by Robert Ward | Aug 16, 2018 | EU
On August 7th, the European Commission Delegated Regulation (EU) 2018/1100 (1) entered into force. Please see: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52018XC0807(01)&from=EN. This Regulation amends the Annex to Council Regulation (EC) No 2271/96 of 22 November 1996 protecting against the effects of extra-territorial application of legislation adopted by a third country. In this case, the specific concern as spelled out in my blog post of May 22nd is the U.S. decision to withdraw from the Iranian Nuclear Deal this past May 8, 2018.
The basic principle of the Blocking Statute is that EU operators shall not:
- comply with the listed extra-territorial legislation, or any decision, ruling or award (Article 5, paragraph 1); and
- fail to inform the European Commission within 30 days of any events arising from listed extra-territorial legislation or actions that affect, directly or indirectly, their economic or financial interests (Article 2, paragraph 1);
The reporting obligation applies to EU directors, managers and other persons with management responsibilities and such reports can be made either directly to the EC or through the competent authorities of the Member States.
The Blocking Statute:
— Nullifies the effect in the EU of any foreign decision, including court rulings or arbitration awards, based on the listed extra-territorial legislation or the acts and provisions adopted pursuant to them (Article 4);
— Allows EU operators to recover damages arising from the application of the listed extra-territorial legislation from the natural or legal persons or entities causing them (Article 6); and
— Allows EU operators to request an authorization to comply with the listed extra-territorial legislation, if not doing so would cause serious harm to their interests or the interests of the EU (Article 5, paragraph 2).
by Robert Ward | Aug 10, 2018 | Uncategorized, Iran
The Trump Administration issued Executive Order 13846 on August 6, 2018 right at the start of the first wind-down period for U.S. persons to begin ceasing business with Iran. The key parts of the Order impose blocking sanctions relating to support for the Government of Iran’s purchase or acquisition of U.S. bank notes or precious metals; certain Iranian persons; and Iran’s energy, shipping, and shipbuilding sectors and port operators.
These new sanctions come in two wind-down phases; one starting August 7, 2018; the other starting November 5, 2018. The Order provides specifically for the Secretary of the Treasury to require U.S. persons to block (including to refuse to transfer, pay, export, withdraw, or otherwise deal in) all property and interests in property that are in, come within or that come within the possession or control of any U.S. person of such designated person. Please note these are designations referred to as secondary sanctions. The U.S. Government can impose these latter sanctions even against parties located outside Iran in instances where the following occurs.
“(i) on or after August 7, 2018, the person has
materially assisted, sponsored, or provided financial,
material, or technological support for, or goods or
services in support of, the purchase or acquisition of
U.S. bank notes or precious metals by the Government
of Iran;
(ii) on or after November 5, 2018, the person has
materially assisted, sponsored, or provided financial,
material, or technological support for, or goods or
services in support of, the National Iranian Oil
Company (NIOC), Naftiran Intertrade Company (NICO),
or the Central Bank of Iran;
(iii) on or after November 5, 2018, the person has
materially assisted, sponsored, or provided financial,
material, or technological support for, or goods or
services to or in support of:
(A) any Iranian person included on the list of
Specially Designated Nationals and Blocked
Persons maintained by the Office of Foreign
Assets Control (SDN List) . . . ; or
(B) any other person included on the SDN List
whose property and interests in property are
blocked pursuant to subsection (a) of this
section or Executive Order 13599 . . . ; or
(iv) pursuant to authority delegated by the
President and in accordance with the terms of such
delegation, sanctions shall be imposed on such person
pursuant to section 1244(c)(1)(A) of IFCA* because the
person:
(A) is part of the energy, shipping, or
shipbuilding sectors of Iran;
(B) operates a port in Iran; or
(C) knowingly provides significant financial,
material, technological, or other support to, or
goods or services in support of any activity or
transaction on behalf of a person determined
under section 1244(c)(2)(A) of IFCA to be a
part of the energy, shipping, or shipbuilding
sectors of Iran; a person determined under
section 1244(c)(2)(B) of IFCA to operate a port
in Iran; or an Iranian person included on the
SDN List (other than a person described in
section 1244(c)(3) of IFCA).”
*ICFA=Iran Freedom and Counter-Proliferation Act of 2012
by Robert Ward | Aug 9, 2018 | Russia
The Department of State just issued this press release on new Russia sanctions:
Following the use of a “Novichok” nerve agent in an attempt to assassinate UK citizen Sergei Skripal and his daughter Yulia Skripal, the United States, on August 6, 2018, determined under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act) that the Government of the Russian Federation has used chemical or biological weapons in violation of international law or has used lethal chemical or biological weapons against its own nationals.
Following a 15-day Congressional notification period, these sanctions will take effect upon publication of a notice in the Federal Register, expected on or around August 22, 2018.”
The immediate impact of these new sanctions is that any attempt by a U.S. company to obtain an export license on certain items implicating national security concerns will be denied. Attempts to prove such items will be used for legitimate purposes, with safeguards to protect U.S. national security, will represent a very tough burden of proof. Sample items include gas turbine engines, electronics, integrated circuits as well as testing and calibration equipment.
The CBW Act will require the imposition of tougher sanctions to be imposed in three months if Russia fails to take corrective measures. To avoid such sanctions, the U.S. Government would have to find that Russia is:
- no longer using chemical or biological weapons;
- providing reliable reassurances that it will not use them in the future; and
- allowing international inspectors to ensure compliance.
It is unlikely such findings will be forthcoming in the short three months to come.
by Robert Ward | Jul 25, 2018 | China
The Department of Commerce’s Bureau of Industry and Security’s July 23, 2018 Federal Register notice confirmed ZTE’s removal from the Denied Person’s List.
ZTE made full and timely payment of the assessed $1,000,000,000 penalty (see previous blog post of July 6, 2018). Moreover, ZTE complied with the escrow requirements respecting the $400,000,000 suspended portion of the civil penalty. Therefore, BIS terminated the April 15, 2018 Order and removed ZTE from the Denied Persons List.
It will remain to be seen whether ZTE can stay the course of compliance or whether it might yet have another failure. The stakes are likely high enough now, with painful lessons learned, to hope for continued compliance. This is particularly so now with the appointed U.S. compliance team in place.
by Robert Ward | Jul 6, 2018 | China
On July 2, 2018, the Department of Commerce’s Bureau of Industry and Security (BIS) published a General Authorization for certain activities with ZTE. BIS had previously issued a Denial Order against ZTE on April 15, 2018 for the company’s failure to discipline personnel involved in prior violations of sanctions and export control laws (please the blog post from June 25th with more details).
The General Authorization permits the following through August 1, 2018 [when ZTE is expected to be in full compliance in replacing offending Board and Management personnel). After August 1st, BIS is expected to lift the Denial Order permanently (assuming ZTE takes its compliance obligations seriously this time around).
All persons, except those located in Country Group E (Cuban, Iran, North Korea, Sudan and Syria), can now undertake:
- Continued operation of existing networks and equipment, including software updates and patches, under contracts in force prior to April 15, 2018;
- Continued service and support to handsets, including software updates and patches, for ZTE phone models in existence prior to April 15, 2018;
- Cybersecurity research and vulnerability disclosures can be made to ZTE where such is critical to maintaining the integrity and reliability of communications networks and equipment; and
- BIS authorizes persons to receive payment to or from ZTE for transactions lawful under this authorization.
by Robert Ward | Jul 5, 2018 | Iran
The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has revoked on June 27, 2018 Iran-related General Licenses H and I, which were issued in connection with the Joint Comprehensive Plan of Action (JCPOA) respecting Iran. Due to the Trump administration’s withdrawal from the JCPOA on May 8, 2018, OFAC amended the Iranian Transactions and Sanctions Regulations (ITSR) at 31 C.F.R. Part 560 to set forth a timeline for winding down activities under both these General Licenses.
The timeline is as follows:
General License I – authorized wind-down through August 6, 2018 [Former License covered Certain Transactions Related to the Negotiation of, and Entry into, Contingent Contracts for Activities Eligible for Authorization Under 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]
General License H – authorized wind-down through November 4, 2018 [Former License covered Certain Transactions relating to Foreign Entities Owned or Controlled by a United States Person]
In addition, the ITSR amendments provide for the winding down through August 6, 2018 of transactions related to the importation into the United States of, and dealings in, certain foodstuffs [i.e., intended for human consumption that are classified under chapters 2–23 of the Harmonized Tariff Schedule of the United States]; and in carpets [i.e., carpets and other textile floor coverings and carpets used as wall hangings that are classified under chapter 57 or heading 9706.00.0060 of the Harmonized Tariff Schedule of the United States].
Finally, the ITSR amendments provide for the winding down through August 6, 2018 of ancillary transactions related to letters of credit and brokering services covering those same certain foodstuffs and carpets.
by Robert Ward | Jun 25, 2018 | China
ZTE, the Chinese multinational telecommunications equipment and systems company headquartered in Shenzhen, Guangdong, China, is now serving as the infamous model for what not to do respecting sanctions violations.
In March 2017, ZTE pleaded guilty to illegally exporting U.S. technology to Iran and North Korea in violation of sanctions law and was fined a total of US$1.19 billion, subject to mitigation for good behavior. It was the largest-ever U.S. fine for export control violations, and the Bureau of Industry and Security featured the case at their annual update meeting in Washington D.C. last October, 2017. The presenters on the case noted the following lessons:
Lesson 1 -> Don’t lie and Don’t create false/misleading records!
Lesson 2 -> Don’t destroy evidence!
Lesson 3 -> Don’t rely on non‐disclosure agreements to cover‐up crimes!
Lesson 4 -> Don’t restart your criminal activity during the investigation!
Lesson 5 -> Don’t create a written, approved corporate strategy to systematically violate the law!
ZTE was allowed to continue working with U.S. companies, provided that it properly reprimand all employees involved in the violations. However, ZTE managed to add a “Lesson 6” to the list since that time.
Lesson 6 -> Don’t lie about reprimanding involved employees only to provide 35 of them with bonuses!
The Department of Commerce found that ZTE had violated these terms and made false statements regarding its compliance, having fired only 4 senior officials and still providing bonuses to 35 other employees involved in the violations. On 16 April 2018, the Department of Commerce banned U.S. companies from providing exports to ZTE for seven years.
The Trump administration, responding to the pleas of Chinese President Xi Jinping, reversed the ban. The Trump deal requires ZTE pay a $1 billion fine (which ZTE has already done) as well as place an additional $400 million in escrow as an incentive not to commit further violations. Moreover, ZTE must replace its senior management and engage an appointed U.S. team to monitor its compliance. Already, on June 18, the Senate voted to reinstate the ZTE ban.
The Trump administration is urging Congress not to undercut the President’s larger geopolitical strategy that involves leverage on China over North Korea as well as in trade talks with Beijing over market access and intellectual property protections. It remains to be seen whether the Senate ZTE ban reinstatement will be removed through the reconciliation process with the House bill.
Meanwhile, the South China Morning Post reports today that ZTE is leaving broken American Standard urinals unfixed to avoid breaching the US export ban!
by Robert Ward | Jun 12, 2018 | North Korea
U.S. President Donald Trump and North Korea’s (DPRK) Kim Jong Un held their historic summit in Singapore today, June 12, 2018. The meeting was more about healing old wounds and establishing rapport than arriving at a substantive agreement. The key terms, to which both heads of state signed their names, are:
“1. The United States and the DPRK commit to establish new U.S.–DPRK relations in
accordance with the desire of the peoples of the two countries for peace and prosperity.
2. The United States and the DPRK will join their efforts to build a lasting and stable peace
regime on the Korean Peninsula.
3. Reaffirming the April 27, 2018 Panmunjom Declaration, the DPRK commits to work
toward complete denuclearization of the Korean Peninsula.
4. The United States and the DPRK commit to recovering POW/MIA remains, including
the immediate repatriation of those already identified.”
What remains to be seen is how the DPRK’s commitment to complete and irreversible denuclearization can be monitored and verified as well as over what time-frame. Assuming that is possible, the next anticipated action would be the removal of the DPRK as an embargoed country, not to mention the removal of certain DPRK persons and secondarily targeted persons from the Specially Designated Nationals list.
Already, President Trump indicated great trust in Kim Jong Un’s promise to denuclearize. Surprising both South Korea and the Pentagon, President Trump declared the cessation of joint-military exercises on the Korean Peninsula, commenting he agreed with DPRK’s leader’s concern that the exercises were a provocation.
by Robert Ward | May 22, 2018 | EU
The EC Blocking Regulation
In response to U.S. President Trump’s withdrawal of his waiver relating to the Iran Nuclear Deal, the European Commission started the process of invoking its Blocking Regulation (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31996R2271:EN:HTML).
Response to the U.S. Iran Nuclear Deal Withdrawal
The U.S. withdrawal meant that U.S. sanctions in force prior to the Iran Nuclear Deal would be reinstated. Such reinstated sanctions can extend to foreign subsidiaries of U.S. companies as well as to non-U.S. persons through “secondary sanctions”. Any person (even foreign persons acting wholly outside U.S. jurisdiction) can be subject to secondary sanctions. This can happen if they engage in certain transactions, as defined by the relevant US laws and regulations. These “sanctionable transactions” include dealings with specially designated nationals [SDNs] (even those initially removed in January 2016). Designation of SDNs tends to target parties involved in Iranian malign activity including Iran’s nuclear program, Iran’s support for terrorism, ballistic missile program, human rights abuses, and destabilizing activity in the region.
Main Elements of the Blocking Regulation
The Blocking Regulation has four main elements.
1) it requires any EU person to notify the EC of any effects of the blocked measure (i.e., U.S. sanction) covered in the Annex;
2) it voids the effect of foreign judgements based on such sanctions in EU courts;
3) it prohibits EU persons from complying with U.S. extraterritorial sanctions against Iran (though there are instances where EU persons may be authorized to comply fully or partially when they can demonstrate serious damage to their interests); and
4) it permits EU companies to collect damages plus legal costs resulting from such sanctions.
Practical Impact of the Blocking Regulation
The practical impact of the Blocking Regulation will be to place EU business in the untenable position of having to decide whether to conduct business in Iran versus in the United States. While there have been comments that international business will now attempt to wean itself off of the U.S. dollar reserve currency, the US financial system still remains very important to EU businesses. Most will not risk being bared from the U.S. financial system.
by Robert Ward | May 8, 2018 | Iran
On Tuesday May 8, 2018, President Trump announced his decision to withdraw the United States from the Joint Comprehensive Plan of Action respecting the multi-lateral agreement on Iran’s nuclear program. Citing evidence that Iran has violated the agreement, the President moved forward in unilaterally pulling the United States out of the deal, contrary to the wishes of European allies who had hoped to negotiate add-ons to the current arrangement. The decision means that sanctions previously in place in 2015 will be fully reinstated.
Compliance practitioners should be mindful of the 90 day and 180 day grace periods for unwinding business transactions involving Iran that will now once again become illegal through the reinstatement of sanctions.
