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, President Trump issued two new Proclamations exempting Australia, Argentina, South Korea, Brazil, and EU member countries from the Section 232 aluminum and steel tariffs, which enter into force March 23, until May 1, 2018.

A statement issued by the White House said the president made the decision “based on factors including ongoing discussions regarding measures to reduce global excess capacity in steel and aluminum production by addressing its root causes.”

President Trump will decide by May 1 whether or not to continue to exempt these countries based on the status of the discussions.

Canada and Mexico were exempted in the original Proclamations on steel and aluminum issued on March 8. Both are now subject to the same May 1 deadline for the U.S. to evaluate whether the countries’ exemptions will continue.

U.S. Customs and Border Protection issued a message via its Cargo Systems Messaging Service (CSMS) late on March 22 providing direction on the exemption of the countries named above.

On August 18, 2017, the Office of the United States Trade Representative (USTR) launched a formal investigation pursuant to Section 301 of the Tariff Act of 1974 on the People’s Republic of China (PRC). The probe sought to determine whether the acts, policies, and practices of the PRC related to technology transfer, intellectual property, trade secrets, and innovation were discriminatory towards U.S. firms and undermined the United States’ ability to compete fairly in the global market. Section 301 allows the President to seek removal of any act, policy, or practice of a foreign government that violates an international agreement or that unfairly burdens or restricts U.S. commerce.

On March 22, President Trump issued a Memorandum stating the USTR found PRC actions do undermine U.S. firms’ ability to compete fairly in the global market by (1) requiring or pressuring U.S. companies to transfer technology to Chinese companies; (2) imposing restrictions on, and intervening in, U.S. firms’ investments and activities, including through restrictions on technology licensing terms; (3) obtaining cutting-edge technology by directing and facilitating the investment and acquisition of U.S. companies by Chinese companies; and (4) conducting and supporting intrusions and theft from the computer networks of U.S. companies.

In response, the President has directed the USTR to address these violations via a combination of retaliatory tariffs, World Trade Organization (WTO) dispute settlement, and the Department of the Treasury to address via investment restrictions.

For complete details, please see Crowell’s Client Alert.

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 19, Commerce published a Federal Register Notice which detailed the procedure to request product exclusions from the new imported steel and aluminum tariffs.

In addition, the agency established two web pages and accompanying exclusion request forms, one each for steel and aluminum, explaining the process, how to file exclusion requests, the detailed information to be provided, and how to file exclusion objections.

Per its new web pages and exclusion request forms, Commerce explains:

  • Exclusion Requests will be open for public review after being posted to the federal rulemaking portal.
  • There is no specific deadline to file exclusion requests, as they may be submitted at any time.
  • During the initial 30 days, U.S. parties may file objections to the exclusion request.
  • After this initial 30 day period, approximately 60 days will be necessary for complete review and vetting of the Exclusion Request and any related Objection Filings.
  • The total processing time for exclusion requests is estimated at 90 business days.
  • A single response to each exclusion request and related objection filings will be posted in regulations.gov indicating if the exclusion request has been granted or denied.

There is a link on each page to the exclusion forms and instructions on how to upload it once completed.

Further, Commerce provided some guidelines, to include:

  • A separate Exclusion Request must be submitted on each distinct type and dimension of aluminum or steel product to be imported.
  • Exclusion Request Requirements: Only individuals or organizations that use aluminum or steel products in business activities in the United States may submit an Exclusion Request. This includes those involved in construction, manufacturing, and supplying steel or aluminum products to users.
  • For an Exclusion Request to be considered, the exclusion requester must provide factual information on:
    • 1) the single type of aluminum or steel product they require using a 10-digit HTSUS code, including its specific dimension;
    • 2) the quantity of product required (stated in kilograms) under a one-year exclusion; and
    • 3) a full description of the properties of the aluminum or steel product it seeks to import, including chemical composition, dimensions, strength, toughness, ductility, magnetic permeability, surface finish, coatings, and other relevant data.
  • All exclusion requests will be reviewed for completeness. Only fully completed exclusion requests will be considered and posted for public review. All exclusion requests will be made available for public inspection and copying.

The European Commission released a list of U.S. products on Friday, March 16, that could be subject to tariffs if the President does not exclude the EU from the Section 232 tariffs. The list was released a week after President Trump signed the proclamations to impose a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports, which officially take effect on March 23.

Canada and Mexico are currently excluded from the tariffs, but other countries with a ‘security relationship’ to the United States could be eligible for exemption. The U.S. Trade Representative, Ambassador Robert Lighthizer, is leading the negotiations with countries seeking exemptions from the Section 232 tariffs. The European Commission, along with Brazil, South Korea, Japan, India, and Australia, has pressed the United States to exempt them from the upcoming tariffs.

The products that could be subjected to the retaliatory tariffs include U.S. agricultural goods such as sweetcorn, grain rice, and cranberries, along with Kentucky bourbon, cigars, t-shirts, jeans, and motorcycles.

 

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.

U.S. Trade Representative (USTR) Ambassador Robert Lighthizer initiated an investigation on August 18, 2017 pursuant to Section 301 of the Trade Act of 1974. The probe will determine whether acts, policies, and practices of the People’s Republic of China (PRC) related to technology transfer, intellectual property, trade secrets, and innovation are discriminatory towards U.S. firms by undermining the United States’ ability to compete fairly in the global market. Section 301 allows the President to retaliate by removing any act, policy, or practice of a foreign government that violates an international agreement.

The investigation began after PRC President Xi Jinping unveiled a cybersecurity law to “protect personal information and individual privacy,” as reflected in China’s Made in China 2025 initiative. The law requires foreign companies operating in China to store their data on local servers. U.S. companies are now also being instructed to participate in joint ventures with Chinese enterprises, therefore sharing valuable technology information with their Chinese counterparts.

USTR allegedly finalized its report in December 2017, and the remedies are undergoing vetting in the interagency process. However, the U.S. may partner with the European Union and Japan to seek consultations through the WTO, rather than solve the issue unilaterally.

Pursuant to the Trade Act, Ambassador Lighthizer must determine within 12 months from the date of the initiation whether the Chinese government violated U.S. intellectual property laws. The retaliatory action proposed by USTR, if any, must be implemented within 30 days of the determination. USTR may delay the implementation up to 180 days if the agency determines that substantial progress could be made by the foreign government. If the determination is affirmative, then USTR will decide what action to take.

If Ambassador Lighthizer recommends retaliation under Section 301, the President could impose sanctions on certain Chinese industries, specifically steel. The current administration has demonstrated a tough stance on overcapacity by imposing a 25 percent global tariff on imported steel products, and a 10 percent global tariff on imported aluminum products.

As expected, the Chinese government is already demonstrating “tit for tat” retaliation by self-initiating anti-dumping (AD) and countervailing (CVD) investigations on imports of sorghum from the United States. In addition, China is already among one of the countries that has requested consultations from the WTO regarding the safeguard measures on solar cells and residential washing machines.

The USTR is expected to release its findings to the President within the coming months.

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

The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 require the UK regulated sector to apply enhanced customer due diligence to high-risk countries.

In response to recent statements from the Financial Action Task Force (FATF), HM Treasury advises firms to consider the following:

Consider as high risk and apply counter measures and enhanced due diligence measures in accordance with the risks Consider as high risk and apply enhanced due diligence measures in accordance with the risks Take appropriate actions to minimise the associated risks, which may include enhanced due diligence measures in high risk situations
DRPK* Iran* Ethiopia, Iraq*, Serbia, Sri Lanka, Syria*, Trinidad and Tobago, Tunisia*, Vanuatu, and Yemen*

*These jurisdictions are subject to sanctions measures at the time of publication of this notice which require firms to take additional measures. For details, please click here.