $440m). This is anincrease of 10% from 2015. Exports ofarms and munitions accounted foraround NOK 2.9 billion (approx. US $ 355m) of this amount, and otherdefence-related products for NOK 650million (approx. US $80m). Inaddition, there were exports of dual-use items with a total value of aroundNOK 300 million (approx. US $36.7m).

At the same time, it is clear that

armed conflicts and security threats inthe world also create challenges forNorway’s export control regime. Forexample, exports to Kuwait, UnitedArab Emirates (‘UAE’), Qatar, Omanand Saudi Arabia have recently beenunder debate. These countriesconstitute emerging and potentialmarkets for the Norwegian defenceindustry. However, some of thecountries have, inter alia, participatedin the Saudi-led coalition thatintervenes in the armed conflict inYemen on the call from Yemeniauthorities. This has again led to adiscussion of whether Norwegianweapons are being used in that conflictin breach of Norwegian export controllaw.

To sum up, the Norwegian defenceindustry is growing and will most likelycontinue to do so in the coming years.However, the increased political and

public focus on who Norway isproviding weapons to will inevitablyalso lead to more investigations,stricter enforcement and punishment,and an increased focus on the exportcontrol procedures of companies inNorway.

Hugo Munthe-Kaas is a lawyerand Managing Associate at theOslo office of the Norwegian lawfirm Thommessen. He isassociated with the firm´s TradeCompliance practice group andhas extensive experience in thearea of export controls,sanctions, AML and anti-corruption.

[email protected]

Links and notes

Act of 18 December 1987 relating to Control of the

Export of Strategic Goods, Services, Technology, etc.

Regulation dated 19 June 2013 relating to the export

of defence-related products, dual-use items,

technology and services

Guidelines of 28 February 1992 the Ministry of

Foreign Affairs when dealing with applications

concerning the export of defence-related products,

as well as technology and services for military

purposes

16

17

18

With a significant armsindustry dating back to itsCold War neutrality, Sweden

is one of the largest weapons exportersin the world. Its export of weapons hasnot been uncontroversial and theexport of weapons from Sweden hasbeen regulated since the 1930s. Due toits sensitive nature, Swedish armsexports have consistently been subjectto extensive media attention andvarious political initiatives. Following aproposal by the Swedish nationalauthority responsible for grantingexport authorisations (see furtherbelow), 2017 has been a particularlyintense year in this regard.

The increase in Swedish armsexports in general has been anothertopic of great interest for the Swedishmedia. Compared with 2015, Swedisharms exports increased by 45% in 2016,resulting in a total export value ofSwedish arms of SEK 11 billion(roughly USD 1.3 billion). 88% ofSwedish arms export went to countrieswithin the EU and the EEA and tocountries with which Swedencooperates closely, such as Canada, the

United States and Brazil. The value ofarms exports to the Middle East in2016 has been estimated to SEK 160million (around USD 19.3 million),which is a significant decrease whencompared to previous years.

Another topic that has caused somestir in the Swedish press in 2017 wasthe decision by Norway to continuebuying German submarines, ratherthan to renew its submarine fleet withSwedish vessels.

Swedish legislationAs an EU Member State, Sweden issubject to EU law and the wide-ranging

competence of the EU legislator.However, Member States have ingeneral reserved the right todomestically make decisions relating toconventional arms transfer policy andpractice. The EU has therefore onlyplayed a limited part in regulating thetransfer of arms. Accordingly, whileexport control provisions concerningdual-use products have been in place atan EU level since 1995, the EU does notyet play a direct role in managing armstransfers to and from the MemberStates.

Exports of dual-use items fromSweden are regulated by the EU Dual-

SWEDENby Erik Lagerlöf, Adjunct Professor ofLaw, Manager, Vinge



Use Regulation,19 which establishes asystem based on two core principles:the free transfer of goods andtechnologies within the EU, and theprohibition of export of such outsidethe EU without a national licence.There is also a Directive,20 which ismeant to simplify the rules andprocedures applicable to the intra-Community transfer of defence-relatedproducts.21 Moreover, although there isno common regime in the EU for theexport of arms, the EU Code ofConduct for Arms Exports was adoptedin 1998 and provides guidelines forexports and imports of conventionalarms. It also defines mechanisms forinformation exchange, consultationand follow-up procedures. This Code ofConduct was improved by the adoptionof the Common Position 944/2008,22

which has reinforced therecommendations of the Code ofConduct.

At a national level, the EU Dual-UseRegulation is complemented primarilyby the Swedish Dual-Use Act.23 Inaddition to supplementary provisionsto the EU Dual-Use Regulation, theSwedish Dual-Use Act also containsrules generated by the CommonPosition 944/2008.

Alongside its commitments as aMember State of the EU, Sweden hassigned and ratified a number ofinternational treaties and programmeswith nations and internationalorganisations.24 These internationalagreements must be observed by therelevant authority in all cases when itdecides if it should grant exportauthorisation.

Dual-use goods/technologiesIt is for the exporting company toassess whether it is necessary to applyfor an export licence in relation to theexport of a particular product or atransfer of information. The

Inspectorate of Strategic Products25

(‘ISP’) is the body primarilyresponsible for considering an exportapplication and granting the necessaryexport authorisation.

In principle, the transfer of dual-usegoods to other EU Member States doesnot require specific authorisation.However, particularly sensitiveproducts are subject to an exceptionfrom this rule. A list of such products isprovided in Annex IV of the EU Dual-Use Regulation. In contrast to transferswithin the EU, all exports of dual-usegoods leaving EU territory must havethe necessary authorisation. Annex I ofthe EU Dual-Use Regulation listsproducts which are considered to be ofdual-use. According to Article 4(5) ofthe EU Dual-Use Regulation (the so-called ‘catch-all’ provision), MemberStates may add to the EU list of dual-use items. However, Sweden has notyet taken the opportunity to do so.Further, three different types ofauthorisation for such third-countryexports must be considered:

l The individual authorisationapplies to a specific exporter for theexport of a specified product to arecipient in a specified destination.

l The EU (general) authorisationcovers exports to specific thirdcountries which fulfil certainrequirements specified in the EUDual-Use Regulation (currentlyconcerning exports to Australia,Canada, Japan, New Zealand,Norway, Switzerland (includingLichtenstein) and the US). This typeof authorisation does not requirethe exporter to submit anapplication to the ISP, but anotification must be sent to thisauthority when the authorisation isused for the first time.

l The global authorisation may

cover products listed in Annex I ofthe EU Dual-Use Regulation. Thisauthorisation allows unlimitedexport until it expires or is revokedand is valid for export to one orseveral countries, as further statedin the authorisation.

Military goods/weaponsThe Swedish export control process formilitary goods is primarily based on theSwedish Military Equipment Act.26 TheSwedish government’s exportguidelines direct the assessment on acase-by-case basis and include severalconditions that should be met in order

to permit export. The Swedish list ofcontrolled military goods is in generalconsistent with the Common MilitaryList of the EU.27 However, there arethree national amendments to the EUlist concerning (i) nuclear charges andspecial parts to such charges, (ii)fortification facilities and (iii) certainchemical munitions. All exports ofmilitary goods and services are subjectto authorisation by the ISP.

Similar to authorisations of dual-use goods, there are three types ofauthorisation concerning militaryequipment available in Sweden. Acompany intending to export militarygoods within the EEA can apply foreither a general, individual or globalexport authorisation. For export tocountries outside of the EEA, acompany can apply for either anindividual or global exportauthorisation.

Further, within the framework ofEU cooperation, Member Statesexchange information concerningrejections of military equipment exportauthorisations. During 2016, Swedenreceived 350 notifications from otherEU Member States and Norway andsubmitted 21 such notifications toother Member States.28

Exporting to BrazilBrazil was, perhaps quite surprisingly, in

terms of value the number one export

destination for Swedish military goods

during 2016. Goods amounting to a

value of SEK 2,821 million (approx. US

$340 million) were exported to the

South American country, according to

ISP’s (Inspectorate of Strategic

Products) yearly operational report from

2016. This is explained by the initiation

of a delivery of the Swedish fighter

aircraft Saab JAS Gripen.

Sweden: authorities and

their competencies

Inspectorate of Strategic Products

(‘ISP’) ISP is the national authority in

charge of controlling and ensuring

compliance with export control

legislation regarding strategic products

(i.e. dual-use goods and military

equipment). http://isp.se/eng

Swedish Radiation Safety Authority

(‘SSM’) SSM is responsible for the

aforementioned tasks of the ISP with

regards to nuclear materials and

equipment (category 0 in Annex 1 of the

Dual-use Regulation).

www.stralsakerhetsmyndigheten.se/en

Swedish Customs In charge of

controlling import and export across the

Swedish borders. Takes part in

supervision visits with the ISP.

www.tullverket.se/en

Ministry of Foreign Affairs Adopts

legislation.

www.government.se/government-of-

sweden/ministry-for-foreign-affairs/

Swedish Prosecution Authority

Enforces Swedish criminal law.

www.aklagare.se/en



Sanctions/embargoesSweden only adheres to the sanctionsdecided by the EU and the UN’sSecurity Council. No other sanctionshave been imposed by Sweden towardsany other country or individual.Existing sanctions are enforced inaccordance with the Swedish Act onInternational Sanctions.29 Moreover,the government publishes informationconcerning current sanctions on itswebsite.30

EnforcementIt is for the exporting company toensure that it has the requiredauthorisation in relation to exports ofboth dual-use products and militarygoods. As already noted above, the ISPis the supervising authority for exportsof both dual-use and military goods. Itis possible to seek guidance from theISP prior to any export regarding theneed for authorisation and theauthority may also issue a preliminaryruling in this regard in relation to a

potential export. However, it must benoted that a favourable preliminaryruling by the ISP does not constitute aformal authorisation.

Moreover, the ISP has significantpowers in order to perform itssupervisory task. For example, it maydemand extensive information fromany entity that deals with the export ofdual-use goods. The authority is alsoentitled to access facilities (except forresidences) that are used in relation torelevant export activities. The ISP mayalso call upon assistance from othernational authorities, including thepolice, when performing its duties.Concerning military goods, the ISP’ssupervisory tasks cover manufacturersand providers of such equipment, butnot the exporters as such.

If an exporting company or any ofits employees does not comply withapplicable regulations concerningdual-use goods or military items, theyrisk different civil and criminalsanctions. With regard to dual-usegoods, existing sanctions are foundprimarily in the Swedish Dual-Use Act.Sanctions related to exports of militarygoods are chiefly found in the MilitaryEquipment Act, but there are alsosanctions provided for in the SwedishAct on Penalties for Smuggling31 andthe Swedish Penal Code.

The available sanctions related toboth dual-use goods and militaryequipment are mainly criminal innature. Gross negligence or, in somecases, intent is generally required inorder for a sanction to be imposed.However, it should be noted that acompany may also be fined for notensuring that it has sufficientprocedures in place to avoid breachingthe applicable legislation. Themaximum company penalty amountsto SEK 10,000,000 (around US $1.2m). Furthermore, goods mayalso be confiscated and forfeit.

While at least 200 cases havegenerated some form of investigationin Sweden since the 1990s, only a fewof those cases have resulted inprosecution and even fewer have led toconviction. The government hasexplained the low number ofprosecutions and convictions by thetrivial nature of most cases.

Future trendsOn 29 June 2017, the Swedishgovernment announced that it isproposing the adoption of a morecomprehensive control of the export of

armaments. The government proposesthat the standing of democracy in thereceiving state should be a keycondition when considering licenceapplications.

It is also suggested that therequirement that the recipient countryrespects human rights should betightened. Whether the exports woulddiscourage sustainable development inthe recipient country is proposed to beanother factor to consider. In addition,the government has also put forwardproposals on improving transparencyand rules on increased authorisationand control requirements. Further, thegovernment proposes that penaltiesshould replace certain criminalsanctions for less serious violations inorder to achieve a more effectivesystem of sanctions. Criminal sanctionsare planned, however, to be retainedfor more serious offences. Thesuggested amendments are proposedto enter into force on 1 April 2018.

Further, criminal sanctions forviolations of the Military EquipmentAct, such as failure to submit requiredinformation to the competentauthority, are proposed to be replacedby a system of fees, ranging from SEK3,000 (around US $360) to SEK200,000 (around US $24,000). Theseproposals are expected to enter intoforce on 15 April 2018.

Finally, the consequences of Brexitare still not clear. However, in view ofexisting EU law, it must be emphasisedthat any export of dual-use goodsand/or military equipment fromSweden to the UK may well be affectedby the UK’s decision to leave theEuropean Union. For example, it ishighly uncertain to what extent anexporting company will be able tocontinue to rely on the EU Dual-UseRegulation, or any legal act of similarnature, post-Brexit.

Links and notes

Directive 2009/43/EC of the European Parliament

and of the Council of 6 May 2009 simplifying terms

and conditions of transfers of defence-related

products within the Community (OJ L 146 10.6.2009,

p. 1).

Directive 2009/43/EC was amended by the

Commission Directive (EU) 2016/970, which entered

into force on 16 June 2016.

Council Common Position 2008/944/CFSP of 8

December 2008 defining common rules governing

control of exports of military technology and

equipment (OJ L 335, 13.12.2008, p. 99).

The Swedish Act (2000:1064) on control of Dual-Use

Products and Technical Assistance (Sw. Lag

(2000:1064) om kontroll av produkter med dubbla

användningsområden och av tekniskt bistånd).

For example the Treaty on the Non-Proliferation of

Nuclear Weapons, the Biological Weapons

Convention, the Chemical Weapons Convention, the

UN Arms Trade Treaty, the Zangger Committee,

Nuclear Suppliers Group, the Australia Group, Missile

Technology Control Regime and the Wassenaar

Arrangement.

Sw. Inspektionen för Strategiska Produkter.

Sw. Lag (1992:1300) om krigsmateriel.

Common Military List of the European Union adopted

by the Council on 6 March 2017 (2017/C 097/01).

The Swedish rejections notified to other EU Member

States concerned Bahrain, Ecuador, United Arab

Emirates (2 notifications), Jordan (2), China, Kuwait,

Lebanon, Pakistan, Qatar, Saudi Arabia (2), Taiwan

(3) and Turkey (5).

Sw. Lag (1996:95) om vissa internationella

sanktioner.

http://www.government.se/government-

policy/foreign-and-security-policy/international-sancti

ons/.

Sw. Lag (2000:1225) om straff för smuggling.

20

19

21

22

23

24

25

26

27

28

29

30

31

Erik Lagerlöf works at theStockholm office of the Swedishlaw firm Vinge where hepractises EU and internationallaw, including in customs andcross-border trade issues. Erik isalso an Adjunct Professor of lawand currently a visiting Fellow atSt Edmund’s College, CambridgeUniversity.

[email protected]


Council Regulation (EC) No 428/2009 of 5 May

2009 setting up a Community regime for the control

of exports, transfer, brokering and transit of dual-use

items (Recast) (OJ L 134 29.5.2009, p. 1).


Arms Trade Treaty Arms Trade Treaty

The Arms Trade Treaty: is itmaking a difference?

After a seemingly promising start, with wide-scale optimism for its success, is the Arms TradeTreaty struggling to deliver anything more thanlip-service, asks Chris Kessler.

Like the treaties banning anti-personnel land mines and clustermunitions that went before it, the

Arms Trade Treaty (‘ATT’) is a productof vigorous efforts by non-governmental organisations to enact anew universal membership treaty; inthis case to regulate a category ofroutine state decision-making ratherthan to ban a specific category ofconventional weapons.

Like those treaties, the ATT is muchmore than just a contract amongnational governments. Many universaltreaties are negotiated to create andaffirm a new norm for behaviouramong states; the objective is to gainthe widest possible adherence amongstates for specific forms of conduct – todo or not do specific things. The ATT isnot unusual in this respect.

What is unusual is the complexityof the behaviours required toimplement the desired norms.Eliminating anti-personnel landminesor cluster munitions from a militaryarsenal is largely straightforward,though there are some second orderissues in either case.

Fulfilling commitments made in theATT, whether as an arms exporter orarms importer, entails decisions thatoften involve shades of grey and

striking a balance among varied factorswith ambiguous or uncertain facts. Theissue as to how ambiguous oruncertain those facts may be is one ofthe main areas where the NGOadvocates of the treaty and many statesparties disagree.

For the NGO community thatworked long and hard to stimulate andthen guide the negotiations amongstates, the basic objective is simple – toend trade in conventional arms thatcan and often do result in harm to non-combatants, whether by physicalinjury or death, oppression of rightsand liberty, or economic stress throughthe misallocation of resources. Forstates, the arms trade involves mattersof national security, political relationswith other states, and economic issues,from international competitiveness todomestic employment. In other words,how exporting and importing statescontinue to do what the NGOcommunity is seeking to put an end to.

In the nearly three years since theATT entered into force, theinfrastructure needed to guide andmonitor national implementation ofthe treaty has been established.Roughly half of the internationalcommunity of states have becomeparty, including many of the major

arms producers and exporters as wellas many of the states in regions wherewar or civil strife have been worsenedby a ready supply of arms.

Whether the treaty is making adifference or not depends on theexpectations one brings to thatjudgement. Effecting immediatechanges in states’ decision-making is adifferent matter from starting to builda process that over time can facilitateor motivate such changes. The ATT hasnot produced significant changes inthe decisions that most states partiesmake. Whether it is building aninfrastructure and process that willlead to such changes, or is justbecoming a new opportunity for whathas been called ‘diplomatic tourism’, istoo soon to judge.

Setting things upLike many other universal treaties, theATT needs infrastructure to make itwork, none of which existed when itgained the 50 ratifications bringing itinto force. Standards for guidingnational decisions had largely beennegotiated in the treaty itself, butmechanisms for sharing informationthat states could use in decision-making, or about national proceduresor about decisions made – allimportant to show whether states arefulfilling their commitments – werenot.

The treaty calls for a secretariat tocoordinate and facilitate many aspectsof implementation, but the details ofsecretariat activities, staffing, andfunding were, like procedures for



almost everything else, still to beworked out. These tasks fell to aconference of the state parties (‘CSP’ inATT nomenclature). The treatyprovides for annual conferences ofstates parties, so CSP1 was planned forAugust 2015, eight months after entryinto force.

Organising CSP1 required a seriesof preparatory meetings, andleadership. Mexico stepped in toorganise the meetings and the processthat developed the proposals andagenda for the CSP. These meetingswere open not only to states that had

already ratified the treaty, but also tosignatory states still in the process ofratifying, as well as to certaininternational organisations, andcritically, to organisations representingthe NGO community that had fosteredthe treaty, as well as representatives ofthe arms manufacturers.

By all international standards, thisorganisational process was, as thenegotiations process had been,exceptionally open and all-embracing.Proposed rules of procedure andfinancial rules were negotiated, acompetition was held to determinewhich city would host the secretariat,proposals as to the functions andstaffing of the secretariat weredeveloped, as were proposals for theleadership and management committeestructures for the annual CSPs.

These were adopted for the mostpart with minimal discussion at thefirst CSP. Debate on the roles andresponsibilities of the secretariatproved contentious, with size and costissues weighing against transparency(information sharing and analysis).Geneva, Switzerland was chosen tohost the ATT Secretariat in preferenceto Vienna, Austria or Port of Spain,Trinidad and Tobago.

While the treaty itself establishesthe basic content and timingrequirements for national reporting,which is essential to the transparencyobjectives of the treaty, the specifics offormat and content remain, three yearslater, under discussion and

development. In reporting annualtrade activity, one significant issue iswhether to report transfer approvals oractual transfers. This issue becomesimportant as, sometimes, one militarymay seek the same armaments fromseveral producers, each of which gets anational export licence, but ultimatelyconcludes the procurement with onlyone of those producers. And manyprocurements take place over severalyears; or only part of what wasauthorised is actually transferred.

While the number of actualtransfers is the best indicator for

determining what armaments areactually in commerce, authorisationsprovide the clearer picture of the kindsof decisions governments are makingand whether they are rigorouslyapplying ATT evaluation standards.However, what gets reported pursuantto the ATT depends on how eachgovernment maintains its nationalreports (most states that are significantarms producers provide annual reportsto their legislature, normally in thenational language, and sometimesthese reports are public and sometimesnot).

Is the ATT making a difference?The ATT text was opened for signatureon 3 June 2013. Seventy-one statessigned the treaty in the first three days,and a total of 130 states had signed bythe time the treaty entered into force 24December 2014, 90 days after the 50thratification. While slower than eitherthe Landmine or Cluster Munitionstreaties, both the number of signaturesand the speed with which the treatywas brought into force wereexceptional by traditional standards.

Adoption of the ATT was greeted bymany supporters with highexpectations that the internationaltrade in arms would, at least over time,be significantly reduced, and inparticular that arms sales to statesactively engaged in hostilities orhuman rights violations would bestopped by states party to the treaty. Ofcourse, the major Western arms

exporting states that joined (or at leastsigned) the ATT all have nationalpolicies consistent with requirementsof the treaty, and the EU Code ofConduct on Arms Exports served as abasis for the ATT provisions. Butperhaps, it was thought, with the ATTin force, implementation would bemore rigorous.

Three years later it appears that thatis not the case – a prime example beingcontinued UK exports to Saudi Arabia(where the arms are likely to be used inthe ongoing Yemen conflict) and toVenezuela.

The UK played a key role in gettingnegotiations on an ATT started, so‘business as usual’ by the UK providesa particularly stark example for thecivil society community of how thepolicy objectives and constraints forarms manufacturers that are party tothe treaty have remained the same. Alawsuit to overturn the licensingdecision (filed by a British NGO)proved unsuccessful, though it didreveal divided views amonggovernment officials as the licensingdecision was considered.

If the ATT has not led to immediatechanges in the decisions made by majorarms exporters, the hope would be thatat least there was a new willingnessamong states parties to acknowledgeand address the problem of recipientsviolating humanitarian and humanrights principles. An editorial in theATT Monitor, published by the NGO,Reaching Critical Will, on the recentlyconcluded (11-15 September 2017) thirdconference of states parties speakspassionately to that issue:

‘[T]he credibility and life-savingpotential of the Arms Trade Treaty (ATT)is eroding rapidly as a result of theunwillingness of states parties toacknowledge the impact of certain armstransfers. This is a failure of both thosewho are conducting transfers that violatethe Treaty’s provisions, as well as thosewho fail to call them to account. We, andthe majority of civil society groups atCSP3, appealed repeatedly to states to usethis conference as a space to consider theimpact of such transfers in the cities andcountries around the world that are beingdestroyed by bombs and bullets.

These calls were blatantly andunapologetically ignored. Over the courseof the five days, references to the realworld were scarce. We noted in theThursday edition that only Costa Rica

What gets reported pursuant tothe ATT depends on how eachgovernment maintains itsnational reports.



acknowledged the conflict in Yemen; onlyChile said it shares the concerns of civilsociety regarding possible failures toimplement articles 6 and 7 of the Treatyand transfers of weapons to zones ofconflict; and only 12 states called forcessation of arms transfers to onecountry, Venezuela, due to current levelsof state repression and human rightsabuse.1

Naming and shaming has provenan effective tool for NGOs in theirdrive for an ATT (as well in getting thelandmine or cluster munitions bantreaties). But among states, unlessother specific national interests areinvolved, the consequences for otheraspects of the relationship either meanthe discussion is private, or notpursued at all. And for those who livein glass houses, such tactics can beexpected to backfire. Hence theexpectation that states parties mightengage in extensive discussion of sucharms transfers by each other in such apublic forum may not be the bestmetric for whether the ATT is makinga difference.

So how to measure whether the

ATT is making, or will make, adifference in how states engage ininternational arms trade?

Supporters of the treaty hoped thatit would, and many claim that it has,created a new norm for how statestransfer arms. Through this prism,increased transparency will motivatechanged conduct. But the first step isformal acceptance of the new standardsof conduct, including of transparency:public acceptance and commitment tothe new norm. For NGO advocates andpolitical scientists, rapid and

widespread adherence to a new treaty– as here, with 130 states (two-thirds ofthe international community) signingquickly – is seen as a ‘norms cascade’,the rapid creation of a new norm in theinternational community.

Looking, not just at how manystates, but also at which states did ordidn’t join the treaty (or participate inearly negotiations on its creation) helpsanswer that question.

Among major armsproducers/exporters, those states thatmight be characterised as ‘Western’ allparticipated in the negotiations and aresignatories, and with the exception ofthe United States, Israel, and Turkey,are now parties. Of the top 20 exportersof major conventional arms,2 asidentified by SIPRI,3 13 are ATT parties

and seven are not. Among ‘non-Western’ major arms exporters,Ukraine signed the ATT, while Belarus,China, and Russia have remainedaloof. Thus, two of the five largest armsexporters remain entirely outside of theATT, and the largest arms exporter (theUnited States) participates in ATT foraonly as a treaty signatory, not a party(and with little prospect of becoming afull party).

Major arms producers/exporters arenormally defined in terms of the tradein the arms categories specified by theUN Register on Conventional Arms(i.e., main battle tanks, armouredcombat vehicles, large-calibre artillerysystems, combat aircraft, attackhelicopters, warships, and missiles andmissile launchers). Infantry weapons –that is small arms and light weapons(‘SALW’) – are usually consideredseparately, and many of the largestproducers/exporters of SALW are notsubstantial players in the othercategories of weapons. However,SALW are the weapons most used inand facilitative of civil strife, irregularwarfare, and terrorism. Majorproducers/exporters of SALW include(in addition to several of the exportersmentioned above) Belgium, Brazil,Croatia, Czech Republic, Japan,Norway, and Sweden.4 Of these, onlyBrazil is not an ATT party, it is asignatory.

For major arms importers, thepattern is more complicated. Of the 20largest arms importers as identified bySIPRI,5 only three (Australia, South

Asia, with a few exceptions (SouthKorea and Japan are parties;Bangladesh, Cambodia, andThailand have signed) remainsunengaged.

- ITAR Controlled Items- ITAR Controlled Activities- ITAR Licenses- ITAR Agreements- Much more...

Learn WHEN, HOW & WHERE it is convenient for YOU!

Train from your home or o�ce computer...

at YOUR convenience.

Now it is easier than ever to get the best in export compliance training for

your company.

Easy to use e-Seminars include all of the content of our highly praised

live seminars and combine:

* Video instruction* Slides highlighting key concepts

* Searchable, comprehensive e-Manual

U.S. Export Controls & Embargoes EAR, ITAR & OFAC Compliance Training

Visit www.LearnExportCompliance.com/e-Seminarsor call +1 540 433 3977 (USA) for details or registration.

Use Promo Code ECR-10for 10% e-Seminar discount!


Korea, and the UK) are ATT parties. Six(the United Arab Emirates, Turkey,United States, Singapore, Bangladesh,and Israel) are signatories, and theother 11 (India, Saudi Arabia, China,Algeria, Iraq, Pakistan, Vietnam, Egypt,Indonesia, Taiwan, and Venezuela)remain entirely outside the ATT.

Viewed regionally, ATT parties tendto cluster. All of Central Americaexcept Nicaragua, and all of ECOWAS(the Economic Community of WestAfrican States) save Gambia, areparties. Relatedly, ECOWAS adopted atreaty in 2006 to restrict SALW importsinto the region.6 In South America, allbut Bolivia, Ecuador, and Venezuelaare parties or signatories. In Africamost southern African states areparties or signatories, while EastAfrican states, the DR Congo, and thenorthern tier states (except Libya, asignatory) remain aloof. As mentioned,all of Europe except Belarus and Russiaare parties.

Asia, with a few exceptions (SouthKorea and Japan are parties;Bangladesh, Cambodia, and Thailandhave signed) remains unengaged,although China did participate in thenegotiating conferences and has beenan observer at states partiesconferences. In the Middle East,

Bahrain, Israel, and the United ArabEmirates are signatories; otherwise theregion remains aloof. Iran and Syria(along with North Korea) voted againstthe ATT in the UN General Assembly.

Most states that signed but have yetto ratify the ATT are in regionalclusters with states already party –which provides further insight as to thereal dynamic. Whole regions (with theexception of particular expectedpolitical outliers) support the ATT,while other regions (again with a fewoutliers) remain essentiallydisinterested. In essence, armsexporters that hold strongly to thevalues behind international humanrights and humanitarian law areengaged with the ATT, as are importerstates (mostly of SALW) in regionswith communal violence, civil strife,and/or terrorism.

Others remain aloof ordisinterested. Given that only half ofUN member states are parties (andsome signatories are unlikely to ratifyin the foreseeable future), the case fora new global norm of conduct inconventional arms trade can bequestioned, but that may not be thebest way to judge the treaty.

Critics might even question thecommitment among ATT parties whenlooking at whether they have, withinthe first year after joining, submittedthe required initial report describingtheir national system – laws,regulations, procedures, responsibleauthorities – and then submittedannual reports on their arms exportsand imports. Rates of compliance withthese requirements are not strong, 72%of states have provided initial reports;annual reporting is more problematic,with the most recent rate of annualreports being only 41%.7

On the one hand, these compliancerates are neither significantly out ofline with those experienced in the UNRegister of Conventional Weapons orthe Wassenaar Arrangement. Moreimportantly, many of the states thathave not met their reportingrequirements are seeking – through

mechanisms created by the ATT –assistance and guidance in establishingthe national systems needed to meetreporting and export/import controlobligations under the treaty. Seen in

this light, much of the reporting lapseis more about the scope of the taskbefore many ATT parties rather than afailure of commitment.

Prospects for the futureThose states that are majorproducers/exporters of conventionalarms, whether major systems likearmoured combat vehicles or aircraftor SALW, are unlikely to substantiallychange their export decision-makingbecause of the ATT. Their decisions aremade on national policies and nationalinterests, whether that means nationalsecurity, political relationships, oreconomic factors. The role of humanrights and humanitarian law in thatprocess varies with state andindividual decisions. Adherence to theATT reflects national priorities morethan it influences them.

For states that are primarilyimporters of arms, the role of the ATTlooks to be very different. Many ofthese states have had few or noeffective controls, and often not evennotional but unenforced controls. Therequirements of the ATT to implementand enforce such controls, and theassistance available through ATT-related mechanisms, has begun tomake a difference. The future dependson maintaining political focus andpolitical will in these governments.Non-governmental organisations cancontinue to press and provideassistance, but it is governments thatmust play their role.

J Christian Kessler served asnuclear & export control experton the UN Security Council’sPanel of Experts on Iran. He isowner/principal at NorthRavenConsulting LLC

[email protected]

Links and notes1 Allison Pytlak, ‘Sliding into norm erosion,’ ATT

Monitor vol.10 no.6, 18 September 2017.

2 Arms are commonly divided between major arms,

for which there are seven categories used in the UN

Register of Conventional Arms and Wassenaar

Arrangement lists, and small arms and light

weapons (SALW). While most producers/exporters

of major arms are also major producers of SALW,

some of the biggest producers/exporters of SALW

are not significant producers/exporters of major

conventional arms.

3 Twenty largest arms exporters 2012-2016,

Stockholm International Peace Research Institute.

In quantifying its data, ‘SIPRI uses a unique metric,

the trend-indicator value (TIV), to measure the

volume of international transfers of major weapons.

This takes into account any transfers of major arms,

regardless of the price paid or agreed between the

supplier and the recipient.’ It does not include trade

in small arms and light weapons, except for certain

anti-aircraft and anti-tank missiles.

https://www.sipri.org/commentary/blog/2017/stat

e-major-arms-transfers-8-graphics

4 Small Arms Survey,

http://www.smallarmssurvey.org/weapons-and-

markets/transfers/exporters.html

5 Twenty largest arms importers 2012-2016,

Stockholm International Peace Research Institute,

https://www.sipri.org/commentary/blog/2017/stat

e-major-arms-transfers-8-graphics

6 ECOWAS Convention on Small Arms and Light

Weapons, their Ammunition and other related

Materials.

7 ATT monitor 2017, page 13.


Non-governmental organisationscan continue to press and provideassistance, but it is governmentsthat must play their role.

The Global Agenda

WorldECR

The

GlobAl

AGendA

A special report from

“Uncertainty is the only certainty there is, and knowing

how to live with insecurity is the only security.”

John Allen Paulos, American mathematician

Sanctions l Export Control l Compliance

The Global Agenda

2 WorldECR l the Global agenda www.worldecr.com

sanCtions: WhatnExt, noW?If it wasn’t totally clear before, the past few years have demonstrated without doubt thatpoliticians like sanctions and embargoes. And it’s not just traditional regimes imposed on theusual suspects that have captured the headlines. Sanctions are changing and approaches tocompliance with them will have to change as well.

‘From a compliance perspectivegenerally, this has been achallenging year, riven with

uncertainties that promise to continueinto 2018.’

That’s one trade professional’sassessment of 2017 and, WorldECRcan report, it’s a commonly sharedsentiment. As the geopolitical risksbecome more complex, an increasinglydivided world is attempting to address

them – and sanctions are the currentweapon of choice.

The stance of the nation that haslong held primus inter pares status haschanged almost over night and this isproviding the backdrop for a period ofuncertainty in global trade and itsregulation. US president DonaldTrump has shown little regard for thespirit of multilateralism encouraged byhis predecessor, threatening to back

out of the Joint Comprehensive PeaceAgreement (‘JCPOA’), pulling hiscountry out of the Climate ChangeTreaty, recognising Jerusalem as thecapital of Israel, and makingstatements about North Korea thatothers consider incendiary. At thesame time, the imposition of sanctionsagainst Russia for its allegedinterference in the US presidentialelection highlights both the strangely

The Global Agenda

Special focus: U.S.A. 2015 Special focus: U.S.A. 2015


The Global Agenda

surreal nature of current geopolitics,and of the relationship between thebranches of government.

In Europe, the United Kingdom’speeling away from the European Unionraises both fundamental questionsabout the future of the CommonForeign and Security Policy (‘CFSP’)and nuts and bolts ones aboutsanctions regulation and enforcement.Amidst the confusion, the assertion ofglobal influence – economic, cultural,and regulatory, by new players (Chinaespecially) – seems inevitable.

All of which has enhanced theimportance of trade compliance. ‘Can Iexport to or do business with thatcountry? Or with those people?’

Margaret Gatti of the DC office of

law firm Morgan Lewis notes, ‘Irancontinues to be a concern, especiallygiven the current administration’scommentary regarding the JCPOAwhich relaxed some US sanctions onIran effective January 2016. TheRussia/Ukraine situation is alsoevolving. Then there’s Venezuela andthe restrictions recently implementedagainst Venezuelan individuals andentities. The sanctions against NorthKorea are being tightened continuouslyfor obvious reasons. We’ve seenchanges to the Cuba embargo and theremoval of sanctions against Sudan.That’s a lot of activity in a relativelyshort period of time.’

As ever, in the midst of uncertainty,some things are certain, a key one

being that lawmakers make laws.CAATSA (Countering America’sAdversaries Through Sanctions Act,see further below) marries DonaldTrump’s pugnacious stance againstIran with Congress’s concerns aboutRussia and North Korea. In the UnitedKingdom, a new financial sanctions billis on the table. Sanctions measures inWashington and the EU are affectingtransactions with Venezuela, as theyare in Canada, which, like the USbefore it, has introduced ‘Magnitsky’-type sanctions designed to enable theauthorities to target individuals theybelieve guilty of violations of humanrights. Secondary sanctions, sectoralsanctions, proposed embargoes againstcountries which ‘do not respectdemocracy’... 2017 has seen a long listget longer and 2018 will likely see itlonger still.

Against such a swirl, internationalbusinesses need to have their antennaetuned to changes in mood music whichare not always subtle. ‘The sanctionslandscape is changing all the time,’ saysDJ Wolff of Crowell & Moring. ‘In thepast, when I made presentations, Iused to put the dates on the slides.Sometimes now, I think I shouldchange those to actual times of the day– everything is becoming obsolete soquickly.’

What a difference a day makes, goesthe popular song. In economicsanctions, the arrival of PresidentDonald Trump on the world stageproves the rule. As we move toward thenew year, what can we expect of theGlobal Agenda?

Iran matters

Twelve months ago, WorldECR wasreporting that the fate of the JointComprehensive Plan of Action(‘JCPOA), touted then by its supportersas one of the great diplomaticbreakthroughs of the age, was verymuch in the hands of the soon-to-be-next president of the United States.The deal provides for the lifting of allnuclear-related economic and financialsanctions that had been imposed by theUnited Nations (see box, left). For itspart, the US maintains its primarysanctions, but suspends the applicationof secondary sanctions. The deal meantthat for the first time since 2012,transfers of funds to and from Iran andthe European Union, and theestablishment of correspondingbanking relationships, were permitted.

Donald Trump shared with his

The Global Agenda: Impact of the JCPOA

In January 2016, the EU and the US lifted most of their economic and financial sanctions

on Iran, after the International Atomic Energy Agency (‘IAEA’) confirmed that Iran had

taken the required steps to dismantle its nuclear programme under the 2015 Joint

Comprehensive Plan of Action (‘JCPOA’) between the P5+1 (China, France, Russia, the

UK, the US plus Germany and the EU) and Iran. This was widely seen as good news for

exporters looking to open up for trading opportunities.

‘Implementation day has certainly been a milestone for German exporters,’ says

Georg Pietsch, Director General at the Federal Office for Economic Affairs and Export

Control in Germany (‘BAFA’). ‘It has facilitated civil trade and cooperation with Iran,

especially in the gas, petrochemical, banking and insurance sectors that was subject to

economic sanctions before.’

Exporters doing business with Iran still need a robust export compliance management

programme, however. The EU sanctions list still includes entities such as the Islamic

Revolutionary Guard Corps (‘IRGC’) and others linked to the missile and conventional

weapons sector, and there is a complex system of export bans and authorisation

requirements for dual-use items.

Pietsch provides an example: ‘Companies may export nuclear dual-use items for civil

purposes, if the United Nations Working Group and the Procurement Working Group has

given its approval upon consultation by the national licensing authority...Items that are

not covered by the annexes of the Iran embargo regulations or by the EU dual-use

regulation can be subject to control over their concrete end use. Exporters need to make

an individual end-use assessment under the EU’s catch-all clause.’

Regulators have expressed some frustration with the Procurement Channel, operated

through the Procurement Working Group. This aims to ensure that single and dual-use

items with possible nuclear application cannot be diverted to any nuclear programme in

Iran, or stockpiled for future use. As a highly complex mechanism without precedent, its

first year or so of operation has left some open questions. Concerns include the extent to

which commercial confidentiality could be compromised by the disclosure of information,

the possibility of corruption – as the Iranian government has to provide attestation for

end-use undertakings – and the compliance burden on participating states.

Chambers USA Chambers Global Legal 500 Best Lawyers

CROWELL.COM/INTERNATIONAL-TRADE

international trade. let’s talk.

Special focus: U.S.A. 2015 Special focus: U.S.A. 2015


The Global Agenda

fellow Republican candidates a strongdistaste for the deal which providesIran limited sanctions relief in returnfor a nuclear programme which is

transparently for civilian purposesonly.

Under the Iran Nuclear Review Actof 2015, the President of the UnitedStates is required to certify each 90days that Iran is complying with itsobligations under the JCPOA. Byrefusing to do so in October this year,President Trump has neither quashedthe JCPOA nor pulled the United Statesout. Meanwhile the other members ofthe P5+1 have been vocal in saying thatthe deal should continue.

Where does that leave the situationfrom an operational perspective? Baker

McKenzie partner Nicholas Cowardcharacterises the status quo as a‘permanent state of stable uncertainty’,observing, ‘We’re actually in a similar

situation to where we were a year ago.The fact that nothing very significanthas happened since then does create akind of stability. There’s hugeuncertainty, but people navigate asthey can.’ This means, says Coward’scolleague, Stockholm-based MattiasHedwall, that from the EU side at least,‘There’s been a huge amount of activity– especially in low and mid-riskbusiness sectors.’

Undoubtedly, some companies havebeen able to take advantage of therelaxing of sanctions against Iran, andEU stats show a hike in trade: ’The EU

exported over €8,2 billion worth ofgoods to Iran in 2016. EU exports toIran are mainly machinery andtransport equipment (€3,8 billion,46,2%), chemicals (€1,8 billion,22,2%), and manufactured goods(€0,7billion, 8,8%). The EU importedalmost €5,5 billion worth of goodsfrom Iran in 2016.’ (Source: EuropeanUnion.)

But has the recent noise aroundIran – and Donald Trump’s refusal torecertify – had an overly dissuasiveimpact on that growth curve?

Anthony Woolich, a lawyer atLondon’s HFW, says that for manybusinesses, the mood around Iranremains pretty much unaltered fromthe state of affairs beforeImplementation Day, 16 January 2016.‘US enforcement authorities have finednon-US companies so heavily thatmany are still dissuaded from takingpart in deals that would be perfectlycompliant with sanctions regulations.Risk thresholds depend very much ona company’s identity, whether or notit’s publicly listed, its location, etc.’

Woolich’s colleague, Daniel Martinbelieves there remains a misalignmentbetween commercial operations

LEGAL EXPERTS IN TRADE SANCTIONS

For more information please contact:

DANIEL MARTINPartner, LondonT +44 (0)20 7264 8189E [email protected]

ANTHONY WOOLICHPartner, LondonT +44 (0)20 7264 8033E [email protected]

www.hfw.com/trade-sanctions

‘We have a number of clients who arehaving to forego or restructure dealswhich are entirely lawful, purely becauseof the attitude of their financiers, who areconcerned with what’s happening in theUnited States and the fear that the USgovernment will renege on the JCPOA.’

Daniel Martin, hFW


involving Iran and banks involvingIran: ‘‘We have a number of clients whoare having to forego or restructuredeals which are entirely lawful, purelybecause of the attitude of theirfinanciers, who are concerned withwhat’s happening in the United Statesand the fear that the US governmentwill renege on the JCPOA and areimposing additional restrictions oncustomers as a result. We also seeclients adopting a “wait and see"approach to trade with Iran.’

London-based sanctions lawyers atinternational law firm Norton RoseFulbright sense the same hesitancy onthe part of companies with regard toIran. ‘Certainly on the corporate sidewe’ve seen more companies willing towalk away from deals, concluding thatit’s more trouble than it’s worth tocontinue,’ says Jason Hungerford, whohas seen clients proceed with deals,only to ‘pull out of contracts andprepare for arbitration’ as a result ofbank reticence to receive funds orprovide export finance.

And it’s not just on the Europeanshores of the Atlantic that the ripples ofPresident Trump’s actions are beingseen. ‘Yes, there’s been a bit of achilling effect under the TrumpAdministration,’ observes DC-basedSteptoe & Johnson partner Brian Egan.‘We still see companies trying to figureout whether they can proceed underthe terms of General License H, butoften they find that it’s morecomplicated than they thought,because of the remaining connectionwith the insurance system, USsoftware, backroom support, financial

system, etc. Lots of SMEs have said,“This is too much work, money andtime and thus not worthwhile.” Othersare taking a longer view. Some of thoseare in the higher reward sectors, butthere are also companies with a historyof doing business in Iran who want toget back in before their competitorstake the market over.’

Egan’s colleague, Meredith

Rathbone, a US lawyer based in thefirm’s London office, does not lay theblame for the uncertainty solely at thefeet of President Trump. Rathbonenotes that the remaining EU restrictivemeasures – designation of individualsfor human rights abuses – also figurein the analysis: ‘It is a real challenge todo thorough due diligence. Figuring

out ownership structures andbeneficiaries is complicated. That’swhy compliance hurdle for manycompanies is just not worth the cost.’

Steven Brotherton, a partner atSander Travis & Rosenberg (‘STR’) inCalifornia, points out that ‘With allthese things, you have to be able todistinguish between rhetoric andreality,’ and that while the challenges,such as the prevalence of thesanctioned Iranian RevolutionaryGuard Corp (‘IRGC’) in Iranianbusiness, difficulties in interpretingGeneral License H, and the reluctanceof banks to put up trade finance, areever present, they don’t have to beshowstoppers.

Consequently, Brotherton and hiscolleagues are busy with Iran-relatedbusiness. ‘There is a significant medicaldevice market in Iran,’ he says. ‘We

represent some of the largestcompanies in the sector, advising ontheir ability to utilise the generallicences available. Outside of that,we’re advising US-owned foreignentities operating under GeneralLicense H, in establishing compliantmechanisms and structures forengaging with their parent companies[as well as] foreign entities with no US

presence who are entering Iran – forexample, in the automotive sector.They need to know whether and howthey can remove themselves withoutsignificant financial consequences, ifthere’s a snapback for example. Theyalso need to know where the potentialtouchpoints with the United States lie.It might be a financing issue, or relate

to parts and components. Another areato watch out for is technology – such asthe software and updates that now gointo cars and trucks.’

Unchecked, potential violations willlie in wait.

Challenging times

Meanwhile, for those who findthemselves the unwanted subject ofauthorities’ attention and designation,the future, likewise, looks tricky.

Guy Martin, a partner at law firmCarter-Ruck in London, has a trackrecord of making delisting applicationsfor clients designated by the EU, UKand even by US authorities. Indeed,Martin led on the famous Kadi cases,which gave rise to the establishment ofthe Office of the Ombudsperson to theISIL (Da'esh) and Al-Qaida SanctionsCommittee in the UN Security Council,as a means of providing someindependent oversight of SecurityCouncil designations. There continues,says Martin, to be a steady stream ofapplications for annulment ofsanctions – he’s currently working oncases for clients from Ukraine, Egypt,Tunisia, Syria and Saudi Arabia.

Already as things stand, typicallyparties seek relief both in the UK andEU courts. In the Kadi case, the EUregulation in which he was designatedwas issued by the Council of the EUand there was a separate domestic UKregulation by statutory instrument. Itmeant that in the UK High Court, thechallenge had to be by way of judicialreview and in the EU, by bringingproceedings before the General Courtin Luxembourg.

After Brexit, of course, EU sanctions

‘With all these things, you have to be ableto distinguish between rhetoric andreality.’

steven Brotherton, sandler, travis & Rosenberg

‘It is a real challenge to do thorough duediligence. Figuring out ownershipstructures and beneficiaries iscomplicated. That’s why the compliancehurdle for many companies is just notworth the cost.’

Meredith Rathbone, steptoe & Johnson

The Global AgendaThe Global Agenda

When you, your company or

your client face the risk of

targeted sanctions, the

stakes can be high. At such

times, you need counsel that

is independent, discreet and

fearless.

Famously combative Daily Mail

For further information contact

Guy Martin Head of International Law [email protected] +44 20 7353 5005

carter-ruck.com

For the most sensitive disputes


regulations will not be binding on theUK. The recently published Sanctionsand Anti-Money Laundering Bill is anattempt to ensure the regime will be fitfor purpose, and generally aligned withEU regulations. But in some aspects, itgoes further than the EU regulations –possibly too much so, thinks Martin:‘Clause 11 of the Bill allows fordesignation by description. Under EUlaw, a person must be named – in theinterests of certainty. The Billenvisages a three-year review periodfor sanctions, which is very lengthy.But, perhaps most important, this islegislation which includes no right for

an individual who has been sanctionedto be told that they have been or onwhat grounds. And that underminesthe very important jurisprudenceestablished by Kadi.’

OFAC specialist Erich Ferrari ofFerrari & Associates is also no strangerto the vicissitudes of challengingdesignations. Since 2016, Ferrari hasbeen representing Reza Zarrab in anow high-profile trial which may yetprove to be critical to US-Turkishrelations. He also represents clients inlicensing applications. ‘I’ve noticed amore restrictive licensing policy fromOFAC in the past year,’ says Ferrari.‘Things that were once seemingly sureto be granted are now being denied.For example, we were recently denieda licence for a US lawyer to appear asan expert witness in an arbitrationoccurring in Europe in which anIranian entity was a party to thearbitration. In the past, we would havebeen sure it would be granted.’

Interestingly, on the enforcementside, Ferrari says: ‘I think there’s moreinterest from OFAC in going afterfacilitation of sanctions breaches, andnot just the straight breachesthemselves. It’s also apparent that inthe post-JCPOA environment, OFAC iskeen to show that it’s enforcing the lawstrictly [i.e., not letting breaches ofhistorical sanctions “slide” just becauseof the deal].’

Overall, says Ferrari, ‘There aremore designations, but the programmeof dealing with delisting applicationshas slowed down – partly because somany of the key positions needed todeal with them during the interagencyreview process are unfilled.’

Neither in the US nor in Europedoes it seem that the appetite forimposing sanctions (or challengingthem) is at all diminished.

CAATSA among the pigeons

In August, barriers to business withIran, Russia and (though arguably it’sa more academic point) with North

Korea were raised somewhat higherwhen the US president (without thegusto that attends many of his actions)signed into law the CounteringAmerica’s Adversaries ThroughSanctions Act (‘CAATSA’).

Among its various effects, CAATSAimposes additional sanctions inresponse to Iran’s ballistic missileprogramme. It also imposes terrorism-related sanctions respecting theIranian Revolutionary Guard Corp(which it accuses of ‘implementingIran’s international program ofdestabilizing activities, support for actsof international terrorism, and ballistic

missile program’). Ironically, this mayactually help President Rouhani in hisreported efforts to tackle corruption inthe IRGC and trim down its sprawlingrole in the Iranian economy.

But it is perhaps as regards Russiathat CAATSA threatens to mostsignificantly disrupt the flow of dollarsand deals. And it is, in a sense,

something of an oddity, as Debevoise &Plimpton partner Satish Kini notes:‘CAATSA is different to other sanctionslegislation in that it became law notbecause of any particular events inRussia, or directly related Russianevents, but for domestic politicalreasons. Traditionally, when you’retrying to interpret sanctions, you lookto the facts on the ground. In this case,the facts may actually be related to theUS Congress.’

CAATSA commences by stating thatthe President shall impose sanctionsupon any ‘Foreign Person if thePresident determines’ that that personviolates a relevant executive order orundertakes a ‘significant transaction ortransactions’ with persons sanctionedunder US law, or ‘any child, spouse,parent, or sibling’ of such a person.

‘People have a lot of questions,’ saysKini. ‘Partly because its scope is soambiguous in many of its provisions:How do the secondary sanctions apply?How are the relevant sectors defined?What is a “significant transaction”?Yes, there has been some guidancefrom OFAC and the State Department,but not all of it provides a great deal ofclarity.’

One provision which is leading toconsternation – both amongst foreignbusinesses with Russian interests andin Russia – is that relating to the so-called ‘Oligarch List’. Section 2.41 ofCAATSA which directs the TreasurySecretary along with Secretary of Stateand Director of National Intelligence tosubmit in the new year a report on‘senior political figures and oligarchs inthe Russian Federation,’ assessingtheir net worth, ‘closeness to the

Russian regime’, their respectiverelationships to Vladimir Putin ‘orother members of the…ruling elite’,and the known sources of income ofthose individuals and family members.

Kini says that when the firm hosteda seminar in Moscow on CAATSA ingeneral, including the implications ofthis provision, ‘We had to move the

‘[The recently published Sanctions andAnti-Money Laundering Bill] is legislationwhich includes no right for an individualwho has been sanctioned to be told thatthey have been or on what grounds. Andthat undermines the very importantjurisprudence established by Kadi.’

Guy Martin, Carter-Ruck

‘I’ve noticed a more restrictive licensingpolicy from OFAC in the past year. Thingsthat were once seemingly sure to begranted are now being denied.’

Erich Ferrari, Ferrari & associates



venue – the number of peopleinterested – both US business peoplein Russia and Russians – wasextraordinary.’

Ginger Faulk is a DC-locatedpartner at Baker Botts, a firm which,

true to its Texan roots, has a longtradition of representing the energyand related sectors. Many of her clientshave questions about CAATSA: ‘It hasthe potential to have a sudden andsignificant impact. Because it is sotargeted and complex, it’s going tomake it hard for businesses in theenergy, mining, pipeline and othersectors to navigate this web. Of coursethe secondary sanctions themselves arenot new, but what is different is that, inthe CAATSA context, they’re sopotentially broad and amorphous thatcompanies and banks are very nervousabout how it might apply in a widerange of transactions.’

Further, CAATSA puts a subtlewedge between the US and EUapproaches to Russia (originallyengineered for effective alignment).‘CAATSA puts the Russia sanctions onthe statute books (rather than inexecutive orders as previously); thatformalises them and makes them verymuch harder to remove,’ says RogerMatthews of the London office ofDechert. ‘It also upends the alignmentwith the European Union whichreviews the appropriateness ofmaintaining its Russian restrictivemeasures every six months (in contrastto the 12-month review periods itapplies for most sanctions regimes).Clearly in this respect we’re going indifferent directions.’

Matthews, who frequently adviseson sanctions-related issues typicallywith an EU dimension, says thatambiguity is not the sole preserve of USsanctions and similar issues seenthrough both lenses lend furthercomplexity. ‘Banks and others areseeing ongoing ambiguities in the EU’srestrictive measures against Russia(Regulation 833/2014 as amended)

especially around the capital marketsaspects – and these were flagged by theRosneft case.’ And even where the EUand US measures are aligned (forexample on the prohibition on makingloans to certain entities), there are

differences: for example, in the EUversion, payment terms beyond 30days would not constitute a loan – butthey would in the United States.

In August this year, in light of theRosneft decision, the EuropeanCommission released revised guidanceon the Russia sanctions addressing,amongst other questions, when andwhether certain kinds of activityconstitute ‘financial assistance’ for thepurposes of the Regulation, and how todistinguish between prohibited loansand other kinds of (legitimate, non-prohibited) commercial activity.

‘The point is that the capitalmarkets measures and oil restrictionshaven’t been developed through othersanctions regimes,’ says Dechert’sMatthews – the implication being that

there is very much less materialavailable which might guidecompliance with these complex sets ofrules.

But Matthews emphasises that theEU sanctions on Russia only prohibitcertain activities: ‘There are 11 or 12energy companies and banks to whichEU entities are prevented fromproviding loans or share capital. Butthat’s not to say that all business withthem is prohibited. It just needs patientuntangling.’

David Harris, a partner at Norton

Rose Fulbright, points to the practiceon the part of banks to maintain apolicy of prohibiting all transactionswhich may involve Iran, particularlygiven the continuing risk of USsanctions, and as a result willfrequently demand provisions infacility agreements which go beyondthe scope of the sanctions regimes.

Fire and fury

If trade compliance has been losingsleep because of Russia and Iran, theman on the street’s night sweats aremore likely diagnosed as caused byKim Jong-un, strangely coiffuredleader of North Korea, the regimewhose increasingly feverish acts ofpugilistic defiance become ever moreterrifying.

Each new intercontinental ballisticmissile (‘ICBM’) launch and nucleartest demands a response, and bar theuse of force, the imposition of tightersanctions is inevitable – to the pointthat there’s little left to sanction; onlyChina is in a position to apply moremeaningful pressure.

In August, UN Resolution 2371 putthe squeeze on North Korea’s revenue-generating ability by prohibiting jointventures with UN member statecompanies, and prohibiting sales ofseafood, iron ore and iron and lead.The United States has also appliedsecondary sanctions against Chineseand Russian entities. (As at time of

writing, President Trump has urged hiscounterpart in Beijing to cut off thesupply of crude oil to North Korea inretaliation for the launch of theHwasong-15 missile.)

CAATSA also addresses NorthKorea, imposing blocking sanctions onUS and non-US persons that‘knowingly’ engage in certain activities,such as purchasing ‘significant’amounts of copper or other metals;transferring to North Korea‘significant’ amounts of rocket, aviationor jet fuel; and insuring or registering


‘Secondary sanctions themselves are notnew, but what is different is that, in theCAATSA context, they’re so potentiallybroad and amorphous that companiesand banks are very nervous about how itmight apply in a wide range oftransactions.’

Ginger Faulk, Baker Botts

‘[CAATSA] upends the alignment with theEuropean Union which reviews theappropriateness of maintaining itsRussian restrictive measures every sixmonths (in contrast to the 12-monthreview periods it applies for mostsanctions regimes). ’

Roger Matthews, Dechert


The Global Agenda

vessels owned or controlled by thegovernment of North Korea.

It also prohibits some financial,shipping, and labour transactions andimposes mandatory sanctions againstforeign persons who ‘knowingly’employ North Korean labourers.

There are clear risks for somecompanies with a Chinese componentin the supply chain. ‘We’ve seen USCustoms issue requests to companieswith activities in the Chinese provincesbordering North Korea,’ says STR’sSteve Brotherton. ‘They’ve been goingdown the list seeing who’s importingfrom those regions and asking, “Whatis your policy on the use of forcedlabour?” So far, they haven’t beendetaining goods but they are askingquestions.’

Inevitably there’s more to come,thinks Debevoise’s Satish Kini: ‘I thinkwe’ll see Congress pushing for morepressure against Chinese banks in 2018– it won’t be abating soon,’ he says.

Fracas in Caracas

In late August 2017, the US Presidentissued Executive Order 13808‘Imposing Additional Sanctions With

Respect to the Situation in Venezuela,which prohibits US persons fromparticipating in transactions involving:

l new debt with a maturity of greater

than 90 days of state oil company,Petroleos de Venezuela, S.A.(‘PdVSA’);

l new debt with a maturity of greater

than 30 days, or new equity, of thegovernment of Venezuela, otherthan debt of PdVSA covered bysubsection (a)(i) of this section;

l bonds issued by the government of

Venezuela prior to the effective dateof this order; or

l dividend payments or other

distributions of profits to the

government of Venezuela from anyentity owned or controlled, directlyor indirectly, by the government ofVenezuela; and

l ‘The purchase, directly or indirectly,

by a United States person or withinthe United States, of securities fromthe Government of Venezuela.’

On 13 November, the EuropeanUnion announced it was following thelead of the United States in imposingsanctions against Venezuela,expressing its ‘deep regret at thedecision of the Venezuelan authoritiesto continue with the election of aConstituent Assembly, a decision thatdurably worsened the crisis in

‘I think we’ll see Congress pushing formore pressure against Chinese banks in2018 – it won’t be abating soon.’

satish Kini, Debevoise & Plimpton

The way throughToday’s global legal and geopolitical landscape isn’t just a challenge, it’s an opportunity. Dechert’s international trade and EU law team has the reach, resources, technical expertise and commercial awareness to provide clear, practical advice on the full range of international and EU trade and regulatory issues. Against a backdrop of political and regulatory change, including Brexit, we can help

dechert.com D


The Global Agenda

Venezuela and risked underminingother legitimate institutions foreseenby the Constitution, such as theNational Assembly.’

The resulting measures, RegulationNo 2017/2063 and Decision2017/2074 include an arms embargoand prohibition on supply ofequipment that could be used forinternal repression, and financial

sanctions (at this stage comprisingsimply the framework for an asset-freeze list, but this may be expanded intime). In some respects – and certainlyin their intended message – themeasures correspond with the USsanctions, although for now they do notgo as far.

Little surprise that an energy-

focused law firm like Baker Bottsshould also be fielding questions onVenezuela. Washington DC partnerGinger Faulk notes how the Madurogovernment’s attempt to restructureVenezuela’s debt has in effect beenstymied by sanctions which prevent thecountry and PdVSA from refinancingbecause US institutions are now barredfrom acquiring new debt. The cocktail

of sanctions, Venezuela’s track recordof default and current financial andpolitical woes create, she says, ‘a Catch-22’ for creditors of PdVSA: ‘They nowhave to consider whether they shouldaccelerate the process of repayment –or wait to see if they can get paid on theexisting debt. Meanwhile, US personsare prohibited from transacting in new,

long-term debt by the executive order.And, of course, there are more routineissues, such as, what might theconsequence be of a speciallydesignated national being involved in adebt transaction.’

If a handful of sanctioned countriesdominate the compliance agenda,that’s not to say that others don’tgenerate enquiries. Roger Matthewssays he’s been advising banks andcharity sector clients on the ongoingchallenge of ensuring humanitarian aidgets through to Syria, thus ‘…squaringa bank’s legal obligations with theability of NGOs to get money andequipment through to those that needit…’ (highlighting the irony thatsanctions don’t always ameliorate thefortunes they’re intended to help,despite the best of intentions).

Future-proofing compliance

The strategies that corporations, banksand other organisations adopt tomanage the kaleidoscope of diverging,sometimes conflicting, complianceframeworks depend on risk appetite,global footprint, touch points, andindustry sector.

‘A lot of companies are asking

‘The sectoral sanctions defy automationand require real analysis by experiencedpersonnel.’

Jason hungerford, norton Rose Fulbright


The Global Agenda

themselves – and their legal advisers:“What’s the future landscape ofsanctions?”’ says Crowell & Moring’sDJ Wolff. ‘Clearly, policy makers lovesectoral, limited list-based regimesbecause it means they can applyfocused pressure while limitingrepercussions elsewhere. But they’re anenormous pain in the [proverbial] forcompliance professionals.’

Wolff thinks the way that mostsanctions programmes are nowstructured demands close attention tothe underlying facts of a transactionand analysis as to whether it’s ‘caught’rather than just who is involved. ‘Theface of compliance is going to have tochange for a lot of institutions. Theirsystems need to evolve, and the abilityof staff to analyse risk needs toimprove,’ he says. ‘It isn’t just aboutnumbers. Historically, banks, forexample, put an emphasis on thevolume of people in their complianceteams. But there aren’t 1,500 people inthe world who properly understand,say, the Venezuela sanctions. The factthat you get a “true hit” in yourscreening doesn’t necessarily mean youcan’t do the deal. De-risking – simply

not doing business with certain peopleor places – was the natural reaction ifyou don’t have the right people with theright expertise.’

Uncertainty in sanctions regulations– and in their application to complexfinancial arrangements – is a source ofsharply increased workload on in-house legal and compliance teams, says

Jason Hungerford. ‘The sectoralsanctions defy automation and requirereal analysis by experienced personnel.’

Likewise, Harris points out, takinga blanket approach to sanctions incontractual documentation can yield‘absurd results’. We often see sanctionsclauses which are not fit for purpose,for example, it is impractical and overly

prohibitive to say, “You will not dealwith sectoral sanctions targets in anycapacity.”

Coming of age

The holiday season is a time for givingsome thought to what the next yearmay bring. And even from theadmittedly narrow window of

sanctions, there’s a rich and variedagenda in store – geopolitically, butalso as regards some interesting caselaw and the impact of regulation. (NB:the following does not purport to beexhaustive!)

At Baker McKenzie, MattiasHedwall and Nicholas Coward point tothe General Data Protection Regulation

‘There are a lot of watchmen out therenow. Freight-forwarders and brokers arealso making sure they don’t facilitateviolations... so there’s a whole vanguardof checks and double-checks.’

Margaret Gatti, Morgan Lewis

Financial institutions | Energy | Infrastructure, mining and commoditiesTransport | Technology and innovation | Life sciences and healthcare

Heading into unexplored territory? We’re there.International trade and sanctions is a volatile political landscape. With our far-reaching global footprint, and centres of excellence in London and Washington DC, we can help you tackle this challenging

you in investigations and guide you through enforcement proceedings,

and advise you on the impact of sanctions on your transactions.

Law around the world nortonrosefulbright.com


The Global Agenda

(‘GDPR’) as a potential headache forbusinesses with EU operations. TheGDPR marks a huge overhaul in theway that EU law will regulate personaldata. ‘As things stand, it is alreadydifficult in some EU Member States toundertake sanctions screening withoutbeing in breach of domestic dataprotection regulation. In the Nordiccountries, you need special permissionto, say, screen against the OFAC list. Itisn’t quite clear how the GDPR is goingto impact in this area, but it certainlywill,’ says Hedwall.

One lawyer points to the high-profile Zarrab case (upon which, somesay, hinges the future of US-Turkishrelations). The case, which has beenmuch covered in the mainstreampress, involves a colourful castincluding a 30-something gold trader

with a playboy lifestyle (Reza Zarrab),banker Mehmet Hakan Atilla, and noless a personage than the President ofTurkey himself, Recep TayyipErdogan. ‘There are some interestingenforcement theories at play. One thatthe government may likely pursue isthat Zarrab and Attila can becriminally prosecuted for evadingsecondary sanctions. That could havea major bearing on sanctionscompliance.’

Morgan Lewis’s Margaret Gattipredicts ever more sophisticatedscreening by financial institutions andothers – with the private sector alsobecoming more self-policing. ‘Partlyit’s the banks that, acting on behalf oftheir customers, are making orreceiving payments, screening forcountries, parties, SDNs, deemed

SDNs and those on the SSI (sectoralsanctions identification) list as well asdeemed SSIs – the banks are reallysharpening and fine-tuning theirscreening capabilities,’ says Gatti. ‘Wehad a client who recently made a sale,the terms of which were 90 days. Therewas a delay in payment, and thattransformed the account receivableinto a debt that was prohibited underthe Sectoral Sanctions program. Andthat was caught by the bank. There aremany additional watchmen that play arole in ensuring sanctions compliance.Freight-forwarders, brokers andcouriers are also making sure theydon’t facilitate sanction violations andthereby entangle themselves in asanctions violation, so there’s a wholenew vanguard for sanction checks anddouble-checks.’


INSIGHT

Sanctions compliance as a competitive

advantage in 2018 – the challenge and

opportunity of increasing complexity

Today’s complex sanctions require a smarter approach to compliance and that, in itself, can puta company more than a step ahead of its competitors, write DJ Wolff and Michelle Linderman.

In 2018, successful compliance

programmes will be those that see

themselves less as a fixed cost

imposed on the business, and more as a

partner to help drive competitive

opportunity where less developed

programmes cannot. The rapidly changing

nature of economic sanctions has always

challenged compliance professionals, a

challenge compounded in recent years by

the increasing complexity in sanctions

requirements. Those familiar with, and

compliance programmes designed to

handle, ‘old-style’ sanctions –

comprehensive embargoes or full asset-

blocking list-based programmes – are

often ill prepared for the subtle nuanced

determinations required by these newer

programmes. The net result is often a

defensive ‘No’ from compliance. De-

risking is an impulse: avoid risk by going

nowhere near it.

That is one solution, but it is one that

is as blunt an instrument as the sanction

itself. Smart compliance discerns

opportunities others don’t even see. The

‘cost’ of an unsophisticated defensive ‘No’

may have been low in a world in which

most list-based sanctions targets are

commercially irrelevant. That becomes

substantially less true with bigger targets:

can you afford to decline all business with

Russia’s major corporate actors

(Sberbank, Rosneft, Gazprom, etc.),

Petróleos de Venezuela S.A. (PdVSA), or

Citgo?

The challenge is that the justification

to reflexively de-risk increases in a world

of ever-more complex requirements.

Historically, sanctions required most

compliance personnel to conduct a two-

step assessment: (1) Is the transaction

subject to the relevant country’s

jurisdiction? and (2) Is the transaction a

true match to a sanctioned geography/

person? If the answers were ‘Yes’ and

‘Yes’, then the transaction is generally

prohibited (unless a licence applies), a

determination that can be reached

without a close analysis of the underlying

facts.

The rise of ‘limited list-based

sanctions’ programmes has added a third,

more challenging, question. Now, even if

the answer is ‘Yes’ (there is jurisdiction)

and ‘Yes’ (it is a true match), compliance

needs to assess (3) Is the type of activity

undertaken the type of activity targeted by

the relevant restriction? That is not a

question that screening systems can

answer and it is often not one that level-

one compliance personnel are trained to

address.

Unfortunately, they may need to be,

because these more sophisticated limited-

list-based sanctions programmes are

likely here to stay; they solve a problem

which had previously confronted

policymakers. If the only policy tool is a

comprehensive embargo, or a full asset-

blocking programme, there are some

targets you effectively cannot sanction

due to the collateral consequences. What

would have happened to energy markets

in Eastern Europe, or in the United States,

if the United States had designated

Gazprom or PdVSA respectively as SDNs?

But, for the same reason – the size of

these actors – if you exempt them from

sanctions entirely, the target of your

programme has an enormous loophole

through which to operate.

Policymakers have recognised the

benefits. As Assistant Secretary for

Terrorist Financing, Marshall Billingslea

testified to the House Committee on

Financial Services on 30 November 2017,

the United States had ‘found these types

of targeted, sophisticated actions to be

highly effective at imposing specific,

selective consequences on regimes that

pose a threat to national security.’ This is

just as true in Europe, and globally as it is

in the United States. For example, the

Russian sectoral sanctions were modelled

to a substantial degree by the European

Union, Canada, Australia and, to certain

extents, Japan and Switzerland.

Unfortunately, we cannot (yet) rely on

technology to manage these risks.

Technology may one day provide a

solution, but until then the investment in

human talent is a differentiator. Most

screening systems will generate a hit;

clearing that hit requires a trained

reviewer, capable not just of reviewing the

‘who’ or ‘where’ of a transaction, but now

to understand the ‘what’, ‘how’, and ‘why’.

Looking at this landscape, some

compliance professionals in 2018 will

choose to de-risk all sanctions targets.

But, that comes at a higher cost and with

less justification than it has before; the

more limited scope of these sanctions

makes de-risking increasingly overbroad,

while the commercial size of the targets

increases the opportunity cost.

Compliance teams that make the

investment – not just in technology and

headcount, but in training existing

resources and developing efficient

decision-making and escalation processes

– will be able to identify, mitigate, and

manage the risk fast enough to enable

their business to exploit opportunities

others cannot in 2018.

DJ Wolff (London, Washington, DC)

is a counsel and Michelle Linderman

(London) is a partner in Crowell &

Moring LLP’s International Trade

Group.

[email protected]

[email protected]

Links and notes1 https://financialservices.house.gov/uploadedfiles/h

hrg-115-ba19-wstate-mbillingslea-20171130.pdf

Smart compliance

discerns opportunities

others don’t even see.


INSIGHT

Targeted sanctions and the obligation to

self-disclose dealings with potentially

sanctioned individuals: UK, US, Japan

By Guy Martin and Magali Sharma, Carter-Ruck

Targeted sanctions are used by

governments and institutions such as

the UN and EU to influence foreign

policy and discourage criminal activities

such as financing of terrorism. They include

asset freezing and prohibitions on making

available funds or economic resources to

sanctioned individuals and entities. This

article will examine some salient points of

UK sanctions law, and contrast it with the

US and Japan.

UK developments

There have been two major developments

in the UK this year alone. The Policing and

Crime Act came into force in April 2017,

granting the UK Treasury wider powers to

impose penalties for breaches of financial

sanctions. The UK enforces these powers

through the Treasury’s Office of Financial

Sanctions Implementation (‘OFSI’). The Act

extended criminal penalties, and created

monetary ones. This new civil penalty is

easier for companies to fall foul of as there

is a lower burden of proof. Monetary

penalties may go up to £1 million or 50%

of the estimated value of the funds or

resources, whichever is the greater value,

taking into account several factors,

including the frequency and value of the

breach, and the harm or risk of harm to

the sanction regime’s objectives.

A key aspect of OFSI’s approach is to

encourage voluntary disclosure of known

and suspected breaches. OFSI’s Financial

Sanctions Guidance says it will consider

prompt and full disclosure of a breach as a

mitigating factor when determining its

enforcement approach, but still

encourages early disclosure with partial

information on the basis that ‘you are still

working out the facts and will make a

further disclosure shortly’.1

Then, in August 2017, the EU Financial

Sanctions (Amendment of Information

Provisions) Regulations came into force

and extended the reporting requirement

that previously only applied to certain

financial service providers to other

businesses, including auditors, estate

agents, external accountants, tax advisors

and ‘independent legal professionals’.

These organisations must inform OFSI if

they know or have reasonable cause to

suspect that someone is a ‘designated

person’ (i.e., targeted by sanctions) or has

committed an offence under the financial

sanctions regimes as soon as reasonably

practicable. If they fail to inform OFSI, they

commit an offence themselves,

punishable by a fine or a maximum of

three months’ imprisonment.

US and Japan

OFSI’s emphasis on voluntary disclosure

follows the approach adopted by the US

sanctions enforcement regime, enforced

mainly by the Office of Foreign Assets

Control (‘OFAC’). Self-disclosure is also

considered a mitigating factor in US

proceedings, although this is construed

strictly. If a third party is required to and

does notify OFAC of an apparent violation,

disclosure by the subject company of its

violation will not be considered voluntary,

regardless of when OFAC receives such

notice from the third party and regardless

of whether the subject company was

aware of the third party’s disclosure.

Voluntary self-disclosure does not apply

where OFAC would have learned of the

apparent violation in any event.2 As a

result, some companies have not been

able to receive voluntary disclosure credit

after making extensive disclosures which

are more complete than the third party’s

disclosure. In the UK, the Guidance

provides that the mere fact that another

party has disclosed first will not

necessarily lead to the conclusion that

later disclosure has any lesser value.

Multiple agencies in the US exercise

authority to enforce financial sanctions

(DDTC,3 BIS,4 and CES5) and have

overlapping jurisdiction to address

potential violations. Companies need to

make parallel voluntary self-disclosures to

both the applicable regulatory agencies

and CES, increasing the number of cases

reviewed by CES for possible criminal

prosecution and preventing efficient and

effective administration of sanctions.

By contrast to the UK and US, Japan

does not provide a legislative mechanism

enforcing United Nations Security Council

resolutions domestically, and it has its own

sanctions framework for the Democratic

People’s Republic of Korea (‘DPRK’).

Japan does not provide a formal

voluntary disclosure mechanism for the

violation of financial sanctions. However,

some statutes provide credit for self-

reporting to the government. According to

article 6 of the Terrorist Financing

Suppression Act,6 if a person who has

been involved in financing a planned

terrorist activity reports on the activity

before it is executed, the penalty may be

reduced or waived. The court or the

regulatory authority has the discretion to

consider self-disclosure as a mitigating

factor.7

Sanctions violations have led to increas -

ingly large civil and criminal penalties in the

US, UK and Japan, and at the same time

granting wider powers to enforcement

bodies. Clear sanctions and voluntary dis -

closure regimes are essential for companies

to avoid falling foul of these rules.

Guy Martin is a partner and the

head of the International

Department at London law firm,

Carter-Ruck, where Magali Sharma

is a legal assistant.

[email protected]

Links and notes1

2

OFSI’s Guidance on Monetary penalties for breaches

of financial sanctions

Appendix A to Part 501 – Economic Sanctions

Enforcement Guidelines

3 State Department Directorate of Defense Trade

Controls4 Commerce Department Bureau of Industry Security5 Counterintelligence and Export Control Section6 Act on Punishment of the Financing of Criminal

Activities for the Purpose of Intimidation of the General

Public and of Governments, Act No. 67 of 20027 http://thelawreviews.co.uk/edition/the-international-

investigations-review-edition-6/1136375/japan


INSIGHT

Coping with the US secondary sanctions

tsunami

US secondary sanctions seek to target and restrict the activities of non-US persons.Meredith Rathbone and Brian Egan explain how best to deal with them.

US secondary sanctions are designed

to discourage non-US persons from

doing business with a sanctions

‘target’ disfavoured by the US government

for national security or foreign policy

reasons. ‘Targets’ can be specific

individuals, entities, or organisations (for

example, designated narcotics traffickers),

sectors of an economy (for example, the

Russian ‘frontier’ oil exploration and

production sector), or business activity (for

example, trading North Korean coal).

No US nexus – such as a connection to

the US financial system, US economy, or

US person – is required to trigger US

secondary sanctions restrictions. Given

the lack of a US jurisdictional nexus,

secondary sanctions do not ‘prohibit’

conduct by a non-US person or impose

fines or similar penalties on a non-US

person for ‘violations’. Instead, those

engaging in activity that is ‘sanctionable’

are potentially subject to restrictions on

access to the US economy, ranging from

targeted (for example, prohibitions on US

government export assistance) to

extensive (for example, placement on the

Specially Designated Nationals list).

US secondary sanctions are not new.

The Iran and Libya Sanctions Act of 1996

included secondary sanctions related to

significant investments in Iran or Libya’s

petroleum industries. Since 9/11,

numerous Presidential executive orders

authorise restrictions against those who

provide material or other support to

various Specially Designated Nationals.

But over the past decade, the US

Congress has dramatically expanded the

scope of secondary sanctions. Between

2010 and 2013, Congress passed four

secondary sanctions laws on Iran alone.

Most recently, the ‘Countering Americas

Adversaries Through Sanctions Act’

(‘CAATSA’) identified dozens of additional

categories of Russia, North Korea, and

Iran-related activity for secondary

sanctions. The US executive branch –

traditionally lukewarm to secondary

sanctions for foreign policy reasons – also

has been more willing to impose these

restrictions in recent years. Even more

dramatically, an ongoing prosecution of a

former Turkish bank executive in New York

may reflect a willingness by US

prosecutors to seek criminal penalties for

secondary sanctions ‘evasion’.

Companies outside the United States

often ask what they should do to reduce

risks related to US secondary sanctions.

Understanding those risks can be

daunting. The sanctions ‘triggers’ – for

example, a ‘significant’ or ‘material"

‘investment’ or other business activity with

a sanctions target – are unclear, often by

design. The interpretation or application of

these triggers may vary based on a

number of factors, from the identity of the

sanctions target and the applicable

restrictions, to the identity and nationality

of the non-US person who may be subject

to secondary sanctions restrictions.

One also needs to assess how

aggressive the US government might be in

implementing the secondary sanctions

under consideration. OFAC and the State

Department exercise substantial

discretion and frequently appear to make

decisions in a ‘black box’. It is important to

consider whether it is better to approach

OFAC or the State Department to raise

questions or discuss contemplated

transactions up front, or to be prepared to

defend a company’s actions against

possible secondary sanctions measures

after the fact.

The policy consequences of secondary

sanctions should also be part of an

informed risk-management calculation.

Use of secondary sanctions by the US

government is not ‘cost-free’. US

secondary sanctions present significant

foreign policy issues – particularly when

they are propounded unilaterally, without

the support of the UN Security Council or

US allies. The run-up to the passage of

CAATSA saw EU objections to proposed

secondary sanctions on Russian gas

export pipelines, leading Congress to

amend the law to require this sanction be

implemented ‘in coordination with allies of

the US’. Overuse of secondary sanctions

could lead countries to decide to avoid the

US economy altogether, or encourage

closer cooperation between US rivals. And

there is the practical reality of sanctions

implementation – with dozens of

sanctions programmes, the US

government may not have the resources to

aggressively implement them across the

board, even for ‘mandatory’ secondary

sanctions passed by Congress.

What to do in response to this

‘tsunami’ of US secondary sanctions?

Don’t exasperate over what appears to be

an indiscernible morass. The specific

language of relevant sanctions provisions

should be reviewed and analysed; factors

relating to the discretion of those

administering these sanctions can be

identified and evaluated; ‘costs’ on both

sides of the ledger should be considered;

documenting the rationale for a course of

action will help mitigate risks; and

engagement with government officials

may be appropriate in some

circumstances.

All of these factors are susceptible to

an informed assessment. Internal or

external experts can help make

reasonable and defensible risk

assessments and lead to informed

management decisions.

Meredith Rathbone (London) and

Brian Egan (Washington, DC) are

partners at international law firm

Steptoe & Johnson llp.

[email protected]

[email protected]

No US nexus – such as a

connection to the US

financial system, US

economy, or US person – is

required to trigger US

secondary sanctions

restrictions.


INSIGHT

US sanctions: Adapting compliance

programmes to address new challenges

Increased complexity appears to be an ongoing feature of new US sanctions programmes.Satish Kini, Carl Micarelli and Robert Jura offer advice on how to manage the challenge.

Historically, many sanctions

programmes maintained by the US

Treasury Department’s Office of

Foreign Assets Control (‘OFAC’) have been

list-based, meaning US persons are

prohibited from dealings with designated

persons. Other sanctions programmes

involve complete embargoes of a country

or territory. In each case, the primary

approach for US persons involve screening

counterparties against lists of sanctioned

persons and reviewing their information to

determine whether a prohibited

jurisdiction is involved. Financial

institutions and other companies that

encounter larger volumes of higher-risk

transactions commonly rely on automated

processes for this screening.

New sanctions programmes present

new challenges. Increasingly, they involve

more nuanced restrictions that may

restrict only specific activities. For

example, the sectoral sanctions against

Russia apply only to certain financing

activities and related financial products, or

support of specific oil-related activities

with designated persons or their majority-

owned subsidiaries. US persons are also

now prohibited from engaging in certain

financial transactions with the Venezuelan

government, including any of its political

subdivisions, agencies or

instrumentalities, (e.g., Petroleos de

Venezuela, S.A. (‘PdVSA’)), but there are

many carve-outs from these restrictions.

This complexity is not limited to US

persons but also extends to foreign

companies facing US-imposed secondary

sanctions. Potentially sanctionable activity

related to North Korea now includes many

types of commercial transactions,

including undertaking at least one

‘significant’ import from or export to North

Korea. Additionally, non-US persons

engaging in a variety of Russia-facing

activities may now face consequences

under US sanctions. These activities

include facilitating a transaction for a

sanctioned Russian person, or facilitating

‘unjust’ privatisations of Russian state-

owned assets.

Ensuring compliance with these

provisions is not simple. The financial

restrictions against Venezuela require US

persons to ensure they do not deal in any

new debt of an entity directly or indirectly

owned by the Venezuelan government.

This includes the many subsidiaries of

PdVSA doing business throughout the

world. Moreover, OFAC interprets ‘debt’ for

this purpose to encompass dealings that,

in other circumstances, would not

commonly be considered debt (e.g.,

payment terms). Just understanding a US

company’s risk exposure under these

sanctions, let alone maintaining ongoing

operational awareness to ensure

compliance, may be difficult.

So what to do? Companies should

focus on accurately evaluating their risk

exposure. A longstanding cornerstone of

compliance with US sanctions is that

compliance programmes should be risk-

based. Companies must, of course,

comply with all of their mandatory

sanctions obligations. But before tweaking

policies and procedures in response to

new sanctions risks, a company should

consider its overall exposure and review

the adequacy of its existing sanctions

policies and procedures.

Companies should then evaluate

existing controls in light of their new risk

exposure. For example, regarding the new

Venezuelan financial sanctions, a US

financial institution with many energy

customers or many correspondent

customers in Central or South America

would face different expectations for

tailoring its sanctions compliance

programme than a financial institution

that lacked such exposure.

If there is appreciable new risk, new

controls may be necessary, such as

screening counterparties for ownership by

the Venezuelan government. One

approach would be to continue with a list-

based screening approach and devote

efforts towards assembling a

comprehensive list of every entity that

falls within the new sanctions. Some

service providers are compiling such lists.

We saw, however, in the case of the

sectoral sanctions on Russia, that similar

efforts produced lists including thousands

of entities. Wading through these lists was

a drain on resources and, as the number

of complex sanctions programmes

expands, developing and maintaining such

comprehensive lists may prove

challenging. Another approach would be to

diligence ownership structures on an ad

hoc basis, though this could delay the

opening of accounts and the processing of

transactions.

Another approach, which complements

rather than supplements other efforts, is

creating new screening methodologies

that assess data points for a customer or

counterparty rather than screening

against a list. This may be unfamiliar

terrain for sanctions compliance teams,

but financial institutions may be able to

construct a workable template from anti-

money laundering (‘AML’) processes. For

example, a sanctions team looking to

screen for Venezuelan state-owned

entities, may look to AML processes for

identifying so-called ‘politically exposed

persons’, which are a category of banking

customers that pose greater money-

laundering risks because of their positions

of influence in foreign governments.

Identifying such persons in a company’s

management could be one signal that

there is a need for further diligence.

No matter the final controls adopted,

though, a robust risk assessment is an

essential element to maintaining a

sanctions programme in the face of new

and complex requirements that challenge

traditional approaches, particularly as

efforts to maintain comprehensive

screening capabilities show their

downsides. To do this, companies should

ensure that new sanctions requirements

are promptly reviewed and assessed

against ongoing business activities; failure

to appreciate the compliance challenges

may be a recipe for inadvertent violations.

Satish Kini, Carl Micarelli and

Robert Jura are attorneys in

at Debevoise & Plimpton llp.

[email protected]

[email protected]

[email protected]


KEEPinG it aLL MovinGWhile sanctions may have stolen the headlines in 2017, the ongoing and planned evolution ofexport control regulation under the United States ECR initiative, the EU’s dual-use recast, and ahost of standalone national changes seeking international harmonisation, will continue toprovide the foundations of the trade compliance challenge.

one could conclude – given theslew of sanctionsdevelopments in the past year

– that, if anything, the tradecompliance agenda is currentlyweighted more heavily in that directionthan toward export controls and thatthe key export controls questions thatremain outstanding pertain more tothe world of intangibles than that ofwidgets.

It wasn’t always thus. During thelatter years of the second Obamapresidency, Export Control Reform(‘ECR’) generated headlines, as, on an

ongoing basis, long-establishedcategories on the US Military List(‘USML’) were redefined. ECRrepresented a steep learning curve formany companies, especially those withdefence-related activities, both in theUnited States and beyond. By the endof the administration, BIS AssistantUnder Secretary Kevin Wolf andcolleagues had achieved much of whatthey had set out to – barring the singleagency and control list. In theory atleast, all business now has to do iscomply.

‘It’s true,’ says Baker McKenzie’s

Nicholas Coward, ‘that [the first waveof] export control reform is mostlydone and dusted. But while the rulesare now in place, that’s not to say thatthey’re easily followed.’

ECR, says Coward, has yielded thegreatest benefits to companies withfinite product ranges. ‘Those kinds ofbusinesses, once they’ve undertakenthe analysis as to how the controlsapply, can come out better. But forcompanies with a really broad range ofproducts, it can be really difficult. Inever before thought that I’d hear aclient say, “What can I do to prevent



my products being removed from theITAR list?” But increasingly, that’swhat they want. Under ITAR, theyknow the routine: they apply for alicence and, if granted, export inaccordance with the terms of thatlicence. It requires a more complexanalysis when the same item is placedon the Commerce Control List.’

Coward points out that if you nowlook at the Export AdministrationRegulations (‘EAR’), there have beenalmost no changes whatsoever this pastyear, with a very significant exception:‘The Commerce Department has gotinto the habit of putting OFAC speciallydesignated nationals (‘SDN’) on theEntity List, so that even if an item isEAR99, it may need a licence to beexported.’ It’s a change, he says, fromwhen the list constituted a smallhandful of names (and blurs the linebetween export control and sanctionscompliance).

Steven Brotherton of STR believes itwill take ‘years before industry isfamiliar with ECR. And some peopleare simply never going to get theirheads around it. Even simple things,like using the STA (Strategic TradeAuthorisation, which authorises theexport, reexport and transfer (in-country) of specified items on theCommerce Control List (‘CCL’) todestinations posing a low risk ofunauthorised or impermissible uses) –people aren’t doing it!’

Brotherton predicts that 2018 maysee enforcement actions aroundproducts that have been transferredfrom the USML to the 600 Series of theCCL – a political gesture as much asanything ‘to counter the erroneousimpression that the Department ofCommerce is lax in enforcement ascompared to the State Department.’

Non-proliferation

Momentum for more profound changeisn’t wholly absent – albeit thatprogress has been slowed both byreduced staffing numbers in theDepartment of State, and by efforts toreduce the proliferation of regulation(including White House guidance thatany new regulations to be publishedmust be approved by a presidentialappointee or their designee).

Over the summer of 2017, JoshuaFitzhugh, formerly head of exportcontrols at BAE Systems in the UK,joined law firm Clifford Chance. Hesays: ‘It’s been a really interestingtransition. At BAE, I was focused

intensely on the corporate mission. Butnow as a legal adviser, I’m seeing themissions of various clients.’

It’s a more constrained lens intoeach client, he says, but one thatfacilitates a broad picture of industryconcerns. Amongst those is thecontinuing playing out of export

control reform. ‘You’ll find that manydefence industry clients are looking atsimilar issues,’ says Fitzhugh, 'and asoutside counsel you can draw on thatexperience to see trends that may behard to discern otherwise.'

Amongst the issues on the agendaare the revision of remaining categoriesincluding I, II and III (Firearms, CloseAssault Weapons and CombatShotguns; Guns and Armament; andAmmunition/ Ordnance); potentialchanges to other categories in the light

of public comments, agency concernsand the regular review cycle; and acompliance focus on technical datahandling and non-US companies.

Very first steps, says Fitzhugh,should be greater clarity on keydefinitions, in particular, those ofdefence services, and technical data.

‘How do we apply defence services inrelation to US Persons employedabroad, for example, or for servicesthat are not inherently military innature but still have an ancillarymilitary benefit, such as changing dual-use tires on a military aircraft? Thepolicy direction in these areas is notentirely clear. Likewise, howcompanies define “technical data” isoften inconsistent between US andnon-US industry. There’s a lot ofuncertainty and too much scope for


The Global Agenda: US Export Control Reform

Since 2009, the US export control system has been subject to a comprehensive overhaul,

with the goal of simplifying the multi-agency structure which was described by former

Secretary of Defense Robert Gates as a ‘byzantine amalgam of authorities, roles, and

missions scattered around different parts of the federal government.’

The licensing of dual-use and certain military items is controlled by the Department of

Commerce, munitions by the Department of State, sanctions by the Department of the

Treasury, and the Nuclear Regulatory Commission and Department of Energy for certain

nuclear materials and technologies. Each arm of government operates under varying

statutory authorities and enforces different regulations.

Reform is being implemented in three phases. The first and second phases, which

include reconciling definitions, regulations and policies for export controls, were reported

as being nearly complete in the summer of 2015. There should be an update on progress

towards the third and final phase – creating a single control list, a single licensing agency,

unified information technology system and enforcement co-ordination centre – in 2018. A

recent Congressional report into ECR suggests that President Trump may request the

movement of the Department of Commerce’s Bureau of Industry and Security’s Office of

Export Enforcement to Immigration and Customs Enforcement so as to remove overlaps

in agency authority.

‘ I never before thought that I’d hear aclient say, “What can I do to prevent myproducts being removed from the ITARlist?” But increasingly, that’s what theywant. Under ITAR, they know theroutine.’

nicholas Coward, Baker McKenzie

Abu Dhabi • Amsterdam • Bangkok • Barcelona • Beijing • Brussels • Bucharest • Casablanca • Dubai • Düsseldorf • Frankfurt • Hong Kong • Istanbul • London • Luxembourg • Madrid • Milan Moscow • Munich • New York • Paris • Perth • Prague • Rome • São Paulo • Seoul • Shanghai • Singapore • Sydney • Tokyo • Warsaw • Washington, D.C.Clifford Chance has a co-operation agreement with Abuhimed Alsheikh Alhagbani Law Firm in Riyadh. Clifford Chance has a best friends relationship with Redcliffe Partners in Ukraine.

www.cliffordchance.com

In an increasingly complex and interdependent world, containing trade compliance risk is more critical than ever. For compliance advice, audit and assurance, crisis management or full-fledged investigation support, manage that risk with our award-winning team of US and global compliance advisers.

Export Controls Law Firm of the Year, U.S.A.Export Controls/Sanctions Law Firm of the Year, Rest of the World World Export Controls Review Awards 2017

STRATEGIC. TRUSTED. GLOBAL. SOPHISTICATED COMPLIANCE ADVICE FOR WORLD-LEADING BUSINESSES

David DiBariPartnerWashington, DCT: +1 202 912 5098E: [email protected]

Contact usWendy WysongPartnerWashington, DC & Hong Kong T: +1 202 912 5030

+852 2826 3460E: [email protected]

Josh Fitzhugh CounselWashington, DCT: +1 202 912 5090E: [email protected]


interpretation. Going forward [defencecontractors] need to see a honing ofthose definitions.’

‘Generally,’ Fitzhugh adds,‘companies are appreciative of theintention behind ECR and the progress

that’s been made, but in many cases ithas made compliance more complexand expensive… It was originally cast[by former Secretary of Defense, RobertGates] as a way to enhance NATO inter-operability, reducing the incentive to goITAR-free for non-US companies. Thathas not been achieved. EU companiesare not spending less on compliance orfacing less risk.’

Expanding horizons

As sanctions are evolving, so, too, is theremit of many export/trade compliance

professionals as they are charged withtackling new and wider supply chaincompliance needs. This widening of theremit looks likely to be one of the keycompliance challenges for 2018.

Export control advisers at global

professional services firm Deloitte saythat against the backdrop of ever-increasing globalisation of trade,they’re dealing with many moreexamples of the intersection betweenexport control and other areas ofcompliance – in the defence sector,particularly.

‘We’re seeing a continuedconvergence of non-compliance withboth trade controls and anti-briberyand corruption regulations,’ saysStacey Winters, who heads upDeloitte’s Regulatory Risk practice.

‘Typically, issues arise at the border,where companies are dealing withnumerous agents and customs officials.If you don’t have good controls overyour import and export compliance,you may be exposed to greater risk inyour anti-bribery and corruptionprogramme.’

Convergence of diverse tradecompliance obligations is a commontheme. Norton Rose Fulbright’s DavidHarris says they continue to see cross-over with sanctions and anti-moneylaundering, particularly in financialservices. ‘Sometimes it can be difficult,when reviewing transactions, todivorce the two. You find exampleswhere everything may seem fine froma sanctions point of view, but there areunexplained payments that flag apotential AML issue. In this context,there is inevitable overlap between thesanctions regimes and applicablemoney laundering regulations, and itgives rise to complexities whenbalancing the legal obligations whicharise under both. So we find that youneed to look at these issues very muchin the round.’

Meanwhile, another rich seam forthe team at Deloitte is advising

‘Generally, companies are appreciativeof the intention behind ECR and theprogress that’s been made, but in manycases it has made compliance morecomplex and expensive.’

Joshua Fitzhugh, Clifford Chance



The Global Agenda

compliance functions on dealing withthe wider ‘digital transformation’within a company. ‘The risk,’ saysWinters, ‘is that a company undertakesambitious digital change in everysphere of operation – and the tradecompliance function is still filling inpieces of paper!’

Tangible intangible issues

Away from the world of widgets,important elements of the control ofcyber products and technology remainunresolved. As is well known, in 2013,the Wassenaar Arrangement adoptedcontrols on ‘intrusion software’ andcarrier class surveillance tools with theaim of protecting, for example, politicalopponents of authoritariangovernments who might be the targetsof such technologies.

A consortium of US technologycompanies and others, baulking at thecontrols on ‘intrusion software’ which,they said, were overly broad to theextent of being self-defeating – as wellas potentially putting a huge dampeneron the development of cybersecuritytools – lobbied the US government tofirstly not implement the Wassenaarcontrols without significant

The Global Agenda: Developments in Asia-Pacific

Singapore implemented its Strategic Goods Control legislation in 2003 and since then

has regularly updated its list of strategic goods and technology, most recently on 1

September 2017. The Strategic Goods Control Order (‘SGCO’) 2017 brought Singapore’s

strategic goods control list up to date with the 2016 Wassenaar Arrangement Munitions

List, and the 2016 European Union list of dual-use items. The Strategic Goods (Control)

Regulations 2004 was also updated to expand the scope of strategic goods subject to

transhipment controls to include two new category codes, and also a technical

amendment to the Strategic Goods (Control) Brokering Order 2007.

Australia’s membership of core multilateral regimes controlling the export of arms

and dual-use items, such as the Wassenaar Arrangement, Arms Trade Treaty and the

Australia Group, is reflected in recent updates to its export control lists. A key

development in 2017 was the Defense Export Control’s launch of a public consultation

on its proposed amendments to regulation 13E of the Customs (Prohibited Exports)

Regulations 1958. The changes are designed to harmonise regulation 13E with the more

recent Defense Trade Controls Act 2012, and propose measures such as a new personal

use exemption for the physical export of technology; legislative clarification that the

physical export of controlled software and technology stored on an uncontrolled good

(such as a computer) will require an export permit; and enhanced powers to revoke a

permit concerning an export that would prejudice the security, defence or international

relations of Australia. The consultation closed in September 2017 and a response is

expected in early 2018.


The Global Agenda

amendments, and also to work with theWassenaar Arrangement to revisit thecontrols

‘The US appears to have achievedsignificant progress on this issueduring 2017,’ observes RichardTauwhare of the London office ofDechert. ‘The Participating States inthe Wassenaar Arrangement haverecently agreed to create carve-outs forauthorised software updates and fortransfers of technology forvulnerability disclosures or cyberincident responses. But there has beenlittle movement towards relaxing orsimplifying the encryption controls – akey area of frustration for manybusinesses.’

Of course the Wassenaar debate isintertwined with the European

Commission proposals for a recastdual-use regime – and indeed, existingcontrols under the current Regulation

(428/2009). The new regime, asimagined by Brussels, envisageschanges pertaining to almost everyaspect of export controls: introducing acatch-all for human rightsconsiderations, imposing tighter

restrictions on the export ofsurveillance technology, licensingarchitecture and encryption.

‘The Commission’s proposal is stillvery much in the throws of discussion,’says Tauwhare. ‘The lead committee inthe European Parliament, INTA [theInternational Trade Committee]recently voted through a number of

‘[Regarding proposed new Chinese exportcontrol laws] You could foresee verycomplex situations where businesses willhave to run de minimis tests under twosets of regulations – where most systemscan barely cope, doing it under one.’

Pablo LeCour, Deloitte

Bank of Tokyo Mitsubishi takes on

the NYDFS Back in 2013/2014, Bank

of Tokyo Mitsubishi paid out nearly

$600m to the New York Department

of Financial Services (‘NYDFS’) for its

improper handling of transactions

relating to sanctioned countries. Now

the bank is biting back. In November

2017, the bank got the go-ahead to

convert branches from being

regulated at state-level, to operating

under federal supervision – and is

suing the NYDFS to stop it continuing

to supervise it. If successful, this could

free other banks to pursue a similar

path.

Zarrab and Halk Bank In Turkey,

following the Zarrab case has become

a national obsession. Did senior

government ministers take bribes

from playboy gold dealer (and

defendant-turned-witness) Reza

Zarrab, or are the allegations a

Gulenist plot? And what did the

Turkish president know or not know

about the proceeds of sanctions

busting through Halkbank? The drama

being played out in a New York

courtroom could have a major bearing

on sanctions jurisprudence: for

example, is it criminal to circumvent

secondary sanctions, the breach of

which would not be criminal in itself?

Exxon versus OFAC It takes

something to take on OFAC (hence the

dearth of OFAC-related case law). But

Exxon has deep pockets, and its

former chairman happens to be the

Secretary of State. OFAC fined Exxon

for its involvement with state-run

Rosneft, headed by Putin associate

Igor Sechin. Should that have

precluded Exxon and others from

doing business with Rosneft? We

should find out in 2018.

Not a Rich List you’d want to be on If

the relevant government agencies

adhere to the CAATSA schedule, the

end of January should see the

publication of the ‘Oligarch’s List’ – a

dramatis personae of Russia’s rich,

Putin associates, and others. Will it

become a de facto sanctions list by

default? Its publication is certain to be

met with some trepidation by those

included, their associates, relatives,

and business partners in Russia and

beyond.

OFSI to bare its teeth The UK’s new

mini-OFAC (the Office of Financial

Sanctions Implementation or ‘OFSI’)

has kept a low profile since springing

from the loins of HM Treasury. But

there are rumours afoot that, armed

with new powers to impose penalties

(including against breaches by non-UK

companies ‘with a British nexus’) OFSI

will be making its presence felt in

2018. (A recent freedom of

information request in the UK revealed

that it is currently working its way

through more than 60 ‘live cases’.)

Cyber insecurity The future

regulation of controls of cyber

surveillance tools is figuratively –

arguably, literally – up in the air right

now. The EU is looking for them to be

included in the new recast dual-use

regulation; the United States is

pushing the Wassenaar Arrangement

to refine their inclusion in the dual-use

lists, citing unworkability concerns

raised by the tech industry.

Can we expect greater clarity in 2018?

The Saudi conundrum continues With

the war in Yemen creating a

continuing (if under-reported)

humanitarian disaster, EU lawmakers

are feeling pressure to impose an

embargo on arms to Saudi Arabia.

Were the EU to do so, that would be

very much at odds with Britain’s

determination to license such exports

to Saudi: a huge money-spinner for

the UK arms industry.

Chinese export control reform could,

say some, become a real headache for

exporters. Japanese industry, in

particular, is concerned at how it could

impact on the reimportation of

Japanese-made components

assembled in China. And there are

concerns that the driver for the new

law is less related to non-proliferation,

than it is to counter perceived over

exertion by the US of extra-territorial

jurisdiction. Possibly one of the

biggest export control stories in years.

The Global Agenda: Things to watch for in 2018


The Global Agenda

substantive amendments and theproposal now goes to a vote in theParliamentary Plenary in January. Butthe Council [the 28 Member Stategovernments] has not yet completed itsfirst reading, so a final text looksunlikely to be agreed before the end of2018. Meanwhile, there appears to beno early prospect of agreement inWassenaar to expand internationalcontrols on cyber surveillance in theway that the EU is proposing to dounilaterally.’

Amongst the areas of agreement ofMEPs so far are:

l the Commission should publish a

handbook for both Member Statesand exporters, with practicalrecommendations on theimplementation of the controls;

l the proposed new catch-all controls

on items that may be used to violatehuman rights should be limited tocyber surveillance and there shouldbe no formal obligation forexporters to conduct due-diligence;

l new risks and technologies should

be swiftly included in revisions tothe Regulation by the Commission;

l creating a level playing field among

Member States, by, for example,introducing similar penalties fornon-compliance, along with greatertransparency of national authorities’export control decisions.

As things stand, HFW’s AnthonyWoolich notes, there’s a mild irony thatwhile the US has the reputation as theheavy enforcer, ‘Some US companiesget caught out because US law offersgreater exemptions than EU law onencryption. It means that they’re fairly

relaxed – and they don’t alwaysappreciate that they need to checkagainst the EU regulation.’

Crystal ball gazing

EU export control reform comes at atime when the United Kingdom, whichhas a reputation for being one of themost active Member States in theexport controls arena, is planning itsgetaway from the European Union.And it remains a moot point as towhich will come first: Brexit, or the EUrecast regulation. Either way, saysWoolich, ‘UK companies most likely tobe hard hit are those that currently onlyexport [dual-use goods] within the EU.Many of these don’t understand theexport control licensing system,because they don’t need to.’

Other pinch points, he predicts, willbecome clearer as the UK hurtles closertoward its ‘freedom’ from the yoke ofregulation, and all the bureaucratictrappings that liberation willnecessitate.

Further shores

Beyond the United States andEuropean Union, global businesses willneed to get to grips with the coming ofage of new regulatory frameworks, inAsia, Latin America and the MiddleEast. For example, India’s SCOMET

regime has been overhauled in the past12 months and it has very recentlybecome a Wassenaar Arrangement

participating state. Meanwhile, Chinahas proposed a reformed exportcontrol regime, closely modelled on theUS system – to the extent that itincludes prohibitions on re-export anddeemed exports.

‘That’s definitely one to watch,’ saysPablo LeCour of Deloitte. ‘I think itcould be the most significant change inthis space hitting companies –especially if it’s applied as [the Chinesegovernment has] stated. You couldforesee very complex situations wherebusinesses will have to run de minimiscalculations under two sets ofregulations – where most systems canbarely cope, doing it under one.’

Of course, it could be argued thatcompanies that are proud of thestrength of their compliance capabilitywelcome the greater challenge thatever more complex layers of regulationpresent.

‘Look,’ says Crowell & Moring’s DJWolff’, ‘Strong compliance createsopportunities. If you have the rightteam in place, you can say, “We can dothis because we understand and canmanage the risks, and our peers can’t,or won’t.” That’s a market advantage.’

‘Strong compliance createsopportunities. If you have the right teamin place, you can say, “We can do thisbecause we understand and can managethe risks, and our peers can’t, or won’t.”That’s a market advantage.’

DJ Wolff, Crowell & Moring

��

/1,$��.$)!�*/).2�3(%� !22%.!!1��11!.'%-%.3� �

��$%#,!1%2��/13(��/1%!�!�23!3%�20/.2/1� �/&�3%11/1)2-�

��;�!3#(��<�&/1��!.!$)!.�#/10/1!3)/.2�� 31!$).'�6)3(��4"!��

��).31/$4#%2�,%')2,!3)/.�)-0/2).'�3!1'%3%$�� 2!.#3)/.2�!'!).23��%.%94%,!

��%70/13�#/.31/,2�!.$�%#/./-)#�2!.#3)/.2� ��%.&/1#%-%.3�:�2%5%.�31%.$2�3/�6!3#(�).��

�70/13�#/.31/,�,%')2,!3)/.�!.$�%.&/1#%-%.3�).� ��#!.$).!5)!

�(%��1-2��1!$%��1%!38�)2�)3�-!+).'�!�$)&&%1%.#%� ��

��

Published ten times a year,

WorldECR is the world’s

leading specialist journal

covering legal and regulatory

developments in international

export controls and sanctions.

For further details, including

subscription options, please

visit www.worldecr.com or

email [email protected]

Connect with us:

www.morganlewis.com © 2017 Morgan, Lewis & Bockius LLP © 2017 Morgan Lewis Stamford LLC © 2017 Morgan, Lewis & Bockius UK LLP Morgan, Lewis & Bockius UK LLP is a limited liability partnership registered in England and Wales under number OC378797 and is a law firm authorised and regulated by the Solicitors Regulation Authority. The SRA authorisation number is 615176.

This material is provided for your convenience and does not constitute legal advice or create an attorney-client relationship. Prior results do not guarantee similar outcomes. Attorney Advertising.

INTERNATIONAL TRADE, NATIONAL SECURITY & ECONOMIC SANCTIONS The lawyers on our international trade, national security, and economic

sanctions team represent and advise clients on economic sanctions,

investigations associated with export and import issues, due diligence,

licensing, compliance matters, enforcement settlements, and national

security matters. Working with defense, high-tech and other global

businesses, universities, and nonprofits, we counsel on regulatory

compliance and enforcement related to Export Administration

Regulation (EAR) and International Traffic in Arms Regulations (ITAR);

US government national security and Committee on Foreign

Investment in the United States (CFIUS) reviews; import laws; Office of

Foreign Assets Control (OFAC) sanction programs; and anti-boycott

regulations.

We regularly interact and communicate with government agencies,

such as the Directorate of Defense Trade Controls (DDTC), US Bureau

of Industry and Security (BIS), US Customs and Border Protection

(CBP), the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF),

and the OFAC.

Our team conducts classified and non-classified investigations and,

where appropriate, guides clients through the OFAC, EAR, and ITAR

voluntary and directed disclosure procedures. We also determine

export jurisdiction and classification on behalf of clients. Our lawyers

prepare commodity jurisdiction and classification requests, and develop

licenses, agreements, and technology control plans. We also create and

review compliance policies, manuals, and procedures, and conduct

compliance training for employees.

PRIMARY CONTACTS

MARGARET M. GATTI margaret.gatti@ morganlewis.com +1.202.739.5409

GIOVANNA M. CINELLI giovanna.cinelli@ morganlewis.com +1.202.739.5619

KENNETH J. NUNNENKAMP kenneth.nunnenkamp@ morganlewis.com +1.202.739.5618

CARL A. VALENSTEIN carl.valenstein@ morganlewis.com +1.617.341.7501

AREAS OF SERVICE

• Antiboycott

• Anticorruption

• Antidumping & Countervailing Duties

• Anti-Money Laundering Compliance

• Bureau of Economic Analysis International Surveys

• Economic Sanctions

• Encryption Controls

• Export Controls

• Import & Customs Regulations

• Mergers, Acquisitions & Divestitures

• National Security & CFIUS Matters

• Transportation & Shipping


Throughout 2017, the European Union has pushed ahead with

plans to overhaul EU export controls for dual-use items, with the

aim of establishing an EU-wide regime for the control of the export,

transfer, brokering, technical assistance and transit of dual-use

items in place of Regulation (EC) No 428/2009. The new regulation

will incorporate key technological advances, such as the export of

certain information and communication technologies (‘ICT’);

address security risks over the

proliferation of weapons of mass

destruction; and attempt to

create a ‘level playing field’

among EU Member States.

The European Commission’s

proposals, published in

September 2016, have now been

actively examined by EU Member

States. The new concept of

‘human security’, which seeks to

prevent the abuse of cyber-

surveillance technologies by

regimes with poor human rights

records, has proved

controversial. A progress briefing

released in August 2017 revealed division amongst stakeholders

over the inclusion of human rights considerations, which some

industries – such as the tech industry – feel will create new

obstacles to business and lead to them losing work to non-EU

competitors. The Finnish government, for example, has expressed

concerns that the greater emphasis on human rights will increase

the administrative burden for businesses and create uncertainty,

and is critical of extending export control beyond EU borders.

Poland supports tighter control of the export of computer

surveillance technology, but is concerned that unregulated non-

European competitors will step in to fill any gap. Slovakia called for

a ‘fine-tuning’ of existing EU export controls for dual-use items,

rather than an overhaul.

Georg Pietsch, Director General at the Federal Office for

Economic Affairs and Export Control in Germany (‘BAFA’) welcomes

the strengthening of ‘human security’ in the EU’s draft regulation,

but points out that it is important not to compromise the

established, ‘field-tested’ dual-use export controls currently in

existence. In particular, he considers that the non-binding

guidelines over major aspects of the regulation are not sufficient:

‘The Commission’s draft contains many more new substantial

provisions that will turn out to be labour-intensive for industry as

well as authorities,’ he says.

Until now the way in which Member States choose to implement

a regulation has been the responsibility of each Member State,

under the principle of subsidiarity set out in Article 5 of the Treaty

on European Union. ‘Particularly challenging is the fact that the

draft foresees the Commission’s interference in procedures and

practices to implement the regulation on a national level,’ says

Pietsch. ‘This is an enormous challenge for Germany and German

exporters, as a large share of the exports from the European Union

is in fact administered in Germany.’

A spokesperson for the Commission commented that the

debate has now evolved considerably, showing that ‘most – if not all

– the stakeholders recognise that emerging technologies and their

trade must be consistent with our security and foreign policy

interests and values.’ They point out that the debate has ‘moved

on’ to focus on parameters of control such as the advantages of

list-based controls versus end-use controls, and ‘the necessity to

introduce an EU autonomous capacity for decision and action in

this area.’

Switzerland has already introduced a similar concept to the one

proposed in the EU’s draft dual-use regulation to ensure that

surveillance technologies that could be used for human rights

abuses are not exported. This means that requests to export

internet and mobile surveillance technologies must be rejected if

there are ‘reasonable grounds to believe’ that the items could be

used for repression in the destination country. This is up for review

in 2018. ‘We have been using this provision for the past year,’ says

Erwin Bollinger, Head of Export Controls and Sanctions at the State

Secretariat for Economic Affairs

Switzerland. ‘Because this control

order has a limited duration, until

2019, the Swiss Government

intends to propose to Parliament

to integrate it into formal law.’

The prospect of Brexit also

needs to be factored into the

process, as underlying legislation

will have to be adjusted as well as

licensing procedure – such as

national general licences – for

both the EU and the UK. ‘While

conducting the review of the dual-

use regulation, it would

undoubtedly be sensible to

already integrate Brexit into the process at some point,’ says

Pietsch.

The European Parliament’s international trade committee

(‘INTA’) – as co-legislator with the EU Council – adopted a report

supporting an ‘ambitious’ modernisation of EU export controls on

23 November 2017, and Parliament is expected to finalise its

position in the first half of 2018. The next stage will be ‘trilogues’

between the Parliament, Council and Commission with a view to

concluding the legislative process later in 2018.

In the UK, 2017 was the first full year of operation for the

government’s new Export Control Joint Unit (‘ECJU’), which was

established in July 2016. The ECJU co-locates Department for

International Trade (‘DIT’) staff in the Export Control Organisation

and export licensing teams from the Foreign and Commonwealth

Office and Ministry of Defence. The government claims that, ‘The

creation of the ECJU has centralised expertise and removed

duplication, helping us to provide a high-quality service to

business.’

The Export Control Organisation remains the UK government’s

regulatory body for military and dual-use exports, with the Secretary

of State for International Trade, currently Liam Fox, responsible for

decisions to grant or refuse export licences. Arms export requests

are assessed on a case-by-case basis against the Consolidated EU

& National Arms Export Licensing Criteria. This process came under

scrutiny in a judicial review brought by civil society group Campaign

Against the Arms Trade (‘CAAT’) concerning arms exports to Saudi

Arabia, which was defeated in the High Court in July 2017. CAAT is

pursuing an appeal against the decision.

The government has confirmed that until leaving the EU, the UK

will continue to abide by the Council Common Position 2008/944/

CFSP defining common rules governing control of exports of military

technology and equipment, implemented in the UK through the

Consolidated EU & National Arms Export Licensing Criteria.

As the UK is a member of all the relevant multilateral regimes

controlling the export of military goods and dual-use items – such

as the Wassenaar Arrangement, the Nuclear Suppliers Group, the

Missile Technology Control Regime, the Australia Group and also a

member of the Arms Trade Treaty – the general consensus from

regulators is that Brexit will not substantially affect export control

policy. ‘We will certainly watch the process with the UK, but we do

not envisage any real change,’ says Bollinger ‘There is much co-

operation between Swiss and UK industries and certainly that will

not change.’

The Global Agenda: What next for the EU and UK?



INSIGHT

US Export Control Reform: Where are we headed?

The achievements of ECR are significant – and with smart thinking and commitment they canbe even greater, write David DiBari, Josh Fitzhugh, Wendy Wysong and Hena Schommer.

Export Control Reform (‘ECR’) was

launched almost eight years ago with

bold aims, including strengthening

US national security by focusing

compliance resources on more sensitive

items; increasing inter-operability with US

allies; and promoting US exports by

reducing incentives for non-US companies

to avoid US-origin content. ECR pursued

these objectives by shifting less sensitive

military items from International Traffic in

Arms Regulations (‘ITAR’) to Export

Administration Regulations (‘EAR’) control;

establishing new EAR licence exceptions;

removing ambiguities from the regulatory

text; and harmonising key concepts and

definitions.

Much of that ECR campaign has been

delivered. In a monumental effort, many

less sensitive items previously subject to

ITAR regulatory requirements have been

shifted to the EAR. Many items moved to

the EAR may be exported and re-exported

under new license exceptions such as STA,

authorising eligible exports to allied

governments without a licence. These

regulatory clarifications have helped

industry identify the classifications for their

products, understand their compliance

obligations and open new markets for their

products. Some of the grander visions for

ECR – a single control list, single licensing

agency and single licence application –

have not yet happened, but that does not

undermine what ECR has achieved.

Partial success

ECR appears successful in its tactical

aims. Many transactions previously

requiring ITAR licensing no longer do.

Companies may also be better equipped to

self-classify products, and may have more

options for structuring their production.

That flexibility comes with cost, however,

including reclassify ing products, retraining

staff and managing complex licensing

decisions. Healthy debate continues in US

and European industry as to how best to

balance the benefits of ECR’s reduced

licensing burden against the costs of its

additional complexity.

Success on ECR’s underlying aims,

including improving alliance inter-

operability and enhancing US exports, is

harder to quantify. Many programmes with

ITAR content before ECR still have ITAR

content afterwards, meaning they still have

to apply a full set of ITAR controls including

jurisdiction/classific ation assessment;

inventory tracking; employee nationality

screening; subcontractor management;

technical data segregation; retransfer

controls; tracking of repair, replacement

and support activity; recordkeeping; etc.

ECR offers benefits for those able to

manage its complexity, but elements of the

ITAR regime still disincentivise exports of

controlled material to US allies.

Thoughts for improvement

Assuming continued interest in enhancing

exports to and inter-oper ability with US

allies, we offer a few thoughts below on

furthering those aims without undermining

other US interests.

Some ideas for improvement are

already under consideration at the State

Department. Clarifying the definition of

defence services would help. So, too,

would a practical regime for managing US

persons employed abroad, ideally including

employer-managed registration and

authorisation for US persons employed in

allied countries, as well as official

clarification that non-US defence articles

do not become ITAR controlled simply

because US persons contribute to their

develop ment. Finally, a clarified definition

for technical data would enhance

consistent compliance by industry. To a

greater or lesser extent, all these topics

are on the Defense Trade Advisory Group

(‘DTAG’) agenda or are the subject of

existing efforts at the Directorate of

Defense Trade Controls (‘DDTC’).

A few equally meaningful changes not

yet under discussion could enhance exports

without undermining US national security.

Borrowing from ITAR §§126.15-16, DDTC

could empower allied govern ments to

submit lists of inter mediate consignees for

incorporation by reference into licences

and agreements supporting those

governments’ activities, allowing licensees

to use anyone on the list when choosing

freight-forwarders, painting shops and IT

support. This would provide flexibility to

non-US companies and defence ministries

and avoid the need for frequent licence

updates while retaining DDTC’s control

over who has access to ITAR material.

The ITAR could update the definition of

‘regular employee’ to remove length,

location and exclusivity of service as

requirements. Instead, any appropriately

screened employee with authorised

nationality acting on behalf of an entity

and subject to its control could be covered

by its authorisations and responsibilities

under ITAR §127.1(c), including the

respons ibility not to share controlled

material with any unauthorised third party.

DDTC could create additional incentives

for US exports and alliance inter-operability

without the need for regulatory changes.

Enhancing clarity on commercial support

for foreign military sales (‘FMS’) activities

would encourage participation in the FMS

programme. Expanded company

engagement and outreach, paired with

voluntary disclosure treatment for

mistakes uncovered during such

engagement, could further demystify ITAR

compliance for non-US companies and

reduce anxiety over ITAR procurement.

Final thoughts

ECR demands a more sophisticated

compliance strategy but offers important

opportunities for companies to reduce

compliance cost and risk. It also presents

a chance to enhance US national security

and export promotion through additional

regulatory simplification. We encourage

industry to avail itself of the existing

benefits, and government officials to

consider further improvements.

David DiBari, Josh Fitzhugh,

Wendy Wysong and Hena Schommer are

attorneys at Clifford Chance US LLP.

[email protected]

[email protected]

[email protected]

[email protected]


INSIGHT

Preparing for BREXIT

When the UK leaves the EU, most businesses will still have to comply with EU requirements.But on top of this, they will have to comply with new UK rules. While there may be a broadpolitical aim to ensure close alignment, businesses need to keep aware that the UK frameworkwill be different from that of the EU, and understand the potential implications of that for them,write Roger Matthews and Richard Tauwhare.

Sanctions and export controls are

complex areas; but businesses have

had until now the advantage that

the rules are essentially the same across

the EU. This article considers how that

might change after Brexit.

Sanctions

Brexit will lead to significant changes –

both to the legal framework in the UK, and

to the nature of the UK’s influence on

European sanctions policy. It is too early to

say whether or not this will lead to

significant differences between the UK and

the (remaining) EU’s substantive positions

as regards particular sanctions regimes,

but the impact for businesses will be felt

nonetheless. In particular:

l The UK has recognised that, after

Brexit, the UK and EU may not always

coordinate their positions: the UK has

urged that it and the EU should ‘remain

close partners in foreign policy’, and

proposed that they should have ‘regular

close consultations’ with the ‘option to

agree joint positions’, including on

sanctions listings, and ‘aligning policy

where appropriate’. There will likely be

a good degree of coordination, but

these proposals implicitly recognise

that alignment will not always be

appropriate – i.e., the possibility of

substantive divergence from time to

time between UK and EU sanctions is

real;

l The actual sanctions restrictions,

licensing powers etc. that will apply in

the UK after Brexit will only become

apparent when the individual UK

sanctions regimes are set out in

regulations: the Sanctions and Anti-

Money Laundering Bill, currently going

through parliament, proposes to give

the minister(s) power to establish UK

sanctions regimes through secondary

legislation (regulations). The Bill would

give the relevant minister(s) a very

broad discretion as to the types of

measure, the basis for targeting a

person or entity, and the scope of

OFSI’s and EJCU’s licensing powers,

with only a minimal role for parliament;

l The proposed UK approach is different

from the EU approach on some points:

The UK government is already

proposing some departures from the

EU position, albeit in areas less likely to

impact businesses directly. For

example, it is proposed that sanctions

measures be reviewed only every three

years (EU reviews every year), and that

a UN-designated person’s ability to

challenge their UK designation (which

they have now under EU law) will be

reduced;

l Even where there is alignment, the

operational details are likely to vary: UK

and EU sanctions laws will be made

using different legal frameworks,

different wording, and subject to

separate judicial systems. Even

substantively similar provisions will

likely evolve to have different

application, scope and operation.

Export controls

UK and EU traders and governments have

a strong mutual interest in minimising any

additional administrative burdens from

export controls on trade between them.

Reasonable assumptions (with the caveat

that nothing is guaranteed) include that:

l The UK will remain a member of the

international export control regimes

and continue to use their control lists

with minimal national revisions;

l EU regulations in force at the time of

Brexit will be retained into UK law and

that there will be no hurry to revise

these;

l The UK will continue to apply the

current ‘Consolidated Criteria’ in

assessing licence applications;

l For military items, changes will be

minimal given that trade is already

subject to licensing, except possibly for

the transit of military items; and

l For dual-use items, a simple way

forward is available, through the EU

adding the UK to its EU001 general

licence and the UK creating a new open

general licence covering exports to all

the EU Member States.

But there remain some key areas of

uncertainty, in particular:

l If a transition period is agreed, how far

it will maintain the status quo with

respect to export licensing and how

long it will remain in effect;

l Whether licences for dual-use exports

to third countries issued before Brexit

will remain valid in both the UK and EU

until they expire;

l Whether the UK will continue to be able

to issue licences to UK companies to

export from an EU country to a non-EU

country;

l Whether the likely new UK dual-use

open general licence for exports to the

EU would waive the standard

requirements of open licences for

annual reporting and compliance

audits, which impose significant

administrative burdens on users;

l Whether the UK will adopt all elements

of the revised EU Dual-Use Regulation if

it is not approved before Brexit and, in

the longer term, in what ways the UK

may diverge from EU export control

regulations and how far industry will be

consulted.

For most businesses the introduction of

a new, separate, UK framework will add to

the trade compliance burden. They will

likely want the government to minimise the

differences and new administrative

requirements. But since many businesses

will operate in both the UK and the EU,

their procedures will need to adapt to take

account of new UK measures in addition to

their existing EU compliance obligations.

Roger Matthews and Richard

Tauwhare are Senior Directors in the

International Trade and EU Law

practice of Dechert in London.

[email protected]

[email protected]


INSIGHT

Advanced economies tighten inbound

investment screening regimes

Among the headlines, a new research report from Baker McKenzie has found that seven out ofnine advanced economies have strengthened or are proposing to tighten their foreigninvestment review procedures in recent years.

Most advanced economies are

focused on increasing foreign

direct investment (‘FD’I) to

promote jobs, innovation and economic

growth. But the investment policy

landscape is getting more complex in

the face of new risks, and in the last few

years many governments have enacted

new legislation to broaden the scope of

review of cross-border investments to

address expanding notions of national

security protection.

Baker McKenzie has examined the

shifting foreign investment review

landscape in nine of the world’s key FDI

jurisdictions – Australia, Canada,

France, Italy, Germany, Spain, the UK,

EU and the US. In its report, Rising

scrutiny: Assessing the global foreign

investment review landscape, the firm

finds that seven of these nine have

recently tightened or are proposing to

tighten their foreign investment review

frameworks to allow governments more

leeway to block deals or impose

conditions on their completion.

The report identifies three drivers of

this enhanced scrutiny:

l Record levels of Chinese investment

l Increased activity by state-owned

enterprises and sovereign wealth

funds

l Changing ideas about national and

economic security

While most cross-border

transactions still have a high likelihood

of approval, those in sensitive sectors

may now encounter more scrutiny and

face a prolonged approval process. The

report identifies the following sectors as

most at risk of review by host

governments: Agriculture; Homeland

Security; Critical Infrastructure;

Information Technology; Defence; Media

Energy; Telecommunications; Gambling.

Deals are being impacted around the

world. In 2016, Chinese investors

walked away from 10 deals for US

companies, worth $59 billion. In

Europe, 20 Chinese deals worth $16.3

billion were cancelled or withdrawn.

Greater regulatory and political scrutiny

was a contributing factor.

The US government investigated 389

foreign investment transactions from

2009 to 2016, and formally rejected or

forced divestitures in three deals.

The Australian government

considered 43,013 foreign investment

applications in 2015-16, up from

13,322 in 2012-13. In all, five deals

were rejected, and 14,491 approved

with conditions.

And Canada’s government has

reviewed 3,445 notifications and

applications since 2012 and ordered

thirteen national security reviews. Eight

deals have been blocked or subject to

divestiture.

In the last year alone, several

developed countries have expanded

government review of foreign

investments in strategic sectors. For

example, in July 2017, Germany

extended the duration and scope of

examination for investments in defence

and other highly sensitive sectors

following public and political debate

over a number of Chinese acquisitions.

The UK government has also signaled

plans to increase scrutiny of

investments that could impact national

security, including foreign ownership of

companies controlling critical

infrastructure. Investors need to be

mindful of the impact of these changes,

not only on transaction viability, but also

on timetables, and develop appropriate

strategies.

US developments: The Cornyn Bill

The proposed Foreign Investment Risk

Review Modernization Act (‘FIRRMA’)

would significantly expand the

jurisdiction of the Committee on Foreign

Investment in the United States

(‘CFIUS’) to reach, for example, joint

ventures and other arrangements

between US critical technology

companies and foreign investors, even

when such JVs or other arrangements

are outside of the United States.

While CFIUS would have authority to

exclude certain investments from allied

countries, the bill’s changes would

encompass many transactions not

previously within the ambit of CFIUS,

including US investments in China,

Indonesia, and other emerging markets

that impose technology transfer

obligations and even largely financial

transactions in the US.

‘CFIUS is increasingly becoming a

technology control regime, and the

Cornyn bill would continue that trend.

Indeed, the legislation would direct

CFIUS to work with allied governments

to develop similar regimes aimed at

controlling the flow of cutting-edge

technologies with security implications,

a response to policies of major

emerging markets such as China,’ says

Rod Hunter, a partner in Baker

McKenzie’s Washington, DC office.

‘FIRRMA would also create a mandatory

declaration procedure for certain

foreign investments by state-owned

enterprises and investments in certain

US technology companies, including

those with emerging technologies.’

Download the report at:

http://www.bakermckenzie.com/en/insight/

publications/2017/11/rising-scrutiny

For assistance in inward investment

in protected industries, contact

Rod Hunter in Baker McKenzie’s DC

office and Dr. Thomas Gilles in the

firm’s Frankfurt office.

[email protected]

[email protected]


anD FoR My nExt tRiCK...The geopolitical and legislative developments of 2017 set up compliance teams for a year ofjuggling unpredictable and sometimes novel regulatory change. But it doesn’t stop there – asone new challenge is met, expect another to take its place.

Consider just a few of the majorchanges that legal and tradecompliance departments have

faced over the past 18 months: theBrexit referendum vote for the UK toleave the European Union without anyprior government strategy to achievean EU exit; the arrival of the EuropeanUnion General Data ProtectionRegulations (‘GDPR’) with animplementation timeline of just 21months; a US presidential election thatresulted in a new administration whosecampaign largely centered on promisesto pull the country out of or renegotiate

the majority of trade agreements,sanctions programmes, and bilateralagreements.

On top of these landmarkdevelopments, compliance hascontinued to go about its dailybusiness dealing with ongoing USexport control reforms and theclassification and licensing issuesarising, the JCPOA and potentialopportunities and conflicts, cybersecurity, cloud computing and otherintangible transfers compliance,revisions and amendments in Russia-Ukraine-Crimea sanctions, Cuba

rethinks, proposals to reform theregulation of dual-use exports in theEU... plus ça change.

More than just in a day’s work

In the normal course of business,compliance departments manage thematrix between global and localconcerns, and the balance of internaland external business decisions. In anatmosphere where sanctions, exportcontrols and regulatory regimes arewell established, usually lean teamstend to establish efficient, effectivepractices that benefit the business, but



in times of uncertainty and aggressivechange, efficient compliance and legaldepartments can become a competitiveadvantage to the business functionsthey support.

Bjorn Uggala, Vice President ExportCompliance for Swedish defencecontractor Saab AB, says that ‘Industrywants long-term, clarity, predictableand transparent,’ when it comes toregulations and sanctions. In thecurrent atmosphere of uncertainty,companies such as Saab have faced anadministrative onslaught on amultitude of fronts.

Increasingly, companies with designand product specifications understandthat the business must adapt totreating export-controlled information,not just products, as classifiedinformation. Many trade departmentsleveraged their team to identify anddetermine a process to deal with theGDPR changes on a short timeline in2017 and without a previous mandateto manage network classifiedinformation. Accenture’s ManagingDirector, Global Trade Compliance,John Pisa-Relli says his team hasnoticed a different dynamic fromrecent EU regulatory changes. ‘TheEU’s changes with GDPR are veryaspirational, and while still a hodgepodge, export controls are becomingmore assertive and more formal,’ hesays.

The flip side to new and more

assertive export control and dataprotection regulations, however, is theappetite for a business or industry withhigh compliance requirements todevelop new products, acquirebusinesses and expand their supplychain. Compliance departments’ day-to-day work, became more challengingfor global companies in 2017 due to theuncertain environment with regulatorychanges.

Saab Kockums’ Export ControlDirector and Head of TradeCompliance, Susanna Sjosten notesthat ‘On top of regulation changes,

there is a need to track in-housedevelopment of new products to see ifwe are developing products that areaffected by existing or new legislation.’

One bright spot in all theuncertainty has been the reform of USexport controls under the Departmentof Commerce’s EAR, which receivesfavourable comments on its role out by

compliance professionals. According toBrian Cochran, Vice President ofGlobal Trade Management for EatonCorporation, ‘During the reforms, therewas lots of outreach to industry thatmade it easier to comply withregulations once they were announced,’which, Cochran says, resulted insmoother changes in process controlsand establishment of a leadershipattribute of complying with regulationsfor his company’s management team.

Outreach and planning arecomforting when the social mediahabits of certain world leaders canresult in quick changes in sanctions, as

they did with North Korea due to USPresident Trump’s war of words withthat country. While those sanctionsdon’t affect many businesses, thecontinued turmoil in the US,particularly around Russia, is a causefor concern for businesses withinterests there.

‘The unpredictable nature of the USadministration has made it morechallenging to predict how sanctionsmight evolve, and how enforcementmight evolve,’ says Zahra KitsonFrimor, Senior Legal ComplianceOfficer at Maersk Drilling. Kitson

Frimor draws a distinction betweencomplying with US sanctions (whichoften impact the energy industry withfast changes and sanctions, like thequick roll-out of Venezuela sanctionsin November) and EU sanctions. Sheposits that EU sanctions are simpler,and quite binary in comparison. Forthe most part, the EU has also had a

longer timeline from announcement ofregulation changes to expectedcompliance, making it easier for tradedepartments to ramp up.

Then there’s Brexit. For companieswith significant manufacturing in theUK, like Eaton, Cochran says his mainconcern is ‘What that fall-out mightlook like. Eaton manufactures a lot ofdual-use in the UK and there is nothinglaid out yet.’ For Cochran, the customschanges might be easy, but the tensioncomes in getting staff trained and thirdparties certified, which is much morecomplex. Cochran notes in particularthe impact of GDPR, and of AuthorisedEconomic Operator (‘AEO’) impact onsupply chain and logistics teams wherethere are currently not enough stafftrained with knowledge in those areasor third-party suppliers to coverpredictable backlogs at customsclearance.

Staying ahead of the game

Well-run compliance departmentsshow their competitive advantage inthe ability to adapt to times of highchange and high risk through aligningresources and scaling to cover newevents while maintaining existingcompliance programmes.

Defence industry supplier Meggitt’sVice President of Group TradeCompliance, Bruce Jackson says thathis main focus in 2017 has been oninternal structures such as ‘developingcareer paths and professionalism onthe team, and finding better ways tomeasure key performance indicators.’Jackson says he prioritises ‘rightresources’ in order to be able to deal

‘The EU’s changes with GDPR are veryaspirational, and while still a hodgepodge, export controls are becomingmore assertive and more formal.’

John Pisa-Relli, accenture

‘The unpredictable nature of the USadministration has made it morechallenging to predict how sanctionsmight evolve, and how enforcementmight evolve.’

Zahra Kitson Frimor, Maersk Drilling


©2017 Baker McKenzie. All rights reserved. Baker & McKenzie International is a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.

Market-Leading International Trade Practice Baker McKenzie covers the core areas of International Trade, such as export controls and sanctions, encryption issues, customs compliance, anti-bribery and anti-corruption, as well as offering significant expertise in relation to WTO rules and free trade agreements. Our market-leading team is widely recognised by leading multinationals and regulatory authorities as the leading advisers for international trade work. We are increasingly appointed by clients with strong in-house teams to assist with high-profile export controls, sanctions, and anti-bribery matters.

Unsurpassed Global Coverage Our global coverage and structural integration is unmatched. We offer a 200-plus team of International Trade specialists who are strategically situated across more than 40 markets, including most of the world's key financial and policy centres such as Washington DC, London, Amsterdam, Frankfurt, Stockholm, Barcelona, Sao Paulo, Mexico City, Hong Kong, Singapore, Beijing, and Sydney.

Multinational clients appoint us because of our unsurpassed ability to resolve multi-jurisdictional trade matters involving US, EU and other national regulatory regimes and authorities such as Germany, UK, China, and Australia.

Industry Focus Our practitioners have a particular focus on industries that are most impacted by the introduction of new trade regulations, including major industrial manufacturers, energy, IT, telecommunications and financial services companies. We have a vast amount of experience advising many multinationals within the Fortune 100 and FTSE 100 communities.

Global Thought Leadership Our annual International Trade conferences in London, Amsterdam and Santa Clara are among the largest and best-attended trade seminars in the world. Clients also hail our regular globe trade webinars as an integral component of their trade compliance training.

Keep ahead of the curve on the latest economic and trade sanctions developments – visit the Baker McKenzie Sanctions Blog: www.bakermckenzie.com/sanctionsnews.

Regional Contacts

EMEA Ross Denton, London [email protected]

Mattias Hedwall, Stockholm [email protected]

Marc Lager, Vienna [email protected]

Sunny Mann, London [email protected]

Anahita Thoms, Dusseldorf [email protected]

Asia Pacific Jon Cowley, Hong Kong [email protected]

Kana Itabashi, Tokyo [email protected] Anne Petterd, Singapore [email protected]

Americas Nicholas Coward, Washington DC [email protected]

Jose Hoyos-Robles, Mexico City [email protected]

Janet Kim, Washington DC [email protected]

Alessandra Machado, Sao Paulo [email protected]

John F. McKenzie, San Francisco [email protected]

Bart McMillan, Chicago [email protected]

Manuel Padron, Juarez [email protected]

www.bakermckenzie.com


The Global Agenda

with the external issues his industryfaces.

Accenture’s Pisa-Relli echoes thesentiment, saying that ‘putting theneedle in the right place to provideright guidance to the business function’is the key to managing peopleresources.

The use of automation incompliance functions has helpedcompliance teams innovate in theirresponse to 2017’s challenges, forexample, implementing an escalationprocess, to simplifying and penetratingwith specific messaging to the businessvia online, and creation of complianceand ethics frequently asked questionsto assist in scaling and harnessing theknowledge of the compliancedepartment.

Best foot forward

Overall, 2017 has been a year ofreassessing priorities and balancing thechallenges of new or changingregulations, virtualisation, and aligningwith business functions. In 2018,compliance departments will notshrink, but could see continuedreorganisation depending on theoutcomes of Brexit, export control anddata protection initiatives, and ongoingunpredictability in the US overall.

Regional concerns will remain anarea compliance departments trackclosely. Some industries will haveunique challenges related to localregulations that apply extraterritoriallyto their business. In Sweden, for

example, updated dual-use regulationswill require Swedish companies toapply a ‘democracy criterion’ for exportlicences in the defense industry. Thisregulation will create more trackingissues for global companies. SaabKockums’ Sjosten says her team is‘getting more requests from suppliersabout our supply chain and endcustomers, so there is more screeningand more administration for the team.’

Should such a criterion becomewidespread within the EU, it willundoubtedly impact compliance wellbeyond 2018. Meanwhile, the energyindustry faces similar administrativechallenges with tracking how sanctionsin Venezuela and Russia will evolve,and creating a framework forenhancing due diligence in countrieswhere that task takes longer and is notefficient or transparent.

Also top of mind for all the tradecompliance leaders is the Cloud andimplementation of GDPR in addition toEAR requirements related to technicaldata security that require changes inaccess, personnel and physical

processes. Eaton’s Cochran notes:‘When you work in a company withcontrolled data and products, itbecomes hard to strike a balancebetween being too strict and catchingeverything needed without overloadingthe system.’

While compliance departmentsappear to be maintaining vigilance inlight of continued capriciousness by theUS administration, the big cloud

hanging over many compliance teamsis Brexit. ‘People are gettingapprehensive,’ says Eaton’s Cochran.“Apprehensive about getting the teamtrained up. Staffing issues and third-party relations could all become morecomplex. We have to plan for chaos atports because there is not enoughstorage. It will affect logistics. Customsitself is understaffed, and there is noguidance.’

In an era where the range of tradecompliance issues have become moreterritorial and more unforeseeable, itlooks like the only risk compliancedepartments will not face is jobinsecurity.

‘People are getting apprehensive [aboutBrexit]... We have to plan for chaos atports because there is not enoughstorage. It will affect logistics. Customsitself is understaffed, and there is noguidance.’

Brian Cochran, Eaton Corporation


Contacts Contacts

Crowell & Moring LLPContacts

Cari Stinebower

Partner

Washington, D.C.

+1.202.624.2757

[email protected]

Carlton Greene

Partner

Washington, D.C.

+1.202.624.2818

[email protected]

Michelle Linderman

Partner

London

+44.20.7413.1353

[email protected]

Dj Wolff

Counsel

Washington, D.C.

+1.202.624.2548

[email protected]

Jana del-Cerro

Counsel

Washington, D.C.

+1.202.624.2843

[email protected]

Charles De Jager

Counsel

Brussels

+32.2.214.2822

[email protected]

www.crowell.com

Crowell & Moring LLP is an international law firm with more than 500

lawyers in offices in the US, the EU and the Middle East. Our

International Trade Group includes 30 practitioners, located mainly in

Brussels and Washington, DC, who advise clients ranging from local

SMEs to the world’s largest multinational corporations on all aspects

of international trade, customs, and regulatory laws.

Our core practice areas are export controls and sanctions, WTO law,

trade remedy procedures and litigation, customs and duty recovery,

anti-corruption, investment and market access rules, and preferential

trade agreements. Our clients are active in a wide range of industries,

including aerospace & defence; information technology; financial

services; automotive; semiconductor; construction; aluminium, iron

and steel; consumer products; agriculture and food products; sports

and leisure; chemicals; and pharmaceuticals.

The International Trade Group provides clients with a range of

services, from straightforward licence applications and training

programmes to responding to government investigations and

counselling on difficult commodity jurisdiction or regulatory

compliance issues. We counsel traditional financial institutions and

designated non-financial businesses and professionals on how to

successfully navigate anti-money laundering laws and regulations.

Our US and Brussels teams are consistently ranked among the world’s

leading practitioners by Chambers USA and Chambers Global,

including for export controls and economic sanctions.

Our services include:

l Advising on licensing requirements and preparing licence and

agreement applications

l Performing internal investigations and assisting with voluntary

disclosures

l Performing compliance audits

l Designing and implementing compliance programmes

l Performing jurisdictional assessments and preparing requests for

commodity jurisdiction determinations

l Assisting in self-classification of products and preparing requests

for commodity classification requests

l Performing export control/sanctions/anti-money laundering/

anti-corruption/import due diligence reviews related to proposed

mergers and acquisitions

l Representing clients in civil and criminal enforcement proceedings

l Training on export controls, anti-money laundering, sanctions,

anti-corruption/anti-bribery, import procedures and requirements

WorldECRThe journal of export controls and sanctions

Contributors in this issueTimothy P. O'Toole, Miller & Chevalier Chartered

www.milchev.com

Simon Fasterkjær Kjeldsen, Kromann Reumert

www.kromannreumert.com

Hugo Munthe-Kaas, Thommessen

www.thommessen.no

Erik Lagerlöf, Vinge

www.vinge.se

J Christian Kessler, NorthRaven Consulting LLC

[email protected]

WorldECR Editorial BoardMichael Burton, Jacobson Burton Kelley PLLC

[email protected]

Larry E. Christensen, Miller & Chevalier, Washington, DC

[email protected]

Jay Nash, Nash Global Trade Services

[email protected]

Dr. Bärbel Sachs, Noerr, Berlin

bä[email protected]

George Tan, Global Trade Security Consulting, Singapore

[email protected]

Richard Tauwhare, Dechert

[email protected]

Stacey Winters, Deloitte, London

[email protected]

General enquiries, advertising enquiries, press releases, subscriptions: [email protected]

Contact the editor, Tom Blass: [email protected] tel +44 (0)7930405003

Contact the publisher, Mark Cusick: [email protected] tel: +44 (0)7702289830

WorldECR is published by D.C. Houghton Ltd.

Information in WorldECR is not to be considered legal advice. Opinions expressed within WorldECR are not to be considered official expressions of thepublisher. The publisher assumes no responsibility for errors and omissions appearing within. The publisher reserves the right to accept or reject alleditorial and advertising matter. The publisher does not assume any liability for unsolicited manuscripts, photographs, or artwork.

*Single or multi-site: Do you have the correct subscription? A single-site subscription provides WorldECR to employees of the subscribingorganisation within one geographic location or office. A multi-site subscription provides WorldECR to employees of the subscribing organisation withinmore than one geographic location or office. Please note: both subscription options provide multiple copies of WorldECR for employees of the subscriberorganisation (in one or more office as appropriate) but do not permit copying or distribution of the publication to non-employees of the subscribingorganisation without the permission of the publisher. For full subscription terms and conditions, visit http://www.worldecr.com/terms-conditions

For further information or to change your subscription type, please contact Mark Cusick - [email protected]

© D.C. Houghton Ltd 2017. All rights reserved. Reproduction in whole or in part of any text, photograph, or illustration without express written permission of the publisher is strictly prohibited.

ISSN 2046-4797. Refer to this issue as: WorldECR [0065]

Correspondence address: D.C. Houghton Ltd, Suite 17271, 20-22 Wenlock Road,

London N1 7GU, England

D.C. Houghton Ltd is registered in England and Wales (registered number 7490482) with its registered office at 20-22 Wenlock Road, London, UK

ISSUE 65. DECEMBER 2017

www.WorldECR.com