The primary focus of last year’s annual update, which appeared in the April 2010 issue, was U.S. efforts to tighten economic sanctions against Iran. The last several months have seen these efforts come to fruition, as well as imposition of new sanctions affecting Libya, North Korea, and Somalia. Our 2011 update concentrates on these key developments, but readers should be aware that these were not the only changes to sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) over the past year. As always, remaining abreast of all applicable embargoes and sanctions must be a priority for international businesses.
U.S. Developments. On July 1, 2010, long sought amendments to the Iran Sanctions Act (“ISA”) became law. As amended by the Comprehensive Iran Sanctions Accountability & Divestment Act (“CISADA”), the ISA targets persons determined to have invested $20 million or more in Iran’s ability to develop or obtain petroleum resources. CISADA expanded the definition of petroleum resources to include petroleum, refined petroleum products, oil or liquefied natural gas, natural gas resources, oil or liquefied natural gas tankers, and products used to construct or maintain pipelines used to transport oil or liquefied natural gas. Also targeted are persons contributing to Iran’s conventional and nuclear weapons proliferation activities, persons supplying refined petroleum products to Iran, and those who supply goods, services, and technology that could facilitate or contribute to Iran’s ability to produce or import refined petroleum products (subject to certain materiality and value thresholds). Provision of ships or shipping services to deliver refined petroleum products to Iran is a sanctionable service. CISADA also imposed or required adoption of other measures designed to tighten the blockade of Iran, including increased penalties for violations of U.N. Security Council resolutions.
Acting to implement measures required by CISADA, OFAC issued (i) the Iranian Financial Sanctions Regulations, which principally target foreign financial institutions (including foreign subsidiaries of U.S. financial institutions) who facilitate proscribed activities by designated Iranian persons and entities, and (ii) the Iranian Human Rights Abuses Sanctions Regulations, which impose sanctions against Iranian persons designated as responsible for human rights abuses in Iran. These new regulations and related designations, together with a steady stream of additional designations of Iranian entities, individuals and vessels under pre-existing proliferation sanctions, have created a complex regulatory environment filled with pitfalls for those engaged in trade or financial transactions involving Iran or Iranian vessels.
Pressure for enhanced sanctions against those doing business with Iran continues to build. Legislation pending before the U.S. Congress would require disclosure to the Securities and Exchange Commission and mandatory investigation of certain activities involving Iran.
International Sanctions. Enhanced U.N. sanctions were adopted by the U.N. Security Council on June 9, 2010. The U.N. sanctions specifically target Iran’s nuclear program and require Member States to prohibit activities which may contribute to Iran’s proliferation or development of nuclear weapons capabilities. Of particular interest to the maritime industry are (i) prohibitions against use of Member State flag vessels to carry certain nuclear materials and technology and certain arms and related materiel to and from Iran; (ii) required inspection of vessels suspected of carrying banned conventional arms or sensitive nuclear or missile items and seizure and disposal of any such items; (iii) prohibitions against provision of bunkering and other services to Iranian owned or contracted vessels suspected of carrying prohibited cargo; (iv) required freezing of assets of various designated persons, including certain entities deemed to be owned, controlled by, or acting on behalf of the Islamic Republic of Iran Shipping Lines (“IRISL”); and (v) prohibitions against provision of financial services, including insurance or re-insurance, if there are reasonable grounds to believe that such services could contribute to Iran’s proliferation activities.
The European Union, like the United States, has not only implemented the U.N. sanctions but gone further to impose additional broad restrictions on trade, financial services, energy, and transport, and additional designations for visa ban and asset freeze. One such measure prohibits provision of insurance and re-insurance to the Government of Iran or Iranian entities, directly or indirectly. Another measure requires written notification or prior authorization of funds transfers to or from Iran in excess of certain thresholds. In addition, and significantly, the sanctions added IRISL, many of its affiliates, and several Iranian banks to the list of entities subjected to asset freeze in the European Union. Thus, the effect of the new E.U. sanctions has been to restrict Iran’s and IRISL’s access to European financial and insurance markets, which had previously compensated for Iran’s exclusion from U.S. markets.
At the time of submission of this update for publication, escalating political unrest had resulted in re-imposition of economic sanctions against Libya and additional measures appeared to be on the horizon as the international community continued to react to the evolving situation.
U.S. Sanctions. The United States imposed the first sanctions on February 25, 2011 by blocking all property interests of designated persons that are in, or may come into the United States or the possession or control of U.S. persons. For purposes of these and other OFAC sanctions, “U.S. persons” include companies incorporated in the United States and their non- U.S. branches; any entity or individual in the United States, and U.S. citizens and permanent residents wherever located. The designated persons include the Government of Libya, its agencies, instrumentalities, and controlled entities, the Central Bank of Libya, and Muammar Qadhafi and his children and other individuals associated with his regime. U.S. persons are prohibited from engaging in any transaction directly or indirectly with, or for the benefit of, the designated persons. The only exceptions to this ban are (i) transactions with banks owned or controlled by the Government of Libya that are organized under the laws of a third country, provided the transactions do not otherwise involve the Government of Libya or any person whose property and interests in property are blocked, and (ii) provision of goods and services in the United States to the diplomatic missions of the Government of Libya to the United States and the United Nations and their employees, as well as payment for such goods and services, under certain conditions.
Following imposition of the OFAC sanctions, the U.S. Department of State’s Directorate of Defense Trade Controls announced immediate suspension of all licenses for export to Libya of defense articles and technical data subject to the International Traffic in Arms Regulations, and effective March 3, 2011 all licenses issued by the U.S. Department of Commerce’s Bureau of Industry and Security for exports or re-exports to Libya under the authority of the Export Administration Regulations were suspended indefinitely.
International Developments. On February 26, the U.N. Security Council imposed an arms embargo and other arms restrictions, introduced targeted sanctions against Qadhafi and certain members of his family and regime, called for international collaboration to provide humanitarian assistance, and referred the situation to the International Criminal Court. Then, on February 28, the European Union issued a Council Decision and on March 2 adopted a Council Regulation implementing the U.N. sanctions in its member states and imposing additional restrictive measures, including (i) freezing of the assets of Muammar Qadhafi, five members of his family and twenty other individuals deemed responsible for violence against the civilian population, (ii) a comprehensive ban of the supply of arms, ammunition or related material to Libya, and (iii) prohibition of trade with Libya in equipment which could be used for internal repression.
North Korea’s continued resistance to international pressure to cease its nuclear proliferation efforts resulted in significant expansion of OFAC sanctions on August 30, 2010, this time targeting Kim Yong Chol and certain North Korean entities and agencies. All property and interests in property of the designated persons that come within the control of U.S. persons are blocked, and all trade and financial transactions by U.S. persons with the designated persons are prohibited.
On April 13, 2010, the United States imposed economic sanctions against persons contributing to the deteriorating situation in Somalia, including acts of piracy offshore Somalia. Although the sanctions currently apply only to dealings by U.S. persons with the eleven individuals and one entity listed in the Executive Order imposing the sanctions, additional persons may be designated as subject to the Order. This power, coupled with the broad language of the Order, sparked concern within the maritime community about the impact of the Order on those making ransom payments to pirates to secure the release of crews and ships. Although two of the individuals designated under the Order have been identified as known supporters of piracy and the language of the Order may be sufficiently broad to permit future designation of persons involved in the paying of ransom to designated pirates, the Administration has not signaled any intention to pursue such designations at this time. Furthermore, in the absence of any U.S. nexus, the Order does not extend to payments made by non-U.S. shipowners in currency other than U.S. dollars.