On November 19, 2018, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) issued a proposed rulemaking seeking public comment on criteria for identifying emerging technologies that are essential to U.S. national security.
On November 15, 2018, the U.S. State Department added several new Cuban hotels to its List of Restricted Entities and Subentities Associated with Cuba (“Cuba Restricted List”). The recent update includes the additional of 16 hotels, with 26 newly identified entities in total. The State Department also made five amendments to previously listed entities, including three name-changes, one new alias, and one typographical correction. The new hotels are being added to the Cuba Restricted List because they have been identified as entities that are under the control of the Cuban military, intelligence, or security services.
On November 15, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned 17 officials of the Government of Saudi Arabia for their purported role in the killing of journalist Jamal Khashoggi. The individuals include Saud Al-Qahtani, the now former royal court adviser and consultant to crown prince Mohammed bin Salman, and General Mohammed Alotaibi, Saudi Arabia’s consul general in Istanbul. This followed outreach on October 10, 2018 from leaders of both parties in the U.S. Senate to President Trump seeking a determination on the imposition of sanctions under the Global Magnitsky Act with respect to any foreign person responsible for a human rights violation in connection with the death of Mr. Khashoggi.
On November 5, 2018, OFAC announced a large number of Iran-related sanctions designations and issued guidance on the end of the 180-day wind down period. The announced list of Specially Designated Nationals (SDNs) both reinstated prior sanctions that had been suspended during implementation of the Joint Comprehensive Plan of Action (JCPOA) and added several new parties. In addition, the revisions to the Iranian Transactions and Sanctions Regulations announced on Friday, November 2 went into effect on November 5.
Overall, the U.S. government continues to follow the plan of action outlined on May 8, 2018. However, the Administration and OFAC made a number of important clarifications.
According to an announcement by U.S. Treasury Secretary Mnuchin, OFAC is sanctioning over 700 individuals, entities, aircraft, and vessels. This included re-listing of individuals and entities that had been granted sanctions relief under the JCPOA, as well as over 300 new sanctions designations. OFAC is targeting Iran’s banking, energy, aviation and shipping sectors.
OFAC stated that it has listed more than 70 Iran-linked banks and their foreign and domestic subsidiaries. All Iranian financial institutions are subject to sanctions under Executive Order 13599. Under the JCPOA, many of these financial institutions were listed under a separate E.O. 13599 List maintained by OFAC which indicated they were blocked for U.S. persons, but not subject to secondary sanctions for non-U.S. persons. As of November 5, 2018, OFAC has removed the E.O. 13599 List and issued individual sanctions designations for a large number of Iranian financial institutions. For non-U.S. persons, secondary sanctions apply to significant transactions with SDN banks, but not to Iranian financial institutions that are not individually designated as SDNs.
In addition, OFAC also has applied SDN designations to:
- More than 200 persons and vessels in the Iran shipping and energy sector;
- Iran Air (Iran’s national airline), along with more than 65 of its aircraft;
- The Atomic Energy Association of Iran; and
- Several persons on the E.O. 13599 List for being identified as “Government of Iran.”
These designations are added to other recent designations of Iranian parties, including the October 16, 2018 announcement of sanctions on the Basij Resistance Force and its network of fronts and related companies.
Amendment to the Iranian Transactions and Sanctions Regulations
As mentioned in our previous post, the regulatory amendments to the Iranian Transactions and Sanctions Regulations will authorize sanctions upon a determination that:
- On or after August 7, 2018, a 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; or
- On or after November 5, 2018, a 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.
OFAC also amended a pre-existing general license allowing U.S. persons to sell real property in Iran provided it was acquired before the individual became a US person or was inherited from persons in Iran. The general license has been expanded to include personal property subject to the same conditions.
Transactions in petroleum and petroleum products of Iran will be subject to broad U.S. primary and secondary sanctions, and key companies such as NIOC and NICO are SDNs subject to secondary sanctions for significant transactions. During a telecom briefing on November 2, 2018, U.S. Secretary of State Pompeo stated that the administration would grant waivers for eight countries under section 1245(d)(4)(D) of the NDAA 2012 to continue purchasing Iranian oil. Thus, the U.S. government will reinstate the system that had existed prior to the JCPOA to grant waivers of secondary sanctions for certain countries to purchase petroleum from Iran where committing to reduce overall purchases, with certain restrictions applying to the purchase funds. Some reports indicate that the countries will include China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey. Waivers must be renewed every 180 days.
Guidance on Transactions Completed During the Wind-Down Periods and Other New Transactions
OFAC has provided updated FAQ guidance on the receipt of payments for transactions completed during the wind-down periods and certain other transactions.
- The provision or delivery of goods or services and/or the extension of additional loans or credits to an Iranian counterparty after November 4, 2018 — even pursuant to written contracts or written agreements entered into prior to May 8, 2018 — may result in the imposition of U.S. sanctions unless such activities are exempt.
- Non-U.S. persons (other than Iranian persons) may receive payment for certain deliveries of goods, services, loans, or extension of credit, where (a) fully provided or delivered prior to the end of the relevant wind-down period; (b) conducted pursuant to contracts or written agreements signed before May 8, 2018; and (c) consistent with U.S. sanctions policy at the time. OFAC clarified that payments may not involve U.S. persons, the U.S. financial system or other activity in the United States unless the transaction is otherwise exempt or authorized by OFAC. Further, OFAC stated in FAQ 636 that “payment for activities undertaken during the wind-down period that involves a person added to the SDN List should seek guidance from OFAC or the State Department, as appropriate.” Goods or services will be considered fully provided or delivered consistent with “industry standards” and generally the party providing or delivering the goods or services must have performed all actions or satisfied all obligations necessary to be eligible for payment or other agreed-to compensation.
- U.S. persons and non-U.S. entities under the ownership or control of U.S. persons may not receive payment on or after November 5, 2018 for activities conducted pursuant to wind-down authorizations unless authorized by general or specific licenses.
- General licenses continue to apply for certain transactions for the sale of agricultural commodities, food, medicine, or medical devices to Iran (and other general licenses for Iran continue in effect).
Additional guidance or announcements may issue in the coming days. Companies should monitor the potential impacts of the November 5, 2018 sanctions listings and announcements.
On November 2, 2018, the Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued a final rule effective Monday, November 5, 2018 that amends the Iranian Transactions and Sanctions Regulations and reinstates sanctions on Iran that had been suspended during implementation of the Joint Comprehensive Plan of Action (“JCPOA”). On May 8 of this year, the Trump Administration had announced that the United States would withdraw from the JCPOA, but provided for 90-day and 180-day wind-down periods for specified activities involving Iran.
The 90-day wind down period ended effective August 6, 2018, and the U.S. government took steps to re-implement sanctions via Executive Order 13846. This included the application of secondary sanctions to the purchase or acquisition of U.S. dollar banknotes by the Government of Iran, certain trade in gold or precious metals, certain trade in graphite, raw or semi-finished metals such as aluminum, steel, coal and software for integrating industrial processes, transactions relating to Iranian rials, transactions relating to issuance of Iranian sovereign debt, and sanctions relating to Iran’s automotive sector. (See our previous post here).
The latest announcement addresses the end of the 180-day wind down period and implements certain additional aspects of Executive Order 13846.
- The amendments include deleting the “EO 13599 List” of individuals and entities who were removed from the SDN List pursuant to the JCPOA, but still were considered “Government of Iran” parties or Iranian financial institutions subject to blocking by U.S. persons pursuant to EO 13599. The Federal Register notice states that OFAC will relist “as appropriate” certain individuals and entities who were on the EO 13599 List. It is therefore unclear at this time whether all persons who were on the EO 13599 List will be re-added to the SDN List.
- The Iranian Transactions and Sanctions Regulations will authorize sanctions against a person upon a determination that:
- 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; or
- 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.
- OFAC amended a pre-existing general license allowing U.S. persons to sell real property in Iran provided it was acquired before the individual became a US person or was inherited from persons in Iran. The general license has been expanded to include personal property subject to the same conditions.
During a telecom briefing on Friday, Secretary of State Michael Pompeo mentioned that the administration decided to grant “temporary allotments” to eight jurisdictions to continue purchasing Iranian oil. Some reports indicate that South Korea, Japan, India, and Turkey are among the countries receiving such waiver. Although Mr. Pompeo did not say how long the waivers will be in place, he mentioned that the purpose of the waivers is to give countries a few “weeks longer to wind down.”
We expect that the actual re-designations of persons and entities to the SDN List will be published on Monday along with guidance and FAQs. We will follow up next week with further details.
The U.S. Department of the Treasury issued temporary regulations establishing a partial pilot program implementing two key changes to the jurisdiction and review of transactions by the Committee on Foreign Investment in the United States (CFIUS). The pilot program (1) expands the scope of transactions subject to review by CFIUS to include certain “other investments” involving foreign persons and critical technologies (though not critical infrastructure or companies with personal identifier information); and (2) makes effective a mandatory declaration provision for all transactions that fall within the specific scope of the pilot program. The pilot program will largely impact investments in companies involved in critical technologies pertaining to a specified list of industries by NAICS code, including the aircraft, semiconductor, nuclear, and telecommunications sectors. It also makes filing declarations a mandatory requirement for covered transactions involving these companies, which include acquisitions of control as well as non-controlling investments (including investments of less than 10%) that afford the foreign investor certain rights.
Importantly, the pilot program will commence on November 10, 2018 and will apply on a global basis (i.e., there is no country exemption at this time). The pilot program will not apply to transactions completed prior to November 10 or to transactions for which the parties have executed a binding written agreement or other document establishing the material terms of the transaction prior to October 11, 2018.
On August 8, 2018, the State Department announced that it had concluded that Russia was responsible for poisoning former double agent Sergei Skripal and his daughter Yulia using the nerve agent Novichok and that it had sent a report to Congress pursuant to the Chemical and Biological Warfare Weapons Elimination Act of 1991.
The statute requires the President to report to Congress when there has been a determination that another country has used chemicals weapons. Thereafter, the statute requires the President to impose a number of sanctions relating to (i) foreign assistance, (ii) arms sales, (iii) arms sales financing, (iv) denial of U.S. credit assistance (e.g., Export-Import Bank loans) and (v) a prohibition on exports of any controlled goods.
On August 13, 2018, President Trump formally signed the 2019 National Defense Authorization Act, signaling a number of substantial changes on the horizon for government contractors and foreign investors in the United States. In “President Trump Signs FY 2019 NDAA,” our colleagues Richard B. Oliver, Glenn Sweatt, Alexander B. Ginsberg and Kevin Massoudi offer a roundup of Pillsbury’s coverage of the key issues.
On August 6, 2018, the Treasury Department’s Office of Foreign Assets Control (OFAC) released a new Executive Order to implement the previously announced re-imposition of U.S. sanctions for Iran. There were no major surprises, with the Executive Order paralleling the guidance released on May 8, 2018 when the President announced his decision to cease the United States’ participation in the Joint Comprehensive Plan of Action (JCPOA) and to begin re-imposing the U.S. nuclear-related sanctions that had been lifted, following a wind-down period.
House and Senate negotiators have agreed on proposed reforms to the Committee on Foreign Investment in the United States (CFIUS) foreign investment review process, which has been added as Title XVII of the FY2019 National Defense Authorization Act (NDAA). The final bill makes a number of changes intended to improve the efficiency of national security reviews and investigations, although a significant increase in staff and funding will be required in order to handle the increased caseload. Importantly, outbound technology transfers in the context of joint ventures and other collaborative arrangements will not be added to the “covered transaction” definition, but will instead be addressed by U.S. export controls.