CHAPTER 7 WHAT A TRANSACTIONAL LAWYER NEEDS TO KNOW ABOUT U.S. ECONOMIC AND TRADE SANCTIONS
| Jurisdiction | Derecho Internacional |
WHAT A TRANSACTIONAL LAWYER NEEDS TO KNOW ABOUT U.S. ECONOMIC AND TRADE SANCTIONS
Thompson & Knight LLP
Dallas
Meredith Rathbone
Steptoe & Johnson LLP
London & D.C.
Michelle Schulz
Akerman LLP
Dallas
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ANDREW MELSHEIMER is a Partner in Thompson & Knight's International Energy Practice Group where he concentrates his practice on international oil and gas-related transactions, strategic commercial and business advice on cross-border transactions and investment projects, and dispute resolution matters. His experience includes acquisitions, divestments, trades, and mergers; exploration, development, and production matters; and anti-corruption (FCPA) and economic trade sanctions. Andrew's dispute-related matters have been before federal and state courts in Louisiana, Texas, and New York as well as domestic and international arbitration panels. Andrew also has in-house experience through his secondment to an international energy company, where his responsibilities included handling issues related to host-government contracts, joint operating agreements, and unitization agreements. He received a J.D. and Bachelor of Civil Law from Louisiana State University, Paul M. Hebert Law Center; a Master of International Business Studies from the University of South Carolina; and a B.S. in International Trade and Finance from Louisiana State University. Andrew is the past Chair of the International Law Section of the Texas State Bar, a Board Member for the Association of International Petroleum Negotiators as well as a member of the organization's Farmout Agreement Revision Drafting Committee and Unitization and Unit Operating Agreement Model Form Committee, an Advisory Board Member for the Institute for International and Comparative Law at CAIL, and an Advisory Board Member for the Institute of Transnational Arbitration. His accolades include being named a "Recommended Attorney" for Energy Transactions: Oil and Gas by The Legal 500 US 2017 as well as among D Magazine's 2017 "Best Lawyers in Dallas" for Energy & Natural Resources.
MEREDITH RATHBONE is a partner with Steptoe & Johnson, in London & Washington, D.C. She counsels clients in numerous countries on achieving their business goals while ensuring compliance with US export controls and economic sanctions laws administered by the Departments of Commerce, State, and Treasury. She has assisted clients across a range of industries in navigating the requirements of the Export Administration Regulations (EAR), International Traffic in Arms Regulations (ITAR) and US sanctions laws and regulations administered by the Office of Foreign Assets Control (OFAC) and the US Department of State. Her experience includes assisting clients in resolving politically sensitive matters under the joint administration of various government agencies. Meredith has assisted clients in conducting numerous internal investigations, preparing and filing voluntary disclosures and subpoena responses, obtaining export and technology transfer authorizations, and undertaking product classification and jurisdiction assessments. Meredith regularly advises companies on navigating export controls and sanctions considerations in the context of mergers and acquisitions. She has represented individuals and companies facing civil and criminal investigations in this area, as well as clients seeking to be removed from OFAC's SDN list through the delisting process. Meredith has also advised clients on compliance with United Nations sanctions and arms embargoes. She has experience advising companies on the political and commercial effects of regime change and government succession as provided by international contracts law, customary international law, and the laws of war. Additionally, Meredith has assisted companies in achieving their business goals by advising them on the eligibility of their products and technology for US military and civilian government procurement under the Buy American Act, the Trade Agreements Act, and other domestic procurement laws. Meredith is the co-chair of Steptoe's International Regulation and Compliance practice and serves on the firm's Executive Committee.
MICHELLE SCHULZ is a leading authority in international trade law and represents a range of corporate clients in matters relating to U.S. trade regulations such as the InternationalTraffic in Arms Regulations, the U.S. Export Administration Regulations, and the various sanctions and embargoes administered by the Treasury Department's Office of Foreign Assets Control. Under the U.S. Secretary of Commerce, Michelle served six years on the President's Export Council Subcommittee for Export Administration, a senior-level advisory body to the U.S. Department of Commerce and, in particular, its Bureau of Industry and Security. She has also served as a senior-level advisor to the U.S. Trade Committee of Aerospace for over six years. Michelle routinely represents clients in government investigations, audits, disclosures, fines, penalties, and forfeitures. She also guides corporate clients on export and import policies and procedures, export licensing, duty savings, and other trade compliance matters. She holds a secret level security clearance. Michelle speaks German and French.
I. OVERVIEW
United States sanctions laws and regulations can have a significant impact on both U.S. and non-U.S. companies. The primary U.S. government agencies that regulate U.S. trade sanctions are the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC), the U.S. Department of Commerce's Bureau of Industry and Security (BIS), and the U.S. Department of State. These agencies exercise broad jurisdiction, and their authority can overlap in situations involving exports involving sanctioned countries or entities.
Sanctions can be comprehensive or targeted. Some sanctions are comprehensive in nature and include broad-based restrictions on engaging in transactions or dealings with a country, while others target specific individuals, entities, or sectors of the economy. In addition, sanctions can be primary or secondary. Primary sanctions prohibit U.S. persons - and to some extent non-U.S. persons, from engaging in certain activity with sanctioned countries or entities. Secondary sanctions, on the other hand, mainly target the activities of non-U.S. persons, even if it takes place wholly outside of U.S. jurisdiction. Secondary sanctions do not prohibit non-U.S. persons from engaging in targeted activity, but instead threaten to impose sanctions on persons who engage in targeted activity involving sanctioned countries or entites.
The following is a brief overview of key concepts associated with U.S. economic and trade sanctions in international transactions.
OFAC
OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.
OFAC sanctions and embargoes apply to several countries around the world. OFAC also maintains a list of individuals and companies that the U.S. government views as acting contrary to certain U.S. national security or foreign policy interests. These persons are known as Specially Designated Nationals (SDNs), and U.S. persons are generally prohibited for conducting transactions with them, and must "block" or "freeze" any SDN property that is within their ownership or control. If one or more SDNs owns, individually or in aggregate, 50% or more of another entity, that entity is treated as an SDN as well, even if that entity is not on the SDN list.
Additionally, OFAC generally prohibits U.S. persons from facilitating the activities of foreign persons with respect to sanctioned countries or entities, so anyone engaging in transactions with sanctioned parties should be aware of the specific OFAC restrictions that apply to each country and entity. Generally speaking, OFAC interprets the concept of facilitation broadly.
OFAC also exercises broad extraterritorial jurisdiction. Many companies think of U.S. sanctions - particularly U.S. primary sanctions - n the context of U.S. persons. The term "United States person, or U.S. person" is generally defined as "any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States." However, primary sanctions can reach non-U.S. persons as well, particularly if the non-U.S. person is involve in activity with a U.S. nexus, such as U.S. goods, U.S.
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technology, or U.S.-origin services. Typically, for example, engaging in transactions in U.S. dollars, or involving a U.S. bank, has the potential to create U.S. primary sanctions jurisdiction.
In some cases, general licenses may be available under a particular sanctions program authorizing certain transactions, such as exports of food or medicine. Additionally, prohibited transactions may be authorized by OFAC on a case-by-case basis through a specific license.
Failure to obtain an OFAC license prior to shipping to a sanctioned or embargoed country or entity may result in civil and/or criminal penalties.
In addition, secondary sanctions target the activity of non-U.S. persons, even if there is no U.S. jurisdictional nexus. For instance, on August 2, 2017, the U.S. signed into law the Countering America's Adversaries Through Sanctions Act (CAATSA), which called for additional sanctions and changes with regard to Russia and other countries. CAATSA targets the actions of non-U.S. persons. Section 228 of the CAATSA authorizes the President of the United States to impose sanctions on foreign persons who knowingly, on or after August 2, 2017:
1) Materially violate, attempt to violate, conspire to violate, or cause a violation of any license, order, regulation, or prohibition contained in or issued pursuant to any covered Executive...
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