Over the past month, we have closely monitored efforts by the U.S. Congress to tie the president’s hands over sanctions on Russia. Today, the president signed the Countering America’s Adversaries Through Sanctions Act (CAATSA or the Act), which will have a significant impact on numerous U.S. industries operating in Russia. And Russia’s response to the legislation indicates that further tensions between the United States and Russia – and possibly additional sanctions on both sides – are likely to follow.
- Penalty imposed against Exxon related to contracts with Russian oil company Rosneft
- Rosneft is not a prohibited party but its president is
- OFAC alleges that “senior-most” Exxon management were involved
- Exxon responds with suit against OFAC
On July 20, 2017, the U.S. Treasury Department Office of Foreign Assets Control (OFAC) announced that ExxonMobil (Exxon) must pay a $2 million penalty for violating U.S. sanctions on Russia. On the same day, Exxon responded by suing OFAC.
I provided insight for an article published by The New York Times on the $2 million fine that the U.S. Treasury Department charged Exxon Mobil for violating Russian sanctions. Exxon apparently entered into eight contracts with Rosneft, the Russian state oil company, signed by Rosneft CEO Igor Sechin, who is a prohibited party under U.S. sanctions on Russia. Exxon was apparently under the impression that the Rosneft CEO could sign the contracts so long as the company was not doing business with him individually. The Treasury Department’s announcement of the penalty refers to the involvement in the matter of Exxon’s “senior-most” executives, which would seem to include Rex Tillerson, who was Exxon’s CEO at the time and is now the U.S. Secretary of State. Exxon has subsequently sued the Treasury Department related to this matter.
The full article, “Stakes for Exxon in Sanctions Case Go Far Beyond a $2 Million Fine,” was published by The New York Times on July 21, 2017, and is available online.
- Proposed legislation would extend sanctions on Russia and Iran
- New restrictions aimed at Russian energy sector and cybercriminals
- Legislation may pit Senate against House and the president
On June 19, 2017, the U.S. Senate overwhelmingly passed a bill mandating sanctions against Russia and Iran and a 30-day congressional review period should the president attempt to reduce those sanctions.
The bill remains in the House after congressional leaders challenged the fact that the revenue-raising bill did not originate in the House. The White House nonetheless is in the unenviable position of having to defend (or oppose) the implementation of sanctions against both Iran and Russia while attempting to conduct diplomacy with the Kremlin. With a veto-proof majority in at least one chamber, the president’s options appear limited.
- California company accused of sanctions violations challenges U.S. Treasury Department
- Appeals court generally sides with government but remands because of arbitrary and capricious decision related to five alleged violations
- Traditional interpretation of “inventory exception” is considered by Court
It is rare for companies to go to court to fight penalties imposed by the Office of Foreign Assets Control (OFAC) for violations of U.S. sanctions. It is even more rare for a court to make any sort of finding against the agency. Yet that is exactly what happened when the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) recently considered OFAC’s imposition of penalties against Epsilon Electronics (Epsilon) for alleged violations of U.S. sanctions against Iran.
- American Honda Finance Corporation pays for alleged violations of U.S. sanctions on Cuba
- Violation committed by American Honda’s subsidiary in Canada
- Penalty underscores breadth of U.S. jurisdiction, importance of compliance reviews
On June 8, the Office of Foreign Assets Control (OFAC) announced a monetary penalty against American Honda Finance Corporation (American Honda) for alleged violations of the Cuban Assets Control Regulations (CACR), the primary regulations by which the United States imposes economic sanctions on Cuba. A copy of the OFAC press release announcing the penalty is available here.
- Proposed legislation targets current gaps in U.S. financial crime law and enforcement
- Bi-partisan Senate legislation would likely expand compliance obligations for banks and others in financial services industry
- Proposed legislation is in line with U.S. and international efforts to fight terrorism and trafficking through economic sanctions and anti-money laundering (AML) rules
On May 25, 2017, Sen. Chuck Grassley (R-IA) introduced the “Combating Money Laundering, Terrorist Financing, and Counterfeiting Act of 2017” (the “Act”). The full text of the bill is available here.
In an article published in the May/June 2017 issue of ABA Bank Compliance (a publication of the American Bankers Association), I provided insight on how banks can mitigate violations with the Office of Foreign Assets Control (OFAC). In January 2017, OFAC announced a settlement in which a large Canadian bank agreed to pay more than $500,000 in monetary penalties for 170 alleged violations of U.S. sanctions against Iran and Cuba. This especially costly example of financial stakes for banks and other financial institutions illustrates the importance of compliance, despite the challenges they face as they process millions of transactions on a daily basis and across international boundaries. While all risks cannot be eliminated, through careful investigation, compliance enhancements, monitoring and record keeping, financial institutions can help mitigate most risks.
For more details on key strategies to protect against violations and to remediate them when they do occur, access the PDF of the article, “Mitigating Economic Sanctions Risk,” below.
Download Document – ABA Bank Compliance May June 2017
- Boeing announces deal to sell aircraft to Iran Aseman
- The deal was apparently authorized by the U.S. Treasury Department, but Congressional foes fight to block it
- If the deal goes through, further loosening of sanctions could follow
This story begins in July 2015, when the United States and its allies entered into a now-famous nuclear agreement with Iran which, among other things, paved the way for the United States to scale back economic sanctions on Iran – including those relating to commercial aircraft. Executing that deal, in January 2016, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a new, favorable licensing policy for many transactions relating to the sale of commercial passenger aircraft and related parts and services to Iran.
- One of largest export and sanctions penalties ever imposed
- Reminder of U.S. government’s broad jurisdiction over export and sanctions matters
- Cooperation could have helped ease the penalty significantly
On March 7, 2017, Chinese telecommunications company, Zhongxing Telecommunications Equipment Corp. (ZTE), signed on to three separate settlement agreements with the United States, agreeing to pay $892 million for violations of U.S. sanctions and export controls. Even more could be due if ZTE strays from the commitments it has made under the settlement agreements. This is one of the largest penalties ever imposed by the U.S. government for export and sanctions violations.
It is impossible in the space of this blog article to provide a detailed summary of this matter. In addition, while the details of the matter would make good copy, we think (hope!) that this is something of an isolated incident. At the same time, we think several lessons can be derived from this action.