DOJ guidance on export control and sanctions investigations
The US Department of Justice’s National Security Division (NSD) recently released guidance on its approach and the updated factors it considers when pursuing investigations of willful export controls and sanctions violations. The guidance, dated October 2, 2016, which implements the September 9, 2015 Yates Memorandum on Individual Accountability and Corporate Wrongdoing (available here) in export control and sanctions cases, encourages business organizations voluntarily to self-disclose willful export controls and sanctions violations to NSD’s Counterintelligence and Export Control Section (CES).
According to NSD guidance, organizations should continue submitting voluntary self-disclosures (VSDs) to the relevant export controls and sanctions regulatory agencies. However, the NSD encourages organizations to also submit a VSD to the NSD “within a reasonably prompt time” of becoming aware that violations may have been willful. Submitting a VSD, cooperating in line with the Yates Memorandum, and implementing appropriate remediation are key factors that the NSD will consider in its disposition of an export controls or sanctions case. Depending on the circumstances, according to the NSD guidance, a VSD may increase the chances that an organization can benefit from a non-prosecution agreement and significant penalty reductions. The NSD guidance can be found here.
Termination of the Myanmar (Burma) Sanctions Program
On October 7, 2016, President Obama signed an executive order terminating the sanctions against Myanmar (Burma) administered by the US Treasury Department’s Office of Foreign Assets Control (OFAC). The termination of the Burma sanctions program is meant to support trade and economic growth in Myanmar, and to enable investment by US persons in Myanmar with fewer restrictions and reporting requirements.
The termination has resulted in removal of persons designated under the Burma sanctions program from the list of Specially Designated Nationals (SDN list), unblocking previously blocked property and interests of such persons, ending the ban on the import into the United States of Burmese jade and rubies, and revoking OFAC’s restrictions on US person dealings with financial institutions in Myanmar. In addition, compliance with the State Department’s Responsible Investment Reporting Requirements is now voluntary, rather than mandatory.
This order does not impact individuals or entities in Myanmar on the SDN list pursuant to other OFAC sanctions programs.
While FinCEN’s 2003 finding that Myanmar is a “jurisdiction of primary money laundering concern” remains in place, FinCEN issued an administrative exception allowing US financial institutions to provide correspondent banking services to banks in Myanmar, subject to certain due diligence obligations.
Updates on Iran Sanctions Program and FAQs
Since the Joint Comprehensive Plan of Action (JCPOA) was implemented in January 2016, OFAC has provided guidance in the form of updated FAQs in June and in October, and has issued additional general licenses. Although none of the FAQ updates change OFAC policy or the Iran regulations, the updates may provide clarity to US and non-US persons (including financial institutions) considering engaging in or supporting transactions involving Iran within the bounds of the JCPOA. Please see our client briefing from January 2016 for a description of the previous changes made to the US and EU sanctions on Iran.
General License J
Notable among the new general licenses issued by OFAC since January is General License J (GL J), “Authorizing the Reexportation of Certain Civil Aircraft to Iran on Temporary Sojourn and Related Transactions,” issued in July 2016. GL J authorizes non-US persons to fly certain aircraft in and out of Iran (on “temporary sojourn”). Among other conditions, GL J does not authorize aircraft sales, leases, or transfers of operational control to Iran, transactions involving a US person or a US-registered aircraft. The full text of GL J can be found here.
June FAQ updates
In June, OFAC updated its Iran sanctions FAQs to provide further guidance for non-US companies owned or controlled by a US person (i.e., the companies that can take advantage of General License H (GL H) to conduct certain business in Iran). The June FAQs largely center on how US-person ownership and control are determined and what is and is not permitted for such entities under GL H: for example, US persons are permitted to make changes to policies and procedures of their non-US subsidiaries to allow such non-US entities to establish a physical presence in Iran.
The June FAQ updates also provide information on how US persons on the board or in senior management of a non-US entity that transacts with Iran should recuse themselves from Iran transactions, ideally with a blanket recusal (rather than case-by-case recusals). The FAQs also confirm that (i) a US person may continue to receive reports on Iran transactions conducted pursuant to GL H, and (ii) a US parent may continue to be involved in the day-to-day operations relating to non-sanctioned jurisdictions of US-owned or controlled foreign businesses that transact with Iran.
October FAQ updates
The October FAQ updates cover three topics: (1) permitted conduct for financial institutions, (2) changes to policies permitted under GL H and (3) diligence requirements for US and non-US persons. OFAC made the following key points:
- Specifying that while foreign financial institutions may process certain USD transactions or maintain USD accounts that involve Iran, transactions involving Iran may not involve the US financial system. (We continue to advise exercising caution for any USD-denominated transactions involving Iran because most USD transactions necessarily touch the US financial system.)
- Changing the language in previous FAQs from “Iran-related transactions” to “transactions involving Iran,” in an attempt to narrow the scope of the transactions that are permitted to be routed to or through the US financial system.
- Clarifying that GL H authorizes US persons to make repeated changes to the operating policies and procedures of the US entity or of its US-owned or -controlled foreign entity, so long as those changes are not to facilitate any particular transaction(s) involving Iran.
- Noting that while it is not necessarily sanctionable for a non-US person to engage in transactions with an entity that is minority owned or controlled by an Iranian or Iran-related person on the SDN list, OFAC recommends exercising caution to ensure that such transactions do not involve Iranian or Iran-related persons on the SDN list.
- Explaining that for non-US persons conducting due diligence, screening the names of Iranian counterparties against the SDN list is expected but not necessarily sufficient. However, non-US financial institutions are not generally required to conduct due diligence on their customers’ Iranian customers, unless there is reason to believe that the customers’ due diligence was inadequate. Additional due diligence should be based on best practices in the industry and the expectations of local regulators.
Updates to the Cuba Sanctions Program
OFAC and the US Commerce Department’s Bureau of Industry and Security (BIS) implemented further significant amendments to the Cuba sanctions on October 17, 2016. These changes build on amendments made to the Cuba sanctions in January 2015, September 2015, January 2016 and March 2016. The goal of these changes is to help foster a closer economic relationship between the United States and Cuba. Certain of the most significant changes include:
Relaxation of trade and commerce restrictions
- OFAC eliminated the dual-licensing requirement for exports to Cuba from the United States that consist of less than 100% US-origin content. Such exports now only require a license from BIS, rather than a license from both BIS and OFAC.
- BIS will generally authorize the export of certain consumer goods sold online or through other means directly to individuals in Cuba for their personal use.
- OFAC no longer requires a license to import into the United States or a third country items previously exported or reexported to Cuba pursuant to a BIS or OFAC authorization. In addition, US persons are permitted to service and repair such items (though the export of replacement items or repaired items would be subject to licensing requirements).
- US persons can negotiate and enter into contingent contracts for currently prohibited transactions, as long as the contract is expressly contingent on either authorization being received or authorization no longer being required.
Joint medical research and drug approval
- US persons can engage in joint medical commercial and non-commercial research projects with Cuban nationals.
- Transactions ordinarily incident to obtaining US Food and Drug Administration (FDA) approval of Cuban-origin pharmaceuticals are permitted, and the importation into the United States, and the marketing, sale, or other distribution in the United States of FDA-approved Cuban-origin pharmaceuticals is permitted.
Humanitarian-related transactions involving infrastructure
- OFAC now permits US persons to provide services to Cuba or Cuban nationals related to developing, repairing, maintaining and enhancing certain Cuban infrastructure to directly benefit the Cuban people. (Services related to infrastructure were not previously among the humanitarian projects authorized by general license.)
Unlimited carry-along goods and remittances
- OFAC has removed the monetary limitation on what travelers may bring back from Cuba to the United States as accompanied baggage, including the limitations on Cuban-origin alcohol and tobacco, as long as the goods are for personal use and normal duty and tax rules are followed.
- US persons are permitted to make remittances to third-country nationals for travel by third-country nationals to, from or within Cuba, if the travel would be authorized by general license for US persons.
Services for safety of civil aviation
- A new OFAC general license permits US persons to provide civil aviation safety-related services to Cuba and Cuban nationals related to the safe operation of commercial aircraft. (The provision of such services previously required a specific license.)
Significant restrictions related to doing business in Cuba remain for US persons and US-owned or controlled entities, and exports from the United States or containing more than de minimis US export-controlled content. It remains necessary to obtain licenses from OFAC or BIS to engage in such transactions, and BIS maintains a general policy of denial for most types of exports and reexports to Cuba of items subject to US export controls.
BIS has stated that it generally approves license applications for medicine and medical devices, certain environmental items, and telecommunications items. BIS will review license applications on a case-by-case basis for the export of, among other things, items to meet the needs of the Cuban people.
The amended OFAC Cuba regulations can be found here, the new BIS regulations can be found here, a fact sheet describing the changes is available here, revised OFAC FAQs are available here, and revised BIS FAQs are available here.