What U.S. Entities and Individuals Need to Know About U.S. Trade Sanctions Including Those on Cuba, Russia, and Iran April 22, 2015

Transcription

1 What U.S. Entities and Individuals Need to Know About U.S. Trade Sanctions Including Those on Cuba, Russia, and Iran April 22, 2015 John P. Barker, Amy Jeffress, Baruch Weiss, Partners Arnold & Porter LLP Anna Lueje, Deputy General Counsel IAP Worldwide Services, Inc.

2 John P. Barker, Partner, Washington, DC John s practice focuses on national security matters including export controls and trade sanctions administered by the Office of Foreign Assets Control at the US Department of the Treasury (OFAC), and compliance with the Foreign Corrupt Practices Act (FCPA). He helps companies and institutions establish compliance plans, obtain export authorizations, and provides representation in enforcement proceedings. Mr. Barker came to the firm from the US Department of State, where he served as the Deputy Assistant Secretary for Nonproliferation Controls and, prior to that, as Deputy Assistant Secretary for Export Controls. Amy Jeffress, Partner, Washington, DC amy.jeffress@aporter.com, Amy s practice focuses on criminal defense matters, national and international security and compliance issues, and internal investigations. She advises companies and individuals on a wide range of issues, including export enforcement matters, the handling of classified information, and mutual legal assistance and other issues related to international law enforcement cooperation. Prior to joining the firm, she maintained a two-decade career with the Department of Justice, serving as Chief of the National Security Section at the U.S. Attorney s Office in the District of Columbia, Counselor to the Attorney General for national security and international matters, and Attaché to the US Embassy in London.

3 Anna Lueje, Deputy General Counsel, IAP Worldwide Services, Inc Anna is Deputy General Counsel of IAP Worldwide Services, Inc., based in Cape Canaveral, Florida. IAP is a leading provider of global-scale logistics, facilities management, and world-class advanced professional and technical services for the U.S. and other governments, commercial enterprises, and humanitarian organizations. Her practice is wide ranging and includes global trade compliance, international business, mergers and acquisition, corporate transactions, energy, ethics and compliance, and government contracts. Prior to joining IAP, Anna was in-house counsel for major energy and government contractor companies, and served in the U.S. Government in international affairs roles. Baruch Weiss, Partner, Washington, DC baruch.weiss@aporter.com, Baruch represents companies and individuals in criminal, homeland security and national security matters, including those involving enforcement and licensing proceedings before Office of Foreign Assets Control (OFAC). Baruch served as the acting Deputy General Counsel at the Department of Homeland Security; Assistant General Counsel for Enforcement at the Department of the Treasury; and spent 18 years in various positions at the United States Attorney's Office in the Southern District of New York, Criminal Division.

4 OFAC Sanctions Span the Globe

5 Overview of Economic Sanctions and Export Controls Introduction and Regulatory Overview -- U.S. Jurisdiction and Country-Specific Sanctions -- Prohibited Persons (Specially Designated Nationals) Developing and Implementing an Effective Compliance Program Due Diligence in Mergers & Acquisitions Challenges from Overlapping or Conflicting U.S. and Non-U.S. Sanctions Laws U.S. Enforcement Actions and Case Studies Potential Overlap of Sanctions, Export Controls, FCPA, and Other Statutes 2

6 OFAC Jurisdiction over Trade with Prohibited Persons and Prohibited Parties U.S. Department of the Treasury Office of Foreign Assets Control ( OFAC ) implements U.S. trade sanctions Sanctions on countries (e.g., Iran), prohibited persons ( Specially Designated Nationals or SDNs ) and programs (e.g., narcotics traffickers) Check every party in every international transaction against the SDN List Check country sanctions 6

7 OFAC Jurisdiction over Trade with Prohibited Persons and Prohibited Parties Sanctions against particular programs such as narcotics traffickers, transnational crime, etc. are identified through the SDN List Special restrictions for transfers of U.S.-origin goods to sensitive countries under Commerce Department controls in addition to OFAC controls (Russia, China, Venezuela, Syria, North Korea, Cuba, Iran, and Sudan) Persons subject to U.S. jurisdiction cannot do business with SDNs Cannot do business with any party owned 50% or more by an SDN Under some sanctions regimes, cannot do business with a party controlled by an SDN, even if ownership percentage is below 50% 7

8 Broad Basis for U.S. Jurisdiction U.S. citizen or U.S. permanent resident wherever located Entity organized in the U.S. Subsidiary of entity organized in the U.S. Foreign subsidiary for some sanctions regimes (e.g., Iran, Cuba) Most U.S. dollar-denominated transactions (because they generally settle through the U.S. regardless of the intention of the parties) U.S.-origin goods, technology and software in more than de minimis amounts Any routing of activities through the U.S. including IT and data processing Any person actually in the U.S. 8

9 U.S. Economic Sanctions Russia No general embargo (outside of the Crimea region of Ukraine) Some banks and entities on SDN List Sectoral sanctions implement prohibitions on capital, financing, and transfers of certain sensitive U.S. equipment for oil exploration and military end-use and endusers Sectoral sanctions are complicated they are not blanket prohibitions but instead require extensive knowledge of the transaction Several levels of sectoral sanctions Need to conduct due diligence carefully on owners Details are important Under some sectoral sanctions, it is ok to extend credit for 29 days but not 31 May have a violation if payment is late by a day 9

10 U.S. Economic Sanctions Iran General embargo on Iran in place since 1990s. Limited trade permitted (agricultural products, medicine, medical products) U.S. State Department sanctions against non-u.s. persons for specified trade (generally energy development including oil, nuclear and petrochemical) Strong enforcement against specific SDNs associated with transfers of weapons of mass destruction, sanctions evaders State-level divestment sanctions against companies with activities in Iran In addition to sanctions risks, publicly traded companies may face disclosure obligations for dealing with Iran Particularly a risk for dealing with non-u.s. persons where the trade is already legal under local laws 10

11 U.S. Economic Sanctions Iran (continued) The framework of a final deal with respect to Iran s nuclear program (announced by the President in early April) may eventually lead to sanctions relief But, beware of an immediate rush to business in Iran: The deadline for a final deal is June 30, 2015 nothing actually signed yet Sanctions will remain in place after June 30 until Iran verifiably abides by its commitments under any final deal Relief will be limited to nuclear-related sanctions other sanctions (human rights, terrorism, missiles) will remain unchanged Scope and timing of relief appears to be subject of public dispute between U.S. and Iranian governments In the short term, enforcement of sanctions on Iran is likely to be as robust as ever to keep Iran motivated to comply with the conditions needed for their removal and for the Administration to demonstrate its serious approach to the negotiations 11

12 U.S. Economic Sanctions Cuba Web of interconnected laws implemented over 50 years U.S. in the process of reducing restrictions and removing Cuba from the list of State Sponsors of Terrorism A sea change in philosophy but minimal immediate regulatory changes Enhanced travel opportunities for specific categories of travel (but not for tourists) Telecommunications exports encouraged Food, medicine, and medical products permitted under licenses Helms-Burton Act prohibitions on dealing with trafficked property Garnishment issues 12

13 U.S. Economic Sanctions Venezuela No overall embargo Increasing sanctions on individuals and entities Prohibitions on military transfers High-profile arrests for military procurement 13

14 U.S. Economic Sanctions Sudan General embargo for business-related activities Food, medicine and medical products permitted Humanitarian activities permitted Note that South Sudan is a different country --Not subject to OFAC sanctions unless activity also involves Sudan 14

15 U.S. Economic Sanctions Syria General embargo Prohibition on providing services to Syria This includes a prohibition on arranging for sales of products to or from Syria Some companies exposed by activist groups 15

16 U.S. Economic Sanctions Burma Comprehensive embargo used to apply U.S. has issued general licenses to permit most trade Some imports still prohibited Caution: Many of the parties to international transactions are SDNs Limited exceptions available for working with SDN banks 16

17 Developing Effective Compliance Programs Written compliance program expected by regulatory agencies Need to consistently monitor Landscape changes almost daily Need a good procedure in place and mechanism to engage legal and compliance personnel Establish and keep internal systems to check sanctions list by U.S. and others Training Mechanism for reporting violations Audit/self-assessment Doing audits could lead to appropriate recommendations to mitigate issues which may arise including potentially unwinding positions Be Careful Actions by portfolio companies or subsidiaries can subject owners to sanctions 17

18 Implementing a Compliance Program Raise Awareness Identify internal stakeholders Incorporate into overall international compliance program Global reach at all levels of the enterprise Communication channels for concerns Educate customers and other key stakeholders Due Diligence Use cost effective and efficient tools Coordinate with other international regulatory compliance export/import, anti-corruption, combating human trafficking 18

19 Challenges in Implementing Overlapping and Sometimes Conflicting U.S. and Non-U.S. Sanctions Laws EU and UK sanctions most prominent Some EU sanctions against Russia more stringent than U.S. sanctions Check sanctions lists in each country where one does business, has investors, investments, transshipment of products, financial transactions Beware overlapping statutes what is legal in one country may be prohibited in other countries Some countries such as Canada have blocking statutes. These statutes make it illegal for individuals in Canada to follow U.S. sanctions on Cuba Need advice of U.S. and Canadian counsel to work through laws designed to contradict one another Potential criminal liability for individuals in Canada to follow OFAC Cuba laws, but potential liability under U.S. law for subsidiaries of U.S. companies that do not follow U.S. laws 19

20 Potential Overlap of Sanctions and Export Controls with FCPA If there is a trade sanctions or export violation there is a good risk of an FCPA violation and vice versa In any industry, if transactions raise sanctions risks, they automatically raise payments risks Major criminal and civil settlements for transactions involving improper payment and trade sanctions Enforcement has focused on companies and individuals 20

21 Conduct due diligence carefully Due Diligence in M & A Targets could be exposed by their employees practices, their products, territorial presence and business partners Export violations are unlikely to be highlighted in the data room Need to ask questions of compliance personnel who may not be cleared for the transaction Need to address post-closing. Failure to do so can extend risk pre-closing Export liability follows the business regardless of corporate form (an asset deal will not shield liability) If a foreign party is involved: Greater likelihood of sales to prohibited countries. These sales may need to cease at the time of purchase May need review by the Committee on Foreign Investment in the U.S. ( CFIUS ) for investments by non-u.s. persons CFIUS will inquire about trade with sanctioned countries 21

22 Enforcement Overview and Case Studies Criminal fines up to $1 million per violation, up to 20 years in jail OFAC fines can be in the hundreds of millions of dollars for multiple prohibited financial transactions Potential for loss of government contracting eligibility Potential for personal liability Loss of productivity Reputational loss 22

23 Strict Liability The OFAC Enforcement Regime 23

24 The OFAC Enforcement Regime: Persuading OFAC Voluntary Disclosure 24

25 The OFAC Enforcement Regime: Persuading OFAC 25

26 The OFAC Enforcement Regime: Persuading OFAC 26

27 The OFAC Enforcement Regime Enforcement Guidelines No Action Letter ; Cautionary Letter ; Finding of Violation ; Civil Monetary Penalty; Criminal Referral $ Penalties are transaction based List of mitigating factors (e.g., no knowledge, first time) and aggravating factors (e.g., willfulness, management involvement). 27

28 OFAC Civil Penalty Calculations 28

29 Enforcement Remains Priority for DOJ 29

30 100 Enforcement May Involve Multiple Statutory Authorities Most Frequent Charges Since

31 Enforcement May Involve Multiple Countries Countries Targeted More Than Three Times in Export Violations Cases since

32 Enforcement May Involve Individuals, Corporations, or Both 180 Frequency of Enforcement Upon Individuals and/or Corporations Individual(s) Corporation(s) Both 32

33 Understand the Interagency Process Main Justice National Security Division Criminal Division (Asset Forfeiture & Money Laundering Section) U.S. Attorney s Offices Other Agencies Commerce Treasury State Defense 33

34 Multiple Law Enforcement Agencies 34

35 Enforcement May Involve Multiple Investigatory Agencies Investigatory Agency Frequency Since HSI / ICE FBI BIS Defense Services ATF IRS CBP DEA DSS OEE TSA OFAC DoE 35

36 D.D.C. S.D. Fla. C.D. Cal. E.D.N.Y. N.D. Ill. E.D.Va. D. Nj. S.D.N.Y. D. Md. S. D. Cal. E.D. Penn. D. Mass. N.D. Cal. W.D. Tex. D. Del. M.D. Fla. N.D. Ga. D. Az. D. Conn. E.D. Tenn. S.D. Tex. W.D. Wash. D. Colo. D. Minn. E.D. Nc. E.D. Mich. M.D. Penn. D. Nm. D. Or. D. Utah M.D. Ga. S.D. Ala. S.D. Iowa D. Haw. D. Nh. D. Sc. E.D. La. E.D. Wisc. M.D. La. M.D. Tenn. N.D. Ohio N.D. Tex. N.D. Fla. S.D. Ga. S.D. Ohio S.D. Wv. W.D. Ky. W.D. Mo. W.D. Va. Enforcement Brought in a Variety of District Courts 20 District Court Frequency

37 Case Study: BNP Paribas Pled guilty to charges under IEEPA and TWEA and falsifying records under New York law Conduct involved Sudan, Cuba, Iran DOJ Criminal Division, AFMLS and SDNY Agencies FBI, IRS, Treasury/OFAC New York State DA, DFS $8.9 billion (mostly forfeiture) plus $2 billion to NY Termination/separations, monitorship, temporary suspension of NY business 37

38 Case Study: Schlumberger Oilfield Holdings Pled guilty to conspiracy to violate IEEPA (Iran and Sudan sanctions) DOJ National Security Division, USAO DC Agency Commerce BIS $77 million forfeiture, $155 million fine Probation: reporting and disclosure obligations, independent consultant on sanctions compliance 38

39 Check the lists! Check the countries! Conclusion Establish written compliance procedures and follow them Conduct training Conduct due diligence in acquisitions Conduct assessments/audits Read the international affairs new stories every day 39

40 Questions & Discussion 40