Today, President Trump signed into law the Nicaraguan Investment Conditionality Act (NICA Act). The sanctions listed in the NICA Act are additional and would be complementary to the current sanctions that have already been imposed on Nicaragua by the US Office of Foreign Assets Control (OFAC). The NICA Act aims to block any loan that could be issued by international financial institutions that could benefit the current Government of Nicaragua and will only allow international loans once the Department of State determines that the Government of Nicaragua is taking the appropriates steps towards democracy, corruption-free elections and institutions, strengthening the rule of law, respecting the freedom of the press and individuals and entities with opposing views, and combating corruption.
The NICA Act requires U.S. members of the various international financial institutions (IFIs) such as the World Bank and Inter-American Bank to use their “voice, vote and influence” to oppose the extension of loans and financial or technical assistance for projects related to Nicaragua. The NICA Act complements the current sanctions that were recently issued by the most recent Executive Order (E.O.) 13851, “Blocking Property of Certain Persons Contributing to the Situation in Nicaragua”, which gives the President the authority to designate asset-blocking sanctions and visa-rejections to any current or former officials (since 2007) of the Government of Nicaragua or any person acting on behalf of the Nicaraguan Government engaging in human rights abuse or corruption.
These new sanctions are already affecting Nicaragua, even if indirectly. According to published reports in Nicaragua, major U.S. banks including but not limited to Wells Fargo and Bank of America that have operated as correspondent banks for Nicaraguan financial institutions have notified their Nicaraguan correspondent banks that that they will be closing their accounts and ceasing their operations in and with Nicaragua. These banks are reportedly taking these steps as a result of the higher risks recently associated with the country.
These new sanctions imposed by the United States (described below) may lead other businesses to also cease or diminish their commercial relations with Nicaragua. At a minimum, Nicaragua is “high risk” for business transactions.
Executive Order 13851 Announced on November 27, 2018
On November 27, President Trump issued Executive Order (E.O) 13851, “Blocking Property of Certain Persons Contributing to the Situation in Nicaragua”. The E.O. establishes criteria for blocking property and interests of property that are or hereafter come within the possession or control of any U.S. person (including U.S. persons such as foreign branches located outside the United States) of persons determined by OFAC to be responsible for or complicit in—inter alia—serious human rights abuse or corruption in Nicaragua, as well as actions or policies that undermine democratic processes or institutions or that threaten the peace, security, or stability of Nicaragua.
Consistent with other Orders promulgated pursuant to the International Emergency Economic Powers Act (“IEEPA”), the new E.O. specifically prohibits:
- Receiving and contributing funds, goods, or services by or to benefit any person designated by the E.O.;
- Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set in this E.O.Pursuant to this E.O., OFAC added two individuals associated with the Government of Nicaragua to its Specially Designated Nationals (SDN) List:
Pursuant to this E.O., OFAC added two individuals associated with the Government of Nicaragua to its Specially Designated Nationals (SDN) List:
- Rosario Murillo de Ortega (also known as “La Chayo”) – Vice-President and First Lady of Nicaragua.
- Nestor Moncada Lau (also known as “Chema”) – National Security Advisor and private Secretary of President Daniel Ortega
Global Magnitsky Sanctions Issued on July 5th, 2018
These recently issued sanctions build upon the previously announced Global Magnitsky Sanctions designations of the following three individuals who were identified for their close relationships to the Nicaraguan regime for human rights abuses and acts of corruption:
- Francisco Javier Diaz Madriz – Current Acting Director General of the National Police (was a commissioner at the time these sanctions were issued).
- Fidel Antonio Moreno Briones – Leader of the government-controlled Sandinista Youth.
- Jose Francisco Lopez Centeno – Vice-President of ALBANISA (51% owned by Venezuela’s state-owned PDVSA), and President of Petronic (Nicaragua’s state-owned oil company).
The E.O. also authorizes future designations of any person that has been an official of the government of Nicaragua since January 10, 2007 and is determined to have engaged or attempted to engage in:
- Serious human rights abuse in Nicaragua;
- Actions or policies that undermine democratic processes or institutions in Nicaragua;
- Actions or policies that threaten the peace, security, or stability of Nicaragua;
- Any transaction or series of transactions involving deceptive practices or corruption by, on behalf of, or otherwise related to the Government of Nicaragua, such as the misappropriation of public assets or expropriation of private assets for personal gain or political purposes, corruption related to government contracts, or bribery.
The E.O. defines the term “Government of Nicaragua” as any political subdivision, agency, or instrumentality thereof, including the Central Bank of Nicaragua, and any person owned or controlled by, or acting for or on behalf of, the Government of Nicaragua. This definition bears a resemblance to recent sanctions targeting Venezuela – but without the general licenses.
Companies doing business in Nicaragua must exercise caution when engaging in any transactions with any entity that may be owned (50% or more) by any of the newly sanctioned Nicaraguan officials, as the link to these individuals may not be obvious. Consistent with past approaches, it appears that an individual high risk for corruption risk is also high risk for sanctions exposure. Compliance programs for businesses continuing ties to Nicaragua should continue to include robust beneficial ownership due diligence, supply chain transparency, record keeping, and, potentially, audits of counter parties to ensure the same high standards apply throughout the transaction chain.