EU Sanctions and Export Controls Chloe Barker, James Moss, Richard Smyth 30 September 2015

Overview  What are EU Sanctions and Export Controls?  Focus on: EU Sanctions  Focus on: Export Controls  DLA's Global Trade Team  Questions? Date of presentation Insert filename here 2

Summary: EU Sanctions and Export Controls  Sanctions restrict the flow of money and economic resources from the EU to certain individuals and entities in countries subject to sanctions e.g. Iran, Russia, Libya  Export controls restrict both the export of "controlled goods" from the EU and the export of goods that will be used for a "controlled end use". Controlled goods are goods with a military use or dual military and civilian use. A controlled end use includes a nuclear and WMD end use  Sanctions only apply when a country has been specifically targeted with EU sanctions measures. Export Controls apply to the export of controlled goods to any destination, not just destinations subject to sanctions Date of presentation Insert filename here 3

Interaction of Sanctions and Export Controls -The Five "P's"  Place – Is it a jurisdiction subject to sanctions? Subject to an arms embargo?  Product – Is the product subject to export control? Is it a product that is restricted under sanctions legislation?  Persons – Are the individual(s) or entit(ies) designated under sanctions legislation?  Purpose – Do end use controls need to be considered?  Payment – Is the financial institution itself designated under sanctions legislation? Iranian fund transfer restrictions? Date of presentation Insert filename here 4

EU Sanctions  What are EU sanctions  Types of sanctions measures  Applicability of EU sanctions  Topical issues:  Iran  Russia  Office of Financial Sanctions Implementation Date of presentation Insert filename here 5

EU Sanctions  Kofi Anan: "sanctions constitute a necessary middle ground between war and words when nations, individuals and rebel groups violate international norms and where a failure to respond would weaken those norms, embolden transgressors or be interpreted as consent"  Sanctions are legal instruments imposed by governments or the United Nations to exert pressure on target individuals, entities, countries, or political regimes 6

Current EU Sanctions in Force Afghanistan Al-Qaida Belarus Central African Republic Democratic Republic of the Congo Egypt Eritrea Federal Republic of Yugoslavia and Serbia Republic of Guinea Republic of Guinea-Bissau Iran Iraq Ivory Coast Lebanon Liberia Libya North Korea Somalia South Sudan Syria Sudan Tunisia Russia (Ukraine) Yemen Zimbabwe Date of presentation Insert filename here 7

Types of EU Sanctions Measures  Financial measures:  Asset Freeze for "Designated Persons"  Prohibition on the provision of funds and economic resources to Designated persons  Restriction on activities of EU financial institutions with certain banks (Iran)  Product restrictions:  Arms embargo  Embargo/controls on certain goods and technology (e.g. dual-use items, mining equipment, crude oil and petrochemical products)  Trade-related measures:  Ban/control on provision of certain services, e.g. technical assistance, brokering, financial assistance, investment Date of presentation Insert filename here 8

Applicability of EU Sanctions  EU Sanctions apply to:  Any EU incorporated company  Any EU national, wherever they are located  Any person in the EU  Any activity conducted within the EU  Note: British Overseas Territories:  BVI  Cayman Islands etc. Date of presentation Insert filename here 9

Topical Sanctions Issues  Iran  "Joint Comprehensive Plan of Action" agreed July 2015  Nothing has changed – yet  Adoption Day v Implementation Day  EU v US sanctions  Russia  Sanctions extended to 2016  Office of Financial Sanctions Implementation (OFSI)  Operational by April 2016  Increased certainty?  Increased enforcement activity? Date of presentation Insert filename here 10

What are Export Controls?  Export Controls regulate the export of "controlled" goods from the UK  Two broad categories of goods are controlled:  Military Goods – goods that are specially designed or modified for military use  Dual Use Goods – goods that have both a civil and military use  A licence is required for the export of Military goods from the UK to any destination  A licence is required for the export of Dual Use goods outside of the EU.  The type of licence required depends on WHAT is being exported and WHERE it is being exported to Date of presentation Insert filename here 11

Case Studies  Company A is based in the UK but parented in the US. They make dual use protective equipment. They send a sample out without first obtaining a licence; somebody blows the whistle in the US and the UK company are investigated  Company B thinks it is doing business with a Saudi manufacturing firm via an agent. They only find out their customer is in Iran when their bank freezes the payment  Company C sells second hand material to the Far East. They believe that it is not controlled but the original manufacturer reports them to the ECO  Company D is asked to assist with a project to supply military vehicles. They need to send out copies of the designs as part of the scoping process; do they need a licence? Date of presentation Insert filename here 12

Areas of focus  Product Classification  End Use Controls  Identifying all instances of non compliance – Disclosure to HMRC and Export Control Organisation  Ensuring compliance moving forward – obtaining necessary export licences  Advising in the context of the takeover – what reps and warranties can be used. Can liability be inherited?  Interaction with ABC and AML issues; all part of a wider regulatory risk management profile Date of presentation Insert filename here 13

Self Reporting  ECO Symposium September 2015  Attended by BIS & HMRC as speakers  HMRC confirmed of last 1,000 voluntary disclosures of breach  1 has resulted in enforcement action  That case was already under investigation  HMRC made clear they support self reporting  Unfortunately their response time is not good  No news is good news? Date of presentation Insert filename here 14

Compounding  Compounding is the means by which HMRC can offer the exporter the chance to settle a case which would justify being referred to the CPS for prosecution  therefore saving the taxpayer and company time and legal fees.  HMRC offical position is that;  "Compounding should not be viewed as a light option as there is no maximum compound penalty limit.  The largest fine currently awarded for an export control related offence was for £575,000 in 2009."  Most recent data is from 2014 Date of presentation Insert filename here 15

Compounding Cases Date of presentation Insert filename here 16

Global Trade Team  Across the UK, Brussels and Washington  Our practice covers:  Transactional compliance advice  Engagement with regulators (HM Treasury, HMRC, the Export Control Organisation) regarding voluntary disclosures and licensing issues;  Internal/external investigations;  Compliance support and advice on policies and procedures;  Training and awareness raising. Date of presentation Insert filename here 17

Any Questions? Questions? Date of presentation Insert filename here 18

Contact Details  Richard Smyth:  John  James Moss:  Chloe Barker: Date of presentation Insert filename here 19