International Trade Law News /title <!DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Strict//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-strict.dtd"> <html xmlns="http://www.w3.org/1999/xhtml" xml:lang="en" lang="en"> <meta name="verify-v1" content="6kFGcaEvnPNJ6heBYemQKQasNtyHRZrl1qGh38P0b6M=" /> <head> <title>International Trade Law News

November 15, 2016 

New Harmonized EAR and ITAR Destination Control Statement Requirements Take Effect Today

Today is the effective date of the final BIS and DDTC rules implementing the new harmonized EAR and ITAR Destination Control Statement (DCS) and making changes to other shipping requirements. The text of the final rules published by DDTC and BIS on August 17, 2017 can be found here (ITAR) and here (EAR). 

As a result, the following language must now be included on the Commercial Invoice associated with items on the Commerce Control List (CCL) or US Munitions List (USML) that are exported from the United States:
These items are controlled by the U.S. Government and authorized for export only to the country of ultimate destination for use by the ultimate consignee or end-user(s) herein identified. They may not be resold, transferred, or otherwise disposed of, to any other country or to any person other than the authorized ultimate consignee or end-user(s), either in their original form or after being incorporated into other items, without first obtaining approval from the U.S. government or as otherwise authorized by U.S. law and regulations.
This new DCS language only has to be included on the Commercial Invoice and no longer needs to be included on the shipping documents, such as the bill of lading or airwaybill, as in the past. While we have had a number of clients express concerns that this language exceeds the size fo the current DCS field on invoices generated in their ERP system, BIS and DDTC have stated that this language cannot be shortened or modified. 

While this language only has to be included on the commercial invoices for items actually on the CCL (i.e., those items with an ECCN and not classified as EAR99), BIS has stated that it is permissible to include this DCS language on commercial invoices associated with the export of EAR99 goods, if the exporter chooses to do so. 

In addition to including the new DCS language on the commercial invoices, the following additional requirements also take effect today:

Exports of ITAR controlled goods on the USML  New section 123.9 of the ITAR requires the commercial invoice associated with the shipment of ITAR controlled defense articles to include the following additional information: 
  • name of country of ultimate destination;
  • name of the end-user; and 
  • license or other approval number or exemption citation 

Exports of "600" series and 9x515 Controlled Goods  The BIS final rule also modifies section 758.6 of the EAR to require the commercial invoice to include the ECCN(s) for any goods that are classified in the "600 Series" on the CCL (military parts and components) or items that are classified in ECCNs 9x515 (i.e., ECCNs 9A515 and 9B515 covering spacecraft and commercial satellites) that are exported from the US. The ECCN of other items not included in these classifications does not have to be included on the Commercial Invoice, but it is useful to include them.  

The purpose of the DCS and other informational requirements "is to ensure that [the export control information regarding the item] reaches the ultimate consignee and/or end user(s) that will be in a position to make a subsequent reexport or transfer (in-country), so they are aware the item in question is subject to U.S. reexport controls." 

It is important to note that the EAR does not require the DCS to be included on the Commercial Invoice associated with the reexport or transfer of US export-controlled items from one country to another. 

However, section 123.9 of the ITAR requires the DCS to be included on the commercial invoice when ITAR-controlled are "transferred". 

November 10, 2016 

Overview of Possible Post-Election Changes in US Trade and Sanctions Policy

By Glen Kelley, Doug Jacobson, and Michael Burton
Jacobson Burton Kelley PLLC

With Donald Trump’s surprise election victory, there is now a great deal of uncertainty regarding the future direction of the US government on international trade and foreign policy issues. President-elect Trump’s campaign and transition teams have released few specific policy proposals and plans in these and other areas.


Just as the pollsters could not predict the outcome of the election, no one really knows what will happen after January 20, 2017. Candidate Trump took many conflicting positions during the campaign and many campaign promises are never implemented.


However, we can already envision some significant changes in US trade and sanctions policy. We will closely watch the Trump transition team and the new Administration over the next few months for indications of the policies they will be formulating.


Trade Policy


For more than a year, a major part of President-elect Trump’s platform has been rejecting major US free trade agreements as “bad deals” for America, promising dramatic changes in the US approach to trade agreements. Ostensibly the goal is to better protect the interests of American workers and consumers.


As set out in President-elect Trump’s “100 day action plan”, his Administration could:



  • terminate US support of the Trans-Pacific Partnership (TPP), which would, if adopted, greatly reduce the remaining trade barriers between the US and 11 other countries in the Americas and Asia. If the US chooses to withdraw from TPP, the other 11 countries may choose to enact their own free trade agreement. It is possible that Trump Administration will seek to re-open the TPP to new negotiations, although that will be difficult since many of the TPP member countries have already commenced the ratification process. 
  • seek to renegotiate the terms of the North American Free Trade Agreement (NAFTA), which could trigger substantial regulatory uncertainty, and possibly economic disruption, for manufacturers and exporters in the US, Mexico, and Canada. It is important to note that this same promise was made by candidate Obama during the 2008 presidential campaign and was never acted upon. President Obama became a leading advocate of free trade agreements during his second term. 
  • reject other trade agreements and arrangements that “unfairly impact American workers”. How a Trump Administration views the US-EU Transatlantic Trade and Investment Partnership (T-TIP), which is currently being negotiated, remains to be seen. It is possible the US will choose to enter into a free trade agreement with the United Kingdom, once Brexit has occurred. 
As set out on the Trump campaign website, the Trump Administration can be expected to ramp up enforcement of US trade remedy laws, as authorized in the Trade Facilitation and Trade Enforcement Act (TFTEA) that was enacted in early 2016, to combat perceived unfair trade practices and subsidies by major US trading partners, particularly China. Also, candidate Trump indicated that he would direct the Secretary of the Treasury to take action against China's alleged currency manipulation. Of course, there is a significant risk that these measures could trigger a damaging trade war (such as mutually escalating tariffs) with China and other trading partners.

Economic sanctions


Iran – During the presidential campaign, President-elect Trump frequently disparaged the current multilateral nuclear agreement with Iran and several other countries, known as the Joint Comprehensive Plan of Action (JCPOA) (commonly known as the Iran deal). Since the JCPOA was implemented on January 16, 2016, most US sanctions have remained on Iran ("primary sanctions") al
though most US and EU sanctions applicable to EU and other non-US companies have been suspended by waivers, general licenses and other regulatory action ("secondary sanctions"). Non-US companies have been gradually increasing their new business and investment in Iran.

It is possible that the Trump Administration could reject all or some of the terms of the JCPOA and choose to reimpose some of the suspended sanctions, or the US Congress could enact additional sanctions on Iran. Either action would be viewed by Iran and the other parties to the agreement as a violation of the JCPOA. It seems unlikely that the EU, Russia or China would agree to any US request to renegotiate the JCPOA or to reimpose sanctions on Iran.

If the US reimposes sanctions, the Iranian government may be willing to continue with their nuclear-related commitments in exchange solely for continued EU sanctions relief, considering that the practical impact of US sanctions relief has been limited. On the other hand, if Iran rejects the JCPOA and accelerates its nuclear program, the world could once again see tensions escalate towards potential armed conflict.


Cuba – Over the last two years, the Obama Administration has made numerous gradual amendments to the US sanctions regulations on Cuba. This has opened up opportunities for greater travel and cargo service between the US and Cuba, exports from the US of certain categories of goods, and US participation in the development of Cuban infrastructure, agriculture, and telecommunications. Last month the White House made clear these changes were intended to “make our opening to Cuba irreversible”.


However, all of these changes were made by executive action, without the active support of Congress, and so the next President could immediately unwind them and put all of the sanctions back in place. President-elect Trump has signaled that he intends to “renegotiate” with the Cuban government. It seems that further relaxation of the sanctions will come slowly, if at all, and we will be watching for any indication that some of the sanctions could be reimposed next year.


Russia and Ukraine – President-elect Trump has expressed skepticism over the current US sanctions related to the situation in and around Ukraine and the underlying policies. These sanctions include a broad embargo of the Russian-occupied territory of Crimea, capital markets and other targeted sanctions on the Russian oil and gas, banking and defense sectors, and targeted sanctions on numerous Russian companies and individuals.


With a weakened US commitment to the sanctions, we might see the US sanctions start to fall away in 2017. For example, they might be traded away in exchange for agreement with Russia on other issues. If this occurs, the voices within the EU against the continuation of sanctions may gain the upper hand, and we could also see some or all of the EU sanctions lifted.


Export controls


To date, there has been no indication how the Trump Administration will view export controls, many of which are subject to multilateral agreements. The Trump campaign website suggests that simplifying and reducing regulation will be a focus of the new Administration, but this may not apply as directly to regulations such as export controls that are primarily intended to protect US national security interests. We will be watching to see whether the current level of funding and support for the export control agencies can be expected to continue.


While President Obama's Export Control Reform initiative (ECR) has made significant progress toward accomplishing the goal of achieving the "Four Singles" – a single control list, single licensing agency, single enforcement coordination agency, and single government IT system – the process is incomplete. The most significant progress from the perspective of exporters has been: (1) the review and update of the US Munitions List (USML) and the Commerce Control List (CCL); (2) the transfer of jurisdiction from the USML to the CCL of a broad range of less sensitive defense articles, such as parts and components; and (3) reducing the differences in the definitions of key terms in the two main sets of regulations, the ITAR and EAR.


The overall process, however, remains incomplete and further progress under the next Administration is in question given the close association of ECR with President Obama, a potential leadership gap within the agencies due to retirements and replacement of key political appointees driving ECR, and whether this initiative will be a priority of the next Administration. That being said, such significant investments have been made in ECR and momentum created that completing the less controversial portions of ECR seems likely. In sum, we may see further regulatory reforms next year, but it is unlikely that Congress will enact implementing legislation required to combine US export control agencies and lists.


Regarding defense manufacturing and exports, the Trump campaign website suggests that the new Administration will seek to enact legislation to expand all of the branches of the US military, to expand the US missile defense system and to expand US cyber warfare and defense capabilities. This implies an emphasis on growing the US defense industrial base.


Other trade and investment controls


Anti-corruption – it is difficult to say whether the Trump Administration will continue the aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) against non-US and US companies found to have engaged in bribery or corruption. In a 2012 CNBC interview Trump stated that the FCPA is a “horrible law and it should be changed.” Relevant factors include president-elect Trump's stated focus on domestic (US) political corruption, on reducing regulations impacting US companies, and avoiding an interventionist foreign policy. It is possible FCPA enforcement could be de-prioritized in favor of national security, anti-terrorism and a greater focus on domestic corruption.


Anti-money laundering (AML) – much of the AML regulatory system built up by the last several presidential administrations is focused on countering the financing of terrorism. While little specifics can be gleaned from candidate Trump's public statements thus far, with the overall focus on anti-terrorism we can assume that AML compliance and enforcement will remain a priority, both for financial institutions and companies involved in cross-border payments and transactions.


Foreign investment review/ CFIUS – we anticipate that the Trump Administration will be very focused on reviewing ‎foreign investments into the United States. The Trump campaign has emphasized national security issues and on the perceived harm to the US economy of the policies of other countries and has had an unfortunate tendency to espouse protectionist policies. The range of transactions scrutinized by the US Committee on Foreign Investment in the United States (CFIUS) may continue to expand. Unfortunately, as with the risk of a tariff-based  "trade war", any significant tightening of the US foreign investment review process could trigger increased restrictions on US companies investing in other countries.


June 10, 2016 

BIS to Use Single License Type Code for EEI Export Filings Starting on October 1, 2016

U.S. exporters and freight forwarders should be aware that on October 1, 2016, the Department of Commerce's Bureau of Industry and Security (BIS) will remove License Type code C32, No License Required (NLR), from the list of "License Types" for purposes of filing Electronic Export Information (EEI) in the in the Automated Export System (AES).  

As a result, License Type code C33 will be the only License Type in AES designating an NLR shipment from the U.S. 

This change is being made as a result of requests from industry to simplify the NLR reporting in AES by using only a single NLR License Type Code. 

NLR is the export authorization reported in EEI filings for items classified as EAR99 or items on the Commerce Control List that do not require a license for the destination. 

However, exports of an EAR99 item to a country subject to anti-terrorism controls or comprehensive sanctions (AT Controls), a restricted end-user (i.e., a party on the BIS Entity List), or in support of a prohibited end-use may require a BIS export license and would not be eligible to be exported NLR.

Changes to License Type C32 will be accepted in AES for 180 days after the effective date (i.e., until March 30, 2017). In the meantime, for items that have a reason for control other than or in addition to Anti-Terrorism (AT), License Type Code C33 should be used as the License Type in the EEI filing. 

A complete list of all of the AES License Type codes and reporting instructions for these types can be found at http://www.cbp.gov/document/guidance/aestir-appendix-f-license-and-license-exemption-type-codes.

May 23, 2016 

DDTC Implements Policy Change on Exports of Certain ITAR-Controlled Items to Vietnam

During President Obama's trip to Vietnam today, the U.S. announced that it will fully lift the long-standing ban on the sale or transfer of lethal weapons to Vietnam that is currently contained in section 126.1(l) of the ITAR. 

As a result, the State Department's Directorate of Defense Trade Controls today published the following notice on its website regarding the implementation of this policy changes:

Industry Notice: Change in Policy on Exports of Munitions to Vietnam (05.23.16) 
Pursuant to a decision made by the Secretary of State and effective immediately, the Department of State's policy prohibiting the sale or transfer of lethal weapons to Vietnam, including restrictions on exports to and imports from Vietnam for arms and related materiel, has been terminated. Consequently, in accordance with the Arms Export Control Act, the Directorate of Defense Trade Controls (DDTC) will review on case-by-case basis applications for licenses to export or temporarily import defense articles and defense services to or from Vietnam under the International Traffic in Arms Regulations (ITAR). DDTC will soon publish a rule in the Federal Register to implement a conforming change to ITAR §126.1.
DDTC maintains an unofficial list of country policies and embargoes on its website, which includes a disclaimer that the information is not complete and that the latest version of the ITAR should be reviewed to determine the current list of ITAR proscribed countries and other country-specific restrictions.  

May 18, 2016 

The US Narrows its Remaining Financial Sanctions on Myanmar (Burma)

Effective today, the US Office of Foreign Assets Control (“OFAC”) has narrowed the remaining US sanctions restricting trade and investment in Myanmar by US companies, US individuals and other persons located in the US (“US persons”). Some significant US sanctions remain on Myanmar, to which the US government continues to refer, for policy reasons, as “Burma”.

These changes may make it easier, going forward, for US companies to find a non-sanctioned bank in Myanmar to support trade or business in Myanmar, and may reduce the number of US investors that must file lengthy “responsible investor” reports with the US State Department. With these changes, the US government intends to recognize Myanmar’s transition to a democratically-elected government, and signal its “strong support for this political and economic progress”.

This is the first significant relaxation of the remaining US sanctions on Myanmar since February 2013. The US has for several years been alone in maintaining substantial sanctions on Myanmar. The EU suspended in 2012 and permanently lifted in 2013 essentially all of its sanctions, other than an arms embargo and export controls on certain sensitive items.

Exports of non-export controlled items
US sanctions and export controls generally do not restrict the export of goods and technology that are not export-controlled (meaning they are classified "EAR99" under US export controls), so long as no prohibited end-use or prohibited end-user is involved. US persons generally cannot engage in a transaction involving any person on the primary US list of sanctioned persons, the US Specially Designated Nationals List (“SDN List”), or any entity in which they hold a 50% or greater ownership interest.

Lifting of most banking sector sanctions
OFAC has noted, in announcing today’s changes, that most transactions are no longer prohibited with the Myanmar banks that were, prior to yesterday, on the SDN List:
- Transactions with Asia Green Development Bank and Ayeyarwady Bank have been generally authorized by general license since February 2013. These banks remain on the SDN List, so any of their assets “blocked” (frozen) by US persons must remain blocked.
- Innwa Bank and Myawaddy Bank were added today to this general license, so all prospective transactions with these banks are now authorized, though their previously blocked assets must remain blocked.
- The same was true until yesterday for Myanma Economic Bank and Myanma Investment and Commercial Bank. They were removed from the SDN List yesterday, so transactions with these banks are no longer prohibited.

Remaining sanctioned persons
Yesterday OFAC removed several state-owned banks and companies from the SDN List. However, several of the largest companies and most prominent businessmen in Myanmar remain on the SDN List. US persons are generally prohibited from dealing with such persons and entities in which they hold a 50% or greater ownership interest, and must “block” (freeze) their assets. Flagging the importance of these remaining listings, several more of these entities were added to the SDN List yesterday.

Many of the sanctioned persons have interests in a number of other companies through complex corporate structures, and in several sectors of the Myanmar economy it can be a challenge to find suitable investment targets or business partners that are verifiably free of direct or indirect SDN ownership. While today’s easing of the sanctions may be helpful, it will not greatly reduce this due diligence and compliance burden for US companies considering an investment.

Other remaining sanctions
US persons remain prohibited from making any “new investment” in Myanmar involving the Ministry of Defense, other Myanmar armed groups or their majority-owned subsidiaries, or involving any of person remaining on the SDN list which still includes four Myanmar banks as noted above. It is also generally prohibited for US persons to provide financial services to Myanmar if those services would be related to the provision of security services to the Myanmar military or armed groups.

US persons must file a detailed “responsible investor” report with the State Department on new investment aggregating over $500,000. The State Department is currently considering whether to increase this threshold to $5 million. Separately, US persons must report any investments involving Myanma Oil and Gas Enterprise (MOGE). Some US companies have filed lengthy reports in response to this requirement, and most sections of these reports are released to the public. In some other cases the reporting requirement may not be triggered if the investment is made independently by a non-US affiliate or subsidiary.

US law still restricts the import of Myanmar jadeite or rubies to the US, and exports to Myanmar of US-export controlled items.

Burma was designated as a “jurisdiction of primary money laundering concern” in 2004 under Section 311 of the USA PATRIOT Act, and as a result US banks are generally restricted from providing correspondent accounts to Myanmar banks. However, OFAC has confirmed that correspondent accounts may be opened, following the sanctions relief described above, so long as the transactions carried out through those accounts do not violate any of the remaining sanctions.

Other general licenses
A general license is an authorization of certain otherwise-prohibited activity that OFAC releases to the public. Any person may rely on a general license, if their transaction meets the terms and conditions set out in the general license, in most cases without prior notice to or approval by OFAC.

Effective today, OFAC has eliminated the expiration date of a general license it issued five months ago to authorize certain transactions “ordinarily incident to” exports to or from Myanmar that indirectly involve an SDN or other “blocked” person under US sanctions. Several major banks had requested this because such sanctioned persons are apparently indirectly involved in certain port or airport operations in Myanmar. This general license was expanded today to cover certain transactions relating to the movement of goods within Myanmar.

OFAC also issued today a general license that expands on existing authorizations and exemptions to authorize transactions ordinarily incident to routine and necessary expenses of US persons residing in Myanmar. The general license does not authorize employment of a US person by an SDN or other blocked person.

March 09, 2016 

US Customs and Border to Increase De Minimis Value of Duty Free Imports from $200 to $800 on March 10, 2016

By Doug Jacobson, Jacobson Burton Kelley PLLC

As as result of a provision contained in the recently enacted Trade Facilitation and Trade Enforcement Act of 2015 (Public Law No: 114-125), US Customs and Border Protection (CBP) will increase the low value (de minimis) exemption from duties and taxes on goods imported by a single person on one day into the US from $200 to $800. 

The low value exemption can be claimed on goods imported on commercial goods as well as goods purchased by individuals from parties outside the US. 

This is the first increase in the low value exemption since 1993 and makes the duty exemption identical to that which can be claimed by travelers entering the US. 

These low value entries, which are entered as an informal customs entry, are often referred to as "section 321" shipments, since they are authorized under section 321(a)(2)(C) of the Tariff Act of 1930, as amended (19 U.S.C. § 1321(a)(2)(C)).

CBP has stated that it will publish an Interim Final Rule amending the appropriate regulations (e.g, 19 CFR § 10.151) and soliciting comments from interested parties. However, beginning on March 10, 2016, shipments valued at $800 or less will be eligible for release under the same processes and with the same restrictions as currently apply for de minimis shipments of $200 or less.  

CBP has indicated that it retains the right to require a formal entry on any shipment where additional information, bonding or protection is required.  In addition, CBP stated the low value treatment can be denied "if used for the purpose of avoiding compliance with any pertinent law or regulation."


March 08, 2016 

China's ZTE Added to BIS Entity List: The Impact on ZTE, US and Non-US Companies

By Doug Jacobson, Jacobson Burton Kelley PLLC, Washington, DC

The Commerce Department's Bureau of Industry and Security today published a notice in the Federal Register (reprinted below) announcing that China's ZTE Corporation (ZTE or ZTEC), and three of its affiliates, have been added to the Entity List.

Founded in 1985 and headquartered in Shenzhen China, ZTE, whose shares are traded on the Shenzhen, China and Hong Kong stock exchanges, is China's second largest telecommunications company. ZTE is also the world's seventh largest producer of smartphones and has operations in the US and more than 160 other countries. ZTE has annual revenues of approximately $15 billion per year.  

ZTE is being added to the BIS Entity List for allegedly reexporting US origin products to sanctioned countries, including Iran, and for planning "a scheme to establish, control, and use a series of “detached” (i.e., shell) companies to evade US export controls.

This action, which comes after a four-year investigation of ZTE by BIS's Office of Export Enforcement and the Federal Bureau of Investigation will have a major impact on ZTE and US and non-US companies.

BIS Entity List

The BIS Entity List, found at Part 744 of the US Export Administration Regulations (EAR), includes non-US businesses, research institutions, government and private organizations, individuals, and other types of legal persons, that are subject to specific license requirements for the export, reexport and/or transfer (in-country) of specified items. Parties are added to the Entity List by BIS when there is an increased risk of diversion of US-origin items or where the parties engaged in activities contrary to U.S. national security and/or foreign policy interests. BIS has been using the BIS more frequently in the past few years.

Specific entries on the Entity List identify the items that are subject to a license requirement and BIS's licensing policy regarding any license applications that are submitted.

Parties Added to Entity List and Licensing Requirements

As a result of today's BIS action, which takes effect immediately, BIS will impose a license requirement for all persons and companies, wherever located, to export, reexport or transfer to "all items subject to the EAR" to the following four companies:

1. Zhongxing Telecommunications Equipment (ZTE) Corporation (also referred to as ZTEC)
Address: ZTE Plaza, Keji Road South, Hi-Tech Industrial Park, Nanshan District, Shenzhen, China;

2. Beijing 8 Star International Co.
Address: Unit 601, 6thFloor, Tower 1, Prosper Center, No. 5, Guanghua Road, Chaoyang District, Beijing, China;

2. ZTE Kangxun Telecommunications Ltd.
Address: 2/3 Floor, Suite A, Zte Communication Mansion Keji (S) Road, Hi-New Shenzhen, 518057 China

4. ZTE Parsian.
Address No. 100, Africa Ave., Mirdamad Entersection [sic], Tehran, Iran.

The license review policy for all four entities is "presumption of denial", meaning that is not likely that BIS will approve any license applications to these four parties.   

Because the license requirement for all four companies applies to all "items subject to the EAR", as defined in section 734.3 of the EAR, a license will be required to export, reexport or transfer all US-origin goods, software or technology, wherever located, whether classified as EAR99 or listed on the Commerce Control list (i.e., identified with an ECCN number, such as ECCN 3A001). 

This will also have an impact on non-US companies because the license requirement will also apply to any item produced outside the US and sold to the four ZTE entities that incorporates US-origin parts, components, software if the total value of the controlled US content exceeds the de minimis level in section 734.4 of the EAR (e.g., 25% for reexports to China).

Impact on ZTE and US and non-US companies

This action will have a major impact on ZTE and many US companies as it has been estimated that ZTE sources more than 40% of its parts and components from US suppliers. As a result of  ZTE's size and international footprint, US and non-US companies should immediately screen their customer databases to make sure that ZTE is flagged as a party subject to Entity List restrictions and that any shipments be stopped. While the BIS notice contains a "savings clause" for certain items that were already en route aboard a carrier to ZTE, there is no "grandfathering" of items that had been ordered but have not been shipped.

Unlike parties included on OFAC's SDN List, the addition of ZTE to the Entity List does not prohibit US or non-US persons from engaging in financial transactions with ZTE or require that any of the listed companies' assets be frozen. Rather, BIS is restricting the export, reexport or transfer of any goods, technology, or software to these ZTE companies. Also, unlike OFAC, BIS does not control the export of services to a listed party. However, the term “technology” is broadly defined in the EAR to include certain types of information, including specific information necessary for operation, maintenance, repair, overhaul and refurbishing of items subject to the EAR.

In addition, BIS does not have a 50% rule that applies to companies owned by the four ZTE companies listed. BIS has stated that the licensing requirements imposed on a listed entity by virtue of its being listed do not per se apply to its subsidiaries, sister companies, or other legally distinct affiliates that are not listed on the Entity List. However, BIS has also stated that if affiliates of the listed company act as an agent, a front, or a shell company for the listed entity in order to facilitate transactions that would not otherwise be permissible with the listed entity, then the company is likely violating General Prohibition 10 and other provisions of the EAR. Therefore, exporters are encouraged to take extra steps in an effort to make sure that items are not ultimately destined for the listed entities.

Reasons for Adding ZTE to Entity List

The Federal Register notice specifies that ZTE was added to the BIS Entity List because it reexported controlled US origin items to Iran in violation of US law. In addition, BIS noted that the company created an internal document entitled: “Proposal for Import and Export Control Risk Avoidance” describing how ZTE planned and organized a scheme to use a series of shell companies to reexport controlled items to Iran in violation of US export control laws.

In an unusual move, BIS published on its website documents obtained during its investigation of ZTE to support its findings. These documents, which are published below, are very thorough and read like a playbook on how to circumvent US export controls.


These documents, which were posted by BIS in their original Mandarin and translated English versions, provide detailed information on ZTE's understanding of how US export control laws applied to them and the repercussions if they were unable to continue with their work in the US sanctions countries, including Iran, Sudan, North Korea, Cuba and Syria. The documents even included a summary of the enforcement actions that could be taken against the company, including listing the US supply chain, and provided examples of prior export control issues the company had faced, and recent enforcement cases brought against other Chines companies. The documents show that ZTE tried to attract members to its export control team by paying a bonus.

For example, the "Proposal for Import and Export Control Risk Avoidance" describes how ZTE planned to establish and use "detached" (i.e., shell) companies and other measures to avoid "risks of import and export control". The document suggests that the company use the Jebel Ali Free Zone in Dubai as the "primary choice" to locate one of the companies. The document also describes ways to properly handle and pack the goods to minimize the risks to ZTE.

Repercussions

Because ZTE is a major telecommunications company the addition of ZTE to the Entity List has already had ripple effects. ZTE's stock has been suspended from trading on the Hong Kong and Shenzhen Stock Exchanges and China's Ministry of Foreign Affairs denounced the BIS actions in the following statement:
"The Chinese side is firmly opposed to the US using domestic laws to place sanctions on Chinese companies. The Chinese side urges the US side to call off the wrong action lest it should jeopardize economic cooperation and relationship between China and the US."
Representative Eliot L. Engel (D-NY), Ranking Member of the House Committee on Foreign Affairs, called for further restrictions on ZTE in the following statement:
"Today's action to impose a virtual embargo on exports to China's number-two telecom company, ZTE, reveals publicly for the first time that this company has systematically violated U.S. sanctions on Iran, North Korea, and other proscribed countries. ZTE bought U.S. telecom equipment and illegally incorporated it into communications systems for the Iranian and North Korean security, military, and intelligence agencies. I commend the federal agents at the Commerce Department, FBI, and Homeland Security Department for carrying out this four-year investigation. Additional criminal charges are likely to be brought. I believe that the U.S. sanctions should be extended to cut off all ZTE commercial activity and investment in the United States.”
It has been widely reported that BIS and the FBI commenced an investigation on ZTE's compliance with US export control laws in 2012. It has also been reported that senior ZTE executives have not traveled to the US over the past few years for fear of being arrested. 

Given the activities described in the ZTE documents and in the BIS Entity List notice, it appears likely that ZTE will remain in the crosshairs of the US Government for some time to come. 

January 31, 2016 

The Impact of the Third Round of Regulatory Changes to the US Embargo on Cuba: Licenses Now Available for Products to Support Construction Projects in Cuba

By Doug Jacobson, Glen Kelley and Michael Burton, Jacobson Burton Kelley, PLLC

On January 27, 2016, the Office of Foreign Assets Control (“OFAC”) and the Bureau of Industry and Security (“BIS”) published a third round of coordinated amendments to the Cuban Assets Control Regulations (CACR) and the Export Administration Regulations (EAR). The Federal Register notices published by the agencies can be found here (OFAC) and here (BIS).  


These regulatory changes are intended to further implement President Obama’s policy of seeking to thaw the longtime stalemate in political and economic relations between the US and Cuba. However, because most aspects of the US travel, trade and financial embargo of Cuba is governed by US law, the Obama Administration remains limited in the regulatory "tweaks" to the embargo, absent further action by the US Congress. 


The recent changes, described below, build on the amendments to the U.S. regulations implementing the Cuban embargo that were made in 2015, including:

  • The January 2015 amendments to the CACR and EAR regulations expanding the scope of the 12 authorized categories of travel to Cuba and authorizing certain trade and financial transactions  between the US and Cuba; 
  • The July 2015 removal by the State Department of Cuba from the list of State Sponsors of Terrorism and the corresponding increase by in the de minimis threshold for reexports to Cuba of "items subject to the EAR" from 10% to 25%; and       
  • The September 21, 2015 amendments to the CACR and EAR authorizing certain business activities and physical presence by US companies in Cuba, expanding the scope of EAR License Exceptions SCP (Support for the Cuban People) and AVS (Aircraft, Vessels and Spacecraft). 

Our summary of the impact of these prior regulatory changes can be found here.  

Major Changes to the US Embargo on Cuba Resulting from the January 27, 2016 BIS and OFAC Amendments


The OFAC and BIS regulations issued on January 27, 2016 made a number of changes to the restrictions on traveling to and doing business in Cuba. While some of the changes have a very limited scope some of the changes are more much more significant and could open up a wide range of new business with Cuba, assuming a counterparty in Cuba can be found. 


The following is an overview of the major changes made by OFAC and BIS to the regulations implementing the US embargo on Cuba. 


A. Exports and Reexports Involving Cuban Infrastructure and Other Projects Now Subject to Case-By-Case Licensing Policy


The most significant change made by the January 27, 2016 amendments was the amendment by BIS of section 746.2 of the EAR in order to establish a case-by-case review policy for exports and reexports of "items" for use in construction of various infrastructure products in Cuba, such as facilities for treating public water supplies, facilities for supplying electricity or other energy to the Cuban people, public transportation projects, food processing, public health and sanitation, sports and recreation facilities, and other infrastructure that directly benefits the Cuban people. This is particularly important given Cuba's infrastructure needs. The fact that BIS may issue licenses for transactions with Cuban state-owned enterprises is significant given the Cuban Government's pervasive role in the Cuban economy. 

This new case-by-case licensing policy also now authorizes exports and reexports to wholesalers and retailers of items for domestic consumption by the Cuban people. While the term "item" is not defined, this should allow a wide range of consumer and other products to be exported from the US to Cuba as long as a BIS license is obtained in advance. 


It is important to note that these changes only authorize the export of goods and software associated with these infrastructure projects. The provision of services by US companies and persons involving such projects in Cuba, such as engineering and architectural services, remain prohibited by OFAC.  


In addition, a general policy of denial continues to apply to exports and reexports of items from the US for use by Cuban state-owned enterprises, the Cuban military, agencies, or other organizations of the Cuban government that primarily generate revenue for the state, including those engaged in tourism and those engaged in the extraction or production of minerals or other raw materials. 

B. Exports and Reexports Now Subject to General Policy of License Approval


BIS also amended section 746.2 of the EAR to add a general policy of approval for certain exports and reexports previously subject to case-by-case review and a policy of case-by-case review for exports and reexports of items not eligible for license exception to meet the needs of the Cuban people. 


Specifically, the January 27, 2016 rule revises the licensing policy from possible approval on a case-by- case basis to a general policy of approval for exports and reexports of the following items to Cuba:


  • Telecommunications-related items that would improve communications to, from, and among the Cuban people (to the extent not eligible for license exception SCP); 
  • Parts and components necessary to ensure the safety of civil aviation and the safe operation of commercial aircraft engaged in international air travel, including the export or reexport of such aircraft leased to state-owned enterprises (this includes cargo aircraft); and
  • Agricultural products that are outside the scope of “agricultural commodities” as defined in Part 772 of the EAR, such as insecticides, pesticides and herbicides, as well as agricultural commodities not eligible for License Exception Agricultural Commodities (AGR).

C. Changes Made to Financing of Certain Export Transactions Involving Cuba


OFAC's amendments to the CACR remove the long-standing cash in advance payment requirement and therefore US banks are now authorized to finance authorized exports and reexports to Cuba, except for agricultural commodities. As a result, US banks are now authorized to issue, advise, negotiate, pay or confirm letters of credit, including those issued by a Cuban bank. 

OFAC remains prohibited by US law to authorize payment and financing terms for the export and reexport to Cuba of agricultural commodities and agricultural items, which remain subject to the cash in advance payment terms. 

D. Limited Expansion of Certain Authorized Travel Activities to Cuba


OFAC made a number of "tweaks" to the existing 12 categories of authorized travel to Cuba, including changes made to eliminate some of the unintended consequences resulting from the September 21, 2015 amendments. 


  • Temporary Sojourn in Cuba by Aircraft and Vessel Crew Members. OFAC has authorized by general license personnel, such as crew members, who are operating vessels or aircraft to engage in travel-related and other transactions in Cuba in order to facilitate the temporary sojourn of aircraft and vessels authorized by BIS in connection with the transportation of OFAC authorized travelers between the US and Cuba.
  • Movies and Television Programs. OFAC has authorized travel-related and other transactions directly incident to professional media or artistic productions for exportation, importation, or transmission, including the filming or production of media programs (such as movies and television programs); music recordings; and the creation of artworks in Cuba by persons that are regularly employed in or have demonstrated professional experience in a field relevant to such professional media or artistic productions.        
  • Organizing Professional meetings in Cuba. OFAC authorized by general license travel-related and other transactions to organize professional meetings or conferences in Cuba. The existing general license authorizes only attendance at such meetings or conferences.
  • Scope of Humanitarian Projects Expanded. OFAC expanded the list of authorized humanitarian projects to include disaster preparedness and response.

E. Air Carrier Services to Cuba 

In anticipation of the operation of commercial flights to Cuba later this year, OFAC authorized by general license the entry into blocked space, code-sharing, and leasing arrangements to facilitate the provision of air carrier services including the entry into such arrangements with Cuban nationals. 


Conclusion


While some of the changes to US licensing policy on transactions with Cuba that went into effect on January 27, 2016 are significant in scope, many challenges remain in doing "normal" business with Cuba. Despite early enthusiasm many US companies have been frustrated by the extremely limited business possibilities in Cuba given that much of Cuba's economy is owned and controlled by the Cuban Government and individuals in Cuba face significant obstacles on engaging in business transactions directly with US companies, let alone having access to US financing or other authorized credit facilities.


January 22, 2016 

A View From the Trenches: The Practical Impact of the Iran JCPOA on US and Non-US Companies

By Doug Jacobson, Michael Burton and Glen Kelley, Jacobson Burton Kelley PLLC

We have spent the last few days on the ground in Europe and in the US advising clients on the impact of the January 16, 2016 Implementation Day sanctions relief under the Joint Comprehensive Plan of Action (JCPOA) with Iran.


Now that Executive Order 13716 and the regulatory changes to the US Treasury Department's Office of Foreign Assets Control's (OFAC) Iranian Transactions and Sanctions Regulations have been published in the Federal Register, and we have had the benefit of initial discussions with the regulators and our clients, we wanted to provide you a summary of the lessons learned and practical impact of these changes on US and non-US persons and companies.


As discussed below, the best way to describe this week's actions in terms of sanctions relief is that the calendar has been rolled back to mid-2010 and most dealing with Iran that were prohibited then involving US financial transactions and US products are still prohibited today.


1.  Despite Various Reports Most US Primary Sanctions on Iran Remain and Changes Were Limited to Application of Secondary Sanctions Affecting Non-US Companies and Non-US Financial Institutions


During the past few days we have seen the following headlines in major newspapers in the US and around the world:



International Sanctions on Iran Canceled

US, Europe Remove Sanctions as Iran Nuclear Deal Takes Effect

US Lifts Sanctions on Iran

These headlines are inaccurate and misleading, particularly as they relate to most aspects of the US sanctions on Iran.


Despite the various media reports to the contrary nearly all US sanctions and export controls on Iran that have been effect since the mid-1980s remain in place. The only sanctions relief offered by the US government was to scale back the "secondary" (or extraterritorial) sanctions on non-US persons, companies and banks that were greatly expanded since 2012. However, most of the other aspects of the long-standing US sanctions program on Iran (referred to as primary sanctions) remains in place. In addition, the export and reexport controls on Iran administered by the Commerce Department's Bureau of Industry and Security (BIS) have not been modified in any way.


We have confirmed that most reports suggesting specific non-US companies were rushing back into Iran or had already signed contracts with the Government of Iran (GOI) are not accurate. In addition, we are already seeing evidence that many US persons and companies have been misled into overestimating the scope of sanctions relief offered by the US under the JCPOA.


Given the extensive restrictions remaining on the export and reexport of US product to Iran, the significant financial restrictions remaining in place, and the potential risks of non-compliance, even non-US companies should proceed cautiously and only after identifying all remaining prohibitions that are relevant.


2.  Scope of Sanctions and Export Controls Remaining in Effect on US Persons, US-Based Companies and US Origin Goods, Software and Technology


The following is a summary of the current restrictions on US persons, US-based companies and US goods, software and technology.


As has been the case since the Clinton Administration, US persons, meaning US citizens, green card holders (permanent resident aliens), entities formed under US law and any person located within the United States,
 remain broadly prohibited from involvement in activity involving Iran, the GOI or persons on any US list of sanctioned or prohibited parties (i.e, OFAC's SDN List and BIS Entity List).

US-origin goods, software and technology cannot be exported or reexported to Iran in most cases. General and specific licenses (authorizations) can be used for humanitarian items to Iran, such as US origin agricultural products, medical devices and medicines.


Non-US subsidiaries that are owned or controlled by a US individual or company are now authorized by OFAC General License H to engage in certain activities with Iran. However several significant restrictions remain, and any business with Iran could create direct legal risk for the US investor. See sections 4 and 5 below.


It remains generally prohibited for US banks to process payments relating to Iran, the GOI, Iranian banks or sanctioned persons, including US dollar payments related to authorized activities by non-US entities owned or controlled by a US person or related to activities no longer covered by US secondary sanctions. While several hundred Iranian banks and companies were removed from OFAC's SDN List, more than 200 Iranian and Iran-related parties remain on the list and remain subject to secondary sanctions.


3.  Significant Restrictions Remain for Non-US Companies in Dealing With Iran


While most of the US secondary (extraterritorial) sanctions have been lifted on Iran (see section 7 below), a number of US sanctions applicable to non-US persons remain (see section 8 below).


Not all EU sanctions on Iran have been lifted and the EU continues to imposed export controls on many products to Iran. In addition, many countries continue to prohibit activities relating to Iran, or require prior authorization from the appropriate regulator. As of this writing, Canada has not made any changes to its very broad sanctions program on Iran.


4.  Impact on Non-US Companies Owned or Controlled by US Persons


General License H issued on January 16, 2016 authorizes entities formed under the law of a non-US country that are owned or controlled by a US individual or entity to engage in transactions involving Iran, subject to several limitations. Note that this does not apply to offices or branches outside the United States that are part of an entity formed under US law. See also the helpful OFAC guidance in FAQs K1 – K13.


Since October 2012, such non-US entities had been generally prohibited from dealing with Iran under the OFAC regulations (31 C.F.R. § 560.215), which provides that:


"Except as otherwise authorized pursuant to this part, an entity that is owned or controlled by a United States person and established or maintained outside the United States is prohibited from knowingly engaging in any transaction, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran that would be prohibited pursuant to this part if engaged in by a United States person or in the United States."


Thus, non-US subsidiaries owned or controlled by a US company were treated as if they were US persons, and their actions in violation of the Iran sanctions regulations could be imputed to their parent companies. General License H effectively rolls the regulatory clock back to before October 2012, providing that:


"Except as provided in paragraph (c), an entity owned or controlled by a United States person and established or maintained outside the United States (a “U.S.-owned or -controlled foreign entity”) is authorized to engage in transactions, directly or indirectly, with the Government of Iran or any person subject to the jurisdiction of the Government of Iran that would otherwise be prohibited by 31 C.F.R. § 560.215."


This may create a meaningful opportunity for some non-US subsidiaries of US companies to (re)enter the Iranian market. This will depend on case-by-case analysis of a number of factors.


Covered non-US entities must continue to comply, as if they were US persons, with certain US sanctions relating to Iran:


-  general prohibitions on exports from the United States (31 C.F.R. § 560.204), reexports from another country (31 C.F.R. § 560.205), transfers of funds through US banks or broker-dealers, and transactions with persons that remain on the SDN List or Foreign Sanctions Evaders List maintained by OFAC;


-  the end-use restrictions under Part 744 of the Export Administration Regulations (EAR) or prohibitions on dealing with denied parties under Parts 764 or 766 of the EAR; and


-  other OFAC sanctions as they relate to Iran, the GOI, Iranian banks and other persons targeted under Iran sanctions, including Executive Orders 12938 and 13382 (relating to weapons of mass destruction (WMD) and missiles), 13224 (international terrorism), 13572 and 13582 (Syria); 13611 (Yemen), 13553 and 13606, and sections 2 and 3 of Executive Order 13628 (human rights abuses in Iran).


In addition, covered non-US entities cannot engage in transactions that must go through the Iranian civil nuclear procurement channel established by the JCPOA that have not been approved through that channel, or transactions with any “military, paramilitary, intelligence, or law enforcement entity” of the GOI, or any official, agent, or affiliate thereof.


5.  Rules for US Parent Companies With Non-US Subsidiaries That Deal With Iran


To OFAC and the State Department's credit, General License H addresses certain “facilitation” issues inherent in the relationship between a US parent company and a non-US subsidiary. This occurred after these issues were brought to the attention of the senior OFAC and State Department staff involved in implementing the JCPOA


A.  Operating policies and procedures


General License H authorizes a US parent to establish or alter its operating policies and procedures, or those of the non-US entity it owns or controls, to the extent necessary to allow the non-US entity to engage in authorized transactions involving Iran. Absent this authorization, such changes in policies or procedures would fall expressly within the definition of prohibited “facilitation” in the OFAC regulations (31 C.F.R. § 560.417). The OFAC guidance clarifies that:


-  US persons, including senior management of a US parent company or its owned or controlled non-US entities, can be involved in the initial determination whether to engage in activities with Iran authorized by General License H.


- US person board members, senior management, and employees of either a US parent company or an owned or controlled non-US entity can be involved in the establishment or alteration of operating policies and procedures of the parent or non-US entity, to the extent necessary to allow the non-US entity to engage in transactions authorized by General License H.


- US persons can act as outside legal counsel or consultants to draft, alter, advise, or consult on such operating policies and procedures.


General License H does not authorize US person involvement in ongoing Iran-related operations or decision-making of its owned or controlled non-US entity after the determination to enter Iran has been made and policies / procedures are established. To be clear, US persons may not be involved in the Iran-related day-to-day operations of a US-owned or controlled non-US entity, including by brokering, referring, approving, financing, facilitating, or guaranteeing any Iran-related transaction by the non-US entity.

B.  Automated global business support systems


The US parent may make available to an owned or controlled non-US subsidiary any “automated and globally integrated” computer, accounting, email, telecommunications, or other business support system, platform, database, application, or server necessary to store, collect, transmit, generate, or otherwise process documents or information related to transactions authorized by General License H.


The OFAC guidance explains that the term “automated” refers to any of the aforementioned systems that operate “passively and without human intervention to facilitate the flow of data between and among the United States person and its owned or controlled foreign entities.” It goes on to explain that “globally integrated” includes those systems that are “available to, and in general use by, the United States person’s global organization, including the United States person and its owned or controlled foreign entities.”


General License H expressly excludes from its authorization the use of business systems in connection with any transfer of funds to, from, or through a United States bank or broker-dealer.



All other prohibitions set forth in the OFAC regulations – including the prohibition against facilitation set forth in 31 C.F.R. § 560.208 – continue to apply to US parent companies, except as otherwise authorized.

6.  Practical Impact of US Sanctions Changes on Trade with Iran

Much of the sanctions relief may have limited practical impact on trade with Iran, as exporters, importers, banks, insurers and shippers consider how to navigate the remaining restrictions. Very broad US primary sanctions remain in place unchanged, except for two specific changes made pursuant to the JCPOA. These two changes are a new general license for imports to the US of Iranian carpets and foodstuffs, and an expanded specific licensing program for exports to Iran of aircraft and related equipment and services.

Under the aircraft licensing program, US and non-US companies may now apply to OFAC for a specific license (authorization) to export to Iran commercial passenger aircraft for exclusively civil aviation end-use, and spare parts, components and services for such aircraft. This specific licensing program might not result in significant exports for some time, as potential exporters seek clarity on how it will function. Also OFAC could take several months to process license applications, as was the case under the narrower aviation licensing program initiated in January 2014 under the interim agreement with Iran known as the Joint Plan of Action (JPOA).

With the January 16 sanctions relief, we could see expanded exports of agricultural products, medicine and certain medical products. While such humanitarian trade was already authorized, the removal of certain Iranian banks from the SDN List and from secondary sanctions could make it easier for US companies to use European banks for such payments (since Iran and the US will not resume direct banking operations for exports to Iran).

In addition, it appears that container shipments through Iran's Bandar Abbas port will no longer trigger US secondary sanctions.

Much of the sanctions relief may have limited practical impact on trade with Iran, as exporters, importers, banks, insurers and shippers consider how to navigate the remaining restrictions.

We could see expanded exports of agricultural products, medicine and certain medical products. While such humanitarian trade was already authorized, the removal of certain Iranian banks from the SDN List could make it easier for US companies to use European banks for such payments (since Iran and the US will not resume direct banking operations for exports to Iran).


In addition, it appears that container shipments through Iran's Bandar Abbas port will no longer trigger US secondary sanctions. And non-US banks may now be able to engage in payments with most (but not all) major Iranian banks.


Many non-US companies considering exports to Iran of items with US content, or to the US of items with Iranian content, are working through the complex provisions of the OFAC regulations and the EAR administered by BIS related to incorporation, de minimis levels, and substantial transformation of such content. These rules remain unchanged, but the new OFAC guidance reconfirms some key points:

  • Non-US persons remain prohibited from directly or indirectly reexporting to Iran from a third country items originating in the US or containing 10 percent or more by value of US-controlled content (meaning US content classified under an ECCN other than EAR99).
  • However, the OFAC guidance also confirms that it is not generally prohibited for non-US persons or companies to reexport EAR99 items from a third country to Iran, if no US person is involved, the items have come to rest outside the US, were not procured from the US in order to be sent to Iran, and no prohibited end-uses or end-users are involved.
7.  Many US Secondary Sanctions on Iran Have Been Lifted

Non-US persons will no longer be penalized under US secondary sanctions for engaging in the following activities, unless their conduct involves any of the other activities or persons that remain sanctioned (see #8 below):


-  investing $20 million or more in the development of the Iranian upstream or downstream oil, gas or petrochemical sectors;


-  providing to Iran goods, services, technology, information or support for the development of Iranian petroleum resources or Iranian production of gasoline, diesel or jet fuel;


-  providing to Iran gasoline, diesel or jet fuel, or assisting with Iran’s import of such fuel;


-  selling, leasing or providing to Iran or the GOI goods, technology or services for Iran’s production of petrochemicals;


-  transactions involving crude oil, petroleum or petrochemicals from Iran, or involving the National Iranian Oil Company (NIOC) or its subsidiaries, though certain such sanctions were suspended in January 2014 under the Joint Plan of Action (JPOA);


-  providing insurance or reinsurance for NIOC or the National Iranian Tanker Company (such sanctions were suspended under the JPOA);


-  assisting GOI acquisition of US bank notes or precious metals, or purchasing or facilitating the issuance of GOI debt;


-  entering into a joint venture with the GOI regarding petroleum or uranium resources outside of Iran;


-  owning, operating or insuring a vessel transporting crude oil from Iran (except pursuant to the JPOA sanctions suspension) or concealing its transportation of crude, gasoline, diesel or jet fuel from Iran, or transporting to or from Iran goods related to terrorism or WMD;


-  selling or supplying to Iran significant goods or services used in the Iranian automotive sector (such sanctions were suspended under the JPOA), or the Iranian energy, shipping, or shipbuilding sectors;


-  selling or supplying to or from Iran precious metals (such sanctions were suspended under the JPOA);


-  a significant transaction involving Iranian rials, a derivative based on the rial, or funds or accounts outside Iran denominated in the rial; and


-  insurance or reinsurance of activities listed above, or paying a claim arising from any such activity prior to Implementation Day if no person on the SDN list is involved.


8.  Remaining US Sanctions and Export Controls Applicable to Non-US Persons


As noted below, most US sanctions and export controls relating to Iran remain in place. Many can have direct or indirect application to non-US persons seeking to re-engage in business with Iran:


A.  Secondary sanctions can still be imposed for any of the following activities.


-  Materially assisting, sponsoring or supporting any of the more than 200 Iranian persons remaining on the SDN list, or for a financial institution, engaging in a significant transaction involving any such person. These sanctions are broad - for example, the Iranian Revolutionary Guard Corps (IRGC) and its affiliates, which play an important role in several sectors of the Iranian economy, are still covered on the SDN list.


-  For a non-US bank, (i) a significant transaction involving any person on the SDN list for reasons related to Iran’s proliferation of WMD or terrorism, or (ii) any transaction involving WMD, terrorism or money laundering activities by the GOI.


-  The provision of financial messaging services (eg SWIFT) to Iranian banks that remain on the SDN List, which include Ansar Bank, Bank Saderat, Mehr Bank


-  Sales of goods or services to Iran or other transactions subject to the Iranian nuclear procurement channel established by the JCPOA, without approval under that channel.


-  Selling or supplying to or from Iran graphite, raw or semi-finished metals, coal or software for industrial processes, if the transaction supports the military or missile program of Iran.


-  Exporting or providing goods, services or technology to Iran or a third country knowing they would contribute to Iranian WMD or advanced conventional weapons capabilities.


-  Supplying or operating telecoms equipment, technology or services that could be used to commit human rights abuses or for censorship, surveillance or network disruption.


B.  US primary sanctions remain on Iran, meaning US persons are generally prohibited from transactions or dealings involving Iran, the GOI, an Iranian bank, or any person on an OFAC sanctions list. A non-US person could be penalized under the primary sanctions for taking action within the United States or causing another person to do so, in a transaction involving Iran, the GOI or a sanctioned person.


C.  US and non-US persons can be added to a US sanctions list if they engage in deceptive transactions for sanctioned persons, support activities related to terrorism, proliferation of WMD or missiles, undermine the peace, security or stability of Yemen or certain other countries, or engage in activities covered by other OFAC sanctions programs.


D.  Any US or non-US company listed on a US stock exchange must disclose in its quarterly and annual reports a range of activities that the company or its affiliates engage in involving the GOI (unless authorized by the US), the Iranian energy sector or certain sanctioned persons.


E.  US and non-US persons are required to certify, at the time of any US government contracting or US Export-Import Bank financing, that neither it nor any entity it owns or controls engages in certain activities relating to Iran.


F.  Public pension and retirement funds may be restricted under US state or local laws from investing in or purchasing goods or services from companies doing business with Iran.


G.  In December 2015 Congress modified the US Visa Waiver Program to require individuals in the 38 participating countries to go through a full US visa application process if, since March 2011, they have been in Iran, Iraq, Syria or Sudan for any reason. This could have an impact on executives and other staff that travel between the US and these countries and require these individuals to obtain visas to enter the US for business or personal travel.


9.  Next Steps, Snap-Back Risk and Iran Sanctions Enforcement and Compliance Considerations

We expect there will be a great deal of Iran-related interest and activity in the coming weeks as companies, investors and financial institutions assess what they can and cannot do in Iran. In addition, there are already a number of unanswered questions on various aspects of the changes that have been made and we will continue to engage with OFAC, BIS and the State Department to seek clarification on these questions.


US and non-US companies that decide to engage in authorized business in Iran must also weigh the potential of the so-called "snap-back" or reimposition of sanctions on Iran. While the risk of the reimposition of sanctions on Iran if they fail to uphold their end of the JCPOA is unclear, OFAC has said that if sanctions are reimposed there will be no “grandfather clause” for pending transactions. In addition, the US has also made clear that any transactions conducted after the snap-back occurs are sanctionable and there is no provision in the JCPOA that protects contracts signed prior to snap-back. In addition, given that there will be a new US president in less than one year, it remains to be seen whether the next Administration will choose to uphold the US commitments made in the JCPOA.


With respect to enforcement, the Treasury Department has previously stressed that it will continue to “vigorously enforce" all US sanctions on Iran that have not been suspended. Given that the US Congress will be closely monitoring the JCPOA and the significant sanctions and export controls that remain, we expect that OFAC, BIS and other US law enforcement agencies will remain vigilant in combating conduct that remains prohibited by US law. We expect that Iran will remain the primary target of US sanctions and export control enforcement.

As a result, US and non US companies must remain vigilant in complying with the existing US primary and secondary sanctions on Iran, particularly given the significant facilitation risks that remain.


Editor

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