Transcript US Persons

Cadwalader, Wickersham & Taft LLP
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U.S. Economic Sanctions Laws:
Practical Implications for European Companies
Catherine L. Razzano
Cadwalader, Wickersham & Taft LLP
Introduction
• Overview of U.S. Economic Sanctions Laws
• Economic Sanctions Programs Under U.S. Law
• Practical Implications of Economic Sanctions Laws
• Recent Enforcement Actions
• The Importance of Compliance Policies and Procedures
• The Changing Landscape of Economic Sanctions Laws
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Overview of U.S. Economic Sanctions
• The United States uses economic sanctions as a tool to respond to
various threats to its national security.
• The President of the United States is granted the ability to impose
economic sanctions under two laws in the United States:
– International Emergency Economic Powers Act (“IEEPA”)
• The President may declare threats to the national security,
foreign policy or economy of the U.S.
• In response to such threats, the President may block certain
transactions or freeze assets.
– Trading with the Enemy Act (“TWEA”)
• During times of war, the President may oversee or restrict any
and all trade between the U.S. and its enemies.
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Enforcement
• U.S. economic sanctions programs are enforced by the U.S.
Department of the Treasury’s Office of Foreign Asset Controls
(“OFAC”), which promulgates regulations pursuant to IEEPA and
TWEA.
• The OFAC website provides a wealth of information on U.S.
economic sanctions programs and is an excellent resource for
additional information on specific sanctions programs.
See
http://www.treas.gov/offices/enforcement/ofac/.
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Current U.S. Economic Sanctions
Programs
• Two Categories of Sanctions:
– Program-based sanctions
– User-based sanctions
• Specially Designated National (“SDN”)
– The U.S. publishes a list of
individuals, companies, financial
institutions and vessels that are:
• owned or controlled by
targeted countries, or
• that are designated under
other programs.
– The SDN List can be found at:
http://www.ustreas.gov/offices/enforcemen
t/ofac/sdn/t11sdn.pdf
–
The SDN List is updated frequently,
so you must check often. Other
countries, including Germany, also
maintain such lists.
Program-Based
User-Based
Burma (Myanmar)
Cuba
Iran
North Korea
Sudan
Syria
Counter Narcotics
Trafficking Sanctions
Non-Proliferation Sanctions
Diamond Trading Sanctions
Counter Terrorism
Sanctions
Balkans
Belarus
Cote d’Ivoire
Democratic Republic of the
Congo
Iraq
Former Liberian Regime of
Charles Taylor
Lebanon
Somalia
Zimbabwe
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Practical Implication of Sanctions –
Jurisdiction
• U.S. economic sanctions programs promulgated under IEEPA apply to “U.S.
Persons”, which includes the following:
– U.S. citizens and permanent resident aliens of the United States,
wherever located;
– persons within the United States; regardless of nationality; and
– entities organized under the laws of the United States or of any state,
territory, possession of the United States, including foreign branches
(all of the foregoing hereinafter referred to as “U.S. Persons”)
• Sanctions programs promulgated under TWEA (North Korea and Cuba) apply
to a “Person Subject to the Jurisdiction of the U.S.” which includes:
– All of the categories listed above; AND
– Any entity, wherever organized or doing business, that is owned or
controlled by U.S. citizens, permanent residents of the U.S. or entities
organized under the laws of the U.S.
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Practical Implication of Sanctions –
Jurisdiction
• U.S. economic sanctions can impact European companies.
• Despite the fact that a wholly-owned and incorporated European company
may, under U.S. law, legally conduct business with sanctioned countries, the
following factors can result in the company being subject to jurisdiction in the
U.S.:
– The company’s senior management is comprised of U.S. Persons.
– The company’s senior management is based in the United States and
essentially runs the company from there.
– There are U.S. Persons working within the business that have dealings
with sanctioned countries and have not properly recused themselves.
– Foreign persons use the mail or wires to communicate with a U.S.
Person regarding a dealing or transaction with a sanctioned country.
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Practical Implications of Sanctions Facilitation
• No U.S. Person or Person Subject to the Jurisdiction of the United States may
approve, finance, facilitate or guarantee any transaction by a foreign person
where the transaction by that foreign person would be prohibited if performed
by a U.S. Person.
• Facilitation may include:
– Altering operating policies or procedures to permit a foreign subsidiary to
do the business;
– Referring to a foreign person purchase orders, requests for bids, or
similar business opportunities to which a U.S. Person could not directly
respond;
– Changing or creating operating policies or procedures of a particular
affiliate with the specific purpose of facilitating transactions that would
otherwise be prohibited; and
– Using or authorizing use of freight forwarders, shipping agents or vessels,
i.e., Islamic Republic of Iran Shipping Lines (“IRISL”), owned or operated
by an Iranian.
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Recent Enforcement Actions
• Credit Suisse – December 2009
– OFAC, the Department of Justice and the New York District Attorney’s
Office settled with Credit Suisse for a combined total of $536 million.
• This is the largest penalty in OFAC’s history.
– Credit Suisse processed thousands of transactions with intent to
purposely conceal the involvement of the following sanctioned parties:
• Iran (the majority of the conduct was related to Iran); and
• Sudan, Libya, Burma, Cuba and the former Liberian regime of Charles
Taylor.
– OFAC described Credit Suisse’s actions as “egregious” because of the
following factors:
• Substantial economic benefit to sanctioned parties;
• The scope and severity of the conduct; and
• Awareness of the conduct within the bank.
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Recent Enforcement Actions
• Schneider Gmbh – February 2009
– Schneider, a German company, and its two directors, both German
nationals, were indicted for conspiracy to violate IEEPA and the Iranian
Transactions Regulations.
– Despite the fact that none of the parties were U.S. Persons, 31 C.F.R. §
560.205(a)(1) prohibits:
• “the reexportation from a third country, directly or indirectly, by a
person other than a United States person, of any goods, technology or
services that have been exported from the United States . . . if: (1)
Undertaken with knowledge or reason to know that the reexportation
is intended specifically for Iran or the Government of Iran”
– The two German nationals used e-mail, mail, telephone calls and faxes to
contact U.S. companies to order pumps and pump parts, which Schneider
maintained were destined for use in Germany (and later indicated the
pumps would be re-exported to Jordan).
– The true destination of the pumps was concealed and they were imported
from the U.S. to Germany for the purpose of being re-exported to Iran, in
violation of the Iranian Transactions Regulations.
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Compliance Policies and Procedures
• Compliance policies and procedures are critical to ensuring compliance with
U.S. economic sanctions laws.
• Specifically, companies should consider:
– Recusal
• Companies should implement procedures for U.S. Persons and
Persons Subject to the Jurisdiction of the United States to formally
recuse themselves from the following:
– Receiving, initiating or forwarding any correspondence,
documents or other materials related to business with a
sanctioned country;
– Attending meetings where there are discussions related to
business in sanctioned countries; and
– Participating in any conversations or telephone calls where
business with sanctioned countries is discussed.
– Recusal Forms should be made available to all U.S. Persons
and Persons Subject to the Jurisdiction of the U.S.
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Compliance Policies and Procedures
– U.S. Persons and Persons Subject to the Jurisdiction of the U.S. may not
refer any matters or business opportunities related to a sanctioned
country to non-U.S. persons.
• All employees should receive training on how to properly respond to
any such inquiries.
– Non-U.S. Persons should not:
• Provide or forward any correspondence, documents or other materials
related to business with a sanctioned country to a U.S. Person;
• Refer any matters or opportunities related to a sanctioned country to a
U.S. Person;
• Discuss any matters or opportunities with a U.S. Person, in meetings,
telephone calls or private conversations; or
• Request any assistance from a U.S. Person.
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Compliance Policies and Procedures
• Due Diligence is essential to ensure that companies know:
– Which employees are U.S. Persons or Persons Subject to the
Jurisdiction of the United States.
– Customers and other third parties are properly screened and
vetted before entering into a business relationship. It is the
company’s responsibility to ensure they are not doing business
with a Specially Designated National or with a company from a
sanctioned country.
– Companies with a global customer base or extensive network of
agents or traders should consider implementing formal or
structured due diligence procedures.
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The Changing Landscape of U.S.
Economic Sanctions
• The Obama Administration and the U.S. Congress are pushing for more
stringent sanctions against Iran.
• Both the U.S. House of Representatives and U.S. Senate have recently passed
legislation that would expand the economic sanctions programs against Iran.
– The House’s Iran Refined Petroleum Sanctions Act of 2009 and the
Senate’s Comprehensive Iran Sanctions, Accountability and Divestment
Act of 2009 would:
• Specifically target certain sectors in Iran, including the petroleum and
energy sectors.
• Prohibit selling or otherwise providing goods, services or technology
that directly and significantly facilitate the maintenance or expansion
of Iran's domestic production of refined petroleum products.
• Prohibit providing Iran with refined petroleum products.
• The Iran Threat Reduction Act of 2009, which is still in the House, would
expand the definition of U.S. Person and apply sanctions retroactively.
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The Changing Landscape of U.S.
Economic Sanctions
• President Obama recently signed an Executive Order declaring that
the increased violence in Somalia and frequent piracy and armed
robbery off the coast of Somalia constitutes an unusual and
extraordinary threat to U.S. national security.
– President Obama declared a national emergency in response to
the threat and froze the assets of certain individuals and entities
involved in the violence and piracy.
• As U.S. sanctions programs continue to expand, companies must be
aware of those changes and how they can impact their business.
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The Changing Landscape of
International Economic Sanctions
• The international community is stepping up its support of economic sanctions,
particularly against Iran.
• The EU and the rest of the international community have become increasingly
concerned about Iran and North Korea’s nuclear weapons programs.
– This is evidenced by the Nuclear Security Summit that occurred in
Washington, D.C. two weeks ago, where forty-seven nations met to discuss
the threat of nuclear weapons.
• The UN and several EU member states have been calling for more stringent
sanctions against Iran in response to its continued uranium enrichment
activities.
• Several multi-national corporations – e.g., Royal Dutch Shell and Siemens AG –
are terminating their business in Iran because of reputational harm.
• U.S. GAO Report published recently lists large European companies with U.S.
ties that are doing business in Iran.
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Conclusion
• It is important for European companies to be aware of U.S. economic
sanctions programs and how those sanctions may impact their
business.
• Implementing compliance policies and procedures is an important step
in ensuring that U.S. economic sanctions laws are not violated, even
for those companies that predominately conduct business through a
European or other foreign entity.
• Finally, companies may want to evaluate the risks involved in
conducting business in certain sanctioned countries, such as Iran, as
the U.S. and the international community contemplates more extensive
sanctions.
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