What U.S. Entities and Individuals Need to Know About U.S .../media/files/perspectives/... · Broad...
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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
[email protected], +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
[email protected], +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.
[email protected], +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
[email protected], +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.
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
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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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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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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