One of the tricky aspects of being an attorney licensed in a U.S. state and specialized in OFAC sanctions law is this: the potential to go too far in inadvertently facilitating a bad actor through the provision of legal services. This is because a U.S. person is prohibited from exporting services to, as well as from importing services from, a blocked person or specially designated national (SDN).
A. The OFAC Prohibition
As OFAC itself states the prohibition (at: https://home.treasury.gov/system/files/126/compliance_services_guidance.pdf):
“U.S. persons, wherever located, may not otherwise approve, finance, facilitate, or guarantee any transaction by a foreign person [. . . ] where the transaction by that foreign person would be prohibited by 31 C.F.R. chapter V if performed by a U.S. person or within the United States.”
B. OFAC FAQs on What is Permissible
OFAC FAQs provide examples of what would be permissible at: https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/1526.
FAQ 497 gives an example where a U.S. person may opine on the legality of a transaction under U.S. sanctions laws (though not to an SDN). This can include providing a legal opinion, certification, or other clearance as to the legality of such transaction, where it would be prohibited for a U.S. person to engage in the transaction. This suggests that being provided a set of facts or hypothetical facts would present a permissible opportunity to counsel the client on the legality of the circumstances.
FAQ 498 elaborates that U.S. persons may conduct research to determine the legality of transactions under U.S. sanctions laws. Using the internet, including searches of commercial databases, as well as published reference materials are all permissible. In addition, U.S. persons may solicit information regarding a transaction from non-blocked (non-SDN) persons. This can include, for example, the currency involved; any involvement of U.S. persons, directly or indirectly; and the identity of the counterparty.
C. OFAC FAQ on What is Not Permissible
However, FAQ 497 (second part), by contrast, warns that U.S. persons could not vote on a transaction (e.g., as a board member), or execute transaction documents (other than as to the legality of the transaction), where the transaction would be prohibited if performed by a U.S. person or within the United States. This would seem to suggest, in providing legal services, that offering alternative hypothetical scenarios that would be permissible for a foreign person, but not so for a U.S. person, would be going too far.
D. Is It OFAC Sanction Avoidance vs Evasion at the Crux of the Matter?
In short, an attorney licensed in a U.S. state (or who is otherwise a U.S. person/compliance advisor) must be careful not to cross the line. The line is akin to tax evasion versus tax avoidance (the former is illegal while the latter is legal). Put another way, the above examples authorize an attorney licensed in a U.S. state to provide counsel to non-blocked (non-SDN) persons on legitimately minimizing sanctions exposure; what is prohibited is aiding and abetting a foreign person in undertaking action that would otherwise be prohibited of a U.S. person or, put another way, in facilitating outright evasion of OFAC sanctions.
Please leave your thoughts below on whether this discussion is helpful.
With the changing of the POTUS guard, it is an appropriate time to check on the State of OFAC sanctions SDN designations since just before the last time the changing of the guard occurred. The following charts are from June 2015 and January 2021 respectively, and they show OFAC SDN designations increased 150%! (Please see: http://ofacanalyzer.com/rptListTotals.aspx).
This 2021 blog (as opposed to prior current event blogs at: https://thesanctionsgeek.com/blog/) will focus on practical challenges businesses face in complying with the ever dynamic sanctions laws given this uptick in designations. The increase does not appear to be an aberration of the Trump administration. Already with newly installed President Joe Biden talking tough via phone with Vladimir Putin and exclaiming the POTUS will have no reason to hold summits with Kim Jung Un unless North Korea denuclearizes first, the state of continued OFAC designations promises to be alive and well for the foreseeable future.
Crafting a proper set of policies and procedures to comply with sanctions laws will be mission critical, not to mention the proper selection of screening software, the proper resolution of potential matches, the ability to impose transaction stops in a timely manner as well as dealing with the new OFAC reporting requirements.
November 4, 2018 was the last day of the 180-day wind-down period following President Trump’s May 8, 2018 announcement to withdraw the US’ participation from the Joint Comprehensive Plan of Action (the Nuclear Deal). On November 5, 2018, the US fully reimposed the sanctions on Iran that had been lifted under the Nuclear Deal. These tough sanctions on Iran target critical sectors of Iran’s economy, including the energy, shipping and shipbuilding, as well as financial sectors.
As part of the re-imposition of U.S. sanctions against the Iranian regime, OFAC sanctioned more than 700 individuals, entities, aircraft, and vessels on November 5, 2018.
Additionally, on November 5, 2018, OFAC moved persons identified as meeting the definition of the terms “Government of Iran” or an “Iranian financial institution” from the List of Persons Blocked Solely Pursuant to E.O. 13599 (the “E.O. 13599 List”) to the SDN List and removed the E.O. 13599 List from its website. This, in effect, moved these persons back into “blacklisted” status.
Notably, the Wall Street Journal reported November 7, 2018 at https://www.wsj.com/articles/new-sanctions-new-hurdles-for-western-firms-still-doing-business-in-iran-1541620289?
“For some Western companies whose dealings with Iran are primarily limited to export, the trade had already subsided so much as a result of Iran’s economic woes that the new U.S. restrictions are unlikely to have a major impact.
The Iranian rial’s sharp loss in value caused California-based Del Monte to stop exporting packaged food to Iran several months ago because its products were suddenly much more expensive.
‘They are very cautious to not buy food from outside,’ Muhammad Adil Imtiaz, a Dubai-based sales manager for Del Monte, said of Iranian buyers. ‘For consumers buying any product, not just food but garments and electronics, the prices have changed completely on the shelves.'”
The impact of the re-imposed sanctions were already having the intended impact prior to November 5, 2018. For example as reported in the same above article, the Europeans are resorting to creating an alternative financing vehicle to operate outside the U.S. financial system in effort to permit EU countries to continue to adhere to the Iran Nuclear Deal, an effort that has met with many snags.
President Trump issued an Executive Order (“EO”) on September 12th to impose certain sanctions in the event of foreign interference in an U.S. election (particularly timely given the upcoming mid-term elections). Please see: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/election_eo.pdf.
National Security and Foreign Policy Emergency:
The EO states the threat has become a concern of national security and foreign policy. It points to the relatively recent proliferation of digital devices and internet-based communications as having created significant vulnerabilities and having magnified the scope and intensity of the threat of foreign interference.
Two Post Election 45 Day Review Periods:
The EO sets up a two 45 day post election review periods. The first 45 day review period is for the Director of National Intelligence to deliver an assessment and appropriate supporting information to the President, the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, the Attorney General, and the Secretary of Homeland Security. Then the EO provides that, within 45 days of receiving the assessment and information, the Attorney General and the Secretary of Homeland Security shall deliver to the President, the Secretary of State, the Secretary of the Treasury, and the
Secretary of Defense a report evaluating:
(i) the extent to which any foreign interference materially affected the security or integrity of the election infrastructure, the tabulation of votes, or the timely transmission of election results; and
(ii) if any foreign interference involved activities targeting the infrastructure of, or pertaining to, a political organization, campaign, or candidate, the extent to which such activities materially affected the security or integrity of that infrastructure, including by unauthorized access to, disclosure or threatened disclosure of, or alteration or falsification of, information or data.
The key remedy to counteract such interference will be the designation of persons as specially designated nationals as follows:
All property and interests in property that are in the United States of the following persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in: any foreign person determined by the Secretary of the Treasury, in consultation with the Secretary of State, the Attorney General, and the Secretary of Homeland Security:
(i) to have directly or indirectly engaged in, sponsored, concealed, or otherwise been complicit in foreign interference in a United States election;
(ii) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any activity described above or any person whose property and interests in property are blocked pursuant to this order; or
(iii) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property or interests in property are blocked pursuant to this order.
Additional Possible Sanctions:
The EO provides for additional sanctions on a case-by-case basis as follows:
Additional proposed sanctions may be imposed with respect to the largest business entities licensed or domiciled in a country whose government authorized, directed, sponsored, or supported election interference, including at least one entity from each of the following sectors: financial services, defense, energy, technology, and transportation (or, if inapplicable to that country’s largest business entities, sectors of comparable strategic significance to that foreign government). Any recommended sanctions may include one or more of the following with respect to each targeted foreign person:
(i) blocking and prohibiting all transactions in a person’s property and interests in property subject to United States jurisdiction;
(ii) export license restrictions under any statute or regulation that requires the prior review and approval of the United States Government as a condition for the export or re-export of goods or services;
(iii) prohibitions on United States financial institutions making loans or providing credit to a person;
(iv) restrictions on transactions in foreign exchange in which a person has any interest;
(v) prohibitions on transfers of credit or payments between financial institutions, or by, through, or to any financial institution, for the benefit of a person;
(vi) prohibitions on United States persons investing in or purchasing equity or debt of a person;
(vii) exclusion of a person’s alien corporate officers from the United States;
(viii) imposition on a person’s alien principal executive officers of any of the sanctions described in this section; or
(ix) any other measures authorized by law.
The Department of State’s Bureau of International Security and Nonproliferation issued a public notice on August 24, 2018 regarding the specifics of the Russia Nerve Agent sanctions (please see my post of August 9, 2018). The Department advised the notice is scheduled to be published in the Federal Register on 08/27/2018 and is available online at https://federalregister.gov/d/2018-18503.
The specifics, which are to be applied for at least one year until further notice, include:
1. Foreign Assistance: Termination of assistance to Russia under the Foreign
Assistance Act of 1961, except for urgent humanitarian assistance and food or other
agricultural commodities or products.
2. Arms Sales: Termination of
(a) sales to Russia under the Arms Export Control Act of
any defense articles, defense services, or design and construction services, and
(b) licenses for the export to Russia of any item on the United States Munitions List, but
waived on a case-by-case basis with respect to the issuance of licenses in support of government space cooperation and commercial space launches.
3. Arms Sales Financing: Termination of all foreign military financing for Russia under
the Arms Export Control Act.
4. Denial of United States Government Credit or Other Financial Assistance: Denial to
Russia of any credit, credit guarantees, or other financial assistance by any
department, agency, or instrumentality of the United States Government, including
the Export-Import Bank of the United States.
5. Exports of National Security-Sensitive Goods and Technology: Prohibition on the
export to Russia of any goods or technology on that part of the control list established
under Section 2404(c)(1) of the Appendix to Title 50.
The Department is waiving these sanctions in the interests of national security with respect to the following on a case-by-case basis (meeting all the terms of the below
noted license exception will permit one to move forward):
LICENSE EXCEPTIONS: Exports and reexports of goods or technology eligible
under License Exceptions GOV, ENC, RPL, BAG, TMP, TSU, APR, CIV, and AVS.
SAFETY OF FLIGHT: Exports and reexports of goods or technology pursuant to
new licenses necessary for the safety of flight of civil fixed-wing passenger aviation.
DEEMED EXPORTS/REEXPORTS: Exports and re-exports of goods or technology
pursuant to new licenses for deemed exports and reexports to Russian nationals.
WHOLLY-OWNED U.S. SUBSIDIARIES: Exports and reexports of goods or
technology pursuant to new licenses for exports and reexports to wholly-owned U.S.
subsidiaries in Russia.
SPACE FLIGHT: Exports and reexports of goods or technology pursuant to new
licenses in support of government space cooperation and commercial space launches.
COMMERCIAL END-USERS: Exports and reexports of goods or technology
pursuant to new licenses for commercial end-users civil end-uses in Russia.
SOEs/SFEs: Exports and reexports of goods or technology pursuant to new licenses
for Russian state-owned or state-funded enterprises though subject to a “presumption of denial” policy.