On Friday, the EU Commission announced plans to protect EU companies doing business in Iran. This announcement comes in response to President Trump’s decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), known as the Iran nuclear deal, and re-impose U.S. sanctions on Iran. The EU Commission plans to mitigate the extraterritorial effect of U.S. sanctions on EU companies in four ways:

  1. Blocking Statute: revive and update a 1996 “blocking statute” to forbid EU companies from complying with U.S. sanctions against Iran and make foreign court judgements based on these sanctions ineffective in the EU. The blocking statute was originally proposed to counter the effects on EU companies of the U.S. embargo on Cuba. It will be necessary to update the list of U.S. sanctions on Iran that fall within its scope. The Commission hopes to have this measure in place by August 6, 2018, when the first set of U.S. sanctions takes effect.
  2. EIB Investment: remove obstacles to allow the European Investment Bank (EIB) to support EU investment in Iran.
  3. Sectoral Cooperation: strengthen sectoral cooperation with Iran, including “in the energy sector and with regard to small and medium-sized companies.” To facilitate this, Commissioner for Climate Action and Energy, Miguel Arias Cañete, plans to travel to Tehran this weekend. Additionally, the Development Cooperation or Partnership Instruments will provide financial assistance.
  4. Central Bank of Iran Transfers: encourage Member States to “explore the possibility of one-off bank transfers” to the Central Bank of Iran. The U.S. sanctions could target EU entities active in oil transactions with Iran, so this would help Iranian authorities receive their oil-related revenues.

After the first two measures are formally proposed, the European Parliament and the Council will have two months to object to them. If neither institution objects, however, this period can be shortened.

EU leaders gave unanimous backing to the above proposals when they were presented to them at an informal meeting in Sofia, Bulgaria, by European Commission President Jean-Claude Juncker on 16 May 2018.

On May 8, 2018, President Trump announced the United States’ withdrawal from the Joint Comprehensive Plan of Action (JCPOA) pursuant to which the United States had provided relief from certain direct sanctions and even more secondary sanctions. Following his remarks, the president signed a National Security Presidential Memorandum directing the Departments of State and the Treasury to “begin reinstating” U.S. nuclear sanctions that had been lifted in connection with JCPOA implementation.

Immediately following the president’s announcement, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued guidance regarding the re-imposition of sanctions in the form of Frequently Asked Questions. The FAQs make clear that all sanctions measures that have been lifted pursuant to the JCPOA will be re-imposed following 90- or 180-day wind-down periods, on August 6, 2018 and November 4, 2018, respectively. Key elements of the re-imposed U.S. sanctions, their impact, and the FAQ guidance are summarized below.

Wind-Down Periods

Sanctions targeting the following areas will be reinstated following the 90-day wind-down period (ending on August 6, 2018):

  • The purchase or acquisition of U.S. dollar banknotes by the Government of Iran.
  • Iran’s trade in gold or precious metals.
  • The direct or indirect sale, supply, or transfer to or from Iran of graphite, raw, or semi-finished metals such as aluminum and steel, coal, and software for integrating industrial processes.
  • Significant transactions related to the purchase or sale of Iranian rials, or the maintenance of significant funds or accounts outside the territory of Iran denominated in the Iranian rial.
  • Purchase, subscription to, or facilitation of the issuance of Iranian sovereign debt.
  • Iran’s automotive sector.

Sanctions targeting the following areas will be reinstated following the 180-day wind-down period (ending on November 4, 2018):

  • Iran’s port operators, and shipping and shipbuilding sectors, including on the Islamic Republic of Iran Shipping Lines, South Shipping Line Iran, or their affiliates.
  • Petroleum-related transactions with, among others, the National Iranian Oil Company, Naftiran Intertrade Company, and National Iranian Tanker Company, including the purchase of petroleum, petroleum products, or petrochemical products from Iran.
  • Transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions under Section 1245 of the 2012 National Defense Authorization Act for FiscalYear 2012 (NDAA).
  • The provision of specialized financial messaging services to the Central Bank of Iran and Iranian financial institutions described in Section 104(c)(2)(E)(ii) of CISADA.
  • The provision of underwriting services, insurance, or reinsurance.
  • Iran’s energy sector.

General and Specific Licenses

Certain general and specific licenses, and related materials, issued pursuant to the JCPOA will be revoked subject to the wind-down periods:

  • 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” (the “Aircraft Policy”) was revoked on May 8, 2018, and OFAC will no longer consider applications under this Policy, other than applications under the pre-existing “safety of flight statement licensing policy,” at 31 C.F.R. § 560.528.
  • Specific licenses issued pursuant to the Aircraft Policy will be revoked and replaced with authorizations providing a wind-down period ending on August 6, 2018.
  • General License I, which authorized transactions ordinarily incident to negotiating contingent contracts for activities eligible to be licensed under the Aircraft Policy, will be revoked and replaced with wind-down authorization ending on August 6, 2018.
  • General License H, which authorized non-U.S. entities owned or controlled by U.S. persons to engage in a range of activities involving Iran, will be revoked and replaced with wind-down authorization ending on November 4, 2018.

General licenses at 31 C.F.R. §560.534 (authorizing the importation into the U.S. of, and dealings in, certain Iranian-origin carpets and foodstuffs) and §560.535 (authorizing certain related letters of credit and brokering services) will be amended to authorize a wind-down period ending August 6, 2018.

Re-Listing of Individuals and Entities

No later than November 5, 2018, OFAC will re-impose “the sanctions that applied to persons removed from the SDN List and/or other lists maintained by OFAC on January 16, 2016.” OFAC emphasizes that “[d]epending on the authority or authorities pursuant to which these actions to re-list are taken, there may be secondary sanctions” associated with these persons. (Secondary sanctions in this case are sanctions imposed on non-U.S. persons who engage in specified business in or with Iran). Importantly, this will include re-designating all Government of Iran (GOI) entities as SDNs, by removing them from the Executive Order 13599 list and moving those persons back to the SDN list. The net effect is to expose non-U.S. persons transacting with GOI entities to U.S. secondary sanctions. This would include, but not be limited to, transactions with: (a) the Islamic Republic of Iran Shipping Lines (IRISL), (b) the National Iranian Oil Company (NIOC), (c) Naftiran Intertrade Company (NICO), (d) National Iranian Tanker Company (NITC), (e) the South Shipping Line Iran, (f) Tidewater Middle East Co., and numerous others.

Crude Oil Purchases

The reinstatement of sanctions on transactions by foreign financial institutions with the Central Bank of Iran and designated Iranian financial institutions – critical financial intermediaries for Iran’s petroleum-related transactions – will have a significant impact on the Iranian government’s ability to export oil. The FY2012 NDAA provides that the president “shall prohibit” or strictly limit U.S. correspondent or payable-through accounts for a foreign financial institution that “has knowingly conducted or facilitated any significant financial transaction with the Central Bank of Iran or another [sanctioned] Iranian financial institution,” unless (1) the transaction is for the sale of food, medicine, or medical devices to Iran, or (2) the president determines and reports to Congress every 180 days that the country with primary jurisdiction over the foreign financial institution has significantly reduced its volume of crude oil purchases from Iran.”

Foreign financial institutions operating in countries that “significantly reduce[]” imports of crude oil from Iran will not face the risk of these secondary sanctions. Foreign entities with exposure to Iran’s oil sector should watch closely for U.S. government determinations of which countries qualify for this exemption.

Implications for U.S. Persons

The impact of the U.S.’s withdrawal from the JCPOA on U.S. persons is limited because, with two exceptions, the JCPOA did not lift sanctions prohibiting U.S. persons from conducting business in or with Iran. Those two limited exceptions were: (a) authorization for U.S. Persons to import Iranian-origin carpets and food stuffs; and (b) a specific licensing policy in support of licenses for the sale of civil commercial passenger aircraft and related goods and services. These exceptions will be repealed following the 90-day wind-down period (expiring August 6, 2018). OFAC will no longer consider applications for licenses under the commercial aircraft policy, and existing licenses will be revoked and replaced with authorizations for wind-down activities through August 6, 2018. General License I will be similarly revoked.

Implications for Non-U.S. Entities “Owned or Controlled” by U.S. Persons

The impact on non-U.S. entities owned or controlled by U.S. persons will be significant. As part of the JCPOA, General License H authorized such entities to engage in all activities that would be otherwise prohibited for U.S. persons, subject to certain conditions. General License H will be revoked and replaced with an authorization for wind-down activities through November 4, 2018.

Implications for Other Non-U.S. Persons

Non-U.S. Persons will be most affected by the United States withdrawal from the JCPOA. The JCPOA included a commitment by the United States to lift a range of secondary sanctions associated with specified activities, as identified above. The United States will now re-instate those sanctions following the wind-down periods identified above, meaning that non-U.S. persons engaged in activities subject to those sanctions that do not wind down business with Iran will risk restrictions on their ability to do business in and with the United States. Additionally, non-U.S. persons will need to ensure that their activities involving Iran do not inadvertently also involve U.S. persons or other touch points that could trigger U.S. jurisdiction.

Impact on Other Parties to the JCPOA

The United States’ repudiation of the JCPOA does not technically terminate the agreement. At least for now, sanctions relief provided by the European Union, United Kingdom, France, Germany, Russia, and China, as well by the United Nations, remains intact.

Thus far, there has been no indication that European or UN sanctions will be re-imposed in light of the U.S. withdrawal. The leaders of the U.K., Germany, and France swiftly issued a joint statement reiterating their commitment to upholding the agreement. The EU did the same. UN Secretary-General Antonio Guturresalso issued a statement calling on the remaining parties to the JCPOA to abide by their commitments. The U.S. government triggered the “snap back” dispute resolution mechanism that could have resulted in re-imposing suspended UN sanctions, and its repudiation may preclude it from doing so in the future.

This course, if it continues, would set up a difficult dynamic between the U.S. and its partners around the world, because U.S. primary sanctions would apply to any transactions clearing through the U.S. or U.S. banks, and U.S. secondary sanctions could be applied to foreign firms continuing to do business in Iran pursuant to the JCPOA. In particular, to the extent the United States’ European partners remain committed to the JCPOA, imposing secondary sanctions penalties on European companies will be an increasing source of friction across the Atlantic, along with presenting companies with complex compliance decisions.

What is Next for the JCPOA?

U.S. withdrawal from the JCPOA takes global business into uncharted territory. As other nations develop new paths forward, businesses will have to be on alert and develop agility in managing complex and evolving requirements, exiting relationships, and seeking different opportunities. Many steps required to implement the changes described above have yet to be taken, and should provide additional clarity. In the meantime, all persons engaging in activities with Iran under the JCPOA sanctions relief should immediately begin assessing and implementing steps to wind-down those activities by the August 6, 2018 and November 4, 2018 deadlines, as necessary.

In late February 2018, a two-day jury trial in London’s Southwark Crown Court resulted in the first successful contested prosecution of a corporation for failure to prevent bribery. This offence is contained in Section 7 of the Bribery Act 2010 (the Act).

The particulars of the case may lead one to question the extent to which a prosecution was, in fact, justified, and whether the ramifications are likely to be universally positive.

The Facts

The Defendant was a London-based interior design company, Skansen Interior Limited (SIL). In January 2014, a new CEO of SIL, Ian Pigden-Bennett, was appointed. Upon his arrival, Mr Pigden-Bennett was informed of two payments totaling £10,000 made to a Manchester-based property company. Mr Pigden-Bennett discussed these payments with SIL’s managing director, Stephen Banks, who was seemingly unable to justify them to Mr Pigden-Bennett’s satisfaction. After their discussion, Mr Pigden-Bennett commenced an internal investigation, and put in place an anti-bribery and corruption policy.

Despite this increased scrutiny, Mr Banks attempted to make a third payment of some £29,000 to the same company, which, in the event, was discovered and prevented. It emerged Mr Banks had authorized these payments as bribes to a project manager at the company in order to secure contracts worth £6 million for refurbishing offices in London.

Once this came to light, Mr Pigden-Bennett fired Mr Banks, along with SIL’s commercial director (who, unlike Mr Banks, was not subsequently charged by the police). He also informed the relevant authorities; in this case by contacting the City of London Police and by filing a suspicious activity report with the National Crime Agency. Thereafter, it is understood SIL assisted with the ensuing investigation.

The Offence

SIL was found guilty of breaching Section 7 of the Bribery Act 2010, which provides that:

  1. “A relevant commercial organisation (C) is guilty of an offence under this section if a person (A) associated with C bribes another person intending—
    1. To obtain or retain business for C.
    2. To obtain or retain an advantage in the conduct of business for C.
  2. But it is a defence for C to prove that C had in place adequate procedures designed to prevent persons associated with C from undertaking such conduct.”

And so a commercial organization is strictly liable where an individual associated with that organization has paid a bribe. If the entity in question can demonstrate that, on the balance of probabilities, it had put “adequate procedures” in place to prevent that kind of behavior, it can avoid liability.

The Act gives no consideration to what “adequate procedures” may be. To address this, shortly before the Act came into force in March 2011, the Ministry of Justice published guidance to assist companies. However, given the wide application of the Act, there can be no one-size-fits-all approach and so a degree of uncertainty remained about the practical application of Section 7.

The Prosecution

SIL was able to point to swift action once the offence was discovered: a new anti-bribery and corruption policy, the firing of the relevant individuals, and, perhaps most significantly, the immediate self-reporting and subsequent cooperation with the authorities.

However, this was insufficient for the Crown Prosecution Service (CPS). It has been reported that, at trial, the judge queried why the CPS was pursuing a case against a company which had been dormant for several years. The CPS is understood to have responded that there was a public interest in signaling the seriousness of the requirements of the Act, and the rigorous enforcement regime.

Here, the CPS made a vice of SIL’s virtue: arguing that SIL’s implementation of a new policy, and the fact that the final attempted payment was stopped, revealed the previous procedures were inadequate. It further justified the prosecution on the basis that SIL had seemingly failed to train its staff, and there was no evidence employees had been informed of any existing anti-bribery policies. It was unconvinced by SIL’s protestations that, as the employees were aware bribery was a crime, there was no need for a detailed company policy.

Ultimately, the CPS prevailed, and the jury found SIL failed to enact specific procedures to ensure compliance with the Bribery Act. The judge gave an absolute discharge, meaning, pursuant to the Rehabilitation of Offenders Act 1974, no finding of guilt was registered on the company’s record and there was no financial penalty.

Commentary

In this instance, the CPS appears to have pursued prosecution with a particular zeal.

It has been reported that the CPS considered offering SIL a deferred prosecution agreement. DPAs are a form of settlement agreement which can be offered by the UK Serious Fraud Office (SFO) or the Office of Financial Sanctions Implementation to companies which self-report wrong-doing. The terms are reached between the parties under the supervision of a judge, and permit a company to make reparations for illicit behavior, while avoiding a criminal conviction. It seems, ultimately, SIL was not offered a DPA, ostensibly on the ground that, having been dormant since 2014, and having no assets, it would have been unable to satisfy the financial component of any DPA. One might wonder whether that logic would also hold for the election to prosecute the company.

There is of course some danger that in circumstances where a company does uncover bribery, the temptation would now exist to avoid self-reporting, or worse, take no action at all to avoid arousing suspicion from the authorities. This is perhaps particularly so where such bribery would be unlikely to come to light absent any intervention from the company.

It goes without saying that this temptation should be avoided. Self-reporting remains the best method of securing leniency, however, as the SFO’s own guidance states, this is no guarantee that a prosecution will not follow. The real takeaway is not that reporting crime never pays. Rather, when considering their prevention strategies, companies should be guided by SIL’s failings by, for example, ensuring an appropriate anti-bribery and compliance policy is in place, monitored, and updated as necessary. Internal audit procedures to ensure that accounts payable/receivable are legitimate and supporting a real business purpose also go hand-in-glove with an anti-bribery policy. Nonetheless, a policy is unlikely per se to be sufficient; staff should be made aware of it and trained as necessary. There should also be a designated compliance officer available for staff to report concerns. What constitutes adequate procedures will vary between companies, but these appear to be minima of wide application.

The U.S. Court of International Trade (CIT) in U.S. Auto Parts Network, Inc. v. United States, Slip. Op. 18-38 (Apr. 6, 2018) recently granted a Temporary Restraining Order (TRO) and found in favor of an importer who alleged an impermissibly high single entry bond amount was imposed against the company.

U.S. Auto Parts Network (U.S. Auto), a company that imports and sells vehicle grilles and parts, was alleged to have imported 30 shipments of grills that contained counterfeit merchandise. U.S. Auto then received notice of the enhanced bond requirement in an email from U.S. Customs and Border Protection (CBP or Customs) on March 7, 2018. CBP indicated it was requiring single entry bonds valued at three times the value of the shipment. Because of the exceedingly high bond amount, on April 2, 2018, Auto Parts went to the CIT and sought a TRO preventing CBP from imposing such single entry bond requirements.

The CIT considered four factors when evaluating whether to grant a TRO to U.S. Auto. The company had to show the court that:

  1. It would suffer irreparable harm absent the restraining order.
  2. It was likely to succeed on the merits of the action.
  3. The balance of hardships favored the imposition of the temporary restraining order.
  4. It was in the public interest.

As to the first requirement, U.S. Auto indicated to the court it was not able to find a surety to post a bond in the amount because the potential risk was approximately $5 million per week. Irreparable harm includes “a viable threat of serious harm which cannot be undone.” U.S. Auto claimed without the restraining order it could not import and its business would effectively wind down. The Government characterized this as speculative harm; however, the Court found it to be sufficient to show irreparable harm.

The court next weighed the third requirement regarding the balance of hardships. The CIT weighed the closing of U.S. Auto’s business against CBP’s expense in resources. CBP alleged that it had conducted these inspections for months requiring “substantial diversion of resources” and “more than 1,100 man hours.” Still, the Court found that a company that is facing the closing of its business, loss of reputation, loss of customers, and other potentially permanent consequences due to the enhanced bond requirements had the balance of hardships tipped in its favor.

When evaluating the likelihood of success on the merits, the court examined U.S. Auto’s four claims against the Government in its Complaint. The first two claims alleged that Customs’ imposition of the higher bond requirement violated various provisions of the Administrative Procedure Act (APA). U.S. Auto’s third claim contended that the new bond requirement constitutes a punitive action and was unconstitutional under the Eighth Amendment’s Excessive Fines Clause. Plaintiff’s fourth claim asserted that Customs did not provide U.S. Auto with the opportunity to challenge the increased bond requirement, which amounted to a violation of Plaintiff’s right to due process under the Fifth Amendment.

Under the APA, a final agency action will be overturned if the action is arbitrary, capricious, an abuse of discretion, or not in accordance with law. According to the Court, and a fact that was confirmed by Customs, ninety-nine percent (99 percent) of U.S. Auto’s imports were not suspected of being counterfeit. Slip. In other words, U.S. Auto was being put out of business as a consequence of 1 percent of its imports. That, according to the CIT was contrary to Customs’ mandate to set bond amounts to ensure compliance. This was sufficient to show a likelihood of success on the merits of the APA claims.

U.S. Auto’s third claim was Customs’ process did not permit the importer an opportunity to challenge the bond amount. If true, this would be a violation of the Fifth Amendment requirement that no person is to be deprived of life, liberty, or property without due process of law. Due process is notice and a meaningful opportunity to be heard. The CIT did not find for the plaintiff because of the longstanding position that there is no “right” to import products into the United States.

Turning to the public interest, U.S. Auto contended allowing it to continue to operate while the case is being decided on the merits was in the public interest. Specifically, it prevented the likely loss of over 350 jobs and provides the public with a source of cheaper replacement parts. The Government contends that the public is best served through the enforcement of the intellectual property laws and by allowing CBP to better allocate resources. The Court found the public interest rose above enforcement of the trade laws.

Because only one of the four factors weighed in favor of the Government, the Court granted the TRO. Under the terms of the TRO, CBP may continue to require a single entry bond at three times the value of the portion of the shipment believed to be counterfeit merchandise. In other words, CBP may impose the enhanced bond requirement on the 1 percent, not the 99 percent of U.S. Auto’s imports. The TRO expired on April 20, 2018, so there is likely to be further litigation in this matter.

On April 1, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended two of its pre-existing Ukraine-Russia-related General Licenses.

First, General License 12B (GL12B) replaces and supersedes General License 12A in its entirety. GL12B authorizes the listed entities to access blocked accounts for purposes of “maintenance or wind-down activities.” Previously, while GL12/GL12A had permitted maintenance or wind-down activities, it had required all payments to or for the benefit of the 12 designated entities to be made to a blocked account (this requirement was relaxed for RUSAL only in General License 14); in practice, therefore, the listed entities found it very difficult to engage in even licensed activity because most of their funds were blocked.

GL12B aims to remedy this by continuing to require U.S. Persons to make payments into blocked accounts, but authorizing the designated entities to now access those funds for “maintenance or wind down activities.” All of the other conditions on GL12/GL12A—including the 12:01 AM (East Coast) on June 5 expiration date—remain in place.

Second, OFAC issued General License 13A, which replaces and supersedes General License 13 in its entirety. General License 13A makes four general changes to General License 13:

(1) extends the authorization to three subsidiaries of the listed entities—Irkutskenergo, GAZ Auto Plant, and Rusal Capital Designated Activity Company—(previously, the divestment authorization applied only to (a) EN+ Group PLC, (b) GAZ Group, and (c) United Company RUSAL PLC and not to their subsidiaries);

(2) clarifies that U.S. persons can undertake certain “intermediate” purchases of debt/equity if those are necessary to divestment (i.e., purchases of securities to close out a short     position);

(3) clarifies the authorization extends to purchases of securities by designated persons made prior to April 6, but which have not settled due to sanctions; and

(4) extends the authorization through 12:01 AM (East Coast) on June 6, 2018 (previously it was the same time on May 6, 2018).

OFAC issued three new Frequently Asked Questions (FAQs) to explain the changes. The first two FAQs (#583-584) simply reiterate the changes summarized above. The only relevant new FAQ (No. 585) reiterates the bright line 50 percent rule, noting that U.S. Persons are “generally” not prohibited from engaging in a transaction with a non-U.S. company if one or more SDNs hold less than 50 percent aggregate interest.

This interpretation is consistent with existing guidance, but was likely re-issued to affirm the existing position as a result of the number of non-U.S. companies in which the new SDNs hold a minority interest (e.g., Renova Group’s 48 percent interest in Sulzer Group and its smaller interests in dozens of other entities).

On April 30th, the President issued two proclamations extending country exemptions for certain U.S. allies on the steel and aluminum tariffs pursuant to Section 232(b) of the Trade Expansion Act of 1962.

The President extended temporary exemptions for Canada, Mexico, and the European Union, granted a permanent exemption on steel tariffs for South Korea, and is considering permanent exemptions for Australia, Argentina, and Brazil. Trump’s administration unveiled its decision to extend the country exemptions just prior to the May 1st deadline, leaving the countries unaware whether the tariffs would go into effect by midnight.

In addition, the proclamation creates new limitations by eliminating the ability of manufacturers to receive a refund on steel/aluminum duties when exporting from the United States. Specifically, the new proclamation eliminates drawback claims on steel and aluminum. The elimination of drawback claims follows the elimination of foreign trade zone benefits for steel/aluminum imports in the earlier revisions to the steel/aluminum proclamations.

The United States temporarily extended the country exemptions for Canada, Mexico, and the European Union until June 1st, 2018. Trump originally stated that a successful NAFTA renegotiation between the three countries would result in a permanent exemption for Canada and Mexico. However, Canada and Mexico said that there is no connection between the NAFTA renegotiations and the Section 232 tariffs.

The United States determined to permanently exempt South Korea after the two countries concluded discussions to reduce steel overcapacity. South Korea agreed to limit its exports of steel products to 70 percent of its current volume, or 2.86 million tons of steel, to the U.S. each year. However, South Korea is no longer exempted from the aluminum tariffs as of May 1, 2018.

The proclamations also indefinitely extended temporary exemptions for Australia, Argentina, and Brazil. Although the agreements with Australia, Argentina, and Brazil will be finalized shortly, the President threatened to re-impose the tariffs if the deals are not finalized quickly. “Because the United States has agreed in principle with these countries, in my judgment, it is unnecessary to set an expiration date for the exemptions. Nevertheless, if the satisfactory alternative means are not finalized shortly, I will consider re-imposing the tariff,” the President said in the steel and aluminum presidential proclamations.

What’s Next?

China, India, and Turkey have requested WTO consultations with the United States over the Section 232 tariffs on imported steel and aluminum products. If the European Union does not receive a permanent exemption, then it is also likely that the EU will request WTO consultations with the U.S.

Countries argue that the tariffs violate the WTO’s Agreement on Safeguards and Article XXI’s National Security Exception pursuant to the 1994 GATT Agreement. If the U.S. successfully sets a precedent of Article XXI for national security reasons, then other members of the WTO could invoke the never-before-used Article to apply tariffs or sanctions as retaliation against U.S. exports.

On April 19, Crowell & Moring’s International Trade Attorneys hosted a webinar on “Trade in 2018 – What’s Ahead?”

Please click here to register and view the webinar on demand.

Summary

From the Section 232 national security tariffs on steel and aluminum imports to the ongoing NAFTA re-negotiation, the Trump administration is seeking to implement significant changes in international trade policy and enforcement. Economic sanctions on Russia continue to expand, the future is far from clear regarding Iran, and perhaps North Korea is coming into focus. A new Asia trade agreement without the United States, and a bumpy road ahead for Brexit all make for uncertainty and the need for enhanced trade risk management. Join us as we identify the international trade risks and opportunities likely to continue and grow in 2018.

Our Crowell & Moring team discussed predictions for the remainder of the year, with cross-border insights from our practitioners in the U.S., London, and Brussels. Topics included likely trends and issues in the U.S. and EU including:

  • Trade policy developments: Section 232, NAFTA renegotiation, and trade remedies
  • Sanctions in Year Two of the Trump Administration: Russia, Iran, North Korea, and beyond
  • Anti-money laundering (AML) and beneficial ownership
  • Supply chain risk management: blockchain, forced labor, the U.K. Modern Slavery Act, and GDPR
  • Europe: Brexit, the EU’s 4th AML Directive, and the EU/U.K. AML enforcement
  • CFIUS: how significant is the new legislation?
  • Export controls: Wither reform?
  • Import and customs

On April 23, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued General License (GL) 14 in its Ukraine/Russia sanctions program.

According to a Treasury press release, GL 14 “authorizes U.S. persons to engage in specified transactions related to winding down or maintaining business with United Company RUSAL PLC (RUSAL) and its subsidiaries until October 23, 2018. In accordance with preexisting OFAC guidance, OFAC will not impose secondary sanctions on non-U.S. persons for engaging in the same activity involving RUSAL or its subsidiaries that General License 14 authorizes U.S. persons to engage in.”

Treasury Secretary Steven T. Mnuchin said, “RUSAL has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries.  He added, “RUSAL has approached us to petition for delisting. Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider RUSAL’s petition.”

In addition to extending the time period until October 23, 2018, GL 14 also expands the existing authorization in GL 12 by authorizing (a) the disbursement of previously blocked funds for specific maintenance and winddown activities, (b) new payments to RUSAL not to be made into blocked accounts, and (c) exports from the United States to RUSAL. GL14 is still, however, subject to many of the same conditions as apply to GL 12, including (a) the transactions must relate to “operations, contracts, or other agreements” in place prior to April 6, 2018 and (b) U.S. persons utilizing the authority must file a report with OFAC within 10 days of GL 14’s conclusion.

In addition to General License 14, today OFAC also published several FAQs regarding the general license’s authorizations and limitations, and issued an amended General License 12A (Authorizing Certain Activities Necessary to Maintenance or Wind Down of Operations) that reflects the expanded RUSAL-related authority in GL 14.

U.S. Customs and Border Protection (CBP) issued a Federal Register Notice on April 20 regarding the renewal of the Generalized System of Preferences (GSP), a preferential trade program that allows the eligible products of designated beneficiary developing countries to enter the United States free of duty.

The renewal takes effect on April 22. The new expiration date for GSP is December 31, 2020.

The notice states, “As of April 22, 2018, the filing of GSP-eligible entry summaries may be resumed without the payment of estimated duties, and CBP will initiate the automatic liquidation or reliquidation of formal and informal entries of GSP-eligible merchandise that was entered on or after January 1, 2018, through April 21, 2018, and filed via ABI with SPI Code “A” notated on the entry.

Requests for refunds of GSP duties paid on eligible non-ABI entries, or eligible ABI entries filed without SPI Code “A,” must be filed with CBP no later than September 19, 2018.”

 

The last week of March has brought new measures against Maduro’s regime from the U.S., Europe, and Latin-America. While Switzerland has aligned with European Union (EU) sanctions, Panama has included Venezuelan government officials and several companies in their Politically Exposed Persons’ (PEPs) list. The State of Florida has also enacted divestment laws targeting Venezuela.

Florida Actions: On March 29, Governor Rick Scott of Florida signed into law HB 359, stating that the State Board of Administration shall divest any funds and is prohibited from investing in any institution or company (U.S. company or its subsidiary), doing business in or with the Government of Venezuela (GoV), or with any agency or instrumentality thereof, in violation of federal law. It is unclear how Florida will assess whether a company has undertaken an activity “in violation of Federal law” and, specifically, whether it will wait for Federal indictments, or whether it will be making an independent state-level assessment.

Panama Actions: On March 27, Panama published a list of PEPs with ties to the GoV. Although the press has described this measure as “sanctions” against the Maduro regime, on its face, the measure only requires financial institutions to conduct enhanced due diligence (EDD) in certain persons considered as high risk due to its political exposure. This new resolution from the Panamanian National Anti-Money Laundering Commission (AML Commission) imposes for the first time in Panama the need to conduct EDD on specific Venezuelan government officials and related companies. Among the due diligence measures the AML Commission requires financial institutions and other regulated persons to investigate is whether any PEPs from Venezuela are directly or indirectly participating in a given transaction.

In a separate resolution, the AML Commission decided it will make the U.S., Canadian, and U.K. denied party lists available on the AML Commission’s webpage. This way financial institutions and other regulated persons can use them as a reference for enhanced due diligence when dealing with individuals on one or more of the lists.

Switzerland Actions: On March 28, Switzerland adopted restrictive measures which align with the measures adopted by the EU on November 13, 2017, and January 22, 2018, as a result of the human rights violations and the undermining of democracy in Venezuela. Swiss sanctions, which usually follow the respective EU sanctions regime, now do so in the case of Venezuela. Switzerland has also imposed an embargo on military equipment that could be used for internal repression, as well as equipment used for surveillance purposes. Swiss measures also include a travel ban, an asset freeze, and a prohibition to make funds available to certain individuals. Institutions or persons having or managing assets that are subject to the asset-freeze must report it to the State Secretariat for Economic Affairs (SECO) without delay. The list of individuals subject to the asset-freeze and the travel ban can be found here. These measures entered into force on March 28.

These new Swiss sanctions may have an outsized impact because, while less broad than U.S. sanctions, Venezuelan officials are thought to have assets in Switzerland.

Venezuelan Response: The GoV condemned both the Swiss and Panamanian measures, identifying them as illegal coercive measures against Maduro’s regime.

Further, the GoV announced the suspension of its commercial relations with several Panamanian officials and companies, including Copa Airlines. The retaliatory measure forced Copa to suspend its flights into Venezuela, despite being one of the few airlines still operating in the country after most airlines canceled or reduced their services due to currency exchange restrictions combined with security concerns in the country. By virtue of these controls, Venezuela reportedly owes foreign airlines around $ 4 billion. Depending on how their investments are structured into the country, airlines – and other companies in the same situation – may have the ability to make claims against the GoV for their stranded funds under free transfer provisions found in numerous Bilateral Investment Treaties (BITs) with Venezuela.

For more information on how BITs may aid in the recovery of monies owed by Venezuela, please click here for a short paper in English and Spanish.