The Trump Administration has been active on the sanctions front as a means of asserting U.S. foreign policy and national security interests. Congress has also taken an increasingly active and direct role of late, beyond its typical deference to the executive branch. BakerHostetler’s international trade team is pleased to provide the following report on the current state of sanctions. Please note that U.S. sanction programs are in near-constant flux, particularly given today’s geopolitical environment.
The United States currently imposes broad trade sanctions on Cuba, Iran, North Korea, Syria, and Crimea, and has only recently lifted sanctions against Sudan. Sanctions targeting specific sectors or economic activities are also imposed on a number of additional countries, including recently revamped sanctions programs targeting Russia and Venezuela. Sanctions programs administered by the Treasury Department’s Office of Foreign Assets Control (OFAC) apply to U.S. persons wherever located and to non-U.S. persons located in the United States. They also generally prohibit facilitation by a U.S. person of a transaction by a foreign person that would be prohibited if performed by a U.S. person or within the United States.
Under the Trump Administration, OFAC has also been active in issuing new Specially Designated Nationals and Blocked Persons (SDN) designations. SDNs are individuals and organizations owned or controlled by, or acting on behalf of, targeted countries, as well as other individuals, groups and entities that are designated under sanctions programs that are not country-specific. The first quarter of 2018 has seen newly designated SDNs in connection with the Russia, Syria, Venezuela, North Korea, Democratic Republic of the Congo and Iran sanctions programs, in addition to a number of designations under sanctions programs that are not country-specific, including those targeting terrorism and drug trafficking. U.S. persons are generally prohibited from dealing with SDNs, and SDNs’ assets are subject to blocking.
In July 2017, the Trump Administration announced the reinstatement of certain restrictions on U.S. travel and financial transactions with Cuba. This followed a significant rollback of Cuba sanctions under the Obama Administration. Financial transactions involving Cuban military, intelligence and security service entities are prohibited. The Trump Administration also imposed a ban on individual people-to-people and educational travel to Cuba. However, regulations enacted by the Obama Administration related to group travel, diplomatic relations, family visits and remittances remain in effect. On Nov. 8, 2017, various U.S. federal agencies, including OFAC, the U.S. Commerce Department’s Bureau of Industry and Security (BIS), and the State Department, took steps to implement these regulatory changes, which formally took effect on Nov. 9, 2017. Apart from some exceptions, including humanitarian donations and certain agricultural commodities, BIS still requires a license for all exports of items subject to the Export Administration Regulations (EAR) to Cuba.
Despite equivocations from the Trump Administration, the Joint Comprehensive Plan of Action (JCPOA), which permits a limited number of transactions with Iran that were previously prohibited, remains in effect. Regulations implemented under the JCPOA allow foreign subsidiaries of U.S. companies to conduct transactions with Iran, subject to restrictions. However, the U.S. parent company may not facilitate its foreign subsidiary’s transactions with Iran, and foreign subsidiaries of U.S. companies may not re-export most U.S. items to Iran.
During the summer of 2017, U.S. Congress took its own action to direct the Trump Administration to impose specific sanctions on Iran, North Korea and Russia by passing the Countering America’s Adversaries Through Sanctions Act (commonly referred to as the CAATS Act), which President Trump signed into law on Aug. 2. With respect to Iran, the CAATS Act directs the President to impose sanctions against (1) Iran’s ballistic missile and weapons of mass destruction programs; (2) the sale or transfer to Iran of military equipment or the provision of related technical or financial assistance; and (3) Iran’s Islamic Revolutionary Guard Corps and affiliated foreign persons. In addition, the President is authorized to impose sanctions against persons responsible for gross human rights violations against any individuals supporting internationally recognized human rights and freedoms or any persons exposing illegal activities of the Iranian government. Accordingly, on Jan. 12, OFAC designated individuals and entities in connection with human rights abuses and censorship in Iran and with those who provide support to designated Iranian weapons proliferators.
Nearly all transactions by U.S. persons with North Korea remain prohibited under OFAC regulations. Prohibited transactions include the import of any North Korean goods, export of any goods or services to North Korea, and any new investment in North Korea.
The CAATS Act, first noted above in connection with Iran sanctions, modifies and increases the President’s authority to impose sanctions on persons in violation of certain United Nations Security Council resolutions regarding North Korea. It prohibits U.S. financial institutions from establishing or maintaining correspondent accounts used by foreign financial institutions to provide indirect financial services to North Korea. A foreign government that provides to or receives from North Korea a defense article or service is prohibited from receiving certain types of U.S. foreign assistance. In addition, the Act provides sanctions against (1) North Korean cargo and shipping; (2) goods produced in whole or in part by North Korean convicts or forced labor; (3) and foreign persons who employ North Korean forced laborers.
On Sept. 20, 2017, President Trump issued Executive Order 13810, which establishes several designation criteria for additional sanctions, including against persons who (1) operate in the North Korean construction, energy, financial services, fishing, information technology, manufacturing, medical, mining, textiles and transportation industries; (2) have engaged in a significant importation from or exportation to North Korea; (3) are a North Korean person; or (4) have materially assisted, sponsored or supported (including financially or technologically) any person whose property is blocked pursuant to the Executive Order. The Executive Order also (1) prohibits vessels and aircraft that have called or landed at a port or place in North Korea in the previous 180 days, and vessels that engaged in ship-to-ship transfer with such a vessel in the previous 180 days, from entering the United States; (2) provides authority to block any funds transiting accounts linked to North Korea that come within the United States or possession of a U.S. person; and (3) authorizes the imposition of sanctions on a foreign financial institution that knowingly conducted or facilitated, on or after the date of the Order, any significant transaction on behalf of certain blocked persons or any transaction in connection with trade with North Korea. OFAC issued General License 10 to provide for limited exceptions to the above prohibitions. Subsequently, OFAC designated a variety of additional North Korean banks, individuals and vessels as sanctioned parties. OFAC also issued an advisory alerting of deceptive shipping practices used by North Korea to evade sanctions, and designated as SDNs a number of companies located in North Korea, China, Singapore and Panama in connection with such practices. On March 1, 2018, OFAC reissued an amended and updated version of the North Korean sanctions regulations.
Nearly all transactions by U.S. persons with Syria are prohibited under OFAC regulations. Prohibited transactions include the import of any Syrian goods, export of any goods or services to Syria, dealing in petroleum products of Syrian origin, and any new investment in Syria. Very narrow exceptions to these prohibitions include services incident to internet-based communications, personal remittances, and certain services in support of nongovernmental organizations’ activities.
Effective Oct. 12, 2017, OFAC lifted its remaining economic sanctions against Sudan in response to Sudan’s human rights improvements and progress related to counterterrorism. Although this action effectively suspends the U.S. trade embargo against Sudan, unfreezes Sudanese assets and removes all financial restrictions against Sudan, it does not terminate the national emergency with respect to Sudan and does not affect any sanctions related to the conflict in Darfur. OFAC designations of Sudanese persons on the SDN list are also unaffected. U.S. and non-U.S. persons are required to obtain licenses from BIS in order to export or re-export U.S.-origin items identified on the U.S. Commerce Control List, but they may use the newly issued General License A to export and re-export agricultural commodities, medicine and medical devices to Sudan.
The United States maintains a broad sanctions program that bans new investment in and prohibits the exportation or importation of goods, technology or services to or from Crimea.
The sectoral sanctions imposed on specified persons operating in the Russian economy during the Obama Administration remain in effect and have been tightened in some instances, as discussed below. Those sectoral sanctions prohibit U.S. persons from engaging in certain transactions with entities subject to the sanctions, as identified on the Sectoral Sanctions Identification List (SSI List). If an entity is listed on the SSI List, the listing designates the directive to which the entity is subject. The four directives restrict different types of financial transactions, including transacting in debt of the designated entity or exporting certain goods or services to the designated entity.
On Sept. 29, 2017, in order to implement the CAATS Act first noted above in connection with Iran sanctions, OFAC amended Directives 1 and 2 of the U.S. sectoral sanctions against Russia, effective Nov. 28, to bar U.S. persons from transacting in debt of more than 14 days’ maturity of designated Russian financial services firms or more than 60 days’ maturity of designated Russian energy firms, respectively. Similarly, on Oct. 31, OFAC expanded the scope of Directive 4 of the U.S. sectoral sanctions against Russia so that the provision, export and re-export by a U.S. person or within the United States, directly or indirectly, of goods, services (except for financial services) or technology in support of exploration or production for deepwater, Arctic offshore or shale projects are prohibited for projects initiated on or after Jan. 29 that have the potential to produce oil in any location in which any person designated under Directive 4 has a 33 percent or greater ownership interest or ownership of a majority of the voting interests.
In Aug. 2017, President Trump signed Executive Order 13808, which imposes sanctions on Venezuela in response to Venezuelan President Nicolas Maduro’s increasingly authoritarian regime. The new sanctions are aimed at restricting the Maduro regime’s access to financial markets and capital, subject to certain limitations intended to reduce the impact on U.S. businesses and the Venezuelan people. The Executive Order prohibits dealings in new debt and equity issued by the Venezuelan government and its state-run oil company, Petroleos de Venezuela S.A., as well as in some existing bonds owned by the public sector. The Order also bans the payment of dividends and other distribution of profits to the Venezuelan government by entities owned or controlled by the Venezuelan government. OFAC published new general licenses that authorize certain transactions that would otherwise be prohibited under Executive Order 13808, including authorization to conduct certain transactions involving CITGO Holdings Inc., the Venezuelan-owned U.S. petroleum company, and dealings in certain bonds.
On March 19, President Trump signed Executive Order 13827 in light of actions by the Maduro regime to attempt to circumvent U.S. sanctions by issuing a digital currency. Executive Order 13827 prohibits all transactions, by a U.S. person or within the United States, related to any digital currency or digital token that was issued by, for or on behalf of the government of Venezuela on or after Jan. 9.