Thad McBride

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Bass, Berry & Sims attorney Thad McBride was interviewed for the “Bribe, Swindle or Steal” podcast regarding the corruption, sanctions and compliance challenges associated with doing business in Russia. In case you missed it, I was recently interviewed for the “Bribe, Swindle or Steal” podcast regarding the corruption, sanctions and compliance challenges associated with doing business in Russia.

During the podcast, I discussed compliance issues related to the Specially Designated Nationals (SDNs) list and how challenging it is for companies to remain compliant with the constantly shifting regulations that the United States imposes on U.S. businesses operating in Russia.

I also warned companies considering entry into the Russian market that “just like in any place you’re doing business, but especially in Russia – you need to do a really, really careful diligence review and get as much information as you can.”

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What are "secondary sanctions"? How do they enforce U.S. sanctions & embargoes against non-U.S. parties? Thad McBride explains to the Society of Corporate Compliance and Ethics. Read more.I recently discussed how the United States uses “secondary sanctions” to enforce U.S. sanctions and embargoes against non-U.S. parties. Under secondary sanctions, the U.S. government restricts U.S. companies and individuals from conducting business with non-U.S. companies and individuals because of those parties’ affiliation with a sanctioned business or person.

As I explained, “[Secondary sanctions] are an example of U.S. extraterritorial jurisdiction at its most extreme. Even if there is no U.S. actor, no goods or parts of U.S. origin, no direct connection whatsoever, the U.S. wants to nevertheless strongly discourage non-U.S. companies from doing business with [sanctioned entities] by, for example, restricting their access to the U.S. market.”

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  • Company committed multiple apparent violations of U.S. sanctions on North Korea
  • Penalty imposed in part because of company’s “non-existent” sanctions compliance program
  • Settlement underscores need to address supply chain risks

On January 31, 2019, U.S. Treasury Department, Office of Foreign Assets Control (OFAC)announced a $996,080 settlement agreement with e.l.f. Cosmetics, Inc. (ELF) to settle ELF’s potential civil liability for 156 violations of the North Korea Sanctions Regulations.  According to OFAC, fake eyelash kits that ELF believed to be from China were in fact supplied from North Korea.

Presumably very few Americans awake in the middle of the night worrying that North Korean fake eyelashes pose a threat to U.S. national security.  Yet in pursuing this action vigorously, OFAC made clear that it is willing to seek penalties against any U.S. business that directly or indirectly benefits the North Korean economy.  In announcing the settlement, OFAC highlighted the importance of conducting “full-spectrum supply chain due diligence when sourcing products from overseas, particularly in a region in which the DPRK, as well as other comprehensively sanctioned countries or regions, is known to export goods.”

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CFIUS & the Government Shutdown - Bloomberg LawI commented about the impact the government shutdown is having on deals that require review and approval by the Committee on Foreign investment in the United States (CFIUS).  CFIUS is the interagency committee authorized to review transactions involving foreign investment in the United States to determine the effect of such transactions on national security.

Due…

I will present a webinar titled, “Hot Topics in US Sanctions: Recent Enforcement and Compliance Best Practices.”

The US Government continues to implement and vigorously enforce US economic sanctions and embargoes. Rarely a week goes by without the agency taking action, be it prohibiting trade with a newly identified North Korean front company, issuing a General License temporarily authorizing the wind-down of operations in Venezuela, or announcing a sizable penalty against a well-known international bank.

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  • Russian corporations de-listed through significant specific steps agreed to with OFAC
  • Exporter settles for $7.7 million and agrees to comprehensive compliance measures
  • OFAC outlines sanctions compliance best practices, expands oversight

As 2018 came to a close, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced two actions that should be studied by any party subject to U.S. economic sanctions. OFAC is the U.S. government agency with principal responsibility for administering U.S. sanctions regulations.

First, on December 19, OFAC published a letter to members of the U.S. Congress announcing the agency’s intention to remove a group of Russian corporations from the List of Specially Designated and Blocked Persons List (SDN List) that OFAC maintains. As a general matter, U.S. individuals and entities are prohibited from engaging in any transaction with an SDN.

Then, on December 20, OFAC released its settlement agreement with Zoltek Companies, Inc. (Zoltek) for violations of the Belarus Sanctions Regulations. According to OFAC, the violations consisted of at least 26 transactions with an SDN.

These actions are quite different. But as described below, each includes very useful guidance about OFAC’s current view of sanctions compliance best practices.…
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  • Penalties imposed for violations of U.S. sanctions on Russia and Ukraine
  • Violations identified during pre-acquisition due diligence on contractor
  • Denied persons screening was conducted but missed prohibited parties

In late November 2018, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced that Cobham Holdings, Inc. agreed to pay $87,507 to settle violations of U.S. sanctions on Ukraine and Russia.

Violations Identified During Pre-acquisition Due Diligence

According to OFAC, the violations were committed by Cobham’s former subsidiary, Metelics, prior to the sale of Metelics to MACOM. It was MACOM that identified the violations during due diligence related to its acquisition of Metelics. And it was presumably MACOM that required Cobham to make the voluntary disclosure to OFAC that led to the penalty in this matter.

The penalty is small by recent OFAC standards. (For example, it is about 620 times less than Societe Generale paid to OFAC as part of its global settlement of sanctions violations.)

But as a cautionary tale, the Cobham matter is important to any exporter.

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I provided insight on the Export Control Reform Act – a law passed in August 2018 that will limit exports of some emerging technologies to curb national security threats and espionage. Some technology groups fear that the Commerce Department, which regulates most U.S. exports, will too broadly define which emerging technologies should be covered by…

I recently provided insight for a Bloomberg Law article on the new interim rules implementing the Foreign Investment Risk Review Modernization Act (FIRRMA). The interim rules, which went into effect on November 10, broaden the authority of the Committee of Foreign Investment of the United States (CFIUS) – an interagency committee that reviews foreign investments…

On November 7, 2018, Global Trade Magazine republished a blog post that I wrote discussing recent changes to U.S. law that further restrict trade with individuals and entities in Russia. The changes further complicate an already-difficult situation for businesses working in and with the country.

You may access the original September 27 blog post on…