OFAC Sanctions on Iran, Syria, Yemen, and Burma: Compliance Strategies

Transcription

1 Presenting a live 90-minute webinar with interactive Q&A OFAC Sanctions on Iran, Syria, Yemen, and Burma: Compliance Strategies Meeting Strict and Rapidly Changing U.S. Sanctions Requirements TUESDAY, AUGUST 28, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: John J. Sullivan, Partner, Mayer Brown, Washington, D.C. Thaddeus R. McBride, Partner, Sheppard Mullin Richter & Hampton, Washington, D.C. Stevenson Munro, Compliance Leader, Economic Sanctions and Anti-Corruption, General Electric Capital, Norwalk, Conn. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions ed to registrants for additional information. If you have any questions, please contact Customer Service at ext. 10.

2 U.S. Sanctions: Key Issues Strafford Publications August 28, 2012 Washington, DC Thaddeus R. McBride Sheppard Mullin Richter & Hampton Stevenson Munro General Electric Capital

3 Agenda Sanctions overview Specific countries Syria Iran Burma Yemen Compliance best practices Questions / Discussion 3

4 Sanctions Overview Administered by U.S. Treasury Department, Office of Foreign Assets Control (OFAC) Approximately 25 different U.S. sanctions programs at present Some comprehensive, e.g., Cuba, Iran, and some selective, e.g., Burma, Zimbabwe 4

5 Key Concept: Jurisdiction Sanctions apply to actions by U.S. persons and persons subject to U.S. jurisdiction, as follows: All U.S. citizens and residents, wherever located All U.S.-organized or incorporated companies or entities All persons in United States, regardless of nationality In case of Cuba (and now Iran), sanctions apply to certain entities owned/controlled by U.S. person 5

6 Jurisdiction (cont.) Under recent statutory amendment (IEEPA Enhancement Act), any person who causes a violation can be subject to liability Lloyds - $350 million (2009) Credit Suisse - $536 million (2009) Barclays - $298 million (2010) 6

7 Key Concept: SDNs Specially Designated Nationals (SDNs) Listed on OFAC s SDN List List updated regularly Individuals and entities are listed by sanctions programs, e.g., narcotics trafficking, terrorism Many SDNs reside in non-sanctioned countries such as Canada, Mexico, Panama, UAE 7

8 Key Concept: Export of Services U.S. sanctions prohibit direct and indirect provision of services to sanctions targets Providing service anywhere may be prohibited if benefit of service is received by sanctioned party or in sanctioned country 8

9 Export of Services (cont.) Marketing services Business services Consulting services Example: Cannot give consulting or marketing advice to a non-u.s. company related to its business in Iran Legal services are permissible in certain cases 9

10 Key Concept: Facilitation Facilitation is specifically prohibited U.S. persons are prohibited from facilitating action that would be prohibited if performed by U.S. person Broadly defined covers virtually any assistance to a prohibited transaction 10

11 Facilitation (cont.) Specific prohibitions from regulations Changing policies or procedures to allow foreign entity to conduct transaction prohibited to the U.S. person Referring prohibited business deals to a foreign person Financing / insuring a foreign subsidiary s trade with sanctioned country 11

12 Syria Targeted sanctions imposed under Terrorism List Government Sanctions Regulations OFAC imposes asset freezing / blocking on designated Syrian individuals Executive Order establishes comprehensive economic sanctions on Syria Iran Threat Reduction and Syria Human Rights Act extends restrictions on Syria 12

13 Syria (cont.) Sanctions introduced in 2011 respond to Syrian government s actions against Syrian protests Asset freeze expanded to entire government Access to U.S. banks is restricted U.S. persons blocked from exporting services to Syria 13

14 Syria (cont.) ITRSHRA signed on August 10, 2012 Sanctions on persons engaged in human rights abuses and censorship Restrictions on persons who facilitate transfers of goods and technology likely to be used to commit human rights abuses in Syria Could be extended to non-u.s. and non-syrian parties that sell specified goods / technology to Syria 14

15 Syria (cont.) Overlapping sanctions regulations SSR, TLGSR, and ITRSHRA (and export embargo) Differing restrictions, e.g., more limits on dealing with government than civilians Incremental expansion of sanctions Respond to foreign policy imperatives Congressional involvement 15

16 OFAC Compliance IRAN, BURMA, YEMEN RECENT DEVELOPMENTS John J. Sullivan Partner August 28, 2012 Strafford Webinar Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC ); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

17 IRAN SANCTIONS BACKGROUND Complex patchwork of legislation, regulations, and Executive Orders implemented in part by OFAC and in part by the State Department International Emergency Economic Powers Act Iranian Sanctions Act (ISA) Amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA) Iran Threat Reduction and Syria Human Rights Act (ITRSHRA) Iranian Transactions Regulations, 31 CFR Part 560 Iranian Assets Control Regulations, 31 CFR Part 535 Executive Orders 17

18 IRAN SANCTIONS BACKGROUND Comprehensive sanctions Most transactions by US Persons prohibited Facilitation by US Persons prohibited Increasing extraterritorial reach Foreign subsidiaries of US companies Foreign persons who evade US sanctions Foreign financial institutions Blocking of Government of Iran assets 18

19 IRAN SANCTIONS IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT (ITRSHRA) Signed into law August 10, 2012 For the first time extends to foreign subsidiaries of US companies the preexisting sanctions against Iran Imposes new reporting requirements on firms with securities traded on US stock exchanges Expands the scope of ISA/CISADA to target additional activities and impose new sanctions with respect to conduct of non-us companies 19

20 IRAN SANCTIONS ITRSHRA Principal Provisions Section 218 Previously OFAC sanctions against Iran did not extend to the foreign subsidiaries of US companies, although any US entity, US citizen, or US resident ( US Person ) that facilitated the Iranian business in which the foreign subsidiary engaged could be penalized Prohibits any entity owned or controlled by a US Person and established or maintained outside the US from knowingly engaging in any transaction directly or indirectly with the Government of Iran or persons subject to the jurisdiction of Iran if such transaction would violate US sanctions law if a US Person engaged in it 20

21 IRAN SANCTIONS ITRSHRA Principal Provisions Section 218, cont d A US Company will be subject to civil penalties for the activities of its foreign subsidiaries under this provision unless it divests or terminates the business with the foreign subsidiary within 180 days of enactment 21

22 IRAN SANCTIONS ITRSHRA Principal Provisions Section 219 Any company whose stock is traded on US exchanges is required to make public disclosure filings to the SEC if it, or any affiliate, has knowingly engaged in certain activities prohibited by ISA/CISADA or by OFAC sanctions The President must initiate an investigation to determine whether penalties should be imposed as a result of reported activities 22

23 IRAN SANCTIONS ITRSHRA Principal Provisions Sections , Expands the list of sanctionable activities under ISA/CISADA and increases from three to five the number of mandatory sanctions the President must impose on parties engaged in prohibited activities Most of the added activities target Iran s petroleum industry, including sanctions on firms involved in JV s with Iran related to the development of petroleum resources outside of Iran Provides three additional sanctions that can be imposed for ISA/CISADA violations, including two measures targeting individuals Denial of entry into the US of any corporate officer or principal of, or any shareholder with a controlling interest in, a sanctioned person Any of the CISADA sanctions can be imposed on the principal executive officers (and any persons performing similar functions) of any sanctioned person, including the freezing all of their assets in the United States 23

24 IRAN SANCTIONS ITRSHRA Other Provisions Expands sanctions on the opening or maintenance of correspondent and payable-through accounts in the United States by foreign financial institutions Sanctions companies that provide transportation or insurance/reinsurance for transportation of goods contributing to Iran s WMD program or its support of international terrorism Tightens sanctions against Iran s Revolutionary Guard Corps Expands sanctions against persons who supply Iran with items used to commit human rights abuses Makes it easier for US victims of terrorism to enforce US judgments for damages against Iran 24

25 IRAN SANCTIONS EXECUTIVE ORDERS EXECUTIVE ORDER (February 5, 2012) Blocks all property and interests in property of the Government of Iran, including the Central Bank of Iran Blocks any Iranian financial institution Blocks all property and interests in property of persons owned or controlled by or acting on behalf of any person whose property is blocked under the order General Licenses A and B exclude certain transactions from scope of order Previously licensed transactions, including TSRA-licensed ones Noncommercial, personal remittances to or from Iran 25

26 IRAN SANCTIONS EXECUTIVE ORDERS EXECUTIVE ORDER (April 22, 2012) Targets the provision and use of information and communications technology to carry out human rights abuses in Iran and Syria Blocks the property of persons involved in human rights abuses by the Iranian and Syrian governments Prohibits any transaction by a US Person or within the US that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate the regulations established in the order Excludes any contract or license in effect prior to the order 26

27 IRAN SANCTIONS EXECUTIVE ORDERS EXECUTIVE ORDER (May 1, 2012) Targets foreign individuals and entities that have evaded US economic sanctions on Iran and Syria, i.e., foreign sanctions evaders Authorizes Treasury to publicly identify and penalize those foreign persons and entities that Violate, attempt to violate, conspire to violate, or cause a violation of US sanctions against Iran or Syria Facilitate deceptive transactions for or on behalf of any person subject to these sanctions Are owned or controlled by, or acting on behalf of, another party that engages in these activities 27

28 IRAN SANCTIONS EXECUTIVE ORDERS EXECUTIVE ORDER (May 1, 2012), cont d Allows Treasury to identify a foreign company as a foreign sanctions evader if it facilitates a deceptive transaction, even if it was unaware of the identity of the sanctioned party Prohibits US Persons from dealing with foreign persons and entities identified as foreign sanctions evaders US Persons are not required to block the property of foreign sanctions evaders 28

29 IRAN SANCTIONS EXECUTIVE ORDERS EXECUTIVE ORDER (July 31, 2012) Tightens sanctions on Iran's oil and petrochemical sectors as well as its shipping trade Targets foreign financial institutions found to have knowingly conducted or facilitated any significant financial transaction with the National Iranian Oil Company ( NIOC ) or Naftiran Intertade Company ( NICO ) Goal is to deter work-around financial transactions involving NIOC or NICO 29

30 BURMA SANCTIONS BACKGROUND US sanctions imposed in 1997 in response to the Burmese government s crack-down on the country s pro-democracy opposition Burmese Sanctions Regulations, 31 CFR Part 537 Before 2012 No financial services to Burma No US investment in Burma No imports of Burmese goods Exports and transactions unrelated to financial services allowed 30

31 BURMA SANCTIONS RECENT DEVELOPMENTS Easing of sanctions in 2012 in recognition of political reforms in Burma At same time, tightening certain other constraints on US business dealings with Burma April 17, General License 14-C issued Authorized certain financial transactions in support of humanitarian, religious, and other not-for-profit activities in Burma Three months later new general licenses issued, General Licenses 16 and 17, that further ease sanctions 31

32 BURMA SANCTIONS RECENT DEVELOPMENTS General Licenses 16 and 17 (July 11, 2012) General License 16 Replaces General Licenses 14-C and 15, which granted a limited exception for non-commercial personal remittances Authorizes direct or indirect exportation and reexportation of financial services to Burma General License 17 Permits new investment in Burma 32

33 BURMA SANCTIONS RECENT DEVELOPMENTS Two Limitations on General Licenses 16 and 17 No transactions with (i) the Burmese Ministry of Defense, (ii) any state or nonstate armed group, or (iii) any entity in which any of the foregoing owns a 50-percent or greater interest No transactions with any person whose property and interests in property are blocked (i.e., on the SDN List), including entities in which such blocked person owns a 50- percent or greater interest 33

34 BURMA SANCTIONS RECENT DEVELOPMENTS General License 16 Carves out a limited exception to allow for transfers of funds to or from an account of a blocked Burmese financial institution US financial institutions are still prohibited from dealing directly with blocked Burmese banks; however, payments in US dollars may be routed through correspondent accounts of these blocked entities at non-us banks, provided that the payment concerned does not involve a debit to a blocked account 34

35 BURMA SANCTIONS RECENT DEVELOPMENTS General License 17 Incorporates into its compliance obligations the State Department s new Reporting Requirements on Responsible Investment in Burma Apply to any new investment in Burma whatever corporate form it might take Two reporting requirements 35

36 BURMA SANCTIONS RECENT DEVELOPMENTS General License 17, cont d Annual Reporting Requirement Any US individual or entity that engages in new investment in Burma that exceeds an aggregate of US$500,000 is required to file an annual report with the State Department Myanma Oil and Gas Enterprise (MOGE) Notification US individuals or entities undertaking new investment pursuant to an agreement with MOGE must notify the State Department in writing within 60 days of the new investment 36

37 BURMA SANCTIONS RECENT DEVELOPMENTS Tightening of sanctions by Executive Order and Legislation Executive Order was issued on the same day as General Licenses 16 and 17 Authorizes the designation as SDNs those individuals and entities that Threaten the peace, security, or stability of Burma Are responsible for or complicit in the commission of human rights abuses in Burma Conduct certain arms trade with North Korea Legislation signed into law on August 10, 2012 extends the import ban for additional three years 37

38 YEMEN SANCTIONS RECENT DEVELOPMENTS Executive Order (May 16, 2012) Blocks the property of persons or entities that Have engaged in acts that directly or indirectly threaten the peace, security, and stability of Yemen Are political or military leaders of an entity that has engaged in such acts Have provided support for such acts or support to a person blocked by the order Are owned or controlled by, or are directly or indirectly acting for or on behalf of any person blocked by the order 38

39 YEMEN SANCTIONS RECENT DEVELOPMENTS Executive Order (May 16, 2012), cont d Does not impose broad-based sanctions against the country of Yemen, its government, or people Persons and entity blocked pursuant to this order are put on the SDN List 39

40 Compliance Best Practices 40

41 Key Elements of Compliance Program 1. Risk Assessment Review risk factors Where you are exposed to sanctions risks How exposure arises What types of sanctions risks exist What indicators of exposure look like It is fundamental to design and implementation of appropriate, relevant compliance control processes Do not underestimate the difficulty in producing a clear, complete, and precise risk assessment 41

42 Compliance Program (cont.) 2. Policies and Procedures Documented, coordinated set of instructions setting out: Who is responsible for which tasks How tasks are performed Standards of performance Dedicated compliance personnel Compliance officer should be senior enough to bind company, maintain credibility with management Contact for questions, reporting on compliance issues Seems obvious; but often very difficult to maintain. 42

43 Compliance Program (cont.) 3. Transaction / Business Activity Monitoring, Screening, Surveillance Core to any compliance program are the control processes themselves In an economic sanctions context, these typically require screening of relevant business activities to detect indicators of potential sanctions risk exposure Know Your Customer: Conduct diligence on new partners, existing partners on periodic basis and identify compliance red flags Review, address red flags before proceeding with transaction Do not limit this to SDN List screening; this is often too limited 43

44 Compliance Program (cont.) 4. Compliance Control Process Monitoring Often confused with the prior program element This is a process to ensure the control processes and procedures implemented to ensure compliance are being performed properly Pay particular attention to technology related procedures 5. Metrics and Management Information Reporting on both process and risk 44

45 Compliance Program (cont.) 6. Regulatory Reporting and Communication Timely filing of reject and block reports Respond to.602s Engage with OFAC on licensing, compliance, and enforcement actions Ensure necessary records are maintained, available for inspection by government 45

46 Compliance Program (cont.) 7. Training Senior leaders need to: Understand the risks Be committed to, demonstrate commitment to compliance Businesses need to: Know what risks or exposure they face within their specific activities and operations Understand red flag indicators they may encounter and how to detect and report them Compliance control process owners need to: Know how to perform the procedures correctly Be able to identify process failures 46

47 Compliance Program (cont.) 8. Advice and counsel Business needs timely, accurate guidance on both strategic issues and discreet questions that arise Program needs to be built and resourced so that issues can be identified and addressed quickly without incapacitating business by hand-wringing Ensure there are appropriate reporting mechanisms , phone, fax, mail, etc. Include anonymous option to extent possible Review reports promptly No retaliation in case of good faith reports 47

48 Compliance Program (cont.) 9. Program change management The regulatory environment is one of the most consistently dynamic you will encounter Compliance controls have to react immediately Compliance program needs to have mechanisms to implement changes consistently, comprehensively, immediately, and repeatedly 48

49 Compliance Program (cont.) 10. Independent Testing / Audit Required in some industries, good practice for others Ensure adequate resources Written plan outlining reasonable scope of review Final report with summary of review conducted, key findings, and specific duties for corrective action Helps identify weaknesses (and strengths) Provides senior management / board level focus Can serve as evidence of responsible, well-designed and well-executed program 49