What U.S. Entities and Individuals
Need to Know About U.S. Trade Sanctions
Including Those on
Cuba, Russia, and Iran
April 22, 2015
John P. Barker, Amy Jeffress, Baruch Weiss, Partners
Arnold & Porter LLP
Anna Lueje, Deputy General Counsel
IAP Worldwide Services, Inc.
John P. Barker, Partner, Washington, DC
[email protected], +1 202.942.5328
John‘s practice focuses on national security matters including export controls and trade sanctions
administered by the Office of Foreign Assets Control at the US Department of the Treasury (OFAC), and
compliance with the Foreign Corrupt Practices Act (FCPA). He helps companies and institutions establish
compliance plans, obtain export authorizations, and provides representation in enforcement proceedings. Mr.
Barker came to the firm from the US Department of State, where he served as the Deputy Assistant Secretary
for Nonproliferation Controls and, prior to that, as Deputy Assistant Secretary for Export Controls.
Amy Jeffress, Partner, Washington, DC
[email protected], +1 202.942.5968
Amy‘s practice focuses on criminal defense matters, national and international security and compliance issues,
and internal investigations. She advises companies and individuals on a wide range of issues, including export
enforcement matters, the handling of classified information, and mutual legal assistance and other issues
related to international law enforcement cooperation. Prior to joining the firm, she maintained a two-decade
career with the Department of Justice, serving as Chief of the National Security Section at the U.S. Attorney’s
Office in the District of Columbia, Counselor to the Attorney General for national security and international
matters, and Attaché to the US Embassy in London.
Anna Lueje, Deputy General Counsel, IAP Worldwide Services, Inc.
[email protected], +1 321.784.7135
Anna is Deputy General Counsel of IAP Worldwide Services, Inc., based in Cape Canaveral, Florida. IAP is a
leading provider of global-scale logistics, facilities management, and world-class advanced professional and
technical services for the U.S. and other governments, commercial enterprises, and humanitarian
organizations. Her practice is wide ranging and includes global trade compliance, international business,
mergers and acquisition, corporate transactions, energy, ethics and compliance, and government contracts.
Prior to joining IAP, Anna was in-house counsel for major energy and government contractor companies, and
served in the U.S. Government in international affairs roles.
Baruch Weiss, Partner, Washington, DC
[email protected], +1 202.942.6819
Baruch represents companies and individuals in criminal, homeland security and national security matters,
including those involving enforcement and licensing proceedings before Office of Foreign Assets Control
(OFAC). Baruch served as the acting Deputy General Counsel at the Department of Homeland Security;
Assistant General Counsel for Enforcement at the Department of the Treasury; and spent 18 years in various
positions at the United States Attorney's Office in the Southern District of New York, Criminal Division.
OFAC Sanctions Span the Globe
Overview of Economic Sanctions
and Export Controls
 Introduction and Regulatory Overview
-- U.S. Jurisdiction and Country-Specific Sanctions
-- Prohibited Persons (Specially Designated Nationals)
 Developing and Implementing an Effective Compliance Program
 Due Diligence in Mergers & Acquisitions
 Challenges from Overlapping or Conflicting U.S. and Non-U.S.
Sanctions Laws
 U.S. Enforcement Actions and Case Studies
 Potential Overlap of Sanctions, Export Controls, FCPA, and Other
Statutes

2
OFAC Jurisdiction over Trade with Prohibited
Persons and Prohibited Parties
 U.S. Department of the Treasury Office of Foreign Assets Control
(“OFAC”) implements U.S. trade sanctions
 Sanctions on countries (e.g., Iran), prohibited persons (“Specially
Designated Nationals” or “SDNs”) and programs (e.g., narcotics
traffickers)
 Check every party in every international transaction against the SDN
List
 Check country sanctions
6
OFAC Jurisdiction over Trade with Prohibited
Persons and Prohibited Parties
 Sanctions against particular programs such as narcotics traffickers,
transnational crime, etc. are identified through the SDN List
 Special restrictions for transfers of U.S.-origin goods to sensitive
countries under Commerce Department controls in addition to OFAC
controls (Russia, China, Venezuela, Syria, North Korea, Cuba, Iran,
and Sudan)
 Persons subject to U.S. jurisdiction cannot do business with SDNs
 Cannot do business with any party owned 50% or more by an SDN
 Under some sanctions regimes, cannot do business with a party
controlled by an SDN, even if ownership percentage is below 50%
7
Broad Basis for U.S. Jurisdiction

U.S. citizen or U.S. permanent resident wherever located

Entity organized in the U.S.

Subsidiary of entity organized in the U.S.

Foreign subsidiary for some sanctions regimes (e.g., Iran, Cuba)

Most U.S. dollar-denominated transactions (because they generally settle
through the U.S. regardless of the intention of the parties)

U.S.-origin goods, technology and software in more than de minimis
amounts

Any routing of activities through the U.S. including IT and data processing

Any person actually in the U.S.
8
U.S. Economic Sanctions – Russia

No general embargo (outside of the Crimea region of Ukraine)

Some banks and entities on SDN List

Sectoral sanctions implement prohibitions on capital, financing, and transfers of
certain sensitive U.S. equipment for oil exploration and military end-use and endusers
 Sectoral sanctions are complicated – they are not blanket prohibitions but
instead require extensive knowledge of the transaction
 Several levels of sectoral sanctions
 Need to conduct due diligence carefully on owners
 Details are important
• Under some sectoral sanctions, it is ok to extend credit for 29 days but not
31
• May have a violation if payment is late by a day
9
U.S. Economic Sanctions – Iran

General embargo on Iran in place since 1990s.

Limited trade permitted (agricultural products, medicine, medical products)

U.S. State Department sanctions against non-U.S. persons for specified
trade (generally energy development including oil, nuclear and
petrochemical)

Strong enforcement against specific SDNs associated with transfers of
weapons of mass destruction, sanctions evaders

State-level divestment sanctions against companies with activities in Iran

In addition to sanctions risks, publicly traded companies may face disclosure
obligations for dealing with Iran

Particularly a risk for dealing with non-U.S. persons where the trade is already
legal under local laws
10
U.S. Economic Sanctions – Iran (continued)

The “framework” of a final deal with respect to Iran’s nuclear program (announced by
the President in early April) may eventually lead to sanctions relief…

…But, beware of an immediate rush to business in Iran:
 The deadline for a final deal is June 30, 2015 – nothing actually signed yet
 Sanctions will remain in place after June 30 until Iran “verifiably abides by its
commitments” under any final deal
 Relief will be limited to nuclear-related sanctions – other sanctions (human rights,
terrorism, missiles) will remain unchanged

Scope and timing of relief appears to be subject of public dispute between U.S. and
Iranian governments

In the short term, enforcement of sanctions on Iran is likely to be as robust as ever to
keep Iran motivated to comply with the conditions needed for their removal and for
the Administration to demonstrate its serious approach to the negotiations
11
U.S. Economic Sanctions – Cuba

Web of interconnected laws implemented over 50 years

U.S. in the process of reducing restrictions and removing Cuba from the list
of State Sponsors of Terrorism
 A sea change in philosophy but minimal immediate regulatory changes
 Enhanced travel opportunities for specific categories of travel (but not
for tourists)
 Telecommunications exports encouraged
 Food, medicine, and medical products permitted under licenses
 Helms-Burton Act prohibitions on dealing with “trafficked” property
 Garnishment issues
12
U.S. Economic Sanctions – Venezuela
 No overall embargo
 Increasing sanctions on individuals and entities
 Prohibitions on military transfers
 High-profile arrests for military procurement
13
U.S. Economic Sanctions – Sudan
 General embargo for business-related activities
 Food, medicine and medical products permitted
 Humanitarian activities permitted
 Note that South Sudan is a different country
--Not subject to OFAC sanctions unless activity also involves
Sudan
14
U.S. Economic Sanctions – Syria
 General embargo
 Prohibition on providing “services” to Syria
 This includes a prohibition on arranging for sales of
products to or from Syria
 Some companies exposed by activist groups
15
U.S. Economic Sanctions – Burma
 Comprehensive embargo used to apply
 U.S. has issued general licenses to permit most trade
 Some imports still prohibited
 Caution: Many of the parties to international
transactions are SDNs
 Limited exceptions available for working with SDN banks
16
Developing Effective Compliance Programs

Written compliance program expected by regulatory agencies
– Need to consistently monitor
– Landscape changes almost daily
– Need a good procedure in place and mechanism to engage legal and compliance
personnel
– Establish and keep internal systems to check sanctions list by U.S. and others

Training

Mechanism for reporting violations

Audit/self-assessment
– Doing audits could lead to appropriate recommendations to mitigate issues which
may arise – including potentially unwinding positions

Be Careful – Actions by portfolio companies or subsidiaries can subject
owners to sanctions
17
Implementing a Compliance Program
 Raise Awareness






Identify internal stakeholders
Incorporate into overall international compliance program
Global reach at all levels of the enterprise
Communication channels for concerns
Educate customers and other key stakeholders
http://www.treasury.gov/resourcecenter/sanctions/Programs/Pages/Programs.aspx
 Due Diligence
 Use cost effective and efficient tools
 Coordinate with other international regulatory compliance –
export/import, anti-corruption, combating human trafficking
18
Challenges in Implementing Overlapping and
Sometimes Conflicting U.S. and Non-U.S.
Sanctions Laws

EU and UK sanctions most prominent

Some EU sanctions against Russia more stringent than U.S. sanctions

Check sanctions lists in each country where one does business, has investors,
investments, transshipment of products, financial transactions

Beware overlapping statutes – what is legal in one country may be prohibited in other
countries

Some countries such as Canada have “blocking” statutes. These statutes make it
illegal for individuals in Canada to follow U.S. sanctions on Cuba
 Need advice of U.S. and Canadian counsel to work through laws designed to contradict one
another
 Potential criminal liability for individuals in Canada to follow OFAC Cuba laws, but potential
liability under U.S. law for subsidiaries of U.S. companies that do not follow U.S. laws
19
Potential Overlap of Sanctions and Export
Controls with FCPA
 If there is a trade sanctions or export violation there is a
good risk of an FCPA violation – and vice versa
 In any industry, if transactions raise sanctions risks, they
automatically raise payments risks
 Major criminal and civil settlements for transactions
involving improper payment and trade sanctions
 Enforcement has focused on companies and individuals
20
Due Diligence in M & A

Conduct due diligence carefully

Targets could be exposed by their employees’ practices, their products, territorial presence
and business partners

Export violations are unlikely to be highlighted in the data room
 Need to ask questions of compliance personnel – who may not be cleared for the
transaction
 Need to address post-closing. Failure to do so can extend risk pre-closing

Export liability follows the business regardless of corporate form (an asset deal will not
shield liability)

If a foreign party is involved:
 Greater likelihood of sales to prohibited countries. These sales may need to cease at
the time of purchase
 May need review by the Committee on Foreign Investment in the U.S. (“CFIUS”) for
investments by non-U.S. persons
 CFIUS will inquire about trade with sanctioned countries
21
Enforcement Overview and Case Studies
 Criminal fines up to $1 million per violation, up to 20
years in jail
 OFAC fines can be in the hundreds of millions of dollars
for multiple prohibited financial transactions
 Potential for loss of government contracting eligibility
 Potential for personal liability
 Loss of productivity
 Reputational loss
22
The OFAC Enforcement Regime
 Strict Liability
23
The OFAC Enforcement Regime:
Persuading OFAC
 Voluntary Disclosure
24
The OFAC Enforcement Regime:
Persuading OFAC
25
The OFAC Enforcement Regime:
Persuading OFAC
26
The OFAC Enforcement Regime
 Enforcement Guidelines
 “No Action Letter”; “Cautionary Letter”; “Finding of
Violation”; Civil Monetary Penalty; Criminal Referral
 $ Penalties are transaction based
 List of mitigating factors (e.g., no knowledge, first
time) and aggravating factors (e.g., willfulness,
management involvement).
27
OFAC Civil Penalty Calculations
28
Enforcement Remains Priority for DOJ
29
Enforcement May Involve Multiple Statutory
Authorities
Most Frequent Charges Since 2009
100
90
80
70
60
50
40
30
20
10
0
30
Enforcement May Involve Multiple Countries
Countries Targeted More Than Three Times in Export Violations
Cases since 2009
80
70
60
50
40
30
20
10
0
31
Enforcement May Involve Individuals, Corporations,
or Both
Frequency of Enforcement Upon Individuals and/or
Corporations
180
160
140
120
100
80
60
40
20
0
Individual(s)
Corporation(s)
Both
32
Understand the Interagency Process
 Main Justice
– National Security Division
– Criminal Division (Asset Forfeiture & Money
Laundering Section)
 U.S. Attorney’s Offices
 Other Agencies
–
–
–
–
Commerce
Treasury
State
Defense
33
Multiple Law Enforcement Agencies
34
Enforcement May Involve Multiple Investigatory
Agencies
Investigatory Agency Frequency Since 2009
160
140
120
100
80
60
40
20
0
HSI / ICE
FBI
BIS
Defense
Services
ATF
IRS
CBP
DEA
DSS
OEE
TSA
OFAC
DoE
35
D.D.C.
S.D. Fla.
C.D. Cal.
E.D.N.Y.
N.D. Ill.
E.D.Va.
D. Nj.
S.D.N.Y.
D. Md.
S. D. Cal.
E.D. Penn.
D. Mass.
N.D. Cal.
W.D. Tex.
D. Del.
M.D. Fla.
N.D. Ga.
D. Az.
D. Conn.
E.D. Tenn.
S.D. Tex.
W.D. Wash.
D. Colo.
D. Minn.
E.D. Nc.
E.D. Mich.
M.D. Penn.
D. Nm.
D. Or.
D. Utah
M.D. Ga.
S.D. Ala.
S.D. Iowa
D. Haw.
D. Nh.
D. Sc.
E.D. La.
E.D. Wisc.
M.D. La.
M.D. Tenn.
N.D. Ohio
N.D. Tex.
N.D. Fla.
S.D. Ga.
S.D. Ohio
S.D. Wv.
W.D. Ky.
W.D. Mo.
W.D. Va.
Enforcement Brought in a Variety of District Courts
District Court Frequency
20
18
16
14
12
10
8
6
4
2
0
36
Case Study: BNP Paribas
 Pled guilty to charges under IEEPA and TWEA and
falsifying records under New York law
 Conduct involved Sudan, Cuba, Iran
 DOJ – Criminal Division, AFMLS and SDNY
 Agencies – FBI, IRS, Treasury/OFAC
 New York State DA, DFS
 $8.9 billion (mostly forfeiture) plus $2 billion to NY
 Termination/separations, monitorship, temporary
suspension of NY business
37
Case Study: Schlumberger Oilfield Holdings
 Pled guilty to conspiracy to violate IEEPA (Iran and
Sudan sanctions)
 DOJ – National Security Division, USAO DC
 Agency – Commerce BIS
 $77 million forfeiture, $155 million fine
 Probation: reporting and disclosure obligations,
independent consultant on sanctions compliance
38
Conclusion
 Check the lists!
 Check the countries!
 Establish written compliance procedures – and follow
them
 Conduct training
 Conduct due diligence in acquisitions
 Conduct assessments/audits
 Read the international affairs new stories every day
39
Questions & Discussion
40