OFACs CountrySpecific Embargoes and U'S' Economic Sanctions: What nonU'S' Banks Need to Know

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OFACs Country-Specific Embargoes and U.S.
Economic Sanctions What non-U.S. Banks Need to
Know

• Daniel E. Waltz
• May 10, 2006

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Office of Foreign Assets Control (OFAC)

• Within the U.S. Department of the Treasury
• Implements U.S. country-specific embargoes and
  issue-specific economic sanctions programs
• Some programs require the blocking of assets

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OFAC Statutory Authorities

• Trading with the Enemy Act (TWEA), 50 USC App.
  1 Et. Seq.
• International Emergency Economic Powers Act
  (IEEPA), 50 USC 1701 et. Seq.
• U.S. sanctions also implement United Nations
  Security Council Resolutions

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OFACs Comprehensive Country-Specific Embargo
Programs

• Cuba
• Iran
• Sudan
• Each program is governed by its own set of
  regulations and each program is unique

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Other OFAC Country-Specific Embargo Programs

• Lesser sanctions apply to
• Syria
• Myanmar (Burma)
• North Korea
• Cote dIvoire and Liberia
• Zimbabwe and
• the Balkans

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OFAC Country-Specific Embargo Programs

• The prohibitions that apply to an embargoed
  country apply equally to Specially Designated
  Nationals (SDNs) of the country.

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OFACs List-Based Sanctions Programs

• The OFAC list of SDNs also includes listed
• Terrorists
• Narcotics Traffickers
• Individual targets from countries that are
  subject to less comprehensive sanctions

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OFAC Sanctions Who is Subject?

• U.S. Persons, i.e.,
• U.S. citizens and permanent residents wherever
  located
• Companies incorporated under U.S. law
• Their foreign (unincorporated) branch offices
• Persons physically located in the U.S.

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OFAC Sanctions Who is Subject?

• Under the U.S. embargo of Cuba
• Foreign (non-U.S.) companies that are owned or
  controlled by a U.S. company (foreign
  subsidiaries)
• Under OFACs other embargo programs, foreign
  subsidiaries are not subject to the OFAC
  regulations, but . . .

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OFAC Sanctions Who is Subject?

• Any U.S. citizen (or resident) employee at an
  overseas unit is subject, and
• OFACs regulations prohibit
• Facilitation
• Evasion
• Thus, any role by a U.S. parent company or U.S.
  citizen can taint a transaction with an
  embargoed country

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OFAC Sanctions Who is Subject?

• Also, the U.S. has prosecuted non-U.S. citizens,
  acting outside the U.S., for conspiring to
  violate OFAC regulations
• See, e.g., United States v. McKeeve, 131 F. 3rd 1
  (1st Cir. 1997) (British citizen held guilty of
  conspiring to violate the U.S. embargo of Libya
  based upon agreement with U.S. exporter to ship
  U.S.-origin computers to the Libyan government
  through Malta).

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OFAC Penalties

• TWEA (Cuba)
• Criminal 10 years imprisonment, 1 million fine
  (companies), and 100,000 fine (individuals)
• Civil 65,000 civil penalty per violation

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OFAC Penalties

• IEEPA for violations pre-dating March 9, 2006
• Criminal 10 years imprisonment and 50,000 fine
  per violation
• Civil 11,000 per violation

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OFAC Penalties

• IEEPA for violations post-dating March 9, 2006
• Criminal 20 years imprisonment and 50,000 fine
  per violation
• Civil 50,000 per violation

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OFAC Penalties

• The U.S. government has assessed extremely large
  fines against foreign banks that have violated
  OFAC regulations, as well as other U.S. laws
• ABN Amro - 40 million funds transfers
  involving Bank Melli (Iran)
• UBS - 100 million dollars to Cuba, Iran, Libya
  and others

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OFAC Penalties

• New guidelines for enforcement against banking
  institutions (Jan. 12, 2006)
• Review periodically rather than on an
  incident-by-incident basis
• Consider the strength or rigor of the
  institutions compliance program
• Use a risk based analysis

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OFAC Penalties

• New guidelines for enforcement against banking
  institutions (Jan. 12, 2006)
• Banks located in the Gulf will be considered
  high risk
• OFAC may be unable to successfully move beyond
  its each incident mindset

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Cuba

• The Strictest embargo
• Applies to
• U.S. citizens and residents
• Persons in the U.S.
• U.S. companies, and
• Their foreign subsidiaries

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Cuba

• U.S. embargo prohibits
• exports
• imports
• transactions
• transactions
• travel

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Cuba

• Cannot do business with
• Cuban government
• Cuban companies
• Specially designated nationals

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Cuba

• U.S. embargo also requires blocking of Cuban
  assets
• Any asset in which Cuba, or a specially
  designated national of Cuba, has an interest.

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Cuba

• All international transfers of dollars clear
  through New York.
• Banks use screening software to identify
  references to Cuba or specially designated
  nationals of Cuba.

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Cuba

• Funds are blocked even if underlying transaction
  is not subject to U.S. law
• Once blocked, almost impossible to unblock

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Sudan

• U.S. embargo is fairly comprehensive, i.e., no
  exports to, imparts from, or investments in Sudan
• U.S. embargo includes a partial or targeted
  blocking feature

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Sudan

• Government of Sudan - assets in the possession or
  control of U.S. Persons are blocked
• Specially Designated National - assets in the
  possession or control of U.S. Persons are
  blocked, e.g., Bank of Khartoum

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Sudan

• Non-governmental banks, companies and individuals
  - U.S. banks must reject transactions in which
  they are involved (e.g., Sudanese French Bank).

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Sudan

• For non-U.S. banks, avoid participation in dollar
  denominated transactions involving Sudan

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Iran

• U.S. embargo generally prohibits trade (import or
  export of goods and services)
• Travel not prohibited
• Not a blocking program

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Iran

• U.S. banks may not
• Service accounts for the government of Iran or
  persons in Iran
• For accounts maintained on their books, transfer
  funds to, or receive funds from, Iran.
• Engage in direct transactions with banks owned or
  controlled by the government of Iran

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Iran

• U-Turn transactions
• U.S. banks may process international funds
  transfers involving Iran, provided that the funds
  are not received directly from, or transmitted
  directly to, a bank owned or controlled by the
  government of Iran.

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Iran

• Non-U.S. banks (that are not owned or controlled
  by the government of Iran) may send to or receive
  from correspondent accounts in New York transfers
  of dollars - even if originating from or destined
  to Iran.

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Syria

• U.S. embargo prohibits exports from the U.S. to
  Syria
• Blocking applies only to specially Designated
  Nationals (currently only 3 individuals).

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Myanmar (Burma)

• U.S. embargo prohibits imports from Burma,
  investments in Burma, and the exports to Burma of
  financial services.
• Assets of listed specially designated nationals
  of Burma must be blocked by U.S. Persons (e.g.,
  banks). Listed persons include major Burmese
  banks.

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State Sponsors of Terrorism

• Cuba, Iran, Libya, North Korea, Sudan Syria
• Syria Libya
• U.S. banks must reject inbound funds that are
  unlicensed governmental gifts or donations
• If the gift or donation poses a risk of
  furthering terrorism in the U.S., the funds must
  be retained, and the U.S. bank must consult
  with OFAC.

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Listed Terrorists

• Separate programs for listed terrorists who
  threaten the middle east peace process (31 CFR
  Part 595), and listed Foreign Terrorist
  Organizations (31 CFR Part 597)
• Assets of a listed terrorist organization or
  individual must be blocked by a U.S. financial
  institution.

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Narcotics Traffickers

• Specially Designated Narcotics Traffickers (E.O.
  12978, 10/21/95, 31 CFR Part 536)
• Foreign Narcotics Kingpins (including related
  front companies).
• Assets are blocked.

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Other OFAC Programs

• For OFACs other country-specific economic
  sanctions programs
• (Syria, North Korea, Cote dIvoire, Liberia,
  Zimbabwe and the Balkans)
• Assets in which Specially Designated Nationals
  have an interest must be blocked.

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Questions?