Export control and sanction requirements have
been around for years, but now are taking on
increasing prominence in the wake of record-setting
fines. As a follow-up to August through November
columns in this series, this article provides an
overview of the basic economic sanctions
requirements.
Basic elements
Economic sanctions are another key element of the
regulatory web that the U.S. government uses to
control the conduct of U.S. people operating abroad.
While export controls operate by regulating exports
of U.S.-origin goods, information, software and
technology, sanctions occupy the somewhat overlapping
function of regulating the activities of U.S. persons
and assets that come under the control of U.S.
persons.
Most sanctions programs involve: (1) bans on trade in
goods; (2) bans on the provision of financial
services; (3) bans on the provision of other
services; (4) bans on activities of U.S. persons; and
(5) bans on behavior that would facilitate or evade
any of the aforementioned banned conduct. The Office
of Foreign Assets Control (OFAC) enforces bans by
administering economic sanctions against targeted
foreign countries and regimes, terrorists, narcotic
traffickers, persons or entities engaged in the
proliferation of weapons of mass destruction and
others who take actions counter to U.S. national
security and foreign policy objectives.
U.S. persons cannot deal with them, and generally
must block property in their possession or control in
which sanctioned individuals and entities have an
interest. Further, the operation of sanctions trumps
private contractual arrangements that may have
preceded them, making them unenforceable in U.S.
court.
The most common type of sanctions is country-based.
The list of countries covered by sanctions varies
periodically as OFAC adds or repeals regulations
depending on events in the named country and its
relations with the United States. Comprehensive
country-based sanctions function by restricting most
economic interactions, in the absence of a license
from the U.S. government, with designated
countries.
U.S. persons generally are
prohibited from direct or indirect involvement with,
or facilitation of, any transaction involving an
embargoed country, its government, or an agent of its
government. There may be restrictions on dealing with
any nationals of the country as well. Under these
sanctions, the shipments of goods and the provision
of services to boycotted countries, or to restricted
persons in those countries, cannot occur without a
license.
Assets of sanctioned entities that come under the
control of U.S. persons often must be kept in blocked
accounts designed to prevent owners’ access to them.
The prohibitions can cover a variety of transactions,
including imports, exports, contracts, financial
transactions and other interactions with the country,
its government and its nationals.
The list of
countries currently covered by economic sanctions
varies, depending upon developments abroad and U.S.
foreign policy. Currently, there are comprehensive
sanctions in place for Cuba, Iran, Sudan and Syria,
which contain the following general requirements:
Cuba. This unilateral U.S. embargo
includes product exports and re-exports, product
imports (including foreign products with Cuban
components or raw materials), financial services
exports, financial transactions and U.S. person
involvement (including dealing in property in which a
Cuban entity has an interest), and prohibitions on
most transactions with Cuban nationals, wherever
located. Uniquely among U.S. sanctions, the Cuba
restrictions control the activities of foreign
subsidiaries of U.S. corporations.
Iran. This U.S. embargo includes
product exports, some product re-exports, product
imports, financial services exports, financial
transactions and U.S. person involvement. Most
transactions with Iran (with certain exceptions, such
as for U.S.-origin food and certain medicines and
medical devices) are prohibited.
Special restrictions on trade and investment that
would aid the Iranian petroleum sector also have been
passed by Congress.
Sudan. This U.S. embargo includes
product exports, some product re-exports, product
imports, financial services exports and financial
transactions. Pursuant to Executive Order 13,412 of
October 13, 2006, certain activities in certain areas
of Sudan are exempt from the embargo.
Syria. The prohibitions in this
embargo focus on the export and re-export of most
U.S.-origin products and technology, including
coverage of most U.S.-origin goods, wherever located.
Unique among U.S. economic sanctions, this embargo is
administered by the Department of Commerce under the
Export Administration Regulations, and not by
OFAC.
In addition to these comprehensive sanctions, there
also are targeted country-based sanctions. The
coverage of these sanctions varies for each of the
following countries: Balkans, Belarus, Burma
(Myanmar), Ivory Cost (Cote d’Ivoire), Iraq, Liberia,
Libya (recently imposed, but in the process of being
partially withdrawn), North Korea and Zimbabwe.
In addition to these country-based sanctions, OFAC
also administers activity-based sanctions, which are
intended to curb specific activities, such as drug
trafficking, proliferation, terrorism and criminal
activities. These sanctions cover designated persons
or entities, wherever in the world they reside, and
are not necessarily linked to a specific country
(except for some governments that are known to
facilitate these types of activities, such as state
sponsors of terrorism).
For these activity-based sanctions, the primary
method of implementation is through the
identification of persons and entities engaged in
sanctioned activities and the requirement that no
U.S. person engage in transactions with them.
To implement these sanctions, OFAC publishes a list
of individuals and companies owned or controlled by,
or acting for or on behalf of, targeted countries,
called Specially Designated Nationals (SDNs.) It also
lists “Blocked Persons” (individuals, groups, and
entities, such as terrorists or narcotics
traffickers) under programs that are not country
specific.
The named individuals who are Blocked Persons can
fall in the categories of specially designated
international terrorist organizations and terrorists
(SDTs), specially designated global terrorists
(SDGTs), foreign terrorist organizations (FTOs),
persons engaged in the proliferation of weapons of
mass destructions (NPWMDs), specially designated
narcotics traffickers (SDNTs), and specially
designated drug kingpins (SDNTKs). As a general
shorthand, these groups together often are referred
to simply as SDNs.
Next month, I will provide compliance tips regarding
how to minimize the risks posed by these economic
sanctions regulations.
