Office of Foreign Assets Control (OFAC)

On July 31, 2018, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Ukraine-/Russia-related General License 13C, which replaces and supersedes General License 13B in its entirety. 

General License 13C extends to 12:01 a.m. October 23, 2018, the “authorized period to make certain divestment and transfer activities related to debt, equity, or other holdings in EN+ Group, GAZ Group, or United Company RUSAL PLC, or in entities in which those persons own, directly or indirectly, a 50 percent or greater interest, that were issued by Irkutskenergo, GAZ Auto Plant, or Rusal Capital Designated Activity Company (Other Issuer Holdings), subject to certain conditions and exceptions.” 

Previously, General License 13B had authorized the same activity, but only until 12:01 a.m. August 5, 2018.

Further information on this topic in may be found in FAQs 570 and 571 on OFAC’s website.

 

On July 19, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela General License 5.

General License 5 authorizes U.S. persons to engage in all transactions related to, the provision of financing for, and other dealings in the Petróleos de Venezuela SA 2020 8.5 Percent Bond that would be prohibited by Subsection 1(a)(iii) of  Executive Order 13835 of May 21, 2018 (“Prohibiting Certain Additional Transactions With Respect to Venezuela”) (E.O. 13835). In practice, General License 5 expands the previously issued General License No.3. by adding a new bond to the list of previously authorized bonds.

OFAC also published two new Frequently Asked Questions (FAQs).One explains why OFAC is issuing General License 5. The other answers the question of whether E.O. 13835 prohibits a U.S. person with a legal judgment against the Government of Venezuela from attaching and executing against Venezuelan government assets.

 

 

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 June 4, 2018, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Ukraine-/Russia-related General License 16 (GL16).

General License 16 authorizes U.S. persons to engage in specified transactions related to winding down or maintaining business involving EN+ Group PLC, JSC EuroSibEnergo, or any entity in which EN+ Group PLC or JSC EuroSibEnergo owns, directly or indirectly, a 50 percent or greater interest, until October 23, 2018.

GL16 is subject to a series of conditions that are familiar from OFAC’s previous wind-down licenses arising from the same action including, among other things: (a) that the transactions must be conducted pursuant to a contract or other agreement in place prior to April 6, 2018, (b) payments to these entities must be made to a blocked account, except to the extent authorized by General License 14 (related to United Company RUSAL PLC), (c) products cannot be exported from the United States to these persons, and (d) U.S. Persons utilizing the authority must file comprehensive reports with OFAC within 10 days from GL16’s expiration.

 

 

 

 

On May 21, President Trump issued a new Executive Order (E.O.) “Prohibiting Certain Additional Transactions with Respect to Venezuela.” The new E.O. targets the Venezuelan Government’s ability to factor receivables and liquidate equity interest in exchange for cash.

The E.O. prohibits U.S. persons or persons within the United States from all transactions related to, or providing financing for, and other dealings—including evading, avoiding or conspiracy transactions—in:

  • The purchase of any debt owed to the GoV, including accounts receivable;
  • Any debt owed to the GoV that is pledged as collateral after the effective date of the E.O. (i.e., May 21, 2018); and
  • The sale, transfer, assignment, or pledging as collateral by the GoV of any equity interest in an entity in which the GoV has at least 50% interest.

Consistent with previous sanctions, the E.O. also 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.

The new measure further tightens already existing financial sanctions against the GoV in effect since August 2017. In particular, the new E.O. is expected to directly restrict PDVSA’s ability to engage in accounts receivable financing, which may accelerate the oil company’s liquidity struggles.

For more details on the E.O. issued on August 24, 2017, see Crowell & Moring’s Client Alert.

 

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 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 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.