U.S. Sanctions Developments Atlanta International Forwarders and Brokers Association March 8,

2 Overview of Presentation  Introduction to OFAC Sanctions  Iran Developments  Cuba Developments

Introduction to OFAC Sanctions  Each OFAC sanctions program is different  Iran, Cuba, Sudan, Syria and Crimea– broad embargoes  Thousands of individual persons and entities designated under list-based sanctions programs– U.S. persons prohibited from dealing with them  Transaction “screening” becoming standard practice to prevent such dealings  Typically sanctions programs block assets and prohibit transactions, including imports and exports of goods, technology, and services  U.S. persons prohibited from dealing directly or indirectly with targets  In case of Cuba and Iran, U.S. persons include foreign subsidiaries of and affiliates controlled by U.S. companies  Additional U.S. sanctions target wholly foreign parties dealing with Iran  Expansive concepts of prohibited “export of services” and prohibited “facilitation”

Prohibited Facilitation  U.S. companies and persons broadly prohibited from supporting transactions with sanctions targets even where transaction occurs outside the US, and even though U.S. person’s role may be limited or minimal  Facilitation is a risk under all sanctions programs  Covers facilitating the activities of any foreign person (not just affiliates) 4

Examples of Facilitation  For a U.S. person to:  Alter policies or operating procedures to enable a foreign affiliate to perform OFAC-prohibited transactions  Refer purchase orders, requests or business opportunities involving OFAC targets to a foreign person  Arrange or provide support or financing to a transaction involving sanctions target  Approve contracts or reports involving sanctions target  Make available automated systems and IT platforms to foreign party engaged in transactions with sanctions target  Secondment of U.S. person to foreign affiliate  U.S. person as Director or Manager of foreign affiliate 5

OFAC and Transportation Providers  Forwarders can be found to be “facilitating” or “aiding and abetting” prohibited transactions by customers and affiliates  Trend towards pursuing third parties, such as forwarders and transportation companies  Forwarders as a “last line of defense”  Focus on forwarder compliance because exporters are “outsourcing” compliance to forwarders  Forwarders and transportation companies targeted for enforcement and audits and compliance checks, plus indirectly subject to enforcement scrutiny of customers’ activities 6

OFAC Penalties  Civil fines maximum of the greater of $250,000 or twice the amount of the transaction, per violation  Criminal penalties $1 million/20 years  Foreign Narcotics Kingpin Sanctions Regulations remain at $1,075,000 maximum for civil violations  Investigations are a drag on corporate time and resources  Imposition of compliance monitors/mandatory compliance programs  Reputational risk to company  Companies may lose export privileges and be debarred from government contracting  Susceptibility to substantial civil claims

Penalties On the Rise  Over $2.8 billion in sanctions-related penalties from  Median penalty up more than 600% between

Iran Developments  January 16, 2016: Implementation Day under Joint Comprehensive Plan of Action (JCPOA)  IAEA verifies Iran met its obligations  U.S. lifts nuclear-related sanctions and provides certain agreed upon sanctions relief  Most of the sanctions lifted are “secondary sanctions” imposed against non-U.S. companies for dealings with Iran  Secondary sanctions targeted certain foreign industries and activities in and with Iran (e.g., imports into Korea of Iranian crude oil by a Korean company could result in Korean company being sanctioned by United States) 9

Iran Developments  Sanctions applicable to U.S. companies and their foreign subsidiaries remain largely intact  Key changes:  Commercial passenger aircraft and related parts and services now subject to a favorable licensing policy from OFAC  Must obtain specific license  Still must avoid certain targeted persons and banks  New general license allowing import of certain Iranian carpets and foodstuffs, including pistachios and caviar 10

Iran Developments  General License H authorizes foreign companies owned or controlled by U.S. persons to engage in business with Iran subject to certain restrictions  No U.S. origin goods or goods containing U.S. content  No transactions with listed persons  No dealings with military, intel or law enforcement  Critical for foreign subsidiaries utilizing GLH to screen customers and uses, and to follow established compliance procedures 11

Iran Developments  GLH also authorizes U.S. companies to develop and establish operating policies and procedures under which foreign subsidiaries may engage in business with Iran  GLH also authorizes U.S. companies to allow foreign subsidiaries to utilize certain automated, globally integrated business support systems, such as computer, accounting, , telecoms, databases, but they must operate without human intervention and be generally available  Critical question is whether “walling off” the subsidiary is practical for a particular group of companies 12

Iran Sanctions  Other, notable and previously established sectors where business may be possible include:  Certain food, agriculture and medicine  Certain personal communication devices and equipment  Certain telecommunication services 13

Cuba Developments  Last year the Obama Administration announced a change in Cuba policy that has:  Reopened the U.S. embassy in Havana and reestablished diplomatic relations  Established direct commercial flights  Expanded permissible travel and remittances  President Obama will visit Cuba on March 21 st  First American President to visit since Calvin Coolidge (1928)  Modifications of trade policy have been limited 14

Cuba Developments  Only Congress can fully lift the embargo and it has shown no inclination to do so  The President has used his licensing authority to allow for some expanded trade  BIS has issued License Exception SCP, which covers, e.g.,  EAR99 items for use by the private sector to construct or renovate privately owned buildings  EAR99 items for private sector agricultural activity  EAR99 items for use by private entrepreneurs, i.e., tools, equipment, supplies and instruments  Telecom equipment for use in comms by Cuban people 15

Cuba Developments  BIS adopts general policy of approval for license applications to export:  Telecom equipment not covered by SCP, to enhance comms for Cuban people  Items to news bureaus, NGOs and human rights organizations  Items necessary for safety of civil aviation, e.g., parts, components and services for aircraft  Items necessary for environmental protection, including items related to renewable energy or energy efficiency 16

Cuba Developments  BIS adopts case-by-case review policy for license applications to export items for use in activities that meet the needs of the Cuban people:  Agricultural production  Arts and Education  Disaster preparedness and relief  Public health and sanitation  Residential construction and renovation  Public transportation  Wholesale and retail distribution to the people  Construction of water treatment and energy production facilities and other infrastructure  Construction of sports and recreation facilities 17

Cuba Developments  OFAC has amended its regulations to, for example:  Make payment for licensed transactions easier  Make air carrier arrangements and the temporary sojourn of aircraft and vessels easier  Allow travel (and transactions incident thereto) to engage in commercial marketing of items or activities consistent with existing licensing policies  Allow the installation or servicing in Cuba of items exported or reexported to Cuba under a Department of Commerce authorization  Allow transactions necessary to establish and maintain a physical presence (including offices, warehouse space, or retail outlets) in Cuba by persons subject to U.S. jurisdiction to engage in permissible transactions, including exporters of goods authorized for export or reexport to Cuba (e.g., hardware stores or wholesale and retail distributors), entities providing authorized cargo transportation, telecom providers, travel and carrier service providers 18

Cuba Sanctions  Other, notable and previously established sectors where business may be possible include:  Certain food, agriculture, medicine and medical devices  Certain personal communication devices and equipment  Certain telecommunication services 19