Over the last several years, the United States and other countries have constantly changed international trade regulations in response to ongoing foreign events. Now, in response to the ongoing crisis in the Ukraine, President Obama has signed two Executive Orders (E.O.’s 13660, dated March 6, 2014 and 13661, dated March 16, 2014) “Blocking Property of Certain/Additional Persons Contributing to the Situation in Ukraine.” Combined with other long-term international trade regulations impacting countries like North Korea and Cuba, and revised regulations concerning countries like Iran, new regulations concerning Ukraine and Russia may have a significant impact on a company’s international supply chains and markets for which awareness and an appropriate response may be key. In regard to the Ukraine situation, the first Executive Order blocks all property held within the United States, or that comes within the possession of any “U.S. person,” of those persons responsible for undermining democratic processes in the Ukraine. The second Executive Order expands the President’s authority to name persons subject to the blocking order who are determined to be responsible for the upheaval in the Ukraine, as well as naming seven Russian government officials as specifically subject to the blocking order.
The Department of Treasury, Office of Foreign Assets Control (OFAC) is charged with carrying out the Ukraine blocking orders, along with those separate regulations dealing with other nations, such as Iran and Cuba. OFAC has already named four Ukraine individuals, including the ousted Ukrainian president, as subject to the sanctions. OFAC is the agency generally responsible for enforcing U.S. economic sanctions against individuals and countries whose policies and actions are deemed contrary to democratic processes and U.S. interests. Notably, OFAC sanctions impact our trade relations with Iran, North Korea, Cuba, Syria and North Sudan. In addition, OFAC’s Specially Designated Nationals (SDN) list prohibits U.S. persons from dealing with a long list of individuals who have been designated as terrorists or significant drug traffickers.
So far, the Ukraine blocking orders have been narrowly targeted against the property of specific named individuals who wield influence in the Russian and Ukraine governments. However, the blocking orders can easily be expanded by OFAC to cover other persons and entities found to support the Russian military in its actions in the Ukraine. Therefore, U.S. companies may wish to pay close attention to their relations to any Russian military interests and ensure compliance with any Executive Orders or OFAC sanctions. In addition to the blocking of property, the new Ukraine sanctions prohibit the entry into the United States of those persons named pursuant to the Executive Orders.
In addition to the Executive Orders described above, the President is expected to sign legislation before the end of March that provides additional sanctions against individuals in the Ukraine and Russia who contribute to the erosion of democracy in the Ukraine. These sanctions include the freezing of assets and revocation of visas of those individuals found to violate the human rights of Ukrainians.
Because the Ukrainian situation continues to evolve, we expect that the U.S. government may continue to modify the sanctions imposed. In addition, the European Union, Australia, Canada and other countries have revised or are revising their own international regulation schemes to address the Ukraine (and other international) issues. A company that operates globally may not simply rely on complying with United States’ laws and regulations in regard to international trade.
If a company operates globally—either via a supply chain or through international sales—new regulations concerning the Ukraine and Russia may provide an opportunity to review all international agreements. Unfortunately, although the sanctions programs deal directly with individuals or countries, the regulations also impact “affiliates” of the individuals, including investments or joint ventures, regardless of whether the transaction is based in the Ukraine or Russia. Simply, doing business with anyone on the SDN or other sanctions list is unauthorized, anywhere in the world. Therefore, continuous due diligence as to vendors, customers and other third-party stakeholders (such as distributors or commercial agents) may be important to ensure compliance. As appropriate, agreements should be amended or certifications of compliance obtained.
In addition to reviewing existing or anticipated agreements and foreign relations, a company may wish to also take the opportunity to update internal policies and procedures. This review may include the policy and procedure related to internal investigations and voluntary disclosures to the government. For example, based on the recent U.S. District Court for the District of Columbia decision in United States of America ex rel. Harry Barko v. Halliburton Company, et al, companies may be very concerned about conducting an internal investigation without guidance and counsel of an outside attorney. The decision significantly limited the applicability of the attorney-client privilege to internal investigations, so companies may wish to have established relationships with outside counsel ready to immediately assist a company upon a potential violation of OFAC and other international regulations.
Companies maximize their competitive advantage by leveraging international supply chains and sales opportunities. However, international trade may not be managed in the same manner as domestic trade. The OFAC and other international trade regulations are only a fraction of the important issues to consider. A company may wish to consider seeking knowledgeable legal counsel to assist it in considering those issues and maximizing international trade opportunities.