What U.S. Entities and Individuals

Need to Know About U.S. Trade Sanctions

Including Those on

Cuba, Russia, and Iran

John P. Barker, Amy Jeffress, Baruch Weiss, Partners

Arnold & Porter LLP

Anna Lueje, Deputy General Counsel

IAP Worldwide Services, Inc.

April 22, 2015

John P. Barker, Partner, Washington, DC

john.barker@aporter.com, +1 202.942.5328

John‘s practice focuses on national security matters including export controls and trade sanctions

administered by the Office of Foreign Assets Control at the US Department of the Treasury (OFAC), and

compliance with the Foreign Corrupt Practices Act (FCPA). He helps companies and institutions establish

compliance plans, obtain export authorizations, and provides representation in enforcement proceedings. Mr.

Barker came to the firm from the US Department of State, where he served as the Deputy Assistant Secretary

for Nonproliferation Controls and, prior to that, as Deputy Assistant Secretary for Export Controls.

Amy Jeffress, Partner, Washington, DC

amy.jeffress@aporter.com, +1 202.942.5968

Amy‘s practice focuses on criminal defense matters, national and international security and compliance issues, and internal investigations. She advises companies and individuals on a wide range of issues, including export enforcement matters, the handling of classified information, and mutual legal assistance and other issues related to international law enforcement cooperation. Prior to joining the firm, she maintained a two-decade career with the Department of Justice, serving as Chief of the National Security Section at the U.S. Attorney’s Office in the District of Columbia, Counselor to the Attorney General for national security and international matters, and Attaché to the US Embassy in London.

Anna Lueje, Deputy General Counsel, IAP Worldwide Services, Inc.

anna.lueje@iapws.com, +1 321.784.7135

Anna is Deputy General Counsel of IAP Worldwide Services, Inc., based in Cape Canaveral, Florida. IAP is a

leading provider of global-scale logistics, facilities management, and world-class advanced professional and

technical services for the U.S. and other governments, commercial enterprises, and humanitarian

organizations. Her practice is wide ranging and includes global trade compliance, international business,

mergers and acquisition, corporate transactions, energy, ethics and compliance, and government contracts.

Prior to joining IAP, Anna was in-house counsel for major energy and government contractor companies, and

served in the U.S. Government in international affairs roles.

Baruch Weiss, Partner, Washington, DC

baruch.weiss@aporter.com, +1 202.942.6819

Baruch represents companies and individuals in criminal, homeland security and national security matters,

including those involving enforcement and licensing proceedings before Office of Foreign Assets Control

(OFAC). Baruch served as the acting Deputy General Counsel at the Department of Homeland Security;

Assistant General Counsel for Enforcement at the Department of the Treasury; and spent 18 years in various

positions at the United States Attorney's Office in the Southern District of New York, Criminal Division.

OFAC Sanctions Span the Globe

Overview of Economic Sanctions

and Export Controls

Introduction and Regulatory Overview -- U.S. Jurisdiction and Country-Specific Sanctions

-- Prohibited Persons (Specially Designated Nationals)

Developing and Implementing an Effective Compliance Program

Due Diligence in Mergers & Acquisitions

Challenges from Overlapping or Conflicting U.S. and Non-U.S. Sanctions Laws

U.S. Enforcement Actions and Case Studies

Potential Overlap of Sanctions, Export Controls, FCPA, and Other Statutes

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OFAC Jurisdiction over Trade with Prohibited

Persons and Prohibited Parties

U.S. Department of the Treasury Office of Foreign Assets Control

(“OFAC”) implements U.S. trade sanctions

Sanctions on countries (e.g., Iran), prohibited persons (“Specially

Designated Nationals” or “SDNs”) and programs (e.g., narcotics

traffickers)

Check every party in every international transaction against the SDN

List

Check country sanctions

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OFAC Jurisdiction over Trade with Prohibited

Persons and Prohibited Parties

Sanctions against particular programs such as narcotics traffickers, transnational crime, etc. are identified through the SDN List

Special restrictions for transfers of U.S.-origin goods to sensitive countries under Commerce Department controls in addition to OFAC controls (Russia, China, Venezuela, Syria, North Korea, Cuba, Iran, and Sudan)

Persons subject to U.S. jurisdiction cannot do business with SDNs

Cannot do business with any party owned 50% or more by an SDN

Under some sanctions regimes, cannot do business with a party controlled by an SDN, even if ownership percentage is below 50%

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Broad Basis for U.S. Jurisdiction

U.S. citizen or U.S. permanent resident wherever located

Entity organized in the U.S.

Subsidiary of entity organized in the U.S.

Foreign subsidiary for some sanctions regimes (e.g., Iran, Cuba)

Most U.S. dollar-denominated transactions (because they generally settle through the U.S. regardless of the intention of the parties)

U.S.-origin goods, technology and software in more than de minimis amounts

Any routing of activities through the U.S. including IT and data processing

Any person actually in the U.S.

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U.S. Economic Sanctions – Russia

No general embargo (outside of the Crimea region of Ukraine)

Some banks and entities on SDN List

Sectoral sanctions implement prohibitions on capital, financing, and transfers of

certain sensitive U.S. equipment for oil exploration and military end-use and end-

users

Sectoral sanctions are complicated – they are not blanket prohibitions but

instead require extensive knowledge of the transaction

Several levels of sectoral sanctions

Need to conduct due diligence carefully on owners

Details are important

• Under some sectoral sanctions, it is ok to extend credit for 29 days but not

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• May have a violation if payment is late by a day

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U.S. Economic Sanctions – Iran

General embargo on Iran in place since 1990s.

Limited trade permitted (agricultural products, medicine, medical products)

U.S. State Department sanctions against non-U.S. persons for specified trade (generally energy development including oil, nuclear and petrochemical)

Strong enforcement against specific SDNs associated with transfers of weapons of mass destruction, sanctions evaders

State-level divestment sanctions against companies with activities in Iran

In addition to sanctions risks, publicly traded companies may face disclosure

obligations for dealing with Iran

Particularly a risk for dealing with non-U.S. persons where the trade is already legal under local laws

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U.S. Economic Sanctions – Iran (continued)

The “framework” of a final deal with respect to Iran’s nuclear program (announced by the President in early April) may eventually lead to sanctions relief…

…But, beware of an immediate rush to business in Iran:

The deadline for a final deal is June 30, 2015 – nothing actually signed yet

Sanctions will remain in place after June 30 until Iran “verifiably abides by its commitments” under any final deal

Relief will be limited to nuclear-related sanctions – other sanctions (human rights, terrorism, missiles) will remain unchanged

Scope and timing of relief appears to be subject of public dispute between U.S. and Iranian governments

In the short term, enforcement of sanctions on Iran is likely to be as robust as ever to keep Iran motivated to comply with the conditions needed for their removal and for the Administration to demonstrate its serious approach to the negotiations

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U.S. Economic Sanctions – Cuba

Web of interconnected laws implemented over 50 years

U.S. in the process of reducing restrictions and removing Cuba from the list of State Sponsors of Terrorism

A sea change in philosophy but minimal immediate regulatory changes

Enhanced travel opportunities for specific categories of travel (but not for tourists)

Telecommunications exports encouraged

Food, medicine, and medical products permitted under licenses

Helms-Burton Act prohibitions on dealing with “trafficked” property

Garnishment issues

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U.S. Economic Sanctions – Venezuela

No overall embargo

Increasing sanctions on individuals and entities

Prohibitions on military transfers

High-profile arrests for military procurement

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U.S. Economic Sanctions – Sudan

General embargo for business-related activities

Food, medicine and medical products permitted

Humanitarian activities permitted

Note that South Sudan is a different country

--Not subject to OFAC sanctions unless activity also involves

Sudan

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U.S. Economic Sanctions – Syria

General embargo

Prohibition on providing “services” to Syria

This includes a prohibition on arranging for sales of products to or from Syria

Some companies exposed by activist groups

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U.S. Economic Sanctions – Burma

Comprehensive embargo used to apply

U.S. has issued general licenses to permit most trade

Some imports still prohibited

Caution: Many of the parties to international transactions are SDNs

Limited exceptions available for working with SDN banks

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Developing Effective Compliance Programs

Written compliance program expected by regulatory agencies

– Need to consistently monitor

– Landscape changes almost daily

– Need a good procedure in place and mechanism to engage legal and compliance personnel

– Establish and keep internal systems to check sanctions list by U.S. and others

Training

Mechanism for reporting violations

Audit/self-assessment

– Doing audits could lead to appropriate recommendations to mitigate issues which may arise – including potentially unwinding positions

Be Careful – Actions by portfolio companies or subsidiaries can subject owners to sanctions

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Implementing a Compliance Program

Raise Awareness Identify internal stakeholders

Incorporate into overall international compliance program

Global reach at all levels of the enterprise

Communication channels for concerns

Educate customers and other key stakeholders

http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx

Due Diligence Use cost effective and efficient tools

Coordinate with other international regulatory compliance – export/import, anti-corruption, combating human trafficking

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Challenges in Implementing Overlapping and

Sometimes Conflicting U.S. and Non-U.S.

Sanctions Laws

EU and UK sanctions most prominent

Some EU sanctions against Russia more stringent than U.S. sanctions

Check sanctions lists in each country where one does business, has investors, investments, transshipment of products, financial transactions

Beware overlapping statutes – what is legal in one country may be prohibited in other countries

Some countries such as Canada have “blocking” statutes. These statutes make it illegal for individuals in Canada to follow U.S. sanctions on Cuba

Need advice of U.S. and Canadian counsel to work through laws designed to contradict one

another

Potential criminal liability for individuals in Canada to follow OFAC Cuba laws, but potential liability under U.S. law for subsidiaries of U.S. companies that do not follow U.S. laws

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Potential Overlap of Sanctions and Export

Controls with FCPA

If there is a trade sanctions or export violation there is a

good risk of an FCPA violation – and vice versa

In any industry, if transactions raise sanctions risks, they

automatically raise payments risks

Major criminal and civil settlements for transactions

involving improper payment and trade sanctions

Enforcement has focused on companies and individuals

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Due Diligence in M & A Conduct due diligence carefully

Targets could be exposed by their employees’ practices, their products, territorial presence

and business partners

Export violations are unlikely to be highlighted in the data room

Need to ask questions of compliance personnel – who may not be cleared for the

transaction

Need to address post-closing. Failure to do so can extend risk pre-closing

Export liability follows the business regardless of corporate form (an asset deal will not

shield liability)

If a foreign party is involved:

Greater likelihood of sales to prohibited countries. These sales may need to cease at

the time of purchase

May need review by the Committee on Foreign Investment in the U.S. (“CFIUS”) for

investments by non-U.S. persons

CFIUS will inquire about trade with sanctioned countries 21

Enforcement Overview and Case Studies

Criminal fines up to $1 million per violation, up to 20 years in jail

OFAC fines can be in the hundreds of millions of dollars for multiple prohibited financial transactions

Potential for loss of government contracting eligibility

Potential for personal liability

Loss of productivity

Reputational loss

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The OFAC Enforcement Regime

Strict Liability

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The OFAC Enforcement Regime:

Persuading OFAC

Voluntary Disclosure

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The OFAC Enforcement Regime:

Persuading OFAC

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The OFAC Enforcement Regime:

Persuading OFAC

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The OFAC Enforcement Regime

Enforcement Guidelines

“No Action Letter”; “Cautionary Letter”; “Finding of

Violation”; Civil Monetary Penalty; Criminal Referral

$ Penalties are transaction based

List of mitigating factors (e.g., no knowledge, first

time) and aggravating factors (e.g., willfulness,

management involvement).

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OFAC Civil Penalty Calculations

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Enforcement Remains Priority for DOJ

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Enforcement May Involve Multiple Statutory

Authorities

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Most Frequent Charges Since 2009

Enforcement May Involve Multiple Countries

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Countries Targeted More Than Three Times in Export Violations Cases since 2009

Enforcement May Involve Individuals, Corporations,

or Both

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Individual(s) Corporation(s) Both

Frequency of Enforcement Upon Individuals and/or Corporations

Understand the Interagency Process

Main Justice – National Security Division

– Criminal Division (Asset Forfeiture & Money Laundering Section)

U.S. Attorney’s Offices

Other Agencies – Commerce

– Treasury

– State

– Defense

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Multiple Law Enforcement Agencies

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Enforcement May Involve Multiple Investigatory

Agencies

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HSI / ICE FBI BIS DefenseServices

ATF IRS CBP DEA DSS OEE TSA OFAC DoE

Investigatory Agency Frequency Since 2009

Enforcement Brought in a Variety of District Courts

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District Court Frequency

Case Study: BNP Paribas

Pled guilty to charges under IEEPA and TWEA and

falsifying records under New York law

Conduct involved Sudan, Cuba, Iran

DOJ – Criminal Division, AFMLS and SDNY

Agencies – FBI, IRS, Treasury/OFAC

New York State DA, DFS

$8.9 billion (mostly forfeiture) plus $2 billion to NY

Termination/separations, monitorship, temporary

suspension of NY business

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Case Study: Schlumberger Oilfield Holdings

Pled guilty to conspiracy to violate IEEPA (Iran and

Sudan sanctions)

DOJ – National Security Division, USAO DC

Agency – Commerce BIS

$77 million forfeiture, $155 million fine

Probation: reporting and disclosure obligations,

independent consultant on sanctions compliance

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Conclusion

Check the lists!

Check the countries!

Establish written compliance procedures – and follow

them

Conduct training

Conduct due diligence in acquisitions

Conduct assessments/audits

Read the international affairs new stories every day

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Questions & Discussion

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