The first half of 2020 has seen unprecedented change throughout the country and the world as industries and individuals grapple with novel challenges spurred by the COVID-19 pandemic. Despite these challenges, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has continued to remain active, issuing regulations and guidance, and reaching settlements in an array of enforcement actions. Summarized below are the key updates from November 2019 through July 31, 2020 (“Review Period”).1
Turning first to country-specific sanctions programs, OFAC’s attention was most focused on Venezuela, Iran and North Korea. In addition, there were some developments in the Russia/Ukraine, Syria, Mali, Nicaragua and Zimbabwe sanctions programs.
The first half of 2020 has seen unprecedented change throughout the country and the world as industries and individuals grapple with novel challenges spurred by the COVID-19 pandemic.
2019 saw a ramp-up in US sanctions targeted against the Government of Venezuela (“GOV”), including Petróleos de Venezuela SA (“PdVSA”), a state-owned entity on OFAC’s Specially Designated Nationals List (“SDN List”).2 At the end of 2019, OFAC issued several general licenses (“GLs”) designed to clarify the sweeping sanctions against the GOV issued earlier in the year.3 The end of 2019 also saw clarification from OFAC on the Venezuela sanctions program through the publication of FAQs addressing the ability to sue blocked or designated persons in US courts and the process by which a US person with a writ of attachment on shares of a GOV entity may auction or sell the shares.4
Throughout the first half of 2020, OFAC also continued to refine the Venezuelan sanctions program, issuing a number of general licenses and other regulatory updates designed to clarify the scope of the sanctions program. We note, in particular, the following actions with broad applicability:5
The first half of 2020 also saw the continuation of a campaign by the US government to put economic pressure on the Maduro regime and its supporters. That pressure has intensified, resulting in imposition not only of primary sanctions, but also secondary sanctions directed at, for example, various maritime entities alleged to have provided support to the Maduro regime.9
While the pressure on the Maduro regime intensified in the latter part of 2019 and the first half of 2020, the State Department issued a framework that outlines an avenue through which the United States would lift certain sanctions on Venezuela. Unsurprisingly, this framework calls for Maduro to step down and permit free and fair presidential elections, among other structural changes within the government.10
OFAC issued several amendments to regulations, designations and advisories relevant to the North Korea sanctions program in the first half of 2020. The amended regulations implement laws that broaden the scope of the sanctions program, and the designations and advisories address particular risks posed by North Korea.
Turning first to amendments, on April 9, 2020, OFAC issued amendments to the North Korea Sanctions Regulations, “to further implement the North Korea Sanctions and Policy Enhancement Act of 2016, as amended by the Countering America’s Adversaries Through Sanctions Act of 2017 and the National Defense Authorization Act for Fiscal Year 2020.” Among other things, the changes identify additional categories of persons the Secretary of Treasury is permitted to designate as SDNs and expand the applicability of the sanctions program to entities owned or controlled by US financial institutions.11 Under these regulations, entities owned or controlled by US financial institutions that are established or maintained outside the United States may not knowingly engage in a transaction with the North Korean government nor with any person or entity currently sanctioned under the US or United Nations North Korea sanctions programs.12
The early half of 2020 also saw a focus on illicit exportation of labor and cyber-related threats posed by North Korea. In January, for example, OFAC announced two North Korea-related designations targeting “a North Korean trading corporation and a China-based North Korean lodging facility that facilitate North Korea’s practice of sending laborers abroad.”13 And, on March 2, 2020, OFAC sanctioned two Chinese nationals involved in laundering stolen cryptocurrency from a 2018 cyber intrusion on a North Korean state-sponsored cryptocurrency exchange. In the press release announcing the March designations, OFAC pointed to the Financial Action Task Force’s amended standards that require all countries to regulate cryptocurrency service providers and mitigate the risks of theft stemming from cryptocurrency transactions, noting that the United States is particularly concerned about “platforms that provide anonymous payment and storage functionality without transaction monitoring, suspicious activity reporting or customer due diligence, among other obligations.”14
Shortly thereafter, on April 15, 2020, OFAC, in conjunction with the FBI, the State Department and the Department of Homeland Security, published an advisory outlining the cyber threat that North Korea poses, providing guidance on mitigating the risks of North Korea’s malicious cyber activities to the international financial system.15 This advisory outlines common tactics by North Korean state-sponsored cyber actors, such as cyber-enabled financial theft, money laundering, extortion campaigns and cryptojacking. The advisory additionally sets forth measures to counter these cyber threats: (1) raising awareness of the DPRK cyber threat; (2) sharing technical information concerning such threats; (3) implementing and promoting cybersecurity best practices; (4) notifying law enforcement; and (5) strengthening anti-money laundering, countering the financing of terrorism and counter-proliferation financing compliance.
E.O. 13902 authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to impose blocking sanctions on anyone operating in the “construction, mining, manufacturing, or textiles sectors of the Iranian economy.”
The Iran sanctions program also underwent significant developments at the end of 2019 and beginning of 2020.
In late 2019, OFAC issued a number of Iran-related FAQs designed to clarify certain aspects of the Iran sanctions program.16
In addition to the foregoing, in mid-January, President Trump took steps to expand the Iranian sanctions program by issuing E.O. 13902, which authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to impose blocking sanctions on anyone operating in the “construction, mining, manufacturing, or textiles sectors of the Iranian economy.”24 This E.O. further allows the Secretary of the Treasury to designate any other sector of the Iranian economy as subject to these sanctions. Importantly, this E.O. also exposes non-US companies to secondary sanctions if they knowingly facilitate certain transactions in the identified sectors or materially assist or support blocked entities or persons. The E.O. also specifically provides that the Secretary of Treasury is authorized to prohibit foreign financial institutions (“FFIs”) from opening correspondent accounts or payable accounts in the United States, or to impose strict conditions on the maintenance of such accounts, if the Secretary determines that the FFI knowingly conducted or facilitated any significant financial transaction that violates the sanctions prohibitions described above. Following the publication of E.O. 13902, on Jan. 16, 2020, OFAC issued an FAQ authorizing a 90-day wind-down period for activities prohibited by the E.O., which ended on April 9, 2020.25
In the wake of the expansion of the Iran sanctions program, OFAC and the Department of State made high-profile designations relating to Iran under various sanctions programs. Those designations targeted Iranian and non-Iranian companies and persons who facilitated Iran’s petroleum sales, including designations relating to persons and entities in the petroleum and petrochemical industries;26 provided support to or acted for or on behalf of IRGC-QF;27 acted as a sales agent for Iranian SDN Mahan Air, which in turn was supporting the regime in Venezuela;28 engaged in serious human rights abuses;29 and engaged or attempted to engage in activities that have materially contributed to the proliferation of weapons of mass destruction30 or have deprived Iranians of free and fair elections.31
In June, OFAC also designated a number of Iranian maritime-related entities and vessels.32 Among the vessels that were sanctioned were vessels that were used to deliver Iranian gasoline to the Maduro regime in Venezuela.33 In addition, OFAC took action against various steel, aluminum and iron companies operating within Iran’s metals sector, including German and UAE-based entities and sales agents.34
Also in May, Secretary of State Pompeo announced the end of the sanctions waiver covering any remaining JCPOA-originating nuclear projects in Iran. According to the press release, the sanctions waiver ended on July 27, 2020, following a 60-day wind-down period.35
In the first half of 2020, OFAC also took a number of steps to clarify the bounds of permissible humanitarian and other activity relating to, among others, the Iran sanctions program. On Feb. 27, 2020, OFAC issued GL 8, which authorizes certain humanitarian-related transactions and activities involving the Central Bank of Iran.36 OFAC issued this general license and its related FAQs in conjunction with the formalization of the Swiss Humanitarian Trade Arrangement (“SHTA”), an agreement between the United States and Switzerland to allow humanitarian aid to Iranian citizens.37 In addition, in April 2020, in response to the ongoing COVID-19 pandemic, OFAC issued a fact sheet clarifying that certain humanitarian efforts directed at Iran are permissible. The fact sheet, which addresses permissible humanitarian assistance and trade under OFAC sanctions relating to Iran, Venezuela, North Korea, Syria, Cuba and Ukraine/Russia, outlines that persons and entities may provide medicine and medical devices to Iran under existing exemptions, exceptions and authorizations (including general licenses).38 Additionally, Iran-based persons manufacturing “medicines, medical devices, or products used for sanitation, hygiene, medical care, medical safety, and manufacturing safety, including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment and manufacturing safety systems,” that are created to be used in Iran and not for export are excluded from E.O. 13902’s definition of operating in the manufacturing sector of the Iranian economy. Furthermore, persons transacting or facilitating transactions to provide or sell “agricultural commodities, food, medicine, or medical devices” to Iran are exempted from sanctions under the same E.O.39
The tail end of 2019 saw targeted action by the US government focused on the Russian gas pipelines. In December 2019, the US Senate passed a defense bill that imposed sanctions on companies installing pipes for particular Russian gas pipelines (Nord Stream 2 and Turkstream).40 Simultaneously, OFAC issued an FAQ regarding the implementation of the wind-down period in the defense bill. OFAC clarified that parties that knowingly sold, leased or provided vessels that are engaged in pipe laying at 100 feet or below for the construction of Nord Stream 2 or Turkstream must ensure that such vessels immediately cease construction-related activity, but that good-faith wind-down exceptions may be made to avoid a risk to safety of people, property and the environment.41
OFAC was not particularly focused on Russian sanctions in the first half of 2020, especially in comparison to its focus in previous years. However, in January, OFAC made designations relating to Russia’s continued aggression toward Ukraine and attempted occupation of Crimea.42 And, in mid-July, OFAC designated as SDNs various entities and persons associated with financier Yevgeny Prigozhin under, among others, Ukraine-sanctions program-related E.Os.43
In addition, OFAC issued amended Ukraine-related GLs 13N and 15H on March 20, 2020 and July 16, 2020,44 as well as amended FAQs45 relating to those amendments. GL 13N permitted certain transactions and activities until July 22, 2020 related to (i) the divesting or transferring of debt, equity and other holdings in GAZ Group or entities owned or controlled by GAZ Group to non-US persons; (ii) the facilitation of such transactions by a non-US person to another non-US person through July 22, 2020; (iii) the divesting or transferring of debt, equity, or other holdings of GAZ Group, or in entities in which GAZ Groups owns, directly or indirectly, a 50% or greater interest, that were issued by GAZ Auto plant; and (iv) the facilitation of transfer of such holdings by a non-US person to another US person. GL 13O further extended these authorizations to Jan. 22, 2021.
GL 15H and 15I authorized until July 22, 2020 and Jan. 22, 2021, respectively, certain activities necessary to the maintenance or wind-down of operations or existing contracts with GAZ Group and any entity in which GAZ Group owns a 50% or greater interest and that were in effect prior to April 6, 2018. GL 15H also authorized transactions and activities ordinarily incident and necessary to (i) specified research and development and related activities; and (ii) the installation of occupant safety systems, in vehicles owned by GAZ Group or any entities in which GAZ Group owns a 50% or greater interest.46 GL 15I also (i) authorized until Jan. 22, 2021 a whole host of transactions and activities ordinarily incident and necessary to the manufacture and sale of vehicles, components and spare parts, produced by GAZ Group or any entity in which GAZ Group owns, directly or indirectly, a 50% or greater interest; and (ii) establishes reporting and certification requirements for GAZ Group, including monthly certification to OFAC that GAZ Group is not acting for or on behalf of Oleg Deripaska or any other person included in OFAC’s list of SDNs.
The tail end of 2019 saw targeted action by the US government focused on the Russian gas pipelines.
There were several updates to the Syria sanctions program in the fall of 2019 and first half of 2020. Specifically, on Oct. 14, 2019, President Trump issued E.O. 13894, which was precipitated by the actions of the Government of Turkey in conducting a military offensive in northeast Syria.47 This E.O. authorizes sanctions on persons who engage in actions or policies that further threaten Syria’s peace, security, stability and territorial integrity, as well as the commission of human rights abuses relating to Syria. It also authorizes sanctions on (i) any subdivisions, agencies or instrumentalities of the Government of Turkey; (ii) current or former members of the Turkish government; (iii) persons who operate in certain sectors of the Turkish economy as determined by the Secretary of the Treasury; (iv) persons who have materially assisted, sponsored or provided financial, material or technological support for, or goods or services to or in support of, any person who is blocked pursuant to this E.O.; or (v) persons who are owned or controlled by, or to have acted or purported to act for or on behalf of, any person who is blocked pursuant to the E.O.
On June 4, 2020, OFAC issued regulations to implement this E.O., which became effective June 5, 2020.48 In connection with the issuance of the regulations, OFAC noted that it intends to supplement these regulations.49
In addition to the foregoing regulatory developments, OFAC also made various designations pursuant to the Syria sanctions program, including various individuals and entities who “are actively supporting the corrupt reconstruction efforts of Syrian President Bashar al-Assad.”50
Mali: On Feb. 6, 2020, OFAC issued regulations to implement E.O. 13882, which blocks the property of, and suspends entry into the United States for, persons determined by the Secretary of Treasury to be undermining democratic processes or institutions in Mali, as well as those that threaten the peace, security or stability of Mali.51 These regulations incorporate E.O. 13882’s requirements by confirming the government’s ability to block property during an ongoing investigation and details the process through which persons can unblock funds or ask for reconsideration as blocked persons.52
Nicaragua: OFAC also made a number of designations and issued various general licenses in March 2020 and July 2020 related to the relatively new Nicaragua sanctions program, which began in 2018. Specifically:
Zimbabwe: Finally, on May 21, 2020, OFAC published amended regulations regarding sanctions on Zimbabwe, which removed a GL authorizing transactions involving the Agricultural Development Bank of Zimbabwe and Infrastructure Development Bank of Zimbabwe57 These two entities had been removed from the SDN List.
In addition to making designations under various non-country specific sanctions programs in the first half of 2020, OFAC also issued a number of advisories and FAQs, and implemented and removed regulations with broad applicability. In addition, President Trump issued two new executive orders, one relating to the International Criminal Court and one relating to “Hong Kong Normalization.”
1. COVID-Related Advisory
On April 20, 2020, OFAC issued a statement regarding compliance with US sanctions regulatory requirements during the COVID-19 global pandemic.58 The statement acknowledged that the COVID-19 pandemic can cause “technical and resource challenges” for organizations and, while it does not eliminate regulatory obligations, signaled that OFAC will be flexible in enforcing sanctions regulations. Among other things, in the statement, OFAC encouraged persons (including financial institutions and other businesses) affected by the pandemic to contact OFAC at specific numbers and email addresses in the event the person believes it will experience delays in its ability to meet regulatory deadlines.
2. Shipping Advisory
On May 14, 2020, OFAC, along with the Department of State and the US Coast Guard, issued a comprehensive and groundbreaking global advisory targeted to address illicit shipping and sanctions evasion practices.59 This advisory provided robust guidance on common illicit shipping practices as well as best practices for many of the actors in the shipping industry, including annexes addressing recommendations specific to maritime insurance companies, flag registry managers, port control authorities, shipping industry associations, regional and global commodity trading, supplier and brokering companies, financial institutions, ship owners, operators and charterers, classification societies, vessel captains and crewing companies. The advisory identifies Iran, North Korea and Syria as countries with which there are heightened risks of sanctions evasion and other illicit shipping practices. Among other practices, the advisory identifies the following as common deceptive shipping practices: (1) disabling or manipulating the Automatic Identification System (“AIS”) on vessels, (2) physically altering vessel identification, (3) falsifying cargo and vessel documents, (4) ship-to-ship transfers, (5) vessel irregularities, (6) false flag and flag hopping, and (7) complex ownership or management. In addition to the guidance specific to certain actors in the shipping industry, OFAC provides general practices for effective identification of sanctions evasion. These practices include (1) institutionalizing sanctions compliance programs; (2) establishing AIS best practices and contractual requirements; (3) monitoring ships throughout the transaction lifecycle; (4) implementing know-your-customer and counterparty practices; (5) exercising supply chain due diligence; (6) incorporating best practices in contractual language; and (7) industry information sharing.
3. Xinjiang Supply Chain Business Advisory
On July 1, 2020, the US Departments of State, Commerce, Homeland Security and the Treasury issued an advisory regarding risks for businesses with supply chain exposure to entities engaged in human rights abuses perpetrated by the People’s Republic of China in the Xinjiang Uyghur Autonomous Region (“Xinjiang”). The advisory states that businesses with such exposure “should be aware of the reputational, economic, and legal risks of involvement with entities that engage in human rights abuses, which could include Withhold Release Orders (WROs) [formal orders prohibiting importation of goods made with forced labor], civil or criminal investigations, and export controls.”60 The advisory identifies three primary types of exposure and urges businesses to “apply industry human rights due diligence policies and procedures to address risks.”
In light of China’s decision to unilaterally and arbitrarily impose national security legislation on Hong Kong, Hong Kong “is no longer sufficiently autonomous to justify differential” (and more favorable) treatment.
1. FAQs Relating to Reporting, Procedures and Penalties Regulations
Following the amendment in 2019 to the Reporting, Procedures and Penalties Regulations (“RPPR”), on February 20, 2020, OFAC published two FAQs designed to clarify certain aspects of the amendments.61 FAQ 819 states that US persons and those subject to US jurisdiction (including those that are not US financial institutions) must comply with all of the RPPR requirements, including the requirement to report rejected transactions to OFAC within 10 business days. FAQ 820 addresses what information should be included in rejected transaction reports; specifically, OFAC expects US persons and those subject to US jurisdiction to include all information required under Section 501.604(b) of the RPPR in the filer’s possession, as well as “information regarding the submitter of the report, the date the transaction was rejected, the legal authority or authorities under which the transaction was rejected, and any relevant documentation received in connection with the transaction.”
2. FAQs and Designations Relating to Counter Terrorism Sanctions Program
In late 2019, OFAC issued a series of FAQs in the Counter Terrorism sanctions program concerning artwork that is the property of, or subject to a property interest of, Specially Designated Global Terrorists (“SDGTs”).62 FAQ 812 explains that US persons are prohibited from transactions or dealings in the property or property interests of SDGTs, including artwork.63 This FAQ additionally notes that FFIs could be subject to secondary sanctions for engaging in, or facilitating, such transactions. FAQ 813 encourages art institutions and private collectors to develop a compliance program to ensure compliance with OFAC’s guidance on avoiding transactions with SDGTs.64 FAQ 814 requires that anyone in possession of artwork in which an SDGT has an interest must ensure that access to the art is denied to the SDGT and must comply with OFAC regulations (such as third-party sale or transfer restrictions) regarding blocked entities, including the requirement to file blocked property reports.65
On April 8, 2020, OFAC published amended regulations to implement the Federal Civil Penalties Inflation Adjustment Act of 1990, as amended. This amended regulation “adjusts for inflation the maximum amount of the civil monetary penalties that may be assessed under relevant OFAC regulations.”66
1. Executive Order Relating to International Criminal Court
On June 11, 2020, President Trump issued a new executive order, E.O. 13928, relating to persons associated with the International Criminal Court (“ICC”). The E.O. permits the Secretary of State, in consultation with the Secretary of Treasury and the Attorney General, to block the property of (a) any foreign person who they determine has directly engaged in any effort by the ICC to investigate, arrest, detain or prosecute any US personnel or any personnel of a country that is an ally of the United States without the consent of the United States or the US allies; (b) any person who has materially assisted any such activity; or (c) any foreign person owned or controlled by, or purporting to act on behalf of, any person blocked under this E.O.67 This E.O. was issued as a result of President Trump’s determination that the ICC had made illegitimate assertions of jurisdiction over the personnel and allies of the United States, thereby “threaten[ing] to infringe upon the sovereignty of the United States and impede the critical national security and foreign policy work of the United States Government and allied officials, and thereby threaten the national security and foreign policy of the United States.”
2. Executive Order on “Hong Kong Normalization”
On July 14, 2020, President Trump issued E.O. 13936 relating to Hong Kong. According to the E.O., in light of the People’s Republic of China’s (“China”) decision to unilaterally and arbitrarily impose national security legislation on Hong Kong, Hong Kong “is no longer sufficiently autonomous to justify differential” (and more favorable) treatment, as compared to the treatment given to China. The E.O. declares that going forward, it “shall be the policy of the United States to suspend or eliminate different and preferential treatment for Hong Kong to the extent permitted by law and in the national security, foreign policy, and economic interest of the United States.” The E.O. also suspends application of section 201(a) of the United States-Hong Kong Policy Act of 1992 to various specified statutes, thereby suspending differential treatment of Hong Kong with respect to various matters relating to export controls, travel and immigration, law enforcement and scientific and educational cooperation.68 The E.O. further calls for the “head of agencies” to “commence all appropriate actions to further the purposes of this order.” It remains to be seen what actions the head of agencies will undertake to comply with this E.O.
Earlier in the year, OFAC removed the Terrorism Sanctions Regulations from the CFR based on the termination of the national emergency that formed the basis for the regulations.69
OFAC announced 13 settlements and findings of violation in the Review Period. Below are a few observations and takeaways from these cases:
In addition to the above observations, OFAC offers its own views of the specific takeaways from each action at the end of the settlement announcements. Those takeaways offer additional insight into OFAC’s enforcement priorities and the lessons to be gained from prior enforcement actions.