On June 29, 2017, the U.S. Treasury Department announced new steps applying pressure on North Korea in relation to its proliferation activities. Specifically, this involved (1) sanctions designations against Chinese shipping company Dalian Global Unity Shipping Co., Ltd. and two Chinese individuals; and (2) anti-money laundering special measures against China’s Bank of Dandong. All were involved in business with North Korea according to the Treasury Department’s announcement.
The Special Measures for Bank of Dandong under Section 311 of the USA PATRIOT Act prohibit U.S. financial institutions from maintaining correspondent accounts for, or on behalf of, that bank. This would prevent access to the U.S. banking system for dollar transactions or wiring services.
None of the sanctioned parties appear to be systemically important companies for China, but the sanctions may be intended, or viewed, as an effort by the Trump Administration to pressure China into doing more to restrain North Korea’s nuclear activities.
Effective January 17, 2017, a new general license authorizes a broad range of activities previously prohibited under the Sudanese Sanctions Regulations (SSR), including most transactions with individuals and entities in Sudan and the unfreezing of all property of the Government of Sudan subject to U.S. jurisdiction. This is a dramatic change to a longstanding and comprehensive U.S. sanctions regime, with relevance to banks, the energy sector and a range of companies and investors with interests in the Middle East and Northern Africa (MENA).
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.
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.
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.
Today, OFAC issued new General License J (“GL J”) authorizing non-U.S. persons to reexport certain “Eligible Aircraft” to Iran. Importantly, GL J only applies to temporary sojourns, meaning that any sales or leases (including wet leases) of aircraft to Iran would still require a specific license. Please click here to view OFAC’s new General License J.
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:
In advance of President Obama’s highly publicized trip to Cuba, the Administration took additional steps to ease restrictions on trade and travel with Cuba. These changes to the Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR) have implications for the banking sector, shippers, the travel industry and other businesses.
On January 27, 2016 the Department of Commerce, Bureau of Industry and Security (“BIS”) and the Department of Treasury, Office of Foreign Assets Control (“OFAC”) published amendments to the Export Administration Regulations (EAR) (Link) and Cuban Assets Control Regulations (CACR) (Link). These amendments further loosen aspects of the Cuba embargo in line with the President’s December 2014 initiative:
- Trade Finance – OFAC added a new general license authorizing payment and financing terms, including letters of credit, for U.S. exports and reexports of 100 percent U.S.-origin items from a third country so long as they (a) are authorized by the BIS and (b) not related to agriculture or commodities. OFAC’s previous policy restricted financing for exports to cash-in-advance or third-country financing.
- Trade and Business Licensing Opportunities – BIS established a new case-by-case licensing policy to permit exports and reexports “meeting the needs of the Cuban people,” including exports and reexports destined for state-owned enterprises, agencies and other organizations of the Cuban government. BIS provided a list of examples including agricultural production, artistic endeavors, education, food processing, disaster preparedness, relief and response, public health and sanitation, residential construction/renovation and public transportation. BIS suggested that the types of eligible items could include water treatment, electrical generation facilities, athletic facilities and other infrastructure beneficial to the Cuban people. The new licensing policy opens the door for U.S. companies to consider a range of possible exports. Areas that are still off-limits include items that primarily generate revenue for the state (including tourism and extractive industries) or are destined to Cuban intelligence and security services.
- Travel Authorizations for Business – OFAC expanded the general license for travel to Cuba to include travel-related transactions for market research, commercial marketing, sales or contract negotiations, accompanied delivery, installation, leasing, or servicing in Cuba of items consistent BIS export and licensing policy. In addition, OFAC expanded its previous authorization for attending professional meetings to also allow organizing such meetings.
- Aviation and Vessels – OFAC expanded the general license relating to carrier services between the United States and Cuba to allow the entry into blocked space, code-sharing, and leasing arrangements, including with Cuban nationals. Transactions related to travel between the United States and Cuba by aircraft or vessel on temporary sojourn and transactions by personnel required for normal operation and service of such aircraft and vessel also are authorized. BIS has adopted a general policy of approval for items necessary for safety of civil aviation including the export or reexport of aircraft leased to state-owned enterprises.
- Telecom / Electronics – BIS now “will generally approve license applications for exports and reexports of telecommunications items that would improve communications to, from, and among the Cuban people.” BIS policy will also be more favorable with respect to items and software related to civil society and news gathering.
- Public Performances. OFAC expanded the general license for public performances, clinics and workshops to not only those participating in the event but to those organizing it, provided the event is open for attendance and, in relevant situations, participation by the Cuban public.
- Media and Artistic Activities. OFAC expanded the general license for travel related transactions directly incident to the exportation, importation or transmission of informational materials. This includes transactions directly incident to professional media or artistic productions, including filming movies and television programs, music recording and the creation of art works in Cuba by travelers with professional experience in these areas.
Notwithstanding these changes to the Cuba regulations, it is important to emphasize that the Cuba embargo still remains in force and cannot be lifted without congressional authorization. Transactions outside the scope of BIS license exceptions or OFAC general licenses remain prohibited unless specifically licensed.