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ISSUE 76. FEBRUARY 2019

www.WorldECR.com

WorldECRRusal et al taken off the SDN list 2

‘Deep political intentions behind Huawei 5charges,’ says China

Interview: Brad Brooks-Rubin of the 12Enough Project and The Sentry

US government sanctions PdVSA and 18its subsidiaries around the world

OFSI gears up to use its civil enforcement 20powers

Update on US and EU Russia sanctions 23and the energy market

Promoting biosecurity through export controls 27

Sanctions application and practice in India 30

2 WorldECR www.worldecr.com

News and alerts News and alerts

On 27 January, the USTreasury announced in a (byits standards, terse) pressrelease that, following anotification submitted toCongress on 19 December,OFAC had ‘lifted sanctionsimposed on En+ Group plc(“En+”), UC Rusal plc(“Rusal”), and JSCEuroSibEnergo (“ESE”).’

In its release, theTreasury said: ‘Under theterms of their removal fromOFAC’s [SDN list], En+,Rusal, and ESE havereduced Oleg Deripaska’sdirect and indirectshareholding stake in thesecompanies and severed hiscontrol.

‘This action ensures thatthe majority of directors onthe En+ and Rusal boardswill be independentdirectors – including U.S.and European persons –who have no business,professional, or family tiesto Deripaska or any otherSDN, and that independentU.S. persons vote asignificant bloc of the sharesof En+.’

It added that thecompanies had also agreed

to ‘unprecedented trans -parency for Treasury intotheir operations byundertaking extensive,ongoing auditing, certificat -ion, and reportingrequirements,’ while thesanctions imposed on OlegDeripaska continue to be inforce.

Douglas Jacobson, of DCfirm Jacobson Burton KelleyPLLC, told WorldECR, thiswas ‘the right decision,’despite the ‘knee-jerkreaction’ of somelawmakers.

‘[T]his delisting was longoverdue,’ he said, ‘and willbe of great relief to many US

companies that purchaseand sell to Rusal and theother two parties removedfrom the SDN List yesterday.Despite the knee-jerkreaction from some

members in Congress, thisdecision was the correct oneand shows that USsanctions, when usedproperly, can effect realchange and the person whowas targeted, Mr. Deripaska,will not benefit from thedelisting.’

In Jacobson’s view,‘OFAC and Treasury’s TFIare professionally runorganisations and recognisethe need to balancesanctions and legitimatebusiness. While the USCongress certainly has aright to oversee OFAC, thesetypes of decisions are nottaken lightly and there is noneed for Congress to second-guess these determinations.’

When the sanctions wereimposed in April 2018, theywere described by oneobserver as ‘far and away themost significant sanctions

Rusal et al taken off the SDN list

action…since the impositionof sectoral sanctions in2015.’

A supply chain assess -ment prepared by theAtlantic Council last Mayfound that the immediateimpact of the designation ofRusal included: a 33% spikein the price of aluminium, a50% drop in Rusal’s shareprice, and termination ofdeliveries of bauxite to Rusalrefineries by Rio Tinto andof shipments by Maersk. Thedesignation had an impacton many tens of thousandsof people.

EN+ has said Deripaska’sinterest in the company hasbeen reduced ‘to no morethan 44.95%’ in partachieved by VTB Bank‘taking ownership of certainof shares pledged ascollateral for previouslyissued obligations of entitiescontrolled by Mr Deripaskaissued by VTB Bank; thebank has no voting rightswith respect to those shareswith the rights held by anindependent Americanvoting trustee’ and thedonation by Oleg Deripaska‘of certain shares to acharitable foundation.’

Lord Barker of Battle, thecompany’s independentchairman said: ‘The lifting ofsanctions on the whole En+Group is a turning point inthis great company’sfortunes. This is the firsttime independent directorsof a London listed Russiancompany, with the strongsupport of minorityshareholders, have success -fully removed control from amajority shareholder as adirect response to USsanctions policy. It is a clearvictory for muscularcorporate governance andsets the group on a new pathas an independent, inter -national leader in its sector,operating in 14 countriesacross five continents.’

‘Under the terms of their removal from OFAC’s [SDN list], En+, Rusal, and

ESE have reduced Oleg Deripaska’s direct and indirect shareholding.’

‘Despite the knee-jerk

reaction from some

members in

Congress, this

decision was the

correct one.’

Douglas Jacobson

OFAC acts against Iran-backed militiasOn 24 January OFAC said it had taken action against:

l The Fatemiyoun Division and Zaynabiyoun Brigade (two Syria-

based, Iran-backed militias composed of foreign nationals)

l Qeshm Fars Air, an Iranian airline linked to designated

Iranian airline Mahan Air and Iran’s Islamic Revolutionary

Guard Corps-Qods Force, and

l Flight Travel LLC, an Armenian general sales agent (GSA)

providing services to Mahan Air.

‘The brutal Iranian regime exploits refugee communities in

Iran, deprives them of access to basic services such as

education, and uses them as human shields for the Syrian

conflict. Treasury’s targeting of Iran-backed militias and other

foreign proxies is part of our ongoing pressure campaign to shut

down the illicit networks the regime uses to export terrorism and

unrest across the globe,’ said Treasury Secretary Steven

Mnuchin.

See: https://www.treasury.gov/resource-center/sanctions/OFAC-

Enforcement/Pages/20190124.aspx



Time is up for submittingresponses to the USCommerce Department’sconsultation on newcontrols on emergingtechnologies. Debate aboutwhat’s appropriate, theconsequences of newcontrols, and how to applythem is likely to continuelong after.

The advance notice ofproposed rulemaking(‘ANPRM’), published 14November, sought ‘publiccomment on criteria foridentifying emergingtechnologies that areessential to U.S. nationalsecurity, for examplebecause they have potentialconventional weapons,intelligence collection,weapons of massdestruction, or terroristapplications or couldprovide the United Stateswith a qualitative military orintelligence advantage.’ It isintended as a response – atleast in part – to the ‘Madein China 2025’ initiative andits emphasis on encouragingindigenous production ofemerging tech sectorsincluding artificialintelligence, robotics andquantum mechanics.

National security aimsThe US consultation lists 14technologies for which it‘seeks to determine whetherthere are specific emergingtechnologies that areessential to the nationalsecurity of the UnitedStates,’ amongst thembiotechnology, AI, positionnavigation and timingtechnology (‘PNT’), braincomputer interfaces, quant -um computing, additivemanufacturing and robotics.

By the time that the BISconsultation had closed (10January – the deadline hadbeen extended by publicdemand) it had received 238submissions. Typically, the

Commerce Departmentwould perform apreliminary review of thecomments and then postthem for public inspection;however, due to the USgovernment shut-down,comments are not yetpublicly available (save threeposted before the shut-downin December).

Draft commentscirculated privately forreview indicate someindustries and their advisersare concerned about likelyunintended consequencesand the impact of newcontrols on a broad sweep ofcompanies using state-of-the-art tech nology ineveryday products.

Melissa Duffy, partner atthe Washington DC office oflaw firm Dechert, toldWorldECR that sheunderstood the prospect ofnew controls on AI hasconcerned numerouscompanies and tradeassociations: ‘It’s gettingpeople excited because itpotentially touches on moreindustries than some of theother emerging technologieson the list. It’s an area whereyou will struggle to makesome key distinctionsbetween military andcivilian capabilities. Whilesome of its applications arevery relevant to the military,many of the greatestadvancements are being

made in the civilian sector –such as autonomousvehicles, where the use of AIis essential, and humansafety is on the line.’

And, she says, it would bedifficult to control accordingto the kinds of technicalthresholds used todistinguish between militaryor civilian applications ofother technologies – such assensors, ubiquitous ineveryday applications but insome cases subject todifferent levels of controlaccording to specificcharacteristics (such as thoserelevant to missiles, rocketsor other military end uses).

‘Broader commercialimplications are not onlythat unilateral controlscould disadvantage UScompanies, but that R&D,much of which is conductedin partnership with overseascompanies or subsidiaries,and the ability to generateglobal economies of scalewould both be affected.’

Through 3D glassesAnother technology in thepurview of the ANPR isadditive manufacturing, orso-called ‘3D Printing’, thethreat of which, says DrGrant Christopher, directorof nonproliferation atLondon-based RidgewayInformation, is generallypoorly understood.

There are, points out

Consultation closes. Pandora’s box opens

Christopher, several kinds ofAM technology – rangingfrom the machines popularwith hobbyists (limited incapability, to moulding inplastic and unlikely to be putto use, for example, in anuclear fuel cycle, nuclearweapon or missile deliverysystem, though it maystretch to a handgun), to‘very interesting’ and vastlymore sophisticated tech -nology using powdermetallurgy. These use lasersto melt powderedaluminium, nickel ormaraging steel, which isthen rapidly cooled.

But, he says, while thelatter possess hugepotential, not only are theyproportionately expensive,but using them requiresskills and training that aredifficult to acquire outside ofthe best-resourced institutesor R&D centres.

‘It is an extremelycomplex process, and thephysics gets complicatedvery quickly,’ saysChristopher. ‘The UniversalReplicator on Star Trek itisn’t! ... I know that [a majorcorporation] which is usingthese machines finds that itcan take months to initiallycommission the machines,each one of which has to befine-tuned to perform asrequired. It is difficult toprint the same part twice ina row. Post-processing isdifficult and necessary, anddemands the use of CTscanners…’

In short, he says, mostproliferators, rogue states ornon-state actors would findit easier and cheaper toacquire controlled parts byother means than throughadditive manufacturing. It isalso not clear if additivemanufacturing today cansubstitute for any existingconventional processes.

Proposed controls on new technologies such as AI are causing

controversy in the US and abroad.

continues over



Fit for purpose?Aside from the technicalelements of the consult -ation, it also begs thequestion as to whether theunderlying rationale for theANPR is the same as that forexport controls as typicallyunderstood. This is a pointraised by Japan’s Center forInformation on SecurityTrade Control (‘CISTEC’) inits submission, observingthat under the ExportControl Reform Act ss.1758(a) and (b) technologies

essential to the nationalsecurity of the US should beidentified as ‘Emerging’ and‘Foundational’, and thattheir export and re-exportshould be subject to licencerequirements.

Section 1758 (c)stipulates that the USgovernment would proposethat any so-identifiedtechnologies be added to themultilateral export controlregime control lists.

‘However,’ (the CISTECsubmission notes), ‘it is

difficult for us to understandthe substantial relationshipsbetween [sections (a), (b),and (c)] for the followingreasons: internationalexport control regimes aimto prevent the transfer ordiversion of high-techproducts and technologies tocountries of concern relatedto weapons of mass

destruction and convention -al weapons and terrorists inorder to ensure internationalpeace and security, and theyare not intended for nationalsecurity of a specificcountry.’ Perhaps anotherconsultation is due?

A similar ANPR for‘foundational technologies’is planned for later this year.

2019 sees a number of moves within the trade compliance

community. Diego Pol has joined law firm Dentons’ Barcelona

office as a partner. He joins from Baker McKenzie and will head his

new firm’s Spanish compliance practice. Meanwhile, also at

Dentons, the Brussels office has hired senior associate Nicoleta

Tuominen from Freshfields and has opened an office in

Düsseldorf, which will be headed by new office managing partner

Andreas Haak, who joins from Taylor Wessing and is accompanied

by his colleague Dr Barbara Thiemann.

In Washington DC, Barbara Linney, formerly member at law firm

Miller & Chevalier, joins the DC office of Baker Hostetler, while

Ginger Faulk left Baker Botts at the end of 2018 to join the DC

office of Eversheds Sutherland.

On other side of the country, Steven Brotherton has joined KPMG

US as Principal, Global Export Control & Sanctions lead, working

out of its San Francisco office. Steve joins from STR Trade.

European unity

Of particular note this month is the creation of AT-ICA, a ‘European

association of trade and investment controls and compliance

attorneys.’ The association, whose members feature regular

contributors to WorldECR, brings together a host of firms from

Europe and the Middle East, including, but not limited to, Herzog

Fox & Neeman, Studio Legale Padovan, Kromann Reumert,

Mannheimer Swartling, Loyens & Loeff, Addleshaw Goddard,

Thommessen and others. Key areas of practice for members

include sanctions and export controls, anti-bribery and corruption

and foreign direct investment issues.

See: https://www.at-ica.com/

Links and notes

The consultation and responses are at:

https://www.regulations.gov/docket?D=BIS-2018-0024

Links and notes

https://www.treasury.gov/resource-center/sanctions/OFAC-

Enforcement/Pages/20190128.aspx

‘The United States isramping up its action againstthe Venezuelan government.On 28 January, theDepartment of theTreasury’s Office of ForeignAssets Control (‘OFAC’) saidit had designated PdVSA,Venezuela’s state oilcompany, ‘pursuant toExecutive Order (E.O.)13850 for operating in the oilsector of the Venezuelaneconomy.’

Treasury Secretary,Steven Mnuchin said: ‘TheUnited States is holdingaccountable those respons -ible for Venezuela’s tragicdecline and will continue touse the full suite of itsdiplomatic and economic

tools to support InterimPresident Juan Guaidó, theNational Assembly, and theVenezuelan people’s effortsto restore their democracy.’

He said that thedesignation would ‘helpprevent further diverting ofVenezuela’s assets by[President] Maduro andpreserve these assets for thepeople of Venezuela,’ anddescribed ‘the path tosanctions relief for PdVSA’as being through the‘expeditious transfer ofcontrol to the InterimPresident or a subsequent,democratically electedgovernment.’

On 26 January, EU HighRepresentative Federica

Mogherini said that the EU‘reiterates its full support tothe National Assembly,which is the democraticlegitimate body ofVenezuela, and whosepowers need to be restoredand respected, including theprerogatives and safety of itsmembers.’ She called for theholding of free, transparentand credible presidentialelections ‘in accordance withinternationally democraticstandards and theVenezuelan constitutionalorder.’

Mogherini said that in theabsence of an announcementon the organisation of freshelections with the necessaryguarantees, the EU ‘will takefurther actions, including onthe issue of recognition ofthe country’s leadership inline with article 233 of theVenezuelan constitution.’This has been interpreted asa message of support forGuaidó.

OFAC is amending anumber of extant licencesrelating to dealings withVenezuela.

Transfer PdVSA control to Guaido: Mnuchin

A new year, a new home


The US Justice Departmenthas charged the Chinesetelecom company Huawei,two of its affiliates (HuaweiUSA and Skycom), and itschief financial officer MengWanzhou with a number ofoffences, including financialfraud, money launderingoffences, conspiracy todefraud the United States,and sanctions violations.

China has accused theUnited States of ‘bashingon’ Chinese companies, andsaid ‘deep politicalintentions’ lie behind thecharges, which wereannounced by senior‘officials from the USDepartment of Justice, theFederal Bureau ofInvestigation, the USDepartment of Commerce,and the Department ofHomeland Security.’

United States AttorneyRichard Donoghue said: ‘Ascharged in the indictment,Huawei and its subsidiaries,with the direct and personalinvolvement of theirexecutives, engaged inserious fraudulent conduct,including conspiracy, bankfraud, wire fraud, sanctionsviolations, money launder -

ing and the orchestratedobstruction of justice. Forover a decade, Huaweiemployed a strategy of liesand deceit to conduct andgrow its business. ThisOffice will continue to holdaccountable companies andtheir executives, whetherhere or abroad, that commitfraud against U.S. financialinstitutions and theirinternational counterpartsand violate U.S. lawsdesigned to maintain ournational security.’

Fair treatmentReacting to the charges,China’s foreign ministryspokesman Geng Shuangsaid that the Chinesegovernment has ‘all alongurged Chinese companies toconduct internationaleconomic cooperation onthe basis of complying withrelevant laws andregulations,’ but at the same

time, China asked ‘that allcountries provide a fair, justand non-discriminatoryenvironment for the normaloperations of Chinesecompanies.’

Geng said, ‘For sometime, the US has been usingnational power to tarnishand crack down on specificChinese companies in anattempt to strangle theirlawful and legitimateoperations. Behind suchpractices are deep politicalintentions and manipulat -ions. We strongly urge theUS to stop its unreasonablebashing on Chinesecompanies includingHuawei, and treat themobjectively and fairly. Chinawill also continue to upholdthe lawful and legitimate

rights and interests ofChinese companies.’

Commenting on thepredicament of Ms Meng,Geng said that the UnitedStates had ‘abused’ theirbilateral agreement,violating the rights andinterests of a Chinese citizen.

‘Once again we urge theUS to immediately withdrawits arrest warrant for Ms.Meng Wanzhou, refrainfrom making a formalextradition request, and stopgoing further down thewrong path. We also urgeCanada to take China'ssolemn position seriously,immediately release Ms.Meng Wanzhou and ensureher lawful and legitimaterights and interests and stoprisking its own interests forthe benefits of the US.’

According to oneWashington DC lawyer, theUS government’s pursuit ofHuawei threatens to havehuge implications for globalsupply chains in thetelecommunications sector.

‘Deep political intentions behind Huaweicharges,’ says China

On 21 January, the Councilof the EU imposedsanctions for the first timeon entities and personsunder its new regime ofrestrictive measures againstthe use and proliferation ofchemical weapons. Amongthe designations are thoseof individuals believedresponsible for thepoisoning of members ofthe Skripal family inSalisbury, England. Thoseindividuals have already

been designated by the USOffice of Foreign AssetsControl (‘OFAC’).

The Council said: ‘[T]hedesignations include the twoGRU officials, and the Headand Deputy Head of the GRU(also known as the G.U., orthe Main Directorate of theGeneral Staff of the RussianArmed Forces) responsiblefor possession, transport anduse in Salisbury (UK) of atoxic nerve agent on theweekend of 4 March 2018.

‘Sanctions are alsoimposed on the Syrian entityresponsible for thedevelopment and productionof chemical weapons, theScientific Studies andResearch Centre (SSRC), aswell as five Syrian officialsdirectly involved in the

SSRC’s activities.’ It says thatthe designations, whichimpose a travel ban and assetfreeze, contribute ‘to the EU'sefforts to counter theproliferation and use ofchemical weapons whichposes a serious threat tointernational security.’

EU imposes first chemical weapons sanctions

Links and notes

The indictment, redacted in parts, is at:

https://www.justice.gov/opa/press-release/file/1125021/download

Links and notes

The Council Decision is at: https://eur-lex.europa.eu/legal-

content/en/TXT/PDF/?uri=CELEX:32019D0086&from=enSee also:https://www.consil-

ium.europa.eu/en/press/press-releases/2019/01/21/chemical-weapons-the-eu-place

s-nine-persons-and-one-entity-under-new-sanctions-regime/pdf




Germany has banned Iran’sMahan Air from landing inthe country. A spokespersonfor Chancellor AngelaMerkel told reporters that itcould not be ‘ruled out thatthis airline carries outtransports to Germany thataffect our security concerns.This is especially trueagainst the backdrop ofterrorist activities,intelligence on terroristactivities from the Iranianside and Iranian entities inEurope in the past.’

Mahan Air wasdesignated by the UnitedStates in 2011 ‘for providingfinancial, material andtechnological support to the

Islamic RevolutionaryGuard Corps-Qods Force(IRGC-QF).’

It is known that the USambassador to Germany,

Richard Grenell, hasassiduously lobbied theGerman government to banMahan Air, and the decisionhas been warmly welcomed

Germany blocks Mahan Air

by US Secretary of StateMike Pompeo.

Iran’s Civil AviationOrganization has describedthe decision to suspend thecompany’s operating licenceas ‘unjustifiable and notprofessional’, according tothe Islamic Republic NewsAgency, IRNA.

It said: ‘Mahan has hadall the necessary licences.The suspension is in linewith the economic war that'sbeen waged against theIranian nation. Iran’s civilaviation has always beenexposed to limitationscaused by the animosity ofill-wishers and its foreignrivals.’

In December, Pakistan’sStrategic Export ControlDivision (‘SECDIV’)announced that ‘pursuant tothe Export Control onGoods, Technologies,Material and Equipmentrelated to Nuclear andBiological Weapons andtheir Delivery Systems Act2004, the Government ofPakistan has notified revisedControl Lists of Goods,Technologies, Material and

Equipment that are subjectto SECDIV license forexport. The Act enables theGovernment to controlexport, re-export, trans-shipment and transit ofgoods, technologies, materialand equipment related toNuclear and BiologicalWeapons and their DeliverySystems.’

It said that, ‘[T]he revisedControl Lists have beennotified vide Gazette of

Pakistan S.R.O. 891(I)/2018dated 5 July 2018. It may bementioned that the lists wereoriginally notified in 2005and subsequently revised in2011, 2015 and 2016.’

International alignment SECDIV notes that thecontrol lists ‘are harmonizedwith the standards and listsof international exportcontrol regimes i.e. theNuclear Suppliers Group,

the Missile TechnologyControl Regimes [sic] andthe Australia Group andincorporate the latestchanges/updates made bythese export control regimes.The notification signifies thecontinuing resolve andpolicy of Pakistan as aresponsible nuclear state toadvance the shared goals ofnon-proliferation andstrictly adhere to itscommitments.’

Pakistan updates control list

On 14 December 2018,Luxembourg’s new exportcontrol law and regulationwere published in the GrandDuchy’s Official journal –implementing the law of 27June 2018.

‘The Law of 27 June 2018’concerns:

l ‘the control of the export,transfer, transit andimportation of goods of astrictly civil nature,

defence-related productsand dual-use goods;

l brokerage and technicalassistance;

l the intangible transfer oftechnology;

l the implementation ofUnited Nations SecurityCouncil resolutions andacts adopted by theEuropean Union contain -ing trade restrictivemeasures against certainStates, political regimes,

persons, entities andgroups and repealing:- the amended law of 5

August 1963 concern -ing the import, exportand transit of goods;

- the Act of 5 August1963 concerning the

surveillance of imports,exports and the transitof goods;

- the law of 28 June 2012on the conditions fortransfers of defence-related products in theEuropean Union.’

Grand Duchy publishes export control law

Links and notes

See the new regulations at:

http://legilux.public.lu/eli/etat/leg/loi/2018/06/27/a603/jo

http://legilux.public.lu/eli/etat/leg/rgd/2018/12/14/a1158/jo

Iran’s Civil Aviation Organization: decision to suspend the company’s

operating licence is ‘unjustifiable and not professional’,


The crushing defeat of UKPrime Minister TheresaMay’s withdrawal agree -ment in the House ofCommons brings theprospect of a ‘no-deal’Brexit on 30 March closer,with implications forexporters.

In December, theEuropean Union enacted apackage of ‘bare bones’emergency measures aimedat mitigating disruption infinancial services, airtransport, climate policy,and customs.

These include aproposed amendment toEU Council Regulation (EC)No 428/2009 (‘the Dual-Use Regulation’) to includethe UK in the list ofauthorised destinations forthe export of dual-use goodsafter a hard Brexit,alongside other perceived‘safe’ destinations, the USand Canada.

The UK’s Departmentfor International Trade(‘DIT’) and Export ControlJoint Unit (‘ECJU’) has alsopublished guidance toexporters indicating that inthe event of a ‘no-deal’Brexit, it would publish anew open general exportlicence in advance of the UKleaving the EU, withattendant information onregistration and use.

UK sanctions strategy– what’s the plan?Speaking before a UKparliamentary committeehearing (‘Global Britain: thefuture of UK sanctionspolicy inquiry’), TomKeatinge, fellow of the

Royal United ServicesInstitute (‘RUSI’), toldcommittee members thatwhile written evidenceprovided by the ForeignOffice on sanctions afterBrexit included ‘standardphrases about sanctionsbeing an extension offoreign policy and part of a“tool-kit”’ that we’re used tohearing from allgovernments’, in terms of‘What is the strategy? Whatare we trying to achieve?That’s not clear at this stage.’

Much, he said, wouldturn on the future ofLondon’s finance hub: ‘TheUK offers a particular leverto the European Union –which is the City of London.The question is, how are wegoing to use the financialpower of this country oncewe’re out of the EuropeanUnion. Of course, Londonwill remain one of thebiggest financial centres inthe world. Therefore, if youbelieve that financialsanctions are a powerfultool, we have one of the

most powerful sanctionstools in the world followingBrexit. But how do we planto use that? And moregenerally, how will weemploy economicstatecraft?’

In its written statement,the UK Foreign Office said:‘At the international level,the UK will continue to seekmultilateral cooperation onsanctions in response toshared threats, given that acollective approach tosanctions achieves thegreatest impact. This willinclude significant

contributions to thedevelopment of UNsanctions.

‘The UK will lookto remain a close partner ofthe EU on sanctions. As thePrime Minister set out in herspeech at the MunichSecurity Conference on 17February 2018, “[W]e willall be stronger if the UK andEU have the means tocooperate on sanctions nowand potentially to developthem together in the future.”

‘Beyond the EU, the UKwill also develop closercooperation on sanctionswith its allies and partnersactive in the use of sanctions,including, but not limited to,the United States, Canadaand Australia. The UnitedStates, for example, isalready a vital partner for theUK on sanctions, withextensive coordinationalready in place. There isalso the potential for the UKto leverage its strongbilateral and multilateralrelationships to bringtogether small groups oflike-minded countries toagree joint proposals onsanctions.’

Never-ending Brexit uncertainty raisesfurther export and sanctions questions

UK politicians are unable to come to an agreement on the terms of

the country’s withdrawal from the EU.


Links and notes

See here for the EU’s contingency plan:

http://europa.eu/rapid/press-release_IP-18-6851_en.htm

See here for details of EU’s proposed amending Council Regulation (EC) No

428/2009 by granting a Union General Export Authorisation for the export of

certain dual-use items from the Union to the United Kingdom of Great Britain and

Northern Ireland:

https://ec.europa.eu/info/sites/info/files/891_2_en_act_part1_v7.pdf

See here for UK government’s guidance on exporting controlled goods in event of

‘no-deal’ Brexit:

https://www.gov.uk/government/publications/exporting-controlled-goods-if-theres-no-

brexit-deal/exporting-controlled-goods-if-theres-no-brexit-deal

See here for Foreign and Commonwealth Office written evidence:

http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocumen

t/foreign-affairs-committee/global-britain-the-future-of-uk-sanctions-

policy/written/94581.html

WorldECR welcomes your news. Email the editor:

[email protected]


News feature News feature

Need a second opinion?In compliance-conscious times, it’s only natural that companies should look beyond their own

capabilities and seek advice from external advisers. But in what circumstances should they be

doing so? And how can they ensure they’re getting their money’s worth? WorldECR explores.

Back in December 2018, USTreasury Under Secretary SigalMandelker gave a wide-ranging

speech at the American BarAssociation’s Financial CrimesEnforcement Conference in which,amongst other themes, she elaboratedon the Treasury’s expectations ofcompanies’ compliance efforts.

Over the years, she said, theTreasury had seen ‘the types of bestpractices that lead to strong andeffective compliance programmes. Wehave also seen where entities fellshort…’

Mandelker proceeded to outlinewhat she considered to be thehallmarks of strong compliance,including senior managementcommitment, frequent risk assess -ments, and ensuring that ‘all relevantpersonnel receive tailored training onOFAC obligation and authorities ingeneral and the complianceprogramme in particular.’

And yet the compliance ‘ask’increasingly gets tougher. AsMandelker’s erstwhile colleague JohnE Smith (formerly director of OFACand now a partner at the law firmMorrison & Foerster) says: ‘In myexperience, companies want to try todo the right thing. Where they’re fallingdown is not generally out of willfulness,but because they’re not payingattention to their supply chains anddistribution chains or financialarrangements. In other words, they’renot matching their commercial growthwith their compliance efforts.’

Nowhere did Mandelker’s speechdescribe circumstances in which thereis an obligation or expectation to hirethe services of external counsel or otherthird-party advisers – indeed, outsideof settlement or consent agreements orwhere a company believes it may havecommitted a violation, there are none.

Nonetheless, engagement withoutside counsel or consultants is seenby most companies as a sine qua non oftheir compliance programme, albeitthat there exists no prescriptive

template for managing thatrelationship. But is it best practice?

Deep poolsThe pool of compliance expertise todraw on is broader and deeper than ithas ever been.

‘The evolution of moderncompliance dates back to the 2002Sarbanes-Oxley Act,’ says DanielChapman, CEO at Texas-basedconsulting firm Presyse – ComplianceSystems and Expertise. ‘That broughtmany practitioners into the field. Morethan 15 years later, we have for the firsttime a group of extremely experiencedcompliance professionals.’

Sarbanes-Oxley raised the bar forboard oversight over corporatefinancial statements and introducedstricter penalties for fraud. The focus ofsuccessive US administrations onnational security following 9/11 and thegrowing use of targeted sanctions has

shone a spotlight on compliance as acareer – which can flourish, as readersof WorldECR, who make up much ofthat community, will know – ineverything from one-, two- or three-partner boutiques operating fromoffice suites in Austin, Amsterdam orAbu Dhabi to big-name, do-it-allcorporate powerhouses on K Street orCanary Wharf.

But who, when and why should theybe called in to advise?

For private practice advisers, saysan experienced international tradelawyer, the following is a familiarscenario: ‘OFAC (say) announces somemajor designations, or there’s theannouncement of a new executiveorder, and all of a sudden, we get clientcalls from companies suddenly worriedabout their exposure in a particularpart of the world, or their relationshipwith a company or borrower. Theywant the reassurance, and they want a



second opinion…Or, there’s a deal onthe table, and just before they sign offand crack open the champagne, theywant to be doubly sure that it’s allcompliant.’

That ‘need for reassurance’ maycloak disagreements and uncertaintiesbetween internal elements within thecompany – or oneself.

One senior compliance officialwithin a US defence company toldWorldECR that, in her experience,‘There’s a number of aspects toconsider when it comes to engagingexternal counsel. One is about lookinginward, and asking yourself when youneed help, by which I mean, knowingwhen you’re up against the edge of yourknowledge and experience, andrecognising your limitations.

‘It’s also dependent on how yourposition and authority are viewed inthe company. Some people have thegravitas – and the respect ofmanagement – which is sufficient tosay, “I know the path forward.” But ifyou don’t, it may be that they want thatexpertise bought it.’

The structure of the company alsohas a significant bearing, she pointsout. ‘For example, if trade compliancereports directly to senior leadership,then trade compliance may make thatkind of decision. But if it reports to thelegal department – it’s left to “legal” todecide. And sometimes, where you’vesaid, “Hold your horses”, thecommercial department will say theywant a second opinion from a lawyerbecause they want the deal to gothrough.’

What external advisers can offerExternal advisers can provide comfortin situations where the judgement ofthe business may be called intoquestion in the future; to advise onwhether certain goods can be exportedto Iran, for example. They can ‘sign off’the results of an in-house investigation,to reassure shareholders and mitigaterisk – and provide specialist knowledgeto complement the understanding ofthe general counsel or complianceteam.

‘In-house counsel may have athorough understanding of the Russiasanctions, for example,’ says SheppardMullin partner Reid Whitten, ‘butwhen a question on EAR encryptioncomes around, they may decide thatthis needs to be checked out.’

And, as one highly experiencedcompliance manager in the defence

industry notes, ‘What you need issomeone with very specific expertise,who knows the regulator well, who isnot going to just read the regs at me.’

But our compliance official (who didnot want to be named in this article)cautions against the ‘cronyism’ of thelegally qualified who may regard

themselves as a cut above the non-legally qualified, but highlyexperienced compliance personnel: ‘Afrustration is that where externalcounsel has been chosen by the legaldepartment “to assist you”, sometimes,they don’t actually know a great dealabout trade compliance. It’s just thatthe legal team always uses a particularfirm for M&A or HR or something else.It can be really annoying. Sometimesthe legal department is just heavilybiased toward anyone with a lawdegree (regardless of their actualknowledge of sanctions or exportcontrols) and against even highlyexperienced compliance people. WhatI really don’t need is someone to comealong and read the regs to me, whenI’ve been living and breathing them foryears.’

But, she says, good advice fromexperienced practitioners is invaluable,‘in specific, but also more general ways– such as benchmarking’. So, ‘It’s hardto ask peers in other companies, “Whatare you discussing with regard toIran?” But you can ask an outsidelawyer, “What’s standard practice inother companies?” And even thoughthey’re bound by attorney-clientprivilege, they can give you the insightthat comes with having worked acrossa range of businesses.’

Large international businesses willoften assemble a panel of law firms toadvise on different compliancefunctions, taking into accountconsiderations such as the synergybetween in-house counsel and privatepractice partners; inside knowledgeand relationships with the regulator;the need for a particular specialisation;and the value of fielding a firm with an

awe-inspiring reputation if things getsticky.

‘I make sure that we have all thetools in the toolbox available,’ saysJohn Pisa-Relli, managing director ofglobal trade compliance at Accenture.‘If that means going outside the panelto get the best advice, we will ensurethat we can do that.’

Of course, not all third-party advicecomes from law firms. Consultancies,large and small, supply a range ofneeds. They may offer lower costs andthe flexibility to advise on smallerprojects – or, conversely, advise andimplement major complianceprogrammes or the procurement ofcompliance tools which law firms areoften not equipped to undertake.

In either case, distinctions areincreasingly blurred: lawyers moveeasily from law firms to ‘consultancies’where they undertake roles that arepretty much inseparable from theirformer employment, while law firmsthemselves take on non-legallyqualified consultants as trade advisersor directors. At the end of the day, it’sthe experience that counts.

Meanwhile, the growth incompetition, commensurate withperceived risk and higher penalties,does raise the bar for all involved.

‘The clients are more sophisticated,the work is more difficult,’ says DanielMartin, partner at UK law firm HFW,which advises the shipping,commodities, aerospace and insurancesectors.

Firms have to go beyond thetraditional service mile. Inducementscan include cut-price due diligence toregular clients, who have to evaluatewhether it is worth incurring the cost ofcompliance for a transaction to passmuster. Martin suggests that providinga ‘cradle-to-grave’ service spanningeveryday compliance to investigationsfosters confidence in external counsel,and that it will, in turn, lead to athorough understanding of the client’sbusiness.

Another incentive is face-to-face in-house training, tailored to coverdevelopments that affect eachparticular business. ‘We find this moreeffective in an era in which the volumeof client alerts and briefings risksinformation overload,’ says Martin.Clients expect anticipatory rather thanresponsive advice: ‘They really value itwhen trade lawyers alert them tochanges that are about to happen,’ saysWhitten.

‘What I really don’t need

is someone to come

along and read the regs

to me, when I’ve been

living and breathing

them for years.’



Who is the best point of contactin the business?Views are mixed on whether the pointof contact for external counsel shouldbe the in-house legal team. ‘If thenature of the business is highlycommoditised so that the legal contexthas been addressed already, then it ispossible to liaise with a client managerwho has no legal role,’ says Martin.

Others argue that legal questionsand regulatory discussions should onlytake place between legal specialists ‘toavoid misinterpretation and ensure astreamlined communication.’

‘Nonetheless, in order to managecross-functional topics or work onevaluating certain business projects,representatives from programmemanagement or procurement may beembedded into the dialogue – led bytrade compliance,’ says Alex Groba,director of foreign trade at MTU AeroEngines.

Easy as ICP? All those spoken to for this article –trade compliance managers,consultants, private practice lawyers,in-house counsel – agree that external

legal providers have a vital role inadvising on building a successfulinternal compliance programme(‘ICP’).

‘Considering the evolvingrequirements and, more than ever, theimportance of a comprehensiveinternal rule set, establishing an ICP

goes far beyond ensuring appropriateclassifications and shipment/technology controls,’ says Groba.

The downside? A lack of knowledgeof the internal business culture of thecompany may mean that proposedpolicies and procedures will notfunction well in practice.

‘External legal counsel does nothave the experience to develop apragmatic compliance programme

unless they have been in-house,’ arguesChapman. ‘They may not understandR&D, finance, logistics. When you arebuilding internal controls, you musthave solid expertise. An over-relianceon external counsel can mean theprocesses are not fit for purpose andmay result in a major violation.’

Groba points to the need for a‘detailed understanding of a company’sinternal processes’, how they fit intothe ICP as well as ‘a climate of mutualtrust between the trade complianceteam and other departments,’ withoutwhich ‘external counsel will just costmoney but will not improve overallcompliance,’ he says.

‘A mixed team of lawyers andconsultants may be a wise choice, aslong as roles and responsibilities havebeen clearly defined,’ says Groba.

Whether to work with a range oflegal specialists, or trust one or twofirms, is a decision each business has totake on its own. ‘In the end what isimportant is a deep understanding ofthe individual business model toensure legal advice is tailored to thecustomer, instead of general regulatoryexplanations,’ says Groba.

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Tank TalkNews and research from the export control,

non-proliferation and policy world

www.nonproliferation.org/op43-north-koreas-international-scientific-collab-

orations-their-scope-scale-and-potential-dual-use-and-military-significance/

In an occasional paperpublished in December bythe James Martin Center forNonproliferation Studies(‘CNS)’, Joshua Pollack andScott LaFoy examine theefforts that Kim Jong Un hasmade to develop indigenoustech nologies to bypass inter -national sanctions, so as toreduce North Korea’s needfor imported goods.

They explain: ‘To assessthe extent of this activity,and to identify collaborativeresearch involving dual-usetechnologies and othertechnologies of potentialmilitary significance [they]

developed a new datasetcapturing publications co -authored by North Koreanscientists and foreignscientists between 1958 andApril 2018 … Based on aninitial evaluation, at least100 published articles jointlyauthored by North Koreanand foreign scientists haveidentifiable significance fordual-use technology,weapons of mass destructionor other military purposes.Areas of concern or potentialconcern include:

l Uranium purification(Romania, 1991–92)

North Korea’s dual-use capability and collaboration

Writing for the Institute ofInternational SecurityStudies (‘IISS’), fellowMichael Ellerman notes thaton 15 January, Iran‘attempted and failed to liftthe Payam-e Amirkabirsatellite into orbit using aSimorgh rocket’. Israeliprime minister BenjaminNetanyahu and US secretaryof state Mike Pompeo bothresponded by describing theattempt as being in violationof international agreementsand UNSCR 2231.

As Simorgh was a satellitelaunch vehicle (‘SLV’) andnot an intercontinentalballistic missile (‘ICBM’)there was no breach ofResolution 2231, arguesEllerman, adding that that’snot to say that there aren’trisks attached to Iran’srocket programme. Theprospect of a launch, he says,of the Khorramshahr missile– which uses propellants

that are more energetic thanthose employed by Scud andNodong systems, ‘is of muchgreater concern. The higherenergy propellant combin -ation allows engineers toreduce significantly missilesize and mass, which in turncould form a basis for a road-mobile, nuclear-capableICBM.’

Similarly, in the event ofthe ‘restart of the two-stage,solid-fuel Sajjil missile,which has not been flighttested in eight years,’ theinternational communitywould also ‘be right toprotest, as such develop -ments could be exploited tofashion a nuclear-tippedICBM.’ But for now,‘diplomatic capital shouldnot be diluted by protestingIran’s use of the SimorghSLV but should instead focuson Iranian actions that posethe greatest risk tointernational security.’

l Insulation of high-voltagecables for nuclear powerplants (China, 2007-12)

l Materials science with apotential nuclearapplication (China, 2012)

l Damping technologyapplicable to space/missiles (China, 2016-17)

l Mathematical modelingapplicable to space/missiles (China, 2006-16)

l Special heavy vehiclesand production systems(China, 2011-16)

l Precision machine tools(China, 2016)

l Carbon composites(China, 2012)

l Other materials sciencewith potential militaryapplications (China,2011-18)

l Optical tracking andimage parsing (China,2011-16)

l Remote sensing andsatellite-imagery process -ing (China and UnitedStates, 2010-13)

l GPS-related work(Germany and China,2007 and 2016)

l Laser and plasmonicsresearch (Germany andChina, 1998-2016)

l Biological researchpotentially of a dual-usecharacter (China andAustralia, 1987-2017)

l Cybersecurity (China,2012)

Some of these activities,they say, ‘may be contrary toprovisions in internationaland national sanctionsregimes. UN SecurityCouncil resolutions forbidthe provision to North Koreaof “technical training, advice,services, or assistance”related to a list of banneditems that includes dual-useand military-related “tech-nology.” ... The sanctionsregime may thereforeprovide leverage against thecontinuation of some areasof collaborative research.’

https://www.iiss.org/blogs/analysis/2019/01/iran-satellite-launch

Failed missile launch ‘wrong target of internationaloutrage’ -- IISS

How should crypto community respond to recentOFAC designations?

Writing for the Royal UnitedServices Institute (‘RUSI’),Kayla Izenman explores howthe ‘crypto community’ –i.e., virtual currencyexchanges – might or shouldrespond to the designationlast year of two Iranians fortheir role in the SamSamransomware campaign.

On the one hand, shewrites, the ‘strong message’from OFAC may drive thecommunity under ground.On the other: ‘Blockchainanalysis companies, such asChainalysis and Elliptic,already provide intelligenceto help companies meet their“Know Your Customer” andanti-money launderingcompliance obligations andenable better understandingof suspicious crypto trans -actions. By utilising thistechnology, together withother innovative solutions,

centralised exchanges are inprime position to regulatethe blockchain themselves, tosome extent.’

One solution, Izenmansuggests, ‘lies in thepossibility of “tainted” coins,a concept in which stolen ordesignated coins are taggedas they move through thesystem, indicating the flowof money laundering as wellas keeping exchanges andcrypto users safe frominadvertently violatingsanctions.’

Such a change would, shesays, ‘require incredibleeffort, desire, and expenseon the part of the exchangesand developers,’ but sheargues that ‘with crypto’salready rocky reputation as afacilitator of crime, it couldbe in the community’s bestinterest to deal with its ownproblems.’


Interview Interview

Brad Brooks-Rubin says that hesometimes feels ‘like a one-manmulti-stakeholder initiative’,

reflecting a career that has seen himbring his legal skills to bear ingovernment (at both the departmentsof State and the Treasury), in anindustry association (the GemologicialInstitute of America), in private legalpractice (at LeBoeuf, Lamb, Greene &Macrae and Holland & Hart), and nowfor the Enough Project, where he ismanaging director of an advocacygroup that seeks to use sanctions toolsin a way that is pretty much unique,and in a part of the world – sub-Saharan Africa – the conflicts of whichare too often misunderstood orignored.

But his previous experiences andthe insight gained from them are nowproving invaluable in his work at theEnough Project.

‘When I was a counsel at OFAC, myportfolio was sub-Saharan sanctions.Traditionally, we just put people on alist. In the late 2000s, we begandeveloping the template for moreeffective sanctions – because you can’tjust put people on a list and hope it hasan effect.’

The key to success, he says, lies inidentifying networks and choosing theright targets.

‘Before, you’d just pick on somepeople. But there’s no point in doingthat if they don’t have any assets, orthey do have assets but you don’t knowwhere they are.’

A different approachThe origins of the Enough Project lie inthe Darfur crisis, and in work thatfounders John Prendergast and GayleSmith (now president of poverty-eradication campaign group, The ONECampaign) were doing at theInternational Crisis Group and theCenter for American Progress,respectively.

Where the Enough Project broughtsomething new in its response to crises

– conflicts playing out, and atrocitiescommitted, in East and Central Africa– was, says Brooks-Rubin, inrecognising that the approach hithertotaken by many governments and NGOswasn’t working.

‘The traditional tools of diplomacyare largely about finger wagging. Butwe knew these armed groups, whowere committing the atrocities, and weknew that they were making a lot ofmoney, and that peace for peace’s sakewas not in their interests.’

The late 2000s, he points out, sawtools such as the AML regime beingused more politically. ‘We realised thatif they were directed in more specificways, they would have more impact –and we began not only to advocate forthose tools being applied mosteffectively, but also to provide theinformation that would enablegovernment to do so.’

In 2015, John Prendergast co-

Brad Brooks-Rubin is managing

director at the Enough Project, which

supports peace and an end to mass

atrocities in Africa’s deadliest conflict

zones, and The Sentry, which ‘follows

the money in order to create

consequences for those funding and

profiting from genocide or other mass

atrocities in Africa, and to build

leverage for peace’.

From 2009-2013, he served as

the Special Adviser for Conflict

Diamonds at the US Department of

State, where he provided working-

level representation for the United

States in the Kimberley Process. He

also contributed to US efforts related

to conflict minerals in eastern Congo.

Prior to that, he served as an

attorney-adviser at OFAC and in

private legal practice.

Enough alreadyWorldECR speaks with Brad Brooks-Rubin, Managing Director of the Enough Project and

The Sentry, and finds out how the advocacy organisation seeks to employ the tools of state

in its pursuit of peace and justice in Africa.


Interview Interview

founded with the actor George Clooneya sister project to Enough called TheSentry, an investigative team includingpolicy analysts, forensic investigatorsand regional experts who ‘follow themoney’ to ‘create consequences forthose funding and profiting fromgenocide or other mass atrocities inAfrica’.

‘The US government isn’t able tofocus sufficient resources on collectingthe evidence,’ says Brooks-Rubin. ‘Butwe are providing the government, andthe European Union, with information.Which means that they have theinformation they need to replicate thenetwork-based approach, as they’vedone with North Korea and Iran, tocreate leverage that results inbehaviour change. And we know thatthat’s a strategy that works, of course,because of the massive penalties thatare in place.’

Countries and areas of particularconcern to the Enough Project includethe Central African Republic,Democratic Republic of Congo, Sudan,and South Sudan. None of these are onthe corporate compliance agenda in thesame way as Russia, Iran or NorthKorea, but, Brooks-Rubin points out,‘When US Under-Secretary [SigalMandelker] visits East Africa (as shedid in June last year with JohnPrendergast – on a visit that sawMandelker raise concerns about illicit

money flows out of South Sudan andinto the coffers of its neighbours) thebanks are definitely taking note. Ofcourse, we can’t always guaranteeeverything, but the playbook works.And the government is now asking us:“Who are the people that matter?”’

Back in September 2017, OFACdesignated three people and threecompanies under Executive Order13664 (‘the South Sudan order’) ‘foractions or policies that threaten thepeace, security, or stability of SouthSudan’. This coincided with the

publication of an advisory by theTreasury’s Financial CrimesEnforcement Network (‘FinCen’)reminding banks that ‘OFAC and UNdesignations increase the likelihoodthat other, non-designated SouthSudanese senior political figures andopposition leaders may seek to protecttheir assets, including those that arelikely to be associated with politicalcorruption, to avoid potential future

blocking actions. Consistent withexisting regulatory obligations,financial institutions should takereasonable, risk-based steps to identifyand limit any exposure they may haveto funds and other assets associatedwith South Sudanese corruption.’

In December 2017, Israelibillionaire Dan Gertler was sanctionedwith the release of a new GlobalMagnitsky executive order issued byPresident Trump, while the TreasuryDepartment simultaneously designated19 companies and one individual

associated with Gertler. OFACdescribes Gertler as having ‘amassedhis fortune through hundreds ofmillions of dollars’ worth of opaqueand corrupt mining and oil deals in theDemocratic Republic of the Congo(DRC),’ and who has close ties to DRCpresident Joseph Kabila. OFACfollowed up on this action in June 2018when it sanctioned 14 companies‘owned or controlled by Gertler’ underthe Global Magnitsky executive order.

In December 2018, OFACsanctioned three individuals and sixentities under Executive Order 13664.Two of the individuals, Gregory Vasiliand Obac William Olawo, are SouthSudanese, designated ‘for being leadersof entities whose actions have thepurpose or effect of expanding orextending the conflict in South Sudan’.The third, Israel Ziv, is a retired IsraelDefense Forces major general, who,according to OFAC, used anagricultural company as cover for thesale of $150 million-worth of weaponsinto South Sudan.

‘It’s imperative to understand thevalue chain and the supply chain,’ saysBrooks-Rubin, ‘whether that’s inrelation to conflict minerals or oil, theUN Guiding Principles or the Dodd-Frank Rule. Because often you’ll findthat these people are all connected. Ifyou’re doing business in minerals inCongo, you’re probably dealing with acorrupt actor. And that means it’s alsoyour problem.’

‘The US government isn’t able tofocus sufficient resources oncollecting the evidence...But weare providing the government,and the European Union, withinformation.’

Brad Brooks-Rubin

The Enough ProjectThe Enough Project was founded by John

Prendergast with Gayle Smith in 2007.

Prendergast, who remains its Founding

Director, had previously worked for the

Clinton White House, the State

Department, two members of Congress,

the National Intelligence Council,

UNICEF, Human Rights Watch, the

International Crisis Group, and the US

Institute of Peace.

The Project’s intention is to ‘counter

armed groups, violent kleptocratic

regimes, and their commercial partners

that are sustained and enriched by

corruption, criminal activity, and the trafficking of natural resources.’

In 2016, with actor George Clooney, Prendergast co-founded The Sentry – a team of

forensic investigators dedicated to ‘following the money…to create consequences for

those funding and profiting from genocide or other mass atrocities in Africa,’ guided by

the dictum that ‘War crimes shouldn’t pay.’

Brad Brooks-Rubin serves as the Managing Director at Enough. He joined Enough

from the Gemological Institute of America (GIA), where he served as the first Director,

Global Development and Beneficiation.


Interview Interview

Another implication is that – giventhat corruption and human rightsviolations are increasingly on thesanctions agenda – the fact that, forexample, Sudan (as distinct from SouthSudan) is no longer under embargodoesn’t mean it’s now ‘carte blanche todo business there.’

The $60bn planAny discussion of Sub-Saharan Africa’sfuture is, of course, meaninglesswithout including China’s ambitions onthe continent (not least, givenPresident Xi’s September 2018promise of $60bn worth of support andinvestment), all of which may soonovershadow the West’s assumptionthat it plays a leadership role.

‘Yes, China is a major factor – and a

really interesting test case for exploringhow far we can go with this pressureand strategy. Of course, there’s nothinginherently wrong with Chineseinvestment and support in Africa. But ifit has allowed people like [Sudanesepresident] Omar al-Bashir and JosephKabila [who stepped down from thepresidency of the DRC last year] to stayin power for so long, and as we startgetting closer to the link betweencorruption and power, should we stepback? The United States has sanctionedChinese entities before in differentcontexts [i.e., under the North Koreansanctions programmes]. Perhaps we’llfind that [imposing sanctions onChinese companies for links to Africancorruption] is a step too far.’

Pushing things forwardWhat is clear, says Brooks-Rubin, isthat despite some of the periodicpublicity about the ability of thecurrent US administration to function

smoothly (and personality clashes andother controversies), in this regard atleast, things are moving forward.

What the process that culminated inthe Joint Comprehensive Plan ofAction proved, Brooks-Rubin suggests,is that sanctions can be used toencourage an ongoing transition:

‘If you look back at the P5+1negotiations, the Treasury wouldcontinue to ratchet up the pressureeven when there was progress. Theywere saying in effect, “We’re taking thisaction against Iran because we’retaking these negotiations seriously andwe want to show there’s a lot at stake.”’

There’s no reason why, he says, sucha model (notwithstanding whateverone may think of the deal agreed, andthe US pull-out) shouldn’t be used in

dealing with African warlords. Last September, John Prendergast

addressed a UN Security Councilsession on the ‘devastating linkbetween corruption and conflict,’where he told delegates that sanctionsimposed on individuals in Africa weretypically upon ‘too few individualssanctioned too infrequently,’ because,‘the mandate does not exist to targetthose responsible for the corruption,those at the centre of the networksresponsible for greed-fueled extremeviolence and their commercialcollaborators. Over time, and in theabsence of meaningful enforcement,warring parties have come to regardthese kinds [of] erratically applied,one-off sanctions as a vague annoyancefor their public relations rather than asa serious threat to their power.’

At a joint press conference withboth Prendergast and US Treasuryassistant secretary Marshall Billingslea(recently nominated to be an under

secretary of state), then-USambassador to the United NationsNikki Haley told reporters that the USwould continue to press the SecurityCouncil to recognise the importance oftackling corruption.

For his part, Billingslea describedthe recommendations that Prendergast(whom he described as ‘a closepartner’) made to the Security Councilas ‘very much in line with how theAdministration and the Treasury’ areapproaching the issues.

‘We very much welcome the chanceto explore further opportunities,’ hesaid, ‘to engage in targeted financialsanctions, going after the completenetworks’ of those who are ‘extorting orextracting wealth from the helpless.’

These are laudable and ambitiousobjectives – and long overdue. Andrecent designations of CentralAmerican entities show that the USgovernment is now comfortable usingcorruption as a criterion for inclusionon a sanctions list. But where does thetrajectory cross paths (or otherwise)with the other hallmark of thisadministration’s approach to foreignaffairs: its willingness to ‘go it alone’and apparent distaste for globalconsensus?

‘The leverage is always increased ifit’s multilateral,’ says Brooks-Rubin.‘Certainly, the European Union and theUnited Kingdom are very important –they’re sending senior diplomats to theregion. What would help would be ifthe European Union were to applycorruption as a designation criterion…There are plenty of targets available,and that would add to theeffectiveness.’

He adds further food for thought:‘There’s potentially a huge opportunityhere as the UK develops its ownsanctions regime if it leaves theEuropean Union.’

Warlords, cronies andcarpetbaggers be warned.

‘What would help would be if theEuropean Union were to applycorruption as a designationcriterion…There are plenty oftargets available, and that wouldadd to the effectiveness.’

Brad Brooks-Rubin

More information about the work

of the Enough Project and The

Sentry can be found at:

www.EnoughProject.org and

www.TheSentry.org

WorldECR welcomes your feedback. Email the editor:[email protected]


Bulletins Bulletins

The EU has added nine individuals andone entity to its Chemical Weaponssanctions list (asset freeze and travelban). These are the first listings to bemade under the sanctions regime. (SeeCouncil Decision (CFSP) 2019/86,Council Implementing Regulation(EU) 2019/84, and EU Press Release.)

Syria-based Scientific Studies andResearch Centre (‘SSRC’) wassanctioned for the ‘development andproduction of chemical weapons’. Theentity is already listed under the EU’sSyria sanctions regime.

The nine listed people are: Tariq

Yasmina; Khaled Nasri; WalidZughaib; Firas Ahmed; Said Said;Anatoliy Vladimirovich Chepiga;Alexander Yevgeniyevich Mishkin;Vladimir Stepanovich Alexseyev; andIgor Olegovich Kostyukov.

Mr Chepiga and Mr Mishkin (bothRussian GRU officials), and MrKostyukov and Mr Alexseyev (the Head

and First Deputy Head of the GRU,respectively), were sanctioned forbeing ‘responsible for [the] possession,transport and use in Salisbury (UK) ofa toxic nerve agent’ against Sergei andYulia Skripal (March 2018). The otherfive listed people are ‘Syrian officialsdirectly involved in the SSRC’sactivities’.

First listings under EU’sChemical Weapons sanctionsregimeBy Maya Lester QC, Brick Court Chambers

www.europeansanctions.com

EU

On 21 January, the Council of theEuropean Union added 11 businessmenand five entities to its Syria sanctionslist, on the basis that they ’supportand/or benefit from the Syrian regime’by being involved in ‘luxury estatedevelopment and other regime-backedprojects’. They will now be subject toEU-wide asset freezes and (whereappropriate) travel bans.

The 11-listed businessmen are: AnasTalas; Nazir Ahmad JamalEddine;Mazin Al-Tarazi; Samer Foz; Khaldoun

Al-Zoubi; Hussam Al-Qatirji; BasharMohammad Assi; Khaled al-Zubaidi;Hayan Mohammad Nazem Qaddour;Maen Rizk Allah Haykal; and NaderQalei.

The five listed entities are: Rawafed

Damascus Private Joint StockCompany; Aman Damascus JointStock Company; Bunyan DamascusPrivate Joint Stock Company; Mirza;and Developers Private Joint StockCompany.

EU adds individuals andentities to Syria sanctions By Michael O'Kane, Peters & Peters

www.europeansanctions.com

EU

Council Decision (CFSP) 2019/86: https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32019D0086&from=EN

EU Press release: https://www.consilium.europa.eu/en/press/press-releases/2019/01/21/chemical-weapons-the-eu-

places-nine-persons-and-one-entity-under-new-sanctions-regime/pdf

Council Implementing Decision (CFSP) 2019/87: https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32019D0087&from=EN

Council Implementing Regulation (EU) 2019/85: https://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:32019R0085&from=EN

EU Press Release: https://www.consilium.europa.eu/en/press/press-releases/2019/01/21/syria-eu-adds-eleven-

businessmen-and-five-entities-to-sanctions-list/pdf

WorldECR welcomes your bulletins. email [email protected]


Enforcement actions taken by theOffice of Foreign Assets Control(‘OFAC’) in late November/December2018 included:

Settlement with US holdingcompany for apparent violationsof Belarus sanctionsOn 20 December 2018, OFACannounced a US$7.8 million settlementwith a US holding company to settlepotential civil liability for 26 apparentviolations of the Belarus SanctionsRegulations.1 OFAC found that between18 January 2012 and 27 October 2015,the holding company and/or one of itsUS subsidiaries violated the BelarusSanctions Regulations by approving 26purchases of a chemical from aBelarusian SDN. In addition, theholding company’s Hungariansubsidiary also purchased the chemicalfrom the SDN, with the approval ofsenior executives of the holdingcompany. OFAC considered thefollowing aggravating factors:

i. the holding company acted withreckless disregard for US economicsanctions requirements and/orfailed to exercise a minimal degreeof caution or care in avoiding theconduct that led to the apparentviolations and failed to incorporateOFAC compliance checks in itsoverall risk mitigation strategy;

ii. personnel, including senior andexecutive-level managers, wereaware of – and participated in – theconduct that led to the apparentviolations;

iii. the holding company approved theHungarian subsidiary’s purchase ofa significant volume of chemicalsfrom the SDN for a period of severalyears, resulting in significant harmto the sanctions programmeobjectives and conferring more thanUS$18 million to a Belarusiangovernment entity;

iv. the holding company and USsubsidiary are large entities thatengage in a significant volume of

international trade and cross-bordertransactions; and

v. specifically for action after February2015, senior personnel activelydiscussed US sanctions related tothe SDN raised by third parties butdid not review the company’s USlegal obligations and continued toapprove SDN transactions.

OFAC considered the followingmitigating factors:

(a)neither the holding company nor itsUS subsidiary received a penaltynotice or finding of violation fromOFAC in the five years preceding theearliest apparent violations;

(b)the holding company and USsubsidiary cooperated with OFAC’sinvestigation, including by voluntar -ily self-disclosing the apparentviolations, providing detailed andwell-organised information forOFAC’s review, and by agreeing to

toll the statute of limitations for atotal of 643 days; and

(c) the holding company and USsubsidiary confirmed that they haveterminated the conduct that led tothe apparent violations and havetaken steps to minimise the risk ofrecurrence of similar conduct in thefuture.

Settlement with Chinese oil andgas company for apparentviolations of Iran sanctionsOn 12 December 2018, OFACannounced a US$2.8 million settlementwith an oil and gas company based inChina for 11 apparent violations of theIranian Transactions and SanctionsRegulations (‘ITSR’), concurrent with aseparate settlement between thecompany and BIS.2

According to OFAC, the companyexported or re-exported, or attemptedto export or re-export, US-origin goodsultimately intended for end-users inIran by way of China and the UAE.

OFAC alleged that the companyknew or had reason to know that itemsin some of the shipments wereultimately intended for Iran.

OFAC considered the followingaggravating factors, among others:

i. the company wilfully violated theITSR by engaging in andsystematically obfuscating conductit knew to be prohibited by companypolicy and economic sanctions, andcontinued to engage in such conducteven after the US government beganto investigate the conduct;

ii. employees, including severalmanagement-level personnel, hadcontemporaneous knowledge of thetransactions in question;

iii. employees took actions to concealthe nature of the transactions fromthe US government; and

iv. the company falsified information

Enforcement action round-upBy Kevin Petrasic, Paul Saltzman, Nicole Erb, Jeremy Kuester,

Cristina Brayton-Lewis and John Wagner, White & Case

www.whitecase.com

USA

Links and notes1 https://www.treasury.gov/resource-

center/sanctions/CivPen/Documents/20181220_z

oltek.pdf

2 https://www.treasury.gov/resource-

center/sanctions/CivPen/Documents/20181212_je

reh_settlement.pdf

OFAC alleged that the

company knew or had

reason to know that

items in some of the

shipments were

ultimately intended

for Iran.

Bulletins Bulletins


Bulletins Bulletins

On 27 November 2018, the TreasuryDepartment’s Office of Foreign AssetsControl (‘OFAC’) announced asettlement agreement with a Virginia-based global technology and servicescompany operating in the aviation,electronics, communications anddefence sector. The settlementconcerned apparent violations of theUkraine Related Sanctions Regulations,31 C.F.R. part 589. According to thesettlement agreement, the companyhad shipped products through itsdistributors in Canada and Russia to anentity in Russia that, although notidentified on OFAC’s List of SpeciallyDesignated Nationals and BlockedPersons (‘SDN List’), was majorityowned by an SDN entity. The companyrelied on third-party software to screenits counterparty, but the software failedto generate an alert for the subsidiary.OFAC’s announcement appears intend -ed to raise a number of compliancelessons relating to the use of, andreliance on, third-party screening soft -ware for OFAC sanctions compliance.

First, the decision makes clear thatscreening software must be sufficientlyrobust to screen the counterparty aswell as entities on its corporatestructure against the SDN List (includ -ing potential matches to persons/entities with close name variations).

Under OFAC guidance (the ‘50%Rule’), an entity that is not listed on theSDN List but is majority owned, eitherdirectly or indirectly, in the aggregate,by a designated person or entity (orgroup of sanctioned parties) is also

subject to blocking sanctions. USpersons are prohibited from dealingwith such an entity. The screeningsoftware should also screen for anydesignated individuals acting as anofficer or director of the counterparty,even if the counterparty is unlisted. Ifsuch designated persons are involved in

the transaction, the transaction couldbe subject to OFAC sanctions.

Second, however good the softwaremay be, an exclusive reliance onautomation is not a sufficientcompliance strategy. OFAC took notethat the company failed to recognise‘warning signs’ when exporting thegoods to ‘the subsidiary of a blockedperson with nearly the same name asthe blocked person.’ [Emphasis added.]The near-identical name between thecounterparty and its designated parent,in OFAC’s view, should have raised redflags to the export control specialistreviewing the transaction, particularlysince the company was ‘large andsophisticated’ with prior violations of

OFAC sanctions. Thus, the settlementargues that in-house export controlprofessionals should understand notonly the functionality, but also the risksof relying on third-party screeningsoftware.

Finally, the OFAC settlementencourages a risk-based approach,using business intelligence tools toconduct enhanced due diligence onhigh-risk transactions. The additionalcost of employing such enhanced duediligence can be justified for high-valuetransactions involving high-riskjurisdictions such as Russia, Syria andVenezuela. In that regard, OFAC’sexpectation is that a company’scompliance unit will receive adequateresources, including human capital, ITand other resources as appropriate.

But here again, software is not atotal solution. Where there are signalsthat a company may be related to asanctioned party, OFAC plainly expectsUS trading partners to inquire further.Nor is a party necessarily in the clearbecause a sanctioned party’s interest ina potential trading partner falls short of50%. In such cases, it may well makesense to take additional steps to ensurethat the sanctioned party will have norole in, and will not benefit from, thetransaction. Absent such assurances,the prudent course may be to walkaway.

Screening the use of screeningsoftware for OFAC sanctionscomplianceBy Christopher R. Brewster, Chris Griner, Gregory Jaeger and

Bibek R. Pandey, Stroock

www.stroock.com

USA

The settlement argues

that in-house export

control professionals

should understand not

only the functionality,

but also the risks of

relying on third-party

screening software.

The settlement is at:

https://www.treasury.gov/resource-

center/sanctions/CivPen/Documents/20181127_me

telics.pdf

on electronic export filings andmade other false statements to theUS government in the course of theinvestigation.

OFAC also considered the followingmitigating factors:

(a)the company has no prior sanctionshistory with OFAC;

(b)the company cooperated withOFAC’s investigation by disclosingpossible violations involving othersanctions programmes andresponding to OFAC’s requests for

information regarding Iran; (c) the company agreed to toll the

statute of limitations; and (d)the company took remedial steps

and corrective actions to prevent arecurrence of the apparentviolations.


Bulletins Bulletins

On 23 January, the recently electedPresident of the Venezuelanopposition-led National Assembly,Juan Guaido, declared himself thelegitimate President of Venezuelaciting provisions of the Venezuelanconstitution. Immediately thereafter,in a pre-coordinated action, USPresident Trump stated that the USrecognised him as such.

Several dozen other countries haverecognised Guaido as, and stated thatNicolas Maduro is no longer, thelegitimate President of Venezuela,citing grave concerns over the 2018 re-election of Maduro, theimpoverishment of the Venezuelanpeople, and corruption within theMaduro government. Several EUcountries have said they will recogniseGuaido if Maduro does not call newpresidential elections by 2 February2019.

On 28 January, the US greatlyexpanded its economic sanctions onVenezuela to include broad ‘blocking’(asset-freezing) sanctions on thenational petroleum company Petróleosde Venezuela, S.A. (‘PdVSA’), and itsdirect and indirect subsidiaries. Thereare dozens of significant PdVSAsubsidiaries around the world,including CITGO in the United States.

With the PdVSA sanctions, the USgovernment intends to support theefforts of the Venezuelan opposition,led by Guaido, to take control overVenezuelan government assets in theUnited States. The State Departmentannounced that the PdVSA sanctions‘will preserve the core pillar ofVenezuela’s national assets for thepeople and a democratically electedgovernment’.

Summary of the PdVSAsanctionsOn 28 January, the US Office ofForeign Assets Control (‘OFAC’)

announced that PdVSA had beenadded to the US List of SpeciallyDesignated Nationals and BlockedPersons (the ‘SDN List’). Companies onthe SDN List, and any entity in whichthey hold, individually or in theaggregate, a 50% or greater ownershipinterest, are covered by broad blocking(asset-freezing) sanctions.

As a result, companies formedunder US law, US citizens andpermanent residents and other entitiesor individuals (‘persons’) located in theUS (‘US persons’) are generallyrequired to freeze any assets owned byPdVSA and its subsidiaries, and anyassets or funds in which they have anyinterest. US persons are also generallyprohibited from engaging in any othertypes of transactions with or involvingPdVSA or its subsidiaries.

This will impact a broad range ofongoing transactions and commercialrelationships that involve US persons,US dollar payments or another ‘nexus’(connection) to the United States.

The US government also issuedseveral ‘general licences’ that providefor wind-down periods and authorisecertain transactions that wouldotherwise be prohibited by the newblocking sanctions on PdVSA and itssubsidiaries. A general licencedescribes certain types of transactionsthat are authorised for any party andany transaction that satisfy its terms.

These general licences do notauthorise any transactions that wouldalso be prohibited by the more limitedpre-existing sanctions on Venezuela.The following are some of the broadestof these new general licences (‘GLs’):

l GL 7 authorises for six months,until 27 July 2019, transactions withcertain PdVSA subsidiaries –CITGO Holding, Inc., PDV Holding,Inc., and their subsidiaries – thatwould otherwise be prohibited by

the blocking sanctions on PdVSA.GL 7 does not authorisetransactions involving any otherPdVSA entity, except for certainpetroleum imports to the UnitedStates (see GL 12, below).

l GL 11 authorises US employees ofnon-US entities anywhere in theworld other than the United Statesor Venezuela to participate in the‘maintenance or wind-down’ of pre-existing PdVSA business, for twomonths, until 29 March 2019. GL 11also authorises US banks to reject(rather than having to freeze)certain funds transfers betweennon-US persons that originate andterminate at non-US banks andinvolve PdVSA or one of itssubsidiaries.

l GL 12 temporarily authorises thecontinuation or wind down ofimports of Venezuelan crude to theUS and other business involvingPdVSA. For one month, until 27February 2019, GL 12 broadlyauthorises the ‘wind down’ ofexisting business with PdVSA or itssubsidiaries that was underway as of28 January 2019 (pre-existingPdVSA business). GL 12 authorisesthe purchase and importation intothe United States of petroleum andpetroleum products from PdVSA orits subsidiaries for three months,until 28 April 2019.

Unless authorised under anotherGL, any payment owed to PdVSA, orthat would directly or indirectly benefitPdVSA, must be made into a ‘blockedaccount’ at a US bank, meaning afrozen, interest-bearing accountreported to the US government. GL 12does not authorise the transfer of anydebt or equity in, to or for the benefitof’ PdVSA or its subsidiaries or theexportation of diluents from the US toVenezuela.

US government sanctionsPdVSA and its subsidiaries By Glen Kelley, Jacobson Burton Kelley PLLC

www.jbktradelaw.com

USA


Editorial Editorial

‘We’re busy,’ say not just theLondon law firms butmany others in the EU,

‘trying to second-guess Brexit.’ Indeed,they have been since the result of thereferendum in 2016 – and a good fewhave spent significant sums showcasingtheir expertise in an area of practicethat is still defining itself.

Yes, there are definite things to besaid about sanctions and exportcontrols post-Brexit and how it all fitsinto the broader ecosystem of trade –well, as one sage said, ‘If you’ve neverjumped off a cliff before, it’s impossibleto lecture others on landing technique.’

But if Brits are waking up to the veryreal possibility of food shortages andprice rises, they can at least comfortthemselves with the thought that thesituation is unlikely to deteriorate to theextent that it resembles Venezuela’s,where rioting and violence currentlyreign and the emergence of a self-declared presidential alternative toNicolas Maduro suggests that conflictwill precede any political solution.

On the Venezuela question, it seemsthe European Union and the UnitedStates are of a similar mind. Thecountry’s plight is a result of the failedpolicies of Maduro and change isnecessary and will be encouraged.

Talking of convergence, isGermany’s prohibition of Mahan Airfrom landing at its airports alsoindicative that some in Europe areseeing things through Washington’s

eyes? Playing the Iranian terror cardmeans EU Member States can crank upthe pressure on Tehran without makingconcessions vis a vis the nuclear deal.Indeed, an announcement regardingthe fabled Special Purpose Vehicle isthought to be imminent – but it will be

accompanied by warnings for Iranabout its global citizenship.

It would seem that, in theseconfusing times, the best approach forbusiness as it navigates the swirlingwaters of national security andrealpolitik is to look at each challengeas a case unto itself, and not look toohard for patterns. Take the very recentremoval of Rusal, EN+ Group and JSCEuroSibEnergo: The sanctions againstthe Deripaska-controlled companiescreated supply chain issues – and joblosses – in the global aluminiummarkets. Who blinked first? The USgovernment, afraid of continueddisruption to the markets, or thecompanies, whose directors havesuccessfully reduced Oleg Deripaska’scontrol, so as to free themselves fromthe yoke of OFAC. And will the outcomeset a trend?

Perhaps best not to read to muchinto it, just in case…

Tom Blass, January [email protected]

Case by case (just in case)

‘If you’ve never jumped

off a cliff before, it’s

impossible to lecture

others on landing

technique.’


OFSI gears up to use its civilenforcement powers

The Office of Financial Sanctions Implementation is the

UK’s new(-ish) financial sanctions authority. Eighteen

months old, it’s yet to use its civil enforcement powers.

Rachel Barnes, Patrick Hill and Genevieve Woods

consider why and what the future may hold.

The UK’s Office of FinancialSanctions Implementation(‘OFSI’) is the UK’s competent

authority for implementing andenforcing financial sanctions. It hasenjoyed powers to impose civilmonetary penalties for serious breachesof financial sanctions since April 2017,yet in 18 months it has never exercisedthose powers. This article examineswhy that may be the case, why OFSI’sapproach may now be changing, andwhat the future may bring.

OFSI’s first year: education andengagementOFSI was established on 31 March2016. The government’s intent, set outin the 2015 Summer Budget, was that:

‘The Office will provide a high-quality service to the private sector,working closely with law enforcementto help ensure that financial sanctionsare properly understood, implementedand enforced. This will ensure financialsanctions make the fullest possiblecontributions to the UK’s foreign policyand national security goals and helpmaintain the integrity of andconfidence in the UK financial servicessector.’

During its first year of operation,OFSI primarily focused on educationand engagement. It issued guidance oncompliance while its proposedenforcement powers progressedthrough parliament, in the form of thePolicing and Crime Bill. Until that billwas passed, OFSI did not have thepower to impose civil monetarypenalties for breaches of financialsanctions and nor could appropriatesanctions cases be resolved by deferredprosecution agreements.

OFSI’s second year: gaining new powersThe Policing and Crime Act 2017 (‘the

suspect that they were in breach of theprohibition or had failed to complywith the obligation.

If OFSI can estimate the value of thefunds involved in the breach, themaximum penalty is the greater of£1,000,000 or 50% of the estimatedvalue. In all other cases, the maximumpenalty is £1,000,000.

Why OFSI hasn’t yet used itscivil powersOFSI has been empowered to imposeheavy fines for breaches of sanctions atits discretion for the past 18 months, sowhy has it been so reluctant to exercisethese powers?

An initial clue lies in a blog writtenby the Head of Enforcement andEngagement for OFSI on 29 March2018:

‘I think that the best enforcement is100% compliance – that is, everyonehas properly assessed their risks, takensensible steps to manage them and,consequently, doesn’t break the law.That can only happen if people

OFSI OFSI

2017 Act’) came into force on 1 April2017. Along with adding sanctionscases to the list of cases to whichdeferred prosecution agreements(‘DPAs’) can be applied, the 2017 Act

gave OFSI new civil enforcementpowers as an alternative to referringmatters for criminal prosecution.

In order to impose a civil monetarypenalty, OFSI must be satisfied on thebalance of probabilities that there hasbeen a breach or failure to comply withan obligation imposed by or underfinancial sanctions legislation, and thatthe person or corporation in breachknew or had reasonable cause to

The 2017 Act is not

retrospective; OFSI’s

civil enforcement

powers only apply to

breaches which have

occurred after

1 April 2017.


understand how financial sanctionswork – what your risk is and how thelaw applies to you’.

In other words, and consistent withthe statement of intent in the 2015Summer Budget, OFSI’s complianceand enforcement strategy has to datebeen concerned with ensuring thatfinancial sanctions are ‘properlyunderstood’ and ‘implemented’ as anecessary precursor to ‘enforcement’(an overall policy summarised by OFSIas: ‘promote, enable, respond [and]change’). To the extent that‘preventative education’, promoting aculture of compliance, and ‘capacitydevelopment’ are successful, resort to‘hard’ enforcement powers may be lessnecessary.

Second, and perhaps mostsignificantly, the 2017 Act is notretrospective; OFSI’s civil enforcementpowers only apply to breaches whichhave occurred after 1 April 2017. Thefact that penalties have not beenimposed to date should therefore notbe taken as an indication of the overallhealth of sanctions compliance in theUK. OFSI investigations into somereports of suspected breaches areongoing and the regime’s ‘youth’together with OFSI’s initial compliancestrategy has resulted in a measure ofearly restraint that cannot be assumedto persist indefinitely. OFSI has madeplain in its guidance that it is in theprocess of ‘learning’. Part of OFSI’sown learning has been the ‘mock’application of its civil enforcementpowers to pre-April 2017 breachesreported to it: telling a reportingcompany that had it been able to applya monetary penalty to the breach, itwould have done so and specifying anamount of such a penalty. OFSI willbecome more confident in itsenforcement function as it ‘matures’.In the interim, it is biding its time untilit receives reports of sufficientlyserious breaches post-dating the April2017 start date that are appropriate fordisposal by way of civil monetarypenalties.

A third (and related) reason whyOFSI has not yet imposed penalties isthat it has thus far preferred toexercise its soft powers. Those powersinclude: (1) contacting persons andexplaining OFSI’s view that the actionmay breach sanctions; (2) issuingcorrespondence requiring details ofhow a party proposes to improve theircompliance practices in the future; or

(3) issuing warnings or cautions. Ofcourse, OFSI’s willingness to exercisethose ‘soft’ powers will invariablydepend on a number of factors. Anindication of ‘circumstances in which[OFSI] may consider it appropriate’ toimpose civil monetary penalties maybe gleaned from OFSI’s statutoryguidance, most recently the MonetaryPenalties for Breaches of FinancialSanctions Guidance issued in May2018.

In the May 2018 guidance, OFSIsets out its case assessment andpenalty decision strategy (see box).

The guidance stresses the need for a‘proportionate’ and ‘fair’ assessment ofevery case and states that penalties willonly be imposed in cases classified as‘serious’ or ‘most serious’. OFSIemphasises in its guidance (at 4.4) thatthe imposition of a penalty ispermissive and not mandatory: ‘If thepenalty threshold is reached, we mayimpose a penalty. We have discretionnot to do so.’

The May 2018 guidance identifies anon-exhaustive list of factors that OFSIwill take into account when decidingwhether to impose penalties. The

following factors will generally tend infavour of penalties:

1. funds or economic resources aremade available to a designatedperson;

2. intentionally and knowinglycircumventing sanctions and/orfacilitating a breach by others;

3. high-value breaches; 4. calculated and deliberate breaches

and possibly also where there isevidence of neglect or a failure totake reasonable care (other, lessserious, factors OFSI will considerare whether there has been asystems and control failure, anincorrect legal interpretation, a lackof awareness of one’s respons -ibilities or simply a mistake);

5. serious harm to the sanctionsregime’s objectives;

6. actual or expected knowledge of andthe extent of ways of complyingwith the sanctions;

7. repeated, persistent or extendedbreaches.

(See also box on following page.)

Monetary penalties are on thehorizonOFSI’s guidance is due to be revised inApril 2019 and there are indicationsthat the existing approach of restraintand reluctant punishment may change.Certainly, the fact that OFSI has notexercised its hard powers to dateshould not be taken as an indicationthat it will not do so in future. In fact,the OFSI 2018 annual report expresslystates that penalties are on the horizon,though it suggests that they will remain

OFSI’s guidance is due

to be revised in April

2019 and there are

indications that the

existing approach of

restraint and reluctant

punishment may

change.

OFSI OFSI

OFSI Monetary Penalties for Breaches of Financial

Sanctions Guidance (May 2018)

Discretion not to impose a penalty

4.21 To ensure fair treatment of all on whom we impose a penalty, we will

normally follow the above process in each case. However, we reserve the right

not to impose a penalty in certain circumstances. These may vary, but will

generally include the following:

l imposing the penalty would have no meaningful effect – for example, the

value of the penalty is so low it would neither deter offending nor provide

restitution for the wrongdoing;

l imposing the penalty would be perverse – for example, the tests for a

penalty are met but there is clear evidence that the offence arose from

improper coercion;

l it is not in the public interest to impose a penalty.


the exception rather than the rule: ‘It islikely that OFSI will impose monetarypenalties in 2018-19. We will continueto consider the full range of potentialaction in every case. The majority ofcases, as now, will be resolved byenforcement activity short of a penalty.’

This prediction is supported by thenumber of suspected breaches whichhave been reported to OFSI: in 2016,£75 million worth of breaches wasreported, while in 2017 the total was£1.4 billion. Some of these cases arestill under investigation. Between thecoming into force of the 2017 Act andthe publication of its 2018 annualreport, OFSI received reports of 103contraventions. As the number ofreports increases, so too does thelikelihood that OFSI will find caseswhich cross its penalty threshold, andthat it will broaden its ‘fair andproportionate’ focus on softcompliance to encompass strongerpunitive measures.

That trend would echo the approachtaken by OFAC, where monetarypenalties have been used extensivelyand for many years. In 2017, OFAC

imposed fines of $119 million oncompanies found to have breached USfinancial and trade sanctions, includingcompanies based in the EU.

DPAsIn addition to imposing civil penalties,OFSI now has another tool since the2017 Act brought financial sanctionsinto the scope of deferred prosecutionagreements for the first time. Ratherthan pursuing criminal prosecutions,those who are found to be in seriousbreach of UK sanctions may bepermitted to enter into a DPA. OFSIhas not issued separate guidance onDPAs; the DPA Code of Practiceadopted by the Crown ProsecutionService and the Serious Fraud Officewill apply, together with the Code forCrown Prosecutors and the JointProsecution Guidance on CorporateProsecutions. Factors such as self-reporting and restorative measureswould likely be prerequisites to aprosecutor offering a DPA, which is inkeeping with OFSI’s emphasis to dateon compliance and monitoring ratherthan the use of punitive measures.

As OFSI matures and the number ofbreaches reported to it increases so willthe number of cases which couldappropriately be resolved by way of aDPA. That said, the Rolls-Royce, Tescoand Skansen Interiors cases show thatobtaining the offer of, and successfullynegotiating and obtaining judicialapproval for, DPAs can be complex andby no means a given outcome in aseemingly appropriate case. Weanticipate that DPAs will remainrelatively limited in sanctions casesand that OFSI will look first to use itsmonetary penalties powers. As such,OFSI’s approach will have similaritiesto HMRC’s use of its compoundpenalties scheme in export controlcases.

Concluding observations Much of the commentary on thepotential impact of Brexit upon theUK’s financial sanctions landscape hasfocused upon the substance of the UK’sfuture sanctions regimes rather thantheir enforcement. The governmenthas reaffirmed the UK’s commitmentto the application of EU sanctions afterBrexit; for example, at the MunichSecurity Conference in February 2018,Prime Minister Theresa May stated:‘We will look to carry over all EUsanctions at the time of our departure.And we will all be stronger if the UKand EU have the means to co-operateon sanctions now and potentially todevelop them together in the future’.The new Sanctions and Anti-MoneyLaundering Act 2018 enables thattransition. Beyond the immediateaftermath it remains to be seenprecisely what the UK’s sanctions post-Brexit landscape will look like. Thepotential penalties that can be imposedin the UK for sanctions breaches arealready greater than in many Europeanstates. What is likely is that the UK’ssanctions enforcement will increase infrequency and severity as OFSIembraces its new powers.

OFSI OFSI

OFSI Monetary Penalties for Breaches of Financial

Sanctions Guidance (May 2018)

Seriousness factors

l ‘We are likely to treat a case that directly and openly involves a designated

person more seriously than one that is a breach of financial sanctions but

does not make funds or economic resources available to a designated

person and openly involves a designated person more seriously than one

that is a breach of financial sanctions but does not make funds or economic

resources available to a designated person’ (3.16)

l ‘OFSI takes circumvention very seriously because it attacks the integrity of

the financial system and damages public confidence in the foreign policy

and national security objectives that the sanctions regimes support. We will

normally impose a monetary penalty if the case is not prosecuted

criminally.’ (3.17)

l ‘A high-value breach is generally more likely to result in enforcement action.’

(3.18)

l ‘Calculated and deliberate flouting of sanctions’ (3.18), likewise OFSI will

consider ‘whether the breach seems to be deliberate; whether there is

evidence of neglect or a failure to take reasonable care; whether there has

been a systems and control failure or an incorrect legal interpretation;

whether the person seems unaware of their responsibilities; or whether

there has simply been a mistake’ (3.24)

l ‘The greater the risk of harm to the regime’s objectives, the more seriously

we are likely to regard a case’ (3.19)

l ‘The level of actual or expected knowledge and the extent of relevant ways

of complying’ will be taken into account (3.20)

l ‘Repeated, persistent or extended breaches’ are more likely to result in

‘more serious action’ being taken by OFSI (3.28)

Rachel Barnes, Patrick Hill andGenevieve Woods are barristersat 3 Raymond Buildings inLondon where they each practisein financial, corporate andregulatory crime.

www.3rblaw.com


Energy Energy

An update on US and EU Russiasanctions and the energy market

Sanctions imposed on Russia by the United States and European Union

present considerable challenges to many businesses – the oil and gas sector

being amongst the most significantly affected. Recent divergence of law and

approach only adds to the complexity, writes Brett Hillis.

In 2014, the US and the EuropeanUnion introduced sanctions againstRussia in response to Russian

activity in Crimea and Eastern Ukraine.Initially, the US and EU regimesdeveloped in step, and while there werealways differences as to the targets ofsanctions and detailed differences ofinterpretation, the broad approach ofthe regimes was aligned. More recently,the approaches of the two havediverged, with US sanctions becomingmore stringent and EU sanctionsstaying the same. The divergence hasbeen particularly important to theenergy market, given that some of thenew US sanctions specifically targetRussian energy businesses, and Russiais the EU’s largest supplier of energy,particularly natural gas,1 and a majorcompetitor of the US in oil and gasmarkets.

This article reviews the relevant USand EU sanctions regimes concerningRussia (and to a relevant extentUkraine/Crimea) and considerspotential future developments.

US SANCTIONS AGAINSTRUSSIA

Overview of legal frameworkThe US framework consists ofexecutive orders and statutes,alongside regulations of the USTreasury Department, Office ofForeign Assets Control (‘OFAC’), as setout in the diagram, over, ‘US legalframework’.

Under the US regime, the ability ofa ‘US Person’ to trade energy productswith Russian or Russian-connectedpersons (or be concerned in thisactivity) is affected by whether thecounterparty is blocked as a SpeciallyDesignated National (‘SDN’) or isincluded in the Sectoral SanctionsIdentification (‘SSI’) List.

For the purposes of these sanctions,a US Person is defined as:

[A]ny United States citizen,permanent resident alien, entityorganized under the laws of the UnitedStates or any jurisdiction within theUnited States (including foreignbranches), or any person in the UnitedStates.2

Thus, the US sanctions apply to UScitizens, US incorporated companies,green card holders and any person inthe territory of the United States.

The US regime bars US Personsfrom dealing with SDNs. In addition,US Persons are prohibited fromproviding new debt or equity above aspecified maturity to persons includedin the SSI List.

In 2017, the US Congress passed theCountering America’s AdversariesThrough Sanctions Act (‘CAATSA’),codifying sanctions previously imposedby executive orders thereby limitingthe ability of President Trump

unilaterally to lift sanctions. Inaddition, CAATSA put in placesecondary sanctions, under which non-US Persons engaging in ‘significanttransactions’ with SDNs riskthemselves becoming subject tosanctions. As will be explained below,the passing of CAATSA has resulted ina divergence between the initiallysimilar US and EU approaches.

Effect on the energy market The US sanctions target both US andnon-US Persons, although therestrictions for each type of persondiffer. A US Person is subject to theRussia/Ukraine-related prohibitionsregardless of location. This includes (i)employees of EU companies holdingUS citizenship and (ii) EU branchoffices of US companies. Subsidiariesof US Persons incorporated outside theUS are not themselves US Persons.

SDNsAs mentioned, primary sanctions applyto the assets of SDNs, and prohibit US


Persons from dealing with these SDNs. The prohibition on dealing with

SDNs is very wide and, in broad terms,covers any economic activity. Property,and interests in property, of SDNsbelonging to or controlled by USPersons, or in the US, must be blockedor frozen and reported to OFAC.Pursuant to executive orders 13660,13661, 13662, and 13685, OFAC hasdesignated a number of entities in andconnected to Ukraine and Russia asSDNs.

Secondary sanctions apply to non-US Persons who engage in or facilitate‘significant transactions’ with SDNs.The term ‘significant transaction’ isintentionally left undefined, therebygiving OFAC more discretion and todiscourage non-US companies fromdoing business with sanctionedentities.

Non-US Persons can also violate USsanctions if they: (1) ‘cause’ US Personsto engage in violations (such as causinga US financial institution to violatesanctions by processing US dollarpayments relating to sanctionedtransactions); or (2) allow their USpersonnel to facilitate, approve, assist,or otherwise participate in prohibitedtransactions. It should be noted thatnon-US Persons (such as non-USbanks and customers) themselves maybe caught by enforcement actions whenprocessing US dollar payments relatingto sanctioned transactions.

Since CAATSA was passed, OFAChas listed approximately 40 prominentRussian companies and officials asSDNs under CAATSA. OFAC recentlynotified Congress, on 19 December2018, of its intention to terminate itssanctions in relation to UC Rusal plc,En+ Group plc and JSCEuroSubEnergo within 30 days in lightof a number of changes andcommitments that these entities haveagreed to. Unless Congress attempts tooppose this termination on the basisthat it considers these changes andcommitments inadequate and inaccordance with certain provisionsunder CAATSA within this 30-daywindow, these entities will be delistedin January 2019.

SSI ListThe SSI List includes major companiesin key sectors of the Russian economytargeted by the four sectoral sanctionsdirectives: (i) financial services, (ii)defence and related materials, and (iii)the energy sector of Russia. The SSI

List therefore applies to specificpersons and entities operating withinthese sectors.

This is different from the SDN List,as the latter prohibits nearly allactivities and is broader in scope. A USPerson can trade with a Russian entityon the SSI List, provided it does notbreach the specific provisions of theDirectives. The SSI List does not applyto non-US Persons.

In particular, directives 1,3 2,4 and 45

are relevant. The directives are subject

to the ‘50 Percent Rule’, which statesthat ‘any entity owned in the aggregate,directly or indirectly, 50 percent ormore by one or more blocked personsis itself considered to be a blockedperson’6

Directive 1 targets equity and debtfinance aspects of transactions,prohibiting US Persons fromtransacting in, providing financing for,or otherwise dealing in new equity ornew debt with maturities beyond a setthreshold.

For new debt or new equity issuedon or after 12 September 2014 andbefore 28 November 2017, the term is30 days maturity.

For new debt or new equity issuedon or after 28 November 2017, theprohibition extends to all transactionsin, provision of financing for, and otherdealings in, new debt or longer than 14days maturity or new equity of personslisted pursuant to Directive 1 (i.e.,major banks in the Russian financialservices sector).

Directive 2 applies to the Russianenergy sector by prohibitingtransactions in, providing financingfor, and other dealings in new debtwith a maturity of longer than 60 dayswith persons identified on the SSI Listunder Directive 2. This tightenspayment obligations.

For example, US Persons dealingwith SSI-listed companies under

Since CAATSA was

passed, OFAC has listed

approximately 40

prominent Russian

companies and officials

as SDNs under it.

Energy Energy

US legal framework

Statutes- CAATSA

- IEEPA

- National Emergencies

Act

List of

blocking criteria(from controlling

statutes and relevant

executive orders

Sectoral

Sanctions

Directives

Executive

Orders- 13660, 13661,

13662, 13685

SDNs and

Blocked Persons

List

General Licenses

(OFAC)- General License 13G,

14C, 15B, 16C

CFR- Ukraine-Related

Sanctions Regulations

31 CFR Part 589


Energy Energy

Directive 2, e.g., Rosneft, would have torequest payment within 60 days ofdelivery.

Directive 4 further expands on thesanctions targeting the Russian energysector. Originally, it prohibited USPersons from doing any of thefollowing:

‘(1) the provision, exportation, orreexportation, directly orindirectly, of goods, services(except for financial services), ortechnology;

(2) in support of exploration orproduction for deepwater[underwater activities at depths ofmore than 500 feet], Arcticoffshore, or shale projects (theCovered Projects);

(3) that have the potential to produceoil in the Russian Federation, or inmaritime areas claimed by theRussian Federation and extendingfrom its territory; and that involveany person identified on the SSIList under Directive 4, includingthat person’s property, or itsinterests in property.’

Since 31 October 2017, OFACwidened the scope of Directive 4 byprohibiting US Persons from providinggoods, services and technology for newprojects anywhere in the world, inaddition to Covered Projects in Russia,where a person subject to Directive 4has 33% ownership or more.

CrimeaSince 2014, US primary sanctionsimposed on Crimea (the ‘Crimeaembargo’) prohibit US Persons fromengaging in nearly all commercialtransactions with Crimea (underExecutive Order 13685).

The Crimea embargo applies to newinvestment; importation into the US ofgoods, services or technology fromCrimea; exporting or re-exporting,directly or indirectly, any goods,services or technology to Crimea;facilitating any transaction withCrimea; and donating humanitariangoods to Crimea. It also adds newentities to the SDN list.

Special Russian crude oil project (US)There are also US secondary sanctionstargeting non-US Persons engaging incrude oil projects in Russia. The USPresident must impose sanctions onany person that ‘knowingly makes asignificant investment’ in such a

‘special Russian crude oil project’unless this would against nationalsecurity interests. A ‘special Russiancrude oil project’ is defined as:

‘[A] Project intended to extractcrude oil from (i) the exclusiveeconomic zone of the RussianFederation in waters more than 500feet deep; (ii) Russian Arctic offshorelocations; or (iii) shale formationslocated in the Russian Federation.’

Similar to ‘significant transaction’,‘significant investment’ is intentionallyundefined to enhance OFAC’sdiscretion and to discourage non-UScompanies from doing business withsanctioned entities. As part of its

discretion when deciding whether tolist a person, OFAC considers variousissues, such as the size, frequency andnature of the transactions in question.

Russian energy export pipeline sector (US)Investment by non-US Persons inRussian energy pipelines is likely to beaffected, since CAATSA authorises theimposition of secondary sanctions onthose that knowingly:

l supply Russia with goods, servicesor technology, or

l invest USD 1 million or more (orUSD 5 million or more over a 12-month period).

To be caught by the sanctions, the

supply or investment must directly andsignificantly boost Russia’s ability toconstruct energy export pipelines (suchas the Nord Stream 2 natural gaspipeline from Russia to Germany).

These sanctions must be imposed‘in coordination with the allies of theUS’. However, these authorities havenot been exercised and their use islikely to depend on the developingpolitical stance towards Russia.

Reliefs on sanctionsThe US framework contains somereliefs for US Persons when dealingwith certain named SDNs. OFACissued general licences permitting USPersons to wind down their dealingswith certain named SDNs, and for thedivestment or transfer of debt, equity,or other holdings in SDNs.

Additionally, activities undertakenby US Persons that are covered bygeneral licences do not constitute‘significant transactions’ for thepurposes of secondary sanctions. Asmentioned, non-US Persons violate USsanctions if they: (1) ‘cause’ US Personsto engage in violations (such as causinga US financial institution to processpayments in sanctioned transactions);or (2) allowing their US personnel toparticipate in prohibited transactions.

It is advisable for non-US Persons torefrain from dealings that attract highrisks of secondary sanctions andblocking sanctions.

EU SANCTIONS AGAINSTRUSSIA

Overview of legal frameworkAs mentioned above, the approach ofthe EU sanctions regime against Russiais broadly similar to the US approachpre-CAATSA. This approach has beenrenewed each year and has notchanged significantly since 2014-2015.

The main regulation consists ofsectoral sanctions pursuant to CouncilRegulation (EU) No. 833/2014 (‘theRegulation’), and is supported by assetfreezes of certain individuals (i.e.,people involved in Russian activities inCrimea and Ukraine) and entitiesinvolved in the misappropriation ofpublic property and human rightsviolations in Ukraine.7 In particular:

l Article 2 prohibits transactionsrelating to dual-use goods andtechnology;

l Article 3 restricts the supply of

The approach of the EU

sanctions regime

against Russia is

broadly similar to the

US approach

pre-CAATSA.


Energy Energy

technologies for the Russian oilindustry;

l Article 5 prohibits the provision ofnew debt or equity to certain entitiesbeyond 30 days maturity, as well asrelated securities.

Effect on the energy market (EU)Article 2 of the Regulation prohibits:

l the sale, supply, transfer or export,directly or indirectly, of dual-usegoods and technology to, or for usein Russia if the items are, or may be,intended for military use;8 and

l the provision of technical andfinancial assistance, brokering andother services to entities specificallyidentified in annex IV of theRegulation (i.e., companies involvedin the weapons and arms trade).

Article 3 requires exporters to seekprior authorisation for the sale, supply,transfer or export, directly orindirectly, of technologies for the oilindustry to any person, entity or bodyin any country, if such equipment ortechnology is for use in Russia(including its Exclusive Economic Zoneand Continental Shelf).

‘Technologies’ include oil/gas linesand drill pipelines, pumps, platforms,etc. as listed in annex II of theRegulation, and pertain to deep-wateroil exploration and production, Arcticoil exploration and production, or shaleoil projects in Russia.

Like Article 2, authorisation underArticle 3 would not be possible if thecompetent authorities have reasonablegrounds to believe that the activity is

for the aforementioned prohibited uses(i.e., deep-water oil exploration, etc.).Under both articles, authorisation maybe granted if the export relates to anobligation arising from a contract or anagreement concluded before 1 August2014, or ancillary contracts necessaryfor execution of such a contract.9

Article 5 targets transactionsrelating to transferable securities andmoney-market instruments. Articles5(2)(b) and (c) specifically prohibitdirect and indirect dealings withtransferable securities and money-making instruments with a maturityexceeding 30 days, issued after 12September 2014 by, amongst others, alegal person, entity or body establishedoutside the EU listed in annex VI(which, at the time of writing, areRosneft, Transfet and Gazprom Neft).

Article 5(3) prohibits directly orindirectly making or being part of anyarrangement to make new loans orcredit, with a maturity exceeding 30days to certain publicly owned Russianfinancial institutions. Those covered bythe prohibition include: (i) majorfinancial institutions (established inRussia with over 50% public ownershipor control) as listed in annex III, and(ii) a legal person, entity or bodyestablished outside the EU whoseproprietary rights are directly orindirectly owned for more than 50% byan entity listed in Annex III. Thisprohibition does not apply to loans orcredit that have a specific anddocumented objective to (i) providefinancing for non-prohibited importsor exports of goods and non-financialservices between the EU and any non-EU state or (ii) provide emergencyfunding to meet solvency and liquiditycriteria for legal persons established inthe EU.

At the time of writing, the entitiesidentified in annex III are: Sberbank,VTB Bank, Gazprombank,Vnesheconombank, and Rosselkhoz -bank

To ensure uniform implementationby national authorities and partiesconcerned, the EU Commission haspublished a guidance note (‘theGuidance’ on the implementation ofcertain provisions of the Regulation.10

It is interesting to note in the context oftrading energy, the Guidance hasclarified that ‘derivatives used forhedging purposes in the energy marketare not covered’ under article 5prohibitions.

Future US and EU changesAny further US change to its Russiansanctions regime will be influenced notonly by any future Russian actions butalso by political developments withinthe Trump administration and the USCongress. The complex politicalscenario means that it is difficult topredict what will happen. That said,given the current Democrat House ofRepresentatives, the US stance willlikely not be rolled back.

In contrast, EU sanctions havesimply been rolled over, and ineconomic terms, did not change inresponse to the Salisbury Novichokpoisoning. A likely explanation for thelimited change in the EU position is itsMember States’ differing stancestowards Russia and that any changes tothe sanctions regime will requireagreement from all 28 Member States.For example, in September 2018,France backed the UK’s calls for an EUsanctions regime for chemical weaponsuse in response to the poisoning whilstItaly stated that it was not theirintention to do so. Barring anysubstantial changes due to theEuropean Parliament elections in 2019or any future Russian actions, it is notforeseeable that the EU would roll backor intensify its approach to thesanctions regime against Russia.

The EU Blocking Statute –Council Regulation (EC) No.2271/96

The EU Blocking Statute shields EU

companies from the extra-territorial

application of certain foreign sanctions

laws and foreign court judgments based

on those foreign sanctions laws.

Currently, the only ‘blocked’ US

sanctions laws under the EU Blocking

Statute relate to trade and investment

embargoes imposed by the US on Cuba,

Iran and Libya.

Links and notes1 https://ec.europa.eu/energy/en/topics/imports-

and-secure-supplies/supplier-countries

2 31 CFR § 589.312

3 As amended on 29 September 2017

4 As amended on 29 September 2017

5 As amended on 31 October 2017

6 Department of the Treasury, “Revised Guidance on

Entities Owned by Persons Whose Property and

Interests in Property are Blocked”, 13 August 2014

7 Council Regulation (EU) No 692/2014 (as

amended); Council Regulation (EU) No 269/2014

(as amended); and Council Regulation (EU) No

208/2014 (as amended)

8 Annex I of Regulation (EC) No. 428/2009

9 Amending Regulation No. 960/2014

10 As amended by Regulation No. 1290/2014

11 As amended by Regulation No. 1290/2014

12 Commission Notice C(2015) 6477 of 25 September

2015

Brett Hillis is a partner in theLondon office of internationallaw firm Reed Smith where hefocuses on the energy sector.

[email protected]


Biosecurity Biosecurity

Promoting biosecurity throughexport controls

While emerging technologies in the life sciences can offer potentially huge

benefits for mankind, in the hands of the malicious actor they may become

a dangerous weapon. This dual-use nature of developing sciences, writes

Dr. Betty Lee, creates a challenge for which export control regimes need be

prepared.

Emerging technologies in the lifesciences – such as synthetic andsystems biology, nanotech -

nology, and research into genomes –promise great benefits to mankindthrough new synthetic drugs, geneediting and precision medicine, as wellas in areas such as nutrition, agri cultureand the development of biofuels.

This is research that thrives in aninterdisciplinary and internationalenvironment, where informationsharing is encouraged: doing soenables others to advance the sphere ofknowledge and the commensuraterewards for humanity. But it is alsointrinsically dual-use in nature and therisk of misuse – for example, by roguestates or non-state actors looking todevelop new forms of WMD – is high.

Defining biosecurityWhile every organisation definesbiosecurity differently, the definitioncoined by the US National Academy ofSciences certainly covers the bases:

‘Security against the inadvertent,inappropriate, or intentional maliciousor malevolent use of potentially

dangerous biological agents orbiotechnology, including thedevelopment, production, stockpiling,or use of biological weapons as well as

outbreaks of newly emergent andepidemic disease.’1

The World Health Organization hasdefined the goal of biosecurity as being‘to prevent, control and/or managerisks to life and health as appropriateto the particular biosecurity sector.’2

But while the tools provided by thevarious export control regimes provideimportant mitigation of biosecurityrisks, there are reasons why theycannot be wholly relied upon to do so.Not least of these is that in an areawhere scientific advance is so rapid,technology is developing faster than itcan be regulated.

Another reason is that threat andbenefit need to be carefully evaluated.This ‘double-edged sword’ is amplyillustrated by the example of theconundrum presented in 2012, as towhether to publish results of H5N1avian influenza transmissibility inmammals.

The results of the experiments intothe creation of modified, moretransmissible viruses, appeared toenhance the chances of a pandemic,owing to either a lab accident orintentional release by terrorists.3 Onthe other hand, they also represented ascientific advance of great value to thecommunity.

Such studies highlight the dilemmaattendant on the publication of theresults of dual-use research of concern(‘DURC’). The results of research in thelife sciences are usually shared inpublications to advance knowledge andpotential benefits for that branch ofscience. However, in the case of somesensitive studies which have dual-usepotential, the research benefits must beweighed against the risk ofproliferation threat.

In an area where

scientific advance is so

rapid, technology is

developing faster than it

can be regulated.


Synthetic truthsThe case of the DNA synthesiser – apiece of equipment that is critical to thepursuit of research in the field ofsynthetic biology – illustrates howbiosecurity is enhanced by the use bothof export controls and industry bestpractice.

Recently, the synthesiser has beenadded to both the Australia Group(‘AG’) list, and the US CommerceControl List (‘CCL’), administered bythe Bureau of Industry and Security(‘BIS’) within the Department ofCommerce.

The equipment is controlled whereit meets the specification of being‘partly or entirely automated and ableto generate continuous nucleic acidsgreater than 1.5 kilobases in lengthwith error rates less than 5% in a singlerun’.4

Such equipment poses a challengefor biosecurity, as the technologymakes it convenient and easy tosynthesise a toxin or viral gene. DNAsequences synthesised by a DNAsynthesiser can be combined to obtainthe genome of a controlled pathogen.

As the equipment is still expensive,

researchers rely on DNA providers tosynthesise their genes of interest.Commercial DNA synthesiser

companies belong to consortia thatvoluntarily conduct screening ofsequences and customers. A voluntarysecurity practice in the form ofsequence screening was adopted by theInternational Gene SynthesisConsortium (‘IGSC’).5 Thesecompanies apply a common protocolfor screening DNA orders andcustomers while promoting thebenefits of gene synthesis. There arecurrently 12 gene synthesis companiesin the IGSC and they represent 80% ofthe gene synthesis business worldwide.

IGSC aims to promote the beneficialapplication of gene synthesistechnology while safeguardingbiosecurity.

In a report of the 2016 Symposiumon Export Control of EmergingBiotechnologies in Monterey,California, USA, participantsemphasised that the current DNAsynthesisers permit the synthesis ofsmall RNA viruses6 and that nextgeneration synthesisers with the abilityto stitch together these segments suchas assemblers, should be carefullyevaluated to see whether a list-basedapproach of control would be useful toprevent misuse of the technology.(Unfortunately, there was noconsensus.)

Research of concern There are, helpfully a number ofresources available to those involved inlife science research that can assist inthe decision-making around projectfunding and publication.

In the US, the Government Policyfor Oversight of Life Sciences Dual UseResearch of Concern came into force in2012.7 This outlines steps that shouldbe taken to determine whether projectsfall under the definition of DURC, toassess the risks and benefits on aregular basis, and to develop risk-mitigation plans for federal agenciesthat conduct or fund life sciencesresearch.

The DURC policy covers 15 specificagents and toxins for seven definedcategories of experiments that arealready on the federal Select AgentProgram, established under the PublicHealth Security and BioterrorismPreparedness and Response Act of2002. This policy aims to limit thescope to prevent the over-control oflegitimate research that does not posemuch of a risk and to limit theassociated burden on researchinstitutions.

Once a project is identified asDURC, it calls for a careful evaluationof the benefit of the research to publichealth. In addition, grant reviewersneed to consider the biosafety andbiosecurity conditions under which theresearch will be conducted, and riskmitigations – e.g., the potential riskthat the knowledge may be misused byterrorists. As mentioned above, anexample of DURC would be research toenhance the transmissibility of H5N1viruses.

However, the subjective evaluation

Once a project is

identified as DURC

[dual-use research of

concern] , it calls for a

careful evaluation of the

benefit of the research to

public health.


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of experiments that are commonlyagreed to be DURC exposes thedilemma as to whether it addresses theDURC issue at all. Further, the policyis limited to federally funded researchand doesn’t apply to private or industrysponsored research.

Group think? On the export control front, the keymultilateral regime relevant to lifesciences is the Australia Group,founded in the 1985 in response to theuse of chemical weapons in the Iran-Iraq war.

The AG is an informal group of 42countries and the European Union,whose shared objective is to ensurethat the export of chemicals, biologicalagents, dual-use chemical andbiological equipment and technologiesdoes not contribute to chemical andbiological warfare. Its role is tocoordinate the national export controlpolicies of its members to promotenon-proliferation of both chemical andbiological weapons, and its scopeincludes pathogens and biotech‐relatedequipment.8

Member states are obliged toharmonise their export controls to theAG Control List as a vital means ofensuring that legitimate trade inchemicals, biological agents, andrelated equipment can continue.9 TheAG meets on an annual basis in Paristo discuss ways of deterringproliferators from acquiring essentialmaterials or technology for CBW(chemical and biological warfare)programmes and assisting eachcountry’s national export control laws.

In the US, the Bureau of Industryand Security of the Department ofCommerce is the regulatory agencythat oversees export controls of dual-use technology and items. Its missionis to protect the security of the UnitedStates, which includes its nationalsecurity, cyber, economic, andhomeland security.

Because of its inherent risks, dual-use research in the life sciencesrequires some oversight by governmentand funding agencies. In the case ofbiotechnology, equipment used formanufacturing medicines and foodproduction such as fermenters, freezedrying equipment and filtrationsystems can be used for nefariouspurposes. Export controls also apply tointangible technologies for thedevelopment, production, or use ofitems on the AG control list or the CCL.

Regulators normally publish lists of‘red flag indicators’ to help industriesidentify suspicious purchase enquiriesdesigned to circumvent export controlsand divert dual‐use goods to WMD.10

However, the latest breakthroughsin biotechnology are not reflected onthe AG or CCL lists in a timely way,because the pace of progress is toorapid. It takes several years ofproposals and or discussion before the

AG can reach a consensus to either add,change or delete items from the list,while scientific researchers have anincentive to publish their discoveriesand share the knowledge with the restof the world as soon as possible inorder to apply for grants fromgovernment entities.

A case in point is that of the gene-editing tool, CRISPR-Cas9, whichpromises to be useful in the eradicationof infectious diseases, the generation ofnew biofuels and the production ofdisease-resistant plants and animals.But this dual-use technology can alsobe used for nefarious purposes toincrease the pathogenicity ortransmissibility of microorganisms orinsect vectors.

However, numerous scientificarticles about the tool’s ability tomanipulate mammalian genes havealready been published in peer reviewjournals. As the information about the

technology is publicly available, itwould be pointless for the AG toattempt its control.

In conclusionExport control is a non-proliferationtool to balance legitimate commercialuse and also prevent nefarious uses.Countries with similar strategictrade/export controls regulations willbenefit from identical control lists asthey will be able to use the legal tool toprevent proliferators from acquiringtechnology or equipment to createbioweapons.

Export control is one checkpoint topromote biosecurity and the challengeis to be aware of or prepared foremerging technology that may makesome controlled items or technologyobsolete. As research proceeds at arapid pace, the control lists need to beregularly updated to be useful as a non-proliferation checkpoint.

Meanwhile, best practice andoutreach within and toward therelevant communities remains anessential component of biosecurity.

The opinion of the author does notrepresent the official view of the USDepartment of Commerce.


Dr. Lee works as a LicensingOfficer in the Chemical andBiological Controls Division,Office of Non-Proliferation andTreaty Compliance, Bureau ofIndustry and Security, USDepartment of Commerce inWashington, DC.

[email protected]

Links and notes1 https://www.nap.edu/catalog/11567/globalization-biosecurity-and-the-future-of-the-life-sciences Globalization,

Biosecurity, and the Future of the Life Sciences (2006)

2 http://www.who.int/foodsafety/fs_management/No_01_Biosecurity_Mar10_en.pdf INFOSAN Information Note No.

1/2010 – Biosecurity)

3 Uhlenhaut C1, Burger R, Schaade L. EMBO Rep. 2013

4 https://www.bis.doc.gov/index.php/forms-documents/regulations-docs/2333-ccl2-10-24-18/file

5 https://genesynthesisconsortium.org/

6 https://www.nonproliferation.org/wp-content/uploads/2017/04/op26-findings-from-the-2016-symposium-on-export-

control-of-emerging-biotechnologies.pdf Fairchild

7 http://oba.od.nih.gov/oba/biosecurity/PDF/United_States_Government_Policy_for_Oversight_of_DURC_FINAL_

version_032812.pdf)

8 Shaw, R. ‘Export controls and the life sciences: controversy or opportunity?’EMBO Rep. 2016 Apr; 17(4): 474–480

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4818776/

9 http://www.australiagroup.net/en/introduction.html

10 https://www.bis.doc.gov/index.php/all-articles/23-compliance-a-training/51-red-flag-indicators

Because of its inherent

risks, dual-use research

in the life sciences

requires some oversight

by government and

funding agencies.


Sanctions in close-up – applicationand practice in India

Sanctions in India are known as ‘Prohibitions’ and they typically

conform with UN Security Council resolutions. Ameeta Verma Duggal

and Aditi Warrier provide a deep dive into the Indian sanctions

regime and insight into the country’s approach to controlling

exports.

For several years now, India hashad provisions regulating trade,financial transactions, and the

entry of sanctioned individuals intoIndian territory. These are focused onthe country’s commitment to a policyof not assisting, encouraging orinducing any country to manufactureweapons of mass destruction (‘WMD’)and to prevent non-State actors andterrorists from acquiring WMD andtheir means of delivery. Suchregulations are targeted towardsmaintenance of national security,public order and fulfilment ofobligations under the Charter of theUnited Nations for the maintenance ofinternational peace and security, andtake the form of sanctions or exportcontrol measures.

The word ‘sanction’ finds nomention in the laws of India and isinstead referred to as ‘Prohibitions’.India imposes Prohibitions, classifiableas country-specific, product-specificand organisation, group or individual-specific. The Prohibitions imposed byIndia conform to the obligations caston the Member States of the UnitedNations, pursuant to various UnitedNations Security Council resolutions(‘UNSCR’). The most frequentlyapplied Prohibitions in India are withrespect to trade in arms, nuclear

Regulatory framework forimposition of ProhibitionsThe most effective way ofimplementing Prohibitions has been tocurb trade with the target country. InIndia, exports and imports of goods,services or technology are generally‘free’ except when prohibited orregulated by the central government.

The Prohibitions are implementedthrough the Directorate GeneralForeign Trade in the Ministry ofCommerce & Industry (‘DGFT’), beingthe nodal authority regulating India’sforeign trade policy (‘FTP’), formulatedpursuant to the Foreign Trade(Regulation and Development) Act,1992 (‘FTDR’). The FTDR – whichregulates these Prohibitions and theexports, transfers, re-transfers, transit,transshipment of and brokering inSCOMET items – in turn, incorporatesby reference the Weapons of MassDestruction and their Delivery Systems(Prohibition of Unlawful Activities) Act2005 (‘WMD Act’). The WMD Act wasenacted pursuant to UNSCR 1540(2004), which had necessitated theprovison of integrated legal measuresto exercise controls over the export ofmaterials, equipment and technologiescapable of use in WMD and theirmeans of delivery and to prohibitunlawful activities in relation thereto.

India India

material and nuclear-related materials,prohibited financial assistance, andentry of sanctioned individuals throughIndia.

India is a member of the MissileTechnology Control Regime,Wassenaar Arrangement and theAustralia Group, besides being anadherent country to the Nuclear

Suppliers Group. Accordingly, India’sexport control laws are compliant withthese multilateral export controlregimes.

India mandates exports of allstrategic goods, services andtechnology being subject to specificauthorisations depending on end useand end-user. Such items are listed inthe Special Chemicals, Organism,Materials, Equipment andTechnologies (‘SCOMET’) List, whichincludes nuclear materials andnuclear-related materials, equipmentand technology; munitions andchemical and biological weapons.

The word ‘sanction’

finds no mention in the

laws of India and is

instead referred to as

‘Prohibitions’.


While the overall regulation ofProhibitions and export controls vestswith DGFT, exports of nuclearmaterials and nuclear-relatedmaterials, equipment and technologyare authorised by the Department ofAtomic Energy, and exports under theMunitions List are authorised by theDepartment of Defence Production,Ministry of Defence.

The UNSCRs that govern non-proliferation also provide forcombating the financing ofproliferation of WMD. These include

l general resolutions, such as UNSCR1373 (2001) and 1540 (2004);

l country-specific resolutions, such asUNSCR 1718 (2006) and 2231(2015) against DPRK and Iran,respectively; and

l organisation-, group- or individual-specific resolutions, such as UNSCR2199 (2015) with respect toorganisations and individuals suchas the Islamic State in Iraq and theLevant (‘ISIL’), Al Nusrah Front(‘ANF’) and others associated withAl Qaida.

Violation of financial sanctionswarrants action under the Preventionof Money-laundering Act, 2002(‘PMLA’) and the Unlawful Activities(Prevention) Act, 1967 (‘UAPA’). Theimplementation of these sanctionsinvolves inter-departmental actions,particularly between the Ministry ofExternal Affairs, Department ofEconomic Affairs, Ministry of HomeAffairs, Financial Intelligence UnitIndia (‘FIU-Ind’), Reserve Bank ofInida (‘RBI’), Securities and ExchangeBoard of India (‘SEBI’) and theInsurance Regulatory DevelopmentAuthority (‘IRDA’) (collectively,‘Regulators’).

The Ministry of Home Affairsundertakes regular threat assessmentsregarding terrorism and its financingand the Ministry of External Affairskeeps the Regulators updated onrequirements under UNSCRs.

Prohibitions under the FTPIn compliance with sanctions imposedunder UNSCRs, the extant Prohibitionsextend to the following:

1. Direct or indirect import and exportto/from Iran;

2. Direct or indirect import and exportfrom/to the Democratic People’sRepublic of Korea (‘DPRK’);

3. Import and export of arms andrelated material from/to Iraq;

4. Import of charcoal from Somalia;5. Trade with ISIL (also known as

‘Daesh’), Al Nusrah Front and otherindividuals, groups, undertakingsand entities associated with AlQaida.

Prohibition on trade with IranDirect or indirect import/exportfrom/to Iran of any item, material,equipment, goods and technologymentioned in the following documentsis permitted subject to the provisionscontained in annex-B to UNSCR 2231(2015):

(i) Items listed in INFCIRC/254/Rev.9/Part 1 and INFCIRC/254/Rev.7/Part 2 (InternationalAtomic Energy Agency, ‘IAEA’documents) as updated by theIAEA from time to time;

(ii) Items listed in S/2006/263 (UNSCdocument) as updated by theUNSC from time to time.

These documents list the items,materials, equipment, goods andtechnology which could contribute toIran’s enrichment-, reprocess ing-, orheavy water-related activities, or todevelopment of nuclear weapondelivery systems.

Prohibitions on trade with theDPRKDirect or indirect import and exportfrom/to DPRK of items, materials,

equipment, goods and technology areprohibited. Specifically, exports toDPRK are subject to the UNSCRs onDPRK, namely: 1718 (2006), 1874(2009), 2087 (2013), 2094 (2013),2094 (2013), 2270 (2016), 2231 (2016),2356 (2017), 2371 (2017) and 2375(2017) and 2397 (2017). This list issubject to periodic revision.

Prohibition on export(A) Direct or indirect supply, sale,transfer or export of:(i) Any battle tanks, armoured

combat vehicles, large calibreartillery systems, combat aircraft,attack helicopters, warships,missiles or missile systems asdefined for the purpose of theUnited Nations Register onConventional Arms, or relatedmateriel including spare parts;

(ii) All arms and related materiel,including small arms and lightweapons and their relatedmateriel;

(iii) All items, materials, equipment,goods and technology as set out inthe UNSC and IAEA documents,namely: a) S/2006/853; b) S/2006/853/Corr.1; c) Part B of S/2009/364; d) Annex III of UNSCR 2094

(2013); e) S/2016/1069; f) Annex A to INFCIRC/254/

Rev.12/Part 1 (IAEAdocument);

g) Annex toINFCIRC/254/Rev.9/Part 2(IAEA document);

h) S/2014/253; i) S/2016/308; j) Annex III of UNSCR 2321

(2016); and k) other items, materials, equip -

ment, goods and technology, asdetermined by the centralgovernment, which couldcontribute to DPRK’s nuclear-related, ballistic missile-relatedor other WMD-relatedprogrammes;

(iv) Luxury goods, including, but notlimited to, the items specified inannex IV of UNSCR 2094 (2013),annex IV of UNSCR 2270 (2016)and annex IV of UNSCR 2321(2016);

(v) Items as determined by the centralgovernment (except food ormedicine) that could directlycontribute to the development of

India India

Direct or indirect import

and export from/to

DPRK of items,

materials, equipment,

goods and technology

are prohibited.


India India

operational capabilities of theDPRK’s armed forces subject toexemptions and procedures set outin paragraph 8 (a) and (b) ofUNSCR 2270 (2016).

Prohibition on import(B) The direct or indirect procurementor import from the DPRK, of items,whether or not originating in theDPRK, covered in sub-paragraphs(A)(i), (A)(ii), (A)(iii) and (A)(v) above.

Sectoral prohibitions (export)(C) Direct or indirect supply, sale,transfer or export of:(i) New helicopters and new or used

vessels, except as approved inadvance by the UNSC Committeeset up pursuant to paragraph 12 ofUNSCR 1718 (2006) (‘theCommittee’) on a case-by-casebasis;

(ii) Aviation fuel, including aviationgasoline, naphtha-type jet fuel,kerosene-type jet fuel, andkerosene-type rocket fuel subjectto exemptions and procedures setout in paragraph 31 of UNSCR2270 (2016) and paragraph 20 ofUNSCR of 2321 (2016);

(iii) Condensates and natural gasliquids;

(iv) Refined petroleum productssubject to exemptions andprocedures set out in paragraph 5of UNSCR 2397 (2017);

(v) Crude oil subject to exemptionsand procedures set out inparagraph 4 of UNSCR 2397(2017);

(vi) All industrial machinery,transportation vehicles, and iron,steel and other metals subject toexemptions and procedures set outin paragraph 7 of UNSCR 2397(2017);

Sectoral prohibitions (import)(D) Direct or indirect import of: (i) Coal, iron and iron ore subject to

exemptions and procedures set outin paragraph 8 of UNSCR 2371(2017);

(ii) Gold, titanium ore, vanadium ore,and rare earth minerals;

(iii) Copper, nickel, silver and zinc;(iv) Statues, unless the Committee

approves on a case-by-case basis inadvance;

(v) Seafood (including fish,crustaceans, molluscs, and otheraquatic invertebrates in all forms)subject to exemptions and

procedures set out in paragraph 9of UNSCR 2371 (2017) andparagraph 6 of UNSCR 2397(2017);

(vi) Lead and lead ore subject toexemptions and procedures set outin paragraph 10 of UNSCR 2371(2017);

(vii) Textiles (including but not limitedto fabrics and partially or fullycompleted apparel products)subject to exemptions andprocedures set out in paragraph 16of UNSCR 2375 (2017);

(viii) Food and agricultural products,machinery, earth and stoneincluding magnesite andmagnesia, wood and vesselssubject to exemptions andprocedures set out in paragraph 6of UNSCR 2397 (2017).

Prohibition of trade with IraqImport/export of arms and relatedmaterial from/to Iraq. However, exportof arms and related material to thegovernment of Iraq is permittedsubject to a specific ‘No ObjectionCertificate’ from the Department ofDefence Production.

Prohibitions on trade withSomaliaIn accordance with UNSCR 2036(2012), the FTP prohibits direct orindirect import of charcoal from

Somalia, irrespective of whether or notsuch charcoal has originated inSomalia. Accordingly, importers ofcharcoal in India are required tosubmit an express declaration tocustoms that the consignment has notoriginated in Somalia.

Prohibitions in other lawsIndia maintains a list of terroristgroups, individuals and entities underthe UAPA (‘the Designated List’),which includes organisations listed inthe Schedule to the UN Prevention andSuppression of Terrorism(Implementation of Security Council

Resolutions) Order 2007 made underthe United Nations (Security Council)Act 1947. The Designated List isupdated regularly by the Ministry ofExternal Affairs subject to the other UNsanctions and communicated to theRegulators. Further, requests receivedfrom other countries pursuant toUNSCR 1373 (2001) are considered bythe Ministry of External Affairs and theDesignated List is accordingly updated.

The UAPA empowers thegovernment to

l freeze, seize or attach funds andother financial assets or economicresources held by or on behalf of orat the direction of the individuals orentities that are covered under theDesignated List or any other personengaged in or suspected to beengaged in terrorism;

l prohibit any individual or entityfrom making any funds, financialassets or economic resources orrelated services available for thebenefit of the individuals or entitiesin the Designated List or any otherperson engaged in or suspected tobe engaged in terrorism; and

l prevent the entry into or throughIndia of individuals in theDesignated List or any other personengaged in or suspected to beengaged in terrorism.

With respect to funds, financialassets or economic resources or relatedservices held in the form of bankaccounts, stocks or insurance policiesand so on, the Regulators forward theDesignated List to the banks, stockexchanges/depositories, intermedi -aries regulated by SEBI and insurancecompanies. All financial transactionsare counter-checked against theDesignated List and suspicioustransactions are required to bereported to FIU-Ind. The Ministry of

Importers of charcoal in

India are required to

submit an express

declaration to customs

that the consignment

has not originated in

Somalia.

Prohibitions on trade withterrorist groups

In compliance with the UNSCR 2199

(2015), trade in oil and refined oil

products, modular refineries and related

materials, besides items of cultural

(including antiquities), scientific and

religious importance are specifically

prohibited with the Islamic State in Iraq

and the Levant (‘ISIL’), Al Nusrah Front

(‘ANF’) and other individuals, groups,

undertakings and entities associated,

directly or indirectly, with Al Qaida.


India India

Home Affairs also forwards theDesignated List of individuals to theimmigration authorities and securityagencies with a request to prevent theentry into or transit through India.Compliance against the DesignatedList is reported to the Ministry ofHome Affairs by various agenciesinvolved, which forwards the same tothe Ministry of External Affairs foronward reporting to the UnitedNations.

India is also a member of theFinancial Action Task Force (‘FATF’),the independent inter-governmentalbody that develops and promotespolicies to protect the global financialsystem against money laundering,terrorist financing, and the financing ofproliferation of WMD. The FATFrecommendations are recognised asthe global anti-money laundering andcounter-terrorist financing standard.The RBI takes into consideration theadvisory issued by FATF to protect theinternational financial system fromongoing money laundering andterrorist financing risks emanatingparticularly from DPRK, Iran,Afghanistan, Iraq, Syria and Yemen,while noting that such advisories donot preclude the regulated entitiesfrom legitimate trade and businesstransactions with these countries. TheRBI has aligned its instructions to theobjectives of FATF and prohibited anIndian party from making directinvestment in an overseas entity (set upor acquired abroad directly as a jointventure/wholly owned subsidiary orindirectly as a stepdown subsidiary)located in countries that are identifiedas non-cooperative by FATF or asotherwise notified by the RBI.

Enforcement of ProhibitionsThe Prohibitions are enforced throughmultiple authorities, including DGFT,Customs, Department of RevenueIntelligence, Enforcement Directorateand so on depending on the nature ofoffence. Some of the broad penaltiesthat may get attracted to casesinvolving violations of Prohibitions areshown in the table, right.

USA sanctions and IndiaIndia has always been reluctant toimplement unilateral sanctionsimposed by other countries. Mostrecently, India has had to deal with thesanctions imposed by the United Statesunder the Countering America’sAdversaries Through Sanctions Act,

S No Act Penalty

1. FTDR i. Suspension or cancellation of the Importer Exporter Code.ii. Inclusion in the Denied Entity List.iii. Penalty of not less than ten thousand rupees and not more

than five times the value, whichever is more.iv. Confiscation.

2. WMD Act i. In case of unlawful manufacture, acquisition, possession,development or transport of a weapon of mass destructionor their delivery system, imprisonment for minimum 5 yearsextendable to life, with fine.

ii. In the event of export of any material, equipment ortechnology knowing that it is intended to be used in thedesign of weapons of mass destruction: (a) first offence, minimum imprisonment of 6 months

extendable upto 5 years with fine. (b) subsequent offences, minimum imprisonment of 1 year

extendable upto 7 years with fine.

3. Atomic EnergyAct, 1962

Imprisonment for a term, which may extend to five years, orwith fine, or both.

4. Customs Act,1962

i. Confiscation.ii. Penalty not exceeding three times the value of the goods as

declared by the exporter or the value as determined underthe Customs Act, whichever is higher.

iii. Imprisonment for a term which may extend to seven yearsand with fine.

iv. In the case of preparation for export of prohibited goods,imprisonment for a term which may extend to three years, orwith fine, or with both.

7. Arms Act i. Punishment for bringing into, or taking out of India, any armor ammunition prohibited by the Central Government forimport or export – imprisonment for a term which shall notbe less than three years but which may extend to sevenyears and fine.

ii. Punishment for bringing into or taking out of India any armor ammunition without licence for import and export of arms– imprisonment for a term which shall not be less than oneyear but which may extend to three years and fine.

5. PMLA i. Rigorous imprisonment for a term not less than three yearsbut which may extend to seven years and fine.

ii. Seize, attach, freeze or confiscate property involved in themoney-laundering.

iii. Arrest any person believed reasonably to be guilty.

6. UAPA i. Punishment for unlawful activities – imprisonment for aterm which may extend to seven years, and fine.

ii. Penalty for being member of an unlawful association –imprisonment for a term which may extend to two years, andfine.

iii. Penalty for being member of an unlawful association andcommitting any act resulting in loss of human life –punishable with death or imprisonment for life, and fine.

iv. Penalty for dealing with funds of an unlawful association –issuance of a prohibitory order and if the person continuesto act in prohibition of the order, imprisonment for a termwhich may extend to three years, or with fine or with bothand an additional fee.

v. Punishment for conspiracy – imprisonment for a term whichshall not be less than five years but which may extend toimprisonment for life, and fine.

vi. Punishment for being member of a terrorist organisation -imprisonment for a term which may extend to imprisonmentfor life, and fine.

vii. Punishment for holding proceeds of terrorism –imprisonment for a term which may extend to imprisonmentfor life, and fine.

viii.Punishment for contravention of the Explosives Act, or theExplosive Substances Act, or the Inflammable SubstancesAct, or the Arms Act, with intent to aid any terrorist orterrorist organisation – imprisonment for a term which shallnot be less than five years but which may extend toimprisonment for life, and fine.


India India

Ameeta Verma Duggal is thefounder partner of DGSAssociates. Aditi Warrier is anassociate with the firm.

www.dgsassociates.in

2017 (‘CAATSA’) on Iran and Russia. As WorldECR readers will know,

following the US withdrawal from theJoint Comprehensive Plan of Action inMay 2018, the US imposed sanctionsagainst Iran effective November 2018.However, eight countries, includingIndia, were specifically exempted bygrant of a ‘waiver’ for a period of sixmonths (unless expressly extended),allowing them to continue buyingIranian oil. India and Iran, have sharedhistorical ties and Iran is India’s majoroil supplier. India has also madesubstantial investment of $500 millionto develop Iran’s Chabahar Port as atransit hub for Afghanistan, CentralAsia and the International North-South Transport Corridor. Besides,India is also developing two gas fieldsin and around Iran. It is, therefore, noteasy for India to disengage itself fromIran. To overcome the transactionaldifficulties posed by the US sanctions,India has signed a bilateral agreementwith the National Iranian Oil Companyto settle oil trades in Indian currency(which is not freely traded oninternational markets) through an

Indian government-owned bank. Indiahas also exempted these rupeepayments from taxes. The rupeepayments will be used by Iran to payfor imports from India, invest in Indianbusinesses, pay for Iranian missionsand students in India, and so on.

India also countered the CAATSAsanctions against Russia and signed adefence deal for the purchase of theRussian-built S-400 Triumf or the SA-21 Growler, a long-range surface-to-airmissile system. India gives primacy toits individual diplomatic relations,including with Iran, Russia and theUnited States, which surpasses theunilateral sanctions imposed by anyindividual country. India is a strategicpartner for the US, having recentlybeen conferred Srategic TradeAuthorisation-1 status, which saw theUS ease controls on high-tech exportsto India. It is believed that US will notendanger its relations with India overthe Russia defence deal.

ConclusionWith ever-growing concern overproliferation of weapons of mass

destruction threatening internationalpeace and security, coupled withIndia’s membership of the multilateralexport control regimes, India isbecoming aggressive in its enforcementof Prohibitions and export controls. Ithas an established and robustlegislative framework to counterproliferation of WMD and terrorism.Now the authorities are focused onenforcing the same through inter-departmental cooperation ininvestigations and joint enforcements.The lead is being taken by theintelligence agencies and customs.Shipments and movement ofindividuals from or to sanctionedcountries are under intense scrutiny.India’s commitment to a safe andsecure world is steadfast.


Out now: Chinese language version of guideto investing in US critical industries

‘Successful investing in theUnited States is possible, butyou must prepare.’ So says ReidWhitten, editor of The CFIUS

Book, a new guide on how tonavigate an investment oracquisition in sensitiveindustries or companies in theUS, which is now availablefrom WorldECR in a Chineselanguage edition.

What is CFIUS and whydoes it matter?CFIUS is the Committee onForeign Investment in theUnited States. It is aCommittee of nine US agenciesthat is authorised to review anytransaction that may result inforeign control of a UScompany.

CFIUS reviews investmentin the US to determine whetherit may affect national security,then clears it, proposes steps tomitigate national security risk,or prohibits or unwinds thedeal. Recently, attention hasfocused sharply on FIRRMA ,The Foreign Investment RiskReview Modernization Act,signed into law on 13 August2018. This expanded the scopeof CFIUS jurisdiction beyondtransactions in which a foreigncompany takes control of a USbusiness.

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One step at a timeThe CFIUS Book providesstraightforward examples,illustrated charts, andhighlighted key points on thebest approaches to success fora US investment.

The CFIUS Team at lawfirm Sheppard Mullin Richter& Hampton maps out the pathsto and through the CFIUSprocess, from the decision tosubmit a notification, throughtips and traps along the way, tothe CFIUS safe harbour,including the most recentupdates under the Foreign

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The CFIUS Book alsoincludes chapters from SheppardMullin’s specialists in NationalSecurity and NISPOM as well asTeam Telecom and the particularrequirements for space-relatedinvestments.

ContentsThe CFIUS Book introduces theCommittee, explains its historyand the powers it wields,answering questions including

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Who needs this book?

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companies storing significantamounts of personal data suchas healthcare, financial,network platforms, and dataand telecoms companies

l Investors in US sectors such

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l Banks or investment banks

involved in any suchinvestment

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including representation andwarranties insurers, involvedin any such investment

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In the United Statesl Private equity companies

selling a US portfoliocompany to a foreign buyer

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sold in industries likedefence, telecoms andsatellite, governmentcontracting, chemical orbiological, or nuclear

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CFIUS

WorldECRReid Whitten

The CFIUS Book is edited by Reid Whitten and published by

WorldECR. It costs £120 a copy (104 pages).

To purchase a Chinese language copy, please contact

[email protected]

To purchase an English language copy, please visit

www.worldecr.com/books

CFIUS CFIUS

WorldECRThe journal of export controls and sanctions

Contributors in this issueRachel Barnes, Patrick Hill and Genevieve Woods,

3 Raymond Buildings

www.3rblaw.com

Ameeta Verma Duggal and Aditi Warrier,

DGS Associates

www.dgsassociates.in

Brett Hillis, Reed Smith

www.reedsmith.com

Dr. Betty Lee, Bureau of Industry and Security,

US Department of Commerce

www.bis.doc.gov

WorldECR Editorial BoardMichael Burton, Jacobson Burton Kelley PLLC

[email protected]

Jay Nash, Nash Global Trade Services

[email protected]

Dr. Bärbel Sachs, Noerr, Berlin

bä[email protected]

George Tan, Global Trade Security Consulting, Singapore

[email protected]

Richard Tauwhare, Dechert

[email protected]

Stacey Winters, Deloitte, London

[email protected]

General enquiries, advertising enquiries, press releases, subscriptions: [email protected]

Contact the editor, Tom Blass: [email protected] tel +44 (0)7930405003

Contact the publisher, Mark Cusick: [email protected] tel: +44 (0)7702289830

WorldECR is published by D.C. Houghton Ltd.

Information in WorldECR is not to be considered legal advice. Opinions expressed within WorldECR are not to be considered official expressions of thepublisher. The publisher assumes no responsibility for errors and omissions appearing within. The publisher reserves the right to accept or reject alleditorial and advertising matter. The publisher does not assume any liability for unsolicited manuscripts, photographs, or artwork.

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ISSN 2046-4797. Refer to this issue as: WorldECR [0076]

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ISSUE 76. FEBRUARY 2019

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