There are several designation lists created by U.S. government agencies to prohibit or restrict certain economic or trade activities the U.S. deems to be adverse to U.S national security and foreign policy goals. These lists are created, maintained, and regulated by different U.S. government agencies and impose different requirements on those subject to them. They also impose different levels of enforcement mechanisms, with violations potentially being subject to both criminal and civil liability.
The designations can be either comprehensive—barring U.S. persons from all transactions with those designated—or selective—barring U.S. persons from certain transactions with those designated. The consequences of being designated can range from having assets blocked in the United States to being prohibited to deal in U.S. goods and technology. For example, the SDN List and the CAPTA List target the transactions of U.S. persons with certain countries, regimes, organizations, entities, and individuals to counter a variety of threats, such as terrorism, narcotics trafficking, proliferation of weapons of mass destruction, and other threats to the national security, foreign policy, or economy of the United States. These, and a number of other U.S. designation lists, are described in greater detail below.
02 U.S. Department of the Treasury – Office of Foreign Assets Control
Specially Designated Nationals and Blocked Persons List (“SDN List”)
The SDN List, published and maintained by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), includes individuals, entities, and vessels sanctioned under a series of U.S. economic and trade sanctions. U.S. persons are prohibited from dealing with parties on the SDN List and must block any assets of SDN-listed parties that come into their possession or control anywhere in the world. Blocked assets are essentially frozen assets. Where such assets come into the possession or control of a U.S. person, the U.S. person is prohibited from exercising any rights or privileges over them without express authorization from OFAC. Any person seeking to have dealings with a blocked party must request a specific license from OFAC, unless the dealings are otherwise permitted by a general OFAC exemption.
If a party is placed on the SDN List, it is effectively cut off from any U.S.-related business or financial transactions. A U.S.-related transaction covers a broad range of transactions. For example, any non-U.S. individual or entity that is a party to a transaction that is cleared through the U.S. financial system can fall within U.S. jurisdiction if it causes a transaction that is in violation of OFAC sanctions to occur. Thus, OFAC can exercise jurisdiction over a transaction which takes place anywhere in the world if the transaction involves the U.S. financial system at any point.
Where the U.S. government has jurisdiction, it may apply primary sanctions, including fines or imprisonment, directly against violators of U.S. sanctions. Primary sanctions apply to U.S. persons anywhere in the world or to non-U.S. persons in situations where there is a nexus with the United States. U.S. persons—which include not only U.S. citizens but also persons physically located in the United States, even temporarily—may not deal with SDNs or transactions involving sanctioned countries. U.S. persons are also prohibited from facilitating any dealings by non-U.S. persons that would be prohibited if it involved a U.S. person.
Under certain sanctions programs, the U.S. government applies secondary sanctions in order to deter sanctions-violative transactions by non-U.S. persons where the transaction has no U.S. nexus. Secondary sanctions apply to non-U.S. persons and relate to conduct that takes place outside the U.S. and does not involve U.S. dollars, the U.S. financial system, or U.S. persons. As the U.S. government does not have jurisdiction over this conduct, it is unable to impose direct penalties such as fines or imprisonment. Accordingly, secondary sanctions pressure non-U.S. persons to cease business activities with the sanctioned target by threatening a variety of potential penalties, including to designate them to the SDN List.
Correspondent Account or Payable-Through Account Sanctions List (“CAPTA List”)
OFAC administers and enforces several non-SDN sanctions lists. One is the CAPTA List, which identifies non-U.S. financial institutions that are prohibited or severely restricted from opening or maintaining U.S. correspondent or payable-through accounts. The list was created in March 2019, and the only non-U.S. financial institutions on the list so far are Bank of Kunlun and its related entities, all of which were found to have provided financial services to Iranian banks in violation of U.S. sanctions. U.S. financial institutions are also prohibited from opening or maintaining U.S. correspondent or payable-through accounts on behalf of any non-U.S. institution identified on the CAPTA List.
Sectoral Sanctions Identifications List (“SSI List”)
The SSI List identifies persons operating in sectors of the Russian economy identified by the U.S. Secretary of the Treasury pursuant to Executive Order 13662. Persons on the SSI List, unlike those on the SDN list, do not face an asset freeze, and U.S. persons are not as strictly prohibited from dealing with them. Rather, persons on the SSI List are subject to a more calibrated set of sanctions that are intended to cut off access to certain types of financing, and, in the case of designated energy companies, to also restrict access to U.S. exports.
Four directives under Executive Order 13662 describe the prohibitions on dealings with the persons identified on the SSI List and include: (1) restrictions on new equity investment and financing for identified entities in Russia’s financial sector; (2) prohibitions on new financing for identified entities in Russia’s energy sector; (3) prohibitions on new financing for identified entities in Russia’s defense sector; and (4) prohibitions on U.S. trade with identified entities related to the development of Russian deepwater, Arctic offshore, or shale projects that have the potential to produce oil and such projects worldwide in which those entities have an ownership interest of at least 33% or a majority of voting interests.
Foreign Sanctions Evaders List (“FSE List”)
The FSE List is a list of persons OFAC has determined have engaged in conduct related to the evasion of U.S. sanctions on Iran and Syria. It also lists non-U.S. persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions.
Although the FSE List is not a part of the SDN List, individuals and companies on the FSE List may also appear on the SDN List. Being on the FSE List carries similar prohibitions to being on the SDN List, such as a general prohibition on U.S. persons engaging in any transactions with the persons identified. However, unlike the SDN List, there is no obligation to block or freeze the property of a person listed on the FSE List (unless the person is also on the SDN List).
03 U.S. Department of Commerce – Bureau of Industry and Security
The Entity List, administered and enforced by the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), identifies persons who the U.S. government believes are involved, or who pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States. The End-User Review Committee—composed of representatives of the U.S. Departments of Commerce, State, Defense, Energy and, where appropriate, the Treasury—is responsible for deciding whether to place someone on the Entity List. Each entity on the Entity List is assigned a specific licensing requirement and a license review policy based on national security or foreign policy considerations. The End-User Review Committee usually imposes a license requirement for all items subject to the Export Administrative Regulations (“EAR”) and a license review policy of “presumption of denial,” effectively banning shipments of all items subject to the EAR—a very broad spectrum of physical goods, software, and technology (information)—to the listed entity.
Military End Uses and Military End Users
Although not a list in the sense of the Entity List, the EAR also set forth certain restrictions on military end uses and end users. “Military end users” include the national armed services, national guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support military end uses. On June 29, 2020, BIS implemented new rules in relation to military end uses and end users. The rules expanded the existing provisions under the EAR and further restrict exports to military end users and for military end uses in China, Russia, and Venezuela. Specifically, exports, reexports, and (in-country) transfers of certain designated items to military end users or for military end use deemed to be contrary to U.S. national security interests previously permitted under the Civil End Users (“CIV”) License Exception will no longer be permitted. Simultaneously, the list of designated items subject to these restrictions has been expanded to include new items such as electronics, telecommunications, sensors, and lasers, and BIS has adopted a “presumption of denial” licensing policy in reviewing military end use/user exports to those targeted countries.
Denied Persons List (“DPL”)
The DPL lists individuals and entities who have been denied export and reexport privileges, such as persons who have previously been charged with violating U.S. export controls. Denied persons are prohibited from participating in any way in any transaction involving any commodity, software, or technology exported, or to be exported, from the United States that is subject to the EAR. Moreover, any person who facilitates a denied person to circumvent these prohibitions is also in violation of the EAR.
Unverified List (“UVL”)
The UVL designates end users whom BIS has been unable to verify despite investigating past transactions. If a transaction involves a party on this list, it is considered a “red flag” that others involved in the transaction should investigate and resolve before moving forward with the transaction. It also requires that details of the transaction be reported to BIS. UVL parties are not eligible to receive items subject to the EAR by means of an exception to a license requirement.
04 U.S. Department of Defense
Section 1237 List
The Section 1237 List was released by the U.S. Department of Defense (“DOD”) on June 12, 2020 and includes 20 Chinese companies operating in the U.S. that the U.S. government believes are owned or controlled by the Chinese military. The list was compiled pursuant to section 1237 of the National Defense Authorization Act for Fiscal Year 1999, as amended by the National Defense Authorization Act for Fiscal Year 2001, which requires the DOD to annually report a list of companies operating directly or indirectly in the United States that are owned or controlled by the Chinese People’s Liberation Army.
About half of the companies included in the Section 1237 List have already been added to the Entity List, and those that have not been may be considered military end users subject to tighter export restrictions under the EAR given their classification by the DOD as “Communist Chinese military companies.” Though severe, the restrictions on Entity Listed entities and Chinese military end users are not as far-reaching as being placed on the SDN List.
Although inclusion on the Section 1237 List does not amount to being sanctioned, it does mean that the President has the authority to impose sanctions on the companies listed. The President has not yet exercised that authority; but, if exercised, it could result in U.S. persons being prohibited from dealing with the entities on the Section 1237 List, and many of their subsidiaries, which would essentially cut the listed companies off from the U.S. financial system and U.S. market.
05 U.S. Department of State – Directorate of Defense Trade Controls
Arms Export Control Act Debarred List (“AECA Debarred List”)
The Directorate of Defense Trade Controls (“DDTC”) maintains the AECA Debarred List. Parties designated to this list are prohibited from participating in the export of defense articles (including technical data) and defense services. A “statutory debarment” occurs where a party has been convicted of violating or conspiring to violate the AECA. DDTC may also impose an “administrative debarment” for violations of the AECA or the International Traffic in Arms Regulations (“ITAR”), which control the export and reexport of defense articles and services. Under either type of debarment, the debarred party must seek and be granted reinstatement before engaging in any activities subject to the ITAR.
06 U.S. Department of State – Bureau of International Security and Nonproliferation
Nonproliferation Sanctions List
The Nonproliferation Sanctions List is compiled by the Bureau of International Security and Nonproliferation (“ISN”) from a variety of laws directed against non-U.S. individuals, private entities, and governments that engage in proliferation activities related to, amongst others, nuclear, chemical, and biological weapons. The specific sanctions imposed on listed parties vary depending on the law under which the party was added to the Nonproliferation Sanctions List.