Blank Rome Reprint MR July08.Qxd

The World’s Largest Circulation Marine Industry Publication • The Information Authority for the Global Marine Industry since 1939 MARITIME September 2009 REPORTER AND ENGINEERING NEWS www.marinelink.com Reprinted from the SEPTEMBER 2009 Edition of Maritime Reporter & Engineering News U.S. Economic Sanctions & Export Controls By Barbara D. Linney, partner, trolled by the Government of Iran to include the need for awareness of the U.S. sanctions Blank Rome LLP several additional entities, including the against Iran even among non-U.S. members of Last year’s update on economic sanctions National Iranian Oil Company. the maritime and offshore industries, particu- and export controls appeared in the April 2008 The September 10, 2008 designation of larly if they are engaging in transactions issue. Since that time, the United States has IRISL and its affiliates also added 123 IRISL payable in U.S. currency. taken several significant steps to tighten the vessels to the SDN List. U.S. banks and their existing restrictions on trade with Iran, and overseas branches are now required to reject Sudan these measures have had a considerable impact transfers referencing such blocked vessels and On May 28, 2009, OFAC published the both on the global maritime industry generally must notify OFAC that funds have been Darfur Sanctions Regulations (the “DSR”). and its ability to support offshore development returned to the remitter due to the possible The DSR supplement the existing Sudanese in Iran in particular. Our 2009 update will involvement of an SDN in the underlying Sanctions Regulations (“SSR”), which limit focus on these developments, the current sta- transaction or if the name of a designated ves- trade with the Government of Sudan (but not tus of the Cuba and Sudan embargos, and sel appears in shipping documents presented the regional government of Southern Sudan) recent multi-agency enforcement actions and within most geographic regions of that led to the imposition of $9.4 million in Sudan (except for certain exempt geo- penalties against a single company for vio- graphic regions – i.e., Southern Sudan, lations of U.S. economic sanctions and Southern Kordofan/Nuba Mountains State, export controls in connection with unau- Blue Nile State, Abyei, Darfur, and the thorized trade with Iran, Sudan and Syria. Mayo, El Salaam, Wad El Bashir, and Soba official camps for internally displaced per- Iran sons near Khartoum). The DSR imple- Last year we noted the designation of ment Executive Order 13400 of April 26, Iran’s Bank Mellat, Bank Melli, and Bank 2006 (“Blocking Property of Persons in Saderat (in addition to previously desig- Connection with the Conflict in Sudan’s nated Bank Sepah and Bank Sepah Darfur Region”), and authorize blocking of International) and their respective branch- property and interests in property of per- es and designated subsidiaries (including sons posing a threat to the Darfur peace Persia International Bank and Arian Bank) process or stability in the region by a vari- as subject to blocking of property and ety of means, including provision of sup- interests under Executive Orders blocking port for military activities to the property of proliferators of weapons of mass under a letter of credit. OFAC guidance cau- Government of Sudan. The DSR significantly destruction and persons who commit, threaten, tions that U.S. freight forwarders and shippers expands OFAC’s ability to name additional or support terrorism, and prohibiting transac- may not charter, book cargo on or otherwise SDNs operating in the region, and thereby fur- tions with such persons. Since last year’s deal with the designated vessels. ther increase the complexity of OFAC compli- update, the Office of Foreign Assets Control Additional measures designed to tighten the ance for companies operating in exempt areas (“OFAC”) of the U.S. Department of the Iranian embargo were implemented on of Sudan or otherwise engaged in activities not Treasury has stepped up its efforts to block November 10, 2008, when OFAC amended the prohibited in the SSR. property of Iranian supporters of proliferation, Iranian Transactions Regulations (the “ITR”) adding numerous additional offices of the to substantially reduce the scope of the long- Guidance on Scope of Blocking Orders and blocked banks and over fifty (50) Iranian enti- standing general license under which U.S. Regulations ties and individuals to its list of Specially banks were permitted to process certain U.S. These and other instances of the continuing Designated Nationals and Blocked Persons dollar transactions for foreign banks that ben- trend towards use of blocking orders to impose (the “SDN List”) as designated supporters of efited persons in Iran. Under the amended trade restrictions highlighted the practical dif- proliferation. Nearly half of the entities added terms of the general license, such transactions ficulties presented by guidance issued by were attributable to the September 10, 2008 may be processed only if the underlying trans- OFAC in early 2008. The 2008 guidance stat- designation of the Islamic Republic of Iran action has been authorized by an OFAC gener- ed that OFAC’s blocking of property and prop- Shipping Lines (“IRISL”) and its affiliates. al or specific license or is exempt from or not erty interests of an individual or entity extends OFAC also expanded the list of Iranian entities prohibited by the ITR. to all interests of such persons in any entity in designated on the SDN List as owned or con- These developments have greatly increased which such person owns, directly or indirectly, Reprinted from the SEPTEMBER 2009 Edition of Maritime Reporter & Engineering News a 50% or greater interest, regardless of ments, and the Export Administration whether the entity is itself designated as a Regulations (“EAR”) administered by BIS. 2 It is important to note that even in these blocked entity. On February 24, 2009, OFAC Charges settled included 98 alleged viola- areas, U.S. persons may not engage in activi- clarified that a U.S. intermediary bank pro- tions of the EAR, several violations of the ties that directly or indirectly involve Sudan’s cessing transactions for non-account parties SSR, over 300 violations of the ITR, and more petroleum or petro-chemical industries, or who are not SDNs need not conduct further than 30,000 violations of OFAC’s recordkeep- transactions with the Government of Sudan. research regarding the ownership of the non- ing requirements. In addition to payment of account parties unless the bank knows or has the substantial civil penalty, DHL must under- reason to know the entity’s ownership or other take an audit (conducted by an unaffiliated information demonstrating the blocked status third party) of its exports and re-exports to of the entity’s property. However, if a bank Iran, Syria and Sudan since March 31, 2007 handling a wire transfer currently has informa- that are subject to the EAR and/or OFAC reg- tion in its possession leading the bank to know ulations. The resolution in this case serves as or have reason to know that a particular indi- a sobering reminder to those involved in inter- vidual or entity involved with or referenced in national shipping that responsibility for com- the wire transfer is subject to blocking, then pliance with U.S. economic sanctions and OFAC will hold the bank responsible if it does export controls extends to the transportation not take appropriate steps to ensure that the sector as well as to their customers who are the wire transfer is blocked. In such cases, OFAC principal parties to the export transactions. will consider the totality of the circumstances surrounding the bank’s processing of the trans- About the Author action in determining what, if any, enforce- Barbara Linney is a partner in the ment action to take against the bank. In addi- Washington D.C. office of Blank Rome LLP, tion, OFAC will continue to expect U.S. banks practicing in the area of international trade and and other businesses to conduct due diligence transactions. She regularly advises both U.S. on the ownership structure of their own direct and foreign clients regarding U.S. export con- customers to confirm that those customers are trols and international economic sanctions, not persons whose property and interests in defense trade and security regulations, anti- property are blocked. corruption and anti-boycott regulations, and other international trade and business issues, Cuba including foreign investment review, mergers, Although the outcome of last year’s acquisitions and financings. She represents Presidential elections was accompanied by a clients before various federal agencies, includ- general increase in optimism about the outlook ing the Departments of Commerce, Defense, for improved U.S. relations with Cuba, to date State, and Treasury (Office of Foreign Assets the new Administration has implemented only Control and Committee on Foreign Investment minor changes to the Cuban embargo. On in the United States). Ms. Linney, who holds a March 11, 2009 OFAC issued a general license masters degree in international law from loosening, but not entirely removing, the Georgetown University, also serves as General restrictions on family visits. In all other Counsel to Women in Federal Law respects, the embargo remains in force. There Enforcement and the Washington D.C. chapter are, however, four bills pending before various of Women in International Trade, of which she Congressional committees which propose is a past President. either lifting the embargo entirely or removing *This article reflects developments through all restrictions on travel to Cuba. August 11, 2009, the date of submission for publication. The views expressed herein are Recent Enforcement Actions those of the author, do not necessarily reflect Recent enforcement actions by OFAC and the opinion of the firm or other members of the the Department of Commerce’s Bureau of firm, and should not be construed as legal Industry and Security (“BIS’) culminated on advice or opinion or a substitute for the advice August 6, 2009 in a $9.4 million fine against of counsel.

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