On August 7, 2018, EU’s newly updated Blocking Statute entered into force. The Blocking Statute generally forbids EU citizens and established entities, residents, and persons physically in the EU from complying with a variety of U.S. measures imposing secondary sanctions on Iran, including the Iran Sanctions Act of 1996, the Iran Freedom and Counter-Proliferation Act of 2012, the National Defense Authorization Act for Fiscal Year 2012, and the Iran Threat Reduction and Syria Human Rights Act of 2012. The Blocking Statute also makes foreign court judgments based on these sanctions ineffective in the EU, and allows EU operators to recover damages arising from U.S. extraterritorial sanctions from the persons or entities causing those damages.

On Monday, August 6, 2018, President Trump issued a new Executive Order (New Iran EO) that reimposes Iran sanctions previously revoked as part of the Joint Comprehensive Plan of Action (JCPOA), consolidates the relevant authorities into one single document, and broadens the scope of previous sanctions restrictions. This action coincides with the expiration of the 90-day wind down period for a number of transactions previously authorized as part of the Agreement. OFAC also updated and issued additional Frequently Asked Questions with respect to this New Iran EO.

Reimposition of Sanctions Authorities and Revocation of Previous EO’s

In accordance with President Trump’s May 8, 2018 decision to withdraw from the JCPOA, the New Iran EO reimposes the relevant provisions of EOs 13574, 13590, 13622, and 13645 previously revoked by EO 13716. Accordingly, as of 12:01 a.m. eastern daylight time (EDT) Tuesday, August 7, 2018, sanctions targeting the following areas were reinstated:

  • 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.

Further, as of August 7, 2018, the wind down period terminated for transactions related to the export/re-export of Iran commercial passenger aircraft pursuant to General License I, and transactions regarding U.S. imports of, and dealings in, Iranian-origin foodstuffs and carpets, and related letters of credit and brokering services. The next wind down deadline is November 4, 2018, and relates to transactions pursuant to General License H, and sanctions targeting the following areas: Iran’s port operators and shipping/ship-building sectors; petroleum-related transactions; financial transactions and specialized messaging services with the Central Bank of Iran; underwriting and insurance services; and Iran’s energy sector.

The New Iran EO also revokes EOs 13716 and 13628 and supersedes these authorities by incorporating the blocking sanctions previously provided in sections 2 and 3, and subsection 3(c) respectively.

Expansion of Sanctions in Effect Prior to JCPOA

The New Iran EO further broadens the scope of sanctions in effect prior the implementation of the JCPOA, January 16, 2016. OFAC details this expansion in Frequently Asked Question # 601, and we have summarized those changes below:

  • New Designation Authority: The New Iran EO provides new authority to designate as Specially Designated Nationals (SDNs) any person that on or after November 5, 2018, provided material support, or goods and services in support of, persons designated for engaging in the following transactions: (1) providing support, or goods and services in support of the purchase or acquisition of U.S. bank notes or precious metals by the GOI; (2) providing support, or goods and services in support of the National Iranian Oil Company (NIOC), the Naftiran Intertrade Company (NICO), or the Central Bank of Iran (CBI); or (3) being part of the Iranian energy sector, shipping, or shipbuilding sectors, being a port operator in Iran, or providing significant support of persons designated under section 1244(c)(1)(A) of the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) or other SDNs.

 

  • New Restrictions on Financial Institutions: The New Iran EO provides the authority to prohibit or significantly restrict correspondent and payable-through accounts of foreign financial institutions determined to have knowingly conducted or facilitated significant transactions on or after November 5, 2018, with persons designated pursuant to the new authorities described above.

 

  • Expanded Menu of Sanctions for Petroleum Transactions: The New EO expands the menu of sanctions available to be imposed on persons that on or after November 5, 2018, knowingly engaged in significant transactions related to Iranian petroleum products and petrochemicals, including: (1) Visa restrictions on controlling officers and shareholders; (2) certain secondary sanctions on principal executive officers of a SDN; and (3) prohibitions on investing in or purchasing debt and equity instruments from a sanctioned person.

 

  • Expanding Restrictions on Foreign Subsidiaries of U.S. Companies: The New EO also expands sanctions restrictions on foreign subsidiaries of U.S. owned or controlled companies by prohibiting transactions with persons blocked for any of the following activity: (1) providing material support for, or goods and services in support of, persons designated pursuant to Iran sanctions; and (2) being part of the Iranian energy sector, shipping, or shipbuilding sectors, being a port operator in Iran, or providing significant support of persons designated under section 1244(c)(1)(A) of the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) or other SDNs. Note that this expanded restriction does not eliminate the authorization to wind down transactions pursuant to General License H by November 4, 2018.

Implications

The expansion of pre-JCPOA sanctions may come as some surprise to the business community, but largely fall within the Trump Administration’s new policy towards Iran. In his May 8th National Security Memorandum, President Trump hinted that the process of restoring sanctions could entail revising relevant sanctions regulations. These revisions make clear that after the November 4th wind-down date, any person, including U.S. persons, that attempts to directly or indirectly provide support in any way to persons designated under pre-JCPOA sanctions restrictions will also risk designation.

 

These renewed and expanded U.S. sanctions against Iran creates an increasingly complex landscape for companies operating globally, as it is impossible to comply with both sets of restrictions. However, a few large European companies have already suspended plans to invest in Iran.

On June 27, in accordance with President Trump’s May 8, 2018 decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) revoked two Iran-related General Licenses and amended the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560, to reflect the re-imposition of sanctions. OFAC also updated previously issued Frequently Asked Questions on the President’s announcement. These actions represent the first tangible steps taken by the U.S. government to implement the May 8 announcement to end some limited primary sanctions exceptions and re-impose secondary sanctions on Iran.

Revocation of General Licenses H and I

Fulfilling one of the promises made on May 8, OFAC revoked both General License H and General License I authorizing certain transactions with Iran.

  • General License H authorized U.S.-owned foreign entities to engage in transactions with the Government of Iran or any person subject to the jurisdiction of the Government of Iran. OFAC revoked General License H and replaced it with an amendment to the ITSR authorizing the wind-down, until November 4, 2018, of previously permitted activity, as described in the Final Rule published on June 28, 2018 (see 31 C.F.R. § 560.537).
  • General License I authorized U.S. persons to engage in certain transactions related to the export or re-export to Iran of commercial passenger aircraft. OFAC has now revoked General License I and amended the ITSR to authorize the wind down of such transactions through August 6, 2018 (see 31 C.F.R. § 560.536).

Additional ITSR Amendments

OFAC amended the ITSR to authorize the wind-down of two previously authorized types of activity for U.S. persons.

  • Import of Carpets and Foodstuffs: OFAC amended 31 C.F.R. § 560.534 to authorize the wind down of transactions regarding U.S. imports of, and dealings in, certain Iranian-origin foodstuffs and carpets through August 6, 2018.
  • Credit and Brokering Services for Related Activity: OFAC amended 31 C.F.R. § 560.535 to authorize the wind down of transactions regarding letters of credit and brokering services relating to certain Iranian-origin foodstuffs and carpets through August 6, 2018.

OFAC also updated JCPOA Withdrawal-Related Frequently Asked Questions (FAQs) 4.3, 4.4, and 4.5 to address  these changes.

Additional Announcements Expected in the Coming Weeks

These changes give effect to some, but not all, of the changes announced by President Trump on May 8. Specifically, in the coming weeks, we expect the issuance of at least one new Executive Order to re-authorize previously terminated sanctions authorities as well as the issuance by OFAC and the U.S. Department of State of additional guidance regarding the re-implementation of primary and “secondary” sanctions that had been in effect prior to the JCPOA as well as potentially to announce additional restrictions beyond those that existed prior to the JCPOA (e.g., targeting ballistic missile proliferation or potentially even expanding secondary sanctions).

We will continue to update this guidance as and when these changes are announced.

 

 

 

On May 18, 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 has not 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.

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 Friday, January 12, 2018, President Trump agreed for the third time to waive the application of certain nuclear-related sanctions on Iran, pursuant to the United States’ commitments under the Joint Comprehensive Plan of Action (JCPOA). Pursuant to the JCPOA, the U.S. President is required to regularly “waive” the application of certain U.S. sanctions on Iran. Failing to issue the waivers would cause these sanctions to be re-imposed, which arguably would constitute a violation by the United States of its commitments under the JCPOA. (In contrast to President Trump’s failure to certify Iran’s compliance with the JCPOA to the U.S. Congress in October, which was a requirement of U.S. law but had no direct effect on the JCPOA.)

However, President Trump stated that this would be the last time he would issue these waivers unless the European signatories to the deal (Germany, France, and the United Kingdom) agree to rewrite the nuclear deal within the next 120 days.

The 120-day deadline reflects the date on which the next waiver is due. As shown in the chart below, the United States must waive portions of four laws on staggered timelines to meet its commitments under the JCPOA. The next deadline is a waiver of sections of the National Defense Authorization Act (NDAA) for FY 2012, which would need to be renewed on or before May 13, 2018.

U.S. Sanctions Relief under the JCPOA

Law Must be Renewed Every Last Decision Update Current Decision Expiration Date
National Defense Authorization Act (NDAA) for FY 2012 120 days January 13, 2018 May 13, 2018
Iran Freedom and Counter-Proliferation Act of 2012 (IFCA) 180 days Mid-Jan 2018 Mid-July 2018
Iran Sanctions Act (ISA) 180 days Mid-Jan 2018 Mid-July 2018
Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) 180 days Mid-Jan 2018 Mid-July 2018

 

President Trump’s ultimatum has already met strong resistance in both Europe and Iran. It is unknown how successful U.S. diplomacy will be in building support to renegotiate the JCPOA. There is also the impact of the recent populist uprising in Iran to consider.

Office of Foreign Assets Control (OFAC)

  • On December 6, OFAC announced that DENTSPLY SIRONA Inc. (DSI), a U.S. company incorporated in Delaware, the successor in interest to DENTSPLY International Inc. (DII), agreed to pay $1.2 million to settle its potential civil liability for 37 apparent violations of the Iranian Transactions and Sanctions Regulations. Between 2009 and 2012, DII subsidiaries exported 37 shipments of dental equipment and supplies from the U.S. to third countries, with knowledge or reason to know the goods were ultimately destined for Iran. OFAC determined this was a non-egregious case and that DII did not voluntarily disclose the apparent violations.
    • Aggravating factors included:
      • The subsidiaries acted willfully and had knowledge or reason to know the goods were destined for Iran;
      • Management knew of the apparent violations; and
      • DENTSPLY is a large and commercially sophisticated company with knowledge of U.S. sanctions requirements.
    • Mitigating factors included:
      • DENTSPLY had not received a penalty notice or Finding of Violation from OFAC in the five years preceding the date of the first transaction, although DENTSPLY was previously the subject of a settlement involving substantially similar apparent violations in 2001;
      • The harm to the ITSR program objectives was limited because the exports were likely eligible for a specific license;
      • DENTSPLY took remedial steps, including voluntarily expanding the scope of the review to include a full, company-wide inquiry following a subpoena to one of its subsidiaries that led to the subsequent revelations involving the other subsidiary; and
      • DENTSPLY cooperated with OFAC’s investigation, including by providing detailed and well-organized information for its review, and by agreeing to toll the statute of limitations for a total of 1,104 days.

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) published new guidance in October related to the implementation of the Countering America’s Adversaries Through Sanctions Act (CAATSA). As we have previously summarized, the new law is divided into three parts: Title I-Sanctions with Respect to Iran; Title II-Sanctions with Respect to the Russian Federation and Combating Terrorism and Illicit Financing; and Title III-Sanctions with Respect to North Korea.

Although guidance is pending on Title III, OFAC has now published FAQs or updated FAQs on Titles I and II as follows.

Guidance on Title I / Iran Sanctions Developments

On October 13, in accordance with Section 105 of CAATSA, OFAC imposed sanctions on the Iranian Revolutionary Guard Corps (IRGC) applicable under global terrorism Executive Order 13224. On October 31, OFAC amended its Global Terrorism Sanctions Regulations to block the property and interests in property of foreign persons identified by OFAC as officials, agents, or affiliates of the IRGC.

As OFAC FAQs 533 and 534 explain, although the IRGC was previously sanctioned by OFAC under other programs, the new designation does not allow for certain exemptions related to personal communications, humanitarian donations, information or information materials, and travel, which were previously available.

Guidance on Title II / Russia Sanctions Guidance

OFAC and the State Department have also now published substantial guidance related to implementation of the various Russia-related sanctions. The following table summarizes the recent changes, issued at three separate times in the last six weeks (September 29, October 27, and October 31):

 

Section of CAATSA

Topic

Agency

Guidance / Regulations Issued

Section 223

Modification of sectoral sanctions

OFAC

Amended FAQs Nos. 370, 394-95, 405, 408-10, 415, & 419

Published Modified Directive 1
Published Modified Directive 2
Published Modified Directive 4

Sectoral sanctions related to railways and mining / metals

OFAC

Published New FAQ No. 539

Section 225

Secondary sanctions related to special Russian crude oil projects

State

Published New Guidance and FAQ

Section 226

Secondary sanctions on FFIs related to financing transactions with sanctioned persons and related to special crude oil projects

OFAC

Published New FAQs Nos. 541-543

Section 228

Primary sanctions related to foreign sanctions evaders and serious human rights abusers in the Russian Federation

OFAC

Published New FAQs Nos. 544-546

Section 231

Secondary sanctions related to Russian defense or intelligence sector

State

Published New Guidance and FAQs

Published List of Persons Operating in Russian Defense or Intelligence Sectors

Section 232

Secondary sanctions related to Russian energy export pipelines

State

Published New Guidance

Section 233

Secondary sanctions related to unjust privatization of Russian state-owned assets

OFAC

Published New FAQ No. 540

The guidance represents a continuation of OFAC’s recent trend of issuing guidance at the same time as implementing regulatory changes, but taken together with the State Department’s guidance, arguably represents the most substantial guidance ever issued by the two agencies in advance of implementation of newly enacted Congressional legislation.

For more details regarding the contents of the guidance, or with respect to any questions it raises, please contact one of the professionals listed below.

For more information, contact: Jeff Snyder, Carlton Greene, Cari Stinebower, Chris Monahan, Dj Wolff

On August 2, President Trump signed into law the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA), which imposes new sanctions on Russia, Iran, and North Korea.

While President Trump noted his view that the legislation was “significantly flawed”, its passage represents the successful culmination of months of Congressional negotiations and its provisions will have an immediate and material impact, particularly on companies undertaking transactions in Russia.

CAATSA represents, in effect, the combination of three separate pieces of legislation imposing new sanctions on Russia, Iran, and North Korea. Each piece of the legislation contains a series of new restrictions, but several key highlights are summarized below:

  • Russia: New Primary Sanction Authorities: CAATSA provides the President with new authorities to sanction (1) persons knowingly engaging in significant activities undermining cybersecurity on behalf of the Russian Government; (2) non-U.S. persons who evade existing Russia-related sanctions; (3) non-U.S. persons responsible for, complicit in, or otherwise directing, the commission of serious human rights abuses in Russia; and (4) non-U.S. persons who provide significant support that materially contributes to the ability of the Government of Syria to acquire chemical, biological, or nuclear weapons, ballistic missiles, or other similar items (e.g., those on the U.S. Munitions List). The Legislation does not itself designate any persons
  • Russia: Sectoral Sanctions – Reduced Payment Terms and New Sectors: The Legislation modifies existing restrictions by reducing permissible maturity periods under Directive 1 and Directive 2 (from 30 and 90 days to 14 and 60 days, respectively) and expanding the territorial scope of Directive 4 to certain types of oil exploration and production activities globally, not just in Russia. Second, it also authorizes the expansion of sectoral sanctions to state-owned enterprises in Russia’s mining, metals, and railway sectors.
  • Russia: Secondary Sanctions on Defense, Intelligence, and Export Pipelines Sectors: The Legislation imposes several new mandatory and discretionary “secondary” sanctions. These include (1) mandatory secondary sanctions on persons conducting “significant” transactions with Russia’s defense or intelligence sectors (or persons operating in that sector); (2) discretionary secondary sanctions on non-U.S. persons undertaking an investment or providing goods, services, or support for the construction of Russian energy export pipelines; (3) mandatory secondary sanctions on persons making an investment in excess of certain thresholds in the privatization of Russian state-owned assets in a way that unjustly benefits Russian officials or their families; and (4) modifies, to make mandatory, existing secondary sanctions on non-U.S. persons undertaking significant transactions in support of exploration or production of oil from shale, arctic offshore, or deep-water locations in Russia.
  • Russia: Codification of Existing Sanctions: The Legislation also codifies all of the existing Executive Orders on Russia (both those related to Ukraine and to Cyber activities) as well as the existing designations as of August 2, 2017. While the President retains discretion to relax the provisions, the Legislation requires that he provide advance notice and written justification for any such relaxations, and then allow Congress at least 30 days to potentially object to the relaxation.
  • North Korea: The Legislation imposes a series of new designation authorities for the President, which broadly relate to persons that are in violation of existing U.S. and United Nations sanctions on North Korea. CAATSA also imposes new obligations on U.S. financial institutions to cut-off correspondent account access for non-U.S. financial institutions that might indirectly be benefiting North Korea. Finally, it calls on the administration to consider re-designating North Korea as a state sponsor of terrorism.
  • Iran: Similarly, the Iran-related aspects of the Legislation primarily focuses on providing the President with a series of new designation-related authorities that focus on Iran’s non-nuclear related activities (e.g., ballistic missile testing, support to terrorism, and enforcing arms embargoes).
  • National Strategy To Combat Terrorism Finance: Finally, the Legislation calls for the development of a national strategy to combat terrorism finance and it opens the opportunity for private sector engagement in the development of that strategy.

CAATSA’s passage has already provoked immediate responses from not only its targets – Russia has requested the removal of several hundred U.S. diplomatic personnel and threatened additional retaliation while Iran has accused the United States of violating the nuclear deal – but U.S. allies, including Germany and Austria who have called CAATSA’s provisions “unacceptable” and indicate they will not “tolerate” sanctions being imposed on their companies pursuant to its provisions.

For more information, contact: Jeffrey Snyder, Cari Stinebower, Carlton Greene, Dj Wolff, J.J. Saulino