Leaning in on Economic and Trade Sanctions
The U.S. is making greater use of economic and trade sanctions as tools of foreign policy, extending their reach to more targets around the world … creating new compliance pitfalls for companies that do business on a global basis.
As the sanctions ratchet up so do the risks that their cross-border dealings will land U.S. companies on wrong side of the law. Compliance controls must include mechanisms that recognize and screen for the lengthening list of counterparties that have been designated off-limits to U.S. business.
Further complicating compliance, new laws, executive orders and government agency directives have changed the rules for penalizing countries, organized entities or individuals by shutting them out of commercial or financial activities.
Start with two new laws.
Signed into law August 2, 2017, Countering America’s Adversaries Through Sanctions Act (CAATSA) codifies previous Congressional authorizations, Executive Orders and agency directives, while tightening and extending sanctions programs directed at North Korea, Iran, Russia/Ukraine, Cuba, Venezuela, and Sudan. The Act also gives Congress new authority to review and approve executive branch decisions to ease sanctions.
Significantly, CAATSA expands the application of secondary sanctions – that is, sanctions imposed on non-U.S. persons for non-U.S. dealings outside of U.S. jurisdiction – previously reserved for the Iranian sanctions program. The new secondary sanctions are aimed at entities engaged in dealings with Russia. Some are mandated; others may be implemented at the discretion of the president.
The second new law authorizing sanctions is the Global Magnitsky Human Rights Accountability Act. Enacted in 2016, and implemented by Executive Order December 21, the Act authorizes visa bans and sanctions targeting human rights abusers and corrupt actors no matter where they are in the world. Underscoring Magnitsky’s global reach, an Annex to the Order designates bad actors in Gambia, Nicaragua, Democratic Republic of the Congo, Serbia/the Balkans, Burma, South Sudan, Pakistan, Uzbekistan, Dominican Republic, Brazil, Russia, China, Ukraine, and Guatemala.
Economic and Trade Sanctions: The Lists
While the U.S. State Department, through its Office of Economic Sanctions Policy and Implementation, is responsible for developing foreign policy-related sanctions, the administration and enforcement of economic and trade sanctions is handled by Treasury’s Office of Foreign Assets Control (OFAC).
OFAC maintains the lists of entities designated for sanctioning, including the Sectoral Sanctions Identifications List (SSI list), established to address the Ukraine situation, and the List of Specially Designated Nationals and Blocked Persons (SDN list).
The OFAC SDN list contains the names of those sanctioned under programs aimed at convincing countries to change their ways, or at curbing such extra-national activities as terrorism, narcotics trafficking or, as under Magnitsky, human rights abuses. Twenty-eight sanctions programs are currently active.
The sanctions generally entail prohibiting U.S. persons (companies or individuals) from dealing with the SDNs and freezing any SDN assets within U.S. jurisdiction. OFAC can issue licenses carving out exceptions – for instance, allowing relief shipments of food or medicines.
The U.S. is not alone in using sanctions to achieve foreign policy and national security goals. Trade agreements and economic restrictions have long served as “carrots and sticks” in international diplomacy. The United Nations Security Council maintains sanctions programs, as does the European Union. The U.S. has, however, been especially active in wielding sanctions in recent months.
For example, from September 26 through fourth-quarter 2017, the U.S. extended sanctions to banks and individuals with links to North Korean financial networks, entities involved in North Korean rights abuses and censorship, and transportation networks and companies with North Korean commercial ties. The U.S. closed the year adding two North Korean nationals to the SDN list on December 26. On January 24, the U.S. applied sanctions to entities, individuals and six vessels for violating UN Security Council Resolutions addressing North Korea. [Also see our September 22 blog, U.S. Broadens North Korea Sanctions.]
Similarly, OFAC added Venezuelans to the SDN list November 9 of last year and again on January 5 of this year. OFAC designated additional Iran-based entities and individuals on October 13, January 4 and January 12.
On January 29, Treasury released its list of Russian Federation senior political figures and top oligarchs, a report to Congress mandated by CAATSA, although it has not yet designated any of those listed for sanctions.
Economic and Trade Sanctions: The Penalties
While OFAC sanctions programs aim to penalize their targets, they work by regulating U.S. entities – including U.S. citizens and resident aliens, no matter where they are located, all entities and persons located in the U.S., entities organized under U.S. law, and entities owned or controlled by U.S. citizens.
U.S. entities that do business with sanctioned parties can face civil or criminal penalties, including seizure of any goods involved, fines or imprisonment.
In 2017, OFAC took 18 enforcement actions against companies across a range of industries, levying a total of $120 million in civil penalties (including settlements). Among the cases resulting in civil penalties:
- An issuer of credit cards to corporate customers failed to implement controls to prevent the cards being used in Cuba.
- A U.S. paper company facilitated the sale and shipment of paper from its Canadian affiliate to Sudan.
- A U.S. luxury goods company exported four shipments to a Hong Kong concern on the SDN list.
- An oilfield services company in Singapore working through subsidiaries exported oil rig supplies from the U.S. to third countries, and then re-exported the supplies to rigs in Iranian territorial waters.
- A California freight forwarder transshipped used and junked cars and parts from the U.S. via Iran to Afghanistan.
- A U.S.-based provider of due diligence services, through its foreign subsidiaries, imported Iranian-origin services into the U.S. and facilitated its subsidiaries’ engagements with Iranian-origin services providers by reviewing, approving and initiating their payments to the Iranian providers.
Treasury has been tasked with using its “very strong economic authorities to cut funding from and put pressure on rogue states, proliferators of weapons of mass destruction, state sponsors of terrorism, human rights abusers, and other illicit actors,” as Under Secretary for Terrorism and Financial Intelligence Sigal Mandelker has said. As the U.S. directs more sanctions at primary and secondary targets around the world, U.S. companies bear heavier compliance obligations with higher risks of inadvertently violating the rules.
From our blog:
- Travel, Trade with Cuba Curbed by New Constraints
- U.S. Broadens North Korea Sanctions
- U.S. Tightens Venezuela Sanctions
From our trade content solutions:
- Descartes MK Denied Party Screening™ continuously updates a database of sanctions, denied and restricted parties – available via web-based Software as a Service (SaaS) solution, bulk screenings, dynamic screening, and Enterprise Resource Planning (ERP) connectivity. Learn more>
Date posted: February 1, 2018