Insights

Following a meeting of the G7 Summit Leaders, on May 19, 2023, the United States and the United Kingdom announced a new round of sanctions and export controls against the Government of the Russian Federation (“Russia”) to continue their efforts against key sectors of Russia’s military-industrial base. These actions target procurement and evasion networks to curtail the flow of necessary resources Russia needs to maintain and fund its campaign against Ukraine. In this alert, Crowell & Moring attorneys based in our U.S. and UK offices provide a comprehensive overview of the recent multi-jurisdictional actions taken by the respective countries’ government agencies.

On February 24, 2023, the United States and other G7 nations announced a number of new sanctions and export control measures coinciding with the one-year mark of Russia’s military invasion of Ukraine. Shortly after these expansive sanctions and export controls were announced, the Departments of Justice (“DOJ”), the Treasury (“Treasury”), and Commerce (“Commerce”) issued their first-ever joint guidance regarding a planned crack-down by these agencies on sanctions and export controls evasion related to Russia in concert with DOJ’s sweeping announcements of a renewed focus on corporate compliance with sanctions and export controls.

On October 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) simultaneously published a final rule strengthening the antiboycott regulations in Part 766 of the Export Administration Regulations (EAR) (the “Final Rule”), as well as a memorandum on the new rule’s implementation (the “Final Rule Memo”), issued by the Assistant Secretary for Enforcement. Pursuant to the Final Rule, BIS will make three primary changes:

On December 2, 2021, the United States, the European Union (“EU”), the United Kingdom (“UK”) and other allies took coordinated action to designate various individuals, entities, and aircraft connected to human rights abuses by Belarussian President Alexander Lukashenko and his regime. This builds on asset freezing actions by the U.S., UK, EU, and Canada earlier this year (which we discuss here).

On September 21, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued an updated advisory on potential sanctions risks for companies that facilitate ransomware payments in response to cyberattacks, guidance on preventative measures companies can implement to mitigate such risks, and criteria that OFAC will consider as mitigating factors in any potential enforcement action. OFAC also announced that it has added SUEX OTC, S.R.O. (“SUEX”), a Russian virtual currency exchange, to its Specially Designated Nationals and Blocked Persons List (the “SDN List”), as a result of its role in facilitating ransomware payments. This represents OFAC’s first-ever designation of a virtual currency exchange.

Senator Maggie Hassan (N.H.-D): “My question is, in your planning, did you have a plan for cybersecurity response that included guidance about ransomware?”

On December 7, 2020, The Council of the European Union adopted a global human rights sanctions regime, similar to the Magnitsky Sanctions program used by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). The EU’s framework will permit it to target individuals, entities, and bodies, whether state or non-state actors, and those who provide technical, financial, or material support to those who are “responsible for, involved in or associated with serious human rights violations and abuses worldwide, no matter where they occurred.” This includes the imposition of targeted sanctions for acts such as genocide, crimes against humanity and other serious human rights violations or abuses (e.g., torture, slavery, arbitrary executions, arbitrary detentions, etc.), and other widespread, systemic and serious human rights violations (e.g. human trafficking, sexual and gender-based violations, violations or abuses of freedom of assembly, association, speech, religion).

On July 3, 2020 Iran initiated a dispute resolution mechanism contained in the Joint Comprehensive Plan of Action (JCPOA), more commonly referred to as the Iran nuclear deal, to address concerns over implementation of the deal. The EU’s Foreign Policy Chief stated that he had received a letter from Iran triggering the dispute mechanism over concerns regarding implementation issues by the United Kingdom, France, and Germany. No details about the nature of Iran’s concerns were provided.

Only four months after the the United Kingdom’s Office of Financial Sanctions Implementation (OFSI) issued a £20.47 million penalty against Standard Chartered Bank (SCB) for alleged violations of the U.K.’s Ukraine- and Russia-related sanctions (see our alert here), another bank is in the news for regulatory breaches. This time it is the London arm of Commerzbank AG (Commerzbank), which was hit by the United Kingdom’s Financial Conduct Authority (FCA) on 17 June with a fine of £37.8 million ($47.4 million) for failures in its anti-money laundering controls.

On February 18, 2020, the United Kingdom’s Office of Financial Sanctions Implementation (OFSI) announced a £20.47 million penalty against Standard Chartered Bank (SCB) for alleged violations of the U.K.’s Ukraine- and Russia-related sanctions. The penalty is more than 140 times larger than any of OFSI’s previous penalties. It provides a number of important lessons for companies subject to U.K. jurisdiction, and suggests how the U.K. programme may evolve post-Brexit. The penalty also reflects important differences in approach from how the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has approached enforcement.

On May 14, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the U.S. Department of State, and the U.S. Coast Guard issued a long-awaited “Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors, and Related Communities” (the “Advisory”). The Advisory substantially expands on previous shipping advisories that OFAC and other U.S. agencies have issued that were specific to the Iran, Syria, and North Korea programs (see our previous summary) by not only offering global guidance, but also by issuing more than a dozen pages of detailed industry-specific recommendations across 10 sectors that touch the maritime industry. In many cases, these recommendations go substantially beyond the compliance expectations that OFAC or its peers had previously articulated.

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Keeping pace with the rapidly changing geopolitics in the region, the last week has brought a series of Iran-related sanctions developments with which global businesses need to keep up.  First, on January 10, the United States further escalated sanctions against Iran, creating new designation authorities for those “operating in” Iran’s construction, mining, manufacturing, and textile sectors under Executive Order 13902 (“EO 13902”).  These new measures come amidst the recent escalation of conflict between the U.S. and Iran.  With the issuance of EO 13902 the U.S. announced it is taking additional steps “to deny Iran revenue, including revenue derived from the export of products from key sectors of Iran’s economy that may be used to fund and support its nuclear program, missile development, terrorism and terrorist proxy networks, and malign regional influence.”1  Concurrently, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced sanctions against key Iranian officials as well as several of the largest companies in the Iranian metals industries as well as certain Chinese and Seychelles based entities involved in the purchase and transport of certain metals from Iran.

On December 31, 2019, a federal district court in Texas (the “District Court, or “Court”) overturned  a $2 million fine levied by the Office of Foreign Assets Control (“OFAC”) against Exxon Mobil Corporation (“Exxon”) for alleged violations of the Ukraine-Related Sanctions Regulations (“URSR”).    OFAC had assessed that Exxon received a prohibited service from a designated person when it allowed Igor Sechin, a Specially Designated National (“SDN”), to sign eight contracts with Exxon in his official capacity as the President and Chairman of the Board of Russian state-owned oil company Rosneft, which was not itself designated as an SDN.  The case ultimately turned on the narrow question of whether Exxon had received fair notice that it was prohibited for U.S. persons like Exxon to deal with companies that are not designated by engaging with designated persons acting in their capacity as officials of the non-designated company.  While the Court concluded that Exxon did not receive that notice, thereby overturning OFAC’s penalty, OFAC now has clarified its position on this issue through guidance issued after Exxon’s contested actions, limiting the ultimate significance of the substantive aspects of the decision.  The Court’s decision could, however, have potential collateral effects on OFAC’s and other Administration official’s willingness to offer contemporaneous statements about the scope and meaning of recently issued sanctions.    

The reaction of the Iranian government to the boarding of the Grace 1 off Gibraltar has been swift and direct reciprocal action has been threatened against “British” ships. Whether that is British flagged as opposed to British managed or operated ships, is unclear. But in the light of the recent attacks on tankers in the Straits of Hormuz and off Fujairah by Iranian forces that threat must be taken seriously. At the moment the threat is conditional on release but recent action in the U.S. Courts to seize a vessel involved in alleged sanction busting trades may yet see the Grace 1 subject to forfeiture action in the U.S. This latest case has parallels with the U.S. backed detention of the North Korean vessel the Wise Honest in May 2019 in Indonesia which saw the first seizure of a vessel under the U.S. civil asset forfeiture procedure more normally aimed at financial assets.

Over the last week, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has issued two updated advisories, as well as issued a series of new designations of Specially Designated Nationals (SDNs), highlighting the sanctions-related risks for, and the focus on, the shipping community. Taken together, they provide important guidance for members of the shipping industry—including shipping companies, ship owners, insurance companies, and financial institutions with shipping practices, port operators, and others in the sector—on the scope of OFAC’s prohibitions, red flags for sanctions risks, as well as the types of compliance practices that OFAC expects. We summarize the key takeaways below.

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On June 27, in accordance with President Trump’s May 8, 2018 decision to withdraw from the Joint Comprehensive Plan of Action (JCPOA), the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) revoked two Iran-related General Licenses and amended the Iranian Transactions and Sanctions Regulations (ITSR), 31 C.F.R. part 560, to reflect the re-imposition of sanctions. OFAC also updated previously issued Frequently Asked Questions on the President’s announcement. These actions represent the first tangible steps taken by the U.S. government to implement the May 8 announcement to end some limited primary sanctions exceptions and re-impose secondary sanctions on Iran.

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