A Gibson Dunn International Trade and National Security
Presentation:
The New Era of Fluid Global Sanctions
Presenters:
October 21, 2015
F. Joseph Warin Aleksi Pursiainen
Adam M. Smith David A. Wolber
<Presentation Title/Client Name>
TODAY’S PRESENTERS
2
F. Joseph Warin
Partner
Gibson, Dunn & Crutcher LLP
202-887-3609
Aleksi Pursiainen
Head of Trade Compliance
Nokia Corporation
+358 40 5076571
Adam M. Smith
Of Counsel
Gibson, Dunn & Crutcher LLP
202-887-3547
David Wolber
Associate
Gibson, Dunn & Crutcher LLP
202-887-3727
<Presentation Title/Client Name>
Discussion Topics
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Global Sanctions: Where Are We and How Did We Get Here?
• Size, Scope, and Bite of Sanctions
The Coming Inflection
• What is Changing?
• Where are the new Opportunities? Where are the New Risks?
Iran: New Complexities Come from Old Complexities
Russia: The “New New” Sanctions
Cuba: What Next? How Soon and How Far?
Burma: “Strategic Unwinding” of Sanctions
U.S. and Global Compliance Challenges and Best Practices
• Strategies When Facing Conflicting Sanctions Obligations
<Presentation Title/Client Name>
In the mid-1990s sanctions
were vilified,
misunderstood, and
comparatively rare.
By 2015, sanctions have become
the tool of choice to address a
growing number and diversity
of policy challenges.
From Nowhere to Everywhere
<Presentation Title/Client Name>
The United States continues
to rely on economic sanctions
as a primary tool of
diplomacy and national
security.
New programs have been
instituted very quickly, black-
listed entities have been
added and removed at an
unprecedented pace, and the
number and severity of
enforcement actions – at both
the federal and state level –
have increased remarkably.
6
Growth of Sanctions
An ever-expanding footprint for the Office of Foreign Assets Control
5
10
15
20
25
30
35
40
2000 2005 2010 2015
Active Sanctions Programs
Since 2009, the increase
in the number of
individuals and entities
on the “Specially-
Designated Nationals”
(SDN) black-list
Annual changes to the
SDN List – listings and de-
listings. On an annual
basis the average rate of
change has almost doubled
since 2007
Since 2000, the growth
in US active sanctions
programs
Most recent program
launched in April 2015
– Cyber Crime
<Presentation Title/Client Name>
7
Sanctions Overview
Distribution of parties sanctioned by the United States
<Presentation Title/Client Name>
8
Tota
l OFA
C S
ettl
em
en
ts (
$ M
)
Ave
rage O
FAC
Settlem
en
ts ($ M
)
U.S. Treasury – Sanctions Enforcement
Assessed Civil Penalties
OFAC Civil Enforcement –
Quick Facts:
• Since 2008, OFAC has
opened more than 5,000
enforcement investigations
against entities alleged to
have violated U.S.
sanctions
• OFAC has assessed nearly
$4 billion in fines over that
period – averaging more
than 30 penalties a year
• Since 2012, the average
penalty has been nearly
$45 million
• Penalized firms have
included major financial
institutions from Europe
and Asia, and energy,
technology, manufacturing
and services companies
from throughout the world.
Q
These fines are in addition to penalties and forfeitures assessed by other federal and state
authorities including the Department of Justice, the Federal Reserve, the Office of the Comptroller
of the Currency, the NY Department of Financial Services and the District Attorney of NY.
These agencies often follow OFAC findings, but have regularly exceeded the amount and scope of
penalties assessed by OFAC.
OFAC’s Active Enforcement Docket
<Presentation Title/Client Name>
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Recent Actions
OFAC Enforcement Cases
2015 (to date) – A Diversity of Industries
Major European financial institutions settled allegations of violating Iran, Sudan,
Myanmar, Cuba, Terrorism, and/or Weapons Proliferation sanctions – fined $258 m,
$1.7 m, and $330 m respectively
Largest online payment processer settled accusations of violating Iran, Cuba, Sudan,
Terrorism, and Weapons Proliferation sanctions – fined $7.6 m
Manufacturer settled allegations that it violated Weapons Proliferations sanctions –
fined $390,000
Large Non-Governmental Organization settled accusations of violating Iraq
sanctions – fined $780,000
<Presentation Title/Client Name>
10
37 sanctions programs;
6,500+ entities listed
from 156 jurisdictions
31 sanctions programs;
2,500+ entities listed
from 88 jurisdictions
EU and U.S. Sanctions An Increasing(ly Similar) Reach
United Nations
Even United Nations sanctions have expanded substantially.
The UN now has 13 sanctions programs and more than 1,000 entities
and individuals listed.
<Presentation Title/Client Name>
Switzerland
2014: Following actions taken in the U.S. found
that the Swiss branch of a major financial
institution had assisted in breaching U.S.
sanctions and failed to “assure proper
business conduct and risk management.
2015: Investigations continue into board,
management and employees involved.
Austria
2014: Froze land of a company connected with a
person listed under Ukraine sanctions
2014: Investigated major bank for potential
Russia sanctions violations
Spain
2014: Firm fined as much as € 6 m. for Iran
sanctions violations
2014: Several individuals arrested in relation to
attempted violation of Iran sanctions
2015: Spain remains a very active EU state in
enforcement matters
United Kingdom
2014: Firm fined £ 225,000 + £ 1 m. confiscated;
Director pled guilty – 30 month jail –
following Iran sanctions violations
2014: Following review of 21 institutions
regarding sanctions risk, FCA commenced
investigation against two banks.
2015: FCA promises crackdown on sanctions
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Italy
2014: Seized € 30 m. of property from a person
listed under Russia sanctions
Recent Actions
EU and European Enforcement Cases
<Presentation Title/Client Name>
Changing Sanctions Regulations
• Existing Programs – Multilateral Divergence:
‒ Iran
‒ Russia
‒ Cuba
• New Programs: Cyber Sanctions, Human Rights?
New Faces and a Wider Range of Enforcement Authorities:
• U.S. (federal and state) – new leadership at OFAC
and DFS; widely-reported regulator “brain drain”
• UK – Office of Financial Sanctions Implementation
Set to launch April 2016
• Others?
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What is Changing?
“The (UK Government)
will establish…an Office of
Financial Sanctions
Implementation…to help
ensure that financial
sanctions are
properly…enforced….”
Statement accompanying
UK Summer Budget -2015
Flux throughout “Sanctions World” – Personalities, Processes, Policies
<Presentation Title/Client Name>
Litigation Challenges:
Added to these changes is
the increasingly forceful
role of the courts –
especially in the EU – on
sanctions issues.
The continued success of
judicial challenges to
sanctions across the Union
has contributed to sanctions
weariness and wariness in
many Member States.
Increasingly Overlapping Regulatory Exposure:
Authorities are scrutinizing sanctions violations alongside
corruption, money laundering, and other regulatory
violations. • Scrutinizing direct and indirect violations
• Penalizing outcomes and systems & controls shortcomings
• Increasingly looking to assign personal civil and criminal
liability for senior officers at implicated firms
Growing Power of Pressure Groups to Shape Debate:
Well-placed non-governmental groups are increasingly
adept at both: • Pressuring governments to act (e.g. to divest from specific
companies or organizations); and
• Exacting reputational damages on entities that do not comply
with their view of sanctions.
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What is Changing? Flux throughout “Sanctions World” – Personalities, Processes, Policies
<Presentation Title/Client Name>
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Three Primary Sanctions Risks
Companies are Facing Increasing Legal and Reputational Risks
Black-Listing
Governments can list a bank or a
company for engaging in sanctioned
conduct and bar them from access to
their jurisdiction. The consequences
of being listed are severe: assets are
frozen and access to markets – retail,
investment, insurance, reinsurance,
and correspondent banking
prohibited.
1
A company that even accidently
engages with black-listed parties can
face reputational, civil, and
criminal liability – for itself and its
officers and directors. Authorities
have assessed billions of dollars of
fines, required divestment of state
funds from companies, mandated
post-settlement monitoring, and
suspended operating licenses.
Penalties
2
A bank or a company can face
sanctions-related consequences if its
business partners are concerned that
its compliance is unsatisfactory.
Dozens of major firms have “de-
risked” – cutting off customers,
licensees, bankers, investors, and
even whole lines of business due to
perceived direct or indirect
sanctions risks.
De-Risking
3
The growth of sanctions
programs adds to the number
and type of sanctionable conduct
and increases the potential of
being listed.
The large number of enforcement
agencies involved and the ever-
growing number of black-listed
entities increases the likelihood of
engaging with sanctioned parties.
The rising risks of being black-
listed and of being penalized –
combined with reputational
harm – means that no firms are
“too big to de-risked.”
<Presentation Title/Client Name>
Most comprehensive U.S. sanctions regime: black-lists hundreds of organizations, entities
and individuals, as well as targets the jurisdiction of Iran generally and specific sectors of
Iran’s economy – especially the energy sector
• Innovations in the Iran program include the advent of “secondary sanctions” and
the extension of compliance obligations to foreign-incorporated U.S. subsidiaries
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Timeline of Iran-Related U.S. Sanctions
U.S. Sanctions The Iran Baseline
- Executive Orders can be additive and augmented by Congressional legislation.
- The result, in the case of Iran, is a dense web of sanctions.
Legislation
Exec. Orders
<Presentation Title/Client Name>
Extension of Sanctions to Foreign Subsidiaries
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U.S. Sanctions Iran Sanctions Innovations in Force Today
Secondary Sanctions
United States Iran
Non-U.S. / Non-Iranian Entities
If a non-U.S. / Non-Iranian company, organization, or entity engages in nearly any sort of transactions:
• with specified Iran-linked entities (e.g. certain sanctioned banks), or
• or in support of specified Iran-linked activities (e.g. nuclear development)
That non-U.S. / Non-Iranian entity could lose their access to the U.S. market or face even more severe consequences.
U.S. Parents
Subject to U.S. Sanctions
France India
Australia
China
Foreign Subsidiaries
In nearly every other sanctions program, foreign subsidiaries operating without U.S. persons and incorporated in third countries are NOT subject to U.S. sanctions.
Legislation passed in 2013 makes these entities – in the case of Iran sanctions – subject to the same U.S. sanctions as their parents.
<Presentation Title/Client Name>
Transition Day (2023)
Termination Day (2025)
Iran – Nuclear Deal – Sanctions Relief “Adoption Day” is Here – “Implementation Day” is Coming
Finalization Day
July 14, 2015
UN and EU Endorsement
July 20, 2015
Congressional Review Concludes
September 17, 2015
Majlis Endorses Deal
October 13, 2015
Adoption Day
October 18, 2015
Prep for Sanctions Relief
Implementation Day
~ Q1 2016
U.S.: Substantial
sanctions relief –
100s of entities removed
from sanctions list;
many sanctions waived;
licenses issued
UN: Termination of UN
Sanctions
EU: Termination /
Suspension of first (and
largest) set of EU
sanctions
* Primarily affecting Non-U.S. Persons only
…see next slide
*
<Presentation Title/Client Name>
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Comparison of U.S. and EU Relief Granted on Implementation Day
United States
Principal relief will be on sanctions with extra-
territorial reach – the “innovations.” Iran sanctions
still largely in effect for U.S. persons:
• U.S. citizens, U.S. companies and any individual
or entity within the U.S.
For non-U.S. persons:
• parts of several sanctions laws will be waived and
hundreds of entities will be removed from the
sanctions list.
• engaging with many Iranian entities no longer
endangers U.S. market access.
Some U.S. persons will benefit:
• Civil aviation companies may export to Iran
• Imports of Iranian foodstuffs and carpets
authorized
• Foreign subsidiaries of U.S. companies will be
able to resume work in Iran
• Potential for new licenses depending upon
commercial/political atmosphere
European Union
No secondary sanctions exist - principal focus will be on removing primary sanctions:
• A broad spectrum of European firms will be
able to enter (or re-enter) the Iranian market.
• Hundreds of Iran-linked entities will be removed
from the EU sanctions lists.
• Primary sanctions regulations will be suspended,
terminated, or eased including measures
concerning:
‒ Finance, banking, and insurance
‒ Oil, gas, and petrochemical
‒ Shipping and transport
‒ Gold and banknotes
‒ Metals
‒ Software
Iran – Nuclear Deal – Sanctions Relief
<Presentation Title/Client Name>
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Description of Relief
The United States shall “cease the
application of secondary sanctions for
transactions with individuals and entities”
that the U.S. had sanctioned for “nuclear-
related” reasons.
JCPOA, Annex II, para 7.9
Iran – Challenges and Best Practices on Implementation Day Core U.S. Sanctions Relief – Secondary Sanctions
Non-U.S. firms can
again engage with
many of Iran’s largest
banks, corporations,
and organizations
without risking their
U.S. market access.
Opportunities
Challenges
Secondary sanctions
will remain for
entities sanctioned
due to terrorism,
human rights and
connections with the
Islamic Revolutionary
Guard Corps (IRGC).
Best Practices
U.S. parties that are
allowed to engage
with Iran will find
more willing and
potential
counterparties for Iran
transactions.
How can a
company find
comfort that its
counterparties will
not subject it to
secondary
sanctions risk?
Enhanced and continual due diligence –
combining corruption, AML, and sanctions
Review of both 50 percent-owned entities and
non-official OFAC lists – e.g. pressure group
lists of additional IRGC entities
Pro-active compliance outreach to business
partners to share information and gain comfort
Broader contract provisions – e.g. enhanced
reps and warranties, foreign law provisions
<Presentation Title/Client Name>
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Description of Relief
The United States shall “license non-U.S.
entities that are owned or controlled by a
U.S. person to engage in activities within
Iran that are consistent with the JCPOA.”
JCPOA, Annex II, para 5.1.2
Iran – Challenges and Best Practices on Implementation Day Core U.S. Sanctions Relief –Sanctions on Foreign Subs of U.S. Companies
Foreign-domiciled
subsidiaries of U.S.
companies will be
able to operate in
Iran as they were
prior to the 2013
legislation.
Opportunities
Challenges
“Consistent with the
JCPOA” means that
transactions with
SDNs shall remain
prohibited – finding
comfort with the
identity of Iranian
counterparties could
be difficult.
Best Practices – Building a Firewall
Non-U.S. companies
will be able to partner
with these subsidiaries
to engage in Iranian
business.
U.S. companies
will need to build
a sufficient
firewall between
domestic and
foreign operations
to limit
facilitation risk.
Enhanced and continual due diligence –
sanctions, corruption, AML, and export control
Review of recusal policies for U.S. persons and
sanctions opt-out contractual clauses
Exercise caution regarding U.S.-nexus “hidden”
backend processes (e.g. approvals, corporate
services [including email and software] and
expertise).
Perform periodic internal and third-party audits
<Presentation Title/Client Name>
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Iran – The Way Ahead Near Term Considerations
Roadmap - Considerations -
Preparation – How Far Can you Go Now? Informational exchange; not contractual 1
Timing of Relief Not yet; likely Q1 2016 before Implementation Day
Compliance Diplomacy Engagement with partners to ensure mutual comfort
Legal and Reputational Risk Assess full scope of risks regarding dealings
Plan for U.S. – EU Differences Consider “blocking statutes” and firewalls
“Practical Lag” Post-Implementation Banks and others may not re-engage immediately
Licenses / “Snap Back” Prepare for new opportunities and sanctions return
7
2
3
4
5
6
<Presentation Title/Client Name>
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Two principles guiding U.S. response to President Putin’s incursion into Ukraine:
Maximize impact on Russia while minimizing pain on allies and broader economy
As far as possible, move “in lock step” with closest allies and partners
Difficult because the Russian economy is
more globally linked and significantly
larger than any country the U.S. has ever
sanctioned.
Russia Sanctions A New Sanctions and Economic Challenge
Size of Russian economy: $3.6 trillion
Combined size of all other economies
U.S. have sanctioned: $2.6 trillion
Several core allies rely on Russia for
energy and trade
(% total domestic supply, av. 2011-13)
Imports of National Gas from Russia
<Presentation Title/Client Name>
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U.S. Sanctions on Russia A Three-pronged Approach
List-Based Sanctions
120+ individuals, companies and organizations
are blocked, e.g.:
Region-Based Sanctions
Crimea is essentially off-limits to U.S. persons
Investments
Exports
Imports
Facilitation
United
States Crimea
Traditional “List-Based” Sanctions
Traditional “List-Based” Sanctions
Implemented through a series of four Executive Orders
Executive Order 13,660 (Mar. 6, 2014)
Executive Order 13,661 (Mar. 17, 2014)
Executive Order 13,685 (Dec. 19, 2014)
Traditional “Region-Based” Sanctions
<Presentation Title/Client Name>
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U.S. Sanctions on Russia A Three-pronged Approach (cont.)
“Sectoral” Sanctions
Targets core drivers of the Russian economy in the finance, energy, and defense sectors -
Rather than blocking/freezing companies, the sanctions seek to prevent growth in certain sectors.
• Innovative, targeted approach.
• Implemented through a series of “Directives” targeting specific entities in specific sectors.
• Creation of the Sectoral Sanctions Identifications (“SSI”) List
• “50% Rule” applies.
Finance Sector
Unable to raise capital via
new long-term debt or
equity
Energy Sector
Unable to raise capital via new long-term debt or
acquire U.S. technology for key projects
Defense Sector
Unable to raise capital via new
long-term debt
Executive Order 13,662 (Mar. 20, 2014)
<Presentation Title/Client Name>
Directive 1, 2 and 3
Prohibits U.S. persons from transacting in, providing financing for, or otherwise dealing in:
• new debt with >30 days maturity or new equity of SSI-listed entities in the Russian financial services sector
• new debt with >90 days maturity for SSI-listed entities in the Russian energy sector
• new debt with >90 days maturity for SSI-listed entities in the Russian defense sector
Scope -- the definition of “of” matters.
• The prohibition is intended to limit the ability of targeted financial institutions to grow, not conduct business.
• Only those transactions that involve capital raising for the targeted institution itself are covered.
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U.S. Sanctions on Russia Closer Look at U.S. Sectoral Sanctions
Directive 4 – Oil Production
Prohibits the provision, exportation, or reexportation, directly or indirectly, of goods,
services (except for financial services), or technology in support of exploration or
production for deepwater, Arctic offshore, or shale projects that have the potential to
produce oil in the Russian Federation or its maritime area and when involving SSI-listed
entities designated pursuant to this Directive.
Some terms defined but many ambiguities remain.
<Presentation Title/Client Name>
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EU Sanctions on Russia An Ally Working in Tandem
Four distinct EU sanctions regimes in place for
Russia/Ukraine/Crimea
Ukraine – Misappropriation
• Freezing assets of former Ukrainian government officials
Ukraine – Sovereignty and Territorial Integrity
• Mostly targeted asset freezes of Ukrainian separatists
Russian sectoral sanctions
• Focused on state-owned entities, and the oil and gas sector
• Restricting access to EU capital markets, imports and
technology
Crimea – Sectoral and Trade Sanctions
• Broad ranging sectoral, economic and trade sanctions on
Crimea and Sevastopol
~ to U.S. …
Executive Orders
13660 and 13661
Executive Order
13685
Executive Order
13662
<Presentation Title/Client Name>
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U.S. Sanctions Russia – What’s next?
• EU sanctions must be renewed by January 31
‒ Pressure not to renew from some countries,
supported by continued judicial challenges
‒ Russia’s Syria incursions may have made it
more likely that EU sanctions will remain
• If diverge – U.S. and EU would be on different
pages with respect to Russia (and Iran)
• Last U.S. action was in July 2015
‒ Deemed a “maintenance” action to “maintain
pressure”
• No new authorities on the horizon
• Ukraine Freedom Support Act, with secondary
sanctions available, but unlikely to be used
<Presentation Title/Client Name>
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Cuba How Far? How Fast?
Since then:
Cuba removed from State Sponsor of Terrorism List.
Diplomatic relations restored.
Two rounds of sanctions relief (Jan. and Sept. 2015).
Country Designation Date
Iran January 19, 1984
Sudan August 12, 1993
Syria December 29, 1979
Cuba March 1, 1982
December 17, 2014: President Obama announces "the most significant changes in [U.S. Cuba] policy in more than fifty years."
How much farther can it go?
Many sanctions frozen in place by Congress (e.g., Cuban Democracy Act; Helms-Burton)
Nearly all of the recent Cuban sanctions relief has been granted by general license pursuant to Executive’s power.
Can the President effectively end the embargo through general license authority? When does Congress push back?
<Presentation Title/Client Name>
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Cuba Summary of Key Sanctions Relief to Date
Travel
12 available categories for
U.S. travelers. No straight
tourism.
Travel and carrier services
authorized
A host of activities related or
“incident to” authorized travel
Exports and Imports
Imports of select Cuban
goods/services from Cuban
entrepreneurs
Support for small business
growth and humanitarian
projects
Transactions involving newly
authorized exports
Financial Services
Opening of U.S. correspondent accounts in Cuba
Bank accounts – Cuba, U.S. and abroad
Credit and debit card use in Cuba
Expansion of allowable remittances and remittance services
Establishing a Business in Cuba
Establishment of physical
commercial presence in Cuba for
authorized activities
e.g., provision and establishment
of telecommunications and
Internet-based services and
facilities.
U.S. Operations Abroad
“Persons subject to U.S. jurisdiction” can provide goods and services to Cuban nationals in third countries…
…as long as it does not involve an export/import to or from Cuba
Miscellaneous
Payment for certain legal services
Additional education-related activities
Supporting diplomatic relations
“transactions ordinarily incident to…”
<Presentation Title/Client Name>
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Cuba Navigating the Waters – A Few Examples
Can a U.S. Person… Yes, because… Can a U.S. Person… No, because…
Pay for a hotel room in Cuba with a U.S.-issued credit card?
Card use is incident to valid travel. U.S. institutions are authorized to enroll merchants and process valid payments.
Use a credit card for a deposit on the rental of luxury sailboat in Havana.
Likely involves unauthorized recreational travel/tourism.
Meet with Cuban business leaders in the automotive sector in Cuba?
Travel for professional meetings/research is authorized.
Sign an agreement to explore trade development options once the embargo is lifted?
Cannot enter into contracts, even if executory. Auto not a sector generally licensed.
Build a retail outlet in Cuba to sell telecommunications equipment and services?
Physical presence allowed for authorized goods/ services
Build a hotel? Hospitality is not authorized good or service; construction is not a transaction incident to travel
Offer a checking account from a bank’s subsidiary in Spain to a Cuban national in Spain?
Goods and services can be provided by U.S. foreign subs to Cubans in third countries.
Provide accounting services to a Cuban national in Spain for a business in Cuba.
Likely involves an export of services to Cuban.
Process a remittance to a friend in Cuba for $10,000?
No limit on donative remittances. Process a $50 remittance to a friend in the Cuban government to buy Castro-era memorabilia
No remittances to government officials; remittance is commercial.
Import a Cuban cigar?
Limited tobacco imports under $100 authorized.
Import a crate of Cuban cigars from a municipal-owned distributor.
Tobacco not fully authorized for import by State. Import is not from an independent Cuban entrepreneur.
<Presentation Title/Client Name>
Through a series of general licenses issued in 2012 and 2013, now incorporated as such
into the regulations, and Executive Order 13651, OFAC has now authorized:
exports of financial services to Burma
imports of Burmese goods into the U.S. (except certain gemstones)
new investment in Burma (with reporting requirements to Dept. of State)
most transactions with four blocked financial institutions designated as SDNs:
• Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, and
Myanma Investment and Commercial Bank
• NOTE: this is a unique license, explicitly allowing broad dealings with SDNs
35
Burma Most U.S. Sanctions have been Lifted
<Presentation Title/Client Name>
Companies looking to do business in Burma need to be aware that some sanctions still exist.
36
Burma Some Restrictions Still in Place
115 Burmese entities or individuals remain designated as SDNs. Dealings with these entities or
individuals, or their property remains prohibited– this includes core players in the Burmese
economy including port operators.
• The designated port operator has been a major problem
Certain exports of financial services and new investments involving the Burmese Ministry of
Defense, state or non-state armed groups (including the military).
Certain transaction involving the four SDN banks noted above:
• No new investment in or with these four banks.
• Any property of these banks blocked prior to issuance of the general license remains blocked.
• Funds transfers between U.S. financial institutions and these banks must be routed through a
third country.
And remember the “50% Rule.”
What Can’t You Do in Burma?
Elections on November 8 – If elections are successful, there may be more room and
political appetite in the United States for further relaxation (via general or specific licenses).
<Presentation Title/Client Name>
38
Enforcement Priorities
Banks, banks, and more banks
Recent cases at the federal and state levels suggest a rising importance of other sectors:
• Insurance: Insurance is a sector similar to banking; it is highly regulated, critical for
international trade, and has both a history of enforcement actions and a distinct US nexus
giving US sanctions unique power;
• Technology: Authorities have begun to look closely at tech – due to the sector’s global
exposure and lack of sanctions history; OFAC has new cyber sanctions and DFS is examining
cyber security in relation to its bank and insurance supervision;
• Energy: Sector is very active in jurisdictions where sanctions are at play. The Iran Deal may
increase scrutiny depending upon investment in the sector.
• “Structures”: Parent-Sub firewall sufficiency; IRGC connections, etc.
Different Member States have different goals
The UK promises to become even more active, with existing authorities and the
creation of a standalone, dedicated sanctions implementation and enforcement body
– the Office of Financial Sanctions Implementation
<Presentation Title/Client Name>
OFAC Compliance Tips
• Exercise caution when dealing
with entities owned 50% or less
by sanctioned parties – they
may be sanctioned in the future
• Treat entities owned more than
50% by sanctioned parties as
blocked – even if they are not
officially listed
• Conduct comprehensive due
diligence to determine
beneficial ownership
• Consider all potential
restrictions on sanctioned
entities – multiple sanctions
programs may apply in
different ways
• Do not overstate any reduction
in sanctions (e.g. Iran)
39
U.S. Sanctions
OFAC Compliance
OFAC requires compliance with all sanctions rules and
regulations, but:
The agency does not mandate the existence of, or
provide robust guidance on the required form of,
an adequate program.
There is no one-size-fits-all approach – and each
institution’s program needs to be tailored to
address specific needs, risks, and transactions.
• How big is your company? Where is it located?
• How well do you know your customers?
• Who are your partners, brokers, and suppliers?
• How complicated are your transactions? Are
they cross-border? Is there potential for
diversion?
<Presentation Title/Client Name>
40
Global Compliance Best Practices
“Best practice” requires (1) maintaining leading-edge sanctions compliance policies and processes internally, as well as (2) engaging externally with business partners, banks and others to provide mutual assurances.
Key Components of Establishing a Compliance Program
Inculcating a “culture of compliance” from the top
Establishing a strong compliance department including dedicated, empowered officers
Developing robust internal controls
Deploying accurate risk analysis and measurement tools
Implementing training programs for key personnel
• Employees in high-risk areas
• New employees
• Continuing training for existing employees
Developing periodic risk assessments and compliance audits
• Monitoring key changes to policies
<Presentation Title/Client Name>
Different offenses may arise
out of parallel investigations
focused on related conduct.
Weatherford (Sanctions +
Corruption, Export Controls);
HSBC (Sanctions + Anti-Money
Laundering).
• Integrate compliance reviews
such that investigations into
allegations are not focused on
a single potential violation.
•Allocate training and
compliance resources
according to the type of
potential violation(s) most
relevant to your business.
Issu
e
Exa
mp
les
Be
st P
ract
ice
s
Non-Governmental Agencies
are increasingly involved in
enforcing ethical business
conduct.
NGOs publicizing apparent
wrongdoing; state authorities
relying on NGO assessments in
making divestment decisions.
•Understand that scrutiny into
business practices may come
from both government and
non-government sources.
•Understand the compliance
requirements of those to
whom you are contractually
obligated.
•Watch for increasing use of
integrity pacts.
The same or similar conduct
may be investigated by both
local and foreign enforcement
agencies.
Sanctions violations being
investigated by US federal and
local authorities; and
increasingly European agencies
•Understand key differences
between local and federal
regulations.
•Remember that governments
are increasingly
implementing OFAC-like
processes (e.g. UK’s OFSI).
•Never assume misconduct is
limited to local business units. It may be indicative of
a global problem.
Case Studies: Multinational / Multimodal Enforcement Accounting for the Increasingly Complex Enforcement Environment
41
<Presentation Title/Client Name>
Many countries impose inconsistent sanctions
In some cases, states make it illegal to follow some third-country prohibitions
• What should companies do when faced with conflicting obligations?
Navigating this challenge involves:
• Rigorous due diligence to determine if sanctions are actually implicated
• Assessing risks and consequences – business, reputational – of strategies
• Potential engagement with regulators for guidance
• Highly-tailored, creative – operationally and contractually – solutions
42
Case Study – Challenging Jurisdictions Addressing Conflicting Sanctions Obligations
Example
Problem: Proposed Deal Between U.S. and EU Entities:
U.S. partners require compliance with all OFAC
sanctions and regulations;
EU partners cannot comply with all OFAC sanctions
and regulations unless Brussels has imposed similar
measures (Regulation 2271/96)
Potential solution:
If operationally, both U.S. and EU entities are
necessary to the deal:
engagement with U.S. banks and other partners
is critical.
Robust contractual language could potentially
provide sufficient assurances regarding OFAC
compliance without mentioning U.S. sanctions –
while mentioning EU regulations
<Presentation Title/Client Name>
44
MCLE CERTIFICATION INFORMATION
Most participants should anticipate receiving their certificate of attendance in 3 to 4 weeks following the webcast.
Virginia Bar members should anticipate receiving their certificate of attendance in 6 weeks following the webcast.
Questions regarding MCLE information should be directed to Jeanine McKeown (National Training Administrator) at 213-229-7140 or [email protected].
<Presentation Title/Client Name>
TODAY’S PRESENTERS
45
F. Joseph Warin
Partner
Gibson, Dunn & Crutcher LLP
202-887-3609
Aleksi Pursiainen
Head of Trade Compliance
Nokia Corporation
+358 40 5076571
Adam M. Smith
Of Counsel
Gibson, Dunn & Crutcher LLP
202-887-3547
David Wolber
Associate
Gibson, Dunn & Crutcher LLP
202-887-3727