Sanctions, sanctions everywhere: forging a path through complex transnational sanctions laws.

Author:Rathbone, Meredith
Position:I. Introduction through III. Overview of the Sanctions Regimes for Cuba, Iran, Sudan, and Syria, p. 1055-1095
 
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TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. Overview of Sanctions B. General History of Sanctions III. OVERVIEW OF THE SANCTIONS REGIMES FOR CUBA, IRAN, SUDAN, AND SYRIA A. Cuba B. Iran C. Sudan D. Syria IV. COMPLIANCE CHALLENGES CONFRONTING BOTH U.S.-BASED AND FOREIGN MULTINATIONAL COMPANIES IN RELATION TO THE U.S. ECONOMIC SANCTIONS REGIMES A. U.S.-Based Companies 1. Introduction 2. Transshipment of U.S.-Origin Goods 3. Foreign Subsidiaries of U.S.-Based Companies Under the Cuba and Ivan Sanctions Regulations 4. Facilitation of Prohibited Transactions by Non-U.S. Persons B. Foreign Companies 1. Introduction 2. Reexporfing U.S.-Origin Goods 3. "Person [s] Subject to the Jurisdiction of the United States" 4. Acting in or Causing a Violation in the United States 5. Extraterritorial Sanctions C. Extraterritorial Application of Sanctions Regulations and the Resulting Conflicts of Law Issues V. CORPORATE COMPLIANCE ESSENTIALS VI. CONCLUSION I. INTRODUCTION

U.S. economic sanctions consist of a complex web of laws and regulations that can be nuanced and opaque. Both U.S. and non-U.S. multinational companies involved in transnational business activities should be mindful of the broad and sometimes extraterritorial scope of U.S. economic sanctions. The compliance challenges facing U.S. and non-U.S, companies can differ significantly, but the consequences of engaging in prohibited or sanctionable activities can be equally disastrous.

This Article is intended to provide readers with a basic understanding of the complexities of the various sanctions regimes and their applicability to multinational companies. It also seeks to provide readers with some practical tools to enable them to navigate the sanctions regimes. Part II of this Article provides a general overview and brief history of U.S. sanctions. Part III provides an overview of the four major U.S. sanctions regimes affecting multinational companies: Cuba, Ivan, Sudan, and Syria. Part IV provides an assessment of the unique compliance challenges facing U.S. and non-U.S, multinational companies, and explores the issues of extraterritoriality and conflicts of laws. Part V provides a basic overview of compliance steps that can be taken to assist multinational companies in their efforts not to run afoul of U.S. sanctions laws and regulations.

  1. BACKGROUND

    1. Overview of Sanctions

      Economic sanctions are traditionally defined as the "deliberate, government-inspired withdrawal, or threat of withdrawal, of customary trade and financial relations with a target country in an effort to change that country's policies." (1) This traditional view that sanctions target other states encompasses a significant portion of the measures the United States imposes around the world today. (2) Sanctions against a state can take many forms. They may curtail the activities of the sending country's government in the target country, for instance by freezing diplomatic relations or halting military and economic assistance. (3) Sanctions may go a step further by prohibiting private persons from engaging in or facilitating the transfer of goods or technology, or the provision of services, to another country, its government, and/or its persons. (4) Sanctions can also restrict personal activities such as travel. (5)

      In the United States, the primary country-based sanctions programs, with the exception of the Cuba regulations, restrict the activities of "United States persons." (6) Under the regulations, "[t]he term United States person ... means 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." (7) The Cuba program applies more broadly, to include foreign subsidiaries of U.S. companies. (8) However, the Iran regulations were recently expanded so they now also include, to a more limited extent, foreign subsidiaries of U.S. companies. (9)

      In addition to the more traditional, country-based measures, sanctions can be "targeted" at particular individuals or entities. Targeted sanctions have become more common over the past two decades because of the proliferation of non-state groups that the United States has determined to have a potential impact on U.S. foreign policy or national security, and because targeted sanctions are generally viewed as causing less collateral harm to innocent citizens than country-based sanctions programs. (10) The increased use of targeted sanctions over the past several years suggests that the U.S. government has concluded that they can be a powerful tool, even when the goal is to change the behavior of a foreign state actor.

      In administering the "targeted" sanctions, the Treasury Department's Office of Foreign Assets Control (OFAC) publishes a list of so-called Specially Designated Nationals (the SDN List), which contains the names of thousands of individuals and entities whose property is blocked and with which U.S. persons are prohibited from dealing. (11) The SDN List categorizes these so-called SDNs according to the reason and authority for their listing. For example, a Specially Designated Global Terrorist (SDGT) is listed pursuant to the Global Terrorism Sanctions Regulations. (12) Persons engaging in certain activities with respect to Iran can be listed pursuant to the Iranian Transactions and Sanctions Regulations (ITSR). (13) New individuals and entities are frequently added to the SDN List, and its scope is broad. It includes individuals and entities directly engaged in prohibited activities, but also their agents and facilitators. (14) Entities on the SDN List may be located in countries friendly to the United States--or even in the United States itself--and frequently have names that would not trigger suspicion (e.g., the Benevolence International Foundation). (15)

      Despite the fact that the makeup of the SDN List is constantly changing, targeted sanctions are in some ways less complicated for companies to navigate from a compliance perspective. That is because the entities are explicitly designated and the prohibition with respect to them is simple and clear--their property is blocked and U.S. persons are prohibited from dealing with them. (16) However, compliance challenges still arise, as the property of any entity that is owned (fifty percent or more) or controlled by an SDN is also blocked, even if the entity itself is not specifically designated. (17) In many country-based sanctions programs the restrictions are much broader in scope than list-based sanctions, and companies need to be aware of all of the relevant statutes, executive orders, and regulations for each sanctions regime, many of which are subject to frequent amendment. (18)

      The statutory basis for the core of most of the country-based sanctions regimes is the International Emergency Economic Powers Act (IEEPA). (19) IEEPA provides continuing authority for the President--after a declaration of national emergency with respect to a particular threat--to regulate, in order to deal with that threat, among other things, transactions involving the property of foreign persons that is subject to U.S. jurisdiction. (20) The President exercises that power by issuing executive orders, which declare or reaffirm a previous declaration of national emergency, and which may block the property of certain entities, prohibit certain transactions, or order the heads of departments, in particular the Secretary of the Treasury, to issue regulations restricting certain activities. The core of the country-based sanctions programs are regulations promulgated by the Secretary of the Treasury, pursuant to those executive orders, which enumerate prohibitions related to the country in question. For instance, the ITSR form the core of the Ivan sanctions regime.

      In addition to these core prohibitions put in place by the President under the general authority of IEEPA and implemented by regulations and executive orders, there are a variety of measures enacted by other statutes that are often implemented by executive order and/or regulation. (21) These additional statutes may require the President to modify the scope of the core program targeting a particular country. For instance, the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) required the President, among other things, to expand the scope of the ITSR to cover foreign subsidiaries of U.S. companies." (22) Or the additional statutes may enact other measures altogether. For instance, the Iran and Libya Sanctions Act of 1996 (ISA), as amended by certain provisions of the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA), (23) ITRA, and various other statutes, puts in place an entirely different type of sanctions regime from the ITSR. Rather than setting forth strict prohibitions on the activities of U.S. companies and their owned and controlled facilities abroad like the ITSR, the ISA regime largely targets the activities of non-U.S, persons, and requires the President to impose five out of a list of twelve possible sanctions against an entity that he determines engaged in one or more of a list of sanctionable activities. (24)

      The sanctions programs are administered by several U.S. government agencies, but the primary regulator is OFAC. OFAC is responsible for promulgating the sanctions regulations, (25) designating SDNs, and enforcing these measures. (26) The Department of State also plays a major role, particularly in administering the extraterritorial sanctions programs. For instance, the Bureau of International Security and Nonproliferation (ISN) is in charge of nonproliferation sanctions. (27) OFAC has published regulations for more than thirty different sanctions regimes, (28) but this Article will focus on the sanctions related to Cuba, Iran, Sudan, and Syria, because these broad-based programs have the greatest potential to create...

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