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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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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.

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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.

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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.

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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.

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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.

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  • June 15, 2018 – U.S. proposes an additional 25 percent ad valorem duty on products from China (818 tariff categories) with an annual trade value of approximately $34 billion. The $34 billion action became effective on July 6, 2018. (See our previous blog here)
  • June 15, 2018 – U.S. also proposes an additional 25 percent ad valorem duty on products from China (284 tariff categories) with annual trade value of approximately $16 billion. The $16 billion action is undergoing public comment.
  • June 15, 2018 – China retaliates imposing an additional 25 percent tariff on U.S. goods with a value of $50 billion. Part of this action ($34 billion) became effective on July 6, 2018. The additional $16 billion will be effective on a date to be determined.
  • July 11, 2018 – U.S. proposes an additional 10 percent ad valorem duty on products of China with an annual trade value of $200 billion.

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On July 11, 2018, the Office of the United States Trade Representative (“USTR”) proposed an additional 10 percent ad valorem duty on products of China with an annual trade value of $200 billion.  President Trump directed this action in connection with the Section 301 investigation into China’s acts, policies and practices related to intellectual property (discussed here and here).

According to USTR, President Trump directed this action in response to China’s decision to impose retaliatory tariffs on U.S. goods following the initial round of 25% tariff increases on Chinese goods covering $50 billion in trade value, $16 billion of which is currently proposed (discussed here).  According to the USTR, “China has shown that it will not respond to action at a $50 billion level” and “supplemental action at a $200 billion level is in accord with the President’s direction.”

The proposed tariffs cover 6,031 tariff subheadings and a wide variety of products, including food, chemical, mineral, electrical products; fertilizers; photographic goods; plastic, rubber, leather, cork, and wood articles; paper and paperboard; textile articles; headgear; stone, ceramic and glass articles; base metals; various types of machinery and appliances; electrical equipment; vehicles; ships; clocks; and furniture.

USTR will finalize the list following a public notice and comment process, including a hearing.  USTR has requested comments on:

  • Whether tariff subheadings included in the list should be retained or removed, or whether subheadings not currently on the list should be added;
    • In comments advocating for the removal of products from the list, commentators address whether imposing increased duties on a particular product would: 1) be practicable or effective to obtain the elimination of China’s acts, policies, and practices identified by USTR to be in violation of Section 301 (discussed in our blog post here); and 2) cause disproportionate economic harm to U.S. interests, including small- or medium-sized businesses and consumers.
  • The level of the increase, if any, in the rate of duty;
  • The appropriate aggregate level of trade to be covered by additional duties.

The relevant dates for the proceedings are as follows:

  • July 27: Requests to appear and a summary of expected testimony
  • August 17: Written comments
  • August 20-23: Public Hearing
  • August 30: Post-hearing rebuttal comments

 

 

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Recently, the U.S. Senate overwhelmingly passed the 2019 National Defense Authorization Act, H.R. 5515 (NDAA). The Senate version contains several differences from the NDAA as passed by the House, and these discrepancies must now be resolved through a joint conference committee. Notably, the Senate attached to the NDAA its proposed Foreign Investment Risk Review Modernization Act (FIRRMA), which would update and alter the CFIUS review process. The House had not attached its CFIUS reform bill, H.R. 5841, but recently passed this bill as a standalone piece of legislation. Both bills would expand CFIUS jurisdiction to include certain types of non-controlling investments, affecting foreign investors in U.S. businesses. However, impacts would vary depending on whether the investor is from a country of special concern or an allied nation.

While there are also commonalities, important differences between the Senate and House proposed CFIUS reform legislation are described below.

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Following President Trump’s direction in connection with the Section 301 investigation into China’s acts, policies and practices related to intellectual property (discussed here), on June 15, 2018, the Office of U.S. Trade Representative (USTR) announced a 25% tariff increase on Chinese products valued at approximately $34 billion in 2018 trade values, with more tariff increases to come. Below, we describe USTR’s action and China’s response.

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Background
On 23 May 2018, the Sanctions and Anti-Money Laundering Act became law in the United Kingdom. Its aim is to provide a legal framework to allow the UK to impose sanctions and implement its own sanctions regime once the UK leaves the EU on 29 March 2019. However, the Bill goes well beyond any current EU sanctions regime and provides scope for the Government to shape an autonomous UK sanctions policy.

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