Evolving U.S. Economic Sanctions and their Legal ... · Pillsbury Winthrop Shaw Pittman LLP Evolving U.S. Economic Sanctions and their Legal Implications – Cuba, Iran, Russia and

Pillsbury Winthrop Shaw Pittman LLP

Evolving U.S. Economic Sanctions and their Legal Implications – Cuba, Iran, Russia and Burma

Christopher R. Wall

July 2015

U.S. Economic Sanctions - Overview

Administered by U.S. Department of the Treasury, Office of Foreign Assets

Control (OFAC).

Statutes, executive orders and regulations for each program

International Emergency Economic Powers Act (IEEPA)

Trading With The Enemy Act (TWEA)

Generally apply to U.S. persons

U.S. citizens

Individuals physically present in the U.S.

U.S. companies and overseas branches

Cuba sanctions also apply to foreign subsidiaries of U.S. companies,

Iran sanctions hold parent companies responsible for actions of subsidiaries

that would violate sanctions if engaged in by parent company.

Berman Amendments exemption for information and travel (except Cuba).

1 | Evolving U.S. Economic Sanctions and their Legal Implications –

Cuba, Iran, Russia and Burma

U.S. Economic Sanctions – Overview (cont.)

Country Sanctions

Cuba

Iran

Russia

Sudan

Syria

Old/Partial Regimes

Burma

Libya

Balkans

Sierra Leone

Liberia

Iraq

Belarus



Targeted Entities

Terrorists

Terrorism List Governments

Foreign Terrorist Organizations

Narcotics Traffickers

Persons Engaged in the Proliferation of WMD

Specially Designated Nationals and Blocked Persons (“SDN List”)

Identifies individuals, entities, and vessels with whom U.S. persons may not trade

and blocks property of these parties.

Entities in which a designated person owns 50% or more interest are also blocked

even if entities themselves are not listed.



Types of Sanctions

Comprehensive economic sanctions (i.e., Iran, Syria, Cuba, Sudan, Syria)

prohibit:

U.S. export/import trade with target country/SDN

Investment in target country

Dealings in property of target country/SDN

Most sanctions programs require blocking property of sanctioned

government or listed person/entity.

Banks must freeze funds received and notify OFAC.

Transactions denominated in U.S. dollars clearing through U.S. banks even

if no U.S. persons involved in underlying transaction (property interest and

export of services).

Foreign banks prosecuted for hiding role of sanctioned parties in such

transactions,

Each program is different - must examine specific regulations



Prohibited Facilitation

U.S. persons may not “facilitate” activities by non-U.S. persons that would be

prohibited for U.S. persons, such as:

Approving a transaction or participating in contract negotiation/performance

Furnishing any kind of transactional support

Advising on how to structure a transaction

Referring sanctioned country business to non-U.S. entity

OFAC construes “facilitation” broadly



Cuba

Embargo in place since 1963 – total blocking regime.

Prohibits U.S. persons (including foreign subsidiaries of U.S. companies) from

engaging in any transaction in which Cuba or a Cuban national has an

interest.

Cuban Assets Control Regulations – codified in statutory form in 1996 Helms-

Burton Act.

Limited OFAC licensing authority at the time for travel to Cuba for certain

humanitarian and cultural activities, telecommunications services, journalism,

family remittances, etc.

Current Cuba Policy

Presidential announcement in December 2014 and publication of OFAC and

Commerce Department regulations in January 2015.

Embargo remains in place but greatly expanded licenses for travel,

remittances and other types of economic activity, including:



Cuba (cont.)

Cuba - New Activities Permitted

Exports under License Exception SCP (Support for the Cuban People)

Exports under License Exception CCD (Consumer Communications Devices)

OFAC general license for telecommunications services

Internet services and exports

Imports of Cuban goods and services from private sector

Travel and travel services

Banking and credit cards

Remittances

Other support for private business

Cuban nationals in third countries or the United States

Transactions other than those specifically authorized are still prohibited.

Lifting the embargo will require Congressional action.



Iran

Iranian Transactions and Sanctions Regulations generally prohibit:

Trade (import/export)

Services to or from Iran and dealing in services from Iran

New investment

Transactions with blocked parties

Transactions with Iranian financial institutions or the Central Bank of Iran

Transactions with the Government of Iran

Facilitation by U.S. persons

“Secondary” Extraterritorial Sanctions and Special Provisions

Prohibitions on foreign companies making investments in petroleum sector

Sanctions against foreign countries that do not reduce purchases of Iranian oil

Prohibitions on certain transactions by foreign financial institutions

Subsidiary liability – U.S. parent can be fined for actions by subsidiary that

violate Iran sanctions

SEC reporting for certain Iran-related activities of affiliates



Iran - Joint Plan of Action

Sanctions relief for Iran during nuclear negotiations – in effect since January

2014.

Primarily related to “secondary” extraterritorial sanctions implemented under

executive orders.

U.S. forbearance in not imposing sanctions on foreign financial institutions that

conduct transactions related to exports of Iranian petrochemical products.

Temporary suspension of sanctions on Iranian auto industry.

Temporary suspension of sanctions on gold and precious metals.

OFAC licensing for the supply and installation of spare parts for civil aviation

(available for U.S. and non-U.S. persons).

Pause in U.S. efforts to further reduce Iran crude oil exports below current

levels and continued waiver for certain countries continuing to purchase

Iranian oil.


Cuba, Iran, Russian and Burma

Iran - Joint Plan of Action (cont.)

Iranian commitments

Reduction in stocks of enriched uranium and no new enrichment over 5%.

No enrichment activities at Fordow and Arak facilities and no new enrichment

locations.

No reprocessing or construction of facilities for reprocessing.

Enhanced IAEA monitoring and reporting.



Iran Nuclear Agreement Review Act of 2015

Amendment to Atomic Energy Act of 1954

Requires President to submit to Congress within five days of concluding an

agreement a package containing: (1) agreement, (2) verification assessment

report, and (3) certification that the agreement meets U.S. non-proliferation

objectives and ensures that Iran’s nuclear related activities will not be used

to advance military or explosive purposes.

Congress has 30 days to review package if submitted before July 10, 2015 or

60 days if submitted between July 10 and September 7, 2015

May enact joint resolution of disapproval or take no action.

President’s veto may be overridden by 2/3 vote of both Houses of Congress –

no sanctions relief during legislative process.



Iran Nuclear Agreement Review Act of 2015 (cont.)

Issues

Duration of agreement – temporary halt in Iranian weapons development

Pace of lifting sanctions – immediate or phased.

Nuclear sanctions vs. terrorism, WMD human rights and other sanctions

Full Iranian accounting of past nuclear weapons activities

Inspection of military and research facilities

“Snap-back” of sanctions

Role of United Nations Security Council (Russian and China veto)



Russia – SDN Designations

Persons who have asserted governmental authority over a region of Ukraine

without the authority of the Ukraine government and leaders of an entity

engaged in such activity, including:

Luhansk People’s Republic

Donetsk People’s Republic

Officials of the Russian government and business leaders, including:

Gennady Temchenko

Arkady and Boris Rotenberg

Yuri Kavalchuk

Igor Sechin (President and Chairman of Rosneft)

Entities operating in the arms or related materiel sector, including:

Kalishnikov Concern

United Shipbuilding

Almaz-Antey GSC



Russia – SDN Designations (cont.)

Bank Rossiya

Personal bank for senior Russian officials

Provides corporate services, including in the oil, gas and energy sectors as

well as retail services.

Correspondent relationships with banks around the world

U.S. credit card issuer

Wide array of entities owned or controlled by these SDN’s (50% rule)



Russia Sectoral Sanctions – Directives 1 - 2

Financial Institutions – extension of credit to listed entities of longer than 30

days or new equity

Bank of Moscow

Gazprombank

Russian Agricultural Bank

VEB

VTB

Sberbank

Oil and Gas – extension of credit to listed entities of longer than 90 days

OAO Novatek

Rosneft Oil Company

Gazpromneft

Transneft



Russia Sectoral Sanctions – Directive 3

Defense - extension of credit to listed entities of longer than 30 days or new

equity

Rostec

U.S. Commerce Department, Bureau of Industry and Security (BIS) prohibits

exports/reexports of certain items listed in the Export Administration

Regulations (EAR) to military end-users in Russia.



Russia Sectoral Sanctions – Directive 4

Prohibits U.S. persons from providing, exporting or reexporting directly or

indirectly goods, services (except financial services) or technology to listed

entities in support of:

Exploration or production from deep water (greater than 500 ft.), Arctic

offshore, or shale projects that have the potential to produce oil in or offshore

Russia.

Listed entities include Gazprom, Gazpromneft, Lukoil, Rosneft, Surgutneftgas.

BIS also prohibits exports/reexports of items subject to the EAR.

Listed items include pipes, tubing, casings, etc. used in oil drilling and

production as well as oil and gas exploration data and software (not limited to

listed entities).

Exporter knows or is unable to determine whether the item will be used directly

or indirectly in exploration for, or production of, oil or gas in Russian deep

water, Arctic offshore or shale formations in Russia.

Entity List designations.



Russia - Crimea Executive Order 13685

Blocks property of designated entities operating in the Crimea region of

Ukraine and prohibits:

New investment in the Crimea region of Ukraine

Exports to and imports of goods, services or technology to/from the Crimea

region of Ukraine

Approving, facilitating, financing or guaranteeing such transactions

Issues related to screening transactions involving a region rather than an

entire country.



Burma – General Licenses

Easing of sanctions in conjunction with democratic reforms General License 16 authorizes export/reexport of financial services to Burma,

subject to limits on dealings with blocked persons, Ministry of Defense and

state and non-state armed groups.

General License 17 authorizes new investment in Burma, subject to limits on

dealings with blocked persons, Ministry of Defense and state and non-state

armed groups.

Requires annual reports to State Department if aggregate investment

exceeds $500,000.

Requires State Department notification of agreement with Myanma Oil

and Gas Enterprise (MOGE)

General License18 authorizes importation of Burmese products except for

jadeite or rubies mined or extracted from Burma or jewelry containing such

jadeite or rubies.

General License Number 19 (incorporated in Burmese Sanctions Regulations)

authorizes dealings with four Burmese banks designated as SDN’s.



Burma – Remaining Sanctions

Remaining sanctions on Burma prohibit only:

Dealing with blocked persons and entities owned or controlled by blocked

persons

Dealing with Ministry of Defense and armed groups that involve

export/reexport of financial services or new investment in Burma

Some imports still prohibited

Facilitation by U.S. persons of prohibited activities



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Evolving U.S. Economic Sanctions and their Legal ... · Pillsbury Winthrop Shaw Pittman LLP Evolving U.S. Economic Sanctions and their Legal Implications – Cuba, Iran, Russia and