CHAPTER 4 U.S. ECONOMIC SANCTIONS, INTERNATIONAL MINING BUSINESS, AND COMPLIANCE

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2015)
CHAPTER 4
U.S. ECONOMIC SANCTIONS, INTERNATIONAL MINING BUSINESS, AND COMPLIANCE
Lizbeth Rodriguez-Johnson
Of Counsel
Holland and Hart
Denver

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LIZBETH RODRIGUEZ-JOHNSON is Of Counsel with the law firm of Holland & Hart LLP in Denver, Colorado. She advises U.S. and international clients on U.S. federal laws and regulations governing international business, including the International Traffic in Arms Regulations (ITAR), the Export Administration Regulations (EAR), the Foreign Corrupt Practices Act (FCPA), and U.S. foreign asset controls regulations. She routinely represents clients in civil and criminal investigations involving the Departments of State, Commerce, and Treasury and has significant experience in export controls, trade sanctions, anticorruption, and related compliance matters. In these areas, she has recognized expertise in conducting detailed internal investigations and export compliance audits. She also regularly helps her clients develop, draft, and implement compliance programs in response to investigations or to proactively avoid investigation and potential litigation. Her experience includes conducting export compliance and trade sanctions due diligence and counsel related to mergers and acquisitions. Ms. Rodriguez-Johnson received her B.A., magna cum laude, from the University of Puerto Rico, her M.A. from the University of Colorado, and her J.D. from the University of Denver College of Law. She is admitted to practice in Colorado and is fluent in Spanish.

How Well Do you Know your Business Partners?

March 16, 2015

Table of Contents

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I. The Office of Foreign Assets Control and U.S. Trade Sanctions

II. Understanding the Scope of the International Emergency Economic Powers Act

III. Designation of Blocked and Restricted Parties

IV. Overview of Countries Subject to U.S. Economic Sanctions

A. Cuba

1. Prohibitions under the Cuban Assets Control Regulations

2. Potential Penalties Under the CACR

B. Iran

1. Prohibitions under the Iranian Transactions Sanctions Regulations

2. Potential Penalties under the ITSR

C. Sudan

1. Prohibitions under the Sudanese Sanctions Regulations

2. Penalties for Potential Violations of the Sudanese Sanctions Regulations

D. Syria

1. Prohibitions under the Syrian Sanctions Regulations

2. Penalties for Potential Violations of the Sudanese Sanctions Regulations

V. Blocked Parties and Targeted Sanctions

VI. Protecting Your Company from Potential Violations of U.S. Economic Sanctions

A. Automated and Non-Automated Screening of Business Partners

B. Financial Due Diligence

C. Recordkeeping is Crucial

D. Consider the Voluntary Disclosure Option

VII. Conclusion

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The U.S. government maintains economic sanctions against countries and individuals around the world. These sanctions prohibit the export of goods, technology and services to sanctioned countries. They prohibit entering into transactions with blocked parties. In certain instances, receiving payment in U.S. dollars may also be a potential violation of U.S. law.

Companies operating in the international mining or energy markets may be susceptible to inadvertently entering into transactions that may be prohibited under U.S. economic sanctions. If your company is a U.S. entity, it is owned or controlled by a U.S. entity, it conducts business in the United States, it employs U.S. persons or does business in U.S. dollars these sanctions are relevant to your business operations.

This paper generally reviews U.S. economic sanctions against targeted countries and individuals, and the potential consequences for failing to comply. It provides recommended compliance measures aimed at preventing potential violations that may result in large penalties or potential designation as a blocked person.

The paper does not provide a complete breakdown of all U.S. economic sanctions currently in effect. Its goal is not to educate the reader on the full extent of the prohibitions but to raise awareness of the sanctions and their potential impact in legitimate business enterprises.

I. The Office of Foreign Assets Control and U.S. Trade Sanctions

The U.S. Treasury Department Office of Foreign Assets Control ("OFAC") maintains and enforces U.S. economic sanctions. These sanctions are based on U.S. foreign policy and national security. The U.S. government issues sanctions against targeted countries and individuals determined to be engaged in the proliferation of weapons of mass destruction and other activities considered to be a threat to the national security, foreign policy or the economy of the United States.¹

OFAC issues regulations and guidelines that implement commercial and economic sanctions issued by the U.S. Congress or by the President of the United States via Executive Order. OFAC issues licenses and advisory opinions in relation with the administration of U.S. economic sanctions.

OFAC is also charged with enforcing compliance with the regulations. They issue penalties or designate individuals or companies as blocked parties who have been determined under particular programs or are located in sanctioned countries. U.S. parties are generally prohibited from engaging in business with a designated blocked party. While the potential monetary penalties that OFAC may issue are substantial,

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perhaps the biggest threat for non-U.S. parties is the possibility of being designated as a blocked party. This could mean a complete loss of access to the U.S. commercial and financial markets. All assets located in the United States would be blocked. The ability to conduct transactions in U.S. dollars would also be compromised.

The U.S. government's discretion to issue and implement commercial and economic sanctions is broad. Any company or individual engaged in international trade needs to be aware of the scope of these sanctions and how they may apply to their conduct.

II. Understanding the Scope of the International Emergency Economic Powers Act

Most U.S. economic sanctions currently in effect were issued under the authority of the International Emergency Economic Powers Act ("IEEPA").² IEEPA grants to the President of the United States the authority to regulate international commercial and financial transactions in cases where the President has declared a national emergency which involves an "unusual" and "extraordinary" threat, that has its source outside the United States, to "the national security, foreign policy or economy of the United States".³ The President must have declared a national emergency in relation with an "unusual" and "extraordinary" threat before the authority granted by IEEPA can be exercised.⁴

IEEPA authorizes the regulation of commercial and financial transactions by "any person or with respect to any property subject to the jurisdiction of the United States."⁵ Since the authorization provided by IEEPA expands to the regulation of any "property" subject to the jurisdiction of the United States, OFAC may implement and enforce sanctions where no U.S. person is involved if property subject to U.S. jurisdiction is involved in the transaction. In this context, "property" or "property interests" have been defined to include currency.⁶

IEEPA provides that it shall be unlawful for a "person to violate, attempt to violate, conspire to violate or cause a violation" of any regulation or prohibition issued under the authority of IEEPA.⁷ A violation, therefore, may take place even if the conduct is inadvertent.

In case of inadvertent violations, OFAC may impose a civil penalty in an amount not to exceed the greatest of $250,000 or "an amount that is twice the amount of the

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transaction that is the basis of the violation with respect to which the penalty is imposed."⁸

Willful violations may result in the imposition of criminal penalties, imprisonment or both. Upon conviction, a person who "willfully commits, willfully attempts to commit or aids or abets in the commission of unlawful conduct shall be fined up to $1,000,000 per violation, sentenced to up to 20 years in prison or both.⁹

IEEPA does not provide that a person needs to be a U.S. entity, citizen or resident to engage in prohibitive conduct. Any person who engages in conduct prohibited by the statute or the regulations could be subject to penalties. In the case of non-U.S. entities and individuals who do not have operations in the U.S., OFAC has the discretion to designate them as blocked parties with whom U.S. entities cannot engage in business. Therefore, if property subject to U.S. jurisdiction is part of the transaction, monetary penalties could be imposed or a party could be subject to designation.

III. Designation of Blocked and Restricted Parties

OFAC maintains and publishes on its website the Specially Designated Nationals and Blocked Persons List (the "SDN" List).¹⁰ The SDN List is a list of (a) blocked persons, (b) blocked vessels, (c) specially designated nationals, (d) specially designated terrorists, (d) specially designated global terrorists, (e) foreign terrorists organizations, and (f) specially designated narcotics traffickers¹¹ "whose property and interests in property are blocked" pursuant to the economic sanctions programs enforced by OFAC.¹²

OFAC places in the SDN List all parties who have been designated as blocked pursuant to all the sanction programs it administers. Once a party is added to the SDN List, all U.S. persons, including entities and individuals, are prohibited from any dealings in property or interests in property held by the designated persons, unless authorized by license from OFAC. All property of the designated person that is in the United States, or is otherwise subject to the jurisdiction of the United States will be blocked. The prohibitions apply not just to the blocked parties but any entity in which a blocked party "owns...