U.S. Economic Sanctions: Current Landscape, Recent Activity, and New Developments

Speaker Meredith Rathbone Associate Steptoe & Johnson LLP, Lex Mundi member firm for Washington D.C. 2

Overview of U.S. Economic Sanctions  OFAC (Office of Foreign Assets Control – Treasury Department) administers U.S. sanctions programs  Regulations: 31 C.F.R. Parts  Website:  Sanctioned countries:  Cuba, Iran, Sudan - almost complete prohibition  North Korea, Syria – broad export restrictions (BIS)  Burma (Myanmar) – financial services and new investment restrictions, among others  Also: Balkans, Belarus, Cote d’Ivoire (Ivory Coast), Democratic Republic of the Congo, Iraq, Lebanon, Liberia, Somalia, Zimbabwe  List-based sanctions (SDNs, foreign policy, national security, terrorists, narcotics traffickers) 3

U.S. Economic Sanctions - Prohibitions  Sanctions programs vary significantly. They can prohibit, among other things:  Exports, reexports, and transshipments of U.S.-origin goods, technology, know-how, and services to sanctioned countries or persons  Investment in sanctioned countries or persons  “Dealing in” goods, technology, or services destined for sanctioned countries (regardless of origin) or blocked property (asset freezes) owned/controlled by sanctioned persons  “Facilitating” or “approving” a foreign (non-U.S.) person in its business dealings with sanctioned countries or persons  Evading or avoiding the restrictions in OFAC’s regulations 4

Who Must Abide By U.S. Sanctions?  All persons in the United States are covered, regardless of nationality  U.S. companies, U.S. citizens, and lawful permanent residents are covered, wherever located  Non-U.S. subsidiaries of U.S. companies are prohibited from engaging in any business transactions with Cuba  U.S. companies and persons cannot facilitate or approve any sanctioned country activities of non-U.S. subs  Exports by non-U.S. companies of U.S.-origin products to sanctioned countries can be prohibited  Exports by non-U.S. companies of non-U.S. products that contain greater than de minimis levels of U.S.-origin content can be unlawful 5

Prohibited Facilitation or Approval - Examples  U.S. persons and companies cannot:  Refer sanctioned country business to a non-U.S. subsidiary  Assist a foreign sub in structuring a transaction involving business with OFAC sanctioned country or person  Provide advice, consulting, business, legal or other support for a transaction relating to OFAC sanctioned country or person  Provide financing, guarantee, warranty, transportation, logistical, or indemnity support to a foreign sub for a transaction involving an OFAC sanctioned country or person  Provide management oversight, direction or approval to a foreign sub relating to specific activities in an OFAC sanctioned country 6

Iran Sanctions Act & Related Developments  Iran Sanctions Act (formerly ILSA) in place since 1996  Targeted persons determined to have (1) invested $20 million or more in a project in Iran that contributed to the development of Iran’s petroleum resources, or (2) sold WMDs or certain conventional weapons to Iran  Focused on the activities of non-U.S. companies  President to choose 2 of 6 possible sanctions  Never enforced  Limited UN sanctions against Iran have been in place since

Iran Sanctions Act & Related Developments (Cont.)  Tougher Sanctions Passed:  UN Security Council - Resolution 1929 (June 9, 2010)  United States – Comprehensive Iran Sanctions Accountability and Divestment Act (CISADA) (June 24, 2010)  European Union (July 26, 2010)  Canada (July 26, 2010)  Japan (August 3, 2010) 8

U.S. Sanctions – CISADA (Refined Petroleum)  CISADA expands petroleum-related restrictions of ISA by prohibiting:  Providing refined petroleum products to Iran valued at $1 m or more ($5 m in a 12-month period)  Providing of goods, services or other support to Iran valued at $1 m or more ($5 m in a 12-month period) that could directly and significantly facilitate the maintenance or expansion of Iran’s domestic production of refined petroleum products  Providing goods, services, technology, information or support valued at $1 m or more ($5 m in a 12-month period) that could directly and significantly contribute to Iran’s ability to import refined petroleum products  Insurance/reinsurance/underwriting  Financing/brokering  Shipping services 9

US Sanctions – CISADA (Refined Petroleum)  CISADA makes it more difficult for the President to avoid conducting an investigation or making a determination of sanctionable activity  Requires the President to impose 3 out of an expanded menu of 9 sanctions  New sanctions include: (1) prohibition on transactions in foreign exchange; (2) prohibition on transfers of credit or payments through/to U.S. financial institutions if sanctioned person has an interest; (3) prohibition on dealing in property in which sanctioned person has an interest  Sanctions can be imposed on parent companies and affiliates  Delay and waiver provisions still available, but more difficult to use 10

CISADA – Financial Institutions  Targets non-U.S. financial institutions that:  facilitate Iran’s ability to acquire WMDs or provide support for terrorism  facilitate activities of persons subject to UN sanctions  provide significant facilitation/support of blocked IRGC entities or blocked Iranian financial institutions  Prohibits U.S. financial institutions from dealing with non-U.S. financial institutions that violate sanctions  Regulations to be implemented that will establish certain audit, reporting, due diligence, or certification requirements  Goal: Force foreign financial institutions to choose – us or them 11

CISADA – Other Provisions  U.S. Government contracting restrictions  USG contractors must certify that they do not engage in sanctionable activities  Enhanced import restrictions; codifies export restrictions  Permits divestment from companies that engage in sanctionable activities  Requires DNI to submit reports identifying destinations of diversion concern  Enhanced export licensing requirements for designated countries 12

Other Sanctions Developments  Somalia Sanctions Regulations – Property of persons contributing to conflict in Somalia blocked (April 2010)  North Korea – U.S. to name entities and persons involved in arms trading, counterfeiting, drug trafficking, and other illegal activities – property under U.S. control will be blocked  Cuba:  Cash in advance requirement modified for agricultural products – may now receive payment when products arrive in Cuba, before transfer to Cuban buyers (2010)  Eased restrictions on family visits, remittances, and certain telecommunications-related activities (2009)  Legislation introduced in Congress to lift travel ban and ease financing restrictions for sale of agricultural products 13

Thank you! On behalf of Lex Mundi and Steptoe & Johnson LLP, we would like to thank you for joining. If you have any questions or comments, please feel free to contact Meredith Rathbone at 14