On October 7, 2016, the U.S. government, consistent with previously stated intentions, lifted the economic and financial sanctions against Burma (Myanmar). Separately, the Department of the Treasury's Office of Foreign Assets Control ("OFAC") amended its Frequently Asked Questions Relating to the Lifting of Certain U.S. Sanctions Under the Joint Comprehensive Plan of Action ("JCPOA") on Implementation Day ("JCPOA FAQs") relating to the Iranian Transactions and Sanctions Regulations.
Termination of the Burma Sanctions
On October 7, 2016, President Barack Obama issued an Executive Order that revokes the Executive Orders that formed the basis of the sanctions against Burma and waives certain other statutory blocking and financial sanctions on Burma. As a result, the OFAC-administered sanctions against Burma are no longer in effect, and the Burmese Sanctions Regulations, 31 C.F.R Part 537, will be removed from the Code of Federal Regulations. In addition, OFAC removed approximately 200 Burmese individuals and entities who were designated on OFAC's List of Specially Designated Nationals and Blocked Persons ("SDN List") pursuant to the Burmese sanctions program. The property and interests in property of these individuals and entities are now unblocked.
This means that, going forward, a company that transacts with Burma does not need to handle business with Burma differently than it would another nonsanctioned country. Companies should still conduct due diligence on such transactions as a best practice, though, including screening parties to transactions involving Burma against the SDN List because the SDN List still designates individuals and entities in Burma for reasons other than the now-terminated Burmese Sanctions Regulations.
Of note, OFAC has stated that, notwithstanding the termination of the Burmese sanctions, it will proceed with any active and ongoing investigations and enforcement actions involving violations of that sanctions program and will still investigate potential past violations that come to its attention. As a result, any activities that would have violated the Burmese sanctions during the past five years could still be subject to enforcement actions.
Additional Guidance Regarding the Iran Sanctions
OFAC also issued changes to its JCPOA FAQs on October 7, 2016—specifically, three amendments to current FAQs and three new FAQs. The amendments and additions primarily relate to banking transactions with or by non-U.S. financial institutions, including foreign-incorporated subsidiaries of U.S. financial institutions, and due diligence requirements.
Two of the amendments are specific to financial institutions' activities. First, in updating the answer as to whether foreign financial institutions, including foreign-incorporated subsidiaries of U.S. financial institutions, may process transactions denominated in U.S. dollars or maintain U.S. dollar-denominated accounts on behalf of the Government of Iran or any person subject to the jurisdiction of the Government of Iran (FAQ C.7), OFAC clarified that those financial institutions may process such transactions and maintain such accounts. The major caveat to this answer, however, is that such transactions and account activities may not involve, directly or indirectly, the U.S. financial system, any U.S. person, or any person on the SDN List or certain specified activities. Moreover, while a transaction denominated in U.S. dollars can technically be completed without involving the U.S. financial system or U.S. persons, such transactions are, as a practical matter, often difficult.
Second, OFAC amended the wording of FAQ C.15, stating that U.S. financial institutions may transact with certain non-U.S., non-Iranian financial institutions that maintain correspondent banking relationships with or otherwise transact with non-blocked Iranian financial institutions, subject to the caveat that the non-U.S. financial institutions cannot route transactions involving Iran through the U.S. financial system or involve U.S. persons in such transactions. Previously the FAQ read, in part, "It remains prohibited, however, for non-U.S. financial institutions to route Iran-related transactions through U.S. financial institutions or involve U.S. persons in such transactions, unless the transactions are exempt from regulation or authorized by OFAC." (emphasis added). It has now been amended to read, "It remains prohibited, however, for non-U.S. financial institutions to route transactions involving Iran to or through the U.S. financial system, or involve U.S. persons in such transactions, unless the transactions are exempt from regulation or authorized by OFAC." (emphasis added).
OFAC also amended an FAQ related to whether General License H authorizes a U.S. person to establish or alter the operating policies and procedures of a U.S. entity or a U.S.-owned or -controlled foreign entity more than once (K.19) in the same manner as FAQ C.15. When this FAQ was originally added in June 2016, the response was: "Yes. A U.S. person can undertake additional changes to such operating policies and procedures so long as the changes are not with respect to, or for the purpose of facilitating, any particular Iran-related transaction by the U.S.-owned or -controlled foreign entity." The recent amendment rephrased the wording of the answer from "any particular Iran-related transaction" to "any particular transaction(s) involving Iran." The addition of the plural option to "transaction" clarifies that if a company is presented with multiple potential Iran-related transactions around the same time, it cannot change its policies specifically to allow particular transactions.
Finally, OFAC added three new FAQs, all of which relate to the applicable due diligence standards for transactions involving Iran. First, OFAC has clarified in new FAQ M.10 that it is not necessarily sanctionable for non-U.S. persons to engage in transactions with an entity that is not on the SDN List but is minority-owned or is controlled, in whole or in part, by an Iranian or Iran-related person on the SDN List. The new FAQ, however, expressly notes that the non-U.S. person must exercise caution when engaging in such transactions.
Second, new FAQ M.11 states, in response to whether simply checking the SDN List is sufficient due diligence for a non-U.S. person to conduct when deciding whether to engage in a transaction with a potential Iranian counterparty, that the non-U.S. person should consult with its local regulators regarding jurisdictional expectations of sufficient due diligence. In addition, the FAQ notes that the due diligence procedures should conform with the non-U.S. person's internal risk assessment and compliance policies, which should be based on the best practices of the non-U.S. person's industry. OFAC also suggests that the non-U.S. person retain records of the due diligence efforts.
Finally, new FAQ M.12 addresses whether OFAC expects non-U.S. financial institutions to conduct due diligence on their customers' Iranian customers. The FAQ states that the appropriate level of due diligence depends on the financial institution's role in the transaction. In addition, although it is a best practice for a non-U.S. financial institution to perform due diligence on its own customers, OFAC does not expect such financial institutions to duplicate the due diligence that its customers have conducted on an Iranian customer unless there is reason to believe that due diligence was insufficient.