Master Thesis
International sanctions compliance as an essential element of
Know your customer procedure for global businesses
Tilburg University
Law School, Department of Business Law
LLM Program: International Business Law
Student: Diana Vasileva
ANR 476237
Supervisor: Dr. J. Li, Assistant Professor
12 June 2017
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CONTENTS
List of abbreviations used ...... 3
Introduction ...... 4
CHAPTER 1 ...... 6
Legal and economic nature of sanctions ...... 6
CHAPTER 2 ...... 17
Overview of the US and the EU sanctions regimes ...... 17
CHAPTER 3 ...... 38
Consequences of violating sanctions regimes and compliance-related problems that businesses face: ...... 38
OFAC case study and a survey for legal professionals ...... 38
CHAPTER 4 ...... 50
Developing an effective sanctions compliance program for a global organization ...... 50
Conclusion ...... 53
Annex 1 ...... 56
OFAC cases under analysis ...... 56
Annex 2 ...... 69
Survey for sanctions compliance professionals ...... 69
List of references ...... 84
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List of abbreviations used
BIS- Bureau of Industry and Security
DDTC -Directorate of Defense Trade Controls
EAR- Export Administration Regulations
ITAR- International Traffic in Arms Regulations
JCPOA - Joint Comprehensive Plan of Action, concluded on 14 July 2015
KYC -Know your customer
OFAC – Office of Foreign Assets Control
SDNs list - Specially Designated Nationals and Blocked Persons List
UN – United Nations
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Introduction
The issue of international sanctions compliance has recently become one of the most important challenges for large corporations, operating worldwide. It is obvious that in the epoch of globalization modern business environment is to a large extent dependent on economic and political processes that can be observed all over the world, therefore, creating additional risks for companies, managing units in various jurisdictions.
From the historical perspective, economic sanctions, asset-freezing measures and product embargoes are not a new instrument, applied by regulators. However, today’s main concern, associated with them, is a fast increase in the scope and area of their application, and, therefore, a requirement for businesses to take additional control measures to ensure the corresponding compliance.
The object of this academic paper is economic sanctions regimes and other measures of the same legal nature and purpose, taken by regulators worldwide.
The aim of the present research is to prove that international sanctions compliance shall be considered an essential element of a corporate Know your customer procedure and to outline possible solutions for companies to hedge their respective risks.
In order to achieve the above-mentioned aim of the research, a number of tasks shall be fulfilled: 1. analysis of legal nature and classification of economic sanctions; 2. overview of the EU and the US sanctions regimes, having the most serious impact on international groups of companies and regulatory bodies, responsible for their administration and enforcement; 3. the effect of existing sanctions regimes on global businesses to be studied by means of analyzing cases of the Office of Foreign Assets Control (OFAC) of the U.S. Treasury Department in the time span 2012-2017. The study is to identify the following:
1) industries under the highest risk of facing penalties for sanctions violation; 2) jurisdictions where the bigger share of violations occurs; 3) the amounts of penalties, imposed on companies; 4) aggravating and mitigating factors recognized by the regulator; 5) general tendencies in the regulators’ position regarding sanctions regime violations that can be observed in cases within the time span in question; 6) list of risk –hedging sanctions compliance measures for companies to be
4 developed. In addition to the case study, a survey for legal professionals, dealing with international sanctions compliance, is to be conducted and its results to be analyzed to highlight the difficulties that companies face when trying to fulfill the existing legislation requirements. The purpose of the survey is to prove that many companies understand the importance of sanctions compliance but the existing regulatory rules are not clear enough for them and the process of sanctions checks is extremely time-consuming and expensive. Finally, on the basis of the above-mentioned, major characteristics of an effective internal sanctions compliance program for global businesses are to be outlined and possible solutions to the existing compliance challenges to be proposed.
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CHAPTER 1
Legal and economic nature of sanctions
Chapter 1 is concerned with the nature of sanctions from legal and economic perspectives, their effect on business and their place in corporate due diligence processes.
The goals to be achieved in the present chapter are:
• to specify the main characteristics of a Know your customer procedure with regards to activity of international businesses; • to identify the basic elements that the concept of economic sanctions includes; • to outline the main functions of sanctions as a powerful economic instrument of influence on the world’s political arena; • to provide a general overview of the two major sanctions regimes – the US and the EU, applicable to most of companies, operating worldwide.
1.1.Know your customer procedure
The concept of Know your customer procedure (hereinafter referred to as “KYC”) is widely used today in relation to corporations in various industries, operating internationally. The term reflects the due diligence process of a business verifying the identity of its clients in order to comply with the applicable regulatory requirements and hedge its respective operational risks.
In order to understand the nature of KYC, firstly it shall be noted that in the narrow sense in relation to many companies carrying out their activity worldwide, KYC can be regarded as a financial regulatory requirement established by the US Bank Secrecy Act 1 and the USA PATRIOT Act 2 (Section 312 in particular), aimed at banks and non-banking financial organizations with the purpose of preventing money laundering and terrorist financing activities.
1 Major requirements of Bank Secrecy Act of 1970 can be found at the official page of the US internal Revenue Service at https://www.irs.gov/businesses/small-businesses-self-employed/bank-secrecy-act, accessed on 04.06.2017. 2 Official text of the USA Patriot Act (PUBLIC LAW 107–56—OCT. 26, 2001) is available at https://www.gpo.gov/fdsys/pkg/BILLS-107hr3162enr/pdf/BILLS-107hr3162enr.pdf, accessed on 04.06.2017.
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However, recently the term KYC has become widely spread among compliance professionals in other industries as well, as today proper due diligence on third parties today is the burden not only of financial organizations but also of companies operating in other economic sectors; therefore, KYC procedure importance for them shall not be underestimated.
Secondly, it is essential to state that nowadays global businesses have come to a deep understanding of the importance of well-structured and effective internal due diligence processes, as lack of these can result in various destructive consequences, including huge financial and reputational losses for the companies themselves, as well as criminal sanctions for their executives. The fact is supported by experts in the field of compliance and risk – management. Thus, according to Deloitte analysts, “conducting due diligence on international business partners has become a leading practice for companies operating in global jurisdictions. While the due diligence effort may lengthen the start-up time for a new business partner relationship, failing to do so can have considerable negative financial and operational repercussions for companies seeking to conduct business internationally” 3 . This point of view is shared by PricewaterhouseCoopers consultants in their Know Your Customer: Quick Reference Guide, 2016, claiming that “compliance with AML, Know Your Customer (“KYC”) and sanctions requirements continues to be a key focus area for management, and firms must ensure they are following appropriate compliance procedures to meet the increasing regulatory demands”4. KPMG consultants agreed with the their Big Four Consulting colleagues, highlighting a risk of negative consequences for insufficient attention to internal due diligence on third parties, stating that “failure to adequately assess Third Party Intermediaries and to know how they operate could lead to exposure to reputational damage, operational risk, government investigations as well as monetary penalties and potential criminal liability”5.
Finally, the base elements of an internal KYC shall be outlined. The primer characteristics of an
3 Article of Deloitte team “How to Perform Due Diligence on International Business Partners” dd. July 10, 2013, accessed at http://deloitte.wsj.com/riskandcompliance/2013/07/10/how-to-perform-due-diligence-on- international-business-partners/, on 05.05.2017. 4 Know Your Customer: Quick Reference Guide issued by PWC in January, 2016, p.2., accessed at https://www.pwc.com/gx/en/financial-services/publications/assets/pwc-anti-money-laundering-2016.pdf, on 04.06.2017. 5 Article of KPMG team “Third Party Due Diligence” available at https://home.kpmg.com/ie/en/home/services/advisory/forensic/third-party-due-diligence.html, accessed 30.04.2017
7 effective internal due diligence procedure can be perfectly described by the words of Mark Mendelsohn, a former U.S. Department of Justice Fraud Section Deputy Chief : “Third-party due diligence must be robust, thorough, impeccably documented and preserved.”6 Pursuing this strategy, the following steps of due diligence process, stated by one of the world’s leading provider of automated KYC compliance solutions, can be named essential7:
• Identifying compliance concerns; • Defining corporate objectives for due diligence; • Gathering key information; • Screening against the existing watchlists (including but not limited to sanctions lists, regulatory enforcement lists, etc.); • Assessing the identified risks; • Validating the information collected; • Auditing the due-diligence process to ensure its effectiveness in practice; • Regular review of the internal due-diligence process to ensure it complies with all current requirements and legislation applicable and properly addresses the needs of the existing needs of the business.
With the above-mentioned taken into account, KYC can be considered a vitally important procedure for any global business that allows companies to minimize possible risks and, therefore, prevent financial and reputational losses, associated with improper third –party risk assessment.
1.2.Definition and legal nature of economic sanctions
In order to identify the role of economic sanctions in modern business environment and come to a certain conclusion on their legal effect, it is essential to outline the main characteristic features that the term “economic sanctions” includes.
It shall be noted that the concept of “economic sanctions” obviously has a complex nature, and,
6 Article of Forensic team of KPMG in Central and Eastern Europe “Managing Third Party Intermediaries: Getting ahead of the curve”,p.1, available at https://assets.kpmg.com/content/dam/kpmg/pdf/2013/06/managing- third-party-intermediaries-getting-ahead-of-the-curve.pdf, accessed on 04.06.2017. 7 Article of LexisNexis team “9 Steps to Effective Third-Party Due Diligence”, available at https://www.lexisnexis.com/en-us/products/lexis-diligence/ctr/9-steps-to-effective-third-party-due-diligence.page, accessed on 04.06.2017.
8 therefore, is defined differently by various scholars and practitioners. Thus, Margaret Doxey, an eminent authority in the field of economic sanctions8, defines them as “penalties threatened or imposed as a declared consequence of the target’s failure to observe international standards or international obligations.” A different definition, with a more profound focus on the function of sanctions, is provided by another expert - Barry E. Carter stating that economic sanctions can be regarded as “coercive economic measures taken against one or more countries to attempt to force a change in policies, or at least to demonstrate the sanctioning country’s opinion of another’s policies”9. It shall be noted that this point of view is widely supported by other experts, expressing a broad understanding of “economic sanctions”, being defined, for instance, as “measures of an economic—as contrasted with diplomatic or military—character taken to express disapproval of the acts of the target or to induce that [target] to change some policy or practices or even its governmental structure”10. In contrast to the mentioned broad definitions, Dr. Gary Hufbauer, a distinguished scholar, specializing in the field of international financial diplomacy, supports a narrower concept, noting that economic sanctions are “deliberate, government-inspired withdrawal, or threat of withdrawal, of customary trade and financial relations.”11
Considering the existing definitions, one can develop a general one, reflecting the main characteristics of economic sanctions, regarding them as measures taken by a country, or a group of countries in order to:
✓ force or at least influence a state, entity, or individual to change their policies, or even their governmental structure, or at least ✓ demonstrate the opinion of the sanctioning country (-ies ) about the policies of other states.
8 Margaret P. Doxey, International Sanctions in Contemporary Perspective, 2d edition, (1996), at 9 9 Barry E. Carter, “International Economic Sanctions: Improving the Haphazard U.S. Legal Regime”, 75 Cal. L. Rev. 1162, 1166 (1987) ; 10 International Economic Law by Lowenfeld, Andreas F. (2002), Part VII The International Monetary System, Chapter 21 International Monetary Law and Private Activity, p.698; 11 Hufbauer, Gary Clyde, Jeffrey J. Schott and Kimberly Ann Elliott, Economic Sanctions Reconsidered: History and Current Policy. Washington, DC: Institute for International Economics, 1990 (second edition). P. 2.
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Based on the above-mentioned general purpose of economic sanctions, it is possible to outline a number of their specific functions12:
✓ to stop a state’s military adventure; ✓ to destabilize a state’s government; ✓ to influence or express disapproval about a number of other foreign policy considerations including human rights, terrorism, weapons proliferation, or drug trafficking issues.
The functions of economic sanctions make it possible to divide them into two main groups that are present in sanctions programs of different countries13: (1) financial and (2) trade-related. The first type of sanctions limits access to funds or financial services by sanctioned individuals or entities and is connected with the following measures: the seizing of bank accounts, freezing of assets, prohibitions on capital movement and provision of investment services, loans and insurance services, whereas, the second type introduces a general prohibition on trade in a specific kind of goods or services as well as restrictive export control rules for “dual-use” items – “items, including software and technology, which can be used for both civil and military purposes, and all goods which can be used for both non-explosive uses and assisting in any way in the manufacture of nuclear weapons or other nuclear explosive devices14”.
Summarizing the specified conclusions on what economic sanctions are and what aims countries pursue when applying them, it is essential to mention that the concept of economic sanctions has recently become the focus of attention of a great number of scholars and practitioners worldwide, being defined in various ways and, therefore, including different components. However, it is evident that economic sanctions do have a range of universal characteristics and most researchers
12 Article “Economic Sanctions”, Barry E Carter, last update in April 2011, Oxford Public International Law, http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690-e1521#law-9780199231690- e1521-p-6, accessed 28.04.2017 13 https://www.gov.uk/guidance/sanctions-embargoes-and-restrictions, accessed 29.04.2017; https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx, accessed 30.04.2017; Francesco Giumelli, ‘How EU sanctions work: A new narrative’, Chaillot Papers, European Union Institute for Security Services (No. 129, May 2013), pp. 23-24. 14 Art.2-1, Regulation (EC) No 428/2009, http://eur-lex.europa.eu/legalcontent/EN/TXT/?qid=1489490204085&uri=CELEX:02009R0428-20161116, accessed 30.04.2017
10 and experts agree15on the following statement, made by Andreas F. Lowenfeld: “While the line of demarcation is not always sharp and sometimes motives are mixed, economic sanctions generally are measures taken not for economic gain, and often at commercial sacrifice’ on the part of the sender”16.
1.3. Sanctions regimes
The two main frameworks, within which sanctions influencing international corporations are developed, are the European Union (hereinafter referred to as “the EU”) and the United States (hereinafter referred to as ”the US”) regimes. However, in some cases sanctions can also be established on the initiative of the United Nations (hereinafter referred to as “the UN”), or in a mixed regime, when one establishing body initiates additional measures to those already applied by another body.
1.3.1. EU approach
When starting the analysis of the existing EU sanctions legal framework, it is essential to note that sanctions are officially recognized as “one of the EU's tools to promote the objectives of the Common Foreign and Security Policy (CFSP): peace, democracy and the respect for the rule of law, human rights and international law” 17 , therefore, their role for the EU can not be underestimated.
At the same time one shall understand the risks of using such a strong political instrument, considering that "the act of imposing sanctions is perceived as making a strong foreign policy statement and this can be of use both domestically, targeting an audience calling for action, and externally, projecting a certain image of the EU abroad and sending specific messages to other actors as well18".
It is important to mention that the EU pursues a targeted and differentiated approach to
15 Article “Economic Sanctions”, Barry E Carter, last update in April 2011, Oxford Public International Law, http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690-e1521#law-9780199231690- e1521-p-6, accessed 28.04.2017. 16 see reference 10. 17 https://eeas.europa.eu/headquarters/headquarters-homepage_en/423/Sanctions%20policy, accessed 28.04.2017 18 How EU sanctions work: A new narrative, see reference 13, p.8.
11 restrictive measures (sanctions)19, regarding them as preventive measures allowing the EU to respond quickly to political challenges and developments that do not coincide with its objectives and values. The EU sanctions can target the following types of activity:
• terrorism
• nuclear proliferation activities
• human rights violations
• annexation of a foreign territory
• deliberate destabilization of a sovereign country.
The EU legal framework establishes two approaches to the content of sanctions and their regulation20:
✓ a broad approach; ✓ a narrow approach.
Sanctions in a broad sense (diplomatic sanctions) apply such instruments as an interruption of diplomatic relations with the country in question, or the coordinated recall of diplomatic representatives of the EU and its member states, whereas a narrow concept of sanctions requires a specific legal base in the EU Treaties and focuses on:
• arms embargoes
• restrictions on admission of listed persons (travel ban): targeted persons cannot enter the EU, or travel beyond their member state of nationality if they are an EU citizen
• freezing of assets belonging to listed persons or entities: all their assets in the EU are frozen and EU persons and entities cannot make any funds available to those listed
• economic sanctions or restrictions concerning specific sectors of economic activity, including import or export bans on certain goods, investment bans, prohibitions on supplying certain services, etc.
19 http://www.consilium.europa.eu/en/policies/sanctions/different-types/, accessed 28.04.2017 20 http://www.consilium.europa.eu/en/policies/sanctions/different-types/, accessed 28.04.2017
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Another important aspect that shall be addressed when analyzing the EU sanctions regime is the initiative of imposing restrictive measures. It should be noted that the EU can establish sanctions either on its own initiative or in order to implement UN Security Council resolutions on a local level.
With the mentioned facts taken into consideration, the EU regime can be regarded as an autonomous one, possessing its own authorized bodies for developing and introducing restrictive measures, as well as for enforcing them. At the same time under certain consequences, the EU can combine application of its own restrictive regimes with the ones, adopted by other states or organizations, e.g. UN. However, it shall be noted that sanctions initiated, for instance, by the UN are mandatory for member states but are not mandatory for individuals or entities until the EU or a member state implement them. Some experts consider this aspect essential for cases of applying a corporate ‘group-wide’ approach to the existing restrictive measures or when taking assurance from a third party’s own obligations to be compliant with sanctions21.
1.3.2. US approach
The US sanctions regimes include economic and trade restrictions based on “US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States”22.
The sanctions, imposed by US authorities, can be either comprehensive or selective23, including such instruments as the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. The comprehensive ones prohibit all transactions with the countries/territories, stated in the lists of sanctions (i.e. Crimea Region of Ukraine, North Korea, Sudan, Syria, etc.), whereas selective measures establish a ban on all transactions with specific
21 “Cross-border overview: sanctions enforcement”, Peter Burrell, Rita D Mitchell, Abra Edwards and Paul Feldberg, dd. 22 July 2015 , available at http://globalinvestigationsreview.com/insight/the-european-middle- eastern-and-african-investigations-review-2015/1024329/cross-border-overview-sanctions-enforcement, accessed 29.04.2017 22 https://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx – official source of The Office of Foreign Assets Control ("OFAC") of the US Department of the Treasury. 23 https://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx, accessed 29.04.2017
13 named individuals and entities related to, or located in, the countries/territories listed (i.e. programs for Central African Republic, Democratic Republic of the Congo, Somalia, South Sudan, Ukraine/Russia, etc.).
The above-mentioned facts being summarized, US sanctions as restrictive measures, can be generally divided into two major groups:
• Trade sanctions that prohibit trade in certain goods to and from listed countries, mostly arms and commodities; and equipment for use in the nuclear, oil and gas, petrochemical sector any other specific economic sector. In addition to this, certain activities related to such trade may fall under prohibition.
• Financial sanctions that are mainly concerned with asset freeze measures that include provision of funds and economic resources to listed entities or individuals ('designated persons'), usage of assets by designated persons, receipt and transfers of funds to particular types of persons, and prohibitions on provision of financing or financial assistance related to designated persons and prohibited transactions.
1.3.3. Other approaches
As it has already been noted in the present chapter, EU and US bodies are not the only ones to adopt international sanctions programs; therefore, this sub-section is to give a general overview of other existing regimes that in certain cases might be important for groups of companies, conducting their activity worldwide.
United Nations
The United Nations Security Council is the body responsible for adopting restrictive measures mandatory for all UN member states. According to Article 41 of Chapter VII of the United Nations Charter24, the UN Security Council is authorized to decide, in a manner binding on all UN members, on sanctions required to maintain or restore international peace and security if there is a threat to the peace, a breach of the peace, or an act of aggression.
United Kingdom
24 http://www.un.org/en/sections/un-charter/chapter-vii/index.html, accessed 29.04.2017
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Financial Sanctions Unit (hereinafter referred to as “FSU”) of Her Majesty's Treasury is an official body with the function of administering and enforcing financial sanctions in the United Kingdom. Considering the fact that despite the ongoing process of the UK leaving the EU, at the present moment the country is officially regarded as a full EU member, it is important to note that EU restrictive measures have a direct effect in the UK and impose obligations on UK persons to freeze the assets of designated persons, refrain from financing them, and any other financial prohibitions or restrictions. In addition to this, it shall be highlighted that in accordance with European Communities Act 1972, section 2(2), the UK has powers to enact statutory measures in order to put a breach of a particular EU Regulation in the category of a criminal offence in the United Kingdom25.
A regularly updated consolidated list of sanctions targets, containing the names of individuals and entities, listed by the UN, the EU or the UK, is publically available and can be used by organizations and individuals concerned to ensure that their activity complies with applicable restrictive measures26.
Mixed sanctions regimes
In addition to the regimes mentioned, one should point out the existence of one more type of sanctions programs - a mixed one, combining already implemented measures with extra ones, e.g. when the EU makes a decision to reinforce sanctions imposed by the UN Security Council with its own restrictions27.
1.3.4. Consequences of violation
The particular penalties for non-compliance with the existing sanctions and embargo regimes are addressed in Chapters 2 and 3 of this research paper, whereas generally it can be stated that regulators tend to stick to a strict enforcement approach, with fines, imprisonment or both being applicable to companies and individuals involved in a case of violation.
Summarizing the issues addressed and analyzed in Chapter 1, one can draw a conclusion that
25 European Communities Act 1972, section 2(2), http://www.legislation.gov.uk/ukpga/1972/68/section/2, accessed 29.04.2017 26 A consolidated list of sanctions can be found at: https://www.gov.uk/government/publications/financial- sanctions-consolidated-list-of-targets, accessed 30.04.2017 27 http://www.consilium.europa.eu/en/policies/sanctions/different-types/, accessed 30.04.2017
15 international companies in modern business environment face a wide range of various challenges, with the regulatory compliance being one of the most important. In order to hedge the existing risks businesses need to take all measures possible to ensure that they conduct a proper due diligence on parties the deal with, including sanctions compliance matters. The analysis of the concept of economic sanctions and the major sanctions regimes showed that sanctions are complex political instruments, applied by international organizations (e.g. UN), supranational bodies (e.g. EU) and national governments (e.g. the US) for achieving the purposes of (1) conflict resolution; (2) punishing those responsible for situations of international concern and changing their behavior; (3) restoring international peace and security, and compliance with sanctions is a key objective of corporate due diligence programs for global companies.
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CHAPTER 2
Overview of the US and the EU sanctions regimes
The aim of this Chapter is to analyze the two major sanctions regimes in the modern world that can be regarded as the riskiest for businesses performing their activity in a wide range of jurisdictions and having connections with the EU and the US.
2.1 US
The role of the United States in today’s international political and economic arena can not be underestimated, as this country is definitely one of the leading forces for a global progress, involved in almost all spheres of the world’s functioning. However, it is evident that this fact implies not only a positive aspect: in case the US introduce restrictive measures for protection of their own interests, the consequences can affect businesses and individuals worldwide. Nevertheless, it is next to impossible for the modern international market to completely avoid the influence of the US;therefore, the main aim for multi-national corporations is to find a reasonably appropriate strategy to comply with the existing rules, at the same time not closing the doors to innovative and disruptive development. When analyzing the US approach to economic sanctions, one can observe a tendency towards stricter penalties for violations. Thus, Ignacio Ellacuría, S.J. Chair in Social Ethics, Philosophy Department, Loyola University-Chicago S.J. Chair in Social Ethics, Philosophy Department, Loyola University- Chicago, and Affiliated Scholar in Law of Loyola University School of Law, highlights the fact that “the scope of economic sanctions and the aggressiveness of their enforcement have increased dramatically since the early 1990s. This is particularly true of sanctions imposed by the United States, and is most evident in the U.S. sanctions regimes that are extraterritorial”28.
2.1.1. Regulatory bodies and legal framework
In order to estimate the scope of the US economic sanctions and understand their practical implication, it is important to outline the legal framework under which they function.
28 Extraterritoriality: Issues of Overbreadth and the Chilling Effect in the Cases of Cuba and Iran, Harvard International Law Journal Online / Vol. 57, p.1, accessed 01.05.2017 at: http://www.harvardilj.org/wp content/uploads/January-2016_Vol-57_Gordon.pdf
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In general, it is possible to divide the US sanctions that can somehow affect the activity of international corporations, into three main legislative regimes, each of them being administered by a separate regulatory body:
1. Export Administration Regulations (EAR)29, which fall within the competence of the Department of Commerce’s Bureau of Industry and Security (BIS), including control of export and re-export of a wide range of non-military (i.e., “dual-use”) goods and technology for the reasons of national security and foreign policy; 2. International Traffic in Arms Regulations (ITAR)30, being administered by the Department of State’s Directorate of Defense Trade Controls (DDTC). The regulations are mainly concerned with exports of goods, technical data, and services that are specifically designed for military use31. Considering the specific object of regulation, it shall be noted that such export is the majority of cases is subject to authorization from DDTC; 3. Treasury Department’s Office of Foreign Assets Control (OFAC) is responsible for the economic and trade sanctions against certain countries as well as an impressive of SDNs list (Specially Designated Nationals and Blocked Persons List)32.
In addition to the above-mentioned regimes, it is reasonable to mention the existence of the Nuclear Regulatory Commission that is in charge of import and export controls of radioactive materials, as well as nuclear production and utilization facilities33, and the Department of Energy 34 administering export peculiarities of certain nuclear-related technology and technical assistance. However, these restrictions affect activity only of a narrow group of companies;therefore, they are not regarded as the object of a profound analysis for the purpose of the present research paper. The focus of this Chapter with regards to the US sanctions will be made on OFAC sanctions regime, as it is concerned with the activity of most international corporations and has recently shown a high rate of enforcement for violations, with significant
29 The complete list can be found at https://www.bis.doc.gov/index.php/regulations/export-administration- regulations-ear, accessed 01.05.2017; 30 The list can be found at https://www.pmddtc.state.gov/regulations_laws/itar.html, accessed 01.05.2017;
32 The list can be found at: https://www.treasury.gov/ofac/downloads/sdnlist.pdf, accessed 01.05.2017 33 The description of materials in question can be found at: https://www.nrc.gov/, accessed 01.05.2017 34 Information of the Department’s activity can be found at its official Internet page https://www.energy.gov/public-services/national-security-safety, accessed 01.05.2017
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penalties applied.
2.1.2 Consequences of violation
The US sanctions regime can be characterized as a severe one in terms of penalties that violators can be subject to. Thus, in accordance with the Export Administration Act of 1979, as amended, 50 U.S.C. app. §§ 2401-2420 (2000), the Export Administration Regulations, 15 C.F.R. Parts 730- 774 (2007), and International Emergency Economic Powers Act (hereinafter referred to as “IEEPA”) 35 , persons and entities may both criminal and administrative penalties for non- compliance with the US export control rules. Criminal penalties can reach 20 years imprisonment and $1 million per violation, whereas, administrative ones can be as high as $284,58236 per violation or twice the value of the transaction in question, whichever is greater. A significant characteristic feature of the US sanctions enforcement to be mentioned is that administrative penalties for the corresponding violations can be applied even in the case of absence of any willful intent and, consequently, ä variety of circumstances under which administrative cases can be raised is much wider than the one of criminal cases37. In addition to this, it is important to highlight the fact that the U.S. state bodies, administering export control compliance (e.g. BIS) are entitled to exercise their official powers, applying such enforcement instruments as denial of export privileges and placement of individuals and entities on lists that restrict or prohibit their involvement in export and re-export transactions38.
2.1.2. Scope of application
As has already been mentioned, OFAC restrictive measures are one of the most important ones for companies to consider. The sanctions regimes, administered by OFAC extends to the concept of
35 Official guidelines of U.S. Department of Commerce, Bureau of Industry and Security: “Actual Investigations of Export Control and Antiboycott Violations”, January 2017 Edition, p.1 (https://www.bis.doc.gov/index.php/forms- documents/enforcement/1005-don-t-let-this-happen-to-you-1/file, accessed 06.05.2017). Although the Export Administration Act expired on August 20, 2001, the President, through Executive Order 13222 of August 17, 2001, 3 CFR, 2001 Comp., p. 783 (2002), as amended by Executive Order 13637 of March 8, 2013, 78 FR 16129 (March 13, 2013) and as extended by successive Presidential Notices, has continued the Export Administration Regulations in effect under the International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq. (2006 & Supp. IV 2010)). 36 In accordance with IEEPA (subject to adjustment in accordance with U.S. law, e.g., the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Pub. L. 114-74, sec. 701). 37 Official guidelines of U.S. Department of Commerce, Bureau of Industry and Security: “Actual Investigations of Export Control and Antiboycott Violations”, January 2017 Edition, p.6. 38 Ibid, p.6
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'US persons', including the following categories:
• generally: • all U.S. citizens and permanent resident aliens regardless of where they are located; • all persons and entities within the United States; • all U.S. incorporated entities and their foreign branches;
• in certain sanctions programs: • foreign subsidiaries owned or controlled by U.S. companies; • foreign persons in possession of U.S.-origin goods to comply.
2.1.3 Countries
The range of countries, currently concerned by financial and trade sanctions of the United States, is quite wide, therefore, the aim of this sub-section of the present research paper is to provide an overview of the major country-focused sanctions programs that today have an impact on businesses with global presence: Iran, Iraq, Russia/Ukraine, Sudan, Syria.
2.1.3.1. Iran-related Program
The US national policy on the country’s relations with Iran in the recent decade has shown a number of “falls” and “rises”, reflecting the changes of the US external priorities and the instruments different US leaders use. The reason for introducing the restrictive measures was Iran’s development of its nuclear program that raised many concerns worldwide. Before a number of steps to cancel certain sanctions were taken in 2016 during the period of Barack Obama’s presidency, a wide scope of restrictions related to Iran had been in place, including:
1) primary sanctions, in accordance to which US companies and individuals were forbidden to deal, directly or indirectly, with: • Government of Iran and its controlled entities; • Goods and services of Iranian origin; • Goods and services for export to Iran
20
• SDNs of Iran.
In addition to this, there sanctions imposed prohibition on export of US-origin items to Iran;
2) Primary sanctions concerning non-US subsidiaries that apply to persons “owned or controlled” by a US person;
3) Secondary sanctions aimed at restricting non-US companies from undertaking certain trade activities with Iran, violations of which can result in prohibition of access to US financial system, disqualification from US government contracts and blocking of the company’s property.
Considering the fact that Iran managed to undertake various measures to address the concerns of the international community, a number of countries developed a “comprehensive, long-term and proper solution to the Iranian nuclear issue”39, the Joint Comprehensive Plan of Action (JCPOA)40, concluded by China, France, Germany, the Russian Federation, the United Kingdom, the United States, the High Representative of the European Union (the E3/EU+3) and the Islamic Republic of Iran on 14 July 2015 and endorsed by the Security Council Resolution 2231 (2015)41. It shall be noted that this document has an exceptionally high value not only for the U.S. but also for the whole international diplomacy, being “a fundamental shift in its consideration of the Iranian nuclear issue, expressed its desire to build a new relationship with Iran strengthened by the implementation of the JCPOA and to bring to a satisfactory conclusion its consideration of this matter”42. An important characteristic feature of JCPOA is that it provides for phased sanctions relief based on the fulfillment of certain objectives by Iran, with the first phase of the relief having been triggered on 16 January 2016 (“Implementation Day”). For a case of a substantial violation the JCPOA and Resolution 2231 establish a process for the sanctions to snap back automatically in the event of a substantial violation. However, some experts tend to note that the economic
39 Official web-page of the United Nations Security Council: http://www.un.org/en/sc/2231/, accessed on 12.05.2017 40 Official full text of the JCPOA can be found at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/2015/544. 41 Official full text of the Resolution available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2231(2015) 42 Official web-page of the United Nations Security Council: http://www.un.org/en/sc/2231/, accessed on 12.05.2017
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benefits that Iran receives from this sanctions relief “could “immunize” Iran from the snapback of sanctions”43.
As a result of the US entering the JCPOA, the following amendments have been applied to the US Iran-related sanctions program: 1) many entities have been removed from the primary sanctions lists; 2) General License H44 has been introduced by OFAC for the purpose of lifting restrictions on certain transactions, involving foreign entities owned or controlled by a United States person; 3) US secondary sanctions against Iran have been mostly suspended.
The above-mentioned facts taken into account, one can come to a conclusion that Iran-related sanctions program used to include a variety of restrictive measures, many of which have been and the rest will be cancelled in accordance with JCPOA. However, it is evident that this issue is much dependent on the political climate in the US and in the world, which is obviously undergoing constant changes today, therefore, it is of vital importance for businesses to monitor the situation and conduct regular checks in order to ensure their compliance with all updates of applicable sanctions regimes45.
2.1.3.2 Ukraine/Russia - related Program
Relations between the United States and the Russian Federation have a long-term history with both - periods of collaboration and those of a reserved distance. Since the very start of a diplomatic interaction between these countries, there have existed various points of view on their assessment.
43 Gary Samore: The Iran Nuclear Deal. A Definitive Guide, Belfer Center for Science and International Affairs Harvard Kennedy School, August 2015, p.62. The electronic version can be found at http://www.belfercenter.org/sites/default/files/legacy/files/IranDealDefinitiveGuide.pdf?webSyncID=481969e1- d6e1-01d6-9107-7657215a1003&sessionGUID=9e1b2808-6ac0-b0b9-565e-d7b6411031c5 44 Official full text of the General License H is available at: https://www.treasury.gov/resource- center/sanctions/Programs/Documents/iran_glh.pdf 45 Official updated information on OFAC sanctions program is available at https://www.treasury.gov/resource- center/sanctions/Programs/Pages/iran.aspx
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The only thing that any expert can hardly deny is that the character of relations of Russia and the US is one of the key areas of the world community’s attention.
The Russia-related sanctions regime of the US reflects the political tensity that occurred between the countries in 2014. This program, introduced by OFAC, came into effect on March 6, 2014 with the US President’s Executive Order (E.O.) 1366046, declaring a national emergency to respond to the actions and political measures of the Russian Federation, connected with the Crimea region of Ukraine47. This E.O. was followed by three subsequent Executive orders48 expanding the scope of the declared national emergency. The specified documents authorized the imposition of sanctions against several categories of individuals and entities: 1) persons responsible for or complicit in certain activities with respect to Ukraine; 2) against officials of the Government of the Russian Federation; 3) against persons operating in the arms or related materiel sector of the Russian Federation; 4) against individuals and entities operating in the Crimea region of Ukraine. In addition to these measures, E.O. 13662 imposed sanctions on certain entities involved in activity in specified sectors of economy of Russia, while E.O. 13685 introduced prohibition on the import and export of goods, services, or technology to or from the Crimea region, as well as new investment in the region by a United States person, irrespective of their location.
These restrictive measures and prohibitions against Russian companies and individuals became a serious burden not only for local businesses but also for international corporations, operating in the territory of the Russian Federation. The effect of the sanctions has been felt in various economic spheres and industries of the country, whereas major impact has been experienced by banking and military ones, deprived of long-term financing, new multi-million contracts with foreign counterparties and supplies of exclusive equipment and items required for such specific sectors as, for instance, oil and gas. It shall be noted that the main difficulty for foreign participants
46 Executive Order 13660—Blocking Property of Certain Persons Contributing to the Situation in Ukraine, accessed at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo.pdf on 12.05.2017 47 Official OFAC summary of Ukraine/Russia-related sanctions program (the latest update on 16.06.2016), p.3, accessed on 12.05.2017 at the link: https://www.treasury.gov/resource center/sanctions/Programs/Documents/ukraine.pdf; 48 E.O. 13661 dd. 16.03.2014, E.O. 13662 dd.20.03.2014, E.O. 13685 dd.19.12.2014, accessed on 12.05.2017 at the following links: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo2.pdf; https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo3.pdf; https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo4.pdf
23 of the Russian market turned out to be in the collision of norms of applicable laws: companies, having connection with the U.S. jurisdiction and, therefore, obliged to be compliant with the corresponding legislation, at the same time shall obey the existing normative acts of the Russian Federation, when conducting their activity through a Russia-based legal entity and concluding contracts with Russian clients. The fact that according to Russian legislation, the Crimea Region is considered to be included in the official territory of Russia after the referendum of 16.03.201449 has put the companies with foreign participation into the position where they can not officially refuse a Russia-based company, subject to the US sanctions, or that is going to operate in a sanctioned area, to conclude a contract with it on the grounds that it does not comply with the corresponding US legislation. Such refusal to deal may be regarded an unlawful anti-competitive practice in accordance with laws of the Russian Federation, and therefore, result in application of the respective penalties to the corresponding Russia – based entity with foreign participation.
Taking the above-mentioned circumstances into account, it should be highlighted that companies shall conduct a thorough analysis of their counterparties not only in terms of their shareholding and management structure but also with regards to the type of projects they are involved into, the areas they operate in, and the jurisdictions concerned. Only a case by case basis approach can allow businesses to hedge their sanctions compliance – related risks to the maximum extent possible.
Considering possible penalties for violation of the restrictive measures of Ukraine/Russia sanctions program50, it should be noted that civil monetary penalties can reach $250,000 or twice the amount of the underlying transaction and be imposed administratively against any person who violates,
49 Federal Constitutional Law of the Russian Federation of 21st March, 2014 No. 6-ФКЗ “On Admission of the Republic of Crimea into the Russian Federation and Creation of New Constituent Entities in the Composition of the Russian Federation – the Republic of Crimea and the City of Federal Significance Sevastopol’” (Collection of Laws of the Russian Federation, 2014, No. 12, Art. 1201). The present research paper is not aimed at admitting or contesting the legitimacy of the referendum and is based on consideration that there exist various opinions on this issue, e.g. article “Why Your Company Needs a Foreign Policy” by John Chipman from the September 2016 issue of Harvard Business Review, accessed at https://hbr.org/2016/09/why-your-company-needs-a-foreign-policy on 20.05.2017; article The Crimea Crisis. An International Law Perspective by Christian Marxsen, pp. 389-391, accessed at official page of Max Planck Institute for Comparative Public Law and International Law http://www.mpil.de/files/pdf4/Marxsen_2014_-_The_crimea_crisis_-_an_international_law_perspective.pdf on 20.05.2017. 50 Official OFAC summary of Ukraine/Russia-related sanctions program (the latest update on 16.06.2016), p.7, accessed on 12.05.2017 at the link: https://www.treasury.gov/resource center/sanctions/Programs/Documents/ukraine.pdf;
24 attempts to violate, conspires to violate, or causes a violation of E.O. 13660, E.O. 13661, E.O. 13662, E.O. 13685, or the Regulations. Besides, upon conviction, criminal penalties of up to $1,000,000, imprisonment for up to 20 years, or both, may be imposed on any person who willfully commits or attempts to commit, or willfully conspires to commit, or aids or abets in the commission of a violation of E.O. 13660, E.O. 13661, E.O. 13662, E.O. 13685, or the Regulations, applicable to this program.
2.1.3.3. South Sudan – related Program
The program on South Soudan, implemented by OFAC, started on April 3, 2014 with the US President’s Executive Order 1366451, addressing the situation in and in relation to South Sudan, which has been marked by activities that threaten the peace, security, or stability of South Sudan and the surrounding region. The main concerns that resulted into the US imposing these sanctions are considered to be widespread violence and atrocities, human rights abuses, recruitment and use of child soldiers, attacks on peacekeepers, and obstruction of humanitarian operations52. The above-mentioned Executive Order introduced targeted sanctions against specifically identified individuals and entities determined to be engaged in certain activities in the territory of South Sudan.
OFAC South Sudan Sanctions Regulations (31 C.F.R. Part 55853) dd. 01.07.2014, implementing Executive Order 13664, establishes such restrictive measures as blocking the property and interests in property of listed persons to be responsible for or complicit in, or to have engaged in, directly or indirectly, any of the following in or in relation to South Sudan:
• actions or policies that threaten the peace, security, or stability of South Sudan;
• actions or policies that threaten transitional agreements or undermine democratic processes or institutions in South Sudan;
51 The full official text of Executive Order 13664 can be accessed at https://www.federalregister.gov/documents/2014/04/07/2014-07895/blocking-property-of-certain-persons-with- respect-to-south-sudan 52 Official summary of OFAC sanctions program on South Sudan, last update of January 6, 2015, p.3, accessed at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/southsudan.pdf, on 20.05.2017
53 Official full text available at https://www.ecfr.gov/cgi-bin/text- idx?SID=9f8ca7a7d8b017acb5aaf52b502718f6&node=pt31.3.558&rgn=div5, accessed on 20.05.2017
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• actions or policies that have the purpose or effect of expanding or extending the conflict in South Sudan or obstructing reconciliation or peace talks or processes;
• the commission of human rights abuses against persons in South Sudan;
• the targeting of women, children, or any civilians through the commission of acts of violence (including killing, maiming, torture, or rape or other sexual violence), abduction, forced displacement, or attacks on schools, hospitals, religious sites, or locations where civilians are seeking refuge, or through conduct that would constitute a serious abuse or violation of human rights or a violation of international humanitarian law;
• the use or recruitment of children by armed groups or armed forces in the context of the conflict in South Sudan;
• the obstruction of the activities of international peacekeeping, diplomatic, or humanitarian missions in South Sudan, or of the delivery or distribution of, or access to, humanitarian assistance; or
• attacks against United Nations missions, international security presences, or other peacekeeping operations;
In addition to this, the sanctions regime imposes a block on property and interests in property of persons54 that are determined55:
• to be a leader of an entity, including any government, rebel militia, or other group, that has, or whose members have, engaged in any of the activities described above or of an entity whose property and interests in property are blocked pursuant to Executive Order 13664; • to have materially assisted, sponsored, or provided financial, material, logistical, or technological support for, or goods or services in support of any of the activities described above or of any person whose property and interests in property are blocked pursuant to Executive Order 13664; or
54 The names of the designated persons and entities pursuant to Executive Order 13664, whose property and interests in property are blocked, are published in the Federal Register and incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), available on OFAC’s website at http://www.treasury.gov/sdn. 55 Official summary of OFAC sanctions program on South Sudan, last update of January 6, 2015, p.4, accessed at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/southsudan.pdf, on 20.05.2017
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• to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to Executive Order 13664.
Besides, there exists a number of banned types of transactions. Thus, unless otherwise authorized or exempt, transactions by U.S. persons, or in or involving the United States, are prohibited in case they involve the following: transferring, paying, exporting, withdrawing, or otherwise dealing in the property or interests in property of an entity or individual listed on the SDN List. The prohibition also concerns the property and interests in property of an entity that is 50 percent or more owned, whether individually or in the aggregate, directly or indirectly, by a person on the SDN List, regardless of whether the entity itself is listed56.
Importantly, OFAC highlights57 the fact that an entity located in South Sudan that is commanded or controlled by an individual designated under E.O. 13664 is not blocked by operation of law. Companies shall take into consideration that payments performed to non-designated individuals or entities under the command or control of an individual designated under Executive Order 13664 do not, in and of themselves, constitute a banned activity. Nevertheless, OFAC recommends US persons to conduct a proper due diligence in order to ensure that an SDN is not, for instance, extracting profit from transactions of this kind.
Violations of South Soudan sanctions program can result in penalties similar to those in Ukraine/ Russia sanctions program of OFAC58: civil monetary penalties of up to the greater of $250,000 or twice the amount of the transaction in question and may be imposed administratively against any person who violates, attempts to violate, conspires to violate, or causes a violation of E.O. 13664 or the South Soudan – related US Regulations, whereas, criminal fines upon conviction can reach the amount of $1,000,000.
2.1.3.4. Syria –related sanctions program
The Syria sanctions program, implemented by OFAC, started in 2004 with the issuance of the US
56 Official guidance of the US Department of the Treasury on assessing transactions can be found in “Revised Guidance on entities owned by Persons whose property and interests in property are blocked” dd. 13.08.2014, available at http://www.treasury.gov/resource-center/sanctions/Documents/licensing_guidance.pdf. 57 Official summary of OFAC sanctions program on South Sudan, last update of January 6, 2015, p.4, accessed at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/southsudan.pdf, on 20.05.2017 58 Ibid, p.5
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President’s Executive Order 13338 with the purpose of dealing with the Government of Syria’s policies in supporting terrorism, continuing its occupation of Lebanon, pursuing weapons of mass destruction and missile programs, and undermining U.S. and international efforts to stabilize Iraq59. When analyzing OFAC sanctions programs, it is important to note that the Syrian one is regarded as one of the most comprehensive programs currently implemented by OFAC60. The primary official aim of these restrictive measures is specified as the support the Syrian opposition and the people of Syria61.
The first type of restrictive measures that Syria-related program imposes is freezing of property and interests in property:
• of the Government of Syria pursuant to US President’s Executive Order 13582; • of persons listed in an Annex to, or that are determined by the Secretary of the Treasury in consultation with the Secretary of State, to meet the criteria described in, US President’s Executive Orders 13338; 13399, 13460, 13572, 13573, 13582, or 13606.
The second type of sanctions on Syria includes prohibition of certain transactions or dealings:
• with foreign persons that are determined by the Secretary of the Treasury, in consultation with the Secretary of State, to meet the criteria described in Executive Order 13608; • with respect to Syria pursuant to Executive order 13582, according to which all property and interests in property of the Government of Syria, including its agencies, instrumentalities, and controlled entities, which are in the United States or within the possession or control of U.S. persons, are blocked.
In addition to the above-mentioned measures, Executive Order 13582 introduces a ban on:
• new investment in Syria by a U.S. person, wherever located;
• the direct or indirect exportation, reexportation, sale, or supply of any services to Syria from the United States or by a U.S. person, wherever located;
59 Official summary of OFAC sanctions program on Syria, last update of August 2, 2013, p.3, accessed at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/syria.pdf on 21.05.2017 60 Ibid, p.3 61 Ibid
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• the importation into the United States of petroleum or petroleum products of Syrian origin;
• any transaction or dealing by a U.S. person, wherever located, in or related to petroleum or petroleum products of Syrian origin; and
• any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person or within the United States.
Considering the fact that the US have numerous bodies authorized to administer sanctions, as it was mentioned in Chapter 1 of the present research paper, it is important to note that the above- mentioned transactions, connected with Syria, can be complemented by prohibitions introduced by other types of the U.S. Government agencies that can be illustrated, for instance, by restrictions of the U.S. Department of Commerce monitoring the exportation or reexportation to Syria of many items subject to the Export Administration Regulations.
In case of non-compliance with the sanctions program in question, violators can face civil monetary penalties of up to $250,000 or twice the amount of the transaction and criminal fines of up to $1,000,000, imprisonment for up to 20 years, or both, that coincides with the punishment set for Iran, Ukraine/Russia and South Sudan program.
The specified overview of OFAC sanctions taken into account, one can state that the US stick to a very strict policy in terms of achieving their goals on the world’s political arena, therefore, creating a wide range of operation challenges for international businesses with US connections.
2.2. European Union
2.2.1 Regulatory bodies and legal framework
Article 215 of the Treaty on the Functioning of the European Union (TFEU) establishes a legal basis for the interruption or reduction, in part or completely, of the EU’s economic and financial relations with one or more third countries, where such restrictive measures are necessary to achieve the objectives of the Common Foreign and Security Policy (CFSP).
The list of European Union's restrictive measures in force is regulated by the following documents
29 of the EU62:
• measures provided in Article 215 TFEU and those based on the relevant provisions of the Treaty establishing the European Community (in the years prior to 1 December 2009: Articles 60 and 301); and
• the relevant CFSP Decisions and (prior to 1 December 2009) Common Positions, including those which merely provide for measures for which no specific Regulation was made, such as restrictions on admission.
It is essential to mention that the EU law Regulations are directly applicable in all EU Member States, having general application and being binding in their entirety, and that their implementation and enforcement is mainly the responsibility of the competent authorities of the Member States that shall take necessary steps in response to a breach of the sanctions. Besides, it shall be noted that EU Regulations take precedence over conflicting measures of a Member State.
The above-mentioned EU legislation covers sanctions programs on a wide range of countries and organizations, including (but not limited to): Afghanistan, Al Qaeda and ISIL (DA'ESH), Belarus, Democratic Republic of Congo, Egypt, Iraq, Lebanon, North Korea, Yemen, etc. However, the most important ones, having the largest impact on international businesses, as well as in the case with the US programs, at the present moment are the following sanctions regimes:
• Iran; • Russia/Ukraine • Sudan; • Syria.
2.2.2. Scope of application
Though the principles of determining the scope of restrictive measures in the EU are to a great extent similar to the US regime, certain differences can be noticed. Thus, the EU sanctions apply:
• within the territory of the European Union (EU), including its airspace;
62 https://eeas.europa.eu/sites/eeas/files/restrictive_measures-2017-01-17-clean.pdf, accessed 23.03.2017
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• aboard any aircraft or vessel under the jurisdiction of a Member State; • to any natural person who is a national of a Member State, irrespective of whether s/he is located within the EU; • to any legal person, entity or body that is incorporated or constituted under the laws of a Member State; • to any legal person, entity or body in respect of any business done, in whole or in part, within the EU.
2.2.3. Country – specific programs
2.2.3.1. Iran-related program As it has already been highlighted in sub-section 2.1.3.1 of the present research paper, the international community has been concerned about Iranian nuclear policy, regarding its development as a threat to the world’s peace and security. The European Union, acting as one the parties, signed the Joint Comprehensive Plan of Action (JCPOA) on 14 July 2015, therefore, undertaking an important role of participation in a progressive lifting of nuclear-related sanctions against Iran.
Analyzing the EU restrictive measures, related to Iran, it is important to mention their legal framework from the historical perspective. Thus, the EU sanctions primarily reflect those, imposed by a range of resolutions of the United Nations Security Council: 1929 (2010)63, 1803 (2008)64; 1747 (2007)65; 1737 (2006)66, aimed at forcing Iran to stop enriching uranium with nuclear proliferation purposes. On 20 July 2015 with Resolution 2231(2015)67 the UN Security Council implemented the agreed steps on JCPOA, allowing for certain exemptions to existing restrictions and defining the schedule and commitments to be undertaken by all participants to lead to the
63 Official full text of the Resolution (S/RES/1929 (2010)) is available at the United Nations Organization Website at the link http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1929(2010), accessed on 20.05.2017; 64 Full text of the Resolution (S/RES/1803 (2008)) is available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1803(2008), accessed on 20.05.2017;
65 Full text of the Resolution (S/RES/1747 (2007)) is available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1747(2007), accessed on 20.05.2017;
66 Full text of the Resolution (S/RES/1737 (2006)) is available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1737(2006), accessed on 20.05.2017; 67 Full text of the Resolution (S/RES/2231 (2015)) is available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2231(2015), accessed on 20.05.2017.
31 termination of the sanctions.
In addition to the UN Iran-related measures, the EU has exercised its right to use its own economic and financial instruments, including68:
• trade restrictions on certain types of goods: prohibition on export of arms, dual-use items and goods which could be used in enrichment-related activities, to Iran; prohibition to import crude oil, natural gas, petrochemical and petroleum products; ban on sales or supply of key equipment used in the energy sector, gold, other precious metals and diamonds, certain kinds of naval equipment, certain software, etc; • restrictions in the financial sector: freeze on assets of the Central Bank of Iran and major Iranian commercial banks, laying down notification and authorization mechanisms for transfers of funds above certain amounts to financial institutions of Iran; • measures in the transport sector: preventing access to EU airports of Iranian cargo flights, prohibition of maintenance and service of Iranian cargo aircraft or vessels carrying prohibited materials or goods; • travel restrictions and asset freeze against listed persons and entities.
Although all nuclear-related economic and financial EU sanctions against Iran have already been lifted in accordance with the JCPOA in 2016, certain restrictions are still valid69; therefore, it is important for companies to monitor the situation on a regular basis in order to stay compliant with the applicable rules.
It should be noted that the existing EU measures, specified above, are supplemented by restrictions connected with human rights violation concern, including (1) asset freeze and visa bans for individuals and entities responsible for grave human rights violations as well as (2) prohibition of exports to Iran of equipment that might be used for internal repression and of
68 Summary of EU restrictive measures against Iran, provided on the official web-site of European Council, available at http://www.consilium.europa.eu/en/policies/sanctions/iran/, accessed on 20.05.2017
69 Information Note of Council of the European Union on EU sanctions to be lifted under the Joint Comprehensive Plan of Action (JCPOA) dd. 23.01.2016, accessed on 23.05.2017 at the official web-page of the European Union External Action Service http://eeas.europa.eu/archives/docs/top_stories/pdf/iran_implementation/information_note_eu_sanctions_jcpo a_en.pdf, pp.9-12
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equipment for monitoring telecommunications. Thus, much attention shall be paid by businesses to the analysis of planned transactions and project in order to exclude the possibility of violation of these sanctions.
2.2.3.2. Russia -related program
Considering current situation on the world’s political arena and the focus of diplomatic relationship between Russia and the European Union at the present moment, EU sanctions program against the Russian Federation and its future can be regarded as one of the most important issues for the European Union to be taken into account when developing its external policy.
The sanctions -related tension started to escalate from March, 2014 as a response to external policy of the Russian Federation connected with Ukraine and the Crimea region in particular. The restrictive measures, adopted by the EU, as well as the US ones, cover various sectors of Russian economy and currently can be divided into the following groups70:
• Asset freeze and travel restrictions, including 150 people and 37 entities subject to an asset freeze and a travel ban due to the fact that the EU recognizes their responsibility for actions, undermining or threatening the territorial integrity, sovereignty and independence of Ukraine; • Sanctions concerning the region of the Crimea and Sevastopol, consisting of an import ban on goods from Crimea and Sevastopol, introduced by the EU in June 2014 and restrictions from July 2014 on trade and investment connected with certain economic sectors and infrastructure projects; • Measures targeting exchanges with Russia in certain economic sectors:(1) limited access to EU primary and secondary capital markets for five major Russian majority state-owned financial institutions and their majority-owned subsidiaries outside of the EU, three major Russian energy and three defense companies;
70 Official summary of Russia-related sanctions published at the web-page of the Council of the European Union, accessed at http://www.consilium.europa.eu/en/policies/sanctions/ukraine-crisis/ on 26.05.2017.
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(2) an export and import embargo on arms71; (3) an export ban for dual-use goods for military use or military end users in the Russian Federation72; (4) restricting access to certain sensitive technologies and services that can be used for oil production and exploration.
Taking into account the scope of the above-mentioned restrictions and the fact that for many international corporations Russia is considered to be a country with bright business opportunities, one can underline the importance of a deep analysis on each project a company is planning to take part in, including its participants, the project’s location and the goods/services involved. Only this strict approach can allow enterprises to minimize the risk of violating the existing sanctions and, therefore, avoid huge penalties and criminal conviction for their management.
2.2.3.3. South Soudan -related program
As a result of EU’s serious concern about the situation in South Soudan “over the resulting great human suffering and its strong condemnation of past and ongoing human rights violations and abuses and violations of international humanitarian law, as well as over the large-scale displacement of persons and the deepening humanitarian crisis” 73 , the following restrictive measures were introduced by the EU:
• by Council Decision (CFSP) 2015/740 dd. 07.05.201574:
- embargo on arms and related materials;
71 Full list of products is specified in Common Military List of the European Union (2015/C 129/01), published in Volume 58 of Official Journal of the European Union edition of 21 April 2015.The electronic version accessed at http://eur-lex.europa.eu/legal- content/EN/TXT/HTML/?uri=OJ:C:2015:129:FULL&from=EN#C_2015129EN.01000101.doc on 26.05.2017. 72 Full list of products is specified in Commission Delegated Regulation (EU) dd. 12.10.2015 (C(2015) 6823), electronic version available at http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153894.pdf, accessed on 26.05.2017. 73 Part 2 of the recitals of COUNCIL DECISION (CFSP) 2015/740 of 7 May 2015 concerning restrictive measures in view of the situation in South Sudan and repealing Decision 2014/449/CFSP, published in Official Journal of the European Union, edition of 08.05.2015. Electronic version available at http://eur-lex.europa.eu/legal- content/EN/TXT/PDF/?uri=CELEX:32015D0740, accessed on 26.05.2017; 74 COUNCIL DECISION (CFSP) 2015/740 of 7 May 2015 concerning restrictive measures in view of the situation in South Sudan and repealing Decision 2014/449/CFSP, published in Official Journal of the European Union, edition of 08.05.2015. Electronic version available at http://eur-lex.europa.eu/legal- content/EN/TXT/PDF/?uri=CELEX:32015D0740, accessed on 26.05.2017.
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- ban on provision of certain services; - restrictions on admission; - freezing of funds and economic resources;
• by Council Regulation (EU) 2015/735 of 7 May 2015 concerning restrictive measures in respect of the situation in South Sudan, and repealing Regulation (EU) No 748/201475:
- ban on provision of certain services;
- freezing of funds and economic resources;
- prohibition to satisfy certain claims of certain persons, entities and bodies.
Although South Soudan can evidently not be regarded as a popular business jurisdiction for international corporations, it is essential to pay attention to the existing prohibitions and monitor their official updates when checking clients and end-users, to avoid entering into banned types of transactions, providing sanctioned services, or interacting with a listed person.
2.2.3.4. Syria-related program
The current situation in Syria and its resolution is one of the priorities for the international community, as the escalation of the conflict is threatening peace and stability of the whole world. To address this concern EU has introduced a wide range of restrictive measures that mostly cover the same issues as the respective US sanctions. The most important ones to be considered by companies are the following, regulated by Council Decision 2013/255/CFSP of 31 May 201376 concerning restrictive measures against Syria, with corresponding amendments:
(1) embargo on certain goods which might be used for the manufacture and maintenance of products which could be used for internal repression; (2) ban on provision of certain related services; (3) control of export of certain other goods which might be used for the manufacture and maintenance of equipment which might be used for internal repression; (4) control of provision of
75 COUNCIL REGULATION (EU) 2015/735 of 7 May 2015 concerning restrictive measures in respect of the situation in South Sudan, and repealing Regulation (EU) No 748/2014, accessed at http://eur-lex.europa.eu/legal- content/EN/TXT/PDF/?uri=CELEX:32015R0735 on 26.05.2017. 76 COUNCIL DECISION 2013/255/CFSP of 31 May 2013 concerning restrictive measures against Syria, published in Official Journal of the European Union of 01.06.2013, pp.14-45, electronic version available at http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:147:0014:0045:EN:PDF
35 certain services; (5) import ban on arms and related materiel; (6) ban on provision of certain related services; (7) embargo on telecommunications monitoring and interception equipment; (8) ban on provision of certain services (related to such equipment); (9) import ban on crude oil and petroleum products; (10) ban on provision of certain services (related to crude oil and petroleum products); (11) embargo on key equipment and technology for the oil and natural gas industries; (12) ban on provision of certain services (to the oil and natural gas industries); (13) ban on provision of new Syrian banknotes and coins; (14) ban on trade in gold, precious metals and diamonds with the Government of Syria; (15) embargo on luxury goods; (16) ban on certain investment (in the oil and natural gas industries, in construction of power plants for electricity production); (17) prohibition to participate in the construction of new power plants for electricity production; (18) restraint on commitments for public and private financial support for trade with Syria; (19) ban on new long-term commitments of Member States; (20) ban on new commitments for grants, financial assistance and concessional loans to the Government of Syria; (21) restrictions on issuance of and trade in certain bonds; (22) restrictions on establishment of branches and subsidiaries of and cooperation with Syrian banks; (23) restrictions on provision of insurance and re-insurance; (24) restrictions on access to airports in the EU for certain flights; (25) inspection of certain cargoes to Syria and prior information requirement on cargoes to Syria; (26) restrictions on admission of certain persons; (26) freezing of funds and economic resources of certain persons, entities and bodies; (27) prohibition to satisfy claims made by certain persons, entities or bodies.
As it is evident from the mentioned list, the restrictions concern various industries and types of business, therefore, irrespective of the field, a company is operating in, it shall take measures to maintain accurate due diligence on its transactions and partners, to avoid the possibility of its goods or services to be destined for a listed Syrian person or enterprise, that is especially important for international corporations, having their commercial units in the neighboring region of Middle East and countries of Africa.
Taking into consideration the two main sanctions regimes, the US and the EU ones, analyzed in Chapter 2, one can conclude on their extreme importance for multi-national business groups and the necessity of implementing an effective internal program on sanctions compliance to conduct regular checks of their partners and end-users in order to avoid violations of applicable laws and,
36 therefore, serious consequences, including huge fines for legal entities and criminal punishment for the executives involved. However, monitoring the US and the EU sanctions updates, companies should not neglect applicable local legal peculiarities of the jurisdiction where their units are established to be able to find an effective solution to its possible collision with the laws of the EU and the USA, like the one that can be observed in Russia.
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CHAPTER 3
Consequences of violating sanctions regimes and compliance-related problems that businesses face:
OFAC case study and a survey for legal professionals
The present Chapter of the research paper is focused on proving the importance of sanctions compliance as an element of Know-your-customer procedure for multi-national corporations, by analyzing OFAC programs violation cases and outlining crucial issues that companies need to take into account in order to minimize their risks related to transnational operations. In addition to this, Chapter 3 includes an overview of the results of a survey, conducted among legal professionals from various global businesses, dealing with sanctions compliance, with the purpose of indicating existing problems that they face when performing checks of their clients and transactions.
The reason for choosing OFAC sanctions regime for the study is a large number of revealed violations within the last 5 years and huge amounts of imposed penalties, therefore, facts and circumstances of this case can serve a useful basis for compliance specialists to choose the right strategy of protecting interests of their companies.
3.1.OFAC cases analysis
In order to understand how dynamic and severe OFAC’s approach with regards to non-compliance with applicable sanctions regimes is, one shall refer to the general statistics, published on the official website of this regulatory body77 and accumulated in a table, containing data on all cases that resulted into penalties imposed by OFAC during the period from 2008 to 2017 and reflects the number of penalties/ settlements and their USD amounts. A considerable drop in the quantity of cases can be observed in 2009 if compared to 2008: from 104 to 27 – the level that in the next several years remained relatively stable. Nevertheless, it can not be regarded as a positive tendency, as the total amount of applied penalties in 2008 (for 104 violations) is 3,504,533 USD that is
77 Official website of OFAC: https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/civpen- index2.aspx, accessed on 26.05.2017.
38 substantially lower than the ones in the following years, e.g. 772,442,861 USD (for 27 violations) in 2009 and 1,139,158,727 USD (for 16 violations) in 2012. This difference might be explained by a more profound approach that OFAC switched to, with more attention to be paid to huge groups of companies and to transactions of a higher value, rather than focusing on minor non- compliance issues.
Cases on US sanctions regimes violations, settled by OFAC Year Number of Penalties/Settlements Penalties/Settlements TOTAL, USD
2008 104 3,504,533 2009 27 772,442,861 2010 27 200,735,996 2011 21 91,650,055 2012 16 1,139,158,727 2013 27 137,075,560 2014 23 (incl. one case with an individual ) 1,209,298,807 2015 15 599,705,997 2016 9 21,609,315 2017 5 101,930,271 (first quarter)
For a more detailed and indicative analysis the author considered it reasonable to concentrate on OFAC enforcement of the last five years – from 2012 to the first quarter of 2017. The data of 94 cases taken from the official OFAC website was studied according to the following criteria: companies fined; their jurisdictions (in addition to the US); sanctions programs involved; period within which the revealed violations took place; amount of penalties (See Annex 1).
The study was aimed at achieving four main objectives: (1) to outline the industries to which the fined entities belong; (2) to determine the jurisdictions concerned; (3) to find out the sanctions programs with the highest rate of OFAC enforcement; (4) to analyze the amounts of fines imposed; (5) to highlight the circumstances that are recognized by OFAC as mitigating and aggravating ones, and, therefore, influence the final amount of penalties.
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The conducted analysis showed quite indicative and clear results. Firstly, it was found out that companies from a wide range of industries may face legal consequences for violating OFAC sanctions (see Chart 1). Thus, the list of cased for the studied period includes a large number of global financial organizations, among which one can notice reputable bank groups, such as HSBC ($375,000,000 in 2012), BNP Paribas ($963,619,900 in 2014), Crédit Agricole ($329,593,585 in 2015), Commerzbank ($258,660,796 in 2015), ING Bank ($619,000,000 in 2012), as well as businesses, providing payment – related services, like PayPal and American Express. Another economic sector involved is oil and gas industry with the relevant goods and services, e.g. Grand Resources USA, Inc. (oil & gas exploration & development), Teledyne Technologies, Inc. (equipment and services), Stanley Drilling Equipment & Supply, Inc. In addition to this, it is important to mention electronic devices manufacturing and supply, with the recent example of the fast – developing Chinese Zhongxing Telecommunications Equipment Corporation that received a penalty of 100,871,266 USD in 2017. The scope of violators is not limited to the above-specified sectors and also includes businesses, conducting their activity in the fields of insurance (The American Steamship Owners Mutual Protection and Indemnity Association, Inc., Navigators Insurance Company), medical devices and pharmaceuticals (United Medical Instruments Inc., Sandhill Scientific, Inc., HyperBranch Medical Technology, Inc., Alcon Pharmaceuticals Ltd.), marine industry with the corresponding goods and services (Maritech Commercial Inc., Offshore Marine Laboratories), cosmetics (Essie Cosmetics Ltd) and several other segments. However, the research showed that the highest risk is experienced by financial organizations that might be explained by a high number of transactions and clients that these institutions deal with on a daily basis.
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Chart 1 Business sectors involved
Financial Sector Equipment&instruments manufacturing&sales Food &drinks industry Provision of services Insurance Other
Second aspect that the study focused on is the jurisdictions where the fined entities and their headquarters were incorporated. Chart 2 demonstrates that not only companies registered in the US can be subject to penalties imposed by OFAC but also to multi-nationals having business units all over the world, including (but not limited to) Middle East and Latin America, with the largest share, however, taken by the EU (19% of all the cases, incl. the UK).
Chart 2 Jurisdictions involved in violation
only US US+UK US+EU (excl.UK) US+Latin America US+UAE US+Japan US+Switzerland US+Turkey US+Puerto Rico US+Russia US+ Pakistan
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Thirdly, the analysis revealed OFAC sanctions regimes that most often became the framework for penalties within the five-year period in question. The outcome received clearly shows that the most frequently applied regimes are the Iran (41% of all the cases) and Cuba (22% of all the cases) ones that are no longer in place due to a change in the US policy vector. Despite this fact, it is essential to bear in mind that even in case a sanctions program is no longer in effect, the regulator can apply fines for the violations that occurred before the date of the regime’s expiry date. Therefore, many companies received their penalties in 2014-2017 for non-compliance that took place in 2009-2013. Besides, the statistics reflects the fact that many financial institutions, including such reputable banking groups as BNP Paribas, HSBC, ING Bank, Crédit Agricole, have been fined for not observing a range of programs, which can be connected with a large number of complex multi- national transactions that they deal with regularly. Such a high OFAC enforcement rate for Iranian and Cuban restrictions might be explained by an unfavorably strict policy of the US towards this countries in the analyzed period that is reflected in the approach of regulatory bodies to address such violations. In addition to these to programs, OFAC paid much attention to Sudanese restrictive measures (15% of cases) that might also be an indicator of the US concerns about the situation in Sudan and the neighboring regions. Statistics on the applied sanctions programs is provided in Chart 3.
Chart 3 Applicable OFAC sanctions regimes
Iran Cuba Sudanese Burmese Syrian Libya Other
The fourth issue under analysis was the amounts of the imposed penalties. Chart 4 demonstrates that a substantial number of the fines falls under the ranges from 100 000 and 1 mln. USD (33%)
42 and from 1 mln. to 10 mln. USD (18%), whereas 4% of the companies faced amounts from 10 mln. to 100 mln. USD, and 9% - over 100 mln. USD. The 33% of the entities that have received quite mild penalties (less than 100 000 USD) may be explained by the fact that the bigger part of these organizations is relatively small and can not be considered as sophisticated global businesses by OFAC unlike widely known groups of companies that were punished with much higher measures.
The final issue that the conducted research helped to find out is the factors that OFAC considers mitigating and aggravating.
Among aggravating circumstances OFAC specified the following:
• failure to exercise a minimal degree of caution or care in avoiding conduct that led to the apparent violations78; • awareness of employees and/or management of the conduct that led to the apparent violations79;
78 HSBC Group case, OFAC Enforcement Information for December 11, 2012, published at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/121211_HSBC_posting.pdf, pp.1-2; Standard Chartered Bank case, OFAC Enforcement Information for December 12, 2012 at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/12102012_scb.pdf, pp.1-2,accessed on 28.05.2017; 79 The mentioned cases of HSBC, Standard Chartered Bank and ING Bank N.V. case, available at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/06122012_ing.pdf, Weatherford
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• the apparent violations resulted in significant harm to U.S. sanctions programs objectives80 (although this criteria seems to be a subjective one, it is relatively often referred to by the regulator); • the violator is a highly sophisticated global organization81; • the company failed to maintain adequate policies or procedures to ensure compliance with the sanctions programs administered by OFAC82; • the company’s conduct was marked by willfulness and recklessness83; • the entity failed to consistently cooperate with OFAC early in its investigation with regard to explicit requests for information84; • the apparent violations constituted a long-term pattern of conduct 85; • the company’s compliance program at the time of the apparent violations was substantially deficient86.
The mitigating factors recognized by OFAC include (but are not limited to):
• the violator has not received any penalty or other administrative action from OFAC in the five years preceding the date of the transactions giving rise to the apparent violations87; • the company provided substantial cooperation to OFAC on the case in question88;
International Ltd. case, available at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/20131126_weatherford.pdf accessed on 28.05.2017; 80 Ibid 81 Ibid 82 HSBC Group case, OFAC Enforcement Information for December 11, 2012, published at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/121211_HSBC_posting.pdf, pp.1-2; Standard Chartered Bank case, OFAC Enforcement Information for December 12, 2012, accessed at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/12102012_scb.pdf, pp.1-2, on 28.05.2017; 83 ING Bank N.V. case, available at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/06122012_ing.pdf, BNP Paribas case, OFAC Enforcement information for June 30, 2014, available at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140630_bnp.pdf accessed on 28.05.2017; 84 Ibid 85 Weatherford International Ltd. case, OFAC Enforcement Information for November 26, 2013, available at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20131126_weatherford.pdf; Zhongxing Telecommunications Equipment Corporation case, Enforcement Information for March 7, 2017 at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20170307_zte.pdf, accessed on 28.05.2017; 86 Ibid; 87 The above-mentioned HSBC case; 88 The mentioned HSBC and SCB cases;
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• remedial action has been taken by the entity involved in response to the revealed violation89; • the company voluntarily self-disclosed the violations90; • the violator undertook significant remedial steps to ensure future compliance91.
The mentioned factors reflect the fact that OFAC pays much attention to adjusting its approach to each case individually, depending on its circumstances, with more severe fines being applied to large global groups of companies that can be considered reasonable as these businesses have more resources (financial, human, etc.) to take the necessary measures to comply with the applicable rules. In addition to this, it is important to outline the tendency that in case of management’s awareness of violations, the amounts of penalties rise dramatically if compared to those in which the executives and employees were not involved.
Taking into account the received outcome of the analysis, one should note that it showed the importance of compliance with existing restrictive measures for companies, operating in a wide range of economic sectors. On the basis of these results one can conclude on the two major stages at which businesses shall act effectively with regards to sanctions: 1) ex-ante stage, at which corporations are supposed to implement internal measures and control mechanisms to prevent violations of the relevant regulations and 2) ex-post stage, when a case of non-compliance has been revealed and, therefore, effective cooperation with the regulator on this issue is expected to be performed in order to avoid penalties or minimize them to the possible extent. These methods can allow companies to prevent a wide range of negative financial consequences, as well as reputational ones.
3.2.Survey on international sanctions compliance.
89 Ibid; 90 The mentioned Standard Chartered Bank case. 91 Weatherford International Ltd. case, OFAC Enforcement Information for November 26, 2013, available at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20131126_weatherford.pdf accessed on 28.05.2017; Zhongxing Telecommunications Equipment Corporation case, Enforcement Information for March 7, 2017 at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20170307_zte.pdf, accessed on 28.05.2017; Clearstream Banking, S.A. case, OFAC Enforcement Information for January 23, 2014, accessed at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140123_clearstream.pdf on 28.05.2017.
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The second part of the research was a survey distributed within a narrow group professionals, dealing with sanctions compliance at corporations, operating in multiple jurisdictions, via e-mail and LinkedIn. The target audience included internal legal and compliance counsels and export control officers, as well as external consultants, providing the corresponding advice to international businesses. Twenty specialists, employed by companies from a variety of industries and countries, managed to participate and provide their opinion on the requested issues (the full statistics on the outcome received can be found in Annex 2). The survey was mainly aimed at finding out the following: (1) how much time is spent on the corresponding checks; (2) what difficulties specialists face in their everyday activity with regards to applicable restrictive measures; (3) instruments that companies use to hedge the relevant risks; (4) what characteristics of an international sanctions compliance program for a global company are considered important. In order to achieve the specified goals, the respondents were expected to answer a number of questions: (1) your current function; (2) field of the company's activity; (3) scope of the company's operational activity; (4) country of the headquaters' location; (5) does your company perform trade/ financial sanctions compliance checks of clients and partners?; (6) does your company have an international trade/financial sanctions compliance program? (to be answered by in -house counsels); (7) what percentage of your clients - multinational companies have an international trade/financial sanctions compliance program? (to be answered by external consultants); (8) what function at your company is responsible for international trade/financial sanctions compliance? (to be answered by in -house counsels); (9) what databases for trade/ financial sanctions compliance checks do you use?; (10) does your company fully rely on check results received from automatic search databases?; (11) in what way does your company store the results of conducted sanctions compliance checks? (to be answered by in -house counsels)/ in what way do you recommend your clients to store the results of conducted sanctions compliance checks? (to be answered by external consultants) (12) how would you estimate the time spent on trade/financial sanctions checks as the percentage of the total time required for due diligence procedure?; (13) what legal instruments does your company use in order to hedge the trade/financial sanctions - related risks?; (14) what do you consider to be the disadvantages of trade/financial sanctions check process as an element of Know-Your-Customer procedure?; (15) specify three characteristics of an effective sanctions compliance program for a multi-national company that you consider to be the most important. The business fields of the respondents included sales of goods (e.g. machinery, electronics,
46 construction products) and provision of services (e.g. software-related, financial, information), with the scope of operation being mostly worldwide (16 companies out of 20), with three companies operating only within the EU and one in Switzerland dealing with international payments. All of the respondents – in-house counsels confirmed the existence of an internal sanctions compliance program in their companies and performance of checks of their clients and partners, whereas the bigger part of the participating external professionals specified that more than 75% of their clients have the program in place, that can be regarded as quite a high level of restrictive measures awareness. The survey allowed to receive valuable feedback on its four main objectives. Firstly, it clearly showed that checks related to applicable sanctions regimes are quite time-consuming. The chart below demonstrates that in 14 out of 20 companies more than 25% of the whole time devoted to due diligence process is consumed by the sanctions compliance procedures.
Survey chart 1
In addition to the above-mentioned, an interesting finding of survey is the way how businesses prefer to store the check results. Thus, the majority of companies prefer electronic versions, whereas some still trust paper ones.
Secondly, the analysis received outcome revealed major problems that specialists face in their everyday activity. As it is evident from the chart, may companies admit that sanctions check
47 process as an element of Know-Your-Customer procedure is time –consuming, costly, and not clear enough for businesses, having their units is various jurisdictions.
Survey Chart 2
The third focus of the survey was to determine what instruments for hedging sanctions compliance risks are the most common among international companies (N.B. the respondents could choose only one option or provide their own version). The participants were to decide between the options of: disclaimers, included into contracts and financial documents, letters from the counterparties, confirming their compliance with the relevant regulations; letters from end-users of goods/services; letters from counterparties using banks subject to sectorial sanctions, or specify their own method. Disclaimers in contracts turned out to be the most popular version, whereas many professionals specified that they use a complex of measures to protect the interests of the organization.
Survey Chart 3
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Other (please, specify) Letters from the counterparties, using banks subject to sectoral sanctions Letters from end -users of goods/services Letters from the counterparties, confirming their compliance with applicable trade/financial sanctions… Sanctions compliance disclaimers in invoices or similar financial documents Sanctions compliance disclaimers in contracts
0 5 10 15
The final aspect under analysis was to outline the major characteristics of an internal sanctions compliance programs that the respondents consider essential for a multi-national company. Each participant was supposed to provide only three main aspects, the full list of which can be found in Annex 2. The received outcome is distinct and makes it possible to conclude on what elements an effective international sanctions compliance procedure should include. Thus, many respondents highlighted the fact that the process shall be clear (with well-explained stages, understandable for all employees); up-to-date with a proper procedure for monitoring the changes on a regular basis; include the corresponding training of employees. In addition to these characteristics, the specialists mentioned the importance of internal compliance culture for implementation of the sanctions compliance program, involving mechanisms for prompt reporting of violations and ethics hotline.
Considering the results of the survey, one can state that the necessity of having internal compliance procedures, related to various regimes of sanctions, is understood by many global corporations. Nevertheless, it is evident that at the present moment companies face a number of problems when trying to fulfill all the applicable state requirements and have to develop effective methods that could allow to observe the existing laws but at the same time not to ruin the company’s business.
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CHAPTER 4
Developing an effective sanctions compliance program for a global organization
The aim of this chapter is to outline the requirements and the general characteristics of an internal sanctions compliance program that, despite the existence of industry – specific rules, are suitable for the majority of international companies operating in various economic sectors and jurisdictions.The corresponding findings will be based on recommendations established by regulators, as well as the case study and the survey conducted in previous chapters. As it is evident from OFAC cases analysis, specified in Chapter 3, an effectively implemented sanctions compliance program can become a valuable mitigating factor in case a violation has been revealed by the regulator; therefore, businesses shall take all steps possible to have it in place in order to avoid huge penalties.
Analyzing the issue from the perspective of the US, one should mention that generally, it is up to a particular company to conduct its internal sanctions-related risk assessment and to determine the best way for designing and operating a compliance program to address the existing risks92. However, although OFAC does not establish a mandatory standard for the program that businesses could stick to, in its Economic Sanctions Enforcement Guidelines93 it provides a number of basic recommendations for companies to consider, concerning the following 94 : (1) management’s assessment and understanding of OFAC risk; (2) board approval of an OFAC compliance program; (3) staffing levels to execute an OFAC compliance; (4) defined and enforced authority and accountability for OFAC compliance; (5) training; (6)
92 Ronald I. Meltzer and David M. Horn “REASSESSING YOUR RISK PROFILE FOR OFAC SANCTIONS”, the Review of Banking&Financial Services Vol. 29 No. 12 December 2013, p.149, accessed at https://wilmerhale.com/uploadedFiles/WilmerHale_Shared_Content/Files/PDFs/Meltzer-Horn-RBFS-Final.pdf on 03.06.2017. 93 Economic Sanctions Enforcement Guidelines (Final Rule), (Department of Treasury), 74 Fed. Reg. 57593 (Nov. 9, 2009), accessed at https://www.gpo.gov/fdsys/pkg/FR-2009-11-09/pdf/E9-26754.pdf on 03.06.2017. 94 Ronald I. Meltzer and David M. Horn “REASSESSING YOUR RISK PROFILE FOR OFAC SANCTIONS”, the Review of Banking&Financial Services Vol. 29 No. 12 December 2013, pp.149-150, accessed at https://wilmerhale.com/uploadedFiles/WilmerHale_Shared_Content/Files/PDFs/Meltzer-Horn-RBFS-Final.pdf on 03.06.2017.
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quality control methods; (7) consideration of compliance; (8) screening policies; (9) effectiveness of compliance systems’ identification and reporting of potential violations; (10) review of accounts; (11) responsiveness of compliance systems to changes in OFAC requirements; (12) testing of the compliance program; (13) identification and correction of problems and potential problems; (14) overall compliance controls. Interestingly, many of the specified aspects were mentioned by the respondents of the survey reviewed in Chapter 3 that shows that businesses generally understand the direction the regulator wants them to move in.
As far as the EU is concerned, one should mention that as in the case with the US, there are no mandatory requirements to the content of an internal sanctions compliance program. However, taking into consideration the fact that in many aspects there is a similarity between the EU and the US regimes, the recommendations from Economic Sanctions Enforcement Guidelines of OFAC, can be applied with regards to the EU regulations compliance as well. The discussed multi-stage approach can help a company to hedge its risks to the highest extent possible and protect its interests if there still comes a case of violation.
The conducted analysis shows that there is a big variety of requirements to be observed by companies, resulting in the need for additional time, compliance professionals and expenses connected with purchasing software solutions to perform the relevant checks, with all these becoming a serious burden on the businesses and, consequently, slowing down their development.
In response to this, the following solutions might be implemented:
- associations of companies from different economic sectors shall be in a closer cooperation with the regulators on a regular basis, explaining to them the needs and real problems that they experience with regards to sanctions, considering that many corporations want to be compliant, but they do not have enough guidance to achieve it. This might motivate the lawmakers to address these concerns with more specific recommendations; - governments could cooperate in terms of developing an official international database, containing blacklisted persons and restrictive measures imposed in various jurisdictions, that could definitely simplify the check process for companies and make it less expensive;
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- innovative LegalTech platforms for compliance professionals to be improved and their false positives percentage to be substantially lowered. At the present moment there exists a number of technically sophisticated instruments, like World-Check of Thomson Reuters and LexisNexis sanctions solutions but they are expensive enough for many companies to subscribe to and the check results are not always correct and up-to-date due to frequent changes in the lists of restrictions and language differences, e.g. in spelling of blacklisted entities, that can not always be recognized by artificial intelligence and, therefore, their usage is connected with the risk of entering into a prohibited transaction or refusing to participate in a valuable project due to a false positive check result. The outcome of the survey conducted in Chapter 3 (see Annex 2) shows that some companies using electronic automated tools for sanctions due diligence still prefer not to fully rely on them but validate the search through other methods as well.
By way of conclusion it should be noted that before implementing a sanctions compliance program, a company shall conduct a profound risk analysis related to its activity, involving either its own internal resources or external professionals. This measure is necessary in order to understand legislation of what jurisdictions will be applicable to the organization’s activity, what particular sanctions regimes the business falls under and what steps shall be taken to address the revealed issues. It is important to highlight the fact that the US and the EU regimes are not the only ones for international corporations to consider, as today many countries are moving towards implementing a stricter approach to export controls administration and enforcement on a national level, e.g. the Netherlands95. Therefore, it is essential to take into account not only the area of the business’s incorporation but also all states where it is operating, where its counterparties are registered and its securities are traded. Only such a deep individual strategy can guarantee the maximum level of protection and a successful implementation of the program within the company.
95 Gerard Kreijen, Export Controls Enforcement by the Dutch Court | Part 1: The Case of the Logistics Provider dd. 2 June 2017, World Trade Controls Blog, accessed at http://www.worldtradecontrols.com/export-controls- enforcement-by-the-dutch-court-part-1-the-case-of-the-logistics-provider/ on 03.06.2017.
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Conclusion
The outcome of the conducted research allows concluding on the fact that international sanctions compliance shall be considered an important stage of due diligence process for global businesses and is an essential element of an internal corporate Know-Your-Customer procedure. The paper was focused on four main elements: 1) analysis of legal nature and classification of economic sanctions; 2) overview of the EU and the US sanctions regimes; 3) study of OFAC cases for the period from 2012 to the first quarter of 2017 and a survey among compliance professionals; 4) characteristics of an effective internal sanctions compliance program for a global company and possible solutions to the existing compliance challenges. Chapter 1 was mostly devoted to the concept of restrictive measures from legal and economic perspectives. The analysis showed that sanctions can be regarded as a complex instrument of mainly a political influence, applied by international organizations, supranational bodies, and national governments for achieving the purposes of conflict resolution; punishing those responsible for situations of international concern and changing their behavior; restoring international peace and security. Economic sanctions that have become widespread in the recent decade can be divided into two major groups: financial and trade-related. The first type presupposes limitation of access to funds or financial services by sanctioned individuals or entities and can be connected, for instance, with seizure of bank accounts, freezing of assets, prohibitions on capital movement and provision of investment services, whereas, the second type imposes general prohibition on trade in certain goods and services as well as restrictive export control regulations for “dual-use” items.
The variety of existing sanctions raises corresponding compliance – related concerns for multi- national corporations, falling under legislative requirements of different jurisdictions, therefore, it is of crucial importance for any business to outline applicable restrictions and develop an internal strategy for their observance.
Chapter 2 of the present research was concentrated on the two major regimes in the current international economic environment – the US and the EU ones and several country-related programs that they include, involving Iran, South Soudan, Russia and Syria. The performed study reflected that the US and the EU restrictive measures, mostly aimed at restoring global
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peace and security,have much in common and their blacklists are similar to a large extent. However, there still exist certain peculiarities of each regime that companies shall pay attention to when managing their every-day activity.
Due to a wide scope of OFAC programs coverage revealed in Chapter 2, Chapter 3 was focused on studying the cases of OFAC restrictive measures violations that resulted in penalties applied. The outcome of 94 enforcements reflects an extremely strict approach taken by the regulator and high amounts of fines imposed on international corporations with a worldwide scope of operations in various economic sectors. However, the riskiest industry turned out to be finance that can be explained by a large number of transactions and clients that banks and other financial organizations deal with. In addition to this, the case study results allowed to make a conclusion on aggravating and mitigating factors that businesses should definitely take into account. In order to find out difficulties that companies face on an every-day basis, a legal survey was distributed to professionals in the field of international sanctions compliance that showed certain problems experienced by multi-national corporations. Thus, many specified that a proper check process is time-consuming, expensive and not completely clear. The received data helped to identify the existing concerns and propose possible solutions in the research paper.
Following the analysis of sanctions-related regulatory requirements and the study of the outcome of OFAC cases and the legal survey in previous chapters, the final issue related to development of an effective internal program for observing applicable restrictive regimes was addressed in Chapter 4. It was found out that neither in the US, nor in the EU legislation there exists a full list of mandatory rules for the design and content of the corresponding compliance program for an international corporation that could guarantee absolute protection for the business. However, the regulators, e.g. OFAC, provide certain recommendations that enterprises are supposed to follow to minimize their risks. Based on this, it is possible to conclude that an internal program for sanctions compliance to be implemented within a multi-national company, irrespective of the field of its operation, shall meet three main criteria: be up-to-date, clear for employees of all levels and include regular training. No doubt that in many countries there exist peculiarities related to a specific industry that businesses shall pay attention to but the above-mentioned characteristics are important for any of them, dealing with international transactions and projects. In order to address
54 the problems that companies face today with regards to sanctions compliance, the following solutions were proposed in the research paper:
-closer cooperation of associations of companies with the regulators;
-effective cooperation of governments for the purpose of creating an international database of sanctions for businesses to conduct their checks;
-improvement of existing Legal Tech platforms for sanctions compliance.
By way of conclusion, one can state that the research conducted in the present paper showed that compliance with applicable sanctions today is an issue of vital importance for global corporations and an integral part of their Know your customer procedure, as the violations can results in huge losses of different nature, including (but not limited to) financial and reputational ones. Therefore, it is important for companies to take all measures necessary to hedge the relevant risks.
55
Annex 1
OFAC cases under analysis
Companies involved The Sanctions program violated Period within Amount of jurisdictions which settlement involved violations took for place violations
2012
Bank of Tokyo- Japan - Burmese Sanctions April 3, 2006 - $8,571,634 Mitsubishi UFJ, Ltd Regulations, 31 C.F.R March 16,2007 part 537; - Iranian Transactions Regulations, 31 C.F.R. part 560; - Executive Order 13382, blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters; - the Sudanese Sanctions Regulations, 31 C.F.R. part 538; - Cuban Assets Control Regulations, 31 C.F.R. part 515 HSBC Holdings plc UK - Cuban Assets Control March , 2004 - $375,000,000 (England) Regulations, 31 June, 2010 C.F.R.part 515; - the Burmese Sanctions Regulations, 31 C.F.R. part 537; - the Sudanese Sanctions Regulations , 31 C.F.R. part 538; - Libyan Sanctions Regulations, 31 C.F.R. part 550; - Iranian Transactions Regulations, 31 C.F.R. part 560.
56
Standard Chartered UK - Burmese Sanctions January 2001- $132,000,000 Bank (England) Regulations, 31 C.F.R. April 2011 part 537; - the Iranian Transactions Regulations, 31 C.F.R. part 560; - Libyan Sanctions Regulations, 31 C.F.R. part 550; - the Sudanese Sanctions Regulations, 31 C.F.R. part 538; - the Foreign Narcotics Kingpin Sanctions Regulations 31 C.F.R. part 598;
Sogda Limited, Inc., US Iranian Transactions March 25, 2009 $128,250 of Kirkland, WA Regulations: seven export - August 26, transactions that involved the 2010 transshipment of goods through Bandar Abbas, Iran. Natoli Engineering US Foreign Narcotics Kingpin November 2008 $52,920 Company, Inc. Sanctions Regulations - January 2010 Brasseler USA US Iranian Transactions 2006-2009 $18,900 Regulations, 31 C.F.R. part 560 Grand Resources US Iranian Transactions 2005 - 2009 $402,000 USA, Inc. Regulations and the Weapons of Mass Destruction Proliferators Sanctions Regulations Great Western US Cuban Assets Control August 2006 - $1,347,750 Malting Co. Regulations March 2009 National Bank of Abu UAE Sudanese Sanctions Regulations November 2004 $855,000 Dhabi - December 2005 ING Bank N.V. Belgium -Cuban Assets Control October 22, $619,000,000 Regulations, 31 C.F.R. part 515; 2002 - July 6, -Burmese Sanctions 2007 Regulations, 31 C.F.R. part 537; - Sudanese Sanctions Regulations, 31 C.F.R. part 538; - Libyan Sanctions Regulations, 31 C.F.R. part 550; - Iranian Transactions Regulations, 31 C.F.R. part 560
57
Genesis Asset UK Iranian Transactions August, 2007 $112,500 Managers, LLP (England) Regulations, 31 C.F.R. part 560 Sandhill Scientific, US Iranian Transactions May 2007 $126,000 Inc. Regulations, 31 C.F.R. part 560;
Essie Cosmetics Ltd.; US Iranian Transactions September $450,000 Individual Corporate Regulations 2009 -February Officer 2010 Online Micro, LLC US Iranian Transactions 2009 - 2010 $1,054,388 Regulations, 31 C.F.R. part 560 Richland Trace US Former Liberian Regime of 2009 $9,000 Homeowners Charles Taylor Sanctions Association, Inc. Regulations, 31 C.F.R. part 593 Teledyne US Sudanese Sanctions March 2007 $30,385 Technologies, Inc Regulations, 31 C.F.R. part 538 and November 2007
2013
HSBC Bank USA, US Global Terrorism Sanctions December, $32,400 N.A. Regulations, 31 C.F.R. part 594 2010 Royal Bank of UK -Cuban Assets Control July 2005 – $33,122,307 Scotland plc (Scotland) Regulations, 31 C.F.R. part 515; November 2009 -Burmese Sanctions Regulations, 31 C.F.R. part 537; - Executive Order 13448 of October 18, 2007; - Tom Lantos Block Burmese JADE (Junta’s Anti-Democratic Efforts) Act of 2008; - Sudanese Sanctions Regulations, 31 C.F.R. part 538; - Iranian Transactions Regulations, 31 C.F.R. part 560;
Compass Bank US Sudanese Sanctions February 2011 $19,125 Regulations, 31 C.F.R. part 538 Weatherford Switzerland - Cuban Assets Control 2003-2008 $91,026,450 International Ltd (till 2009 - Regulations, 31 C.F.R. part 515; and its UK affiliated US) -Iranian Transactions and entities Sanctions Regulations,1 31 C.F.R. part 560;
58
- Sudanese Sanctions Regulations, 31 C.F.R. part 538 KMT Group AB Sweden Iranian Transactions and February 2009- $125,000 with its German and Sanctions Regulations March 2009 UK subsidiaries
Ameron UK -Iranian Transactions and March 2005, $434,700 International Sanctions Regulations, 31 October 2006 Corporation C.F.R. part 560; -Cuban Assets Control Regulations, 31 C.F.R. part 515 Alma Investment UAE Iranian Transactions and September $1,500,000 LLC Sanctions Regulations, 31 2009 to C.F.R. part 560 February 2010 Finans Kiymetli Turkey Iranian Transactions and February 2012, $750,000 Madenler Turizm Sanctions Regulations; 31 to May 2012 Otomotiv Gida C.F.R. part 560 Tekstil San. Ve Tic World Fuel Services US -Iranian Transactions March 2007- $39,501 Corporation Regulations; April 2009 - Sudanese Sanctions Regulations; - Cuban Assets Control Regulations Communications US Iranian Transactions and March 2006 - $346,530 and Power Industries Sanctions Regulations, 31 October 2010 LLC, with its C.F.R. part 560 Switzerland Branch office involved Deutsche Bank Trust Germany Executive Order 13382 of June October 2008 $18,900 Company Americas 28, 2005 “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters” American Express US - Cuban Assets Control December 15, $5,226,120 Travel Related Regulations, 31 C.F.R. part 515 2005- Services Company, November 1, Inc. 2011 Stanley Drilling US Iranian Transactions June 2008 - $84,240 Equipment & Regulations, 31 C.F.R. part 560, October 2008 Supply, Inc. which were renamed, amended, and reissued as the Iranian Transactions and Sanctions Regulations on October 22, 2012.
59
Intesa Sanpaolo Italy - Cuban Assets Control October 2004 – $2,949,030 S.p.A. Regulations, 31 C.F.R. part 515; March 2008 - Sudanese Sanctions Regulations, 31 C.F.R. part 538; - Iranian Transactions Regulations, 31 C.F.R. part 560 Wells Fargo Bank, US Foreign Narcotics Kingpin December 2007 $23,937 N.A. Sanctions Regulations, 31 -March 2010 C.F.R. part 598 ATP Tour, Inc. US Iranian Transactions May 2007 - $48,600 Regulations July 2010 The American US - Cuban Assets Control November $348,000 Steamship Owners Regulations 31 C.F.R. part 515; 2003-March Mutual Protection - Sudanese Sanctions 2007 and Indemnity Regulations 31 C.F.R. part 538; Association, Inc. - Iranian Transactions Regulations 31 C.F.R. part 560.1 Toyota Motor Credit Japan Foreign Narcotics Kingpin April 2008 - $23,400 Corporation Sanctions Regulations, 31 June 2010 C.F.R. part 598 SAN Corporation US -Iranian Transactions and September $22,500 Sanctions Regulations, 31 2007 C.F.R. part 560,1 Maritech US Weapons of Mass Destruction April 2009 - $20,800 Commercial Inc. Proliferators Sanctions June 2010 Regulations
EGL, Inc. US -Cuban Assets Control April 2005 – $139,650 Regulations, 31 C.F.R. part 515; December 2008 -Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 Bank of Guam US Iranian Transactions May 2010 $27,000 Regulations, 31 C.F.R. part 560 Tung Tai Group US Cuban Assets Control August 2010 $43,875 Regulations, 31 C.F.R. part 515 American US -Iranian Transactions and May 2005- $404,100 Optisurgical, Inc. Sanctions Regulations, 31 April 15, 2010 C.F.R. part 560; -Reporting, Procedures and Penalties Regulations, 31 C.F.R. part 501;
Offshore Marine US - Iranian Transactions July 2007, and $97,695 Laboratories Regulations; July 2008
60
- Executive Order 13382, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters” Dal-Tech Devices, US - Iranian Transactions $10,000 Inc. Regulations, 31 C.F.R. part 560 Ellman US - Iranian Transactions 2005 –February $191,700 International, Inc. Regulations, 31 C.F.R. 2008 part 560
2014
ESCO Corporation US - Cuban Assets Control November 2007 $2,057,540 Regulations, 31 C.F.R. - June 2011 part 515 Indam International, US - Iranian Transactions and July 2006 - $44,850 Inc. Sanctions Regulations, 2008 31 C.F.R. part 560 Bupa Florida UK - Narcotics Trafficking Mach 2008 - $128,704 Sanctions Regulations, March 2011 31 C.F.R. part 536; - Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598; - Cuban Assets Control Regulations, 31 C.F.R. part 515
Zulutrade, Inc. US - Iranian Transactions and Several years, $200,000 Sanctions Regulations, starting from 31 C.F.R. part 560; 2009 - Sudanese Sanctions Regulations (SSR), 31 C.F.R. part 538; Executive Order 13582 (E.O. 13582) of August 17, 2011, “Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria“
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Citigroup Inc. US -Iranian Transactions April 2009 - $217,841 and Sanctions November 2009 Regulations, 31 C.F.R. part 560; -Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. part 544; - Foreign Narcotics Kingpin Sanctions Regulations, 31 C.F.R. part 598; - Global Terrorism Sanctions Regulations, 31 C.F.R. part 594 Branch Banking & US - Sudanese Sanctions June 2011 $19,125 Trust Co. Regulations, 31 C.F.R. part 538 Epsilon Electronics US - Iranian Transactions and August 2008 - $4,073,000 Inc. Sanctions Regulations May 2012 (the “ITSR”), 31 C.F.R. part 560 Procesadora Puerto Rico - Narcotics Trafficking October 2009 - $27,000 Campofresco, Inc Sanctions Regulations, July 2010 31 C.P.R. part 536 Bank of America, US - Foreign Narcotics September $16,562,700 N.A. Kingpin Sanctions 2005 - March Regulations, 31 C.F.R. 2009 part 598; - Narcotics Trafficking Sanctions Regulations, 31 C.F.R. part 536; - Reporting, Procedures and Penalties Regulations, 31 C.F.R. part 501 Tofasco of America, US - Weapons of Mass April 2009 $21,375 Inc. Destruction Proliferators Sanctions Regulations BNP Paribas France - Sudanese Sanctions July 2005 – $963,619,900 Regulations, 31 C.F.R. November 2012 part 538; - Iranian Transactions and Sanctions Regulations 31 C.F.R. part 560;
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- Cuban Assets Control Regulations, 31 C.F.R. part 515; - Burmese Sanctions Regulations , 31 C.F.R. part 537. Red Bull North US -Cuban Assets Control June 2009 $89,775 America, Inc Regulations, 31. C.F.R. part 515 Network Hardware US - Sudanese Sanctions April 2008 - $64,758 Resale LLC Regulations, 31 C.F.R. January 2011 part 538; - Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 Fokker Services Netherlands - Iranian Transactions and November $50,922,208 B.V. Sanctions Regulations, 2005 - 31 C.F.R. part 560; September - Sudanese Sanctions 2010 Regulations, 31 C.F.R. part 538 American US - Cuban Assets Control January 2006 - $279,038 International Group, Regulations, 31 C.F.R. March 2009 Inc. part 515 Decolar.com, Inc. Argentina - Cuban Assets Control March 2009 - $2,809,800 Regulations. 31 C.F.R. March 2012 part 515 CWT B.V. Netherlands - Cuban Assets Control August 2006- $5,990,490 Regulations, 31 C.F.R. November 2012 part 515 Sea Tel Inc. US - Iranian Transactions and November $85,113 Sanctions Regulations 2007, and February 2009 GAC Bunker Fuels US - Iranian Transactions and November 2008 $157,500 (USA) LLC Sanctions Regulations, 31 C.F.R. part 560 Ubiquiti Networks, US - Iranian Transactions and March 2008 - $504,225 Inc. Sanctions Regulations February 2010 Joint-Stock Russia - Executive Order 13382 January 2008, $9,492,525 Commercial Bank of June 28, 2005 (“E.O. to July 2009 “Bank of Moscow” 13382”); - the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. part 544
63
Clearstream Luxembourg - Iranian Transactions and December 2007 $151,902,000 Banking, S.A. Sanctions Regulations - (“ITSR”), 31 C.F.R. part June 2008 560
2015
Barracuda US - Iranian Transactions and August 2009 to $38,930 Networks, Inc., with Sanctions Regulations, May 2012 its UK subsidiary 31 C.F.R. part 560; involved - Sudanese Sanctions Regulations, 31 C.F.R. part 538; - Syrian Sanctions Regulations, 31 C.F.R. part 542 Banco do Brasil, Brazil - Iranian Transactions and October 2010 - $139,500 S.A., with its NY Sanctions Regulations, February 2011 Branch involved 31 C.F.R. part 560 Gil Tours Travel, Inc US - Cuban Assets Control October 2009 - $43,875 Regulations, 31 C.F.R. August 2010 part 515 Crédit Agricole France - Sudanese Sanctions August 2003 – $329,593,585 Corporate and Regulations, 31 C.F.R. October 2008 Investment Bank, part 538; with its Swiss - Cuban Assets Control affiliates involved Regulations, 31 C.F.R. part 515; - Burmese Sanctions Regulations, 31 C.F.R. part 537; - Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560 UBS AG Switzerland - Global Terrorism January 2008 to $1,700,100 Sanctions Regulations, January 2013 31 C.F.R. part 594 Navigators US - Foreign Assets Control May 2008 - $271,815 Insurance Company Regulations, 31 C.F.R. April 2011 part 500; - Executive Order 13466 of June 26, 2008; - “Continuing Certain Restrictions With Respect to North Korea
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and North Korean Nationals” (“E.O. 13466”); - the North Korea Sanctions Regulations, 31 C.F.R. part 510 (the NKSR); - Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560; - Sudanese Sanctions Regulations, 31 C.F.R. part 538; - Cuban Assets Control Regulations, 31 C.F.R. part 515. Production Products, US - Weapons of Mass December 2009 $78,750 Inc. Destruction Proliferators - Sanctions Regulations, August 2010 31 C.F.R. part 544 Blue Robin, Inc. US - Iranian Transactions and January 2009 – $82,260 Sanctions Regulations, July 2010 31 C.F.R. part 560 Great Plains US - Executive Order 13382 April 2009 - $214,000 Stainless Co. of June 28, 2005 July 4, 2009 "Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters" (E.0. 13382); - Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. part 544 John Bean US - Executive Order 13382 April 2009 – $391,950 Technologies of June 28, 2005, July 2009 Corporation “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters” (E.O. 13382); - Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. part 544
65
National Bank of Pakistan - Global Terrorism June 2013 - $28,800 Pakistan, NY Branch Sanctions Regulations, January 2014 involved 31 C.F.R. part 594 First Data US - Foreign Narcotics February 2011 $23,336 Resources, LLC Kingpin Sanctions and June 2011 Regulations PayPal, Inc. US - Weapons of Mass several years up $7,658,300 Destruction Proliferators to and including Sanctions Regulations, 2013 31 C.F.R. part 544; - Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560; - Cuban Assets Control Regulations, 31 C.F.R. part 515; - Global Terrorism Sanctions Regulations, 31 C.F.R. part 594; - Sudanese Sanctions Regulations, 31 C.F.R. part 538 Life For Relief and US - Iraqi Sanctions September $780,000 Development Regulations, 31 C.F.R. 2002 – part 575; March 2003
Commerzbank AG Germany - Iranian Transactions and Several years, $258,660,796 Sanctions Regulations, up to and 31 C.F.R. part 560; including - Sudanese Sanctions January 2010 Regulations, 31 C.F.R. part 538; - Executive Order 13382 of June 28, 2005, “Blocking Property of Weapons of Mass Destruction Proliferators and Their Supporters” (E.O. 13382); - Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. part 544; - Burmese Sanctions Regulations, 31 C.F.R. part 537;
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- Cuban Assets Control Regulations, 31 C.F.R. part 515
2016
National Oilwell US -Cuban Assets Control 2002 - 2009 $5,976,028 Varco, Inc. Regulations, 31 C.F.R. part 515; - Iranian Transactions and Sanctions Regulations, 31 C.F.R. part 560; - Sudanese Sanctions Regulations, 31 C.F.R. part 538 PanAmerican Seed US -Iranian Transactions and May 2009 - $4,320,000 Company Sanctions Regulations, 31 March 2012 C.F.R. part 560 World Class US -Iranian Transactions and April 2008 and $43,200 Technology Sanctions Regulations (ITSR), July 2010 Corporation 31 C.F.R. part 560 Alcon Laboratories, US, with - Iranian Transactions and August 2008 - $7,617,150 Inc., Alcon Swiss Sanctions Regulations, 31 December 2011 Pharmaceuticals affiliates C.F.R. part 5601; Ltd., and Alcon involved - Sudanese Sanctions Management, SA Regulations, 31 C.F.R. part 538
HyperBranch US -Iranian Transactions and April 2011 – $107,691.30 Medical Sanctions Regulations, 31 May 2011 Technology, Inc. C.F.R. part 560 Halliburton Atlantic US -Cuban Assets Control February 2011 - $304,706 Limited; Halliburton Regulations, 31 C.F.R. part 515 April 2011 Overseas Limited CGG Services S.A., France -Cuban Assets Control September $614,250 with its US and Regulations, 31 C.F.R. part 515 2010 - Venezuelan March 2011 affiliates involved Barclays Bank Plc Japan UK -Zimbabwe Sanctions July 2008 - $2,485,890 Regulations, 31 C.F.R. part 541 September 2013 WATG Holdings, US - Cuban Assets Control October 2009 - $140,400 Inc., with its UK Regulations, 31 May 2010 subsidiary involved C.F.R. part 515
2017
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Zhongxing China -Iranian Transactions and January 2010 - $100,871,266 Telecommunications Sanctions Regulations, 31 March 2016 Equipment C.F.R. part 560 Corporation, with its overseas affiliates involved United Medical US - Iranian Transactions and December $515,400 Instruments Inc. Sanctions Regulations, 31 2007-April C.F.R. part 560 2009 Toronto- Canada - Cuban Assets Control August 2007 - $516,105 Dominion Bank Regulations, 31 C.F.R. part 515; April 2011 - Iranian Transactions Sanctions Regulations, 31 C.F.R. part 560 Aban Offshore India -Iranian Transactions and June 2008 $17,500 Limited, with Sanctions Regulations, 31 its Singapore C.F.R. part 560- subsidiary involved
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Annex 2
Survey for sanctions compliance professionals
N.B. the results are provided in the form they were received with minor formatting adjustments
Q1 - Your current function
# Answer % Count
1 Internal Legal / Compliance Counsel 35.00% 7
2 Internal Trade/Export Control Counsel 10.00% 2
3 External Advisor 35.00% 7
4 Other (please, specify) 20.00% 4
Total 100% 20
Other (please, specify)
External Advisor, Teacher and Interim Ethics & Compliance Officer
Director
Compliance officer
Compliance Officer and Legal Counsel
69
Q2 - Field of the company's activity
# Answer % Count
1 Sales of goods (please, specify type of goods) 31.58% 6
2 Provision of services (please, specify type of services) 57.89% 11
3 Other (please, specify) 10.53% 2
Total 100% 19
Sales of goods (please, specify type of goods): machinery investigative solutions
Electronics
Digital goods - mobile payment and e-commerce
Machinery construction products
70
Provision of services (please, specify type of services): financial
Integrity due diligence consulting financial services
Educational services and advice
CONSULTANT RISK CONSULTING support and advice regarding business ethics, codes of conduct and related compliance
Information
Sanctions and export control compliance
Trade Finance
Banking software and related services
Other (please, specify): multitude
Business Consultant in the field of Governance, Risk and Compliance
Q3 - Scope of the company's operational activity
71
# Answer % Count
1 Europe 10.00% 2
2 Wordwide 80.00% 16
3 Other (please, specify) 10.00% 2
Total 100% 20
Other (please, specify):
United States of America Switzerland but of course providing of international payments
Q 4- Country of the headquaters' location
# Answer % Count
1 please, specify 100.00% 20
Total 100% 20
EU
Germany
UK
France
USA
Rotterdam
FRANCE
Breda, The Netherlands
US
Netherlands
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US
Netherlands
Amsterdam
Netherlands
Jordan
London and Tokyo
Switzerland
Finland
USA
France
Q5 - Does your company perform trade/ financial sanctions compliance checks of clients and partners?
Q6 - *To be answered by in -house counsels* Does your company have an international trade/financial sanctions compliance program?
73
# Answer % Count
1 Yes 85.71% 12
2 No 0.00% 0
3 Other (please, specify) 14.29% 2
Total 100% 14
Other (please, specify):
not in house consel We support companies that trade internationally to comply with international trade/financial sanctions.
Q7 - *To be answered by external consultants*What percentage of your clients - multi- national companies have an international trade/financial sanctions compliance program?
74
# Answer % Count
1 33.33% 3
2 25%-50% 0.00% 0
3 50%-75% 11.11% 1
4 >75% 55.56% 5
Total 100% 9 Q8 - *To be answered by in -house counsels* What function at your company is responsible for international trade/financial sanctions compliance?
# Answer % Count
1 Internal legal/compliance function 56.25% 9
2 Internal trade/export controls officer 6.25% 1
3 External consultants 0.00% 0
4 Other (please, specify) 37.50% 6
Total 100% 16
Other (please, specify) internal legal and external consultants not in hous ecounsel
We provide that service to others.
75
Anti money laundering department internal in combination with external counsel
Q9 - What databases for trade/ financial sanctions compliance checks do you use?
76
# Answer % Count
1 official web-pages of administrative bodies where sanctions lists are published 5.56% 1 combined databases with automatic search tools offered by a reputable provider (e.g. 2 16.67% 3 Thomson Reuters, Lexis Nexis, etc.) 3 both 50.00% 9
4 none of these - the company uses external advisors 0.00% 0
5 other (please, specify) 27.78% 5
Total 100% 18 other (please, specify):
Options 1 & 2 plus in-depth investigations based on our local sources as part of external assistance i am a vendor
Orbis (Bureau van Dijk), http://www.bscn.nl/en/sanctions-consulting/sanctions-list-countries
Worldcheck with different automated lists cannot specify
Q10 - Does your company fully rely on check results received from automatic search databases?
77
# Answer % Count
1 yes 35.29% 6
2 no, we double-check the results manually, using various sources 41.18% 7
3 other (please, specify) 23.53% 4
Total 100% 17 Q11 - *To be answered by in -house counsels* In what way does your company store the results of conducted sanctions compliance checks?
# Answer % Count
1 paper files 7.14% 1
2 electronic files 64.29% 9
3 both 14.29% 2
4 other (please, specify) 14.29% 2
5 the company does not store the results 0.00% 0
Total 100% 14
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Q12 - *To be answered by external consultants* In what way do you recommend your clients to store the results of conducted sanctions compliance checks?
# Answer % Count
1 paper files 0.00% 0
2 electronic files 62.50% 5
3 both 25.00% 2
4 other (please, specify) 12.50% 1
Total 100% 8 other (please, specify)
In such a way as is usual for the client, preferably (also) electronically.
Q13 - How would you estimate the time spent on trade/financial sanctions checks as the percentage of the total time required for due diligence procedure?
79
# Answer % Count
1 0-25% 30.00% 6
2 25-50% 45.00% 9
3 50-75% 15.00% 3
4 >75% 10.00% 2 Total 100% 20 Q14 - What legal instruments does your company use in order to hedge the trade/financial sanctions - related risks?
Other (please, specify) Letters from the counterparties, using banks subject to sectoral sanctions Letters from end -users of goods/services Letters from the counterparties, confirming their compliance with applicable trade/financial sanctions… Sanctions compliance disclaimers in invoices or similar financial documents Sanctions compliance disclaimers in contracts
0 5 10 15
# Answer % Count
1 Sanctions compliance disclaimers in contracts 52.63% 10
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2 Sanctions compliance disclaimers in invoices or similar financial documents 0.00% 0 Letters from the counterparties, confirming their compliance with applicable 3 0.00% 0 trade/financial sanctions regimes Letters from end -users of goods/services, confirming that usage of the 4 0.00% 0 goods/services will be compliant to applicable trade/financial sanctions regimes Letters from the counterparties, using banks subject to sectoral sanctions (e.g. SSI List), confirming that these banks are used only for purposes, compliant with 5 0.00% 0 applicable trade/financial sanctions regimes (e.g. excluding long-term financing, etc.) 8 Other (please, specify) 47.37% 9
Total 100% 19
Other (please, specify):
- a combination; - not applicable to our business; - disclaimers, contracts with suppliers and other third parties; - multitude of methods; - clauses in agreements, letters from counterparties confirming compliance and End Use Statements; - we help our clients to mitigate the trade/financial sanctions related risks by clauses in various positions (contracts, general conditions, questionnaires, etc); - all of the above mentioned dependent from the specific situation; - a combination of all of the above.
Q15 - What do you consider to be the disadvantages of trade/financial sanctions check process as an element of Know-Your-Customer procedure (multiple choice possible)?
81
# Answer % Count
1 Time-consuming 45.00% 9
2 Costly in terms of expenses (subscription to databases, external advisors, etc.) 40.00% 8 Absence of clear unified criteria,according to which global businesses can 3 60.00% 12 conduct their checks 4 other (please, specify) 20.00% 4
Total 100% 20
Q16 - Please, specify three characteristics of an effective sanctions compliance program for a multi-national company that you consider to be the most important ones.
Please, specify three characteristics of an effective sanctions compliance...
quality due diligence, effective monitoring and oversight, prompt reporting
clear,with regular updates, includes trainings for employees
Rational allocation of resources,good training,independence of the compliance function
multi-stage, regular updates, clear communication to employees
the use of multiple vendors data to create a proper due diligence check
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This varies a lot depending on the type of company. One can think for example about ensuring that you screen all business partners, including all e.g. subcontractors of your subcontractors and clients of your distributor; screening UBO's of your business partners. If you are a service provider e.g. in financial services or logistics, you should also check that your client is not violating export controls. Other sanction regimes may apply to you than to your client. continuous (online) ethics training, Q&A's, ethics hotline scalable, staying current with laws, training
Subject to change, flexible, stive for 100% control but never expect it. Employee awareness, screening and due diligence expertise, understand and capturing company organisation Clearly written (readable for all!), practical (translation of the policy in workable actions), clear escalation path (risk identification, when high or extreme, escalate to specialists in the company, supported by external experts (e.g. ourselves). due diligence, reviewing, screening, monitoring, record keeping - Clear Sanctions and Export Controls Policy (communicated with relevant authorities and business partners) and adopted (+training) by management and employees. Utalize automation where possible for risk assessments (+workflow), testing, reporting, screening and issue management. Use legal instruments to hedge the trade/financial sanctions - related risks Experience, resources, management support
Compliance Culture - Risk Assessment/Due Diligence - Communication & Training
Reliable, tiny amount of false positives, instant processing
Clear, systematic, balanced
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List of references
Articles, online publications and research papers:
1. Article of Deloitte team “How to Perform Due Diligence on International Business Partners” dd. July 10, 2013, accessed at http://deloitte.wsj.com/riskandcompliance/2013/07/10/how-to- perform-due-diligence-on-international-business-partners/, on 05.05.2017.
2. Know Your Customer: Quick Reference Guide issued by PWC in January, 2016, accessed at https://www.pwc.com/gx/en/financial-services/publications/assets/pwc-anti-money-laundering- 2016.pdf, on 04.06.2017.
3. Article of KPMG team “Third Party Due Diligence” available at https://home.kpmg.com/ie/en/home/services/advisory/forensic/third-party-due-diligence.html, accessed 30.04.2017.
4. Article of Forensic team of KPMG in Central and Eastern Europe “Managing Third Party Intermediaries: Getting ahead of the curve”, available at https://assets.kpmg.com/content/dam/kpmg/pdf/2013/06/managing-third-party-intermediaries- getting-ahead-of-the-curve.pdf, accessed on 04.06.2017.
5. Article of LexisNexis team “9 Steps to Effective Third-Party Due Diligence”, available at https://www.lexisnexis.com/en-us/products/lexis-diligence/ctr/9-steps-to-effective-third-party- due-diligence, accessed on 04.06.2017.
6. Margaret P. Doxey, International Sanctions in Contemporary Perspective, 2d edition, Palgrave Macmillan UK (1996).
7. Barry E. Carter, International Economic Sanctions: Improving the Haphazard U.S. Legal Regime, 75 Cal. L. Rev. 1159 (1987).
8. Economic Sanctions, Barry E Carter, last update in April 2011, Oxford Public International Law, http://opil.ouplaw.com/view/10.1093/law:epil/9780199231690/law-9780199231690- e1521#law-9780199231690-e1521-p-6, accessed 28.04.2017.
9. International Economic Law by Lowenfeld, Andreas F. (2002), Part VII The International Monetary System, Chapter 21 International Monetary Law and Private Activity.
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10.Hufbauer, Gary Clyde, Jeffrey J. Schott and Kimberly Ann Elliott, Economic Sanctions Reconsidered: History and Current Policy. Washington, DC: Institute for International Economics, 1990 (second edition).
11. Cross-border overview: sanctions enforcement, Peter Burrell, Rita D Mitchell, Abra Edwards and Paul Feldberg, dd. 22 July 2015 , available at http://globalinvestigationsreview.com/insight/the-european-middle-eastern-and-african- investigations-review-2015/1024329/cross-border-overview-sanctions-enforcement, accessed 29.04.2017.
12. Extraterritoriality: Issues of Overbreadth and the Chilling Effect in the Cases of Cuba and Iran, Harvard International Law Journal Online / Vol. 57, accessed 01.05.2017 at: http://www.harvardilj.org/wp content/uploads/January-2016_Vol-57_Gordon.pdf.
13. Gary Samore: The Iran Nuclear Deal. A Definitive Guide, Belfer Center for Science and International Affairs, Harvard Kennedy School, August 2015, the electronic version is available at http://www.belfercenter.org/sites/default/files/legacy/files/IranDealDefinitiveGuide.pdf?webSyn cID=481969e1-d6e1-01d6-9107-7657215a1003&sessionGUID=9e1b2808-6ac0-b0b9-565e- d7b6411031c5, accessed on 04.06.2017.
14. Ronald I. Meltzer and David M. Horn “REASSESSING YOUR RISK PROFILE FOR OFAC SANCTIONS”, the Review of Banking&Financial Services Vol. 29 No. 12 December 2013, accessed at https://wilmerhale.com/uploadedFiles/WilmerHale_Shared_Content/Files/PDFs/Meltzer-Horn- RBFS-Final.pdf on 03.06.2017.
15. Gerard Kreijen, Export Controls Enforcement by the Dutch Court | Part 1: The Case of the Logistics Provider dd. 2 June 2017, World Trade Controls Blog, accessed at http://www.worldtradecontrols.com/export-controls-enforcement-by-the-dutch-court-part-1-the- case-of-the-logistics-provider/ on 03.06.2017.
16. Francesco Giumelli, ‘How EU sanctions work: A new narrative’, Chaillot Papers, European Union Institute for Security Services (No. 129, May 2013).
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17. Why Your Company Needs a Foreign Policy” by John Chipman from the September 2016 issue of Harvard Business Review, accessed at https://hbr.org/2016/09/why-your-company-needs- a-foreign-policy on 20.05.2017;
18. The Crimea Crisis. An International Law Perspective by Christian Marxsen, pp. 389-391, accessed at official page of Max Planck Institute for Comparative Public Law and International Law http://www.mpil.de/files/pdf4/Marxsen_2014_-_The_crimea_crisis_ _an_international_law_perspective.pdf on 20.05.2017.
Laws, regulations, official documents and guidelines at web-pages of public authorities
1. Major requirements of the US Bank Secrecy Act of 1970 at the official page of the US internal Revenue Service at https://www.irs.gov/businesses/small-businesses-self-employed/bank- secrecy-act, accessed on 04.06.2017.
2. Official text of the USA Patriot Act (PUBLIC LAW 107–56—OCT. 26, 2001) available at https://www.gpo.gov/fdsys/pkg/BILLS-107hr3162enr/pdf/BILLS-107hr3162enr.pdf, accessed on 04.06.2017.
3. https://www.gov.uk/guidance/sanctions-embargoes-and-restrictions, accessed 29.04.2017; https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx, accessed 30.04.2017; Francesco Giumelli, ‘How EU sanctions work: A new narrative’, Chaillot Papers, European Union Institute for Security Services (No. 129, May 2013), pp. 23-24.
4. Regulation (EC) No 428/2009, http://eur- lex.europa.eu/legalcontent/EN/TXT/?qid=1489490204085&uri=CELEX:02009R0428-20161116, accessed 30.04.2017
5. Official summary of the EU sanctions policy dd. 03.08.2016, available at https://eeas.europa.eu/headquarters/headquarters-homepage_en/423/Sanctions%20policy, accessed 28.04.2017
6. Summary on EU sanctions, issued by the European Council, available at http://www.consilium.europa.eu/en/policies/sanctions/different-types/, accessed on 28.04.2017
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7. Official source of The Office of Foreign Assets Control ("OFAC") of the US Department of the Treasury.https://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of- Foreign-Assets-Control.aspx
8. The United Nations Charter, available at http://www.un.org/en/sections/un-charter/chapter- vii/index.html, accessed 29.04.2017.
9. European Communities Act 1972 (UK), available at http://www.legislation.gov.uk/ukpga/1972/68/section/2, accessed 29.04.2017
10. A consolidated list of UK sanctions available at https://www.gov.uk/government/publications/financial-sanctions-consolidated-list-of-targets, accessed 30.04.2017
11. The US complete list of export controls restrictions available at https://www.bis.doc.gov/index.php/regulations/export-administration-regulations-ear, accessed 01.05.2017;
12. The International Traffic in Arms Regulations list of restrictions available at https://www.pmddtc.state.gov/regulations_laws/itar.html, accessed 01.05.2017;
13. OFAC SDN list available at https://www.treasury.gov/ofac/downloads/sdnlist.pdf, accessed 01.05.2017
14. The US nuclear export control restrictions available at: https://www.nrc.gov/, accessed 01.05.2017
15. Information on restrictions related to the US national safety and security available athttps://www.energy.gov/public-services/national-security-safety, accessed 01.05.2017
16. Official guidelines of U.S. Department of Commerce, Bureau of Industry and Security: “Actual Investigations of Export Control and Antiboycott Violations”, January 2017 Edition, available at https://www.bis.doc.gov/index.php/forms-documents/enforcement/1005-don-t-let-this-happen- to-you-1/file, accessed on 06.05.2017.
17. Official web-page of the United Nations Security Council: http://www.un.org/en/sc/2231/, accessed on 12.05.2017
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18. Joint Comprehensive Plan of Action dd.14 July 2015 available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/2015/544.
19. Resolution 2231 (2015), adopted by the Security Council at its 7488th meeting, on 20 July 2015 available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2231(2015)
20. Official full text of the General License H is available at: https://www.treasury.gov/resource- center/sanctions/Programs/Documents/iran_glh.pdf
21. Official updated information on OFAC sanctions program is available at https://www.treasury.gov/resource-center/sanctions/Programs/Pages/iran.aspx
22. Executive Order 13660—Blocking Property of Certain Persons Contributing to the Situation in Ukraine, accessed at https://www.treasury.gov/resource- center/sanctions/Programs/Documents/ukraine_eo.pdf on 12.05.2017
23.Official OFAC summary of Ukraine/Russia-related sanctions program (the latest update on 16.06.2016), accessed on 12.05.2017 at the link: https://www.treasury.gov/resource center/sanctions/Programs/Documents/ukraine.pdf;
24. Executive orders of the US President - E.O. 13661 dd. 16.03.2014, E.O. 13662 dd.20.03.2014, E.O. 13685 dd.19.12.2014, accessed on 12.05.2017 at the following links: https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo2.pdf; https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo3.pdf; https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo4.pdf
25. Federal Constitutional Law of the Russian Federation of 21st March, 2014 No. 6-ФКЗ “On Admission of the Republic of Crimea into the Russian Federation and Creation of New Constituent Entities in the Composition of the Russian Federation – the Republic of Crimea and the City of Federal Significance Sevastopol’” (Collection of Laws of the Russian Federation, 2014, No. 12, Art. 1201
26. The US President’s Executive Order 13664 available at https://www.federalregister.gov/documents/2014/04/07/2014-07895/blocking-property-of- certain-persons-with-respect-to-south-sudan.
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27. Official summary of OFAC sanctions program on South Sudan, last update of January 6, 2015, accessed at https://www.treasury.gov/resource- center/sanctions/Programs/Documents/southsudan.pdf, on 20.05.2017
28. 31 CFR Part 558 - SOUTH SUDAN SANCTIONS REGULATIONS, available at https://www.ecfr.gov/cgi-bin/text- idx?SID=9f8ca7a7d8b017acb5aaf52b502718f6&node=pt31.3.558&rgn=div5, accessed on 20.05.2017
29. Official summary of OFAC sanctions program on Syria, last update of August 2, 2013, accessed at https://www.treasury.gov/resource-center/sanctions/Programs/Documents/syria.pdf on 21.05.2017
30. EU Restrictive measures (sanctions) in force, available at https://eeas.europa.eu/sites/eeas/files/restrictive_measures-2017-01-17-clean.pdf, accessed 23.03.2017
31. UN Security Council Resolution S/RES/1929 (2010) available at the United Nations Organization Website at the link http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1929(2010), accessed on 20.05.2017;
32. UN Security Council Resolution S/RES/1803 (2008) available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1803(2008), accessed on 20.05.2017;
33. UN Security Council Resolution S/RES/1747 (2007) available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1747(2007), accessed on 20.05.2017;
34. UN Security Council Resolution S/RES/1737 (2006) available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/1737(2006), accessed on 20.05.2017;
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35. UN Security Council Resolution S/RES/2231 (2015) available at http://www.un.org/en/ga/search/view_doc.asp?symbol=S/RES/2231(2015), accessed on 20.05.2017.
36. Summary of the EU restrictive measures against Iran, provided on the official web-site of
European Council, available at http://www.consilium.europa.eu/en/policies/sanctions/iran/, accessed on 20.05.2017.
37. Information Note of Council of the European Union on EU sanctions to be lifted under the Joint Comprehensive Plan of Action (JCPOA) dd. 23.01.2016, accessed on 23.05.2017 at the official web-page of the European Union External Action Service http://eeas.europa.eu/archives/docs/top_stories/pdf/iran_implementation/information_note_eu_sa nctions_jcpoa_en.pdf.
38. Official summary of Russia-related sanctions published at the web-page of the Council of the European Union, accessed at http://www.consilium.europa.eu/en/policies/sanctions/ukraine- crisis/ on 26.05.2017.
39. Full list of products is specified in Common Military List of the European Union (2015/C 129/01), published in Volume 58 of Official Journal of the European Union edition of 21 April 2015.The electronic version accessed at http://eur-lex.europa.eu/legal- content/EN/TXT/HTML/?uri=OJ:C:2015:129:FULL&from=EN#C_2015129EN.01000101.doc on 26.05.2017.
40. Full list of products is specified in Commission Delegated Regulation (EU) dd. 12.10.2015 (C(2015) 6823), electronic version available at http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153894.pdf, accessed on 26.05.2017.
41. COUNCIL DECISION (CFSP) 2015/740 of 7 May 2015 concerning restrictive measures in view of the situation in South Sudan and repealing Decision 2014/449/CFSP, published in Official Journal of the European Union, edition of 08.05.2015. Electronic version available at http://eur- lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015D0740, accessed on 26.05.2017;
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42. COUNCIL REGULATION (EU) 2015/735 of 7 May 2015 concerning restrictive measures in respect of the situation in South Sudan, and repealing Regulation (EU) No 748/2014, accessed at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015R0735 on 26.05.2017.
43. COUNCIL DECISION 2013/255/CFSP of 31 May 2013 concerning restrictive measures against Syria, published in Official Journal of the European Union of 01.06.2013, pp.14-45, electronic version available at http://eur- lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2013:147:0014:0045:EN:PDF
44. Official guidance of the US Department of the Treasury on assessing transactions in “Revised Guidance on entities owned by Persons whose property and interests in property are blocked” dd. 13.08.2014, available at http://www.treasury.gov/resource- center/sanctions/Documents/licensing_guidance.pdf, accessed 03.06.2017.
45. Economic Sanctions Enforcement Guidelines (Final Rule), (Department of Treasury), 74 Fed. Reg. 57593 (Nov. 9, 2009), accessed at https://www.gpo.gov/fdsys/pkg/FR-2009-11-09/pdf/E9- 26754.pdf on 03.06.2017.
OFAC enforcement notices
1. OFAC civil penalties and enforcement information for 2017 available at https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/civpen-index2.aspx, accessed on 05.06.2017.
2. OFAC civil penalties and enforcement information for 2016 available at https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/2016.aspx;
3. OFAC civil penalties and enforcement information for 2015 available at https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/2015.aspx, accessed on 05.06.2017.
4. OFAC civil penalties and enforcement information for 2014 available at https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/2014.aspx, accessed on 05.06.2017.
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5. OFAC civil penalties and enforcement information for 2013 available at https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/2013.aspx, accessed on 05.06.2017.
6. OFAC civil penalties and enforcement information for 2012 available at https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/2012.aspx, accessed on 05.06.2017.
7. HSBC Group case, OFAC Enforcement Information for December 11, 2012, published at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/121211_HSBC_posting.pdf, accessed on 05.06.2017.
8. Standard Chartered Bank case, OFAC Enforcement Information for December 12, 2012 at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/12102012_scb.pdf,accessed on 05.06.2017.
9. ING Bank N.V. case, available at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/06122012_ing.pdf, accessed on 05.06.2017.
10. Weatherford International Ltd. case, available at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/20131126_weatherford.pdf accessed on 05.06.2017.
11. BNP Paribas case, OFAC Enforcement information for June 30, 2014, available at https://www.treasury.gov/resource-center/sanctions/CivPen/Documents/20140630_bnp.pdf accessed on 05.06.2017;
12. Zhongxing Telecommunications Equipment Corporation case, Enforcement Information for March 7, 2017 at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/20170307_zte.pdf, accessed on 05.06.2017;
13. Clearstream Banking, S.A. case, OFAC Enforcement Information for January 23, 2014, accessed at https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/20140123_clearstream.pdf on 28.05.2017
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