In late June 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) took action on a number of fronts including re-implementing stricter sanctions against Iran, issuing detailed sanctions regulations under the Global Magnitsky Human Rights Accountability Act (“Global Magnitsky Act”) and easing sanctions against Sudan. Firms that engage in business that touches upon Iran or Sudan should carefully review these changes. Moreover, firms should make sure to incorporate the names of individuals designated under the Global Magnitsky Act into their screening process.
First, on June 27, 2018, building upon President Trump’s May 8, 2018 decision to withdraw from the Joint Comprehensive Plan of Action (“JCPOA”), and in an effort to impose the “strongest sanctions in history,” OFAC revoked Iran-related General Licenses H and I, which were issued in connection with the JCPOA. OFAC amended the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (“ITSR”) accordingly to issue new general licenses authorizing the wind down of transactions previously authorized under General Licenses H and I. OFAC also amended the ITSR to eliminate authorization for transactions involving the importation into the United States of, and dealings in, Iranian-origin carpets and foodstuffs, as well as related letters of credit and brokering services (and to also provide for a wind down period).
Second, on June 28, 2018, OFAC announced the issuance of the Global Magnitsky Sanctions Regulations, 31 C.F.R. Part 583, which implement the Global Magnitsky Act and Executive Order 13818 (“Blocking the Property of Persons Involved in Serious Human Rights Abuse or Corruption”) and took effect on June 29, 2018. The Global Magnitsky Act allows the U.S. government to sanction foreign government officials implicated in human rights abuses anywhere in the world.
Last, effective June 29, 2018, OFAC removed the Sudanese Sanctions Regulations from the Code of Federal Regulations. This was the result of the revocation of certain provisions of Executive Orders on which the regulations were based. OFAC also amended the Terrorism List Government Sanctions Regulations to incorporate a general license authorizing certain transactions related to exports of agricultural commodities, medicines and medical devices, which, until June 29, appeared only on OFAC’s website.
I. Iranian Sanctions Updates: Revocation of JCPOA-Related General Licenses; Amendment of the Iranian Transactions and Sanctions Regulations; Publication of Updated FAQs
General License H: Foreign Entities Owned or Controlled by a U.S. Person
General License H, issued in January 2016 in connection with the JCPOA, had authorized U.S.-owned or -controlled foreign entities to engage in transactions involving Iran that would otherwise have been prohibited. In addition, General License H authorized U.S. person employees, outside legal counsel and consultants to provide training, advice and counseling on operating policies and procedures, provided those services did not facilitate illegal transactions. General License H also authorized U.S. persons to make available to U.S.-owned or -controlled foreign entities certain “Authorized Business Support Systems,” including any automated and globally integrated computer, accounting, email, telecommunications or other business support system, platform, database, application or server broadly available to, and in general use by, the U.S. parent company’s global organization.
The effect of the revocation of General License H is to reinstate the prohibition in § 560.215 of the ITSR, which bars foreign entities owned or controlled by a U.S. person from engaging in transactions, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of Iran that would be prohibited if engaged in by a U.S. person.
OFAC added § 560.537 to the ITSR to authorize, through 11:59 p.m. Eastern Standard Time on Nov. 4, 2018, all transactions and activities that are ordinarily incident and necessary to the wind down of transactions relating to foreign entities owned or controlled by a U.S. person that were previously authorized under General License H.
General License I: Contingent Contracts Relating to Commercial Passenger Aviation
General License I had authorized certain transactions related to the negotiation of, and entry into, contracts for activities eligible for authorization under the Statement of Licensing Policy for Activities Related to the Export or Re-export to Iran of Commercial Passenger Aircraft and Related Parts and Services (“SLP”), provided that the performance of such contract was made expressly contingent upon the issuance of a specific license from OFAC authorizing the activity to be performed.
OFAC also added § 560.536 to authorize, through 11:59 p.m. Eastern Daylight Time on Aug. 6, 2018, all transactions and activities that are ordinarily incident and necessary to the wind down of transactions related to the negotiation of contingent contracts for activities that were, at the time of the negotiation, eligible for authorization under the JCPOA SLP pursuant to General License I.
Sections 560.534 and 560.535: Iranian-Origin Foodstuffs, Carpets, and Related Letters of Credit and Brokering Services
In addition, OFAC amended § 560.534 (authorizing the importation into the United States of, and dealings in, certain Iranian-origin carpets and foodstuffs) and § 560.535 (authorizing certain related letters of credit and brokering services) to narrow the scope of the licenses to only authorize, through 11:59 p.m. Eastern Daylight Time on Aug. 6, 2018, the wind down of transactions that were previously under those general licenses. Thus, except for such wind down transactions, transactions involving these Iranian-origin foodstuffs and carpets and related letters of credit and brokering services are no longer authorized.
II. Global Magnitsky: Publication of Global Magnitsky Sanctions Regulations
As noted above, OFAC announced the issuance of the Global Magnitsky Sanctions Regulations, 31 C.F.R. Part 583 (the “Regulations”), which implement the Global Magnitsky Act and Executive Order 13818. The Regulations, effective June 29, 2018, were published in abbreviated form, and OFAC intends to issue a more comprehensive set of regulations, which may include guidance, general licenses and statements of licensing policy. This is the first time that OFAC focused sanctions specifically on those responsible for human rights abuses and corruption.
Section 583.201 of the Regulations prohibits all transactions prohibited by E.O. 13818, and incorporates the names of persons listed in or designated pursuant to E.O. 13818, whose property and interests in property are blocked, into OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”) with the identifier “GLOMAG.”
Further, pursuant to § 583.202(a), any transfer after the effective date that is in violation of the Regulations and involving any property or interest in property blocked pursuant to § 583.201 is null and void. Pursuant to § 583.202(b), transfers prior to the effective date shall not be the basis for an assertion or recognition of any right, power or privilege with respect to any property or interest in property blocked pursuant to § 583.201, unless the person who holds or maintains such property had written notice of the transfer prior to that date or by written evidence recognized such transfer.
However, transfers may be validated before, during or after such transfer by a license or other authorization from OFAC. Transfers that would otherwise be null and void by virtue of the Regulations shall not be deemed to be null and void if the applicant establishes that (1) the transfer did not represent a willful violation of the Regulations by the person with whom the property is or was held or maintained; (2) the person with whom the property is or was maintained did not have reasonable cause to know that such transfer required a license or authorization, or, if a license or authorization did purport to cover the transfer, that license or authorization had been obtained by misrepresentation of a third party or withholding of material facts or was otherwise fraudulently obtained; and (3) the person with whom the property is or was held or maintained filed a report in OFAC setting forth the circumstances relating to the transfer promptly upon discovery that (i) such transfer violated the Regulations, (ii) such transfer was not licensed or authorized by OFAC or (iii) if a license did purport to cover the transfer, such license had been obtained by misrepresentation of a third party or withholding of material facts or was otherwise fraudulently obtained.
Except as otherwise provided, U.S. persons holding funds subject to § 583.201 shall hold or place such funds in a blocked interest-bearing account located in the United States.
The Regulations exempt certain transactions, including: (a) any postal, telegraphic, telephonic or other personal communication that does not involve the transfer of anything of value; (b) the importation and exportation of any information or informational materials (as defined in § 583.306), subject to certain qualifications outlined in § 583.205(b)(2)-(3); and (c) transactions ordinarily incident to travel, including importation or exportation of baggage for personal use, maintenance including payment of living expenses and acquisition of goods or services for personal use, and arrangement or facilitation of such travel.
In addition, U.S. financial institutions are authorized to debit for payment or reimbursement normal service charges from any blocked account held at the financial institution. The provision of certain specified legal services – including but not limited to the provision of legal advice regarding compliance with U.S. law (so long as the advice is not provided to facilitate transactions in violation of the Regulations) – is also authorized, provided that receipt of payment for legal fees must be authorized pursuant to § 583.507 or via specific license. In addition to the specific types of legal services permitted in § 583.506(a), persons whose property and interests are blocked pursuant to § 583.201 may also seek the issuance of a specific license to cover any other legal services. Notably, entry into a settlement agreement or the enforcement of any order through any judicial process purporting to affect property or interests in property blocked pursuant to § 583.201 is prohibited unless licensed pursuant to the Regulations.
Entities are blocked if, individually or in the aggregate, they are owned by 50 percent or greater by one or more persons whose property or interest in property is blocked pursuant to § 583.20.
III. Sudan: Removal of the Sudan Sanctions Regulations; Amendment of the Terrorism List Government Sanctions Regulations
Removal of the Sudanese Sanctions Regulations
On Oct. 11, 2017, the Secretary of State, in consultation with the Secretary of the Treasury, the Director of National Intelligence, and the Administrator of the U.S. Agency for International Development, published notice in the Federal Register that the Government of Sudan had taken positive actions, including a reduction in offensive military activity, cessation of hostilities in conflict areas, improvement of humanitarian access, and cooperation with the United States on addressing regional conflicts and the threat of terrorism. For those reasons, effective Oct. 12, 2017, sections 1 and 2 of Executive Order 13067, “Blocking Sudanese Government Property and Prohibiting Transactions With Sudan” were revoked, and Executive Order 13412, “Blocking Property and Prohibiting Transactions With the Government of Sudan” was revoked in its entirety. On June 29, 2018, consistent with the revocation of the provisions upon which the regulations were based, OFAC took the final step of removing the Sudanese Sanctions Regulations, 21 C.F.R. Part 538 (“SSR”) from the Code of Federal Regulations.
We note that while the sanctions set forth in the SSR have been lifted, other sanctions on Sudan remain in effect, including E.O.s 13067 and 13400, which are the basis for the Darfur Sanctions Regulations, 31 C.F.R. Part 546 (“DSR”), and continue to block the property and interests in property of persons previously designated under the SSR.
Amendment of the Terrorism List Government Sanctions
Section 906 of the Trade Sanctions Reform and Export Enhancement Act of 2000, 22 U.S.C. § 7205 (“TSRA”) requires a license for certain exports and re-exports to Sudan of agricultural commodities, medicine, and medical devices as a result of Sudan’s inclusion on the State Sponsors of Terrorism List. Effective Oct. 12, 2017, General License A authorized exports and re-exports of these items to Sudan. Until June 29, this license was only available on OFAC’s website; on June 29, OFAC incorporated the license into the Terrorism List Government Sanctions Regulations, 31 C.F.R. Part 596 as new § 596.506. OFAC does not require a specific license for financing these exports and re-exports.
However, the Department of Commerce’s Bureau of Industry and Security (“BIS”) may require licenses to export or re-export to Sudan certain items including commodities, software, and technology that are on the Commerce Control List (“CCL”) and, in limited circumstances, items that are not specifically listed on the CCL but are otherwise subject to the Export Administration Regulations (“EAR”) if such transactions implicate certain end-use or end-user concerns.