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Nov 02, 2016

Sanctions Roundup: Third Quarter 2016 and Executive Order on Burmese Sanctions

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OFAC, acting under the direction of President Obama’s Executive Orders, has lifted the economic and financial sanctions against Burma and Côte D’Ivoire. The revisions open these countries, and their financial markets, to significant Western investment. Iran continues to allege that Western financial institutions have refused to enter its markets despite the Joint Comprehensive Plan of Action. Additionally, the European Council and OFAC continue to impose and expand sanctions against Russia for its annexation of Crimea and disruptive activities in eastern Ukraine.

Iran Nuclear Deal

On July 20, United Nations Secretary-General Ban Ki-moon urged Western powers to ensure that the Joint Comprehensive Plan of Action (“JCPOA”) delivered “tangible benefits to the Iranian people.” These comments came after complaints from Tehran that it has not been fully benefiting from the historic deal.

On July 29, senior Iranian officials stated that the country would explore partnerships with non-Western financial institutions. One official stated “[w]e are in talks with many countries, mainly China, Russia and African countries to widen our banking cooperation aimed at resolving existing banking, financial problems.” These comments come after Britain’s vote to leave the European Union and the rise of US presidential nominee Donald Trump, who stated that he would “tear up” the JCPOA on his first day as President, have hampered efforts by Western governments to encourage financial institutions to conduct business in the country.

On September 1, British Airways announced that it would resume direct flights from London to Tehran. British Airways has not piloted direct flights to Iran since 2012 when European sanctions against the country were put in place. A British Airways spokesman stated “the Iranians have been extremely helpful in setting up this important new route…Tehran is an important destination for British Airways.”  British Airways is the second European air carrier to resume flights to Iran, following Air France’s re-establishment in April.

On September 5, Seyed Mohsen Ghamsari, director of the National Iranian Oil Company (“NIOC”), stated that Iran was prepared to raise its oil production to 4 million barrels per day. Ghamsari stated that, depending on market demand, Iran plans to return output to pre-sanction levels. Earlier this year, attempts by OPEC and non-OPEC oil exporters to reach a pact on stabilizing output levels foundered because Iran, which is hoping to increase exports, declined to participate.

On September 26, Ali Akbar Salehi, head of Iran’s atomic energy organization, alleged that Tehran remains under certain sanctions which were to be removed under the JCPOA. Salehi stated that Iran had honored all of its commitments under JCPOA but that the “comprehensive and expeditious removal of all sanctions [has] yet to be met.” Salehi’s comments were made to the general conference of the International Atomic Energy Agency. The JCPOA was signed by the United States, Russia, China, Britain, France and Germany; however, Salehi did not blame any specific country for not honoring their commitments.

Cuba-Related Sanctions for Q3 of 2016

On July 8, OFAC issued two FAQs regarding Cuban sanctions, each addressing US dollar transactions. OFAC clarified that, pursuant to a general license, banking institutions, registered brokers or dealers in securities, and US registered money transmitters are permitted to process authorized remittances to or from Cuba without having to obtain a specific license. Additionally, OFAC made clear that US depository institutions are permitted to open correspondent accounts at Cuban banks located in Cuba and at foreign banks located in Cuba, but Cuban banks are not generally licensed to open such accounts at US banks.

On August 22, Iran’s Foreign minister Mohammad Javad Zarif met with Cuban leaders, including Raul Castro, in Havana to discuss possible partnership opportunities between the two countries. Cuban Minister of Foreign Trade and Foreign Investment Malmierca Diaz, stated “[b]oth Cuba and Iran have reached a roadmap after years of sanctions which they should use to explore new economic opportunities and take advantage of each other’s capabilities.”  Iran maintains extensive investments and economic relationships in Latin America including a USD 500 million credit line for Venezuela.

On September 10, Cuba’s Foreign Minister, Bruno Rodriguez Parrilla, announced at a news conference in Havana that “[t]he economic, commercial and financial blockade imposed by the United States of America on Cuba persists. The blockade has hurt the Cuban people.” Parrilla claimed that the US embargo on Cuba has cost the island nation USD 125.9 billion since its inception and that, despite the thaw in US-Cuba relations, the financial situation of Cuba has not improved. Despite the re-establishment of diplomatic relations between the two countries, Congress has not fully lifted the US embargo on Cuba.

On September 13, President Obama renewed, for another year, the Trading with the Enemy Act, which extends the economic embargo imposed on Cuba. President Obama stated that “the continuation for one year [of the Cuban embargo] is in the national interest of the United States.” These restrictions will remain in place until at least September 14, 2017. Last year, the United Nations General Assembly voted 191-2 to condemn the US blockade, with only the US and Israel opposed, but this year, for the first time, on October 26, the US abstained and the resolution passed 191-0 (with Israel also abstaining).

Russian Related Sanctions for Q3 of 2016

On July 1, the European Union formally extended economic sanctions against Russia in response to its actions in Crimea until January 31, 2017. The extended sanctions limit access to the European Union’s capital markets for a number of Russian financial institutions. Restrictions on arms technology and oil production will also be extended. In response, Russian President Vladimir Putin extended the embargo on food imports from countries that joined in the anti-Russian sanctions.

On August 11, the Wall Street Journal reported that US lawmakers were considering levying additional sanctions against Russia in response to the alleged hacking of the Democratic National Committee. House Minority Leader, Nancy Pelosi, stated “I know for sure it is the Russians [and] we are assessing the damage.” On October 7, President Obama agreed with the contentions of Pelosi and officially stated that Russia was responsible for hacking Democratic Party organizations. A senior administration official stated that “the President has made it clear that we will take action to protect our interest, including in cyberspace,” referring to a 2015 Executive Order signed by President Obama making it easier to impose sanctions against anyone tied to a “cyber-enabled” activity that impacted US national security. To date, however, no new sanctions have been imposed on Russia relating to their alleged hacking of the Democratic National Committee.

On September 1, the US Treasury Department imposed a new set of sanctions on a range of Russian companies and individuals. These companies include certain subsidiaries of the Russian energy company Gazprom and the bridge contractor linking Crimea to mainland Russia. The Chairman of Gazprom, Alexei Miller, stated that the new round of sanctions would not affect Gazprom’s operations and that the company only purchased five percent of its equipment abroad.

On September 15, the European Council extended individual asset freezes and travel restrictions against 146 people and 37 entities in Russia. These individuals and entities are allegedly responsible for actions which undermine the territorial integrity, sovereignty and independence of Ukraine. The asset freezes and travel restrictions were levied, along with economic sanctions, in response to Russia’s annexation of the Crimea region of Ukraine. These restrictions were extended until March 15, 2017.

On September 21, German Economic Minister, Sigmar Gabriel, stated that he favored lifting EU sanctions against Russia but that it would require some progress on peace in Ukraine. These comments came as the German Minister headed trade talks with Russian President Vladimir Putin. Gabriel stated “I am doing what I can so that the sanctions, imposed after the annexation of Crimea, can be lifted step by step, and in the same measure as there is tangible progress in implementing the Minsk Agreement.” Putin added that Germany remained one of Russia’s most important trade partners.

South Sudan-Related Sanctions for Q3 of 2016

On July 18, Uganda’s President, Yoweri Museveni, said he opposed the United Nations’ plan to impose an arms embargo on South Sudan, saying it would weaken the country’s army just as it was trying to contain violence. The statement came after Secretary General Ban Ki-moon urged the Security Council to block arms sales in an effort to end more than two years of fighting. President Museveni stated that “[w]hen you impose an [arms] embargo on South Sudan, you destroy the local force on which you need to build a strong integrated army.”

On August 30, US Secretary of State John Kerry urged the leaders of South Sudan to implement a peace deal or face possible UN arms embargo and sanctions. These calls come following a meeting in Nairobi with Kenyan President Uhuru Kenyatta and ministers from Sudan and South Sudan. Secretary Kerry stated “[i]t’s really up to the people, the leadership of South Sudan to lead and to do the things that they’ve promised to do…If they don’t, then obviously it may be that the UN arms embargo and sanctions are going to be the tools of last resort.” Approximately 4,000 extra UN troops were deployed to South Sudan in July following fighting in South Sudan’s capital Juba.

On September 16, the Security Council Committee concerning South Sudan was briefed by the Coordinator of the Panel of Experts and a Special Representative on Sexual Violence in Conflict. Ms. Zainab Hawa Bangura, Secretary-General on Sexual Violence in Conflict, noted systemic patterns of sexual violence during the conflict in South Sudan. Ms. Bangura requested that the Committee consider activating targeted sanctions against perpetrators of sexual violence.

Syria-Related Sanctions for Q3 of 2016

On July 21, the US Department of the Treasury imposed new sanctions on Syria, targeting the financial networks of the government of President Bashar al-Assad. Acting Under Secretary for Terrorism and Financial Intelligence, Adam Szubin, stated that “Treasury will continue to act against those responsible for fueling the Assad regime’s repressive action and dangerous weapons proliferation.” During the course of the conflict in Syria, over 470,000 Syrians have died and half of the country’s population of about 23 million has been displaced.

On August 30, calls were made by international organizations to levy sanctions against Syria following a UN commission’s finding that government forces twice used chemical weapons, specifically mustard gas, in the ongoing civil war in the country. However, the UN Security Council failed to agree to any action, with Russia questioning the commission’s evidence. Russian Ambassador Vitaly Churkin stated “clearly there is a smoking gun. We know that chlorine most likely has been used—that was already the finding of the fact-finding mission before—but there are no fingerprints on the gun…There is nobody to sanction in the report which has been issued.”

Burma Related Sanctions for Q3 of 2016 and Executive Order of October 7, 2016

On September 14, President Obama pledged to lift all remaining US sanctions against Burma. This announcement came during a State visit by Myanmar’s leader, Daw Aung San Suu Kyi, who became State Counselor (effectively Prime Minister) following the democratic elections last year. President Obama stated removing US sanctions “is the right thing to do in order to ensure that the people of Burma see rewards from a new way of doing business and a new government.” Certain human rights organizations criticized the decision to remove sanctions claiming that it came too soon. The organizations claimed that the military still controls large portions of the parliamentary seats and government agencies in Myanmar. John Sifton, Washington director of Human Rights Watch, stated “Obama and Suu Kyi just took important tools out of their collective tool kit for dealing with the Burmese military, and threw them into the garbage.”

On October 7, President Obama signed an Executive Order terminating the national emergency with respect to Burma and directing that the financial sanctions issued against the country by OFAC be lifted. Acting Under Secretary Adam Szubin stated that “lifting economic sanctions will further support trade and economic growth, and Treasury will continue to work with Burma to implement a robust anti-money laundering regime that will help to ensure the security of its financial system.” As a result of President Obama’s Executive Order, the sanctions on Burma administered by OFAC are no longer in effect. As such:

  • All individuals and entities blocked pursuant to the Burmese Sanctions Regulations (“BSR”) have been removed from OFAC’s SDN List;
  • All property and interest in property blocked pursuant to the BSR are unblocked;
  • All OFAC-administered restrictions under the Burma sanctions program regarding banking or financial transactions with Burma are no longer in effect; and
  • OFAC will remove the BSR from the Code of Federal Regulations.

Additionally, the Financial Crimes Enforcement Network (FinCEN) issued an administrative exception to its 2003 finding that Burma is a “jurisdiction of primary money laundering concern” under Section 311 of the US Patriot Act. Under this administrative exception, US financial institutions are permitted to continue providing correspondent services to Burmese banks, subject to the appropriate due diligence requirements. OFAC stated that it intends to leave the 2003 finding in place, subject to the administrative exception, until “Burma has made sufficient progress in addressing [its anti-money laundering] issues.”

US Authorities Continue to Enforce Sanctions Through Settlements

On July 5, Alcon Laboratories Inc. agreed to pay $7,617,150 for apparent violations of the Iranian Transactions and Sanctions Regulations and Sudanese Sanctions Regulations. Specifically, OFAC alleged that Alcon engaged in the sale and exportation of medical end-use surgical and pharmaceutical products from the United States to distributors located in Iran and Sudan from August 2008 to December 2011. In reaching a settlement, OFAC recognized Alcon’s enhanced compliance procedures for requesting OFAC licenses and that Alcon had previously and subsequently received an OFAC license to sell and export identical products.

On July 27, OFAC issued a Finding of Violation to Compass Bank, which uses the trade name BBVA Compass, for violations of the Foreign Narcotics Sanctions Regulations. From June 21, 2013 to June 3, 2014, Compass maintained accounts on behalf of two individuals on OFAC’s list of Specially Designated Nationals and Blocked Persons. Compass determined that it failed to identify the accounts due to a deficiency in the bank’s sanctions screening software that prevented it from reviewing dormant or inactive accounts. In issuing a Finding of Violation against Compass, OFAC considered that Compass did not confer any economic benefit to an SDN and that Compass took remedial action in response to the apparent violations.

On August 8, OFAC issued a Finding of Violation against AXA Equitable Life Insurance Company for violations of the Narcotics Kingpin Sanctions Regulations. Specially, OFAC alleged that AXA maintained and serviced life insurance policies for Leopoldo Lopez Grayeb, Noemi Lopez Fernandez and Juan Manual Lopez Fernandez, all of whom were designated pursuant to the Kingpin Regulations on December 3, 2009. Subsequent to OFAC’s designation, AXA failed to screen the names of the policyholders and failed to block policies and premium payments. In issuing a Finding of Violation, OFAC considered that AXA had not previously committed substantially similar violations and that the company cooperated with OFAC’s investigation.

On September 7, World Class Technology Corporation (“WCT”) agreed to pay $43,200 for alleged violations of the Iranian Transactions and Sanctions Regulations. Specifically, WCT allegedly exported seven shipments of orthodontic devices between April 2008 and July 2010, collectively valued at $59,886, from the United States to Germany, the United Arab Emirates and Lebanon, with the knowledge that the shipments were intended for Iran. In reaching the settlement amount, OFAC considered that WCT lacked commercial sophistication in conducting international sales and cooperated with OFAC in developing a sanctions compliance procedure.

On September 13, PanAmerican Seed Company (“PanAm Seed”) agreed to pay $4,320,000 for alleged violations of the Iranian Transactions and Sanctions Regulations. Specifically, PanAm Seed allegedly indirectly exported seeds, primarily of flowers, to two Iranian distributors on 48 occasions from May 2009 to March 2012. OFAC alleged that PanAm personnel engaged in a practice designed to conceal the involvement of Iran. In reaching the settlement amount, OFAC considered that PanAm Seed, over the years, provided over $770,000 in economic benefit to Iran and did not initially cooperate with OFAC’s investigation.

Federal Civil Penalties Inflation Adjustment Act (“FCPIA”)

On July 1, OFAC issued regulations to implement the Federal Civil Penalties Inflation Adjustment Act of 1990 (“FCPIA”). These regulations, which take effect on August 1, 2016, adjust for inflation the maximum civil monetary penalties that may be assessed against an individual or corporation under the relevant OFAC regulations. The maximum civil monetary penalties which may be imposed by OFAC are as follows:

  • International Emergency Economic Powers Act (“IEEPA”): A maximum penalty amount of the greater of $284,582 or twice the amount of the underlying transaction per violation.
  • Trading with the Enemy Act (“TWEA”): A maximum penalty amount of $83,864 per violation.
  • Antiterrorism and Effective Death Penalty Act (“AEDPA”): A maximum penalty amount of the greater of $75,122 or twice the amount of which a financial institution was required to retain possession or control.
  • Foreign Narcotics Kingpin Designation Act (“FNKDA”): A maximum penalty amount of $1,414,020 per violation.
  • Clean Diamond Trade Act (“CDTA”): A maximum penalty amount of $12,856 per violation.

Other Notable Developments

On September 14, President Obama signed an Executive Order, titled Termination of Emergency with Respect to the Situation in or in Relation to Côte D’Ivoire, which lifted economic sanctions against the African country. The Executive Order stated that the national emergency declared in Executive Order 13396 was no longer present. The national emergency originally stemmed from the massacre of large numbers of civilians, widespread human rights abuses, attacks against international peacekeeping forces, and significant political violence in Côte D’Ivoire. President Obama cited the successful completion of the October 2015 Presidential election and the combating of illicit trafficking of natural resources as the impetus for removing economic sanctions.

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Shearman & Sterling has long advised financial institutions and commercial businesses on the most complex sanctions issues. If you have any questions, please feel free to contact one of our partners or counsel.

Authors and Contributors

Philip Urofsky

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Danforth Newcomb

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Stephen Fishbein

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Brian G. Burke

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Christopher L. LaVigne

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Barnabas Reynolds

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Mark D. Lanpher

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Susanna Charlwood

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