1. INTRODUCTION TO ECONOMIC SANCTIONS
Scott Nance/Compliance Consulting

2. Economic Sanctions
Economic sanctions are laws that restrict or prohibit dealings with countries, companies, or individuals
Many countries and international organizations impose economic sanctions, including
United Nations
United States
European Union
Economic sanctions typically target
Terrorists
Narcotics dealers
Government officials suppressing democracy in their home country
The spread of weapons of mass destruction
U.S. sanctions are generally consistent with actions by the UN, but frequently go beyond UN sanctions.

3. U.N. Sanctions
The United Nations has frequently imposed economic sanctions against countries, groups, and individuals to
Preserve peace
Prevent nuclear proliferation
Combat terrorism
Examples of UN sanctions include
Iran
Somalia
North Korea
Al Qaida
To be effective, UN sanctions must be imposed by individual countries
Many countries, including the United States the EU, and Switzerland, generally implement UN sanction programs fairly quickly

4. U.S. Economic Sanctions
The United States (and other countries) have two types of economic sanctions, country-based sanctions and list-based sanctions
Country-based sanctions restrict or prohibit transactions involving goods, services, companies, or individuals of certain countries
The United States restricts or prohibits transactions with a number of different countries
The precise nature of the sanctions varies by country

5. Countries Subject to U.S. Sanctions
The United States prohibits “U.S. persons” from engaging in practically any transactions involving
Cuba
Iran
Syria
North Korea
More limited sanctions apply to certain entities and persons in Russia and Ukraine
Burma/Myanmar and Sudan were previously subject to extensive sanctions, but these have been largely removed
Sanctions can be applied directly by the President, as well as by legislation, so new countries can be added, and new sanctions imposed, quite quickly. This also means that sanctions can be modified by the President without prior notice. Sanctions are sometimes removed, as happened recently with Libya.

6. List-Based Sanctions
List-based sanctions prohibit transactions with specified individuals, companies, and other organizations
The United States prohibits any transactions with anyone on its list of “Specially Designated Nationals,” (“SDNs”), including specified
SDNs include individuals, companies, associations (including some “charities”), and even ships
Examples of SDNs include
Osama Bin Laden
Hezbollah
President Aleksandr Lukashenka of Belarus
Many of these same persons and organizations are on the sanctions lists of the United Nations, the European Union, and a number of other countries

7. Why We Must Comply
Violating U.S. sanctions laws can expose a company and its employees to
Criminal penalties, including imprisonment
Civil penalties, including fines
Loss of export privileges
Increased scrutiny of future actions from the U.S. government
Violations can cause serious reputational damage

8. Who Is Covered by U.S. Sanctions?
U.S. sanctions apply to “U.S. persons”, which include
U.S. citizens and permanent residents, wherever they are located
All individuals physically present in the United States, regardless of their citizenship
Companies, partnerships, associations, etc. organized under the laws of any U.S. state
Branches of U.S. companies overseas

9. Subsidiaries
Subsidiaries of U.S. companies incorporated under the laws of a foreign country are not U.S. persons
However, the Cuba sanctions also apply to foreign subsidiaries of U.S. companies
Independent foreign subsidiaries may be able to engage in transactions involving Iran that their U.S. parent cannot
Sanctions restrictions still apply to U.S. citizens working for the subsidiaries
U.S. citizens can provide overall management to foreign subsidiaries but cannot participate directly in transactions involving sanctioned countries
Because foreign subsidiaries can do things that the US parent cannot, but often have US management, involvement of US nationals in subsidiaries’ activities can be tricky. As a general rule, US nationals can be involved in overall management, and they can see information regarding transactions involving sanctioned countries, but they cannot be involved in those transactions in any way. For this reason, it is a good idea to have formal guidelines and procedures for ensuring that US persons are not involved in such transactions.

10. Cuba and Iran: Prohibited Parties
The governments of these countries
Companies controlled by these governments, wherever located
Companies incorporated in these countries
Persons physically located in these countries, regardless of citizenship
Cuban nationals, wherever located

11. Cuba, Iran and Sudan: Prohibited Transactions
Exports from the United States, including exports from third countries of products manufactured in the United States
Imports into the United States
Purchases of services provided by sanctioned parties, including transportation and insurance
Financial transactions, including loans and investments
Facilitating a prohibited transaction
The exact scope of sanctions varies by country. Practically all imports from Cuba are prohibited, for example, while imports of pistachios and carpets from Iran are legal without a license. Similarly, Sudanese private individuals (but not companies) are actually allowed to have accounts in US banks. Most significantly, there is an exception that allows some Iranian financial transactions to be cleared through US banks (the so-called U-turn), although the utility of this exception has been greatly restricted by recent changes to US regulations.
US sanctions apply to individuals in Iran and Sudan, regardless of citizenship. On the other hand, Iranian and Sudanese citizens who reside outside the country are not subject to sanctions (assuming they are not SDNs). Cuban nationals, on the other hand, are subject to sanctions regardless of where they live – even Canada.

12. Syria
The United States prohibits exports of U.S. goods or services to Syria without a license
There is a general exception for agricultural products and medicine
Because Syria’s largest bank has been identified as a prime center of money laundering, many other transactions with Syria are effectively prohibited
Imports of goods and services into the United States from Syria are allowed
But imports of petroleum products from Syria are prohibited
Sanctions are very sensitive to ongoing political developments. There have been discussions about additional sanctions against Burma in particular as a consequence of the suppression by the Burmese government of pro-democracy demonstrations by Buddhist monks. As noted earlier, the President can proclaim additional sanctions without action by Congress, so new sanctions can be put into place very quickly.
There have also been discussions of additional sanctions against Syria. Syria’s participation at the Annapolis Peace Conference, however, seems to have quieted these discussions. This is another example of how political events can affect sanctions directly.

13. North Korea
Most U.S. exports to North Korea require a license from the U.S. Department of Commerce
Exports of food do not require a license, but as a practical matter, even these exports are very difficult
Imports from North Korea require prior authorization by the U.S. government

14. General Exceptions to Sanctions
Informational materials (books, music, movies, etc.)
Travel (except for Cuba)
Personal remittances to family members
Humanitarian relief
U.S. products incorporated into products manufactured in other countries before being re-exported, so long as U.S. content is less than 10 percent of the total value
Exceptions vary by country, and the exceptions for Cuba are more narrowly drawn than for the other countries.

15. Licenses
The U.S. government can issue a license to permit a transaction that would otherwise be prohibited
The license must be obtained before the transaction begins
The license specifies exactly what transaction is permitted
A license can permit continuing transactions for up to one year
Lately, it has been taking Kraft Foods around six months to obtain even routine licenses for food exports to Iran and Sudan

16. Sanctions Against Individuals
The United States has designated hundreds of individuals, companies, groups, and even vessels as “Specially Designated Nationals” (“SDNs”)
The United Nations and many countries have similar lists, containing many of the same names
Categories of SDNs include
Terrorists
Drug traffickers
Persons and entities trafficking in weapons of mass destruction
Government officials of countries suppressing democracy (Belarus, Zimbabwe)
OFAC constantly updates its SDN list, which is available online at OFAC’s web site.

17. Sanctions Against Individuals
The U.S. government does not generally grant licenses for transactions with SDNs
Occasionally it will grant very limited licenses for such transactions
If a U.S. person gains control of any property belonging to an SDN, the U.S. person must
“Block” (i.e., freeze) the property by, for example, placing the funds in a special account which the SDN cannot access
Inform the U.S. government within 10 days
Maintain control over the property until the government tells them what to do with it

18. EU Sanctions
Like the United States, the EU maintains a list of “restricted persons” with whom EU citizens and companies cannot do business
As with the U.S. sanctions, EU persons must freeze funds or other property belonging to restricted persons if they come into possession of them
The EU restricts or prohibits certain types of transactions with a number of countries, including Iran, North Korea, and Russia
EU country sanctions are generally less restrictive than the U.S. sanctions

19. Screening for Sanctions Concerns
To identify parties to a transaction who might be SDNs or connected to a sanctioned country, it is necessary to have in place a process to screen current customer and vendor files against the SDN list
Parties that must be reviewed include
Purchasers
Sellers
Financial institutions (including banks)
Insurers and reinsurers
Shippers and freight forwarders
Depending on whether the transaction involves a sanctioned person or country, you may be required to either
Freeze the property
Reject the transaction
Report the transaction to the appropriate authorities