Office of Foreign Assets Control (OFAC)

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 to 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.

Per a press release, on April 6, “the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), in consultation with the Department of State, [ ] designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.”

In addition to new Ukraine/Russia-related designations, two persons were also designated pursuant to the Government of Syria authorities.

OFAC also issued the following two Ukraine-/Russia-related general licenses in connection with these designations:  General License 12 “Authorizing Certain Activities Necessary to Maintenance or Wind down of Operations or Existing Contracts”; and General License 13 “Authorizing Certain Transactions Necessary to Divest or Transfer Debt, Equity, or other Holdings in Certain Blocked Persons”.

Finally, OFAC published eight new FAQs related to its April 6 action and published one updated FAQ related to the Countering America’s Adversaries Through Sanctions Act (CAATSA).

 

On March 19, President Trump issued an Executive Order (E.O.) “Taking Additional Steps to Address the Situation in Venezuela.” This E.O. aims to take further action against the Venezuelan Government’s newly issued cryptocurrency—Petro.

Previously, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) had issued a Frequently Asked Question (FAQ) to clarify that its existing prohibitions against extensions of debt/credit to the Government of Venezuela would likely prohibit U.S. persons to transact in the petro given its structure.

In the new E.O., the United States has gone further to simply prohibit all such transactions. Specifically, the new E.O. prohibits U.S. persons (defined to include U.S. citizens and permanent residents, U.S. companies including foreign branches, and persons in the United States) from engaging in:

  1. Any transaction associated with any digital currency, digital coin, or digital token, issued by, for, or on behalf of the Government of Venezuela, on or after January 9, 2018; and
  2. Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set in this E.O.

The E.O. defines the term “Government of Venezuela” (GoV) as any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela, and Petróleos de Venezuela (PDVSA), as well as any person owned or controlled by, or acting for or on behalf of, the GoV.

In addition, OFAC released new Frequently Asked Questions (FAQs) related to this E.O., and separate new Digital Currency-related FAQs.

On March 22, President Maduro announced a redenomination of Venezuela’s fiat currency, “Bolívar Fuerte,” into a new currency called “Bolívar Soberano.” The “new” bolívar is expected to remove three zeros from the current bills once released. Notably, one of OFAC’s new FAQs clarified that the Bolívar Fuerte is not considered a digital currency for purposes of the new E.O. and therefore U.S. persons are not prohibited to transact with the Bolivar Fuerte. OFAC has not, however, specifically addressed transactions in the Bolivar Soberano. However, given that very similar—if not identical—measures were instated by the GoV in 2008 when late-president Chávez announced the redenomination of the “Bolívar” into the Bolívar Fuerte, it is likely that OFAC would take the position that the Bolívar Soberano and Bolivar Fuerte would be considered equivalent “traditional fiat currencies” pursuant to its regulations and would not be covered by the new E.O. Nevertheless, in view of the escalated sanctions on Venezuela, companies should continue to monitor closely any future measures by OFAC.

OFAC Designates Four Venezuelan Officials

OFAC also added four individuals associated with Venezuela’s Treasury and other government agencies to its Specially Designated Nationals (SDN) List pursuant to pre-existing authorities, as follows:

  • William Antonio Contreras—Vice Minister of Internal Commerce and Superintendent for the Defense of Socioeconomic Rights (SUNDDE)
  • Nelson Reinaldo Lepaje Salazar—Acting in the Capacity of the Head of the Office of the National Treasury
  • Américo Alex Mata Garcia—Alternate Director of the National Bank of Housing and Habitat
  • Carlos Alberto Rotondaro Cova—Former President of the Board of Directors of the Venezuelan Institute of Social Security (IVSS)

For the latest news, please subscribe to Venezuela Sanctions on Crowell’s International Trade Law Blog.

On March 22, the Bureau of Industry and Security (BIS) issued a final rule (“March Rule”) that (1) added 23 persons to its Entity List, (2) removed one person from the Entity List, and (3) corrected a licensing requirement inaccurately described in a previous rule related to twelve previously designated Russian entities.

(1) New Designees: The March Rule also adds twenty-three persons to the Entity List. These include: (a) 15 persons added in South Sudan for being government, parastatal, or private entities acting contrary to U.S. foreign policy interests; (b) two persons in Singapore and Pakistan added for seeking to procure U.S.-origin items for nuclear-related entities in Pakistan; and (c) five entities in Pakistan for being involved in the proliferation of unsafeguarded nuclear activities and/or assisting others in evading Entity List restrictions. For all 23 persons, BIS imposed a licensing requirement for all items subject to the Export Administration Regulations (“EAR”) with a presumption of denial.

(2) Removed Designees: BIS also chose to remove one designee in the UAE and one in Ecuador based on “information received by BIS” from those entities and a review undertaken by the End-User Review Committee (“ERC”).

(3) Correction of Licensing Requirement: Finally, BIS corrected an error in a final rule published on February 16 (“February Rule”), which had added 21 entities to the Entity List.

Specifically, the February Rule had added 12 entities to the Entity List to support a parallel designation of these entities by the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) pursuant to Executive Order 13662 on its Sectoral Sanctions Identification (“SSI”) list. The February Rule had, however, inconsistently described the licensing requirements applicable to these 12 entities (the other 9 entities were designated by OFAC as Specially Designated Nationals (“SDN”) and the BIS Entity List licensing requirement was correctly described).

Specifically, the preamble to the February Rule correctly stated that a “license is required for exports, re-exports, or transfers (in-country) of all items subject to the [Export Administration Regulations] EAR, when the exporter, re-exporter or transferor knows that the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deep water (greater than 500 feet) or Arctic offshore locations or shale formations in Russia, or is unable to determine whether the item will be used in such projects.” That tailored requirement is consistent with the tailored licensing requirements BIS had previously imposed on entities designated by OFAC as subject to its sectoral sanctions program.

However, the February Rule also included a more general, and conflicting, entry for each of the 12 entities. Specifically, BIS had stated in its conclusion that a license was required for all items subject to the EAR for all end uses for all entities identified in the February Rule; this was a correct description of the requirements applicable to the nine designees who had been designated by OFAC as SDNs, but was too broad of a statement for the 12 designees designated by OFAC as SSIs.

The March Rule clarifies the February Rule and removes the conflict. Specifically, the March Rule confirms that the 12 entities subject to OFAC’s sectoral sanctions program (i.e., designated as SSIs) are subject only to the more limited licensing requirements related to all items subject to the EAR when used in projects specified in § 746.5 of the EAR. The broader restriction on the nine SDNs remains in place and was not modified in the March Rule.

On March 15, the Office of Foreign Assets Control (OFAC) designated as Specially Designated Nationals (“SDNs”) 2 new persons under an existing Obama-era cyber Executive Order, and 13 new persons under new authority granted by the Countering America’s Adversaries Through Sanctions Act (CAATSA). This was the first time OFAC has utilized any of the multitude of CAATSA authorities to designate new SDNs.

The agency also updated nine previously sanctioned persons, adding the Cyber and/or CAATSA designations.

As background, CAATSA Section 224 requires the imposition of asset blocking sanctions on a person the President determines “knowingly engages in significant activities undermining cybersecurity” on behalf of the Government of Russia.

These actions are closely linked to the recent Mueller indictment of Russian persons for allegedly interfering with U.S. elections. All 15 defendants in that indictment have now been designated as SDNs: three of them were previously designated (but have now been re-designated under a second authority) and the 12 others were newly designated as part of this action. Specifically, the Internet Research Agency LLC is named in the indictment, as are 11 individuals linked to the company.

OFAC amended Cyber General License No. 1, “Authorizing Certain Transactions with the Federal Security Service” (GL 1), and reissued it as Cyber General License No. 1A (GL 1A). GL1A has the same net effect as GL1 insofar as it authorizes transactions, subject to certain conditions, with the Federal Security Service (a.k.a. Federalnaya Sluzhba Bezopasnosti) (a.k.a. FSB) related to certain licensing and authorization functions that the FSB performs. The only change under GL1A was to clarify that the authorization continues to apply despite the FSB’s new designation under CAATSA Section 224 (i.e., GL1A authorizes transactions otherwise prohibited by both the Cyber sanctions and Section 224).

OFAC also published four updated FAQs relating to GL 1A and one updated CAATSA-related FAQ related to this action.

Venezuela has frequently been in the news lately, not only because of domestic politics, but also because of sanctions and bribery enforcement actions brought by U.S. authorities. In this podcast, Crowell & Moring’s Cari Stinebower, Dalal Hasan, Eduardo Mathison, and Mariana Pendás provide an overview of recent political and enforcement developments in Venezuela and explain what U.S. companies need to know about how these developments could impact business and trade ties with Venezuela.

Discussed in this 23-minute podcast:

  • An overview of the political situation in Venezuela.
  • Implications of U.S. and EU current sanctions targeting Venezuela and the potential for new sanctions.
  • FinCEN guidance on identifying corruption and money laundering red flags from Venezuela transactions.
  • Legal protections and International Dispute Resolution options for companies provided in Bilateral Investment Treaties (BITs) signed by Venezuela.
  • Takeaways for companies with business ties to Venezuela.

Click below to listen via the embedded player or access from the link:
SoundCloud

Within the last month, both the United States and European Union have decided to extend the authorities underpinning some or all of their Russia-related sanctions programs.

For the United States this involved renewing the “national emergency” finding that provides the basis for each of the Russia-related Executive Orders while in the European Union this involved renewing several of the authorities that are only implemented for six or 12 months at a time.

The tables at the links below identify the relevant authority, most recent extension, and next extension deadline by jurisdiction.

For U.S. Russia-related Sanctions information, please click here.

For EU Russia-related Sanctions information, please click here.

 

 

In the Federal Register on March 5, OFAC amended and reissued the North Korea Sanctions Regulations in its entirety to implement three recent Executive Orders and to reference the North Korea Sanctions and Policy Enhancement Act of 2016 and the Countering America’s Adversaries Through Sanctions Act.

The agency is also incorporating into the reissue:

  • Several general licenses which until now have only appeared on OFAC’s website on the North Korea Sanctions page;
  • Several new general licenses; and
  • New definitions, interpretations, and general licenses that were not previously provided on OFAC’s website have been added to flesh out the regulations, including incorporating several general licenses typically included in OFAC’s other programs (e.g., related to the provision of legal services, work with international agencies, or on behalf of the U.S. government)

OFAC has also published new and updated North Korea-related FAQs.

 

 

On February 20, the Secretary General of the Organization of American States (OAS), Luis Almagro, called for more and harsher sanctions on Venezuela. Almagro proposed broader sanctions on the country in addition to the current financial and individually-targeted sanctions. This includes the country’s oil industry.

In addition to Almagro, U.S. Secretary of State Rex Tillerson has said the United States is contemplating sanctioning Venezuela’s oil industry with possible import and export restrictions on state-owned Petróleos de Venezuela (PdVSA). Because many countries in Central America and the Caribbean have long benefitted from subsidized oil from Venezuela, any such sanctions would affect other governments in the region. Tillerson reportedly believes this could lead to a “new kind of relationship” that will help Caribbean nations achieve energy independence and reduce Venezuela’s political capital in the region.

On the same day the OAS Secretary called for more sanctions, the Government of Venezuela (GoV) announced the pre-sale of petro. The petro is Venezuela’s new digital cryptocurrency backed by PdVSA produced oil—one petro is the equivalent of one Venezuelan oil barrel. The new currency has generated controversy both in Venezuela and around the world. The Venezuelan opposition-led National Assembly considers the project illegal because it was not approved legislatively. Commentators also have warned that reliance on the petro is risky because of PdVSA’s current low production rate. According to recent reports, PdVSA’s oil production has fallen to its lowest level in almost 30 years.

The U.S. Treasury’s Office of Foreign Assets Control (OFAC) has already stated that purchasing petros could be seen as a credit extension to the GoV, and thus may be exposed to U.S. sanctions risk.

For more on OFAC and the petro cryptocurrency, please see Crowell’s previous blog post.

The GoV recently announced that it raised $735 million from petro cryptocurrency sales on the first day. If successful, the petro could set a precedent for other sanctioned countries, although it is likely to be closely monitored by the U.S. Government and other key stakeholders in the region.

In addition, on February 12, the Department of Justice unsealed an indictment targeting five former GoV officials relating to their scheme to process outstanding invoices PdVSA owed to its suppliers. The indictment illustrates the potential corruption exposure suppliers to PdVSA may face in trying to collect on over-due invoices. The scheme involved using front companies and promises to expedite payments for overdue invoices.

The combination of the corruption risk companies face when engaging in even pre-sanctions transactions with PdVSA and other GoV state-owned enterprises and the sanctions exposure makes doing business in Venezuela extremely risky from a sanctions, money laundering, and corruption perspective.

The Countering America’s Adversaries Through Sanctions Act (CAATSA) was signed into law by President Trump on August 2, 2017. This put in motion several deadlines, three of which are due next Monday, January 29, 2018.

Based on past experience, the Trump administration may not meet these deadlines. Nonetheless, it is clear that the impact of these sanctions will be felt differently by different sectors of the U.S. economy. This is an opportunity for industries to participate in a dialogue with State and the key sanctions architects to seek ways to mitigate the disruption of any sanctions while preserving their intended effect on Russian interests.

Section Title Action
231 Imposition Of Sanctions With Respect To Persons Engaging In Transactions With The Intelligence Or Defense Sectors Of The Government Of The Russian Federation. 231(a) states, “The President shall impose five or more of the sanctions described in section 235 with respect to a person the President determines knowingly, on or after such date of enactment, engages in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation, including the Main Intelligence Agency of the General Staff of the Armed Forces of the Russian Federation or the Federal Security Service of the Russian Federation.”

 

Section Title/Responsible Agency Summary
241 Report On Oligarchs And Parastatal Entities Of The Russian Federation.

This report is to be submitted by the Secretary of the Treasury in consultation with the Director of National Intelligence and the Secretary of State.

241(a)(1) – (a)(5) describe the required elements of the report:

·         The identification and assessment of senior foreign political figures and oligarchs in the Russian Federation;

·         An assessment of Russian parastatal entities;

·         The exposure of key U.S. economic sectors to these entities;

·         The likely effects of imposing debt and equity restrictions on parastatal entities, as well as adding them to Treasury’s Specially Designated Nationals and Blocked Persons List (SDN); and

·         The potential impacts of imposing secondary sanctions on persons or entities identified in this report.

 

Section Title/Responsible Agency Summary
243 Report On Illicit Finance Relating To The Russian Federation.

This report is to be submitted by the Secretary of the Treasury in consultation with the Director of National Intelligence and the Secretary of State.

243(a) states this report will describe “in detail the potential effects of expanding sanctions under Directive 1 (as amended), dated September 12, 2014, issued by the Office of Foreign Assets Control under Executive Order No. 13662 (79 Fed. Reg. 16169; relating to blocking property of additional persons contributing to the situation in Ukraine), or any successor directive, to include sovereign debt and the full range of derivative products.”