CHAPTER 24 POST 9|11 REGULATION OF INTERNATIONAL TRANSFERS OF MONEY AND THEIR APPLICATION TO NATURAL RESOURCES PROJECTS

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development and Investment
(Apr 2009)
CHAPTER 24
POST 9/11 REGULATION OF INTERNATIONAL TRANSFERS OF MONEY AND THEIR APPLICATION TO NATURAL RESOURCES PROJECTS
J. Triplett Mackintosh ^*
Holland & Hart
Jason Crow
Denver

J. Triplett Mackintosh, partner, Holland & Hart LLP, enjoys an international reputation as an effective advocate in the areas of export controls, trade sanctions, related compliance and white collar defense. Specializing in the increasingly important area, he has defended U.S. and non-U.S. corporations, directors, and other personnel facing investigation under U.S. export controls and trade sanctions. He has led defense efforts and multi-jurisdictional criminal investigations in the United States, Europe, Asia, and Latin America. Since 1993, he has taught courses on white-collar criminal defense, federal regulation of international business, and corporate compliance at the Sturm College of Law, University of Denver. He holds an M.A. from DU (GSIS) (1983) and a J.D. from Georgetown University Law Center (1986).

Introduction

Economic sanctions enforced by the U.S. Department of Treasury's Office of Foreign Assets Control ("OFAC") restrict with whom U.S. persons, and persons subject to U.S. laws, can conduct business. OFAC's primary mission is to investigate and enforce economic sanctions against countries, companies, and individuals listed on one of several prohibited party lists. These sanctions are intended to advance U.S. national security and foreign policy interests. Multiple other U.S. Government agencies maintain lists of countries, persons, and entities with which trade or financial transactions are prohibited.

Conducting business with parties on one of these lists can result in civil and criminal penalties for both a company and individual employees. Sanctions enforced by OFAC, which focus on financial transactions with certain prohibited parties, are the most extensive of these financial controls. U.S. Government enforcement of these sanctions requires only that trade occurred with a restricted party; there is no requirement that the company intended to violate the economic sanctions.

South American companies involved in natural resources projects may encounter these controls in a variety of circumstances when conducting business. Natural resources projects often require broad collaboration with a variety of business partners, negotiation with local government officials, and subcontracting of services. When engaged in any of these activities, natural resources companies may inadvertently violate U.S. economic sanctions simply by conducting business with persons or entities on one of the U.S. Government's prohibited party lists. Companies subject to U.S. jurisdiction that are operating in high-risk regions can be at risk for inadvertent violations even if only establishing basic security or hiring local employees.

For example, when starting a natural resources project, local security or militia forces may approach a company for payments to ensure the security of facilities and personnel. These payments may result in a violation of both OFAC economic sanctions and anti-bribery provisions of U.S. law, subjecting the company to severe civil and criminal penalties.

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Overview of Economic Sanctions

Acting under the authority of Presidential national emergency powers (International Emergency Economic Powers Act) and specific asset blocking legislation (Trading with the Enemy Act), OFAC has created the Specially Designated Nationals List ("SDNL"). Specially Designated Nationals are persons or entities OFAC has determined to be buyers for an embargoed country or entity. This list is intended to prevent third parties from undermining economic sanctions by working as intermediaries for sanctioned parties. OFAC may list an individual on the SDNL at any time without prior notification or public process.

Economic embargoes vary by country but generally prohibit any trade or financial transaction with an entity in the embargoed destination. Because most economic sanctions are tailored to a specific country, these sanctions can often be confusing and difficult to apply in a given circumstance. For example, no person subject to U.S. jurisdiction may trade with any person in Iran. However, in general terms, a U.S. owned subsidiary located outside of the United States may deal directly with Iran, as long as no U.S. person "facilitated or approved" the transaction.

Another example of the confusing nature of these sanctions is the Specially Designated Global Terrorist List (SDGT). Created after September 11, 2001, the SDGT applies to individuals and companies "associated with" terrorist-supporting entities. Since the SDGT does not deal with a specific country (as does the SDNL), determining whether a person or company is "associated with" a terrorist-supporting entity is often confusing and can result in an inadvertent sanction violation. To make things even more complex, the list of persons and entities to which economic sanctions apply changes on an almost daily basis. Consequently, a company may have a longstanding relationship with a business or entity only to discover that the business or entity was recently added to one of the prohibited party lists. If the company (subject to U.S. jurisdiction) continues conducting business with that person or entity, it may be subject to civil and criminal penalties under U.S. law.

The OFAC Guidelines

After September 11, 2001, the U.S. Government placed a renewed emphasis on the enforcement of economic sanctions, especially those sanctions directed at terrorists or terrorist organizations. In 2003, to address uncertainty as to administrative enforcement policies, OFAC published generally applicable Economic Sanctions Enforcement Guidelines. These Guidelines established a framework for enforcement actions and serve as a guide to the development and implementation of an effective economic sanctions compliance program.

In 2008, in response to increased penalties for sanction violations, OFAC revised the Guidelines to clarify the basis for enforcement actions and penalties. Among the changes to the Guidelines, OFAC set forth General Factors used in determining the enforcement response and the appropriate penalty. Among the most important factors considered are:

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▪ Willful or Reckless Action- whether the activity was the result of willful misconduct or a deliberate intent to violate the law

▪ Awareness of Conduct- the extent of the person or company's actual knowledge or awareness of the circumstances of the violation

▪ Harm to Sanctions Program- whether the violation harmed the national security or foreign policy interests of the United States

▪ Individual Characteristics- the experience, commercial sophistication, and resources of the violator

▪ Compliance Program- the existence and nature of an OFAC compliance program at the time of the violation

▪ Remedial Response- any corrective action taken by the company or person in response to the apparent violation

▪ Cooperation with OFAC- whether the company provided a voluntary self-disclosure, provided relevant information, or agreed to a tolling of the statute of limitations

▪ Timing of Apparent Violation- whether the apparent violation occurred soon after the prohibited party was placed on one of OFAC's prohibited party lists

▪ Previous Enforcement Actions- whether the company or person has been the subject of previous enforcement action

▪ Other Factors- any other factors relevant to the situation determined on a case-by-case basis

Under the original Guidelines, OFAC was required to issue both a Cautionary Letter and a Finding of Violation to those persons and companies violating economic sanctions. Instead of requiring the issuance of a Cautionary Letter and a Finding of Violation, OFAC now may issue a Cautionary Letter or a Finding of Violation. This change gives OFAC more discretion in determining whether it will penalize a company for its actions. With the increase in available penalties, OFAC now distinguishes between egregious and non-egregious cases and applies the maximum penalties only to those cases it considers egregious violations. Finally, OFAC established a new process for determining civil monetary penalties. OFAC now considers whether the violation was egregious or non-egregious and whether the violator provided a voluntary self-disclosure. Voluntary self-disclosure of a violation can result in a 50 percent, or greater, reduction in the penalty applied by the court.

Civil and Criminal Penalties

Penalties for violation of U.S. economic sanctions can be either civil or criminal and can apply to both companies and individual employees. In 2007, the United States amended the monetary penalties to increase: (1) civil penalty violations from $50,000 per violation to the greater of $250,000, or twice the amount of the transaction serving as the basis of the violation; and (2) criminal penalties from $50,000 to up to $1 million. These increases reflect a renewed emphasis on deterrence of violations and enforcement of U.S. economic sanctions.

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Individuals who criminally violate economic trade sanctions may also face substantial prison time. Courts in the United States...