Articles Posted in Exports

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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.

  1. 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.

 

  1. 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.
  1. 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.

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There are several legislative proposals pending in Congress targeting trade and investment involving China. If enacted, the proposals would prevent Chinese entities from acquiring certain U.S. technologies, prohibit U.S. government procurement from ZTE and Huawei, and limit U.S. issuers from receiving investments from Chinese parties.

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On June 16, 2017, President Trump issued a National Security Presidential Memorandum on Strengthening the Policy of the United States Toward Cuba, which begins a process to alter some aspects of U.S. policy towards Cuba, but retains much of the Obama Administration’s reforms to travel, business and trade with Cuba.

The signaled changes focus on limiting business with companies related to Cuba’s military, intelligence and security apparatus and tightening aspects of the administration of existing travel allowances. Existing business and travel arrangements affected by the changes may be grandfathered.

There are no immediate changes to U.S. sanctions or export control policy. The memorandum sets the framework for the Office of Foreign Assets Control (OFAC), Bureau of Industry and Security (BIS) and other agencies to consider regulatory changes in the coming months.

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Questions continue to swirl around the future of U.S.-Cuba policy as recent reports of a Trump Administration plan to strengthen Cuba sanctions surfaced over the weekend. These reports should be assessed against the backdrop of an increased Congressional effort to end the embargo on Cuba.

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“We will follow two simple rules: buy American and hire American.” While world leaders are pondering what these words from President Trump’s Inaugural Address mean for international trade, a different question looms for U.S. Government contractors—what is on the horizon as far as the Buy American Act and similar protectionist regulations?

  • Any new infrastructure spending bill that provides funding for state and local public works projects likely will incorporate domestic preference requirements similar to those incorporated in 2009’s American Recovery and Reinvestment Act.
  • The process for issuing new waivers when a particular item is not available in commercial quantities from U.S. producers may be further restricted, and some existing waivers could be cancelled.
  • Even if no new rules are implemented, contractors should be prepared for increased enforcement.

The Buy American Act, Balance of Payments Program, Cargo Preference Act, Berry Amendment and similar regulations all require U.S. Government contractors to exclusively use, or give a preference to, U.S. suppliers. Further, the Trade Agreements Act prohibits U.S. Government purchases of products from many foreign countries. Continue reading →

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On December 15, 2016, the Office of Foreign Assets Control (OFAC) provided updated guidance on what companies can expect in the event of the “snapback” of sanctions under the Joint Comprehensive Plan of Action (JCPOA).  Previously, OFAC Frequently Asked Questions (FAQs) had only offered the possibility of working with companies in the event of snapback.  The guidance offers assurances of a 180-day wind down period.  OFAC issued this clarification in response to many questions it received, but it is not intended to signal an expectation that the sanctions will snapback.

In addition, OFAC issued a new General License J-1 to replace General License J addressing the temporary sojourn of U.S.-origin aircraft in Iran.  The updated general license authorizes the temporary sojourn of U.S.-origin aircraft as part of a code sharing arrangement with an Iranian air carrier.  Our prior blog post on the issuance of General License J is available here.

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Donald Trump’s victory in the 2016 Presidential election put the Republican Party in charge of the White House and Congress for the first time in a decade. President-elect Trump ran as an anti-establishment candidate who departed from many traditional Republican positions and promised bold and in some respects controversial reforms. How his administration will govern and the extent to which its policies will be supported in Congress are key questions facing companies and investors.

This report comments on aspects of international trade, sanctions and export control policies that are currently at the forefront of discussion.

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Both the U.S. Treasury’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) have announced new amendments to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) that continue to build upon existing licenses and authorizations facilitating trade with Cuba.  These amendments, effective October 17, 2016, enhance the flexibility of U.S. companies seeking to do business with Cuba or Cuban nationals across various sectors.

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On September 15, 2016, President Obama announced that U.S. economic sanctions on Myanmar (also known as Burma) would end, but the announcement left many questions as to what would change and what sanctions might remain. On October 7, the Obama Administration provided the answer with an Executive Order that completely removed the Burmese Sanctions Regulations, lifted the U.S. import ban on rubies and jadeites, made the public reporting requirements for investment voluntary, and lifted the bans on visas for certain sanctioned individuals and most sanctions listings of Burmese Specially Designated Nationals (SDNs).

The United States had been removing sanctions in steps since July 2012 as the Myanmar government moved down a path of reform. However, a patchwork of remaining sanctions and a broad set of sanctions listings continued to make business, investment, banking and trade with Myanmar challenging for U.S. as well as non-U.S. companies. Here are four key impacts of the U.S. policy change and four important issues that remain.

How does this removal of sanctions impact business in/with Myanmar?

1.  The sanctions list is nearly gone (see below for what remains). Importantly, this includes removals of (a) the major Myanmar economic conglomerates, businesses and banks; (b) military/economic entities; and (c) the remaining key businessmen, industrialists and military-related figures.

2.  Treasury’s Financial Crimes Enforcement Network (FinCEN) provided “exceptive relief” to the Special Measures imposed for anti-money laundering (AML) purposes under Section 311 of the USA PATRIOT Act. As a consequence, U.S. financial institutions continue to be authorized to provide correspondent banking services to Myanmar banks. Previously, U.S. financial institutions were permitted to provide correspondent services involving Myanmar transactions for non-SDN banks, although in practice U.S. banks have shied away.

3.  The ban on imports to the United States of Myanmar rubies and jadeites, as well as jewelry containing the same, has been completely removed.

4.  The State Department’s Responsible Investment Reporting Requirements for new investment over $5,000,000 (previously $500,000) has been removed, but reports can still be made on a voluntary basis.

What issues still remain for persons doing business in or related to Myanmar?

A.  Over thirty Burmese SDNs continue to be listed under drug trafficking and North Korea sanctions programs. This includes Yangon Air and several gem, mining, textile, agricultural and constructions companies. Thus, although business in Myanmar will be far less burdensome, some sanctioned-party risk remains.

B.  Myanmar banks will need to continue to integrate with the global financial system and establish U.S. correspondent banking relationships to allow dollar transactions. Myanmar’s government and financial system also will have to make continued progress to address FinCEN’s AML concerns. Whether the current FinCEN exception or Myanmar’s continuing reforms will be sufficient to encourage U.S. banks to expand their banking relationships with Myanmar remains to be seen.

C.  The U.S. embargo on exports to Myanmar of defense articles and defense services remains in place.

D.  Although all property and interests in property blocked under the Burmese Sanctions Regulations are now unblocked, the U.S. government made clear that past violations of U.S. sanctions are still subject to enforcement, including action against U.S. and non-U.S. persons who may have “jumped the gun” by conducting business prior to sanctions removal.

The lifting of sanctions for Myanmar marks a watershed in the unwinding of U.S. sanctions. Now, the U.S. and Myanmar governments will observe how the private sector reacts as Myanmar rebuilds and rejoins the international economy.

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The Office of Foreign Assets Control (OFAC) updated its FAQs for Cuba on April 21, 2016 with substantive guidance that addresses U-turn transactions, export policy, insurance, educational and humanitarian activities and leasing of property in Cuba.

U-Turn Rules. OFAC amended the Cuban Assets Control Regulations (CACR) on March 16, 2016 to permit funds transfers from a bank outside the United States that pass through U.S. financial institutions before being transferred to a bank outside the United States, where neither the originator nor the beneficiary is a person subject to U.S. jurisdiction (so called “U-turn transactions”).

  • FAQ 62 clarifies that this authorization allows transactions originating and terminating at accounts in foreign branches or non-U.S. subsidiaries of U.S. banks (which are subject to U.S. jurisdiction), so long as the account-holder is not.
  • FAQ 63 clarifies that U.S. banks may process U-turn transactions where the Cuban party is a Specially Designated National (SDN).

FAQ 63 also provides guidance for U.S. banks on the due diligence expected when processing Cuba U-turn transactions.  Where a U.S. bank is only an intermediary, it may rely on the information provided by the remitting and receiving banks to determine if the parties are persons subject to U.S. jurisdiction. Where the transfer involves a direct customer, OFAC expects more substantial customer due diligence. In either case, the bank should conduct screening. If a U.S. bank fails to identify and block a prohibited transaction, despite following this guidance, OFAC indicated it would consider the totality of the circumstances in determining how to enforce.

Export Clarifications. FAQ 67 addressed the licensing requirements for removal of items from Cuba for repair or servicing. For items previously exported to Cuba under an authorization, an import from Cuba to the U.S. or a third country for repair/servicing requires OFAC authorization, which will be considered on a case-by-case basis. Separate Bureau of Industry and Security (BIS) authorization would be required for return of the items to Cuba after servicing where subject to the Export Administration Regulations (EAR). However, where the import back to the United States is required under the terms of BIS authorizations used for export/reexport to Cuba, no further OFAC specific license is necessary.

FAQ 68 clarifies that the authorization under section 515.533 of the CACR for persons subject to U.S. jurisdiction to engage in transactions incident to the reexport of 100 percent U.S.-origin items from a third country to Cuba where consistent with BIS licensing policy only applies where the items are 100 percent U.S.-origin.

Insurance. Transactions directly incident to authorized activity generally are permitted under the CACR, and OFAC clarified this authorization includes a variety of types of insurance for individuals traveling to Cuba and exports to Cuba (e.g. cargo or hull insurance).  Insurance companies also may pay or settle claims to Cuban nationals for insurance incident to authorized activities. Providing insurance is otherwise prohibited, including reinsurance for activities in Cuba by foreign parties not subject to U.S. jurisdiction. See FAQs 80 & 81.

Grants to State-Owned Entities. Cuban state-owned entities may be the recipients of certain grants authorized under sections 515.565 and 515.575 of the CACR for education, scholarships, awards and certain humanitarian projects designed to benefit the Cuban people. See FAQ 93.

Leasing of Real Property.  Persons subject to U.S. jurisdiction may lease real property in Cuba where they are authorized to travel to or reside in Cuba. This would include, for example, short-term leases of residences in lieu of hotels when on authorized travel, or the rental of apartments when employed by a business authorized to have a physical or business presence in Cuba. OFAC cautioned that the ability to lease is limited to the time the person is permitted to be in Cuba and real property rights may not be retained thereafter. See FAQ 97.

The updated FAQs are available at:

https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_new.pdf.