Thad McBride

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The U.S. government continues to take action in an effort to slow the spread of the COVID-19 virus.  In so doing, the government has provided insight into those industries and operations deemed to be essential to U.S. national security.  Lessons learned from these actions will almost certainly help inform U.S. policymakers and regulators when the current crisis has eased, particularly with respect to reviewing foreign investment in the United States.  (Such investment, when it could implicate U.S. national security, is subject to review and approval by the Committee on Foreign Investment in the United States.)

DHS Outlines Essential Businesses for Quarantine Purposes

On March 19, the Department of Homeland Security (DHS) issued guidance to identify those industries and businesses considered to be “essential” for U.S. continued operational purposes.  That Guidance on the Essential Critical Infrastructure Workforce was published by the Cybersecurity and Infrastructure Security Agency (CISA), which forms part of DHS.  The guidance is available here.

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  • Humanitarian exports to Iran are permitted – within limits.
  • Corruption can flourish in the midst of crisis.
  • Export controls limit sharing technical data related to the virus with some countries.
  • Compliance professionals should be proactive and visible during a time of crisis.

Despite the sobering news reports on the global spread of COVID-19, companies are…

A bill was recently introduced by U.S. Representative Bryan Steil (R-Wisconsin) that would allow the U.S. Treasury Department to target European financial intuitions conducting business with Iran through the Instrument in Support of Trade Exchanges (INSTEX) vehicle in order to avoid U.S. sanctions.

While there have been a low number of actions against European institutions,…

  • Actions underscore long arm of U.S. sanctions jurisdiction
  • Voluntary disclosures and cooperation can lead to significant penalty reductions
  • Facilitation of a violation is treated the same as a direct violation

In two recent enforcement actions, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) demonstrated the long-arm of U.S. economic sanctions jurisdiction.  One matter involved Société Internationale de Télécommunications Aéronautiques SCRL (SITA), a Swiss firm that provides commercial telecommunications network and information technology services to the civilian air transport industry.  The other involved Eagle Shipping International (Eagle), a U.S.-based shipping and logistics company.

Each action serves as a reminder of the U.S. government’s willingness to enforce U.S. sanctions in the context of what is primarily non-U.S. conduct.  The resolutions also illustrate the potential benefits of voluntarily disclosing sanctions violations to OFAC.

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In case you missed it, I provided insight on U.S. sanctions risks in the context of international supply chains to Supply Chain Management Now last month.

Citing examples, such as e.l.f. Cosmetics’s 2019 settlement for nearly $1 million for sanctions violations, I asserted in the article that both U.S. and non-U.S. companies need to understand how broadly U.S. sanctions are enforced.

In the article, I provided an overview of the current sanctions landscape in the U.S. and highlights particular challenges such as avoiding dealing with specially designated nationals (SDNs). The SDN list is vast and includes parties that reside nearly everywhere in the world. As I said in the article, “this creates a challenge because many of them are in countries not otherwise subject to U.S. sanctions.”

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In case you missed it, we ended 2019 with a webinar on current topics in U.S. economic sanctions.  Below are key points from the webinar:

  1. Types of sanctions vary. Broad country-based sanctions prohibit transactions between a U.S. individual or company and a party or company located in certain countries (current examples include Cuba, Iran, North Korea and Syria). These types of sanctions involve U.S. individuals wherever they are located, any company based or headquartered in the United States, subsidiaries of non-U.S. companies, and any person in the United States regardless of nationality.…
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  • $2 million penalty against Exxon overturned
  • Court concluded that OFAC failed to provide clear notice of violative conduct
  • Companies are at risk when acting in context of ambiguous agency guidance

At the end of December 2019, the U.S. District Court for the Northern District of Texas vacated a $2 million penalty that the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) had imposed against ExxonMobil for alleged violations of U.S. sanctions related to Russia and Ukraine.  OFAC is the U.S. government agency that administers most U.S. sanctions.

This matter has been of interest since the penalty was first announced in July 2017 – read our July 2017 blog post detailing the matter.  As described below, the district court’s reasoning in vacating the penalty against Exxon is worthy of interest, too.

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  • A payment to a government official can take many forms.
  • The SEC charges bank for books and records violation even absent a bribery charge.
  • Industry-wide enforcement is a continuing tactic for U.S. regulators.

On September 27, 2019, Barclays PLC agreed to pay $6.3 million to the Securities and Exchange Commission (SEC) to settle charges that Barclays violated the books and records and internal accounting controls provisions of the Foreign Corrupt Practices Act (FCPA). The Barclays settlement fits a pattern of recent U.S. government enforcement against companies, particularly in the financial services sector, relating to FCPA violations stemming from hiring or providing internships to relatives and friends of government officials.  Penalties have been significant – for example, Credit Suisse Group AG paid a $47 million penalty in 2018 as part of a Justice Department FCPA investigation into their hiring practices in Asia.  We previously wrote about this issue in an August 2015 article about a settlement related to the hiring practices of Bank of New York Mellon.

The Barclays matter is a useful reminder of three things:

  1. What constitutes the giving of a thing of value to a government official is broadly interpreted and goes beyond simply giving money or a gift or other tangible thing directly to an official.
  2. The SEC can – and will – enforce the FCPA when there are deemed to be violations of the books and records provisions of the law, even if no charge of bribery is brought in the matter.
  3. The U.S. government continues to pursue industry-wide enforcement under the (apparently accurate) belief that what one company does in a specific industry is likely something that many companies in that industry also do.

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  • U.S. government continues to impose sanctions on parties supporting Iran
  • One Cypriot and three Panamanian companies sanctioned for connection to Venezuela
  • European bank fined for prohibited transactions involving Sudan

The U.S. Treasury Department, Office of Foreign Assets Control (OFAC), the main U.S. government body that administers U.S. economic sanctions and embargoes, continues to be busy.  In September 2019 alone, OFAC has announced new sanctions designations, new penalties, and new regulations on a nearly daily basis.

Many of these actions are largely administrative in nature.  For example, in the September 4 Federal Register, OFAC announced new U.S. sanctions on Nicaragua.  While the regulations (at 31 CFR Part 582) are in fact new, the prohibitions contained in the regulations are not: the regulations merely implement Executive Order 13,851, which was issued by President Trump in November 2018.

We nonetheless want to briefly summarize three actions taken by OFAC to date in September 2019.  As described below, we think these actions provide useful insight into how OFAC is operating currently.

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  • Virtually all transactions with government prohibited
  • Most transactions with private sector parties still permitted
  • Practical challenges make Venezuela transactions difficult, including for non-U.S. parties

On August 5, 2019, President Trump issued Executive Order 13,884 (EO 13,884), which significantly expands existing U.S. sanctions on Venezuela.

Pursuant to EO 13,884, virtually all transactions with the government of Venezuela are now prohibited.  There are some important exceptions to that prohibition, and those are discussed below.

While this is not an absolute embargo on Venezuela, it is quite close.  And even when a transaction with Venezuela may be lawfully permitted, the practical challenges and the risk of conducting the transaction may make it nearly impossible to complete successfully.

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