law assignment

moseali

cl13_ross_intl_compliance_2.pptx

Home >Law homework help >law assignment

International Law in Practice

April 21, 2016

Susan Kohn Ross, Esq.

Mitchell Silberberg & Knupp LLP

11377 West Olympic Boulevard

Los Angeles, CA 90064

(310) 312-3206, Fax (310) 231-8406

[email protected]

www.msk.com

Economic Sanctions and Compliance

History/Background

Current Examples

Compliance

In-Class Exercise

Assigned Exercise

Government Activities

Covert action

Military intervention

Diplomatic activity

Economic activity

Economic Sanctions Defined

Broadly – economic measures taken against a country with the goal of forcing a change in policy.

“Economic boycott” and “embargo” are also used to describe this approach.

Typically may only be imposed by the federal government (Supremacy Clause of the Constitution), but states and local government sometimes still try.

Goals

Influence a country to change its policy

Punish a country for its policy

Demonstrate opposition to the country’s policy to a wider audience, often the enactor’s domestic citizenry.

Can be unilateral, bilateral or multilateral

History/Background

Forms of Economic Sanctions

Freeze diplomatic relations

Halt military aid/economic assistance

Prohibit private persons from selling goods or technology or providing services to foreign entities or governments

Prohibit facilitation of the sale of goods or technology or the providing of services by private individuals.

Exercise of Foreign Policy

Impose economic sanctions on countries or individuals/entities

Require pre-approval of the transfer of specific commodities and transactions through licensing requirements

Relevant Agencies

Treasury - Office of Foreign Assets Control

Commerce - Bureau of Industry and Security

State - Directorate of Defense Trade Controls

Others

Sanctions’ American Origin

The initial imposition of economic sanctions in 1765 during the American Revolutionary War when British products were sought to be barred from importation as a means to retaliate against the Crown for the Stamp Act taxes imposed on the colonies.

U.S. - Round Two

The Stamp Act was repealed but replaced in 1767-1770 with the Townshend Acts, which sought to tax the salaries of colonial governors and judges

The colonists again boycotted, which led to the Boston Tea Party

Even Earlier

Pericles’ decree in 432 B.C. to limit the entry of Megaran products into the markets of Athens in response to Megara’s territorial expansion efforts and the kidnapping of three (3) women.

This could have been one reason for the Peloponnesian War.

More Examples

South Africa

Panama

Libya

Nicaragua

USSR

Poland

Haiti

Myanmar

Authority

International Emergency Economic Powers Act (“IEEPA”)

Export Administration Regulations (“EAR”)

Arms Export Control Act (“AECA”)

Scope of Sanctions

Until about 10 years ago, sanctions were typically imposed broadly against countries

More recently, sanctions are targeted against individuals/entities, but there are notable exceptions

Iran, North Korea, Cuba, Syria and Sudan

Examples

United Kingdom

Argentina during the Falklands War.

Uganda

Rhodesia

Iran and North Korea – nuclear proliferation

Arab League – Israeli anti-boycott laws

Current Key Considerations

Stemming nuclear proliferation

Promoting human rights

Fighting terrorism

Resolving expropriation claims

Destabilizing a regime

Evolving Use of Sanctions

Sanctions were effective pre-World War II as the U.S. was the largest market.

Post-World War II, other markets are expanding and so pure economic sanctions are generally not successful → targeted sanctions.

China/Russia typically veto U.S. action – we often veto theirs.

Iran Example

1979 to 1981

Hostage situation with embassy employees

Iran was getting ready to move its money out of the U.S.

$12 billion in assets seized

South Africa Example

Sanctions were focused on ending apartheid.

In 1985, U.S. banks decided to not roll-over short term loans.

South Africa shut down its banks and defaulted on its international loans.

IEEPA - Emergency

President is authorized to deal with any unusual or extraordinary threat, which has its source in whole or substantial part outside the U.S., to the national security, foreign policy, or economy of the U.S., if the President declares a national emergency with respect to the threat.

Non-Emergency Situations

Bilateral foreign assistance

Low interest credit

Loan guarantees

ExIm Bank, OPIC

Special insurance programs

Fishing rights

Port access

Aircraft landing rights

Passports

Exports

Export Administration Act

Atomic Energy Act

Arms Export Control Act

Chemical/biological weapons

Drug kingpins

Specially designated nationals

Debarred parties

Scope of Controls

Reexports by foreign buyer of U.S. origin goods or technology

Reexports of U.S. origin parts even if rolled up into foreign made goods

Reexports of foreign origin goods which are products made from U.S. technology

Di minimis rule – 25% v 10%

Specific Controls

Nuclear

Chemical or biological

Military/defense

Dual use

Sensitive technology

Import Sanctions

Antidumping/countervailing duty/other surcharges

Most favored nation status / trade preference/free trade agreement programs

Driven by wanting to protect American industries and workers, lower trade barriers

Limited by WTO commitments

International Monetary Institutions

International Monetary Fund

Conditionality

World Bank

Compliance Guidelines

Multilateral Development Banks – Africa, Asia, Europe and Inter-America

Multilateral Financial Institutions

Emergency Powers

Trading with the Enemies Act

Now only applies in war time

IEEPA

Broadly invoked to allow Presidential action

Used to extend the lapsed Export Administration Act more than once

National Emergencies Act

Reach of Sanctions

Individual or entity named – property is blocked, U.S. persons are prohibited from doing business with them

Secondary impact – American company has an ownership interest in the foreign seller - 50+% v. >5%

Foreign parent with American subsidiary

Broad Parameters

Prohibitions on U.S. persons-

Transactions with sanctioned country

Facilitation of transactions by non-US persons that would be prohibited if undertaken by U.S. persons

Transactions undertaken anywhere in the world if involves U.S. origin goods.

Broad Parameters

Applies to sanctions programs against

Cuba

Iran

Sudan

Syria

Other sanctions programs are generally more narrow in their scope/impact

Penalties

Civil forfeiture

Fines

Reputational damage

Shareholder lawsuits

Debarment

Denial of government contracts

Cancelation/denial of export licenses

Criminal convictions

Impact Beyond the U.S.

Many of the recent cases involved multi-million dollar fines where the U.S. and European regulators joined forces and the settlement was universal in nature

e.g. Banking institutions and Iran sanctions

Categories of Goods

Military, law enforcement and first responders

Dual use

Civilian and military use

Purely commercial

End use/end user restrictions

Export Controls

The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies

“[Seeks] to contribute to regional and international security and stability, by promoting transparency and greater responsibility in transfers of conventional arms and dual-use goods and technologies, thus preventing destabilising accumulations. Participating States seek, through their national policies, to ensure that transfers of these items do not contribute to the development or enhancement of military capabilities which undermine these goals, and are not diverted to support such capabilities. The aim is also to prevent the acquisition of these items by terrorists.”

Member States

Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Republic of Korea, Romania, Russian Federation, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom and United States.

Nuclear Controls

Multilateral Controls

United Nations resolutions/policy statements

Individual countries implement and enforce

Terrorism Sanctions

Current U.S. List of State Sponsors of Terrorists

Iran

Sudan

Syria

In the past , also included Cuba, Iraq, Libya, North Korea

Triggers export license, government assistance, import and financial transaction limitations

Shift in Focus

In the 1990’s, the U.S. started to shift from sanctions on countries or more targeted sanctions against individuals and entities, e.g. travel bans and asset freezes

President adds names to the Specially Designated Nationals List

From unilateral to multilateral

Sources of Enforcement

President Executive Orders

Congressional laws

Agency regulations

Most sanctions programs now exclude food and medicine, and also permit news and information exchanges

Extraterritorial Impact

Limitations of trading with foreign entities necessarily has an impact outside the U.S.

Leads to conflicting requirements

Blocking statutes

Cuba

Arab League

Blocking Statutes

U.K. Protection of Trading Interests Act of 1980

Canadian Foreign Extraterritorial Measures Act

Mexican Law to Protect Trade and investment from Foreign Laws that Contravene International Law

EU Council Resolution 2271/96

Terrorist Attacks Changed the Rules

Sanctions Became Multilateral

Iran Sanctions

Imposed initially by the U.S. in 1979

Total embargo imposed in 1980

Algiers Accord reached in 1981

Iran declared a state sponsor of terrorism in 1984

Executive Order 12,613 issued in 1987 banned all imports from Iran

Iran Sanctions - Continued

Iran-Iraq Arms Non-Proliferation Act of 1992

Sirri oil field development in 1995 – Conoco, Inc.

Executive Order 12,957 prohibited U.S. persons from managing or financing Iranian oil projects

Iran Sanctions Act of 1996

Extended American sanctions on Iran to all persons and entities throughout the world!

There were some exceptions

More About Iran Sanctions

Executive Order 12,959 banned all trade with Iran

Extended to subsidiaries and facilitation

Led to the Iranian Transactions Regulations

Backfilling occurred

ISA Penalties

Denial of ExIm Bank funding

Denial of export licenses

Financial institutions limited

Limits on loans

Prohibition on government contracting

Prohibition on foreign exchange

Prohibition of banking exchanges

Property transactions barred

Other sanctions warranted under IEEPA

Rest of the World

Open trade

Europe and Japan restricted exports of military items and nuclear technology

CISADA Followed

The Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010

Iranian Financial Sanctions Regulations also implemented

Together extraterritoriality also expanded

CISADA Scope

Any U.S. person

Any activity taking place in the U.S.

Foreign subsidiaries of U.S. companies

Prohibitions

Blocked property transactions

Importing Iranian goods or services

Export, reexport, sale, or supply of goods, technology or services by U.S. and non-U.S. persons

New investment in Iran or Iranian property

Facilitation, evasion, causation and conspiracies

Major exceptions

Personal communications

Humanitarian donations

Information and informational materials

Telecommunications and mail

Food and medicine

Academic and cultural exchange programs

Travel

Sanctionable activity

Investments of $20+ million

Provides, sells or leases refined petroleum products over $1 million that could directly or significantly facilitate expanding Iran’s domestic petroleum capabilities/infrastructure

Includes barter and insurance coverage

Prohibited Exports

Extends to include exports from the U.S. made to third parties with knowledge or reason to know the items are intended to be sent to Iran or to be incorporated into items intended specifically for Iran

OFAC Guidance

Know or have reason to know standard

Does the buyer

Deal exclusively or predominantly with Iran

Course of dealing, general knowledge about the industry or customer preferences; working relationships; minority ownership or other facts

Foreign Subsidiaries

Is it “owned” or “controlled” by the U.S. entity?

If the U.S. company cannot do the deal, neither can the foreign subsidiary

Foreign subsidiary – actual knowledge

U.S. entity – no knowledge requirement

“Owned” or “Controlled”

Business and legal planning

Decision making

Designing, ordering or transporting goods

Financial insurance

Other risks

JCPOA Implementation Day

Joint Comprehensive Plan of Action

Implemented January 16, 2016

IAEA submitted its report finding Iran had reduced certain nuclear related materials

Specific nuclear related sanctions ended

All OFAC and BIS sanctions remain in place

JCPOA Partners

China

France

Germany

Russia

European Union

United Kingdom

United States, and

Iran

General Licenses

Commercial aircraft and parts

Carpets and certain foods

Eases restrictions on foreign entities transacting business in Iran

Personal communications hardware and software

Iran is again part of the international banking community

How it works in the real world

Epsilon Complaint

Complaint for Declaratory Relief and Injunctive Relief

Sought a court order barring OFAC and other agencies from imposing civil fines

Administrative Procedures Act

Due Process

Excessive Fines

OFAC Fines

Round 1 – Cautionary letter

Round 2 – Large fines

34 violations – non-egregious

5 egregious violations

Export value - $3,407,491

Civil fine - $4,073,000

OFAC’s Answer

Acted in accord with the law and regulations

Considered both aggravating and mitigating factors which offset each other

The fine could have been $12+ million.

Who wins and why?

Compliance Programs

In Class Exercise

What will be the impact of the Bank Markazi v. Peterson decision on U.S.-Iran relations ?

It Really Is All About Due Diligence

Questions?

MITCHELL SILBERBERG & KNUPP LLP

Website: www.msk.com

Washington, D.C.

New York, NY

Los Angeles, CA

Office: 310-312-3206 Fax: 310-231-8406