U.S. Economic Sanctions:Current Landscape, Recent Activity, and

New Developments

Speaker

Meredith RathboneAssociate

Steptoe & Johnson LLP, Lex Mundi member firm for Washington D.C.

mrathbone@steptoe.com

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Overview of U.S. Economic Sanctions

OFAC (Office of Foreign Assets Control – Treasury Department) administers U.S. sanctions programs Regulations: 31 C.F.R. Parts 500-598 Website: http://www.ustreas.gov/offices/enforcement/ofac/ Sanctioned countries:

Cuba, Iran, Sudan - almost complete prohibition North Korea, Syria – broad export restrictions (BIS) Burma (Myanmar) – financial services and new investment

restrictions, among others Also: Balkans, Belarus, Cote d’Ivoire (Ivory Coast), Democratic

Republic of the Congo, Iraq, Lebanon, Liberia, Somalia, Zimbabwe List-based sanctions (SDNs, foreign policy, national security,

terrorists, narcotics traffickers)

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U.S. Economic Sanctions - Prohibitions

Sanctions programs vary significantly. They can prohibit, among other things: Exports, reexports, and transshipments of U.S.-origin goods,

technology, know-how, and services to sanctioned countries or persons

Investment in sanctioned countries or persons “Dealing in” goods, technology, or services destined for

sanctioned countries (regardless of origin) or blocked property (asset freezes) owned/controlled by sanctioned persons

“Facilitating” or “approving” a foreign (non-U.S.) person in its business dealings with sanctioned countries or persons

Evading or avoiding the restrictions in OFAC’s regulations

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Who Must Abide By U.S. Sanctions?

All persons in the United States are covered, regardless of nationality

U.S. companies, U.S. citizens, and lawful permanent residents are covered, wherever located

Non-U.S. subsidiaries of U.S. companies are prohibited from engaging in any business transactions with Cuba

U.S. companies and persons cannot facilitate or approve any sanctioned country activities of non-U.S. subs

Exports by non-U.S. companies of U.S.-origin products to sanctioned countries can be prohibited

Exports by non-U.S. companies of non-U.S. products that contain greater than de minimis levels of U.S.-origin content can be unlawful

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Prohibited Facilitation or Approval - Examples

U.S. persons and companies cannot:

Refer sanctioned country business to a non-U.S. subsidiary

Assist a foreign sub in structuring a transaction involving business with OFAC sanctioned country or person

Provide advice, consulting, business, legal or other support for a transaction relating to OFAC sanctioned country or person

Provide financing, guarantee, warranty, transportation, logistical, or indemnity support to a foreign sub for a transaction involving an OFAC sanctioned country or person

Provide management oversight, direction or approval to a foreign sub relating to specific activities in an OFAC sanctioned country

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Iran Sanctions Act & Related Developments

Iran Sanctions Act (formerly ILSA) in place since 1996 Targeted persons determined to have (1) invested $20

million or more in a project in Iran that contributed to the development of Iran’s petroleum resources, or (2) sold WMDs or certain conventional weapons to Iran

Focused on the activities of non-U.S. companies President to choose 2 of 6 possible sanctions Never enforced

Limited UN sanctions against Iran have been in place since 2006

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Iran Sanctions Act & Related Developments (Cont.)

Tougher Sanctions Passed: UN Security Council - Resolution 1929 (June 9, 2010) United States – Comprehensive Iran Sanctions

Accountability and Divestment Act (CISADA) (June 24, 2010)

European Union (July 26, 2010) Canada (July 26, 2010) Japan (August 3, 2010)

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U.S. Sanctions – CISADA (Refined Petroleum)

CISADA expands petroleum-related restrictions of ISA by prohibiting: Providing refined petroleum products to Iran valued at $1 m or

more ($5 m in a 12-month period) Providing of goods, services or other support to Iran valued at $1

m or more ($5 m in a 12-month period) that could directly and significantly facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products

Providing goods, services, technology, information or support valued at $1 m or more ($5 m in a 12-month period) that could directly and significantly contribute to Iran’s ability to import refined petroleum products

Insurance/reinsurance/underwriting Financing/brokering Shipping services

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US Sanctions – CISADA (Refined Petroleum)

CISADA makes it more difficult for the President to avoid conducting an investigation or making a determination of sanctionable activity

Requires the President to impose 3 out of an expanded menu of 9 sanctions New sanctions include: (1) prohibition on transactions in

foreign exchange; (2) prohibition on transfers of credit or payments through/to U.S. financial institutions if sanctioned person has an interest; (3) prohibition on dealing in property in which sanctioned person has an interest

Sanctions can be imposed on parent companies and affiliates Delay and waiver provisions still available, but more difficult to

use

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CISADA – Financial Institutions

Targets non-U.S. financial institutions that: facilitate Iran’s ability to acquire WMDs or provide support

for terrorism facilitate activities of persons subject to UN sanctions provide significant facilitation/support of blocked IRGC

entities or blocked Iranian financial institutions Prohibits U.S. financial institutions from dealing with non-U.S.

financial institutions that violate sanctions Regulations to be implemented that will establish certain

audit, reporting, due diligence, or certification requirements Goal: Force foreign financial institutions to choose – us or them

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CISADA – Other Provisions

U.S. Government contracting restrictions USG contractors must certify that they do not engage in

sanctionable activities Enhanced import restrictions; codifies export restrictions Permits divestment from companies that engage in

sanctionable activities Requires DNI to submit reports identifying destinations of

diversion concern Enhanced export licensing requirements for designated

countries

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Other Sanctions Developments

Somalia Sanctions Regulations – Property of persons contributing to conflict in Somalia blocked (April 2010)

North Korea – U.S. to name entities and persons involved in arms trading, counterfeiting, drug trafficking, and other illegal activities – property under U.S. control will be blocked

Cuba: Cash in advance requirement modified for agricultural products –

may now receive payment when products arrive in Cuba, before transfer to Cuban buyers (2010)

Eased restrictions on family visits, remittances, and certain telecommunications-related activities (2009)

Legislation introduced in Congress to lift travel ban and ease financing restrictions for sale of agricultural products

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Thank you!

On behalf of Lex Mundi and Steptoe & Johnson LLP, we would like to thank you for joining.

If you have any questions or comments, please feel free to contact Meredith Rathbone at mrathbone@steptoe.com

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