Background - News & Events (Landing) 2016
All Alerts & Newsletters

This Month in International Trade — November 2016

Dec.08.2016

In this issue:


This news bulletin is provided by the International Trade Group of Crowell & Moring. If you have questions or need assistance on trade law matters, please contact John B. Brew or any member of the International Trade Group.


TOP TRADE DEVELOPMENTS

Uncertainty Looms for U.S. Iran Policy and the JCPOA

Throughout his campaign, President-elect Trump promised to terminate or renegotiate the Iran nuclear agreement, known formally as the Joint Comprehensive Plan of Action (JCPOA). Action could come as soon as January 20, 2017, Trump’s first day in office, because the deal is not a treaty, and because President Obama authorized the sanctions relief outlined in the agreement using executive orders and administrative rulemaking, both of which can be quickly reversed.

Although in the past newly elected presidents have altered course when faced with reality, many observers cite the president-elect’s lack of government service experience and his extreme views in predicting that significant actions could be taken early in the new administration, regardless of the consequences. If President Trump reverses course and re-applies secondary sanctions, it would likely reverse much of Iran’s gains in foreign investment over the past year, as well as cut down on the new revenue generated by increased oil sales, two things he has cited as reasons for the need to reverse the Obama approach.

U.S. and Western Allies Push to Strengthen Nuclear Agreement

In an attempt to dissuade the incoming Trump Administration from withdrawing or attempting to re-negotiate the JCPOA, the U.S. and its Western allies are pushing Iran to cut the amount of radioactive material it holds to levels below what the agreement requires. It is hoped such a reduction would lengthen Iran’s breakout time, the time required to obtain enough material to build a nuclear weapon, beyond the one year provided for in the JCPOA.

Under the deal Iran is allowed to stockpile 300 kilograms of low-enriched uranium, as well as 130 metric tons of heavy water. Earlier this month, after being notified by the International Atomic Energy Agency (IAEA) that it had exceeded its heavy water limit, Iran quickly exported 11 tons to Oman, an action which should keep Iran under the 130 metric ton limit for several months. Although Iranian officials have engaged in serious discussions on this idea, Iran has made no concrete commitment to any further reductions.

Recent increases in licensed business between U.S. and non-U.S. companies and Iran will increase the costs for any withdrawal from the JCPOA. For example, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) granted Airbus a license to sell more than 100 passenger aircraft to Iran in November. OFAC had previously licensed Airbus to sell 17 planes last September. These licenses were under threat from the current Congress, even before a Trump Administration. The House has already passed legislation which would ban the sale of civil aircraft or parts to Iran, legislation that President Obama has pledged to veto, but which might face a different fate on President-Elect Trump’s desk.

EU Re-Commits to JCPOA after U.S. Elections

On the heels of the U.S. elections, the Council of the EU issued a set of forward-looking conclusions on the EU’s relations with Iran. The main conclusion relates to the JCPOA, confirming the EU’s “resolute commitment” to support its full and effective implementation with a view to expand trade and investment with Iran. The conclusion is premised upon Iran’s continued full and timely cooperation with the IAEA in its verification of Iran’s nuclear-related commitments under the JCPOA.

The Council also refers specifically to the export of commercial passenger aircraft and related parts and services to Iran, stating its expectation that OFAC will continue issuing the requisite licenses for aircraft reserved exclusively for civil aviation. In addition, the Council confirms its support for the opening of an EU Delegation in Iran to address a broad range of other areas of common interest. Other conclusions address Iran’s World Trade Organization (WTO) accession, the use of export credits in dealings with Iran, human rights, Iran’s missile program, and the role of Iran in Syria.

The Council’s conclusions were prompted partly by President-elect Trump’s repeated denouncement of the JCPOA during the U.S. presidential election campaign, and underscore the breach with Europe that would occur if the Trump administration were to leave the JCPOA and seek to reapply secondary sanctions. EU companies have expressed strong interest in investing in Iran, and have begun concrete steps to take advantage of the opening to Iran’s economy created by the JCPOA (e.g., the joint venture agreement between PSA-Peugeot-Citroen and Iran Khodro to produce 200,000 cars annually). Furthermore, in response to the foreign policy uncertainty resulting from the election’s outcome, certain EU foreign affairs ministers and officials have identified an opportunity for the EU to assume more responsibility with respect to geopolitical issues, including in relation to Iran. Accordingly, while noting a variety of Iran’s shortcomings in economic terms, they are also emphasizing the need to engage with Iran economically to facilitate its reintegration into the global trading system and to bolster political elements within Iran favoring closer ties with the West. With EU-Iran trade slowly recovering since the implementation of the JCPOA, European officials are unlikely to accommodate President-elect Trump’s desire for increased pressure on Iran and will seek instead to convince his administration to respect the current terms of the JCPOA.

Iran Sanctions Act (ISA)

The U.S. House of Representatives passed an extension of the Iran Sanctions Act (ISA) by a vote of 419-1 last month, sending the measure to Senate, where it passed on a 99-0 vote on December 2. The legislation now moves to the White House for President Obama’s signature. Although the President is expected to sign the bill, the administration noted the extension does not by itself require any change in U.S. policy towards Iran – the main sanctions in the ISA have been suspended by presidential waiver to meet the terms of the JCPOA, and the new law would allow this practice to continue. The Obama Administration had claimed that it already had sufficient authority to re-impose the ISA sanctions pursuant to other authorities if needed, and that the extension of the ISA risked unnecessarily antagonizing Tehran.

For more information, contact: Jeff Snyder, Carlton Greene, Cari Stinebower, Chris Monahan, Dj Wolff, Charles De Jager


NAFTA Termination - What Investors Need to Know

In the middle of an unprecedented presidential campaign, then candidate and now President-elect Trump repeatedly called for a renegotiation of the North American Free Trade Agreement (NAFTA) with Mexico and Canada. He threatened to withdraw the U.S. from the Agreement if either Party refused to renegotiate. Although it is unknown how this campaign rhetoric will turn into policy, from a legal perspective there are a number of issues that should be addressed.

Commentators have taken different views as to whether the President can unilaterally terminate NAFTA or other free trade agreements without Congressional approval. However, many believe President-elect Trump can walk away from free trade agreements without receiving permission from the House and Senate. Regardless, a decision by the United States to cancel NAFTA would trigger Article 2205 of the Agreement. This provision allows any member to withdraw “six months after it provides written notice of withdrawal to the other Parties.” In short, the United States’ participation in NAFTA may be officially terminated six months after notice of its intentions are provided to the other Parties. There is no sunset period beyond this six-month notice period.

The legal consequences of withdrawing from NAFTA are significant. One aspect investors should be particularly concerned with is the elimination of the Investor-State Dispute Settlement (ISDS) protections contained in Chapter 11 of NAFTA. This would exclude certain investors from enforcing their rights under the Agreement against illegal expropriations, or arbitrary or discriminatory actions by other treaty Parties. In other words, if the United States withdraws from NAFTA, U.S. investors would no longer be able to bring investment claims against Mexican and/or Canadian authorities before international arbitration tribunals for breaches of international law.

The effects of Article 2205 of NAFTA suggest that investors would be able to bring new cases during the six months between the notice of withdrawal and the date it becomes effective. However, investors will actually have a much smaller window to initiate arbitration. Article 1119 of NAFTA states that a disputing investor “shall deliver to the disputing Party written notice of its intention to submit a claim to arbitration at least 90 days before the claim is submitted.” This means that an investor will only have 90 days to bring a new case in order to be allowed to submit formal arbitration before the withdrawal takes effect.

Unlike other treaties, which typically secure the continuity of investment protections for 10 to 15 years after treaty termination, NAFTA does not include any protective provisions other than the six-month notice period. The potential termination or renegotiation of NAFTA, plus the 90-day notice period prior to initiating a formal arbitration as required under Article 1119, creates a measure of potential uncertainty for investors, who would be forced to act within the short 90-day window if NAFTA were terminated. Although this scenario may be unlikely, the 2016 U.S. presidential election and the United Kingdom’s referendum to leave the EU in June have provided clear lessons for investors to be prepared for any possible scenario.

For more information, contact: Ian Laird, Eduardo Mathison


Potential U.S. Withdrawal from Paris Climate Agreement Likely to Lead to WTO Challenges

The incoming Trump administration is signaling it could withdraw from the new multilateral climate accord (known as the Paris Agreement) that entered into force on November 4, 2016. Under Paris, 192 parties, including the U.S., agreed to “strengthen the global response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5 degrees Celsius.”

To reach these targets, most parties submitted voluntary nationally-determined contributions (NDC). These NDCs varied from nation to nation and comprise some form of domestic regulation of greenhouse gas (GHG) emissions or subsidization for sustainable development and resilient infrastructure. However, the NDCs are not enforceable because the Paris Agreement lacks a binding enforcement mechanism. Instead, parties intend to rely on each other to promulgate their own domestic rules every few years and self-regulate achievement of their NDC goals.

If the U.S. withdraws from the Paris Agreement or chooses to ignore its submitted NDC, other countries have limited direct means to stop it from doing so. However, countries are contemplating an indirect economic challenge – the creation and application of climate-related trade tariffs, taxes or duties (known as border adjustments). In fact, the French government has already stated publicly that it would immediately pursue an EU directive to impose carbon tariffs on U.S. goods coming into the European Union if the United States were to withdraw.

In theory, border adjustments of this kind would be applied to imports from any country that does not have or enforce GHG regulations or restrictions deemed commensurate with the importing nation. The intent would be to preserve a level playing field between domestic goods produced subject to GHG restrictions or taxes on emissions, and U.S. or other goods that would not similarly be burdened or economically affected.

The salient question, however, is whether application of such carbon tariff border adjustments is legal and WTO-consistent. To the extent these border adjustments would consist simply of applying a tax or duty on imports equal to the measured cost incurred by domestic companies, border adjustments would appear at first glance as being unlikely to contravene the multilateral WTO Agreement. However, the devil will always be in the details for any border adjustment measures ultimately devised and imposed. The reason is mainly the obvious concern that border adjustments would be nothing more than disguised protectionism. A second concern would be the application of carbon tariffs on some, but not all, countries (i.e., only applied to those countries deemed not to have commensurate GHG regulations in place). There are other uncertainties as well. In fact, the legality of carbon tariffs has never been tested before a WTO Dispute Settlement Panel.

To be WTO-compliant, border adjustments will conceptually depend on proper design, scope, and connection to domestic environmental conservation efforts. There are several provisions within the WTO Agreements that could arguably permit border adjustments, however each available provision has drawbacks to legality. For example, both Articles II.2 and III.2 of the General Agreement on Tariffs and Trade (GATT) permit countries to impose taxes or charges on imports, provided those taxes are imposed on products that are “like” the domestic products that are subject to the domestic tax (i.e., GHG regulation) and the amount of the tax imposed on the imports does not exceed the amount of the internal tax on the “like” products. A country that levies a $10 carbon tax on domestically produced steel, in other words, would have to apply a $10 tax on imported steel, regardless of the carbon content differences between the two like products.

Article XX of the GATT provides the most flexibility for countries seeking to implement border adjustments because it allows WTO members to apply otherwise discriminatory restrictions on imports in certain circumstances. Under Articles XX(b) and XX(g), WTO members can adopt policies inconsistent with international trade legal principles if such policies are “necessary to protect human, animal, or plant life or health” or which “relate to the conservation of exhaustible natural resources” (in the case of carbon tariffs, the exhaustible resource would be a livable climate).

The EU, for example, would need to show that the EU Emissions Trading Scheme and the corresponding border adjustment fall under the exemptions provided by Article XX. However, the exemption is not absolute. Any EU border adjustment scheme would have to be deemed as not applied in a manner that constitutes a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or as a disguised restriction on international trade. However, the propensity of any tariffs or adjustments to serve as a means of protectionism means that the degree of “equivalence” between the border adjustment and the domestically applied GHG restrictions will be the primary focus of any trade litigation. For these and other reasons, it will ultimately be for the WTO Appellate Body to settle the issue.

Even though border adjustment schemes will be complex and challenged, several parties to the Paris Agreement, not just the EU, will be seriously considering developing carbon tariffs if the U.S. withdraws from its NDC. Climate may turn out to be one of potentially several trade battles to come over the next few years. U.S. companies should therefore begin considering if there would be potential cost impacts on their exports based on their carbon-intensity.

For more information, contact: Cameron Prell, Charles De Jager


New EU Customs Code includes ‘Right to be Heard’ and Uniform Interpretation of Customs Decisions

The new Union Customs Code (UCC) that entered into force earlier this year introduces a number of important changes to the EU customs rules to ensure parties’ right to be heard and the uniform interpretation of customs rulings throughout the EU. However, the relevant provisions of the UCC leave some gaps in its coverage, such that companies must remain alert to the full range of means at their disposal to preserve their rights and ensure predictability in the customs environment.

Under EU customs law, economic operators can apply for binding information rulings whenever they wish to have predictability as to the interpretation of customs legislation by customs authorities. Probably the most significant change introduced by the new UCC to advance rulings on tariff and origin matters is that information rulings are binding, not only on the issuing customs authorities, but also the holder. In addition, the updated UCC establishes procedures to ensure that customs authorities, in the interest of uniform interpretation across EU Member States, avoid releasing contradictory binding information. All customs authorities throughout the EU are thus bound by the advance rulings released by the customs authorities of one Member State.

The UCC also introduced detailed rules and procedures concerning the customs decisions taken by customs authorities in all other areas of EU customs legislation, besides tariff and origin matters. In this context, the UCC has introduced provisions concerning the right to be heard. Specifically, before taking a decision that would adversely affect the applicant, customs authorities must communicate to applicants the grounds on which they intend to base their decision and provide applicants an opportunity to present their point of view. However, such right to be heard is not applicable to binding tariff and origin information under the UCC.

Similarly, the provisions concerning customs decisions in general do not formally address the point of uniform interpretation, which could raise doubts as to whether a customs decision taken in the area of customs valuation, for example, is binding for the customs authorities of other Member States. As a result, the EU legal order must be relied upon to ensure not only the right to be heard in the context of binding tariff and origin information rulings, but also uniform application of the content of customs decisions in other fields of customs legislation.

In fact, as a regulation under EU law, the UCC is a secondary legislative act lower in ranking than both the primary sources of the EU treaties and the principles of the Charter of Fundamental Rights of the European Union, which have been accorded primary legal ranking through cases decided by the EU Courts. To the extent the UCC is interpreted and applied in accordance with its secondary status within the EU legal order, economic operators should therefore be entitled to the benefits stemming from the principle of uniform interpretation and the right of defense guaranteed by the EU legal order.

For more information, contact: Charles De Jager

Prepared as part of our occasional collaboration with Laura Beretta and Davide Rovetta, Grayston & Co., Brussels.


European Commission Presents Amendments to Trade Remedies Law

On November 9, 2016, the European Commission (the Commission) presented its proposal to amend Regulation 2016/1036 (the Basic EU Anti-dumping Regulation) and Regulation 2016/1037 (the Basic EU Anti-subsidy Regulation).

The proposed amendments to the Basic EU Anti-dumping Regulation largely reflect what has already been anticipated by the Commission in its communication of October 2016 “Towards a robust trade policy for the EU in the interest of jobs and growth” (see TMIT article). The changes concern the rules governing the calculation of the normal value (NV) for countries where significant distortions affecting market forces may be deemed to exist, including distortions of prices and costs by State intervention, discrimination in favor of domestic suppliers, and distortions of access to finance.

In its past anti-dumping practice, the EU has used cost adjustment methodologies in anti-dumping investigations of imports from countries where prices or costs, including costs of raw materials were deemed to be distorted by government intervention. This methodology runs afoul of World Trade Organization (WTO) rules and has been recently criticized and found in breach of the WTO Anti-Dumping Agreement by both the WTO Panel and Appellate Body.

The new methodology proposed by the Commission allows domestic costs and prices to be disregarded “where there are significant distortions in the exporting country with the consequence that costs reflected in the records of the party concerned are artificially low” and to adjust costs in order to construct NV on “any reasonable basis, including the information from other representative markets or from international prices or benchmarks.”

The Commission would prepare reports on countries or sectors marked by such distortions. Reports would then be added to the file of any investigation relating to a country or sector and would be open for comment by interested parties.

The previous methodology will remain in use for investigations which have already led to the imposition of a duty for the purposes of calculation of NV in all review and refund investigations, provided circumstances have not changed. If circumstances have changed, and in all new investigations initiated on or after the date on which the proposal enters into force, the new methodology shall apply. The determination as to which methodology shall be used in the calculation of the NV in review and refund investigations of the measures imposed before the entry into force of the proposal will depend on an assessment of the change of circumstances prevailing on a market. This will be based on evidence submitted by the parties, including by-country and by-sector assessment reports prepared by the Commission and their supporting evidence.

The proposal can be seen as the EU’s response to the forthcoming expiration on December 11, 2016 of provisions in Annex I to China’s Protocol of Accession to the WTO which allowed other WTO Members to use its own legislation to establish whether or not the country would be classified as a market economy. In the EU, China was listed alongside other countries as a non-market economy which entitled the Commission in the context of anti-dumping investigations to use a methodology that is not based on a strict comparison with domestic prices and costs in the exporting country, but allows for the creation of NV on the basis of price or constructed value in a market economy third country or any other reasonable basis (the analogue country methodology). Going forward, the analogue country methodology will still be used in all cases involving countries that, at the date of initiation of the investigation, are not members of the WTO and are listed in Annex I of Regulation 2015/755. These countries are Azerbaijan, Belarus, Kazakhstan, North Korea, Turkmenistan and Uzbekistan.

Finally, the amendments proposed by the Commission to the Basic Anti-subsidy Regulation concern subsidies identified in the course of a proceeding whose existence could not have been known before carrying out the investigation; going forward, such subsidies could be investigated and taken into consideration in the level of duties finally imposed.

The proposed amendments to the EU Anti-dumping and EU Anti-subsidy Regulations will now have to be adopted under the ordinary legislative procedure – and may still be amended – by the European Parliament and the Council of the European Union.

For more information, contact: Salomé Cisnal De Ugarte, Elena Klonitskaya, Charles De Jager, Lorenzo Di Masi


New Military Aircraft and Gas Turbine Engine Rule Effective Dec. 31

DDTC Advises Review of Authorizations against Latest Changes

On November 21, BIS and DDTC published in the Federal Register final rules clarifying and revising the Export Administration Regulations (EAR) and the International Traffic in Arms Regulations (ITAR) for U.S. Munitions List (USML) Category VIII (Military Aircraft) and Category XIX (Gas Turbine Engines). Both rules become effective on December 31, 2016.

In an Industry Notice also published on November 21, DDTC advised that the final rule affects, among other things, a narrow range of articles that have been moved from the Commerce Control List (CCL) to the U.S. Munitions List (USML). The impacted articles relate primarily to next-generation platforms and will be controlled principally in USML paragraphs VIII(h)(29) and XIX(f)(12).

Paragraph VIII(h)(29) covers “[a]ny of the following equipment if specially designed for a defense article described in paragraph (h)(1): (i) Scale test models; (ii) Full scale iron bird ground rigs used to test major aircraft systems; or (iii) Jigs, locating fixtures, templates, gauges, molds, dies, or caul plates.” VIII(h)(1) controls parts, components, accessories, associated equipment and systems for certain, specified military aircraft.

Paragraph XIX(f)(2) is for “[a]ny of the following equipment if specially designed for a defense article described in paragraph (f)(1): Jigs, locating fixtures, templates, gauges, molds, dies, caul plates, or bellmouths.” XIX(f)(1) controls parts, components, accessories, associated equipment and systems for certain, specified U.S.-origin engines and military variants.

In the Notice, DDTC offers the following guidance regarding licenses or authorizations pertaining to these articles:

  • Effective December 31, for articles previously subject to the EAR, but now subject to the ITAR under the new rule, any unshipped balance under a Department of Commerce authorization will be null and void, as the re-export or retransfer of the articles will be controlled by the ITAR.

DDTC believes the scope of impacted authorizations to be limited and states it will assist exporters in obtaining appropriate authorizations under the ITAR. Impacted exporters are encouraged to contact the Office of Defense Trade Controls Licensing through the DDTC Response Team at (202) 663-1282 or DDTCResponseTeam@state.gov, as soon as possible to discuss specific transition impacts.

For more information, contact: Chris Monahan


English High Court Rules Parliament Must Approve Brexit; Government Appeals to the Supreme Court

In a judgment dated 3 November 2016, the High Court ruled that the government of the United Kingdom does not have the power to invoke Article 50 of the Treaty on the Functioning of the European Union (TFEU) to begin the formal process of Britain’s withdrawal from the EU. Instead, an Act of Parliament is required. A summary of the judgment is available here.

The UK Supreme Court, with the full panel of eleven judges, began its review of the case on December 5. For more information on this development, please see Crowell’s Client Alert.

For more information, contact: Adrian Jones, John Laird, Gordon McAllister, Edward Norman


Global Shippers Forum Claims Shipping Alliances Might Not Provide the Best Supply Chain Efficiency

Developments in the international carrier business mean shippers managing supply chain operations may be able to gain an advantage by identifying which shipping alliances are most effective in facilitating supply chain efficiency.

Most major liner carriers are part of an alliance in which members share box space on each other's vessels. These alliances are aimed at achieving better utilization of the new generation of large ships and enabling the parties to realize the cost savings that such large ships are designed to achieve. The alliance members collectively agree on the sailing schedule for the relevant vessels, but remain commercially independent competitors: they continue to compete strongly through their separate sales, pricing, and marketing functions, and the coverage and reliability of their individual feeder networks.

Although the benefits of alliances to shipping lines are widely recognized, the Global Shippers Forum (GSF) has claimed that they adversely affect supply chain efficiency and should be reassessed by the competition regulators. The GSF published a position paper on 14 November (The Implications of Mega-Ships and Alliances for Competition and total Supply Chain Efficiency: An Economic Perspective) stating that alliance members were unable to compete with each other on important dimensions of competition on a particular route – namely capacity, sailing frequency, transit times and port calls – because any changes were subject to unanimous agreement. Where no prior agreement was required – e.g., short term operational adjustments in a contingency scenario – the decision was ultimately made by the relevant vessel operator, which may not be the company with which the shipper has entered into a contract of carriage. This has caused service quality to deteriorate and, in turn, shippers to incur unanticipated supply chain costs and business disruption.

These arguments were dismissed by the World Shipping Council (the WSC) in a response published on the same day. According to the WSC, the effects of alliances on the supply chain are the result of carrier reactions to the signals that they are receiving from their shipper customers and the global economy: what are customers willing to pay for and how do you run a business on the available revenue? A shifting regulatory landscape is the last thing that global trade needs at a time when the liner industry is adjusting to a new economic reality.

It may be that structural changes to alliances would provide an alternative means to improve supply chain efficiency. The P3 alliance between Maersk Line, MSC Mediterranean Shipping Company, and CMA CGM, while ultimately rejected by China’s Ministry of Commerce (MOFCOM), incorporated a number of innovative features which would have transferred decision-making authority on key operational matters, including schedule changes and capacity adjustments, from the alliance members to a structurally separate network center.

All of the network center’s decisions would have been made on the basis of a pre-agreed rule book, designed to optimize schedule integrity and to react to changes in capacity demands even where this might conflict with the commercial preferences of an individual alliance member. Ironically, the establishment of the network center and the consequential increase in operational integration between members were among the principal reasons for MOFCOM's rejection of the P3 alliance. However, this does not mean that structurally innovative solutions to operational issues affecting supply chain efficiency will not be implemented as existing alliances develop and new alliances form.

For more information, contact: Simon Evers


Spanish Supreme Court Confirms €1 Million Fine on Santander Bank for AML Violations

On November 28, 2016, the Spanish Supreme Court confirmed the Spanish Council of Ministers’ decision to impose a €1 million fine on Santander Bank for violating Spanish anti-money laundering (AML) law.

On June 12, 2015, the Spanish Council of Ministers penalized Santander Bank – which had previously acquired Banesto Bank – for a “very serious violation” of recordkeeping obligations under Spain’s AML law. The recordkeeping infringements related to a Banesto Bank account owned by a company which is part of the Nueva Rumasa Group, a group owned by a Spanish family long accused of dubious business practices. The company’s account had been credited with €19.8 million in cash without the bank conducting any customer due diligence or recordkeeping for the transaction. Further, the council decision cited one occasion in which a local branch of Banesto Bank provided €500,000 in cash to individuals, also without conducting any due diligence into the their background. The company also is subject to a separate criminal investigation.

Santander appealed the Council of Ministers’ decision based on three arguments. First, Santander argued that Banesto had substantially complied with its recordkeeping obligations and that the local bank branches knew the identities of the persons involved in the transaction, which had copies of their identification documents. Second, Santander argued in the alternative that the fine was disproportionate and should be reduced to the minimum (i.e., €150,000) because the infringement was neither serious nor systematic. Third, Santander argued that the qualification of the fine as “very serious” was erroneous as Santander had never violated the law before because past similar recordkeeping infringements were made by Banesto prior to the merger by acquisition, and could not be attributed to Santander.

The Supreme Court disregarded Santander’s arguments and determined that the recordkeeping infringements were not occasional. Santander did not comply with its recordkeeping obligations in 304 out of 305 cash transactions conducted at local branches (Banesto at the time). The Supreme Court therefore concluded that the case represented a “continued and massive breach” of the obligations imposed by the AML law. Finally, the Supreme Court – citing Spanish criminal law – confirmed that criminal responsibility is transmitted to the acquirer via a merger. Thus, Banesto – which had committed similar infringements in the past – was the same legal person as Santander after the merger. Thus, repeated past violations could be considered to conclude that the infringement was “serious” for purposes of the law. The Court also clarified that the amount of the fine was proportionate because: (1) the infringements involved transactions amounting to millions of euros; (2) the transactions directly related to a criminal case; and (3) the breach of recordkeeping obligations had the possibility of directly affecting the outcome of a criminal process, reducing the government’s ability to prove a criminal offense. The court went on to affirm that a bank’s due diligence obligations are not limited to suspicious activity, but also extend to “unusual transactions” such as the ones explained above.

For more information, contact: Carlton Greene, Cari Stinebower, Mariana Pendas


FinCEN’s New Advisory on Cyber Crime Could Expand Suspicious Activity Reporting Requirements

On August 25, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published a Notice of Proposed Rulemaking that would require banks that lack a federal functional regulator to establish and implement anti-money laundering (AML) programs and extend customer identification program (CIP) requirements to certain financial institutions not already subject to these obligations under the Bank Secrecy Act (BSA).

For more information on this proposed rule, please see Crowell’s Client Alert.

For more information, contact: Carlton Greene, Cari Stinebower, Evan Wolff, J.J. Saulino, Ade Johnson, Matthew Welling


AGENCY ENFORCEMENT ACTIONS

Office of Foreign Assets Control (OFAC), the U.S. Department of Justice (DOJ), and the Bureau of Industry and Security

  • On November 14, National Oilwell Varco, Inc. (NOV) settled potential civil liability for apparent violations of the Cuban Assets Control Regulations (CACR), the Iranian Transactions and Sanctions Regulations (ITSR) , and the Sudanese Sanctions Regulations (SSR) for $5,976,028. The company knowingly facilitated transactions, directly or indirectly, to the sanctioned countries.
    • Four of the apparent violations (the transactions violating the ITSR) were deemed egregious due to the fact that senior management approved the payments.
    • NOV’s settlement with OFAC is concurrent with both a settlement agreement between NOV and the Department of Commerce’s Bureau of Industry and Security, and a non-prosecution agreement (NPA) executed by NOV with the U.S. Attorney’s Office for the Southern District of Texas.
    • OFAC’s fine will be deemed satisfied by NOV’s payment of $25 million as set forth in the NPA; however, BIS assessed a civil penalty of $2.5 million.

Securities and Exchange Commission (SEC), DOJ, and the Federal Reserve Board of Governors

  • On November 17, the SEC announced it had filed a cease and desist order against JPMorgan Chase & Co. (JPMC), whereby the bank agreed to pay more than $130 million to settle SEC charges that it won business from clients and corruptly influenced government officials in the Asia-Pacific region by giving jobs and internships to their relatives and friends in violation of the Foreign Corrupt Practices Act (FCPA).
    • In a related action, JPMorgan Securities (Asia Pacific) Limited (JPMorgan APAC), a Hong Kong-based subsidiary of JPMorgan Chase & Co. entered into a non-prosecution agreement (NPA) with DOJ and agreed to pay a $72 million penalty for its role in a scheme to corruptly gain advantages in winning banking deals by awarding prestigious jobs to relatives and friends of Chinese government officials.
    • In a second related proceeding, the Federal Reserve System’s Board of Governors issued a consent cease-and-desist order and assessed a $61.9 million civil penalty for unsafe and unsound practices related to the firm's practice of hiring individuals referred by foreign officials and other clients in order to obtain improper business advantages for the firm.
    • The combined U.S. criminal and regulatory penalties paid by JPMC and its Hong Kong subsidiary are approximately $264.4 million.

For more information, contact: Edward Goetz


OTHER AGENCY ACTIONS

Bureau of Industry and Security (BIS)

  • BIS is seeking public comments on the impact that implementation of the Chemical Weapons Convention (CWC), through the Chemical Weapons Convention Implementation Act (CWCIA) and the Chemical Weapons Convention Regulations (CWCR), has had on commercial activities involving “Schedule 1” chemicals during calendar year 2016.
    • The purpose of this notice of inquiry is to collect information to assist BIS in its preparation of the annual certification to Congress on whether the legitimate commercial activities and interests of chemical, biotechnology, and pharmaceutical firms are being harmed by such implementation.
    • Comments must be received by December 30, 2016.

Directorate of Defense Trade Controls (DDTC)

  • On Monday, November 28, the Directorate of Defense Trade Controls (DDTC) published a notice in the Federal Register requesting public comment on a new “Disclosure of Violations of Arms Control Export Act” form.
  • On November 17, DDTC posted a notice to industry that all communication related to its IT Modernization effort can now be found on DDTC’s new IT Modernization Outreach page.

Office of Foreign Assets Control (OFAC)

  • On November 4, OFAC removed from the Code of Federal Regulations the Former Liberian Regime of Charles Taylor Sanctions Regulations as a result of the termination of the national emergency on which the regulations were based. The agency also amended its Reporting, Procedures and Penalties Regulations and Appendix A to chapter V by making technical changes including removing references to OFAC's fax-on-demand service in order to reflect the discontinuation of that service.

For more information, contact: Edward Goetz


CROWELL & MORING SPEAKS

Ben Caryl spoke on the “Increasing Global Sales and Expanding the Value Chain” panel at the Virginia Manufacturers Association’s (VMA) Annual Industry Forum in Williamsburg, Virginia in November. Ben presented on Federal International Trade Legal and Policy Developments.

On December 6, Frances Hadfield spoke to Cardozo's Fashion, Arts, Media and Entertainment Law Center Fashion Law class on current legal issues in the fashion industry.

Save the Date!

WEBINAR - First 100 Days: This Year in Trade- What’s Ahead in 2017?
Wednesday, January 18, 2017 11 AM -12 PM Eastern

With the start of a new administration, 2017 is sure to bring about many changes in International Trade. Join us for a webinar addressing the potential changes we might see in International Trade next year, and how those changes will impact your business.

On February 10, Intellectual Property and Environment & Natural Resources Group Associate Preetha Chakrabarti will be speaking at the Federal Bar Association’s 2017 Fashion Law Conference at the Parsons School of Design in New York. Preetha will be speaking on a panel entitled: "Corporate Responsibility: Child Labor and Sustainability." This panel will provide an overview of international treaties and U.S. laws affecting child and or forced labor and environmental sustainability issues. International Trade Group Counsel Frances Hadfield will moderate this panel and is a principal organizer of this annual conference.

Email Twitter LinkedIn Facebook Google+

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

John B. Brew
Partner – Washington, D.C.
Phone: +1 202.624.2720
Email: jbrew@crowell.com
Frances P. Hadfield
Counsel – New York
Phone: +1 212.803.4040
Email: fhadfield@crowell.com
Edward Goetz
Manager, International Trade Services – Washington, D.C.
Phone: +1 202.508.8968
Email: egoetz@crowell.com
Jeffrey L. Snyder
Partner – Washington, D.C., Brussels
Phone: +1 202.624.2790, +32.2.214.2834
Email: jsnyder@crowell.com
Carlton Greene
Partner – Washington, D.C.
Phone: +1 202.624.2818
Email: cgreene@crowell.com
Cari N. Stinebower
Partner – Washington, D.C.
Phone: +1 202.624.2757
Email: cstinebower@crowell.com
Christopher Monahan
Counsel – Washington, D.C.
Phone: +1 202.624.2529
Email: cmonahan@crowell.com
David (Dj) Wolff
Counsel – Washington, D.C.
Phone: +1 202.624.2548
Email: djwolff@crowell.com
Charles De Jager
Counsel – Brussels
Phone: +32.2.214.2822
Email: cdejager@crowell.com
Ian A. Laird
Partner – Washington, D.C.
Phone: +1 202.624.2879
Email: ilaird@crowell.com
Eduardo Mathison
Special Legal Consultant – Washington, D.C.
Phone: +1 202.654.6717
Email: emathison@crowell.com
Elena Klonitskaya
Counsel – Brussels
Phone: +32.2.214.2893
Email: eklonitskaya@crowell.com
Lorenzo Di Masi
Associate – Brussels
Phone: +32.2.214.2835
Email: ldimasi@crowell.com
Adrian Jones
Partner – London
Phone: +44.20.7413.1352
Email: arjones@crowell.com
Gordon McAllister
Associate – London
Phone: +44.20.7413.1311
Email: gmcallister@crowell.com
Edward Norman
Associate – London
Phone: +44.20.7413.1323
Email: enorman@crowell.com
Simon Evers
Partner – London
Phone: +44.20.7413.1328
Email: severs@crowell.com
Mariana Pendás
International Associate – Washington, D.C.
Phone: +1 202.654.6718
Email: mpendas@crowell.com
Adeoye O. Johnson
Associate – Washington, D.C.
Phone: +1 202.624.2891
Email: AJohnson@crowell.com
Matthew B. Welling
Associate – Washington, D.C.
Phone: +1 202.624.2588
Email: mwelling@crowell.com