WorldECR India joins the Wassenaar Arrangement 2

US declares North Korea a state sponsor 4 of terrorism

A ‘Catch 22’ for Canadian corporations 8 trading with Cuba: FEMA

EU introduces legislation imposing targeted 9 sanctions against Venezuela

US export controls and economic sanctions 13 enforcement – seven trends to watch in 2018

Export control legislation and enforcement in 17 Scandinavia

The Arms Trade Treaty: is it making a difference? 26

SPECIAL REPORT: THE GLOBAL AGENDA

ISSUE 65. DECEMBER 2017 www.WorldECR.com News and alerts News and alerts

Wassenaar Arrangement finally admits India as a member

Multilateral export control technologies that India regime, the Wassenaar undertook earlier this year. Arrangement has agreed to Writing in WorldECR this admit a new member, India, summer, Sanjay Notani, bringing the total number of export control expert at members to 42. The Indian law firm Economic decision to admit India was Laws Practice (‘ELP’), noted: made at the Arrangement’s ‘Export control laws in India plenary session held in have been significantly on 6 and 7 overhauled by the December. Directorate General of The Wassenaar Foreign Trade (‘DGFT’) with Arrangement was establish - effect from 1 May 2017. The ed in 1996 to promote amendments, among other transparency and respons - things, seek to revise the ibility in the transfer of The overhaul of the SCOMET list and an improvement in relations with Special Chemical, are the background for India’s admission to the Arrangement. conventional arms and Organisms, Materials, dual-use goods and grounds for the realignment countries having suffered a Equipment and Technologies technologies. Particip ating of India in the export control dispute over the alleged category (‘SCOMET) relating states seek to ensure that policy framework’, including shooting of Indian fisher men to dual-use goods and such transfers do not eligibility for certain by Italian marines and the technologies. These changes contribute to the licensing exemptions. subsequent arrest of the have been brought about as development or enhance - ‘India's entry into the latter. However, Italian part of India’s continuing ment of military capabilities Arrangement would be Prme Minister Paolo obligations as a member of that undermine regional mutually beneficial and Gentiloni’s visit to India in the Missile Technology and international security. further contribute to October led to a thaw. Control Regime and as an ‘India's membership international security and Admission to the adherent to the Nuclear [of the Wassenaar non-proliferation object ives,’ Wassenaar Arrangement is Suppliers Group Guidelines. Arrangement] is expected to Kumar added. also being seen as reward for It also seeks to align with the facilitate high technology India joined the Missile a major overhaul of the guidelines and control lists of tie-ups with Indian industry Technology Control Regime SCOMET (Special Chemical, the Wassenaar Arrangement and ease of access to high- in June 2016, but is not Organisms, Materials, and the Group, two tech items for our defence currently a member of the Equipment and multilateral export control and space programs,’ said or Technologies) List relating to regimes that India wishes to Raveesh Kumar, a the Australia Group. In dual-use goods and join.’ spokesperson for the Indian recent years, India’s efforts Ministry of External Affairs. to join the Wassenaar For details of India’s SCOMET overhaul, see: India anticipates that Arangement had been https://www.worldecr.com/archives/indias-dgft-overhauls-scomet/ membership will ‘create the blocked by Italy, the two

                          Free with this issue: The Global Agenda         We are delighted to include with this issue uncertainty and against a background of a unique special report on the current more and increasingly varied sanctions, state of play of all things international export control reforms and Brexit, readers sanctions and export controls. will find The Global Agenda a useful The Global Agenda brings together the resource in preparing for tomorrow’s insight and experience of senior challenges. export/trade compliance professionals We hope that you enjoy the report. If  and leading sanctions and export control you would like any friends and contacts to   lawyers and advisers from both sides of receive a copy, please ask them to email the Atlantic, to create a valuable review of [email protected] and we’ll be  the issues likely to drive trade compliance happy to send one through.     in 2018 and the lessons to be learned We hope that you’ve enjoyed our     from the headline-grabbing developments coverage in 2017 and we wish you all a  of 2017. At a time of considerable safe and prosperous 2018.

2 WorldECR www.worldecr.com News and alerts News and alerts

Charities face compliance struggle despite OFSI sanctions guidance

In October in the UK, HM sanctions law, or provide Treasury’s Office of transaction-specific practical Financial Sanctions advice. Implementation (‘OFSI’) ‘Charities still have to use issued simplified guidance their own judgement and it for charities and NGOs on is tricky for them, for complying with financial example, to know when they sanctions, after receiving have done enough due many requests for diligence (in OFSI’s eyes) clarification from smaller before proceeding to deal charities. with the entity in a ‘The production of NGO- sanctioned target country’, specific guidance is likely to The bank accounts of more than 200 charities in the UK are thought says Matthews. be in response to NGOs to have been closed as a result of economic sanctions. The consequences of experiencing problems in serious financial sanctions delivering money or aid to closed, according to the OFSI licence and how to breaches can be significant. target countries as a result London-based Charity apply. Since April 2017, OFSI has of third parties, especially Finance Group, as well as ‘The guidance is very the power under the Policing banks, acting on their own long delays or the rejection largely a re-statement of the and Crime Act 2017 to concerns about sanctions of money transfers. law, focused on charities,’ impose penalties of up to compliance,’ says Roger The OFSI guidance says Matthews. ‘Although it £1 million or 50% of the Matthews from the London provides an overview of is useful to have the breach, whichever is higher. office of law firm Dechert. financial sanctions and clarification – for example, ‘We realise that charities Banks have focused on explains how to use the of when certain types of often operate in challenging ‘de-risking’ since US OFSI lists; how financial payment model are environments,’ says Rena regulators levied hefty fines sanctions restrictions such considered lawful or Lalgie, head of OFSI. ‘This on Standard Chartered, as asset freezes work; unlawful – it does not go practical guidance is an HSBC Holdings and BNP ownership and control; as much further in term of important step in our efforts Paribas for non-compliance well as covering reporting clarifying uncertainties.’ to raise awareness of with sanctions. This has requirements and compli - It is not OFSI’s policy to financial sanctions and help resulted in the bank ance and enforce ment. It give advance clearance on charities and NGOs better accounts of between 200 also outlines what activity whether a proposed understand their and 300 charities being may be permitted under an operation will breach responsibilities.’

House of Representatives calls for Burma sanctions

The US House of together with Democrat Joe Representatives has passed a Crowley of New York. resolution (423-3) A bipartisan sanctions condemning the ‘ethnic bill, spearheaded by the cleansing of the Rohingya’ Republican Senate Armed and calling for an end to Services Committee attacks against the Muslim chairman John McCain and minority in Myanmar. Ben Cardin, lead Democrat The vote on 6 December on the Senate Foreign Affairs More than 600,000 Rohingya are estimated to have fled Rakhine paves the way for possible state into Bangladesh in recent months. Committee, has already been sanctions against Myanmar. introduced into the Senate, ‘This is a moral issue and Rohingya have fled Rakhine with the international on 2 November. a national security issue,’ state into Bangladesh in community to resolve the The proposed sanctions said House Foreign Affairs recent months, following crisis while also calling on would withdraw US financial Chairman Ed Royce in the aggression from the Secretary Tillerson to impose assistance from the debate. ‘No one is secure Myanmar military, which sanctions on those Myanmar military, impose when extremism and has created a humanitarian responsible for human rights travel bans on Myanmar instability is growing in this crisis. abuses,’ said Republican military officials and re- part of the world.’ ‘This resolution calls on Steve Chabot of Ohio, who is impose a ban on jade and More than 600,000 Burmese authorities to work co-sponsor of the resolution, rubies from Myanmar.

3 WorldECR www.worldecr.com News and alerts News and alerts

US declares North Korea a state sponsor of terrorism

The US has upped the pressure to isolate it from pressure on North Korea outside sources of trade and (‘DPRK’) by officially revenue while exposing its designating it as a state evasive tactics,’ said sponsor of terrorism, and Treasury Secretary Steven imposing further third- Mnuchin. ‘These designat - country sanctions. ions include companies that President Trump have engaged in trade with announced the move during North Korea cumulatively a public meeting with his worth hundreds of millions cabinet at the White House of dollars.’ on 20 November. DPRK The escalation of US joins Sudan, Syria and Iran North Korea joins Sudan, Syria and Iran on list of countries which sanctions follows tough new as countries identified by have ‘repeatedly provided support for acts of international terrorism’. UN sanctions approved in the US Department of State September, following as those that have The Department of the companies that export a Pyongyang’s sixth nuclear ‘repeatedly provided Treasury’s Office of Foreign total of around $650m test and the launch of a support for acts of Assets Control (‘OFAC’) has worth of goods to DPRK, series of ballistic missiles, international terrorism’. also sanctioned one and import around $100m two of which flew over DPRK was removed individual, 13 entities and in goods, including . The UN measures from the list by President 20 North Korean vessels. computers, iron, zinc ore ban the export of textiles and George W Bush in 2008. A The sanctions target those and other minerals, place a cap on oil imports state sponsor of terrorism is with ‘long-standing according to OFAC. into the country, as well as subject to various commercial ties’ to DPRK. ‘As North Korea prohibiting commercial joint restrictions, including the They also target the continues to threaten ventures with North Korean curtailment of US foreign transportation networks international peace and entities and the future hire of assistance; a ban on defence that aid the generation of security, we are steadfast in North Korean workers, in an exports and other sales; revenue for Pyongyang, our determination to attempt to cut off revenue to controls over exports of revenue which is used to maximise economic the regime. dual-use items, as well as fund the country’s nuclear other sanctions measures and ballistics weapons For a list of those designated see: that penalise individuals programmes. https://www.treasury.gov/resource-center/sanctions/OFAC- and countries who trade Those sanctioned include Enforcement/Pages/20171121.aspx with state sponsors. three Chinese trading

US approves banking restrictions against DPRK

The Otto Warmbier Banking Mnuchin, leeway to impose requiring the President to Committee’s approval came Restrictions Involving North sanctions on foreign notify Congress before ahead of President Trump’s Korea Act has been organisations that facilitate suspending or terminating visit to Beijing, where he unanimously approved by a and support the North the sanctions. This is similar urged the Chinese president US Senate committee. Korean regime, including to the Sanctions Bill, Xi Jinping to ‘act faster and The Committee on those that ‘knowingly’ signed into law in August, more effectively’ to Banking, Housing and import coal, iron, lead, along with sanctions extinguish North Korea’s Urban Affairs voted for the textiles or seafood products measures against DPRK and nuclear ‘menace’. A Bill, which designates from DPRK; facilitate a Iran, in the Countering companion Bill has been foreign financial institutions significant transfer of funds America’s Adversaries introduced into the House of in and elsewhere or property from DPRK; and Through Sanctions Act Representatives. The Bill which help North Korea those involved in the (‘CAATSA’). The Senate now moves to the US Senate. (‘DPRK’) to evade US and transfer of workers from UN sanctions. DPRK to other countries to Existing US sanctions on generate funds for The text of the Bill can be found here: DPRK are stepped up by Pyongyang. https://www.banking.senate.gov/public/_cache/files/70dcbe1f-41ec- 4e74-9187-a51de2557531/ allowing the Secretary of the The Bill also strengthens 46F54982E5C0933F0D209D9D3D5FE9BB.otto-warmbier-brink-act.pdf Treasury, currently Steven Congressional oversight by

4 WorldECR www.worldecr.com News and alerts News and alerts

AMEX reaches settlement with OFAC over credit card use in Cuba

American Express and procedures in place to factors were that AMEX (‘AMEX’) has agreed a pay- match transactions against voluntarily self-disclosed ment of $204,277 to the US OFAC’s Specially Desig- the apparent violations to Department of the Trea- nated Nationals and OFAC; it took ‘swift and re- sury’s Office of Foreign As- Blocked Persons (‘SDN’) medial action’ and it has not sets Control (‘OFAC’) to List, these failed to prevent received a penalty notice in settle apparent violations of the credit cards being used the five years leading up to the Cuban Asset Control contrary to US regulations. the first transactions.In a Regulations (‘CACR’) by its In total, 1,818 transactions client briefing on the action, indirect subsidiary BCC totaling $583,649.43 for institutions to process law firm Hunton & Corporate SA (‘BCCC’), a over 100 distinct corporate transactions involving Cuba Williams warned:‘OFAC Belgian-based credit card customers were processed and for the cards to be used will continue to bring ac- issuer (17 November).Be- in or involving Cuba.At the for certain travel to Cuba by tions against US persons tween 2009 and 2014, time, the processing of such US nationals and third- who apparently violated the credit cards issued by BCCC transactions by ‘any corpo- country nationals.AMEX Cuban Assets Control Reg- to its corporate customers ration, partnership, associ- has agreed to pay $204,277 ulations, even if such ac- were used to make pur- ation, or other organization, to settle potential civil lia- tions have subsequently chases in Cuba – or were wherever organized or bility. The total base penalty become generally licensed used in a transaction in- doing business, that is was $291,825. Mitigating or otherwise permissible.’ volving Cuba – at a time owned or controlled by’ a when such use was prohib- US person was prohibited OFAC’s enforcement notice can be found at: by the CACR. In January ited by US economic sanc- https://www.treasury.gov/resource-center/sanctions/CivPen/Docu- tions. Although the 2015, OFAC revised the ments/20171117_BCCC.pdf company had both policies CACR to allow US financial

5 WorldECR www.worldecr.com News and alerts News and alerts

New: Dual-Use Export Controls in International Transit and Transhipment

Out in late December, Dual- Brazil by Alessandra Machado Use Export Controls in and Marcelle Silbiger; International Transit and by Wendy Wagner; Chile by Transhipment is the new Gaston Medina; Colombia by book from the publishers of César Camilo Cermeño; Mexico WorldECR. by Horacio A. López-Portillo; This book updates a report Peru by Julio Guadalupe; USA WorldECR originally published by Tamer Soliman, Jing Zhang in 2012 on the transit and and Bernd Janzen transhipment regimes of countries in the Americas, l Europe and the EU: Europe, the Middle East and Albania by Besnik Duraj and Asia. At the suggestion of some Bojana Hajdini; by of our readers, we are re- Fabienne Vermeeren and publishing in hard copy, and Charlotte Van Haute; Cyprus expanding its coverage to by Elena Christodoulou; include a much larger number by Anders Hedetoft of jurisdictions. and Anna Martine Stubben; Writing in the Foreword, by Diederik Cops and WorldECR editor, Tom Blass, Nils Duquet; by Dr. notes notes the importance of a Bärbel Sachs; by solid understanding of the often Michalis Kosmopoulos and different regulations as they Mariliza Kyparissi; Italy by pertain to the types of carriage: Silvia Salmaso; by ‘“Transit” and “transhipment” Jikke Biermasz and Petra are frequently used in close Chao; by Hugo proximity to each other, but Munthe-Kaas and Pernille they shouldn’t be used Engstrøm Skaug; by interchangeably. Goods are in Krzysztof Korwin-Kossakowski transit when they cross land and Kuba Ruiz; by borders but without being moved from their original Tiago Marreiros Moreira and Catarina Belim; conveyance. They are transhipped when they’re moved by Adrian Roseti and Claudia Hutina; from one form of conveyance to another: a pallet of widgets by Diego Pol and Valeria Enrich; by Mattias originating in France is in transit as it travels through Hedwall; by Peter Henschel and Prof. Dr. Belgium on the back of a truck, but is transhipped on being Andreas Furrer; by Gleb Bialyi and Oleksandr unloaded from the truck in Hamburg and placed aboard a Maydanyk; by Rhys Williams ship bound for the . Modern freight journeys are complex. Each point in the journey potentially has l Asia and the Middle East: Australia by David implications for a cargo’s licensing, customs inspection, Howard and Alexandra Shearer; China by Bo Xie; and ultimately the success of the transaction.’ Egypt by Yulia V. Akinfiev; Hong Kong by George Tan In keeping with the remit of WorldECR, the emphasis of and Cecil Leong; India by Sanjay Notani and Rohit the book is on transit and transhipment laws as they apply Jain; Iran by Ali Pirmoradi and Zahra Darvish; Israel to dual-use goods. But clear demarcations are not by Gil Rosen; Japan by Tamotsu Aoi; Malaysia by recognised in all regimes. Cynthia Lian; Singapore by George Tan; Each chapter is written by an expert in export controls by Jaewon Lee; by S. Mustafa Durakoğlu; in his/her jurisdiction. Chapter authors detail the export United Arab Emirates by Ryan Cathie control regime/framework in their country, explaining how transit and transhipment are locally defined and controlled and how controlling regulations are enforced. Useful information on competent authorities, procedures, and penalties for breach is included in most country chapters How to order along with contact details for licensing authorities. Dual-Use Export Export Controls in International Transit Information on Free Trade Zones and Special Economic and Transhipment will be available from late December Zones is included for some countries. 2017 directly from WorldECR. Copies cost £85 (plus postage and packing). For further information and to Content order your copy, please email [email protected] with The chapters and contributing authors are: your order requirements. Discounts for bulk orders are available (email for details). l The Americas: by L. Augusto Vechio;

6 WorldECR www.worldecr.com News and alerts News and alerts

The majority of governments proliferation programs of and financial institutions are DPRK and Iran, as well as Tank Talk unclear about what FoP other countries.’ looks like and how to identify He concludes: ‘Many of News and research from the export control, it. The tool is rarely the cases described here non-proliferation and policy world exploited. The most demonstrate that FoP comprehensive study of FoP networks can be persistent, to date was published by the resilient and adaptable to Financial Action Task Force pressures imposed by Institute of International Strategic Studies: Hard (FATF) in 2008. This sanctions and other controls. BREXIT would hit UK foreign policy hard includes a list of 20 Identifying and disrupting Writing in Survival: Global EU in place, the UK would “indicators of possible FoP is potentially a key tool Politics and Strategy fall back on informal proliferation financing,” to combat WMD, but is most (published by the Institute information-gathering in including for example likely to be successful when of International Strategic Brussels and seeking transactions connected with governments and private Studies – ‘IISS’), Richard G. influence via member-state designated individuals or sector cooperate and Whitman argues that it capitals, which would likely entities or with countries of coordinate in sharing cannot be assumed that the require a greater investment proliferation concern. Since information. By illustrating UK and EU shared foreign of UK time and personnel.’ then, more information has what FoP currently looks like policy interests will be saved He adds: ‘The use of become available, this report actively facilitates from the broader disruption sanctions as a foreign-policy particularly related to the this goal.’ of BREXIT. instrument, to the extent Whitman points to the 13 that they are currently https://projectalpha.eu/wp-content/uploads/sites/21/2017/10/FoP-13- October-2017-Final.pdf October joint response to conducted through the EU, President Trump’s refusal to would face legal and recertify the JCPOA by EU operational challenges. The ECFR: Istanbul intrigue leaders May, Merkel and UK has been a leading player Macron as ‘a timely in defining and promoting In a piece for the European fines, rumored to be in the reminder of the shared the development of the EU’s Council on Foreign billions of dollars, triggering security interests of the EU’s sanctions regimes. UK Relations, ECFR fellow Asli an earthquake in Turkey’s member states and the UK,’ influence was significant in Aydıntaşbaş says that the fragile financial markets... but warns that in the event the sanctions imposed on ongoing saga around gold ‘It was possibly a big of a ‘hard’ BREXIT, ‘In Iran to counter its nuclear trader Reza Zarrab has mistake for Erdogan and the foreign policy, the UK would programme, and those in profound implications not Turkish government to leave the formal structures response to Russia’s annex- only for Turkey’s domestic defend Zarrab so publicly. of policymaking and lose ation of Crimea and the politics, but regional politics Instead of burying the 2013 direct access to information- destabilisation of Ukraine. A also. investigation entirely, sharing between EU loss of access to UK expertise Zarrab was arrested by Ankara should at least have member states. With no on sanctions regimes would US government agents in allowed a trial on corruption formal structures of foreign- impinge significantly on the 2016 in Florida and charged allegations. After all, Turkey policy consultation with the EU’s policymaking.’ with sanctions breaches. could have done what Iran Having cut a plea deal with did – find a scapegoat, start http://www.iiss.org/en/publications/survival/sections/2017-579b/sur- prosecutors, Zarrab is now a domestic proceedings about vival--global-politics-and-strategy-december-2017-january-2018-a19c/59- witness, testifying in a New corruption, and wash its 6-04-whitman-cm-fcb2 York courtroom in a US hands of the scheme. investigation into Iranian ‘But it’s too late for that Project Alpha: WMD proliferation and illicit finance sanctions busting by Turkish now. All that Ankara can do banks. On 1 December, he – and is doing – is try to A report published by Project proliferation (‘FoP’) typo - told the court that Turkish delegitimize the case, at Alpha of Kings College logies. President Recep Tayyip least in the eyes of the London (authored by Dr The report notes that Erdogan had personally Turkish public, as a foreign Jonathan Brewer) analyses ‘Disrupting the financing of intervened to help launder plot against Erdogan... 60 WMD proliferation proliferation (FoP) is the proceeds of Iranian oil ‘Internally, the Turkish finance case studies relating potentially a key tool to and gas sales which were in government is deliberating to North Korea, Iran, Syria combat state sponsored breach of US and UN what to do – whether to and India, with a view to WMD programs. However, sanctions. quietly accept the verdict helping identify financing of detecting FoP is difficult. Asli Aydıntaşbaş writes: while continuing the US- ‘Ankara’s fear is that a bashing for domestic damning verdict will result audience, or defy the court in the US Treasury slapping decision and refuse to pay Halkbank and several other the penalties levied against Turkish banks with hefty Turkish banks.’

www.ecfr.eu/article/commentary_the_zarrab_affair

7 WorldECR www.worldecr.com Bulletins Bulletins

CANADA

A ‘Catch 22’ for Canadian corporations trading with Cuba: FEMA By Heather Innes, Lexsage www.lexsage.com

It is legal under Canadian law for So, what does this mean for Often, contracts with US parties, be Canadian persons, including Canadian corporations carrying on business in they suppliers, purchasers, joint corporations, branches of US Canada? The FEMA United States venture partners or other persons, companies and subsidiaries of US Order: include similar provisions to protect companies to do business with Cuba. the US person from violations of US Canadian persons and Canadians 1. Requires a Canadian corporation law. While these provisions seem well outside Canada may sell goods and and its officers and directors to intentioned and consistent with a services to Cuba, with the exception of forthwith give notice to the Attorney corporate policy to comply with all goods covered by Canada’s export General of Canada of any directive, applicable laws, the very fact that you control and economic sanctions laws. instruction, intimation of policy or have agreed to ensure that you do not For example, there are restrictions other communication relating to the violate any of the US anti-Cuba laws, under Canadian laws relating to the United States anti-Cuba may be a notifiable event under the sale of US-origin goods to Cuba. extraterritorial measures (‘Policies FEMA United States Order. Because it is legal under Canadian law or Directives’) where such Policies So, what can you do? There is little to sell goods and services to Cuba and or Directives are received from a guidance and no case law to provide Canada is a sovereign country, the person who is in a position to direct direction and neither FEMA nor the sanctions under US anti-Cuba laws or influence the policies of the FEMA United States Order provides pose a dilemma under Canadian law. Canadian corporation in Canada; further clarification as to when an The interplay between the US anti- and action/omission taken for bona fide Cuba laws and Canadian law creates a 2. Prohibits any Canadian corporation, business purposes will constitute a ‘Catch 22’ situation for certain director, officer, manager or prohibited or notifiable action. Canadian organisations. employee in a position of authority However challenging, Canadian For example, Canada’s Foreign from acting or omitting to act for the corporations need to find ways to Extraterritorial Measures Act (‘FEMA’) purpose of complying with the comply with both sets of requirements. creates requirements and reporting Policies or Directives or any of the It is important that policies and obligations in the context of certain US anti-Cuba laws (including the contracts make clear that compliance international trading activities. FEMA US Cuban Assets Control efforts will be undertaken only to the is also known as Canada’s ‘blocking’ Regulations) to the extent that they extent permitted under and otherwise legislation as it was enacted in 1985 to operate or are likely to operate to in full compliance with all applicable block the extra-territorial application prevent, impede or reduce trade or Canadian laws. of foreign laws to Canadian business. commerce between Canada and Additionally, in-house counsel More specifically, FEMA was enacted Cuba. The action taken or omission should: to block the extra-territorial to act is prohibited even if application of United States anti-Cuba compliance is only one of its 1. Review corporate policies for laws to Canadian corporations. purposes. violating directives; Under FEMA, where Canada’s 2. Review and revise training Attorney General is of the opinion that Many organisations, particularly programmes to ensure that there another country’s laws or rulings (its those with a US parent, may be are no notifiable requirements/ measures) may adversely affect unaware of the FEMA United States directives and the training clearly Canadian interests in relation to Order requirements and prohibitions, identifies the FEMA obligations; international trade or commerce, unwittingly and in good faith 3. Review standard form contracts to he/she may issue an order prohibiting implementing North American, or ensure compliance with FEMA; and any person in Canada from complying perhaps global compliance 4. Ensure that your officers, directors, with those laws or rulings. Only one programmes that require full managers and employees in a such order has been issued, the order compliance with all applicable laws, position of authority or those who issued in respect of the United States including US export compliance laws. are in any manner involved in your anti-Cuba laws (the Foreign Does this sound familiar? export activities or your Extraterritorial Measures (United For organisations with roots or procurement process are aware of States) Order, 1992 – the ‘FEMA connections or activities in the US, it is the FEMA requirements and United States Order’). not unusual to see this type of policy. prohibitions and know who to call

8 WorldECR www.worldecr.com Bulletins Bulletins

when they have questions or requirements, seek the assistance of an ment for up to two years; and concerns. Those who may be external trade law specialist. Failure to ii. on conviction on indictment, a involved in mergers and comply with FEMA requirements and fine up to Can$150,000 and/or acquisitions or joint ventures also prohibitions carries penalties ranging imprisonment up to five years; and need to be fully aware of the FEMA from: (b) for corporations: obligations. i. on summary conviction, a fine up (a) for individuals: to Can$150,000; and If you aren’t sure if you are i. on summary conviction, a fine up ii. on conviction on indictment, a compliant with the FEMA to Can$15,000 and/or imprison- fine up to Can$1,500,000.

EUROPEAN UNION

EU introduces legislation imposing targeted sanctions against Venezuela By Baker McKenzie www.bakermckenzie.com

Following on from a meeting of the EU and peaceful negotiated solution. The equipment, technology or Foreign Affairs Council (‘FAC’) on 15 Legislation has two primary aspects: software. November, at which the FAC 2. A legal framework for designated unanimously agreed to impose 1. Extensive export restrictions party controls, comprising travel restrictive measures on Venezuela, the against the Venezuelan regime. bans and asset freezes, to be applied EU published Council Decision These consist of a tripartite to persons who are responsible for 2017/2074 and Council Regulation embargo on the following: (i) serious human rights violations; (EU) 2017/2063 (together, the (ii) the repression of civil society ‘Legislation’) on 16 November. The n Arms and related material of all and democratic opposition in Legislation prescribes targeted types as well as the financing of Venezuela; or (ii) actions, policies or sanctions against Venezuela, including military activities and provision of activities that otherwise undermine an arms embargo, with immediate related services, such as technical democracy or the rule of law. effect. assistance; The Legislation has been n Equipment which might be used The Legislation states that a list of formulated in response to the for internal repression as well as designated parties will be established continuing crisis in Venezuela and the financial assistance relating to and amended by the EU Council acting perceived deterioration of democracy, such equipment and provision of by unanimity upon a proposal by a the rule of law and human rights. In related services such as technical Member State or the EU High particular, the EU has expressed assistance; Representative for Foreign Affairs and concern over the opaque and irregular n Equipment, technology or Security Policy. election by which the Constituent software intended primarily for The Legislation will remain in force Assembly was elected, and reported use in telecommunications until 14 November 2018, and will be violations of human rights and monitoring or interception by the kept under review. The EU reserves the fundamental freedoms. The EU Venezuelan regime, as well as right to renew or amend the Legislation therefore views the Legislation as a financial or technical assistance to as appropriate if the EU Council deems justified tool to help foster a credible install, operate or update such that its objectives have not been met.

The WorldECR Archive at www.worldecr.com includes all past journal and website news PLUS every article that has ever appeared in WorldECR. If you would like to find out more about Archive Access, contact Mark Cusick, WorldECR’s publisher at [email protected]

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THE NETHERLANDS

Dutch transporting company fined EUR 50,000 for transiting military items to Russia By B&A Law, Amsterdam www.balaw.nl

On 23 November 2017, a Dutch court prohibited to transit or export military Russia exists, so no licence can be fined Dutch transporting company U- items to Russia. obtained at all. Freight Holland B.V. EUR 50,000 for The defence put forward several In a simultaneous case against the transiting military items to Russia. The arguments, mainly relating to the manager of the company, the manager director of the company was also classification of the goods and the fact was acquitted as he was unaware of the prosecuted, but was acquitted as he that the goods were ultimately not transit and e-mails related thereto had was unaware of the transactions. transited to Russia, as they were not reached him. On 17 March 2017, the Dutch stopped prior to the transit. The court, This case is one of many such cases company forwarded two defective however, rejected these arguments and in the past year. In fact, three other radar systems from the Malaysian held the company liable for violation of transporting companies, including military via the Netherlands to Russia the embargo. Interestingly, the court KLM, have been fined for violation of for repair. The freight was stopped at stated that no transit licence was similar clauses. The Dutch public Dutch customs because, under the available, whereas under the current prosecutor has become much more current European sanctions which embargo, a general prohibition of the active in enforcement of export contain an arms embargo, it is export or transit of military items to controls and sanctions regulations.

www.LearnExportCompliance.com

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10 WorldECR www.worldecr.com Good Practice Good Practice

How to control access to US products warehoused abroad

Here’s the dilemma: You’re working in the compliance function in a multinational company, so what kind of strategies/protocols do you need to have in place in order to make sure that the way that foreign subsidiaries use controlled products/technology in a way that is compliant? For example, how do you control access to US products warehoused at your subsidiary in China?

Timothy Lee Accenture

At Accenture, we control access to software products based on their export classification. First, we classify software products by performing rigorous classification assessments to then have them registered in our Export Compliance & Tracking Tool (‘ECATT’). In ECATT, we post where the software product may be exported/transferred (which includes access) FROM and TO as well as any applicable export authorisations, exceptions and record-keeping requirements. Access to software products may be provided after checking they have been pre-cleared in ECATT. All employees are responsible for confirming trade controls for software products using the tool. If the software product and FROM/TO country is not listed or requires an ensure employees adhere to the plan transferred from a non-US subsidiary export authorisation, employees must and remain in compliance with export to the end-user in accordance with the refrain from the activity and consult licence requirements and conditions. licence. Accenture’s trade compliance team. Access to the products is controlled In ECATT, controlled software by storing them in separate ‘caged’ products have specific information areas and only certain trained Jeff Odenwald relating to export authorisations, personnel are allowed access. Flowserve exceptions, record-keeping require - As regards technology, technology is ments, and that they may require trade generally segregated between compliance plans if involved in highly controlled and uncontrolled. The sites regulated industries (e.g., defence, control who has access to their nuclear) or certain countries/regions. technology. Gaining access to the In most cases where a trade controlled technology requires either a compliance plan is needed, a trade At our company, products are stocked licence or that that person is a national compliance steward is designated to only in countries that do not require a of a country that does not require a manage export/trade activities and licence. On rare occasions where we do licence. compliance with the plan including have them in a country that requires a If a non-US person is given access to applicable licence and regulatory licence, the end-user needs to be controlled technology due to having a requirements. When a specific export known. The only exception to this is licence in place, the person must be licence is obtained, cyclical internal where a licence for multiple end-users trained, follow licence conditions, and compliance reviews are conducted to is obtained so the product can be the facility technology control plan.

11 WorldECR www.worldecr.com Editorial Editorial

Happy (i.e., compliant) new year!

ne of the questions that I found out of Bad Country X to the extent you arguably, is as much about US myself asking as I and my can help it’? domestic politicking as it is about O colleagues conducted inter - Or do they invest the right resources finding effective responses to the views across the ‘three estates’ of in the right people to help them do as threats posed by the countries it export controls and sanctions – highlights. And there are fears in some industry practitioners, lawyers, It doesn’t take much to quarters that China’s new export government people – for the Global control reform is as much about giving Agenda Special Report this issue was: be non-compliant. the US a taste of its own medicine (its What does ‘good compliance’ mean? Brexit could potentially own deemed export rule, and entity It’s not such a ‘how many angels can list, for example) as it is about dance on the head of a pin’ kind of a create thousands of non- advancing the global non-proliferation question as it seems at first blush. compliant UK agenda. Clearly, it isn’t as straightforward as We each have our thoughts about trying to make sure you don’t break the companies overnight. what lies in store for next year, whether law. Because the compliance minefield personal, professional or political. is now so complex that such a facile much business as they can without (Jerusalem, Caracas, Pyongyang, interpretation doesn’t suit it. (And in falling foul of the law? Saana, Brussels – will all be generating any case, which law? This is a world It doesn’t take much to be non- headlines. Where else?) where all too frequently, keeping things compliant. Brexit could potentially For our part, we have only one clean with one government means create thousands of non-compliant UK compliance obligation to impose. Try stirring things up with another.) companies overnight if those to take a break from it all, and enjoy the So, does it demand that businesses businesses continue to distribute dual- holidays. identify the intention underlying the use products in the EU after the UK Thank you all for your support in law, and enshrine that as their leaves (if it ever does). 2017. We wish you all a happy and compliance principle? Or should they There’s no right answer. And in the prosperous new year. interpret any grey zones in the worlds where policy is made, there are Tom Blass, December 2017 legislation as a veiled injunction to ‘stay many different agendas. CAATSA, [email protected]

Customs Transportation International trade Tariff classification Origin and Duty Preference regimes Antidumping Technical compliance Dual-use items Encryption Raphaël Barazza Counterfeit Excise tax International sales contracts Avocat à la Cour Licences 33 rue Galilée, 75116 Paris, France Phone + 33 (0) 1 44 43 54 63 Representation before the French and European Courts www.customs-lawyer.fr

12 WorldECR www.worldecr.com Enforcement Enforcement

US export controls and economic sanctions enforcement – seven trends to watch in 2018

If 2017 was a busy – and possibly landmark – year for export control and sanctions enforcement, 2018 may prove even more remarkable. And so, as the Trump Administration consolidates its positions and policies, what trends can trade compliance professionals expect to characterise 2018? Tim O’Toole looks into his crystal ball and offers his predictions.

rying to predict US export headlines, a reader could come away Wilber Ross, personally announced the controls and economic sanctions believing that the previous most significant penalty ever for the re- T enforcement trends can be a administration had been ‘soft’ on Iran, export of US-origin goods to Iran, slippery business, especially when the but the new one is taking a harder line. $1.2 billion, in a criminal and civil leadership at US enforcement agencies This story line is a bit simplistic, action brought against Chinese is going through a period of significant however, because although the previous telecommunications company change. Nonetheless, based on what we Zhongxing Telecommunications have already seen from the new Equipment Corporation (‘ZTE’) and its As tension surrounding 1 administration, and what we have subsidiaries. The penalty was imposed consistently seen over the past few the JCPOA continues to after a joint investigation by the years from the US government’s export rise, it seems likely that Commerce Department’s Bureau of controls and economic sanctions Industry and Security (‘BIS’), the enforcement agencies, the following US regulators will, if Treasury Department’s Office of seven trends seem likely to dominate anything, intensify their Foreign Assets Control (‘OFAC’), and the export controls and sanctions the US Department of Justice (‘DOJ’). landscape for the foreseeable future. focus on Iran. The nature of the underlying conduct in the ZTE action is significant Trend One: Iran has been and administration did (along with the rest because, while US enforcement will likely remain the US of the world community) enter into the agencies had previously imposed such enforcement focus JCPOA, its enforcement of the Iran enormous penalties against foreign Recent headlines have highlighted the sanctions remained the highest priority financial institutions that utilised the new administration’s change in policy over at least the past five years. US financial system in the Iran trade, toward the Iran Nuclear Deal (officially That priority has remained steady they had never before imposed a known as the Joint Comprehensive into the new administration. In March similarly large penalty based on the sale Plan of Action or ‘JCPOA’). From those 2017, the new Commerce Secretary, by a foreign company of US-origin

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goods to Iran. The announcement pursuing in a criminal prosecution in ready to impose massive punishments potentially signalled a new era for US New York involving Turkish bankers for the re-export of US-origin goods to enforcement of the Iran embargo, Reza Zarrab and Mehmet Atilla who Iran. The ZTE enforcement action is by putting companies around the world on allegedly used the US banking system far the largest of its kind, and the fact notice – even after the JCPOA – of the to process Iranian transactions that that it was mostly led by BIS and DOJ serious risk posed by the resale of US- otherwise had no connection to the (not OFAC) suggests that the world origin goods to Iran. The ZTE business community now has to worry enforcement action also reaffirms a The OFAC more about three powerful US long-standing message from BIS, announcement in enforcers in this area, not just two. OFAC, and DOJ about the risks of OFAC’s penalty in June of 2017 6 affirmatively concealing transactions conjunction with the against AIG was also significant. with sanctioned jurisdictions from US AIG penalty signals that Though much smaller than the penalty enforcers. Such concealment, as it had against ZTE (‘only’ $150,000 USD), the in connection with previous sanctions OFAC will be closely OFAC announcement in conjunction against foreign financial institutions, monitoring the with the AIG penalty signals that OFAC factored heavily into the size and the will be closely monitoring the insurance scope of the ultimate remedy. insurance community’s community’s conduct with respect to The ZTE penalty was one of a host of conduct with respect to countries subject to US sanctions. recent enforcement actions taken by US OFAC specifically criticised AIG both regulators in connection with the US countries subject to US for entering into insurance contracts embargo on Iran. Over the Summer and sanctions. that did not exclude sanctioned into the Fall of 2017, US enforcers countries, and also for what OFAC 5 resolved a series of matters related to United States. The trial court has described as ‘defective’ exclusion the Iran sanctions, imposing penalties upheld such a theory. In the event clauses that did not sufficiently rule out against US insurer AIG for insuring convictions are obtained, it is likely providing insurance for shipments to Iran (and other) transactions in that that ruling will be scrutinised on sanctioned countries. This detailed violation of US embargoes, and for appeal. level of criticism suggests that OFAC is failing to scrutinise its policies to ensure Taken together, these enforcement closely monitoring the insurance that they excluded such insurance. actions make clear that the Iranian industry and will likely continue to OFAC also imposed a significant fine embargo will remain the top priority of focus on that industry more generally. against a company that shipped used US enforcers for the foreseeable future. cars through Iran on the way to Violations of the US sanctions against Trend Three: Ever-expansive 2 Afghanistan (American Export Lines) Iran remain the source of the most theories of US export controls and another against a Chinese oil and significant fines and many criminal and sanctions jurisdiction gas company (China Oilfield Services prosecutions. Indeed, as tension Another trend to watch in 2018 is the 3 Limited or ‘COSL’) that supplied US- surrounding the JCPOA continues to ever-expansive theories of US export origin goods to Iranian oil fields. OFAC rise, it seems likely that US regulators controls and sanctions jurisdiction. US also imposed several other penalties will, if anything, intensify their focus on enforcers already take a broad view of against US parent companies that had Iran. what conduct can give rise to US attempted to allow their subsidiaries to jurisdiction, applying US enforcement conduct lawful business in Iran, but had Trend Two: Targeted powers to all sales or resales of US- participated in that business enforcement actions against a origin goods, even when conducted nonetheless, through supervising or growing number of industries outside the US by entirely non-US otherwise facilitating Iran transactions. Another trend to watch is the nature of parties. Likewise, the US takes the Finally, in perhaps the most the industries being targeted by US position that any involvement of the US significant post-ZTE enforcement enforcers. For several years, OFAC, BIS, financial system in a transaction, even action, US regulators imposed a and DOJ have focused largely on the if it involves nothing more than dollar $12 million civil penalty against two world financial community and the oil clearing in New York or replacement in Singapore companies, CSE Global/CSE and gas industry. This focus remained the US of dollars that were, in the Transtel, which used US dollar true in 2017, when penalties were again aggregate used in Iran transactions, accounts in Singapore to process imposed against several oil and gas triggers both civil and criminal transactions arising out of otherwise companies, mostly in connection with jurisdiction over the entire transaction lawful telecommunications equipment drilling operations in Iran that involved – including all foreign parties to the 4 sales to Iran. As we discuss more fully US-origin goods, and against financial transaction – in the United States. below, this enforcement action took a institutions that utilised the US These expansive theories of jurisdiction very broad jurisdictional theory financial system to process transactions has been subject to criticism outside the applying US sanctions to Iran-related with embargoed countries. United States, but two additional sales that did not involve US-origin But the real enforcement story of enforcement actions in 2017, suggest goods, were lawful in the country of 2017 was the expansion of significant that US regulators’ views of their origin, and the Iran transactions penalties into new industries. The ZTE extraterritorial powers are growing, not themselves were not processed through penalty in March was the most obvious shrinking. the US financial system. example of this trend, as it sent a First, in an action involving a Such a jurisdictional theory is even powerful message to the worldwide Taiwanese company, B Whale broader than the one the US is community that US enforcers stand Corporation, OFAC found a violation of

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US law for a sale of Iranian oil in the based on its conduct in the Ukraine. In economy, it will be interesting to watch Middle East to a non-US ship owned by the past few months, the US Congress whether US regulators target the B Whale because that ship had become has codified and potentially expanded Chinese financial community with 7 a ‘US person’ under US law. How did those sanctions. But because the North Korean secondary sanction in this occur? It occurred because the sanctions are so new, we have not had 2018. Taiwanese company was before US many signals about the vigour with Indeed, already this year, the US bankruptcy courts at the time the sale which US enforcers will enforce them. Treasury has taken action against at occurred, and OFAC took the position Over the summer of 2017, OFAC least one Chinese bank based on its that as a result, the ship was legally imposed its first penalty under the activities in North Korea. In June 2017, ‘within the US’ at the time of sanctions, providing its first signal that Treasury's Financial Crimes transaction. It remains to be seen US enforcers are going to move Enforcement Network (‘FinCen’) whether this US person theory is aggressively to enforce US sanctions proposed to prohibit US financial unique to the facts of that case or against Russia. Look for the trend to institutions from opening or whether it will be expanded. continue in 2018. maintaining US correspondent Second, as noted briefly in a accounts for Bank of Dandong, after previous section, OFAC imposed a Trend Five: Growing US having concluded that the Bank was $12 million penalty imposed against enforcement actions involving acting ‘as a conduit for illicit North two Singapore companies, CSE Global China Korean financial activity’ and was a Limited and CSE TransTel Pte. Ltd., for China will also likely be a growing ‘foreign financial institution of primary using US dollars in connection with subject for US sanctions enforcement in money laundering concern’. More sales of non-US telecommunications 2018. During previous years, recently, on 2 November 2017, FinCen 8 equipment in Iran. enforcement actions involving China published a final rule on this same From OFAC’s report on the have been relatively common with the subject that prohibits US financial enforcement action, it does not appear most focus on the embargo of military institutions from opening or that any US person was involved in the sales to China and unlicensed sales of maintaining US correspondent dollar clearing of particular Iran US-origin goods to Chinese entities on accounts for Bank of Dandong, and also transactions. Singapore banks conduct the US Commerce Department’s Entity requires US financial institutions to dollar clearing outside the United List. Nonetheless, enforcement of US States and often have sufficient dollar sanctions and export controls in The massive ZTE reserves to do so. However, after dollar connection with shipments to China transactions have cleared, these banks had not been on the scale of enforcement action put replenish their reserves at the end of the enforcement actions related to the Iran the spotlight on re- day by obtaining more dollars from the embargo or even the Syrian or Sudan US system. The transactions at issue in embargoes. exports of US origin CSE appeared to fit this pattern; they But two things happened in 2017 to goods from China to were not cleared in the US, but the bring China more into play. First, the Singapore bank did utilise the US massive ZTE enforcement action put countries subject to US financial system to replace its dollar the spotlight on re-exports of US origin embargo, in particular reserves (expended by processing any goods from China to countries subject dollar transaction) at the end of the day. to US embargo, in particular Iran. Iran. Even though no US person could be Expect that to continue in 2018, and said to have ‘serviced’ any particular potentially grow into a focus on sales apply special due diligence measures to Iran transaction, OFAC took the from China in violation of the Russian their foreign correspondent accounts to position that CSE’s use of dollar sanctions. guard against such accounts being used accounts in Singapore banks Second, in September 2017, the US to process transactions involving Bank improperly ‘caused’ a US person to dramatically expanded sanctions of Dandong. According to US violate sanctions by providing a against North Korea by significantly regulators, ‘restricting Bank of 9 financial service to Iran. In doing so, broadening secondary sanctions. Dandong from accessing the US OFAC relied on its position that CSE’s Secondary sanctions target non-US financial system – directly or indirectly use of dollars for these transactions persons for conduct outside the United – helps protect the US financial system violated CSE’s agreements with its States that is generally outside of the from the illicit finance risks posed by Singapore banks; it also suggests that enforcement jurisdiction of US Bank of Dandong and serves as an the USD transfers intentionally omitted regulators. They are imposed through additional measure to prevent North references to Iran. These enforcement an order to the US financial system to Korea from accessing the US financial actions continue to expand the limits of avoid doing business with the target. As system.’ US enforcement jurisdiction. In 2018, the US Secretary of the Treasury stated expect US authorities to push these in September, foreign companies Trend Six: Continued focus on limits even further. targeted by secondary sanctions now name and address screening must choose between access to the US practices Trend Four: Enforcement of US financial system and doing business in Another trend to watch in 2018 sanctions against Russia North Korea. Since China, and pertains to US enforcement focus on expands particularly the Chinese financial electronic name and address screening. In 2014, the US and the EU imposed system, reportedly has significant Over the past few years, OFAC has economic sanctions against Russia connections to the North Korean imposed significant penalties against

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companies in the financial industry that US parent, White Birch Paper. On the Links and notes have failed (in OFAC’s view) to surface, the penalised transactions 1 Press Release, Dep’t of Comm., Secretary of sufficiently screen transactions to appeared to involve only White Birch’s Commerce Wilbur L. Ross, Jr. Announces $1.19 Billion Penalty for Chinese Company’s Export ensure that individuals and entities on Canadian subsidiary, which sent over Violations to Iran and North Korea (7 March 2017): OFAC’s SDN list are not able to conduct half a million tons of Canadian-origin https://www.commerce.gov/news/press- any transactions. As a practical matter, paper to Sudan pursuant to contacts releases/2017/03/secretary-commerce-wilbur-l-ross -jr-announces-119-billion-penalty . however, there are limits to how far this between only the Canadian company 2 Enforcement Action for 17 August 2017: American denial of access can go. If an SDN and Sudanese customer. Had that been Export Lines Settles Potential Civil Liability for enters a fast-food restaurant and pays the entirety of the transaction, it would Apparent Violations of the Iranian Transactions and Sanctions Regulations, OFAC: for a meal with cash, the fast-food have been completely lawful. However, https://www.treasury.gov/resource-center/ company has theoretically violated US a penalty against the US parent was sanctions/CivPen/Documents/20170817_ael.pdf sanctions by making the sale, but such imposed after OFAC determined that 3 Enforcement Information for 24 August 2017: COSL small commercial sales had been personnel from the US parent were Singapore Ltd Settles Potential Civil Liability for Apparent Violations of the Iranian Transactions and viewed as unlikely targets of enforcers. involved in ‘discussing, arranging, and Sanctions Regulations, OFAC: Instead, it has been the expectation executing the export transactions to https://www.treasury.gov/resource-center/ that such penalties would be targeted Sudan…’ a violation of US sanctions sanctions/CivPen/Documents/20170824_cosl.pdf 11 against the US financial system, placing had occurred. There were other 4 Enforcement Information 27 July 2017: CSE Global Limited and CSE TransTel Pte. Ltd. Settle Potential the burden on the banking industry to features of the conduct that were in play Civil Liability for Apparent Violations of the generally deny access to persons and as well, especially the Canadian International Emergency Economic Powers Act and companies on OFAC’s lists. This reflects subsidiary’s alteration of financial the Iranian Transactions and Sanctions Regulations, OFAC: https://www.treasury.gov/resource- not only the challenges of policing small documents to prevent banks from center/sanctions/CivPen/Documents/20170727_tr transactions at the retail level, but also knowing the intended destination of the anstel.pdf . the considerable resources that paper. 5 Indictment, United States of Am. v. Zarrab, No. 1:15- cr-00867-RMB (S.D.N.Y. filed 15 December 2015). systematic screening of such A similar blurring of the line transactions requires. An electronic between US parent and foreign 6 Enforcement Information for 26 June 2017: American International Group, Inc. Settles Potential screening process requires companies subsidiary also occurred when OFAC Liability for Apparent Violations of Multiple Sanctions to purchase and monitor software imposed a $259,200 civil penalty Programs, OFAC: https://www.treasury.gov/resource- center/sanctions/CivPen/Documents/20170626_ai designed to identify SDNs, and it also against IPSA International Services, g.pdf requires a significant expenditure of whose Canadian and Dubai subsidiaries 7 Enforcement Information for 3 February 2017: OFAC human capital since ultimately obtained due diligence services in Iran Issues a Finding of Violation to B Whale Corporation, compliance personnel must review any but the US parent ‘facilitated the a Member of the TMT Group of Shipping Companies, for a Violation of the Iranian Transactions and ‘hit’ in order to determine whether it foreign subsidiaries’ engagement in Sanctions Regulations: constitutes an actual match to an entity such transactions because IPSA https://www.treasury.gov/resource-center/ on the SDN list. reviewed, approved, and initiated the sanctions/CivPen/Documents/20170203_bwc.pdf A recent OFAC enforcement action foreign subsidiaries’ payments to 8 Enforcement Information for 27 July 27: CSE Global 12 Limited and CSE TransTel Pte. Ltd. Settle Potential – against Richemont, the parent of the providers of Iranian-origin services.’ Civil Liability for Apparent Violations of the jeweller Cartier – suggests that these This trend reinforces the advice that International Emergency Economic Powers Act and compliance burdens may extend well is often provided to foreign the Iranian Transactions and Sanctions Regulations, https://www.treasury.gov/resource- beyond the financial industry. In late multinational companies seeking to do center/sanctions/CivPen/Documents/20170727_tr September 2017, OFAC fined lawful business in jurisdictions that are anstel.pdf Richemont $334,000 for sending four under US embargo. Such transactions 9 Press Release, Office of the Press Secretary, Press Briefing by Treasury Secretary Steven Mnuchin (21 shipments of jewellery to Shuen Wai may be legal on their face, but extreme September 2017), https://www.whitehouse.gov/the- Holding Limited in Hong Kong, which diligence is needed to ensure that they 10 press-office/2017/09/21/press-briefing-treasury-se was on OFAC’s SDN List. The do not run afoul of US law by including cretary-steven-mnuchin. imposition of sanctions for retail sales US persons (entities or individuals) or 10 Enforcement Information for 26 September 2017: Richemont North America, Inc., d.b.a. Cartier of this sort could become a new trend, the US financial system at some point (‘Richemont’), Settles Potential Civil Liability for and could force all retailers to begin in the chain. That risk is very hard to Apparent Violations of the Foreign Narcotics Kingpin some sort of monitoring programme manage, and will likely continue to be Sanctions Regulations, OFAC: https://www.treasury.gov/resource- even for relatively small retail sales. so going forward. center/sanctions/CivPen/Documents/20170926_ri chemont.pdf. Trend Seven: Enforcement 11 Enforcement Information for 5 October 2017: BD dangers posed by US persons, White Birch Investment LLC (‘White Birch USA’) Settles Potential Civil Liability for Apparent Violations even where the underlying of the Sudanese Sanctions Regulations, OFAC: transaction appears to have little Timothy P. O'Toole is a member https://www.treasury.gov/resource- to no US connection center/sanctions/CivPen/Documents/20171005_w of Miller Chevalier Chartered in hite_birch_investment.pdf. A final trend to watch in 2018 involves Washington, DC. He has 12 Enforcement Information for 10 August 2017: IPSA the enforcement dangers posed by US substantial experience in all International Services, Inc. Settles Potential Civil persons in multi-national transactions, Liability for Apparent Violations of the Iranian areas of white collar practice, his even where the underlying transaction Transactions and Sanctions Regulations, OFAC: main focus being on economic https://www.treasury.gov/resource- appears on the surface to have little or sanctions and export controls. center/sanctions/CivPen/Documents/20170810_ip no US connection. This was a lesson sa.pdf learned most recently in an [email protected] enforcement action brought against a

16 WorldECR www.worldecr.com Scandinavia Scandinavia

Export control legislation and enforcement in Scandinavia

The countries in Scandinavia are well known for their business-friendly environment and cooperative supervisory authorities, which have traditionally had a low level of enforcement against violations of export control regulation. However, recent trends underline that companies operating in the Nordic region should implement and follow proper procedures to mitigate the risk of non-compliance with relevant national and international export control legislation. This article provides an overview of the general national regimes and the ongoing trends in relation to export control in Denmark, Norway and Sweden.

DENMARK coverage and intense public debate. At body, the Financial Action Task Force the same time, several governmental (‘FATF’), for the government’s by Simon Fasterkjær investigations were initiated, including insufficient efforts in relation to the Kjeldsen, an interesting case before the Danish implementation and enforcement of Assistant Attorney, Parliamentary Ombudsman concern - financial sanctions.3 Kromann Reumert ing the right of access to the name of These events have all contributed to one of the involved companies.1 enhance the attention paid by political Danish journalists also published a parties and private corporations story this year2 on branded Western operating in Denmark to the export he area of export control has been soft drinks that were sold from a North control supervisory powers and one of growing interest in Korean grocery store which originated obligations of exporting companies, T Denmark in recent years, peaking from a production facility in Fredericia, including authorisation and in 2017. This is mainly due to the fact a Danish city in the southern part of compliance procedures under the that several companies operating from Jutland. The soft drinks had somehow relevant Danish (and European) Denmark were publicly exposed as reached North Korea despite the legislation. having sold mass-surveillance systems extensive international sanctions to oppressive governments in the regime imposed on the country. Danish legislation Middle East, including during the ‘Arab In August, Denmark was heavily Denmark has signed and ratified a Spring’. This led to extensive media criticised by the inter-governmental number of international codes of

17 WorldECR www.worldecr.com Scandinavia Scandinavia

conduct, conventions and treaties and accordingly participates in various international forums and coordinating arrangements with regard to export control.4 As one of the current 28 Member States of the European Union, Denmark is also subject to the relevant European legislation. This, naturally, includes the EU Dual-Use Regulation5 and other EU regulations (including sanctions) adopted under the Common Foreign and Security Policy of the European Union. These regulations have direct effect on governmental authorities and on private parties operating in Denmark and they apply (often with short notice for the sanctions) to any actions within the territory of the Kingdom of Denmark and to Danish companies, organisations and individuals in any location; and on board aircraft or Dual-use goods/technologies exports of specified products to civil vessels under Danish jurisdiction. Generally, companies exporting from end-users in specified countries. Certain national acts and special Denmark and out of the customs zone provisions have been adopted in order of the EU must apply for an The DBA receives more than 700 to apply, administer and enforce the authorisation when exporting dual-use enquiries a year related to export harmonised legal regime. The Danish goods or technologies listed in Annexes control. However, the authority enabling act6 provides the legal basis I or IV of the EU Dual-Use Regulation. maintains a high response rate, and the for the Danish government to apply, When exporting within the European Team for Global Trade & Security is administer and enforce the common Union, only the dual-use goods and often able to provide guidance on short trade-related regulations of the technologies listed in Annex IV require notice, e.g., about the required European Union. In addition, the such an authorisation. The export authorisation for a specific export. Danish Export Executive Order7 authorisations can be obtained from The high level of pre-application provides supplementing provisions the DBA, which aims to respond within guidance and responsiveness from the with regard to export control of dual- 14 business days. DBA is also reflected in the use goods and appoints the Danish Three types of authorisation can be correspondingly few declined Business Authority (‘DBA’) as the obtained by use of an easily accessible applications for individual authoris - competent national authority for digital application procedure:9 ations. administering and overseeing the area In addition, the general trend of export control in Denmark. l Individual authorisation – which indicates an increase in the number of The Danish Criminal Act8 contains can be obtained for one-off exports issued authorisations reflecting the additional criminal provisions on of dual-use goods and technologies, enhanced awareness in recent years export control. Intended violation of critical exports and by application of (see table below). EU sanctions are subject to fines and the catch-all regime; imprisonment of up to four months (or l EU authorisation – which can be Catch-all provision four years under aggravating obtained under an eased regime for Pursuant to the option stipulated in circumstances), see section 110 c (2) exports to specified closely-related article 4(5) of the Dual-Use Regulation, and (3). In cases involving only gross countries; Australia, Canada, Japan, Denmark has adopted national catch- negligence, the consequences are fines , Norway, Switzerland all provisions. These require that the and imprisonment of up to two years. (including Liechtenstein) and the exporter must apply for an export Furthermore, non-compliance with the United States; authorisation for a product even if it is export authorisation requirement l Global authorisation – which can not listed in Annex I to the Dual-Use related to dual-use goods and be obtained for regular less critical Regulation, if: technologies may involve criminal liability in the form of a fine or imprisonment of up to two years (or 2012 2013 2014 2015 2016 six years under aggravating circum - Approved 293 339 468 493 411 stances). Cases involving intentional assistance relating to funding of Declined 10 11 26 17 12 terrorism are covered by special Total 303 350 494 510 423 provisions in section 114 b of the Danish Criminal Act, which stipulates Source: The Danish Business Authority, November 2017 imprisonment of up to 10 years.

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l The product, in whole or in part, is Sanctions/embargoes or may be intended for use in Through membership of the United Denmark: authorities and connection with weapons of mass Nations and the European Union, their competencies destruction (or missiles capable of Denmark has entered into an carrying such weapons), or international commitment to comply Danish Business Authority DBA is the l The product, in whole or in part, is with the sanctions and embargoes competent national export control or may be intended for military end adopted by these international authority and administers and provides use in countries under an communities. Denmark meets these information about the rules. international arms embargo. commitments without imposing www.eksportkontrol.dk unilateral or additional sanctions. Ministry of Justice Authority over As a result of an amending act to the Accordingly, relevant national weapons and military-related goods. enabling act in force from 1 August measures are being adopted to ensure www.jm.dk 10 2003, the catch-all provisions apply if that UN and EU sanctions and Ministry of Foreign Affairs Responsible the exporter is aware of suspicious embargoes can be enforced. The for adoption, coordination and circumstances causing it to suspect that Danish Ministry of Foreign Affairs interpretation of legislation. www.um.dk the product will be used in relation to maintains a website14 of the UN and EU The State Prosecutor for Serious weapons of mass destruction, or if it sanctions that Danish companies and Economic and International Crime has reason to believe that the export is individuals are currently required to (SØIK) Responsible for the enforcement related to military purposes in comply with. of export control violations under Danish countries under an international arms As a special curiosity, it can however criminal law. embargo. The DBA has indicated11 that be observed, that Denmark unilaterally www.anklagemyndigheden.dk such suspicious circumstances and has adopted a special national regime Tax and Customs Authority Border- issues relating to the export can be, for imposing a travel ban on (currently) 11 related tasks. www.skat.dk example, that: named religious preachers who are viewed by the authorities as ‘hate l the customer provides a particularly preachers’.15 These persons are acts to prevent recurrence). Violations favourable contract, or that the restricted from entering Denmark. of a more serious nature will, however, contract contains unusual payment be reported to the State Prosecutor for terms. Enforcement Serious Economic and International l the customer demands special The enforcement of export controls in Crime (‘SØIK’), which will pursue diversion of delivery routes, or that Denmark is relatively mild both in imposition of a fine, and imprisonment requirements for the order size, terms of the level of fines in the event under very aggravating circumstances. packaging, delivery route or place of of unintended non-compliance and in SØIK has various investigative tools delivery seem unusual. terms of the dedicated resources and that are not available to the DBA; e.g., l the customer requests customis- priority agenda of the relevant surveillance, interception of ation of the product, which is authorities. communication, seizure of evidence, contrary to the normal usage, The DBA has a clear objective to and so on. SØIK also has the legal design or industry of the ordered provide guidance in order to prevent powers to conduct searches of private product. violations. Accordingly, the DBA will premises following a court decision. l the customer refuses to sign and/or typically sanction misunderstandings The DBA does not have such an option issue an end-user certificate and/or minor (procedural) mistakes but does contingently conduct pre- with an administrative warning announced site visits to all known Military goods/weapons (subject to disclosure and mitigating producers and exporters of dual-use Conventional military goods, e.g., weapons, ammunition, warfare equipment, military simulation, The ‘Oil-for-food’ case explosives and software/technology The case involved a Danish company that had agreed to sell and export trucks from related thereto, do not fall under the Denmark and other places for a value of DKK 125,000,000 (approx. US $20m) to the Danish dual-use regime and therefore authorities in Iraq at a time when the country was subject to the UN embargo named the do not fall under the supervisory ‘Oil-for-food’ programme (‘OFF’). powers of the DBA. The OFF programme was administered by the United Nations and entailed that funds Instead, section 6 of the Danish from the sale of oil from Iraq could only be used for the purchase of food, medicine and Weapons Act12 entails a requirement humanitarian necessities. for the exporter to obtain a licence from However, the payment for the trucks derived from a UN-administered account related the Ministry of Justice ahead of an to the sale of oil from Iraq. In addition, the truck sales agreement contained a surcharge export for the products listed on the of 10% named ‘aftersales services’ that was to be retransferred to the Iraqi authorities following the payments. This surcharge was deemed by the Danish police to be in Common Military List of the European violation of the UN embargo, following an exposure of the company’s involvement and 13 Union. knowledge in the official report issued in 2005 by the independent investigative However, the provision covers more commission, the Independent Inquiry Committee. At this time, the criminal liability was products than are listed on the however time-barred, but the company was deemted to have gained an estimated profit Common List; hence, hunting weapons of DKK 10,000,000 (US $1.6m), and this was forfeited pursuant to the judgment of the and ammunition for hunting purposes Danish Supreme Court. are also subject to an export licence.

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goods and technologies in Denmark. (informal) objective of the legal and Links and notes Such site visits serve as a good structural set-up of the Danish 1 http://www.ombudsmanden.dk/find/udtalelser/bere opportunity to provide counselling and government to assure fulfilment of tningssager/alle_bsager/2017-11/ (available in Danish only) obtain guidance in order to ensure international obligations without over- 2 http://nyheder.tv2.dk/udland/2017-10-29- compliance with the requirements of complying. Recent trends suggest a sanktioner-har-ikke-den-store-effekt-paa-nordkoreas- the applicable export control shift in this approach is taking place, styre-tv-2-fandt-dansk (available in Danish only) legislation. and this can also be detected in the 3 http://www.fatf-gafi.org/countries/d- Most cases concerning violations of increased awareness among i/denmark/documents/mer-denmark-2017.html 4 export control rules in Denmark are compliance officers of export control Including The Australia Group, Missile Technology Control Regime, Nuclear Suppliers Group and The settled out of court with a fixed-penalty obligations. Wassenaar Arrangement notice. With the exception of the ‘Oil- Following the intense media 5 Council Regulation no. 428/2009 and subsequent for-Food’ case (see box, previous page), coverage as well as the significant amendments there are, to my knowledge, no public debate in 2017 concerning 6 Consolidated Act no. 635 of 9 June 2011 concerning the use of certain legislative acts of the European published cases involving criminal export control plus the FATF’s Community about economic connections to third liability for export control violation on criticism of Denmark’s efforts as being countries etc. the part of a Danish company or insufficient, it would be reasonable to 7 Executive Order no. 475 of 14 June 2005 on control individual. However, a number of expect that the area of export control of exports of goods and technology with double usage (‘dual-use’) and control of technical assistance decisions on fines, known to will receive even greater attention 8 Consolidated Act no. 977 of 9 August 2017 practitioners, are indicative of the from the Danish authorities in the 9 https://indberet.virk.dk/myndigheder/stat/ERST/An general level of the potential economic future. Accordingly, more investig - soegningsskema_til_ansoegning_om_tilladelse_til_u consequences following the imposition ations are likely to be initiated, and dfoerelse_af_produkter_og_teknologi_med_dobbelt_ anvendelse of criminal liability under Danish law. companies are more likely to face 10 Act No. 407 of 28 May 2003 concerning the In accordance with that practice, a scrutiny of their export control amendment of the Act on the use of certain company that fails to obtain the compliance procedures. legislative acts of the European Community about required export control economic connections to third countries etc. authorisation(s) will generally be 11 cf. the prepatory works to the Act No. 407 of 28 May 2003 concerning the amendment of the Act on the subject to a fine most likely in the range use of certain legislative acts of the European of DKK 25,000-50,000 (approximately Community about economic connections to third US $4,000-8,000) depending on the Simon Fasterkjær Kjeldsen is an countries etc. assistant attorney in the 12 degree of negligence. Failure to comply Consolidated Act no. 1005 of 22 October 2012 Copenhagen office of Kromann 13 with sanctions and/or an arms Notice on equipment covered by Council Common Reumert. He is associated with Position 2008/944/CFSP defining common rules embargo is punished significantly more governing the control of exports of military heavily and will generally trigger a fine the firm’s International Trade technology and equipment, 2015 O.J. C 129/1 of a substantially higher amount practice group and has extensive 14 http://um.dk/da/Udenrigspolitik/folkeretten/sanktio experience in the area of export ner/gaeldende-sanktioner/ depending on the circumstances. control. He holds a position as an 15 A list of restricted ‘hate preachers’ is available here: https://www.nyidanmark.dk/da- Future trends external lecturer in EU Law at dk/Ophold/religioese-forkyndere/den_nationale-san Danish authorities have traditionally the University of Copenhagen. ktionsliste/religiose_forkyndere_med_indrejseforbud .htm not enforced export controls [email protected] rigorously, and it has been an

NORWAY warlord in Nigeria, which became Control Act.16 The provisions in the known as the ‘Nigerian Combat Boat’ Norwegian Export Control Act are by Hugo Munthe- matter. Amongst other examples, these relatively general and give the Foreign Kaas, Lawyer, events have led to a continuous and Ministry responsibility for drawing up Managing Associate, systematic examination of Norwegian regulations and guidelines with more Thommessen export policies. The tendency for a detailed descriptions for the export stricter export policy has not only been control of defence-related items and applied to the export of weapons and dual-use items. The Foreign Ministry is military equipment, but also to the given such authority to ensure that he public focus on Norwegian export of goods which can be used for export controls are implemented export controls has gradually both civil and military purposes (‘dual- effectively. Furthermore, the Foreign T become more intense, partly due use items’). Ministry may set conditions for to certain mistakes made public in granting licences under these recent years. For example, in 2011 it Norwegian legislation regulations that are compatible with was revealed that the Norwegian Norwegian export controls are the purpose of the Norwegian Export government indirectly supplied administered by the Norwegian Control Act. Muammar al-Gaddafi’s elite soldiers Ministry of Foreign Affairs (the More detailed provisions laid down with military equipment. ‘Foreign Ministry’), Section for Export by the Foreign Ministry are found in Another important episode was the Control, on the basis of national the Export Control Regulation,17 which sale of seven decommissioned military legislation. The legal basis for export gives a detailed description of vessels/combat boats to a former control is the Norwegian Export provisions governing the export control

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of defence-related and dual-use items. In addition, detailed provisions regarding the consideration of applications for export licences draw on the Export Control Guidelines of the Foreign Ministry.18

The Export Control Regulation Pursuant to clause 4 of the Export Control Regulation, an export licence from the Foreign Ministry is required for selected products and related technology. The products and technology which are subject to licensing requirement are specified in List I (defence-related products) and List II (dual-use items), which constitute Appendix I and Appendix II to the Export Control Regulation. (List II includes civilian products and related technology and services not included in List I that may also have military uses.) The lists are the result of negotiations within the multilateral export control regimes in which for use on the Norwegian equipment will be diverted within the Norway participates. The lists form an continental shelf. buyer country or re-exported under integral part of the legislation and are undesirable conditions. updated regularly. Guidelines for the Export The Foreign Ministry shall also In addition to the licensing Control Act consider the compatibility of the requirement for defence and dual-use The purpose of the Export Control exports of the military technology or items, it is specified in clause 5 of the Guidelines is to set out the procedures equipment with the technical and Export Control Regulation that an and criteria used by the Ministry of economic capacity of the recipient export licence from the Foreign Foreign Affairs, when dealing with an country, taking into account the Ministry is also required for services export licence application. Pursuant to desirability that states should meet related to the same items. An export Clause 2.3 of the Guidelines, an their legitimate security and defence licence is also required for other application shall be rejected, inter alia, needs with the least diversion of services that may serve to develop the if the export of the goods is human and economic resources for military capability of a country, and inconsistent with Norway’s armaments. that are provided abroad or in Norway international obligations or if the When considering whether to grant for use abroad. export would provoke or prolong a licence, an assessment shall also be Where there is doubt, the Foreign armed conflicts or aggravate existing made as to whether there is a risk of the Ministry will, according to clause 3 of tensions or conflicts in the country of arms or items being used to commit or the Export Control Regulation, decide final destination. An application shall facilitate serious acts of gender-based whether or not the products, also be rejected if there is a clear risk violence or serious acts of violence technology or services are subject to that the intended recipient would use against women and children. the licensing requirement. The the military technology or equipment licensing requirement also applies to to be exported aggressively against Catch all provisions the export of products from customs another country or to assert by force a Even though an item is not listed in List warehouses. territorial claim. I or II, it may be subject to Norwegian Pursuant to clause 8 of the Export When dealing with applications, the export control. This may be the case if Control Regulation, some items are Foreign Ministry shall take particular the goods fall within the scope of the exempted from the licensing account of the national security of ‘catch-all’ provisions in the Export requirement. Examples of products Norway, as well as that of friendly and Control Regulation. Regardless of the that are exempted include: allied countries. In the evaluation, the lists, an authorisation is always behaviour of the buyer country with required for the export of goods to l dual-use items that are returned to regard to the international community, areas where there is war or the threat a foreign owner after temporary should also be taken into of war. The same applies in cases where import to Norway for exhibition or consideration; in particular, its attitude the exporter knows that the goods will demonstration or repair; to terrorism, the nature of its alliances, be used in connection with the l rescue equipment and oil spill and respect for international law. A development, production or mainten - response equipment exported in specific assessment shall also be made ance of nuclear, chemical or biological connection with rescue operations; to determine whether there is a risk weapons, or missiles capable of l products, services and technology that the military technology or launching such weapons. In other

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Norwegian government has also provision concerning violation of the Norway: authorities and established a system securing rapid export control provisions. Unless the their competencies and efficient implementation of EU matter is subject to more severe penal sanctions as soon as they have been provisions, pursuant to provisions in Norwegian Ministry of Foreign Affairs decided upon in the EU. the Norwegian Criminal Code, an MFA is the national authority in charge For Norway, it is not easy to see any exporter is liable to fines or a term of of export control (both defence-related other option than to follow EU imprisonment not exceeding five years, and dual-use). www.mfa.no sanctions. Without sanctions, Norway or both, if he export items contrary to Norwegian Customs In charge of would serve as a loophole for those who the provisions in the Norwegian Export controlling import and export across want to circumvent sanctions and thus Control Act or any regulation issued Norwegian borders. www.toll.no/en undermine the unifying pressure the pursuant thereto. The Norwegian EU Member States are trying to Police Security Service is the Norwegian Police Security Service Enforcement of the export control rules. exercise. However, in the case of Russia prosecuting authority in the event of www.pst.no the sanctions have been directed contraventions of the export control against one of Norway’s neighbours legislation. and the effect of the sanctions have Pursuant to clause 2 of the words, the ‘catch-all’ provisions focus become more noticeable for Norwegian Norwegian Export Control Act, every on the end use/end-users of the goods. businesses, especially within the oil person has a duty to provide the If the goods are considered to fall and gas industry. In this new situation, Foreign Ministry with any assistance or within the scope of any ‘catch-all’ the problematic sides of rapidly information required in order to ensure provision, the Foreign Ministry will implementing EU sanctions have compliance with the provisions in the order the exporter to apply for an become more apparent and the said act or any regulation issued pursuant authorisation pursuant to the ‘catch-all’ Norwegian practice has become subject thereto. For this purpose, the Foreign provision. to criticism. Ministry may conduct inspections and require access to recorded accounting Sanctions/embargoes Enforcement information, accounting records, Economic sanctions are a foreign As mentioned above, one of the more business documents and other policy tool that Norway historically has recent export control cases in Norway documents that may be of importance. not often used unless the restrictive concerned the sale in 2012 by the If an enterprise or person does not measures have been based on Norwegian Armed Forces of a fleet of comply with the duty to provide resolutions by the UN Security Council. its decommissioned, but still information set out in clause 2, the Norway is not a member of the EU sophisticated, motor torpedo boats to a Foreign Ministry may order the and is therefore not formally obliged to former Niger Delta militant leader and payment of a continuous daily fine follow EU sanctions. However, in warlord, Government Ekpemupolo, until this duty has been fulfilled. The recent years there has been a who for years led a devastating amount of the coercive fine to be paid development in this area, and since the insurgency against the Nigerian is set taking into account how beginning of the 2000s Norway has government. Among them were six important it is to ensure the increasingly joined EU sanctions, even fast-speed motor torpedo boats and the compliance with the order. in instances where there has not been warship KNM Horten (see box, below). Breach of the Norwegian sanction any resolution by the UN Security When the sale became known to the rules may be punishable by way of fines Council. Today, adherence to EU public through news articles some time and/or prison up to three years. sanctions has become the rule rather later, it lead to a political outcry. The Breach of the export than the exception. person responsible for the sale was (in control/sanction rules by a person who In 2001, Norway adopted new May 2017) sentenced to jail for four has acted on behalf of a company may leigslation that gave the Norwegian years and eight months. Further, about also lead to criminal liability for the government authority to implement NOK 1 million (approximately US company. The penalty for the EU sanctions. Since the act was $120,000) of his funds were company, if liable, is a fine and may introduced, Norway has adhered to EU confiscated by the state, and he was apply even if no individual person is sanctions against countries such as sentenced to pay about NOK 3 million identified and punished for the breach. Myanmar, , Iran and Syria, and in damages. The company may also, by a court more recently those against Russia and Clause 5 of the Norwegian Export judgment, be deprived of the right to Ukraine. Following the new act, the Control Act contains a penalty carry on business or may be prohibited from carrying it on in certain forms.

The ‘Nigerian Combat Boat’ matter Future trends A former lieutenant commander in the Armed Forces Logistics Organization was charged There is broad political consensus that with several cases of gross economic crime in connection with the sale of seven Norway should have a viable defence decommissioned navy vessels/combat boats to a former warlord in Nigeria. He was industry. This is important to maintain found guilty of the charge. The sentence was set at prison for four years and eight jobs, Norway’s defence capability, and months, which was eight months longer than the prosecution had requested. He was an important industrial sector which is also sentenced to pay damages to the Armed Forces and the KNM Narvik Foundation for driving technology development, both a total of NOK 3,098,750 (approx. US $380,000) and confiscation of NOK 1,041,381 in military and civilian sectors. (approx. US $128.000). In 2016, Norway exported arms and military equipment for around NOK

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3.6 billion (US $440m). This is an armed conflicts and security threats in public focus on who Norway is increase of 10% from 2015. Exports of the world also create challenges for providing weapons to will inevitably arms and munitions accounted for Norway’s export control regime. For also lead to more investigations, around NOK 2.9 billion (approx. example, exports to Kuwait, United stricter enforcement and punishment, US $ 355m) of this amount, and other Arab Emirates (‘UAE’), Qatar, Oman and an increased focus on the export defence-related products for NOK 650 and Saudi Arabia have recently been control procedures of companies in million (approx. US $80m). In under debate. These countries Norway. addition, there were exports of dual- constitute emerging and potential use items with a total value of around markets for the Norwegian defence NOK 300 million (approx. industry. However, some of the US $36.7m). countries have, inter alia, participated Hugo Munthe-Kaas is a lawyer At the same time, it is clear that in the Saudi-led coalition that and Managing Associate at the intervenes in the armed conflict in Oslo office of the Norwegian law Yemen on the call from Yemeni Links and notes firm Thommessen. He is authorities. This has again led to a 16 Act of 18 December 1987 relating to Control of the associated with the firm´s Trade discussion of whether Norwegian Export of Strategic Goods, Services, Technology, etc. Compliance practice group and 17 weapons are being used in that conflict Regulation dated 19 June 2013 relating to the export has extensive experience in the of defence-related products, dual-use items, in breach of Norwegian export control area of export controls, technology and services law. 18 sanctions, AML and anti- Guidelines of 28 February 1992 the Ministry of To sum up, the Norwegian defence Foreign Affairs when dealing with applications corruption. concerning the export of defence-related products, industry is growing and will most likely as well as technology and services for military continue to do so in the coming years. [email protected] purposes However, the increased political and

SWEDEN United States and Brazil. The value of competence of the EU legislator. arms exports to the Middle East in However, Member States have in by Erik Lagerlöf, 2016 has been estimated to SEK 160 general reserved the right to Adjunct Professor of million (around USD 19.3 million), domestically make decisions relating to Law, Manager, which is a significant decrease when conventional arms transfer policy and Vinge compared to previous years. practice. The EU has therefore only Another topic that has caused some played a limited part in regulating the stir in the Swedish press in 2017 was transfer of arms. Accordingly, while the decision by Norway to continue export control provisions concerning ith a significant arms buying German submarines, rather dual-use products have been in place at industry dating back to its than to renew its submarine fleet with an EU level since 1995, the EU does not W Cold War neutrality, Sweden Swedish vessels. yet play a direct role in managing arms is one of the largest weapons exporters transfers to and from the Member in the world. Its export of weapons has Swedish legislation States. not been uncontroversial and the As an EU Member State, Sweden is Exports of dual-use items from export of weapons from Sweden has subject to EU law and the wide-ranging Sweden are regulated by the EU Dual- been regulated since the 1930s. Due to its sensitive nature, Swedish arms exports have consistently been subject to extensive media attention and various political initiatives. Following a proposal by the Swedish national authority responsible for granting export authorisations (see further below), 2017 has been a particularly intense year in this regard. The increase in Swedish arms exports in general has been another topic of great interest for the Swedish media. Compared with 2015, Swedish arms exports increased by 45% in 2016, resulting in a total export value of Swedish arms of SEK 11 billion (roughly USD 1.3 billion). 88% of Swedish arms export went to countries within the EU and the EEA and to countries with which Sweden cooperates closely, such as Canada, the

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Use Regulation,19 which establishes a Inspectorate of Strategic Products25 system based on two core principles: (‘ISP’) is the body primarily Sweden: authorities and the free transfer of goods and responsible for considering an export their competencies technologies within the EU, and the application and granting the necessary prohibition of export of such outside export authorisation. Inspectorate of Strategic Products the EU without a national licence. In principle, the transfer of dual-use (‘ISP’) ISP is the national authority in There is also a Directive,20 which is goods to other EU Member States does charge of controlling and ensuring meant to simplify the rules and not require specific authorisation. compliance with export control procedures applicable to the intra- However, particularly sensitive legislation regarding strategic products (i.e. dual-use goods and military Community transfer of defence-related products are subject to an exception equipment). http://isp.se/eng products.21 Moreover, although there is from this rule. A list of such products is no common regime in the EU for the provided in Annex IV of the EU Dual- Swedish Radiation Safety Authority export of arms, the EU Code of Use Regulation. In contrast to transfers (‘SSM’) SSM is responsible for the Conduct for Arms Exports was adopted within the EU, all exports of dual-use aforementioned tasks of the ISP with in 1998 and provides guidelines for goods leaving EU territory must have regards to nuclear materials and equipment (category 0 in Annex 1 of the exports and imports of conventional the necessary authorisation. Annex I of Dual-use Regulation). arms. It also defines mechanisms for the EU Dual-Use Regulation lists www.stralsakerhetsmyndigheten.se/en information exchange, consultation products which are considered to be of and follow-up procedures. This Code of dual-use. According to Article 4(5) of Swedish Customs In charge of Conduct was improved by the adoption the EU Dual-Use Regulation (the so- controlling import and export across the of the Common Position 944/2008,22 called ‘catch-all’ provision), Member Swedish borders. Takes part in supervision visits with the ISP. which has reinforced the States may add to the EU list of dual- www.tullverket.se/en recommendations of the Code of use items. However, Sweden has not Conduct. yet taken the opportunity to do so. Ministry of Foreign Affairs Adopts At a national level, the EU Dual-Use Further, three different types of legislation. Regulation is complemented primarily authorisation for such third-country www.government.se/government-of- sweden/ministry-for-foreign-affairs/ by the Swedish Dual-Use Act.23 In exports must be considered: addition to supplementary provisions Swedish Prosecution Authority to the EU Dual-Use Regulation, the l The individual authorisation Enforces Swedish criminal law. Swedish Dual-Use Act also contains applies to a specific exporter for the www.aklagare.se/en rules generated by the Common export of a specified product to a Position 944/2008. recipient in a specified destination. Alongside its commitments as a l The EU (general) authorisation to permit export. The Swedish list of Member State of the EU, Sweden has covers exports to specific third controlled military goods is in general signed and ratified a number of countries which fulfil certain consistent with the Common Military international treaties and programmes requirements specified in the EU List of the EU.27 However, there are with nations and international Dual-Use Regulation (currently three national amendments to the EU organisations.24 These international concerning exports to Australia, list concerning (i) nuclear charges and agreements must be observed by the Canada, Japan, New Zealand, special parts to such charges, (ii) relevant authority in all cases when it Norway, Switzerland (including fortification facilities and (iii) certain decides if it should grant export Lichtenstein) and the US). This type chemical munitions. All exports of authorisation. of authorisation does not require military goods and services are subject the exporter to submit an to authorisation by the ISP. Dual-use goods/technologies application to the ISP, but a Similar to authorisations of dual- It is for the exporting company to notification must be sent to this use goods, there are three types of assess whether it is necessary to apply authority when the authorisation is authorisation concerning military for an export licence in relation to the used for the first time. equipment available in Sweden. A export of a particular product or a l The global authorisation may company intending to export military transfer of information. The cover products listed in Annex I of goods within the EEA can apply for the EU Dual-Use Regulation. This either a general, individual or global authorisation allows unlimited export authorisation. For export to Exporting to Brazil export until it expires or is revoked countries outside of the EEA, a Brazil was, perhaps quite surprisingly, in and is valid for export to one or company can apply for either an terms of value the number one export several countries, as further stated individual or global export destination for Swedish military goods in the authorisation. authorisation. during 2016. Goods amounting to a Further, within the framework of value of SEK 2,821 million (approx. US $340 million) were exported to the Military goods/weapons EU cooperation, Member States South American country, according to The Swedish export control process for exchange information concerning ISP’s (Inspectorate of Strategic military goods is primarily based on the rejections of military equipment export Products) yearly operational report from Swedish Military Equipment Act.26 The authorisations. During 2016, Sweden 2016. This is explained by the initiation Swedish government’s export received 350 notifications from other of a delivery of the Swedish fighter guidelines direct the assessment on a EU Member States and Norway and aircraft Saab JAS Gripen. case-by-case basis and include several submitted 21 such notifications to conditions that should be met in order other Member States.28

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Sanctions/embargoes potential export. However, it must be armaments. The government proposes Sweden only adheres to the sanctions noted that a favourable preliminary that the standing of democracy in the decided by the EU and the UN’s ruling by the ISP does not constitute a receiving state should be a key Security Council. No other sanctions formal authorisation. condition when considering licence have been imposed by Sweden towards Moreover, the ISP has significant applications. any other country or individual. powers in order to perform its It is also suggested that the Existing sanctions are enforced in supervisory task. For example, it may requirement that the recipient country accordance with the Swedish Act on demand extensive information from respects human rights should be International Sanctions.29 Moreover, any entity that deals with the export of tightened. Whether the exports would the government publishes information dual-use goods. The authority is also discourage sustainable development in concerning current sanctions on its entitled to access facilities (except for the recipient country is proposed to be website.30 residences) that are used in relation to another factor to consider. In addition, relevant export activities. The ISP may the government has also put forward Enforcement also call upon assistance from other proposals on improving transparency It is for the exporting company to national authorities, including the and rules on increased authorisation ensure that it has the required police, when performing its duties. and control requirements. Further, the authorisation in relation to exports of Concerning military goods, the ISP’s government proposes that penalties both dual-use products and military supervisory tasks cover manufacturers should replace certain criminal goods. As already noted above, the ISP and providers of such equipment, but sanctions for less serious violations in is the supervising authority for exports not the exporters as such. order to achieve a more effective of both dual-use and military goods. It If an exporting company or any of system of sanctions. Criminal sanctions is possible to seek guidance from the its employees does not comply with are planned, however, to be retained ISP prior to any export regarding the applicable regulations concerning for more serious offences. The need for authorisation and the dual-use goods or military items, they suggested amendments are proposed authority may also issue a preliminary risk different civil and criminal to enter into force on 1 April 2018. ruling in this regard in relation to a sanctions. With regard to dual-use Further, criminal sanctions for goods, existing sanctions are found violations of the Military Equipment primarily in the Swedish Dual-Use Act. Act, such as failure to submit required Links and notes Sanctions related to exports of military information to the competent goods are chiefly found in the Military authority, are proposed to be replaced 19 Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control Equipment Act, but there are also by a system of fees, ranging from SEK of exports, transfer, brokering and transit of dual-use sanctions provided for in the Swedish 3,000 (around US $360) to SEK items (Recast) (OJ L 134 29.5.2009, p. 1). Act on Penalties for Smuggling31 and 200,000 (around US $24,000). These 20 Directive 2009/43/EC of the European Parliament the Swedish Penal Code. proposals are expected to enter into and of the Council of 6 May 2009 simplifying terms and conditions of transfers of defence-related The available sanctions related to force on 15 April 2018. products within the Community (OJ L 146 10.6.2009, both dual-use goods and military Finally, the consequences of Brexit p. 1). equipment are mainly criminal in are still not clear. However, in view of 21 Directive 2009/43/EC was amended by the nature. Gross negligence or, in some existing EU law, it must be emphasised Commission Directive (EU) 2016/970, which entered into force on 16 June 2016. cases, intent is generally required in that any export of dual-use goods 22 Council Common Position 2008/944/CFSP of 8 order for a sanction to be imposed. and/or military equipment from December 2008 defining common rules governing However, it should be noted that a Sweden to the UK may well be affected control of exports of military technology and company may also be fined for not by the UK’s decision to leave the equipment (OJ L 335, 13.12.2008, p. 99).

23 European Union. For example, it is The Swedish Act (2000:1064) on control of Dual-Use ensuring that it has sufficient Products and Technical Assistance (Sw. Lag procedures in place to avoid breaching highly uncertain to what extent an (2000:1064) om kontroll av produkter med dubbla the applicable legislation. The exporting company will be able to användningsområden och av tekniskt bistånd). maximum company penalty amounts continue to rely on the EU Dual-Use 24 For example the Treaty on the Non-Proliferation of Nuclear Weapons, the Biological Weapons to SEK 10,000,000 (around Regulation, or any legal act of similar Convention, the Chemical Weapons Convention, the US $1.2m). Furthermore, goods may nature, post-Brexit. UN Arms Trade Treaty, the Zangger Committee, also be confiscated and forfeit. Nuclear Suppliers Group, the Australia Group, Missile Technology Control Regime and the Wassenaar While at least 200 cases have Arrangement. generated some form of investigation 25 Sw. Inspektionen för Strategiska Produkter. in Sweden since the 1990s, only a few 26 Erik Lagerlöf works at the Sw. Lag (1992:1300) om krigsmateriel. of those cases have resulted in 27 Stockholm office of the Swedish Common Military List of the European Union adopted prosecution and even fewer have led to by the Council on 6 March 2017 (2017/C 097/01). law firm Vinge where he conviction. The government has 28 The Swedish rejections notified to other EU Member practises EU and international explained the low number of States concerned Bahrain, Ecuador, United Arab law, including in customs and Emirates (2 notifications), Jordan (2), China, Kuwait, prosecutions and convictions by the cross-border trade issues. Erik is Lebanon, Pakistan, Qatar, Saudi Arabia (2), Taiwan trivial nature of most cases. (3) and Turkey (5). also an Adjunct Professor of law 29 Sw. Lag (1996:95) om vissa internationella and currently a visiting Fellow at Future trends sanktioner. St Edmund’s College, Cambridge 30 On 29 June 2017, the Swedish http://www.government.se/government- University. policy/foreign-and-security-policy/international-sancti government announced that it is ons/. [email protected] 31 proposing the adoption of a more Sw. Lag (2000:1225) om straff för smuggling. comprehensive control of the export of

25 WorldECR www.worldecr.com Arms Trade Treaty Arms Trade Treaty

The Arms Trade Treaty: is it making a difference?

After a seemingly promising start, with wide- arms producers and exporters as well scale optimism for its success, is the Arms Trade as many of the states in regions where war or civil strife have been worsened Treaty struggling to deliver anything more than by a ready supply of arms. lip-service, asks Chris Kessler. Whether the treaty is making a difference or not depends on the expectations one brings to that judgement. Effecting immediate ike the treaties banning anti- striking a balance among varied factors changes in states’ decision-making is a personnel land mines and cluster with ambiguous or uncertain facts. The different matter from starting to build L munitions that went before it, the issue as to how ambiguous or a process that over time can facilitate Arms Trade Treaty (‘ATT’) is a product uncertain those facts may be is one of or motivate such changes. The ATT has of vigorous efforts by non- the main areas where the NGO not produced significant changes in governmental organisations to enact a advocates of the treaty and many states the decisions that most states parties new universal membership treaty; in parties disagree. make. Whether it is building an this case to regulate a category of For the NGO community that infrastructure and process that will routine state decision-making rather worked long and hard to stimulate and lead to such changes, or is just than to ban a specific category of then guide the negotiations among becoming a new opportunity for what conventional weapons. states, the basic objective is simple – to has been called ‘diplomatic tourism’, is Like those treaties, the ATT is much end trade in conventional arms that too soon to judge. more than just a contract among can and often do result in harm to non- national governments. Many universal combatants, whether by physical Setting things up treaties are negotiated to create and injury or death, oppression of rights Like many other universal treaties, the affirm a new norm for behaviour and liberty, or economic stress through ATT needs infrastructure to make it among states; the objective is to gain the misallocation of resources. For work, none of which existed when it the widest possible adherence among states, the arms trade involves matters gained the 50 ratifications bringing it states for specific forms of conduct – to of national security, political relations into force. Standards for guiding do or not do specific things. The ATT is with other states, and economic issues, national decisions had largely been not unusual in this respect. from international competitiveness to negotiated in the treaty itself, but What is unusual is the complexity domestic employment. In other words, mechanisms for sharing information of the behaviours required to how exporting and importing states that states could use in decision- implement the desired norms. continue to do what the NGO making, or about national procedures Eliminating anti-personnel landmines community is seeking to put an end to. or about decisions made – all or cluster munitions from a military In the nearly three years since the important to show whether states are arsenal is largely straightforward, ATT entered into force, the fulfilling their commitments – were though there are some second order infrastructure needed to guide and not. issues in either case. monitor national implementation of The treaty calls for a secretariat to Fulfilling commitments made in the the treaty has been established. coordinate and facilitate many aspects ATT, whether as an arms exporter or Roughly half of the international of implementation, but the details of arms importer, entails decisions that community of states have become secretariat activities, staffing, and often involve shades of grey and party, including many of the major funding were, like procedures for

26 WorldECR www.worldecr.com Arms Trade Treaty Arms Trade Treaty

almost everything else, still to be development. In reporting annual exporting states that joined (or at least worked out. These tasks fell to a trade activity, one significant issue is signed) the ATT all have national conference of the state parties (‘CSP’ in whether to report transfer approvals or policies consistent with requirements ATT nomenclature). The treaty actual transfers. This issue becomes of the treaty, and the EU Code of provides for annual conferences of important as, sometimes, one military Conduct on Arms Exports served as a states parties, so CSP1 was planned for may seek the same armaments from basis for the ATT provisions. But August 2015, eight months after entry several producers, each of which gets a perhaps, it was thought, with the ATT into force. national export licence, but ultimately in force, implementation would be Organising CSP1 required a series concludes the procurement with only more rigorous. of preparatory meetings, and one of those producers. And many Three years later it appears that that leadership. Mexico stepped in to procurements take place over several is not the case – a prime example being organise the meetings and the process years; or only part of what was continued UK exports to Saudi Arabia that developed the proposals and authorised is actually transferred. (where the arms are likely to be used in agenda for the CSP. These meetings While the number of actual the ongoing Yemen conflict) and to were open not only to states that had transfers is the best indicator for Venezuela. The UK played a key role in getting negotiations on an ATT started, so ‘business as usual’ by the UK provides What gets reported pursuant to a particularly stark example for the the ATT depends on how each civil society community of how the government maintains its policy objectives and constraints for national reports. arms manufacturers that are party to the treaty have remained the same. A lawsuit to overturn the licensing decision (filed by a British NGO) already ratified the treaty, but also to determining what armaments are proved unsuccessful, though it did signatory states still in the process of actually in commerce, authorisations reveal divided views among ratifying, as well as to certain provide the clearer picture of the kinds government officials as the licensing international organisations, and of decisions governments are making decision was considered. critically, to organisations representing and whether they are rigorously If the ATT has not led to immediate the NGO community that had fostered applying ATT evaluation standards. changes in the decisions made by major the treaty, as well as representatives of However, what gets reported pursuant arms exporters, the hope would be that the arms manufacturers. to the ATT depends on how each at least there was a new willingness By all international standards, this government maintains its national among states parties to acknowledge organisational process was, as the reports (most states that are significant and address the problem of recipients negotiations process had been, arms producers provide annual reports violating humanitarian and human exceptionally open and all-embracing. to their legislature, normally in the rights principles. An editorial in the Proposed rules of procedure and national language, and sometimes ATT Monitor, published by the NGO, financial rules were negotiated, a these reports are public and sometimes Reaching Critical Will, on the recently competition was held to determine not). concluded (11-15 September 2017) third which city would host the secretariat, conference of states parties speaks proposals as to the functions and Is the ATT making a difference? passionately to that issue: staffing of the secretariat were The ATT text was opened for signature developed, as were proposals for the on 3 June 2013. Seventy-one states ‘[T]he credibility and life-saving leadership and management committee signed the treaty in the first three days, potential of the Arms Trade Treaty (ATT) structures for the annual CSPs. and a total of 130 states had signed by is eroding rapidly as a result of the These were adopted for the most the time the treaty entered into force 24 unwillingness of states parties to part with minimal discussion at the December 2014, 90 days after the 50th acknowledge the impact of certain arms first CSP. Debate on the roles and ratification. While slower than either transfers. This is a failure of both those responsibilities of the secretariat the Landmine or Cluster Munitions who are conducting transfers that violate proved contentious, with size and cost treaties, both the number of signatures the Treaty’s provisions, as well as those issues weighing against transparency and the speed with which the treaty who fail to call them to account. We, and (information sharing and analysis). was brought into force were the majority of civil society groups at Geneva, Switzerland was chosen to exceptional by traditional standards. CSP3, appealed repeatedly to states to use host the ATT Secretariat in preference Adoption of the ATT was greeted by this conference as a space to consider the to Vienna, or Port of Spain, many supporters with high impact of such transfers in the cities and Trinidad and Tobago. expectations that the international countries around the world that are being While the treaty itself establishes trade in arms would, at least over time, destroyed by bombs and bullets. the basic content and timing be significantly reduced, and in requirements for national reporting, particular that arms sales to states These calls were blatantly and which is essential to the transparency actively engaged in hostilities or unapologetically ignored. Over the course objectives of the treaty, the specifics of human rights violations would be of the five days, references to the real format and content remain, three years stopped by states party to the treaty. Of world were scarce. We noted in the later, under discussion and course, the major Western arms Thursday edition that only Costa Rica

27 WorldECR www.worldecr.com Arms Trade Treaty Arms Trade Treaty

acknowledged the conflict in Yemen; only ATT is making, or will make, a Looking, not just at how many Chile said it shares the concerns of civil difference in how states engage in states, but also at which states did or society regarding possible failures to international arms trade? didn’t join the treaty (or participate in implement articles 6 and 7 of the Treaty Supporters of the treaty hoped that early negotiations on its creation) helps and transfers of weapons to zones of it would, and many claim that it has, answer that question. conflict; and only 12 states called for created a new norm for how states Among major arms cessation of arms transfers to one transfer arms. Through this prism, producers/exporters, those states that country, Venezuela, due to current levels increased transparency will motivate might be characterised as ‘Western’ all of state repression and human rights changed conduct. But the first step is participated in the negotiations and are abuse.1 formal acceptance of the new standards signatories, and with the exception of of conduct, including of transparency: the United States, Israel, and Turkey, Naming and shaming has proven public acceptance and commitment to are now parties. Of the top 20 exporters an effective tool for NGOs in their the new norm. For NGO advocates and of major conventional arms,2 as drive for an ATT (as well in getting the political scientists, rapid and identified by SIPRI,3 13 are ATT parties landmine or cluster munitions ban treaties). But among states, unless other specific national interests are Asia, with a few exceptions (South involved, the consequences for other Korea and Japan are parties; aspects of the relationship either mean Bangladesh, Cambodia, and the discussion is private, or not pursued at all. And for those who live Thailand have signed) remains in glass houses, such tactics can be unengaged. expected to backfire. Hence the expectation that states parties might engage in extensive discussion of such widespread adherence to a new treaty and seven are not. Among ‘non- arms transfers by each other in such a – as here, with 130 states (two-thirds of Western’ major arms exporters, public forum may not be the best the international community) signing Ukraine signed the ATT, while Belarus, metric for whether the ATT is making quickly – is seen as a ‘norms cascade’, China, and Russia have remained a difference. the rapid creation of a new norm in the aloof. Thus, two of the five largest arms So how to measure whether the international community. exporters remain entirely outside of the ATT, and the largest arms exporter (the United States) participates in ATT fora only as a treaty signatory, not a party (and with little prospect of becoming a full party). Major arms producers/exporters are normally defined in terms of the trade in the arms categories specified by the UN Register on Conventional Arms Learn WHEN, HOW & WHERE it is convenient for YOU! (i.e., main battle tanks, armoured U.S. Export Controls & Embargoes combat vehicles, large-calibre artillery systems, combat aircraft, attack EAR, ITAR & OFAC Compliance Training helicopters, warships, and missiles and missile launchers). Infantry weapons – that is small arms and light weapons Train from your home or (‘SALW’) – are usually considered oce computer... separately, and many of the largest at YOUR convenience. producers/exporters of SALW are not substantial players in the other Now it is easier than ever to get the categories of weapons. However, best in export compliance training for SALW are the weapons most used in your company. and facilitative of civil strife, irregular warfare, and terrorism. Major Easy to use e-Seminars include all producers/exporters of SALW include of the content of our highly praised (in addition to several of the exporters live seminars and combine: - ITAR Controlled Items mentioned above) Belgium, Brazil, * Video instruction - ITAR Controlled Activities , , Japan, * Slides highlighting key concepts - ITAR Licenses Norway, and Sweden.4 Of these, only - ITAR Agreements * Searchable, comprehensive - Much more... Brazil is not an ATT party, it is a e-Manual Use Promo signatory. Code ECR-10 For major arms importers, the for 10% pattern is more complicated. Of the 20 Visit www.LearnExportCompliance.com/e-Seminars e-Seminar largest arms importers as identified by or call +1 540 433 3977 (USA) for details or registration. discount! SIPRI,5 only three (Australia, South

28 WorldECR www.worldecr.com Arms Trade Treaty Arms Trade Treaty

Korea, and the UK) are ATT parties. Six Bahrain, Israel, and the United Arab mechanisms created by the ATT – (the United Arab Emirates, Turkey, Emirates are signatories; otherwise the assistance and guidance in establishing United States, Singapore, Bangladesh, region remains aloof. Iran and Syria the national systems needed to meet and Israel) are signatories, and the (along with North Korea) voted against reporting and export/import control other 11 (India, Saudi Arabia, China, the ATT in the UN General Assembly. obligations under the treaty. Seen in Algeria, Iraq, Pakistan, Vietnam, Egypt, Indonesia, Taiwan, and Venezuela) remain entirely outside the ATT. Non-governmental organisations Viewed regionally, ATT parties tend to cluster. All of Central America can continue to press and provide except Nicaragua, and all of ECOWAS assistance, but it is governments (the Economic Community of West that must play their role. African States) save Gambia, are parties. Relatedly, ECOWAS adopted a treaty in 2006 to restrict SALW imports into the region.6 In South America, all Most states that signed but have yet this light, much of the reporting lapse but Bolivia, Ecuador, and Venezuela to ratify the ATT are in regional is more about the scope of the task are parties or signatories. In Africa clusters with states already party – before many ATT parties rather than a most southern African states are which provides further insight as to the failure of commitment. parties or signatories, while East real dynamic. Whole regions (with the African states, the DR Congo, and the exception of particular expected Prospects for the future northern tier states (except Libya, a political outliers) support the ATT, Those states that are major signatory) remain aloof. As mentioned, while other regions (again with a few producers/exporters of conventional all of Europe except Belarus and Russia outliers) remain essentially arms, whether major systems like are parties. disinterested. In essence, arms armoured combat vehicles or aircraft Asia, with a few exceptions (South exporters that hold strongly to the or SALW, are unlikely to substantially Korea and Japan are parties; values behind international human change their export decision-making Bangladesh, Cambodia, and Thailand rights and humanitarian law are because of the ATT. Their decisions are have signed) remains unengaged, engaged with the ATT, as are importer made on national policies and national although China did participate in the states (mostly of SALW) in regions interests, whether that means national negotiating conferences and has been with communal violence, civil strife, security, political relationships, or an observer at states parties and/or terrorism. economic factors. The role of human conferences. In the Middle East, Others remain aloof or rights and humanitarian law in that disinterested. Given that only half of process varies with state and UN member states are parties (and individual decisions. Adherence to the Links and notes some signatories are unlikely to ratify ATT reflects national priorities more in the foreseeable future), the case for than it influences them. 1 Allison Pytlak, ‘Sliding into norm erosion,’ ATT Monitor vol.10 no.6, 18 September 2017. a new global norm of conduct in For states that are primarily 2 Arms are commonly divided between major arms, conventional arms trade can be importers of arms, the role of the ATT for which there are seven categories used in the UN questioned, but that may not be the looks to be very different. Many of Register of Conventional Arms and Wassenaar Arrangement lists, and small arms and light best way to judge the treaty. these states have had few or no weapons (SALW). While most producers/exporters Critics might even question the effective controls, and often not even of major arms are also major producers of SALW, commitment among ATT parties when notional but unenforced controls. The some of the biggest producers/exporters of SALW are not significant producers/exporters of major looking at whether they have, within requirements of the ATT to implement conventional arms. the first year after joining, submitted and enforce such controls, and the 3 Twenty largest arms exporters 2012-2016, the required initial report describing assistance available through ATT- Stockholm International Peace Research Institute. In quantifying its data, ‘SIPRI uses a unique metric, their national system – laws, related mechanisms, has begun to the trend-indicator value (TIV), to measure the regulations, procedures, responsible make a difference. The future depends volume of international transfers of major weapons. authorities – and then submitted on maintaining political focus and This takes into account any transfers of major arms, regardless of the price paid or agreed between the annual reports on their arms exports political will in these governments. supplier and the recipient.’ It does not include trade and imports. Rates of compliance with Non-governmental organisations can in small arms and light weapons, except for certain anti-aircraft and anti-tank missiles. these requirements are not strong, 72% continue to press and provide https://www.sipri.org/commentary/blog/2017/stat of states have provided initial reports; assistance, but it is governments that e-major-arms-transfers-8-graphics annual reporting is more problematic, must play their role. 4 Small Arms Survey, with the most recent rate of annual http://www.smallarmssurvey.org/weapons-and- reports being only 41%.7 markets/transfers/exporters.html J Christian Kessler served as 5 Twenty largest arms importers 2012-2016, On the one hand, these compliance nuclear & export control expert Stockholm International Peace Research Institute, rates are neither significantly out of https://www.sipri.org/commentary/blog/2017/stat on the UN Security Council’s line with those experienced in the UN e-major-arms-transfers-8-graphics Panel of Experts on Iran. He is 6 Register of Conventional Weapons or ECOWAS Convention on Small Arms and Light owner/principal at NorthRaven Weapons, their Ammunition and other related the Wassenaar Arrangement. More Materials. Consulting LLC importantly, many of the states that 7 ATT monitor 2017, page 13. have not met their reporting [email protected] requirements are seeking – through

29 WorldECR www.worldecr.com The Global Agenda “Uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security.” John Allen Paulos, American mathematician

The GlobAl AGendA Sanctions l Export Control l Compliance

A special report from WorldECR The Global Agenda

sanCtions: What nExt, noW?

If it wasn’t totally clear before, the past few years have demonstrated without doubt that politicians like sanctions and embargoes. And it’s not just traditional regimes imposed on the usual suspects that have captured the headlines. Sanctions are changing and approaches to compliance with them will have to change as well.

rom a compliance perspective them – and sanctions are the current out of the Joint Comprehensive Peace generally, this has been a weapon of choice. Agreement (‘JCPOA’), pulling his ‘F challenging year, riven with The stance of the nation that has country out of the Climate Change uncertainties that promise to continue long held primus inter pares status has Treaty, recognising Jerusalem as the into 2018.’ changed almost over night and this is capital of Israel, and making That’s one trade professional’s providing the backdrop for a period of statements about North Korea that assessment of 2017 and, WorldECR uncertainty in global trade and its others consider incendiary. At the can report, it’s a commonly shared regulation. US president Donald same time, the imposition of sanctions sentiment. As the geopolitical risks Trump has shown little regard for the against Russia for its alleged become more complex, an increasingly spirit of multilateralism encouraged by interference in the US presidential divided world is attempting to address his predecessor, threatening to back election highlights both the strangely

2 WorldECR l the Global agenda www.worldecr.com SpecialThe Global focus: Agenda U.S.A. 2015 Special focus: U.S.A. 2015

surreal nature of current geopolitics, law firm Morgan Lewis notes, ‘Iran being that lawmakers make laws. and of the relationship between the continues to be a concern, especially CAATSA (Countering America’s branches of government. given the current administration’s Adversaries Through Sanctions Act, In Europe, the United Kingdom’s commentary regarding the JCPOA see further below) marries Donald peeling away from the European Union which relaxed some US sanctions on Trump’s pugnacious stance against raises both fundamental questions Iran effective January 2016. The Iran with Congress’s concerns about about the future of the Common Russia/Ukraine situation is also Russia and North Korea. In the United Foreign and Security Policy (‘CFSP’) evolving. Then there’s Venezuela and Kingdom, a new financial sanctions bill and nuts and bolts ones about the restrictions recently implemented is on the table. Sanctions measures in sanctions regulation and enforcement. against Venezuelan individuals and Washington and the EU are affecting Amidst the confusion, the assertion of entities. The sanctions against North transactions with Venezuela, as they global influence – economic, cultural, Korea are being tightened continuously are in Canada, which, like the US and regulatory, by new players (China for obvious reasons. We’ve seen before it, has introduced ‘Magnitsky’- especially) – seems inevitable. changes to the Cuba embargo and the type sanctions designed to enable the All of which has enhanced the removal of sanctions against Sudan. authorities to target individuals they importance of trade compliance. ‘Can I That’s a lot of activity in a relatively believe guilty of violations of human export to or do business with that short period of time.’ rights. Secondary sanctions, sectoral country? Or with those people?’ As ever, in the midst of uncertainty, sanctions, proposed embargoes against Margaret Gatti of the DC office of some things are certain, a key one countries which ‘do not respect democracy’... 2017 has seen a long list get longer and 2018 will likely see it The Global Agenda: Impact of the JCPOA longer still. Against such a swirl, international In January 2016, the EU and the US lifted most of their economic and financial sanctions on Iran, after the International Atomic Energy Agency (‘IAEA’) confirmed that Iran had businesses need to have their antennae taken the required steps to dismantle its nuclear programme under the 2015 Joint tuned to changes in mood music which Comprehensive Plan of Action (‘JCPOA’) between the P5+1 (China, France, Russia, the are not always subtle. ‘The sanctions UK, the US plus Germany and the EU) and Iran. This was widely seen as good news for landscape is changing all the time,’ says exporters looking to open up for trading opportunities. DJ Wolff of Crowell & Moring. ‘In the ‘Implementation day has certainly been a milestone for German exporters,’ says past, when I made presentations, I Georg Pietsch, Director General at the Federal Office for Economic Affairs and Export used to put the dates on the slides. Control in Germany (‘BAFA’). ‘It has facilitated civil trade and cooperation with Iran, Sometimes now, I think I should especially in the gas, petrochemical, banking and insurance sectors that was subject to change those to actual times of the day economic sanctions before.’ – everything is becoming obsolete so Exporters doing business with Iran still need a robust export compliance management programme, however. The EU sanctions list still includes entities such as the Islamic quickly.’ Revolutionary Guard Corps (‘IRGC’) and others linked to the missile and conventional What a difference a day makes, goes weapons sector, and there is a complex system of export bans and authorisation the popular song. In economic requirements for dual-use items. sanctions, the arrival of President Pietsch provides an example: ‘Companies may export nuclear dual-use items for civil Donald Trump on the world stage purposes, if the United Nations Working Group and the Procurement Working Group has proves the rule. As we move toward the given its approval upon consultation by the national licensing authority...Items that are new year, what can we expect of the not covered by the annexes of the Iran embargo regulations or by the EU dual-use Global Agenda? regulation can be subject to control over their concrete end use. Exporters need to make an individual end-use assessment under the EU’s catch-all clause.’ Iran matters Regulators have expressed some frustration with the Procurement Channel, operated through the Procurement Working Group. This aims to ensure that single and dual-use Twelve months ago, WorldECR was items with possible nuclear application cannot be diverted to any nuclear programme in reporting that the fate of the Joint Iran, or stockpiled for future use. As a highly complex mechanism without precedent, its Comprehensive Plan of Action first year or so of operation has left some open questions. Concerns include the extent to (‘JCPOA), touted then by its supporters which commercial confidentiality could be compromised by the disclosure of information, as one of the great diplomatic the possibility of corruption – as the Iranian government has to provide attestation for breakthroughs of the age, was very end-use undertakings – and the compliance burden on participating states. much in the hands of the soon-to-be- next president of the United States. The deal provides for the lifting of all nuclear-related economic and financial sanctions that had been imposed by the United Nations (see box, left). For its part, the US maintains its primary sanctions, but suspends the application of secondary sanctions. The deal meant that for the first time since 2012, transfers of funds to and from Iran and the European Union, and the establishment of corresponding banking relationships, were permitted. Donald Trump shared with his

3 WorldECR l the Global agenda www.worldecr.com international trade. let’s talk. dŚĞdžƉŽƌƚŽŶƚƌŽůƐĂŶĚ^ĂŶĐƟŽŶƐƉƌĂĐƟĐĞĂƚƌŽǁĞůůΘDŽƌŝŶŐŚĂƐďĞĞŶ    ĂĚǀŝƐŝŶŐĂŶĚĐŽƵŶƐĞůŝŶŐŐůŽďĂůĐŽŵƉĂŶŝĞƐĨŽƌĚĞĐĂĚĞƐ͘tŝƚŚƌĞĐŽŐŶŝnjĞĚ       ĞdžƉĞƌƚƐŝŶĂůůĂƐƉĞĐƚƐŽĨĞdžƉŽƌƚĐŽŶƚƌŽůƐ;Z͕/dZ͕ŶƟďŽLJĐŽƩͿ͕ƐĂŶĐƟŽŶƐ         ;K&͕^ƚĂƚĞ͕&/EEͿ͕ĂŶĚĨŽƌĞŝŐŶĚŝƌĞĐƚŝŶǀĞƐƚŵĞŶƚ;&/h^Ϳ͕ƚŚĞƚĞĂŵ    ƉƌŽǀŝĚĞƐƐŵĂƌƚƐŽůƵƟŽŶƐĨŽƌĐůŝĞŶƚƐďLJĚĞǀĞůŽƉŝŶŐƚĂŝůŽƌĞĚĐŽŵƉůŝĂŶĐĞ     ƉƌŽŐƌĂŵƐ͕ĐŽŶĚƵĐƟŶŐĐŽŵƉůĞdžŝŶƚĞƌŶĂůŝŶǀĞƐƟŐĂƟŽŶƐ͕ĂŶĚĂĚǀŝƐŝŶŐŽŶ ǀŽůƵŶƚĂƌLJĚŝƐĐůŽƐƵƌĞĂŶĚĞŶĨŽƌĐĞŵĞŶƚƉƌŽĐĞĞĚŝŶŐƐ͕ƚŽŶĂŵĞĂĨĞǁ͘dŚĞ  ƌŽǁĞůůΘDŽƌŝŶŐdžƉŽƌƚŽŶƚƌŽůƐĂŶĚ^ĂŶĐƟŽŶƐƉƌĂĐƟĐĞŚĂƐďĞĞŶƌĞĐŽŐŶŝnjĞĚ          ďLJChambers USA͕Chambers Global͕ Legal 500͕ĂŶĚBest Lawyers͘

CROWELL.COM/INTERNATIONAL-TRADE SpecialThe Global focus: Agenda U.S.A. 2015 Special focus: U.S.A. 2015

fellow Republican candidates a strong McKenzie partner Nicholas Coward exported over €8,2 billion worth of distaste for the deal which provides characterises the status quo as a goods to Iran in 2016. EU exports to Iran limited sanctions relief in return ‘permanent state of stable uncertainty’, Iran are mainly machinery and for a nuclear programme which is observing, ‘We’re actually in a similar transport equipment (€3,8 billion, 46,2%), chemicals (€1,8 billion, 22,2%), and manufactured goods ‘We have a number of clients who are (€0,7billion, 8,8%). The EU imported having to forego or restructure deals almost €5,5 billion worth of goods which are entirely lawful, purely because from Iran in 2016.’ (Source: European of the attitude of their financiers, who are Union.) concerned with what’s happening in the But has the recent noise around United States and the fear that the US Iran – and Donald Trump’s refusal to government will renege on the JCPOA.’ recertify – had an overly dissuasive impact on that growth curve? Daniel Martin, hFW Anthony Woolich, a lawyer at London’s HFW, says that for many transparently for civilian purposes situation to where we were a year ago. businesses, the mood around Iran only. The fact that nothing very significant remains pretty much unaltered from Under the Iran Nuclear Review Act has happened since then does create a the state of affairs before of 2015, the President of the United kind of stability. There’s huge Implementation Day, 16 January 2016. States is required to certify each 90 uncertainty, but people navigate as ‘US enforcement authorities have fined days that Iran is complying with its they can.’ This means, says Coward’s non-US companies so heavily that obligations under the JCPOA. By colleague, Stockholm-based Mattias many are still dissuaded from taking refusing to do so in October this year, Hedwall, that from the EU side at least, part in deals that would be perfectly President Trump has neither quashed ‘There’s been a huge amount of activity compliant with sanctions regulations. the JCPOA nor pulled the United States – especially in low and mid-risk Risk thresholds depend very much on out. Meanwhile the other members of business sectors.’ a company’s identity, whether or not the P5+1 have been vocal in saying that Undoubtedly, some companies have it’s publicly listed, its location, etc.’ the deal should continue. been able to take advantage of the Woolich’s colleague, Daniel Martin Where does that leave the situation relaxing of sanctions against Iran, and believes there remains a misalignment from an operational perspective? Baker EU stats show a hike in trade: ’The EU between commercial operations

LEGAL EXPERTS For more information please contact: DANIEL MARTIN IN TRADE Partner, London T +44 (0)20 7264 8189 SANCTIONS E [email protected] www.hfw.com/trade-sanctions ANTHONY WOOLICH Partner, London T +44 (0)20 7264 8033 E [email protected]

5 WorldECR www.worldecr.com The Global Agenda

involving Iran and banks involving Rathbone, a US lawyer based in the presence who are entering Iran – for Iran: ‘‘We have a number of clients who firm’s London office, does not lay the example, in the automotive sector. are having to forego or restructure blame for the uncertainty solely at the They need to know whether and how deals which are entirely lawful, purely feet of President Trump. Rathbone they can remove themselves without because of the attitude of their notes that the remaining EU restrictive significant financial consequences, if financiers, who are concerned with measures – designation of individuals there’s a snapback for example. They what’s happening in the United States for human rights abuses – also figure also need to know where the potential and the fear that the US government in the analysis: ‘It is a real challenge to touchpoints with the United States lie. will renege on the JCPOA and are do thorough due diligence. Figuring It might be a financing issue, or relate imposing additional restrictions on customers as a result. We also see clients adopting a “wait and see" ‘With all these things, you have to be able approach to trade with Iran.’ London-based sanctions lawyers at to distinguish between rhetoric and international law firm Norton Rose reality.’ Fulbright sense the same hesitancy on steven Brotherton, the part of companies with regard to sandler, travis & Rosenberg Iran. ‘Certainly on the corporate side we’ve seen more companies willing to walk away from deals, concluding that it’s more trouble than it’s worth to out ownership structures and to parts and components. Another area continue,’ says Jason Hungerford, who beneficiaries is complicated. That’s to watch out for is technology – such as has seen clients proceed with deals, why compliance hurdle for many the software and updates that now go only to ‘pull out of contracts and companies is just not worth the cost.’ into cars and trucks.’ prepare for arbitration’ as a result of Steven Brotherton, a partner at Unchecked, potential violations will bank reticence to receive funds or Sander Travis & Rosenberg (‘STR’) in lie in wait. provide export finance. California, points out that ‘With all And it’s not just on the European these things, you have to be able to Challenging times shores of the Atlantic that the ripples of distinguish between rhetoric and Meanwhile, for those who find President Trump’s actions are being reality,’ and that while the challenges, themselves the unwanted subject of seen. ‘Yes, there’s been a bit of a such as the prevalence of the authorities’ attention and designation, chilling effect under the Trump sanctioned Iranian Revolutionary the future, likewise, looks tricky. Administration,’ observes DC-based Guard Corp (‘IRGC’) in Iranian Guy Martin, a partner at law firm Steptoe & Johnson partner Brian Egan. business, difficulties in interpreting Carter-Ruck in London, has a track ‘We still see companies trying to figure General License H, and the reluctance record of making delisting applications out whether they can proceed under of banks to put up trade finance, are for clients designated by the EU, UK the terms of General License H, but ever present, they don’t have to be and even by US authorities. Indeed, often they find that it’s more showstoppers. Martin led on the famous Kadi cases, complicated than they thought, Consequently, Brotherton and his which gave rise to the establishment of because of the remaining connection colleagues are busy with Iran-related the Office of the Ombudsperson to the with the insurance system, US business. ‘There is a significant medical ISIL (Da'esh) and Al-Qaida Sanctions software, backroom support, financial device market in Iran,’ he says. ‘We Committee in the UN Security Council, as a means of providing some independent oversight of Security ‘It is a real challenge to do thorough due Council designations. There continues, diligence. Figuring out ownership says Martin, to be a steady stream of structures and beneficiaries is applications for annulment of complicated. That’s why the compliance sanctions – he’s currently working on hurdle for many companies is just not cases for clients from Ukraine, Egypt, worth the cost.’ Tunisia, Syria and Saudi Arabia. Already as things stand, typically Meredith Rathbone, steptoe & Johnson parties seek relief both in the UK and EU courts. In the Kadi case, the EU system, etc. Lots of SMEs have said, represent some of the largest regulation in which he was designated “This is too much work, money and companies in the sector, advising on was issued by the Council of the EU time and thus not worthwhile.” Others their ability to utilise the general and there was a separate domestic UK are taking a longer view. Some of those licences available. Outside of that, regulation by statutory instrument. It are in the higher reward sectors, but we’re advising US-owned foreign meant that in the UK High Court, the there are also companies with a history entities operating under General challenge had to be by way of judicial of doing business in Iran who want to License H, in establishing compliant review and in the EU, by bringing get back in before their competitors mechanisms and structures for proceedings before the General Court take the market over.’ engaging with their parent companies in . Egan’s colleague, Meredith [as well as] foreign entities with no US After Brexit, of course, EU sanctions

6 WorldECR l the Global agenda www.worldecr.com For the most sensitive disputes

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regulations will not be binding on the Overall, says Ferrari, ‘There are something of an oddity, as Debevoise & UK. The recently published Sanctions more designations, but the programme Plimpton partner Satish Kini notes: and Anti-Money Laundering Bill is an of dealing with delisting applications ‘CAATSA is different to other sanctions attempt to ensure the regime will be fit has slowed down – partly because so legislation in that it became law not for purpose, and generally aligned with many of the key positions needed to because of any particular events in EU regulations. But in some aspects, it deal with them during the interagency Russia, or directly related Russian goes further than the EU regulations – review process are unfilled.’ events, but for domestic political possibly too much so, thinks Martin: Neither in the US nor in Europe reasons. Traditionally, when you’re ‘Clause 11 of the Bill allows for does it seem that the appetite for trying to interpret sanctions, you look designation by description. Under EU imposing sanctions (or challenging to the facts on the ground. In this case, law, a person must be named – in the them) is at all diminished. the facts may actually be related to the interests of certainty. The Bill US Congress.’ envisages a three-year review period CAATSA among the pigeons CAATSA commences by stating that for sanctions, which is very lengthy. In August, barriers to business with the President shall impose sanctions But, perhaps most important, this is Iran, Russia and (though arguably it’s upon any ‘Foreign Person if the legislation which includes no right for a more academic point) with North President determines’ that that person violates a relevant executive order or ‘[The recently published Sanctions and undertakes a ‘significant transaction or Anti-Money Laundering Bill] is legislation transactions’ with persons sanctioned which includes no right for an individual under US law, or ‘any child, spouse, who has been sanctioned to be told that parent, or sibling’ of such a person. they have been or on what grounds. And ‘People have a lot of questions,’ says that undermines the very important Kini. ‘Partly because its scope is so jurisprudence established by Kadi.’ ambiguous in many of its provisions: How do the secondary sanctions apply? Guy Martin, Carter-Ruck How are the relevant sectors defined? What is a “significant transaction”? an individual who has been sanctioned Korea were raised somewhat higher Yes, there has been some guidance to be told that they have been or on when the US president (without the from OFAC and the State Department, what grounds. And that undermines gusto that attends many of his actions) but not all of it provides a great deal of the very important jurisprudence signed into law the Countering clarity.’ established by Kadi.’ America’s Adversaries Through One provision which is leading to OFAC specialist Erich Ferrari of Sanctions Act (‘CAATSA’). consternation – both amongst foreign Ferrari & Associates is also no stranger Among its various effects, CAATSA businesses with Russian interests and to the vicissitudes of challenging imposes additional sanctions in in Russia – is that relating to the so- designations. Since 2016, Ferrari has response to Iran’s ballistic missile called ‘Oligarch List’. Section 2.41 of been representing Reza Zarrab in a programme. It also imposes terrorism- CAATSA which directs the Treasury now high-profile trial which may yet related sanctions respecting the Secretary along with Secretary of State prove to be critical to US-Turkish Iranian Revolutionary Guard Corp and Director of National Intelligence to relations. He also represents clients in (which it accuses of ‘implementing submit in the new year a report on licensing applications. ‘I’ve noticed a Iran’s international program of ‘senior political figures and oligarchs in more restrictive licensing policy from destabilizing activities, support for acts the Russian Federation,’ assessing OFAC in the past year,’ says Ferrari. of international terrorism, and ballistic their net worth, ‘closeness to the ‘Things that were once seemingly sure to be granted are now being denied. For example, we were recently denied ‘I’ve noticed a more restrictive licensing a licence for a US lawyer to appear as an expert witness in an arbitration policy from OFAC in the past year. Things occurring in Europe in which an that were once seemingly sure to be Iranian entity was a party to the granted are now being denied.’ arbitration. In the past, we would have Erich Ferrari, Ferrari & associates been sure it would be granted.’ Interestingly, on the enforcement side, Ferrari says: ‘I think there’s more interest from OFAC in going after missile program’). Ironically, this may Russian regime’, their respective facilitation of sanctions breaches, and actually help President Rouhani in his relationships to Vladimir Putin ‘or not just the straight breaches reported efforts to tackle corruption in other members of the…ruling elite’, themselves. It’s also apparent that in the IRGC and trim down its sprawling and the known sources of income of the post-JCPOA environment, OFAC is role in the Iranian economy. those individuals and family members. keen to show that it’s enforcing the law But it is perhaps as regards Russia Kini says that when the firm hosted strictly [i.e., not letting breaches of that CAATSA threatens to most a seminar in Moscow on CAATSA in historical sanctions “slide” just because significantly disrupt the flow of dollars general, including the implications of of the deal].’ and deals. And it is, in a sense, this provision, ‘We had to move the

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venue – the number of people especially around the capital markets Rose Fulbright, points to the practice interested – both US business people aspects – and these were flagged by the on the part of banks to maintain a in Russia and Russians – was Rosneft case.’ And even where the EU policy of prohibiting all transactions extraordinary.’ and US measures are aligned (for which may involve Iran, particularly Ginger Faulk is a DC-located example on the prohibition on making given the continuing risk of US partner at Baker Botts, a firm which, loans to certain entities), there are sanctions, and as a result will frequently demand provisions in ‘Secondary sanctions themselves are not facility agreements which go beyond new, but what is different is that, in the the scope of the sanctions regimes. CAATSA context, they’re so potentially broad and amorphous that companies Fire and fury and banks are very nervous about how it If trade compliance has been losing might apply in a wide range of sleep because of Russia and Iran, the man on the street’s night sweats are transactions.’ more likely diagnosed as caused by Ginger Faulk, Baker Botts Kim Jong-un, strangely coiffured leader of North Korea, the regime true to its Texan roots, has a long differences: for example, in the EU whose increasingly feverish acts of tradition of representing the energy version, payment terms beyond 30 pugilistic defiance become ever more and related sectors. Many of her clients days would not constitute a loan – but terrifying. have questions about CAATSA: ‘It has they would in the United States. Each new intercontinental ballistic the potential to have a sudden and In August this year, in light of the missile (‘ICBM’) launch and nuclear significant impact. Because it is so Rosneft decision, the European test demands a response, and bar the targeted and complex, it’s going to Commission released revised guidance use of force, the imposition of tighter make it hard for businesses in the on the Russia sanctions addressing, sanctions is inevitable – to the point energy, mining, pipeline and other amongst other questions, when and that there’s little left to sanction; only sectors to navigate this web. Of course whether certain kinds of activity China is in a position to apply more the secondary sanctions themselves are constitute ‘financial assistance’ for the meaningful pressure. not new, but what is different is that, in purposes of the Regulation, and how to In August, UN Resolution 2371 put the CAATSA context, they’re so distinguish between prohibited loans the squeeze on North Korea’s revenue- potentially broad and amorphous that and other kinds of (legitimate, non- generating ability by prohibiting joint companies and banks are very nervous prohibited) commercial activity. ventures with UN member state about how it might apply in a wide ‘The point is that the capital companies, and prohibiting sales of range of transactions.’ markets measures and oil restrictions seafood, iron ore and iron and lead. Further, CAATSA puts a subtle haven’t been developed through other The United States has also applied wedge between the US and EU sanctions regimes,’ says Dechert’s secondary sanctions against Chinese approaches to Russia (originally Matthews – the implication being that and Russian entities. (As at time of engineered for effective alignment). ‘CAATSA puts the Russia sanctions on ‘[CAATSA] upends the alignment with the the statute books (rather than in European Union which reviews the executive orders as previously); that formalises them and makes them very appropriateness of maintaining its much harder to remove,’ says Roger Russian restrictive measures every six Matthews of the London office of months (in contrast to the 12-month Dechert. ‘It also upends the alignment review periods it applies for most with the European Union which sanctions regimes). ’ reviews the appropriateness of maintaining its Russian restrictive Roger Matthews, Dechert measures every six months (in contrast to the 12-month review periods it there is very much less material writing, President Trump has urged his applies for most sanctions regimes). available which might guide counterpart in Beijing to cut off the Clearly in this respect we’re going in compliance with these complex sets of supply of crude oil to North Korea in different directions.’ rules. retaliation for the launch of the Matthews, who frequently advises But Matthews emphasises that the Hwasong-15 missile.) on sanctions-related issues typically EU sanctions on Russia only prohibit CAATSA also addresses North with an EU dimension, says that certain activities: ‘There are 11 or 12 Korea, imposing blocking sanctions on ambiguity is not the sole preserve of US energy companies and banks to which US and non-US persons that sanctions and similar issues seen EU entities are prevented from ‘knowingly’ engage in certain activities, through both lenses lend further providing loans or share capital. But such as purchasing ‘significant’ complexity. ‘Banks and others are that’s not to say that all business with amounts of copper or other metals; seeing ongoing ambiguities in the EU’s them is prohibited. It just needs patient transferring to North Korea restrictive measures against Russia untangling.’ ‘significant’ amounts of rocket, aviation (Regulation 833/2014 as amended) David Harris, a partner at Norton or jet fuel; and insuring or registering

9 WorldECR l the Global agenda www.worldecr.com The Global Agenda

vessels owned or controlled by the Respect to the Situation in Venezuela, government of Venezuela from any government of North Korea. which prohibits US persons from entity owned or controlled, directly It also prohibits some financial, participating in transactions involving: or indirectly, by the government of shipping, and labour transactions and Venezuela; and imposes mandatory sanctions against l new debt with a maturity of greater l ‘The purchase, directly or indirectly, foreign persons who ‘knowingly’ employ North Korean labourers. There are clear risks for some companies with a Chinese component ‘I think we’ll see Congress pushing for in the supply chain. ‘We’ve seen US more pressure against Chinese banks in Customs issue requests to companies with activities in the Chinese provinces 2018 – it won’t be abating soon.’ bordering North Korea,’ says STR’s satish Kini, Debevoise & Plimpton Steve Brotherton. ‘They’ve been going down the list seeing who’s importing from those regions and asking, “What is your policy on the use of forced labour?” So far, they haven’t been than 90 days of state oil company, by a United States person or within detaining goods but they are asking Petroleos de Venezuela, S.A. the United States, of securities from questions.’ (‘PdVSA’); the Government of Venezuela.’ Inevitably there’s more to come, l new debt with a maturity of greater thinks Debevoise’s Satish Kini: ‘I think than 30 days, or new equity, of the On 13 November, the European we’ll see Congress pushing for more government of Venezuela, other Union announced it was following the pressure against Chinese banks in 2018 than debt of PdVSA covered by lead of the United States in imposing – it won’t be abating soon,’ he says. subsection (a)(i) of this section; sanctions against Venezuela, l bonds issued by the government of expressing its ‘deep regret at the Fracas in Caracas Venezuela prior to the effective date decision of the Venezuelan authorities In late August 2017, the US President of this order; or to continue with the election of a issued Executive Order 13808 l dividend payments or other Constituent Assembly, a decision that ‘Imposing Additional Sanctions With distributions of profits to the durably worsened the crisis in

The way through Today’s global legal and geopolitical landscape isn’t just a challenge, it’s an opportunity. Dechert’s international trade and EU law team has the reach, resources, technical expertise and commercial awareness to provide clear, practical advice on the full range of international and EU trade and regulatory issues. Against a backdrop of political and regulatory change, including Brexit, we can help YOUNAVIGATETHEPITFALLSANDlNDTHEOPPORTUNITIES dechert.com D

10 WorldECR l the Global agenda www.worldecr.com The Global Agenda

Venezuela and risked undermining focused law firm like Baker Botts long-term debt by the executive order. other legitimate institutions foreseen should also be fielding questions on And, of course, there are more routine by the Constitution, such as the Venezuela. Washington DC partner issues, such as, what might the National Assembly.’ Ginger Faulk notes how the Maduro consequence be of a specially The resulting measures, Regulation government’s attempt to restructure designated national being involved in a No 2017/2063 and Decision Venezuela’s debt has in effect been debt transaction.’ 2017/2074 include an arms embargo stymied by sanctions which prevent the If a handful of sanctioned countries and prohibition on supply of country and PdVSA from refinancing dominate the compliance agenda, equipment that could be used for because US institutions are now barred that’s not to say that others don’t internal repression, and financial from acquiring new debt. The cocktail generate enquiries. Roger Matthews says he’s been advising banks and charity sector clients on the ongoing challenge of ensuring humanitarian aid ‘The sectoral sanctions defy automation gets through to Syria, thus ‘…squaring and require real analysis by experienced a bank’s legal obligations with the personnel.’ ability of NGOs to get money and equipment through to those that need Jason hungerford, it…’ (highlighting the irony that norton Rose Fulbright sanctions don’t always ameliorate the fortunes they’re intended to help, despite the best of intentions). sanctions (at this stage comprising of sanctions, Venezuela’s track record Future-proofing compliance simply the framework for an asset- of default and current financial and The strategies that corporations, banks freeze list, but this may be expanded in political woes create, she says, ‘a Catch- and other organisations adopt to time). In some respects – and certainly 22’ for creditors of PdVSA: ‘They now manage the kaleidoscope of diverging, in their intended message – the have to consider whether they should sometimes conflicting, compliance measures correspond with the US accelerate the process of repayment – frameworks depend on risk appetite, sanctions, although for now they do not or wait to see if they can get paid on the global footprint, touch points, and go as far. existing debt. Meanwhile, US persons industry sector. Little surprise that an energy- are prohibited from transacting in new, ‘A lot of companies are asking

11 WorldECR l the Global agenda www.worldecr.com The Global Agenda

themselves – and their legal advisers: not doing business with certain people prohibitive to say, “You will not deal “What’s the future landscape of or places – was the natural reaction if with sectoral sanctions targets in any sanctions?”’ says Crowell & Moring’s you don’t have the right people with the capacity.” DJ Wolff. ‘Clearly, policy makers love right expertise.’ sectoral, limited list-based regimes Uncertainty in sanctions regulations Coming of age because it means they can apply – and in their application to complex The holiday season is a time for giving focused pressure while limiting financial arrangements – is a source of some thought to what the next year repercussions elsewhere. But they’re an sharply increased workload on in- may bring. And even from the enormous pain in the [proverbial] for house legal and compliance teams, says admittedly narrow window of compliance professionals.’ Wolff thinks the way that most sanctions programmes are now ‘There are a lot of watchmen out there structured demands close attention to now. Freight-forwarders and brokers are the underlying facts of a transaction and analysis as to whether it’s ‘caught’ also making sure they don’t facilitate rather than just who is involved. ‘The violations... so there’s a whole vanguard face of compliance is going to have to of checks and double-checks.’ change for a lot of institutions. Their Margaret Gatti, Morgan Lewis systems need to evolve, and the ability of staff to analyse risk needs to improve,’ he says. ‘It isn’t just about numbers. Historically, banks, for Jason Hungerford. ‘The sectoral sanctions, there’s a rich and varied example, put an emphasis on the sanctions defy automation and require agenda in store – geopolitically, but volume of people in their compliance real analysis by experienced personnel.’ also as regards some interesting case teams. But there aren’t 1,500 people in Likewise, Harris points out, taking law and the impact of regulation. (NB: the world who properly understand, a blanket approach to sanctions in the following does not purport to be say, the Venezuela sanctions. The fact contractual documentation can yield exhaustive!) that you get a “true hit” in your ‘absurd results’. We often see sanctions At Baker McKenzie, Mattias screening doesn’t necessarily mean you clauses which are not fit for purpose, Hedwall and Nicholas Coward point to can’t do the deal. De-risking – simply for example, it is impractical and overly the General Data Protection Regulation

Heading into unexplored territory? We’re there.

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12 WorldECR l the Global agenda www.worldecr.com The Global Agenda

(‘GDPR’) as a potential headache for with a playboy lifestyle (Reza Zarrab), SDNs and those on the SSI (sectoral businesses with EU operations. The banker Mehmet Hakan Atilla, and no sanctions identification) list as well as GDPR marks a huge overhaul in the less a personage than the President of deemed SSIs – the banks are really way that EU law will regulate personal Turkey himself, Recep Tayyip sharpening and fine-tuning their data. ‘As things stand, it is already Erdogan. ‘There are some interesting screening capabilities,’ says Gatti. ‘We difficult in some EU Member States to enforcement theories at play. One that had a client who recently made a sale, undertake sanctions screening without the government may likely pursue is the terms of which were 90 days. There being in breach of domestic data that Zarrab and Attila can be was a delay in payment, and that protection regulation. In the Nordic criminally prosecuted for evading transformed the account receivable countries, you need special permission secondary sanctions. That could have into a debt that was prohibited under to, say, screen against the OFAC list. It a major bearing on sanctions the Sectoral Sanctions program. And isn’t quite clear how the GDPR is going compliance.’ that was caught by the bank. There are to impact in this area, but it certainly Morgan Lewis’s Margaret Gatti many additional watchmen that play a will,’ says Hedwall. predicts ever more sophisticated role in ensuring sanctions compliance. One lawyer points to the high- screening by financial institutions and Freight-forwarders, brokers and profile Zarrab case (upon which, some others – with the private sector also couriers are also making sure they say, hinges the future of US-Turkish becoming more self-policing. ‘Partly don’t facilitate sanction violations and relations). The case, which has been it’s the banks that, acting on behalf of thereby entangle themselves in a much covered in the mainstream their customers, are making or sanctions violation, so there’s a whole press, involves a colourful cast receiving payments, screening for new vanguard for sanction checks and including a 30-something gold trader countries, parties, SDNs, deemed double-checks.’

13 WorldECR l the Global agenda www.worldecr.com INSIGHT

Sanctions compliance as a competitive advantage in 2018 – the challenge and opportunity of increasing complexity

Today’s complex sanctions require a smarter approach to compliance and that, in itself, can put a company more than a step ahead of its competitors, write DJ Wolff and Michelle Linderman.

n 2018, successful compliance subject to the relevant country’s programmes will be those that see jurisdiction? and (2) Is the transaction a Links and notes themselves less as a fixed cost true match to a sanctioned geography/ 1 https://financialservices.house.gov/uploadedfiles/h I hrg-115-ba19-wstate-mbillingslea-20171130.pdf imposed on the business, and more as a person? If the answers were ‘Yes’ and partner to help drive competitive ‘Yes’, then the transaction is generally opportunity where less developed prohibited (unless a licence applies), a programmes cannot. The rapidly changing determination that can be reached these actors – if you exempt them from nature of economic sanctions has always without a close analysis of the underlying sanctions entirely, the target of your challenged compliance professionals, a facts. programme has an enormous loophole challenge compounded in recent years by The rise of ‘limited list-based through which to operate. the increasing complexity in sanctions sanctions’ programmes has added a third, Policymakers have recognised the requirements. Those familiar with, and more challenging, question. Now, even if benefits. As Assistant Secretary for compliance programmes designed to the answer is ‘Yes’ (there is jurisdiction) Terrorist Financing, Marshall Billingslea handle, ‘old-style’ sanctions – testified to the House Committee on comprehensive embargoes or full asset- Smart compliance Financial Services on 30 November 2017, blocking list-based programmes – are discerns opportunities the United States had ‘found these types often ill prepared for the subtle nuanced of targeted, sophisticated actions to be determinations required by these newer others don’t even see. highly effective at imposing specific, programmes. The net result is often a selective consequences on regimes that defensive ‘No’ from compliance. De- and ‘Yes’ (it is a true match), compliance pose a threat to national security.’ This is risking is an impulse: avoid risk by going needs to assess (3) Is the type of activity just as true in Europe, and globally as it is nowhere near it. undertaken the type of activity targeted by in the United States. For example, the That is one solution, but it is one that the relevant restriction? That is not a Russian sectoral sanctions were modelled is as blunt an instrument as the sanction question that screening systems can to a substantial degree by the European itself. Smart compliance discerns answer and it is often not one that level- Union, Canada, Australia and, to certain opportunities others don’t even see. The one compliance personnel are trained to extents, Japan and Switzerland. ‘cost’ of an unsophisticated defensive ‘No’ address. Unfortunately, we cannot (yet) rely on may have been low in a world in which Unfortunately, they may need to be, technology to manage these risks. most list-based sanctions targets are because these more sophisticated limited- Technology may one day provide a commercially irrelevant. That becomes list-based sanctions programmes are solution, but until then the investment in substantially less true with bigger targets: likely here to stay; they solve a problem human talent is a differentiator. Most can you afford to decline all business with which had previously confronted screening systems will generate a hit; Russia’s major corporate actors policymakers. If the only policy tool is a clearing that hit requires a trained (Sberbank, Rosneft, Gazprom, etc.), comprehensive embargo, or a full asset- reviewer, capable not just of reviewing the Petróleos de Venezuela S.A. (PdVSA), or blocking programme, there are some ‘who’ or ‘where’ of a transaction, but now Citgo? targets you effectively cannot sanction to understand the ‘what’, ‘how’, and ‘why’. The challenge is that the justification due to the collateral consequences. What Looking at this landscape, some to reflexively de-risk increases in a world would have happened to energy markets compliance professionals in 2018 will of ever-more complex requirements. in Eastern Europe, or in the United States, choose to de-risk all sanctions targets. Historically, sanctions required most if the United States had designated But, that comes at a higher cost and with compliance personnel to conduct a two- Gazprom or PdVSA respectively as SDNs? less justification than it has before; the step assessment: (1) Is the transaction But, for the same reason – the size of more limited scope of these sanctions makes de-risking increasingly overbroad, while the commercial size of the targets increases the opportunity cost. DJ Wolff (London, Washington, DC) Compliance teams that make the is a counsel and Michelle Linderman investment – not just in technology and (London) is a partner in Crowell & headcount, but in training existing Moring LLP’s International Trade resources and developing efficient Group. decision-making and escalation processes [email protected] – will be able to identify, mitigate, and [email protected] manage the risk fast enough to enable their business to exploit opportunities others cannot in 2018.

14 WorldECR l the Global agenda www.worldecr.com INSIGHT

Targeted sanctions and the obligation to self-disclose dealings with potentially sanctioned individuals: UK, US, Japan

By Guy Martin and Magali Sharma, Carter-Ruck

argeted sanctions are used by Sanctions (Amendment of Information governments and institutions such as Provisions) Regulations came into force Links and notes the UN and EU to influence foreign and extended the reporting requirement 1 OFSI’s Guidance on Monetary penalties for breaches T of financial sanctions policy and discourage criminal activities that previously only applied to certain 2 Appendix A to Part 501 – Economic Sanctions such as financing of terrorism. They include financial service providers to other Enforcement Guidelines asset freezing and prohibitions on making businesses, including auditors, estate 3 State Department Directorate of Defense Trade available funds or economic resources to agents, external accountants, tax advisors Controls 4 sanctioned individuals and entities. This and ‘independent legal professionals’. Commerce Department Bureau of Industry Security 5 Counterintelligence and Export Control Section article will examine some salient points of These organisations must inform OFSI if 6 Act on Punishment of the Financing of Criminal UK sanctions law, and contrast it with the they know or have reasonable cause to Activities for the Purpose of Intimidation of the General US and Japan. suspect that someone is a ‘designated Public and of Governments, Act No. 67 of 2002 7 http://thelawreviews.co.uk/edition/the-international- person’ (i.e., targeted by sanctions) or has investigations-review-edition-6/1136375/japan UK developments committed an offence under the financial There have been two major developments sanctions regimes as soon as reasonably in the UK this year alone. The Policing and practicable. If they fail to inform OFSI, they party has disclosed first will not Crime Act came into force in April 2017, commit an offence themselves, necessarily lead to the conclusion that granting the UK Treasury wider powers to punishable by a fine or a maximum of later disclosure has any lesser value. impose penalties for breaches of financial three months’ imprisonment. Multiple agencies in the US exercise sanctions. The UK enforces these powers authority to enforce financial sanctions through the Treasury’s Office of Financial US and Japan (DDTC,3 BIS,4 and CES5) and have Sanctions Implementation (‘OFSI’). The Act OFSI’s emphasis on voluntary disclosure overlapping jurisdiction to address extended criminal penalties, and created follows the approach adopted by the US potential violations. Companies need to monetary ones. This new civil penalty is sanctions enforcement regime, enforced make parallel voluntary self-disclosures to easier for companies to fall foul of as there mainly by the Office of Foreign Assets both the applicable regulatory agencies is a lower burden of proof. Monetary Control (‘OFAC’). Self-disclosure is also and CES, increasing the number of cases penalties may go up to £1 million or 50% considered a mitigating factor in US reviewed by CES for possible criminal of the estimated value of the funds or proceedings, although this is construed prosecution and preventing efficient and resources, whichever is the greater value, strictly. If a third party is required to and effective administration of sanctions. taking into account several factors, does notify OFAC of an apparent violation, By contrast to the UK and US, Japan including the frequency and value of the disclosure by the subject company of its does not provide a legislative mechanism breach, and the harm or risk of harm to violation will not be considered voluntary, enforcing United Nations Security Council the sanction regime’s objectives. regardless of when OFAC receives such resolutions domestically, and it has its own A key aspect of OFSI’s approach is to notice from the third party and regardless sanctions framework for the Democratic encourage voluntary disclosure of known of whether the subject company was People’s Republic of Korea (‘DPRK’). and suspected breaches. OFSI’s Financial aware of the third party’s disclosure. Japan does not provide a formal Sanctions Guidance says it will consider Voluntary self-disclosure does not apply voluntary disclosure mechanism for the prompt and full disclosure of a breach as a where OFAC would have learned of the violation of financial sanctions. However, mitigating factor when determining its apparent violation in any event.2 As a some statutes provide credit for self- enforcement approach, but still result, some companies have not been reporting to the government. According to encourages early disclosure with partial able to receive voluntary disclosure credit article 6 of the Terrorist Financing information on the basis that ‘you are still after making extensive disclosures which Suppression Act,6 if a person who has working out the facts and will make a are more complete than the third party’s been involved in financing a planned further disclosure shortly’.1 disclosure. In the UK, the Guidance terrorist activity reports on the activity Then, in August 2017, the EU Financial provides that the mere fact that another before it is executed, the penalty may be reduced or waived. The court or the regulatory authority has the discretion to Guy Martin is a partner and the consider self-disclosure as a mitigating head of the International factor.7 Department at London law firm, Sanctions violations have led to increas - Carter-Ruck, where Magali Sharma ingly large civil and criminal penalties in the is a legal assistant. US, UK and Japan, and at the same time granting wider powers to enforcement [email protected] bodies. Clear sanctions and voluntary dis- closure regimes are essential for companies to avoid falling foul of these rules.

15 WorldECR l the Global agenda www.worldecr.com INSIGHT

Coping with the US secondary sanctions tsunami

US secondary sanctions seek to target and restrict the activities of non-US persons. Meredith Rathbone and Brian Egan explain how best to deal with them.

S secondary sanctions are designed categories of Russia, North Korea, and discretion and frequently appear to make to discourage non-US persons from Iran-related activity for secondary decisions in a ‘black box’. It is important to Udoing business with a sanctions sanctions. The US executive branch – consider whether it is better to approach ‘target’ disfavoured by the US government traditionally lukewarm to secondary OFAC or the State Department to raise for national security or foreign policy sanctions for foreign policy reasons – also questions or discuss contemplated reasons. ‘Targets’ can be specific has been more willing to impose these transactions up front, or to be prepared to individuals, entities, or organisations (for restrictions in recent years. Even more defend a company’s actions against example, designated narcotics traffickers), dramatically, an ongoing prosecution of a possible secondary sanctions measures sectors of an economy (for example, the former Turkish bank executive in New York after the fact. Russian ‘frontier’ oil exploration and may reflect a willingness by US The policy consequences of secondary production sector), or business activity (for sanctions should also be part of an example, trading North Korean coal). No US nexus – such as a informed risk-management calculation. No US nexus – such as a connection to Use of secondary sanctions by the US the US financial system, US economy, or connection to the US government is not ‘cost-free’. US US person – is required to trigger US financial system, US secondary sanctions present significant secondary sanctions restrictions. Given foreign policy issues – particularly when the lack of a US jurisdictional nexus, economy, or US person – is they are propounded unilaterally, without secondary sanctions do not ‘prohibit’ required to trigger US the support of the UN Security Council or conduct by a non-US person or impose US allies. The run-up to the passage of fines or similar penalties on a non-US secondary sanctions CAATSA saw EU objections to proposed person for ‘violations’. Instead, those restrictions. secondary sanctions on Russian gas engaging in activity that is ‘sanctionable’ export pipelines, leading Congress to are potentially subject to restrictions on amend the law to require this sanction be access to the US economy, ranging from prosecutors to seek criminal penalties for implemented ‘in coordination with allies of targeted (for example, prohibitions on US secondary sanctions ‘evasion’. the US’. Overuse of secondary sanctions government export assistance) to Companies outside the United States could lead countries to decide to avoid the extensive (for example, placement on the often ask what they should do to reduce US economy altogether, or encourage Specially Designated Nationals list). risks related to US secondary sanctions. closer cooperation between US rivals. And US secondary sanctions are not new. Understanding those risks can be there is the practical reality of sanctions The Iran and Libya Sanctions Act of 1996 daunting. The sanctions ‘triggers’ – for implementation – with dozens of included secondary sanctions related to example, a ‘significant’ or ‘material" sanctions programmes, the US significant investments in Iran or Libya’s ‘investment’ or other business activity with government may not have the resources to petroleum industries. Since 9/11, a sanctions target – are unclear, often by aggressively implement them across the numerous Presidential executive orders design. The interpretation or application of board, even for ‘mandatory’ secondary authorise restrictions against those who these triggers may vary based on a sanctions passed by Congress. provide material or other support to number of factors, from the identity of the What to do in response to this various Specially Designated Nationals. sanctions target and the applicable ‘tsunami’ of US secondary sanctions? But over the past decade, the US restrictions, to the identity and nationality Don’t exasperate over what appears to be Congress has dramatically expanded the of the non-US person who may be subject an indiscernible morass. The specific scope of secondary sanctions. Between to secondary sanctions restrictions. language of relevant sanctions provisions 2010 and 2013, Congress passed four One also needs to assess how should be reviewed and analysed; factors secondary sanctions laws on Iran alone. aggressive the US government might be in relating to the discretion of those Most recently, the ‘Countering Americas implementing the secondary sanctions administering these sanctions can be Adversaries Through Sanctions Act’ under consideration. OFAC and the State identified and evaluated; ‘costs’ on both (‘CAATSA’) identified dozens of additional Department exercise substantial sides of the ledger should be considered; documenting the rationale for a course of action will help mitigate risks; and Meredith Rathbone (London) and engagement with government officials Brian Egan (Washington, DC) are may be appropriate in some partners at international law firm circumstances. Steptoe & Johnson llp. All of these factors are susceptible to [email protected] an informed assessment. Internal or external experts can help make [email protected] reasonable and defensible risk assessments and lead to informed management decisions.

16 WorldECR l the Global agenda www.worldecr.com INSIGHT

US sanctions: Adapting compliance programmes to address new challenges

Increased complexity appears to be an ongoing feature of new US sanctions programmes. Satish Kini, Carl Micarelli and Robert Jura offer advice on how to manage the challenge.

istorically, many sanctions include facilitating a transaction for a screening counterparties for ownership by programmes maintained by the US sanctioned Russian person, or facilitating the Venezuelan government. One HTreasury Department’s Office of ‘unjust’ privatisations of Russian state- approach would be to continue with a list- Foreign Assets Control (‘OFAC’) have been owned assets. based screening approach and devote list-based, meaning US persons are Ensuring compliance with these efforts towards assembling a prohibited from dealings with designated provisions is not simple. The financial comprehensive list of every entity that persons. Other sanctions programmes restrictions against Venezuela require US falls within the new sanctions. Some involve complete embargoes of a country persons to ensure they do not deal in any service providers are compiling such lists. or territory. In each case, the primary new debt of an entity directly or indirectly We saw, however, in the case of the approach for US persons involve screening owned by the Venezuelan government. sectoral sanctions on Russia, that similar counterparties against lists of sanctioned This includes the many subsidiaries of efforts produced lists including thousands persons and reviewing their information to PdVSA doing business throughout the of entities. Wading through these lists was determine whether a prohibited world. Moreover, OFAC interprets ‘debt’ for a drain on resources and, as the number jurisdiction is involved. Financial this purpose to encompass dealings that, of complex sanctions programmes institutions and other companies that in other circumstances, would not expands, developing and maintaining such encounter larger volumes of higher-risk commonly be considered debt (e.g., comprehensive lists may prove transactions commonly rely on automated payment terms). Just understanding a US challenging. Another approach would be to processes for this screening. company’s risk exposure under these diligence ownership structures on an ad New sanctions programmes present sanctions, let alone maintaining ongoing hoc basis, though this could delay the new challenges. Increasingly, they involve operational awareness to ensure opening of accounts and the processing of more nuanced restrictions that may compliance, may be difficult. transactions. restrict only specific activities. For So what to do? Companies should Another approach, which complements example, the sectoral sanctions against focus on accurately evaluating their risk rather than supplements other efforts, is Russia apply only to certain financing exposure. A longstanding cornerstone of creating new screening methodologies activities and related financial products, or compliance with US sanctions is that that assess data points for a customer or support of specific oil-related activities compliance programmes should be risk- counterparty rather than screening with designated persons or their majority- based. Companies must, of course, against a list. This may be unfamiliar owned subsidiaries. US persons are also comply with all of their mandatory terrain for sanctions compliance teams, now prohibited from engaging in certain sanctions obligations. But before tweaking but financial institutions may be able to financial transactions with the Venezuelan policies and procedures in response to construct a workable template from anti- government, including any of its political new sanctions risks, a company should money laundering (‘AML’) processes. For subdivisions, agencies or consider its overall exposure and review example, a sanctions team looking to instrumentalities, (e.g., Petroleos de the adequacy of its existing sanctions screen for Venezuelan state-owned Venezuela, S.A. (‘PdVSA’)), but there are policies and procedures. entities, may look to AML processes for many carve-outs from these restrictions. Companies should then evaluate identifying so-called ‘politically exposed This complexity is not limited to US existing controls in light of their new risk persons’, which are a category of banking persons but also extends to foreign exposure. For example, regarding the new customers that pose greater money- companies facing US-imposed secondary Venezuelan financial sanctions, a US laundering risks because of their positions sanctions. Potentially sanctionable activity financial institution with many energy of influence in foreign governments. related to North Korea now includes many customers or many correspondent Identifying such persons in a company’s types of commercial transactions, customers in Central or South America management could be one signal that including undertaking at least one would face different expectations for there is a need for further diligence. ‘significant’ import from or export to North tailoring its sanctions compliance No matter the final controls adopted, Korea. Additionally, non-US persons programme than a financial institution though, a robust risk assessment is an engaging in a variety of Russia-facing that lacked such exposure. essential element to maintaining a activities may now face consequences If there is appreciable new risk, new sanctions programme in the face of new under US sanctions. These activities controls may be necessary, such as and complex requirements that challenge traditional approaches, particularly as efforts to maintain comprehensive Satish Kini, Carl Micarelli and screening capabilities show their Robert Jura are attorneys in downsides. To do this, companies should at Debevoise & Plimpton llp. ensure that new sanctions requirements [email protected] are promptly reviewed and assessed [email protected] against ongoing business activities; failure [email protected] to appreciate the compliance challenges may be a recipe for inadvertent violations.

17 WorldECR l the Global agenda www.worldecr.com The Global Agenda

KEEPinG it aLL MovinG

While sanctions may have stolen the headlines in 2017, the ongoing and planned evolution of export control regulation under the United States ECR initiative, the EU’s dual-use recast, and a host of standalone national changes seeking international harmonisation, will continue to provide the foundations of the trade compliance challenge.

ne could conclude – given the ongoing basis, long-established Nicholas Coward, ‘that [the first wave slew of sanctions categories on the US Military List of] export control reform is mostly o developments in the past year (‘USML’) were redefined. ECR done and dusted. But while the rules – that, if anything, the trade represented a steep learning curve for are now in place, that’s not to say that compliance agenda is currently many companies, especially those with they’re easily followed.’ weighted more heavily in that direction defence-related activities, both in the ECR, says Coward, has yielded the than toward export controls and that United States and beyond. By the end greatest benefits to companies with the key export controls questions that of the administration, BIS Assistant finite product ranges. ‘Those kinds of remain outstanding pertain more to Under Secretary Kevin Wolf and businesses, once they’ve undertaken the world of intangibles than that of colleagues had achieved much of what the analysis as to how the controls widgets. they had set out to – barring the single apply, can come out better. But for It wasn’t always thus. During the agency and control list. In theory at companies with a really broad range of latter years of the second Obama least, all business now has to do is products, it can be really difficult. I presidency, Export Control Reform comply. never before thought that I’d hear a (‘ECR’) generated headlines, as, on an ‘It’s true,’ says Baker McKenzie’s client say, “What can I do to prevent

18 WorldECR www.worldecr.com The Global Agenda

my products being removed from the ITAR list?” But increasingly, that’s The Global Agenda: US Export Control Reform what they want. Under ITAR, they Since 2009, the US export control system has been subject to a comprehensive overhaul, know the routine: they apply for a with the goal of simplifying the multi-agency structure which was described by former licence and, if granted, export in Secretary of Defense Robert Gates as a ‘byzantine amalgam of authorities, roles, and accordance with the terms of that missions scattered around different parts of the federal government.’ licence. It requires a more complex The licensing of dual-use and certain military items is controlled by the Department of analysis when the same item is placed Commerce, munitions by the Department of State, sanctions by the Department of the on the Commerce Control List.’ Treasury, and the Nuclear Regulatory Commission and Department of Energy for certain Coward points out that if you now nuclear materials and technologies. Each arm of government operates under varying look at the Export Administration statutory authorities and enforces different regulations. Reform is being implemented in three phases. The first and second phases, which Regulations (‘EAR’), there have been include reconciling definitions, regulations and policies for export controls, were reported almost no changes whatsoever this past as being nearly complete in the summer of 2015. There should be an update on progress year, with a very significant exception: towards the third and final phase – creating a single control list, a single licensing agency, ‘The Commerce Department has got unified information technology system and enforcement co-ordination centre – in 2018. A into the habit of putting OFAC specially recent Congressional report into ECR suggests that President Trump may request the designated nationals (‘SDN’) on the movement of the Department of Commerce’s Bureau of Industry and Security’s Office of Entity List, so that even if an item is Export Enforcement to Immigration and Customs Enforcement so as to remove overlaps EAR99, it may need a licence to be in agency authority. exported.’ It’s a change, he says, from when the list constituted a small handful of names (and blurs the line between export control and sanctions compliance). Steven Brotherton of STR believes it will take ‘years before industry is familiar with ECR. And some people are simply never going to get their heads around it. Even simple things, like using the STA (Strategic Trade Authorisation, which authorises the export, reexport and transfer (in- country) of specified items on the intensely on the corporate mission. But of public comments, agency concerns Commerce Control List (‘CCL’) to now as a legal adviser, I’m seeing the and the regular review cycle; and a destinations posing a low risk of missions of various clients.’ compliance focus on technical data unauthorised or impermissible uses) – It’s a more constrained lens into handling and non-US companies. people aren’t doing it!’ each client, he says, but one that Very first steps, says Fitzhugh, Brotherton predicts that 2018 may facilitates a broad picture of industry should be greater clarity on key see enforcement actions around concerns. Amongst those is the definitions, in particular, those of products that have been transferred continuing playing out of export defence services, and technical data. from the USML to the 600 Series of the CCL – a political gesture as much as ‘ I never before thought that I’d hear a anything ‘to counter the erroneous client say, “What can I do to prevent my impression that the Department of Commerce is lax in enforcement as products being removed from the ITAR compared to the State Department.’ list?” But increasingly, that’s what they want. Under ITAR, they know the Non-proliferation routine.’ Momentum for more profound change nicholas Coward, Baker McKenzie isn’t wholly absent – albeit that progress has been slowed both by reduced staffing numbers in the control reform. ‘You’ll find that many ‘How do we apply defence services in Department of State, and by efforts to defence industry clients are looking at relation to US Persons employed reduce the proliferation of regulation similar issues,’ says Fitzhugh, 'and as abroad, for example, or for services (including White House guidance that outside counsel you can draw on that that are not inherently military in any new regulations to be published experience to see trends that may be nature but still have an ancillary must be approved by a presidential hard to discern otherwise.' military benefit, such as changing dual- appointee or their designee). Amongst the issues on the agenda use tires on a military aircraft? The Over the summer of 2017, Joshua are the revision of remaining categories policy direction in these areas is not Fitzhugh, formerly head of export including I, II and III (Firearms, Close entirely clear. Likewise, how controls at BAE Systems in the UK, Assault Weapons and Combat companies define “technical data” is joined law firm Clifford Chance. He Shotguns; Guns and Armament; and often inconsistent between US and says: ‘It’s been a really interesting Ammunition/ Ordnance); potential non-US industry. There’s a lot of transition. At BAE, I was focused changes to other categories in the light uncertainty and too much scope for

19 WorldECR www.worldecr.com STRATEGIC. TRUSTED. GLOBAL. SOPHISTICATED COMPLIANCE ADVICE FOR WORLD-LEADING BUSINESSES

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Contact us David DiBari Wendy Wysong Josh Fitzhugh Partner Partner Counsel Washington, DC Washington, DC & Hong Kong Washington, DC T: +1 202 912 5098 T: +1 202 912 5030 T: +1 202 912 5090 E: [email protected] +852 2826 3460 E: [email protected] E: [email protected]

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interpretation. Going forward [defence professionals as they are charged with ‘Typically, issues arise at the border, contractors] need to see a honing of tackling new and wider supply chain where companies are dealing with those definitions.’ compliance needs. This widening of the numerous agents and customs officials. ‘Generally,’ Fitzhugh adds, remit looks likely to be one of the key If you don’t have good controls over ‘companies are appreciative of the compliance challenges for 2018. your import and export compliance, intention behind ECR and the progress Export control advisers at global you may be exposed to greater risk in your anti-bribery and corruption programme.’ ‘Generally, companies are appreciative Convergence of diverse trade of the intention behind ECR and the compliance obligations is a common progress that’s been made, but in many theme. Norton Rose Fulbright’s David cases it has made compliance more Harris says they continue to see cross- complex and expensive.’ over with sanctions and anti-money laundering, particularly in financial Joshua Fitzhugh, Clifford Chance services. ‘Sometimes it can be difficult, when reviewing transactions, to divorce the two. You find examples that’s been made, but in many cases it professional services firm Deloitte say where everything may seem fine from has made compliance more complex that against the backdrop of ever- a sanctions point of view, but there are and expensive… It was originally cast increasing globalisation of trade, unexplained payments that flag a [by former Secretary of Defense, Robert they’re dealing with many more potential AML issue. In this context, Gates] as a way to enhance NATO inter- examples of the intersection between there is inevitable overlap between the operability, reducing the incentive to go export control and other areas of sanctions regimes and applicable ITAR-free for non-US companies. That compliance – in the defence sector, money laundering regulations, and it has not been achieved. EU companies particularly. gives rise to complexities when are not spending less on compliance or ‘We’re seeing a continued balancing the legal obligations which facing less risk.’ convergence of non-compliance with arise under both. So we find that you both trade controls and anti-bribery need to look at these issues very much Expanding horizons and corruption regulations,’ says in the round.’ As sanctions are evolving, so, too, is the Stacey Winters, who heads up Meanwhile, another rich seam for remit of many export/trade compliance Deloitte’s Regulatory Risk practice. the team at Deloitte is advising

21 WorldECR l the Global agenda www.worldecr.com The Global Agenda

compliance functions on dealing with the wider ‘digital transformation’ The Global Agenda: Developments in Asia-Pacific within a company. ‘The risk,’ says Singapore implemented its Strategic Goods Control legislation in 2003 and since then Winters, ‘is that a company undertakes has regularly updated its list of strategic goods and technology, most recently on 1 ambitious digital change in every September 2017. The Strategic Goods Control Order (‘SGCO’) 2017 brought Singapore’s sphere of operation – and the trade strategic goods control list up to date with the 2016 Wassenaar Arrangement Munitions compliance function is still filling in List, and the 2016 European Union list of dual-use items. The Strategic Goods (Control) pieces of paper!’ Regulations 2004 was also updated to expand the scope of strategic goods subject to transhipment controls to include two new category codes, and also a technical Tangible intangible issues amendment to the Strategic Goods (Control) Brokering Order 2007. Away from the world of widgets, Australia’s membership of core multilateral regimes controlling the export of arms important elements of the control of and dual-use items, such as the Wassenaar Arrangement, Arms Trade Treaty and the Australia Group, is reflected in recent updates to its export control lists. A key cyber products and technology remain development in 2017 was the Defense Export Control’s launch of a public consultation unresolved. As is well known, in 2013, on its proposed amendments to regulation 13E of the Customs (Prohibited Exports) the Wassenaar Arrangement adopted Regulations 1958. The changes are designed to harmonise regulation 13E with the more controls on ‘intrusion software’ and recent Defense Trade Controls Act 2012, and propose measures such as a new personal carrier class surveillance tools with the use exemption for the physical export of technology; legislative clarification that the aim of protecting, for example, political physical export of controlled software and technology stored on an uncontrolled good opponents of authoritarian (such as a computer) will require an export permit; and enhanced powers to revoke a governments who might be the targets permit concerning an export that would prejudice the security, defence or international of such technologies. relations of Australia. The consultation closed in September 2017 and a response is A consortium of US technology expected in early 2018. companies and others, baulking at the controls on ‘intrusion software’ which, they said, were overly broad to the extent of being self-defeating – as well as potentially putting a huge dampener on the development of cybersecurity tools – lobbied the US government to firstly not implement the Wassenaar controls without significant

22 WorldECR l the Global agenda www.worldecr.com The Global Agenda

amendments, and also to work with the Commission proposals for a recast restrictions on the export of Wassenaar Arrangement to revisit the dual-use regime – and indeed, existing surveillance technology, licensing controls controls under the current Regulation architecture and encryption. ‘The US appears to have achieved significant progress on this issue ‘[Regarding proposed new Chinese export during 2017,’ observes Richard Tauwhare of the London office of control laws] You could foresee very Dechert. ‘The Participating States in complex situations where businesses will the Wassenaar Arrangement have have to run de minimis tests under two recently agreed to create carve-outs for sets of regulations – where most systems authorised software updates and for can barely cope, doing it under one.’ transfers of technology for vulnerability disclosures or cyber Pablo LeCour, Deloitte incident responses. But there has been little movement towards relaxing or (428/2009). The new regime, as ‘The Commission’s proposal is still simplifying the encryption controls – a imagined by Brussels, envisages very much in the throws of discussion,’ key area of frustration for many changes pertaining to almost every says Tauwhare. ‘The lead committee in businesses.’ aspect of export controls: introducing a the European Parliament, INTA [the Of course the Wassenaar debate is catch-all for human rights International Trade Committee] intertwined with the European considerations, imposing tighter recently voted through a number of

The Global Agenda: Things to watch for in 2018

Bank of Tokyo Mitsubishi takes on Exxon has deep pockets, and its Cyber insecurity The future the NYDFS Back in 2013/2014, Bank former chairman happens to be the regulation of controls of cyber of Tokyo Mitsubishi paid out nearly Secretary of State. OFAC fined Exxon surveillance tools is figuratively – $600m to the New York Department for its involvement with state-run arguably, literally – up in the air right of Financial Services (‘NYDFS’) for its Rosneft, headed by Putin associate now. The EU is looking for them to be improper handling of transactions Igor Sechin. Should that have included in the new recast dual-use relating to sanctioned countries. Now precluded Exxon and others from regulation; the United States is the bank is biting back. In November doing business with Rosneft? We pushing the Wassenaar Arrangement 2017, the bank got the go-ahead to should find out in 2018. to refine their inclusion in the dual-use convert branches from being lists, citing unworkability concerns regulated at state-level, to operating Not a Rich List you’d want to be on If raised by the tech industry. under federal supervision – and is the relevant government agencies Can we expect greater clarity in 2018? suing the NYDFS to stop it continuing adhere to the CAATSA schedule, the to supervise it. If successful, this could end of January should see the The Saudi conundrum continues With free other banks to pursue a similar publication of the ‘Oligarch’s List’ – a the war in Yemen creating a path. dramatis personae of Russia’s rich, continuing (if under-reported) Putin associates, and others. Will it humanitarian disaster, EU lawmakers Zarrab and Halk Bank In Turkey, become a de facto sanctions list by are feeling pressure to impose an following the Zarrab case has become default? Its publication is certain to be embargo on arms to Saudi Arabia. a national obsession. Did senior met with some trepidation by those Were the EU to do so, that would be government ministers take bribes included, their associates, relatives, very much at odds with Britain’s from playboy gold dealer (and and business partners in Russia and determination to license such exports defendant-turned-witness) Reza beyond. to Saudi: a huge money-spinner for Zarrab, or are the allegations a the UK arms industry. Gulenist plot? And what did the OFSI to bare its teeth The UK’s new Turkish president know or not know mini-OFAC (the Office of Financial Chinese export control reform could, about the proceeds of sanctions Sanctions Implementation or ‘OFSI’) say some, become a real headache for busting through Halkbank? The drama has kept a low profile since springing exporters. Japanese industry, in being played out in a New York from the loins of HM Treasury. But particular, is concerned at how it could courtroom could have a major bearing there are rumours afoot that, armed impact on the reimportation of on sanctions jurisprudence: for with new powers to impose penalties Japanese-made components example, is it criminal to circumvent (including against breaches by non-UK assembled in China. And there are secondary sanctions, the breach of companies ‘with a British nexus’) OFSI concerns that the driver for the new which would not be criminal in itself? will be making its presence felt in law is less related to non-proliferation, 2018. (A recent freedom of than it is to counter perceived over Exxon versus OFAC It takes information request in the UK revealed exertion by the US of extra-territorial something to take on OFAC (hence the that it is currently working its way jurisdiction. Possibly one of the dearth of OFAC-related case law). But through more than 60 ‘live cases’.) biggest export control stories in years.

23 WorldECR l the Global agenda www.worldecr.com The Global Agenda

substantive amendments and the relaxed – and they don’t always regime has been overhauled in the past proposal now goes to a vote in the appreciate that they need to check 12 months and it has very recently Parliamentary Plenary in January. But against the EU regulation.’ become a Wassenaar Arrangement the Council [the 28 Member State governments] has not yet completed its first reading, so a final text looks ‘Strong compliance creates unlikely to be agreed before the end of opportunities. If you have the right team 2018. Meanwhile, there appears to be in place, you can say, “We can do this no early prospect of agreement in because we understand and can manage Wassenaar to expand international the risks, and our peers can’t, or won’t.” controls on cyber surveillance in the That’s a market advantage.’ way that the EU is proposing to do unilaterally.’ DJ Wolff, Crowell & Moring Amongst the areas of agreement of MEPs so far are: Crystal ball gazing participating state. Meanwhile, China EU export control reform comes at a has proposed a reformed export l the Commission should publish a time when the United Kingdom, which control regime, closely modelled on the handbook for both Member States has a reputation for being one of the US system – to the extent that it and exporters, with practical most active Member States in the includes prohibitions on re-export and recommendations on the export controls arena, is planning its deemed exports. implementation of the controls; getaway from the European Union. ‘That’s definitely one to watch,’ says l the proposed new catch-all controls And it remains a moot point as to Pablo LeCour of Deloitte. ‘I think it on items that may be used to violate which will come first: Brexit, or the EU could be the most significant change in human rights should be limited to recast regulation. Either way, says this space hitting companies – cyber surveillance and there should Woolich, ‘UK companies most likely to especially if it’s applied as [the Chinese be no formal obligation for be hard hit are those that currently only government has] stated. You could exporters to conduct due-diligence; export [dual-use goods] within the EU. foresee very complex situations where l new risks and technologies should Many of these don’t understand the businesses will have to run de minimis be swiftly included in revisions to export control licensing system, calculations under two sets of the Regulation by the Commission; because they don’t need to.’ regulations – where most systems can l creating a level playing field among Other pinch points, he predicts, will barely cope, doing it under one.’ Member States, by, for example, become clearer as the UK hurtles closer Of course, it could be argued that introducing similar penalties for toward its ‘freedom’ from the yoke of companies that are proud of the non-compliance, along with greater regulation, and all the bureaucratic strength of their compliance capability transparency of national authorities’ trappings that liberation will welcome the greater challenge that export control decisions. necessitate. ever more complex layers of regulation present. As things stand, HFW’s Anthony Further shores ‘Look,’ says Crowell & Moring’s DJ Woolich notes, there’s a mild irony that Beyond the United States and Wolff’, ‘Strong compliance creates while the US has the reputation as the European Union, global businesses will opportunities. If you have the right heavy enforcer, ‘Some US companies need to get to grips with the coming of team in place, you can say, “We can do get caught out because US law offers age of new regulatory frameworks, in this because we understand and can greater exemptions than EU law on Asia, Latin America and the Middle manage the risks, and our peers can’t, encryption. It means that they’re fairly East. For example, India’s SCOMET or won’t.” That’s a market advantage.’

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The Global Agenda: What next for the EU and UK?

Throughout 2017, the European Union has pushed ahead with surveillance technologies that could be used for human rights plans to overhaul EU export controls for dual-use items, with the abuses are not exported. This means that requests to export aim of establishing an EU-wide regime for the control of the export, internet and mobile surveillance technologies must be rejected if transfer, brokering, technical assistance and transit of dual-use there are ‘reasonable grounds to believe’ that the items could be items in place of Regulation (EC) No 428/2009. The new regulation used for repression in the destination country. This is up for review will incorporate key technological advances, such as the export of in 2018. ‘We have been using this provision for the past year,’ says certain information and communication technologies (‘ICT’); Erwin Bollinger, Head of Export Controls and Sanctions at the State address security risks over the Secretariat for Economic Affairs proliferation of weapons of mass Switzerland. ‘Because this control destruction; and attempt to order has a limited duration, until create a ‘level playing field’ 2019, the Swiss Government among EU Member States. intends to propose to Parliament The ’s to integrate it into formal law.’ proposals, published in The prospect of Brexit also September 2016, have now been needs to be factored into the actively examined by EU Member process, as underlying legislation States. The new concept of will have to be adjusted as well as ‘human security’, which seeks to licensing procedure – such as prevent the abuse of cyber- national general licences – for surveillance technologies by both the EU and the UK. ‘While regimes with poor human rights conducting the review of the dual- records, has proved use regulation, it would controversial. A progress briefing undoubtedly be sensible to released in August 2017 revealed division amongst stakeholders already integrate Brexit into the process at some point,’ says over the inclusion of human rights considerations, which some Pietsch. industries – such as the tech industry – feel will create new The European Parliament’s international trade committee obstacles to business and lead to them losing work to non-EU (‘INTA’) – as co-legislator with the EU Council – adopted a report competitors. The Finnish government, for example, has expressed supporting an ‘ambitious’ modernisation of EU export controls on concerns that the greater emphasis on human rights will increase 23 November 2017, and Parliament is expected to finalise its the administrative burden for businesses and create uncertainty, position in the first half of 2018. The next stage will be ‘trilogues’ and is critical of extending export control beyond EU borders. between the Parliament, Council and Commission with a view to Poland supports tighter control of the export of computer concluding the legislative process later in 2018. surveillance technology, but is concerned that unregulated non- In the UK, 2017 was the first full year of operation for the European competitors will step in to fill any gap. called for government’s new Export Control Joint Unit (‘ECJU’), which was a ‘fine-tuning’ of existing EU export controls for dual-use items, established in July 2016. The ECJU co-locates Department for rather than an overhaul. International Trade (‘DIT’) staff in the Export Control Organisation Georg Pietsch, Director General at the Federal Office for and export licensing teams from the Foreign and Commonwealth Economic Affairs and Export Control in Germany (‘BAFA’) welcomes Office and Ministry of Defence. The government claims that, ‘The the strengthening of ‘human security’ in the EU’s draft regulation, creation of the ECJU has centralised expertise and removed but points out that it is important not to compromise the duplication, helping us to provide a high-quality service to established, ‘field-tested’ dual-use export controls currently in business.’ existence. In particular, he considers that the non-binding The Export Control Organisation remains the UK government’s guidelines over major aspects of the regulation are not sufficient: regulatory body for military and dual-use exports, with the Secretary ‘The Commission’s draft contains many more new substantial of State for International Trade, currently Liam Fox, responsible for provisions that will turn out to be labour-intensive for industry as decisions to grant or refuse export licences. Arms export requests well as authorities,’ he says. are assessed on a case-by-case basis against the Consolidated EU Until now the way in which Member States choose to implement & National Arms Export Licensing Criteria. This process came under a regulation has been the responsibility of each Member State, scrutiny in a judicial review brought by civil society group Campaign under the principle of subsidiarity set out in Article 5 of the Treaty Against the Arms Trade (‘CAAT’) concerning arms exports to Saudi on European Union. ‘Particularly challenging is the fact that the Arabia, which was defeated in the High Court in July 2017. CAAT is draft foresees the Commission’s interference in procedures and pursuing an appeal against the decision. practices to implement the regulation on a national level,’ says The government has confirmed that until leaving the EU, the UK Pietsch. ‘This is an enormous challenge for Germany and German will continue to abide by the Council Common Position 2008/944/ exporters, as a large share of the exports from the European Union CFSP defining common rules governing control of exports of military is in fact administered in Germany.’ technology and equipment, implemented in the UK through the A spokesperson for the Commission commented that the Consolidated EU & National Arms Export Licensing Criteria. debate has now evolved considerably, showing that ‘most – if not all As the UK is a member of all the relevant multilateral regimes – the stakeholders recognise that emerging technologies and their controlling the export of military goods and dual-use items – such trade must be consistent with our security and foreign policy as the Wassenaar Arrangement, the Nuclear Suppliers Group, the interests and values.’ They point out that the debate has ‘moved Missile Technology Control Regime, the Australia Group and also a on’ to focus on parameters of control such as the advantages of member of the Arms Trade Treaty – the general consensus from list-based controls versus end-use controls, and ‘the necessity to regulators is that Brexit will not substantially affect export control introduce an EU autonomous capacity for decision and action in policy. ‘We will certainly watch the process with the UK, but we do this area.’ not envisage any real change,’ says Bollinger ‘There is much co- Switzerland has already introduced a similar concept to the one operation between Swiss and UK industries and certainly that will proposed in the EU’s draft dual-use regulation to ensure that not change.’

26 WorldECR www.worldecr.com INSIGHT

US Export Control Reform: Where are we headed?

The achievements of ECR are significant – and with smart thinking and commitment they can be even greater, write David DiBari, Josh Fitzhugh, Wendy Wysong and Hena Schommer.

xport Control Reform (‘ECR’) was licensing burden against the costs of its Borrowing from ITAR §§126.15-16, DDTC launched almost eight years ago with additional complexity. could empower allied govern ments to E bold aims, including strengthening Success on ECR’s underlying aims, submit lists of inter mediate consignees for US national security by focusing including improving alliance inter- incorporation by reference into licences compliance resources on more sensitive operability and enhancing US exports, is and agreements supporting those items; increasing inter-operability with US harder to quantify. Many programmes with governments’ activities, allowing licensees allies; and promoting US exports by ITAR content before ECR still have ITAR to use anyone on the list when choosing reducing incentives for non-US companies content afterwards, meaning they still have freight-forwarders, painting shops and IT to avoid US-origin content. ECR pursued to apply a full set of ITAR controls including support. This would provide flexibility to these objectives by shifting less sensitive jurisdiction/classific ation assessment; non-US companies and defence ministries military items from International Traffic in inventory tracking; employee nationality and avoid the need for frequent licence Arms Regulations (‘ITAR’) to Export screening; subcontractor management; updates while retaining DDTC’s control Administration Regulations (‘EAR’) control; technical data segregation; retransfer over who has access to ITAR material. establishing new EAR licence exceptions; controls; tracking of repair, replacement The ITAR could update the definition of removing ambiguities from the regulatory and support activity; recordkeeping; etc. ‘regular employee’ to remove length, text; and harmonising key concepts and ECR offers benefits for those able to location and exclusivity of service as definitions. manage its complexity, but elements of the requirements. Instead, any appropriately Much of that ECR campaign has been ITAR regime still disincentivise exports of screened employee with authorised delivered. In a monumental effort, many controlled material to US allies. nationality acting on behalf of an entity less sensitive items previously subject to and subject to its control could be covered ITAR regulatory requirements have been Thoughts for improvement by its authorisations and responsibilities shifted to the EAR. Many items moved to Assuming continued interest in enhancing under ITAR §127.1(c), including the the EAR may be exported and re-exported exports to and inter-oper ability with US respons ibility not to share controlled under new license exceptions such as STA, allies, we offer a few thoughts below on material with any unauthorised third party. authorising eligible exports to allied furthering those aims without undermining DDTC could create additional incentives governments without a licence. These other US interests. for US exports and alliance inter-operability regulatory clarifications have helped Some ideas for improvement are without the need for regulatory changes. industry identify the classifications for their already under consideration at the State Enhancing clarity on commercial support products, understand their compliance Department. Clarifying the definition of for foreign military sales (‘FMS’) activities obligations and open new markets for their defence services would help. So, too, would encourage participation in the FMS products. Some of the grander visions for would a practical regime for managing US programme. Expanded company ECR – a single control list, single licensing persons employed abroad, ideally including engagement and outreach, paired with agency and single licence application – employer-managed registration and voluntary disclosure treatment for have not yet happened, but that does not authorisation for US persons employed in mistakes uncovered during such undermine what ECR has achieved. allied countries, as well as official engagement, could further demystify ITAR clarification that non-US defence articles compliance for non-US companies and Partial success do not become ITAR controlled simply reduce anxiety over ITAR procurement. ECR appears successful in its tactical because US persons contribute to their aims. Many transactions previously develop ment. Finally, a clarified definition Final thoughts requiring ITAR licensing no longer do. for technical data would enhance ECR demands a more sophisticated Companies may also be better equipped to consistent compliance by industry. To a compliance strategy but offers important self-classify products, and may have more greater or lesser extent, all these topics opportunities for companies to reduce options for structuring their production. are on the Defense Trade Advisory Group compliance cost and risk. It also presents That flexibility comes with cost, however, (‘DTAG’) agenda or are the subject of a chance to enhance US national security including reclassify ing products, retraining existing efforts at the Directorate of and export promotion through additional staff and managing complex licensing Defense Trade Controls (‘DDTC’). regulatory simplification. We encourage decisions. Healthy debate continues in US A few equally meaningful changes not industry to avail itself of the existing and European industry as to how best to yet under discussion could enhance exports benefits, and government officials to balance the benefits of ECR’s reduced without undermining US national security. consider further improvements.

David DiBari, Josh Fitzhugh, Wendy Wysong and Hena Schommer are attorneys at Clifford Chance US LLP. [email protected] [email protected] [email protected] [email protected]

27 WorldECR l the Global agenda www.worldecr.com INSIGHT

Preparing for BREXIT

When the UK leaves the EU, most businesses will still have to comply with EU requirements. But on top of this, they will have to comply with new UK rules. While there may be a broad political aim to ensure close alignment, businesses need to keep aware that the UK framework will be different from that of the EU, and understand the potential implications of that for them, write Roger Matthews and Richard Tauwhare.

anctions and export controls are sanctions regimes through secondary that there will be no hurry to revise complex areas; but businesses have legislation (regulations). The Bill would these; S had until now the advantage that give the relevant minister(s) a very l The UK will continue to apply the the rules are essentially the same across broad discretion as to the types of current ‘Consolidated Criteria’ in the EU. This article considers how that measure, the basis for targeting a assessing licence applications; might change after Brexit. person or entity, and the scope of l For military items, changes will be OFSI’s and EJCU’s licensing powers, minimal given that trade is already Sanctions with only a minimal role for parliament; subject to licensing, except possibly for Brexit will lead to significant changes – l The proposed UK approach is different the transit of military items; and both to the legal framework in the UK, and from the EU approach on some points: l For dual-use items, a simple way to the nature of the UK’s influence on The UK government is already forward is available, through the EU European sanctions policy. It is too early to proposing some departures from the adding the UK to its EU001 general say whether or not this will lead to EU position, albeit in areas less likely to licence and the UK creating a new open significant differences between the UK and impact businesses directly. For general licence covering exports to all the (remaining) EU’s substantive positions example, it is proposed that sanctions the EU Member States. as regards particular sanctions regimes, measures be reviewed only every three but the impact for businesses will be felt years (EU reviews every year), and that But there remain some key areas of nonetheless. In particular: a UN-designated person’s ability to uncertainty, in particular: challenge their UK designation (which l The UK has recognised that, after they have now under EU law) will be l If a transition period is agreed, how far Brexit, the UK and EU may not always reduced; it will maintain the status quo with coordinate their positions: the UK has l Even where there is alignment, the respect to export licensing and how urged that it and the EU should ‘remain operational details are likely to vary: UK long it will remain in effect; close partners in foreign policy’, and and EU sanctions laws will be made l Whether licences for dual-use exports proposed that they should have ‘regular using different legal frameworks, to third countries issued before Brexit close consultations’ with the ‘option to different wording, and subject to will remain valid in both the UK and EU agree joint positions’, including on separate judicial systems. Even until they expire; sanctions listings, and ‘aligning policy substantively similar provisions will l Whether the UK will continue to be able where appropriate’. There will likely be likely evolve to have different to issue licences to UK companies to a good degree of coordination, but application, scope and operation. export from an EU country to a non-EU these proposals implicitly recognise country; that alignment will not always be Export controls l Whether the likely new UK dual-use appropriate – i.e., the possibility of UK and EU traders and governments have open general licence for exports to the substantive divergence from time to a strong mutual interest in minimising any EU would waive the standard time between UK and EU sanctions is additional administrative burdens from requirements of open licences for real; export controls on trade between them. annual reporting and compliance l The actual sanctions restrictions, Reasonable assumptions (with the caveat audits, which impose significant licensing powers etc. that will apply in that nothing is guaranteed) include that: administrative burdens on users; the UK after Brexit will only become l Whether the UK will adopt all elements apparent when the individual UK l The UK will remain a member of the of the revised EU Dual-Use Regulation if sanctions regimes are set out in international export control regimes it is not approved before Brexit and, in regulations: the Sanctions and Anti- and continue to use their control lists the longer term, in what ways the UK Money Laundering Bill, currently going with minimal national revisions; may diverge from EU export control through parliament, proposes to give l EU regulations in force at the time of regulations and how far industry will be the minister(s) power to establish UK Brexit will be retained into UK law and consulted.

For most businesses the introduction of Roger Matthews and Richard a new, separate, UK framework will add to Tauwhare are Senior Directors in the the trade compliance burden. They will International Trade and EU Law likely want the government to minimise the practice of Dechert in London. differences and new administrative [email protected] requirements. But since many businesses [email protected] will operate in both the UK and the EU, their procedures will need to adapt to take account of new UK measures in addition to their existing EU compliance obligations.

28 WorldECR l the Global agenda www.worldecr.com INSIGHT

Advanced economies tighten inbound investment screening regimes

Among the headlines, a new research report from Baker McKenzie has found that seven out of nine advanced economies have strengthened or are proposing to tighten their foreign investment review procedures in recent years.

ost advanced economies are most at risk of review by host security, including foreign ownership of focused on increasing foreign governments: Agriculture; Homeland companies controlling critical Mdirect investment (‘FD’I) to Security; Critical Infrastructure; infrastructure. Investors need to be promote jobs, innovation and economic Information Technology; Defence; Media mindful of the impact of these changes, growth. But the investment policy Energy; Telecommunications; Gambling. not only on transaction viability, but also landscape is getting more complex in Deals are being impacted around the on timetables, and develop appropriate the face of new risks, and in the last few world. In 2016, Chinese investors strategies. years many governments have enacted walked away from 10 deals for US new legislation to broaden the scope of companies, worth $59 billion. In US developments: The Cornyn Bill review of cross-border investments to Europe, 20 Chinese deals worth $16.3 The proposed Foreign Investment Risk address expanding notions of national billion were cancelled or withdrawn. Review Modernization Act (‘FIRRMA’) security protection. Greater regulatory and political scrutiny would significantly expand the Baker McKenzie has examined the was a contributing factor. jurisdiction of the Committee on Foreign shifting foreign investment review The US government investigated 389 Investment in the United States landscape in nine of the world’s key FDI foreign investment transactions from (‘CFIUS’) to reach, for example, joint jurisdictions – Australia, Canada, 2009 to 2016, and formally rejected or ventures and other arrangements France, Italy, Germany, Spain, the UK, forced divestitures in three deals. between US critical technology EU and the US. In its report, Rising The Australian government companies and foreign investors, even scrutiny: Assessing the global foreign considered 43,013 foreign investment when such JVs or other arrangements investment review landscape, the firm applications in 2015-16, up from are outside of the United States. finds that seven of these nine have 13,322 in 2012-13. In all, five deals While CFIUS would have authority to recently tightened or are proposing to were rejected, and 14,491 approved exclude certain investments from allied tighten their foreign investment review with conditions. countries, the bill’s changes would frameworks to allow governments more And Canada’s government has encompass many transactions not leeway to block deals or impose reviewed 3,445 notifications and previously within the ambit of CFIUS, conditions on their completion. applications since 2012 and ordered including US investments in China, The report identifies three drivers of thirteen national security reviews. Eight Indonesia, and other emerging markets this enhanced scrutiny: deals have been blocked or subject to that impose technology transfer divestiture. obligations and even largely financial l Record levels of Chinese investment In the last year alone, several transactions in the US. l Increased activity by state-owned developed countries have expanded ‘CFIUS is increasingly becoming a enterprises and sovereign wealth government review of foreign technology control regime, and the funds investments in strategic sectors. For Cornyn bill would continue that trend. l Changing ideas about national and example, in July 2017, Germany Indeed, the legislation would direct economic security extended the duration and scope of CFIUS to work with allied governments examination for investments in defence to develop similar regimes aimed at While most cross-border and other highly sensitive sectors controlling the flow of cutting-edge transactions still have a high likelihood following public and political debate technologies with security implications, of approval, those in sensitive sectors over a number of Chinese acquisitions. a response to policies of major may now encounter more scrutiny and The UK government has also signaled emerging markets such as China,’ says face a prolonged approval process. The plans to increase scrutiny of Rod Hunter, a partner in Baker report identifies the following sectors as investments that could impact national McKenzie’s Washington, DC office. ‘FIRRMA would also create a mandatory For assistance in inward investment declaration procedure for certain in protected industries, contact foreign investments by state-owned Rod Hunter in Baker McKenzie’s DC enterprises and investments in certain office and Dr. Thomas Gilles in the US technology companies, including firm’s Frankfurt office. those with emerging technologies.’

[email protected] Download the report at: [email protected] http://www.bakermckenzie.com/en/insight/ publications/2017/11/rising-scrutiny

29 WorldECR l the Global agenda www.worldecr.com The Global Agenda

anD FoR My nExt tRiCK...

The geopolitical and legislative developments of 2017 set up compliance teams for a year of juggling unpredictable and sometimes novel regulatory change. But it doesn’t stop there – as one new challenge is met, expect another to take its place.

onsider just a few of the major the majority of trade agreements, rethinks, proposals to reform the changes that legal and trade sanctions programmes, and bilateral regulation of dual-use exports in the C compliance departments have agreements. EU... plus ça change. faced over the past 18 months: the On top of these landmark Brexit referendum vote for the UK to developments, compliance has More than just in a day’s work leave the European Union without any continued to go about its daily In the normal course of business, prior government strategy to achieve business dealing with ongoing US compliance departments manage the an EU exit; the arrival of the European export control reforms and the matrix between global and local Union General Data Protection classification and licensing issues concerns, and the balance of internal Regulations (‘GDPR’) with an arising, the JCPOA and potential and external business decisions. In an implementation timeline of just 21 opportunities and conflicts, cyber atmosphere where sanctions, export months; a US presidential election that security, cloud computing and other controls and regulatory regimes are resulted in a new administration whose intangible transfers compliance, well established, usually lean teams campaign largely centered on promises revisions and amendments in Russia- tend to establish efficient, effective to pull the country out of or renegotiate Ukraine-Crimea sanctions, Cuba practices that benefit the business, but

30 WorldECR l the Global agenda www.worldecr.com The Global Agenda

in times of uncertainty and aggressive there is a need to track in-house Frimor draws a distinction between change, efficient compliance and legal development of new products to see if complying with US sanctions (which departments can become a competitive we are developing products that are often impact the energy industry with advantage to the business functions affected by existing or new legislation.’ fast changes and sanctions, like the they support. One bright spot in all the quick roll-out of Venezuela sanctions Bjorn Uggala, Vice President Export uncertainty has been the reform of US in November) and EU sanctions. She Compliance for Swedish defence export controls under the Department posits that EU sanctions are simpler, contractor Saab AB, says that ‘Industry of Commerce’s EAR, which receives and quite binary in comparison. For wants long-term, clarity, predictable favourable comments on its role out by the most part, the EU has also had a and transparent,’ when it comes to regulations and sanctions. In the current atmosphere of uncertainty, companies such as Saab have faced an ‘The EU’s changes with GDPR are very administrative onslaught on a aspirational, and while still a hodge multitude of fronts. podge, export controls are becoming Increasingly, companies with design more assertive and more formal.’ and product specifications understand that the business must adapt to John Pisa-Relli, accenture treating export-controlled information, not just products, as classified information. Many trade departments leveraged their team to identify and compliance professionals. According to longer timeline from announcement of determine a process to deal with the Brian Cochran, Vice President of regulation changes to expected GDPR changes on a short timeline in Global Trade Management for Eaton compliance, making it easier for trade 2017 and without a previous mandate Corporation, ‘During the reforms, there departments to ramp up. to manage network classified was lots of outreach to industry that Then there’s Brexit. For companies information. Accenture’s Managing made it easier to comply with with significant manufacturing in the Director, Global Trade Compliance, regulations once they were announced,’ UK, like Eaton, Cochran says his main John Pisa-Relli says his team has which, Cochran says, resulted in concern is ‘What that fall-out might noticed a different dynamic from smoother changes in process controls look like. Eaton manufactures a lot of recent EU regulatory changes. ‘The and establishment of a leadership dual-use in the UK and there is nothing EU’s changes with GDPR are very attribute of complying with regulations laid out yet.’ For Cochran, the customs aspirational, and while still a hodge for his company’s management team. changes might be easy, but the tension podge, export controls are becoming Outreach and planning are comes in getting staff trained and third more assertive and more formal,’ he comforting when the social media parties certified, which is much more says. habits of certain world leaders can complex. Cochran notes in particular The flip side to new and more result in quick changes in sanctions, as the impact of GDPR, and of Authorised Economic Operator (‘AEO’) impact on supply chain and logistics teams where ‘The unpredictable nature of the US there are currently not enough staff administration has made it more trained with knowledge in those areas challenging to predict how sanctions or third-party suppliers to cover predictable backlogs at customs might evolve, and how enforcement clearance. might evolve.’ Zahra Kitson Frimor, Maersk Drilling Staying ahead of the game Well-run compliance departments show their competitive advantage in assertive export control and data they did with North Korea due to US the ability to adapt to times of high protection regulations, however, is the President Trump’s war of words with change and high risk through aligning appetite for a business or industry with that country. While those sanctions resources and scaling to cover new high compliance requirements to don’t affect many businesses, the events while maintaining existing develop new products, acquire continued turmoil in the US, compliance programmes. businesses and expand their supply particularly around Russia, is a cause Defence industry supplier Meggitt’s chain. Compliance departments’ day- for concern for businesses with Vice President of Group Trade to-day work, became more challenging interests there. Compliance, Bruce Jackson says that for global companies in 2017 due to the ‘The unpredictable nature of the US his main focus in 2017 has been on uncertain environment with regulatory administration has made it more internal structures such as ‘developing changes. challenging to predict how sanctions career paths and professionalism on Saab Kockums’ Export Control might evolve, and how enforcement the team, and finding better ways to Director and Head of Trade might evolve,’ says Zahra Kitson measure key performance indicators.’ Compliance, Susanna Sjosten notes Frimor, Senior Legal Compliance Jackson says he prioritises ‘right that ‘On top of regulation changes, Officer at Maersk Drilling. Kitson resources’ in order to be able to deal

31 WorldECR l the Global agenda www.worldecr.com

Market-Leading International Trade Practice Regional Contacts

Baker McKenzie covers the core areas of International Trade, such as EMEA export controls and sanctions, encryption issues, customs compliance, Ross Denton, London anti-bribery and anti-corruption, as well as offering significant expertise in [email protected] relation to WTO rules and free trade agreements. Our market-leading team Mattias Hedwall, Stockholm is widely recognised by leading multinationals and regulatory authorities as [email protected] the leading advisers for international trade work. We are increasingly Marc Lager, Vienna appointed by clients with strong in-house teams to assist with high-profile [email protected] export controls, sanctions, and anti-bribery matters. Sunny Mann, London [email protected] Anahita Thoms, Dusseldorf Unsurpassed Global Coverage [email protected] Our global coverage and structural integration is unmatched. We offer a Asia Pacific 200-plus team of International Trade specialists who are strategically situated across more than 40 markets, including most of the world's key Jon Cowley, Hong Kong [email protected] financial and policy centres such as Washington DC, London, Amsterdam, Kana Itabashi, Tokyo Frankfurt, Stockholm, Barcelona, Sao Paulo, Mexico City, Hong Kong, [email protected] Singapore, Beijing, and Sydney. Anne Petterd, Singapore [email protected] Multinational clients appoint us because of our unsurpassed ability to resolve multi-jurisdictional trade matters involving US, EU and other national Americas regulatory regimes and authorities such as Germany, UK, China, Nicholas Coward, Washington DC and Australia. [email protected] Jose Hoyos-Robles, Mexico City Industry Focus [email protected] Janet Kim, Washington DC Our practitioners have a particular focus on industries that are most [email protected] impacted by the introduction of new trade regulations, including major Alessandra Machado, Sao Paulo [email protected] industrial manufacturers, energy, IT, telecommunications and financial John F. McKenzie, San Francisco services companies. We have a vast amount of experience advising many [email protected] multinationals within the Fortune 100 and FTSE 100 communities. Bart McMillan, Chicago [email protected] Global Thought Leadership Manuel Padron, Juarez [email protected] Our annual International Trade conferences in London, Amsterdam and Santa Clara are among the largest and best-attended trade seminars in the world. Clients also hail our regular globe trade webinars as an integral component of their trade compliance training. www.bakermckenzie.com

Keep ahead of the curve on the latest economic and trade sanctions developments – visit the Baker McKenzie Sanctions Blog: www.bakermckenzie.com/sanctionsnews.

©2017 Baker McKenzie. All rights reserved. Baker & McKenzie International is a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome. The Global Agenda

with the external issues his industry example, updated dual-use regulations processes. Eaton’s Cochran notes: faces. will require Swedish companies to ‘When you work in a company with Accenture’s Pisa-Relli echoes the apply a ‘democracy criterion’ for export controlled data and products, it sentiment, saying that ‘putting the licences in the defense industry. This becomes hard to strike a balance needle in the right place to provide regulation will create more tracking between being too strict and catching right guidance to the business function’ issues for global companies. Saab everything needed without overloading is the key to managing people Kockums’ Sjosten says her team is the system.’ resources. ‘getting more requests from suppliers While compliance departments The use of automation in about our supply chain and end appear to be maintaining vigilance in compliance functions has helped customers, so there is more screening light of continued capriciousness by the compliance teams innovate in their and more administration for the team.’ US administration, the big cloud response to 2017’s challenges, for example, implementing an escalation ‘People are getting apprehensive [about process, to simplifying and penetrating Brexit]... We have to plan for chaos at with specific messaging to the business ports because there is not enough via online, and creation of compliance storage. It will affect logistics. Customs and ethics frequently asked questions to assist in scaling and harnessing the itself is understaffed, and there is no knowledge of the compliance guidance.’ department. Brian Cochran, Eaton Corporation

Best foot forward Overall, 2017 has been a year of Should such a criterion become hanging over many compliance teams reassessing priorities and balancing the widespread within the EU, it will is Brexit. ‘People are getting challenges of new or changing undoubtedly impact compliance well apprehensive,’ says Eaton’s Cochran. regulations, virtualisation, and aligning beyond 2018. Meanwhile, the energy “Apprehensive about getting the team with business functions. In 2018, industry faces similar administrative trained up. Staffing issues and third- compliance departments will not challenges with tracking how sanctions party relations could all become more shrink, but could see continued in Venezuela and Russia will evolve, complex. We have to plan for chaos at reorganisation depending on the and creating a framework for ports because there is not enough outcomes of Brexit, export control and enhancing due diligence in countries storage. It will affect logistics. Customs data protection initiatives, and ongoing where that task takes longer and is not itself is understaffed, and there is no unpredictability in the US overall. efficient or transparent. guidance.’ Regional concerns will remain an Also top of mind for all the trade In an era where the range of trade area compliance departments track compliance leaders is the Cloud and compliance issues have become more closely. Some industries will have implementation of GDPR in addition to territorial and more unforeseeable, it unique challenges related to local EAR requirements related to technical looks like the only risk compliance regulations that apply extraterritorially data security that require changes in departments will not face is job to their business. In Sweden, for access, personnel and physical insecurity.

33 WorldECR l the Global agenda www.worldecr.com Contacts Contacts

Crowell & Moring LLP

Crowell & Moring LLP is an international law firm with more than 500 Contacts lawyers in offices in the US, the EU and the Middle East. Our International Trade Group includes 30 practitioners, located mainly in Cari Stinebower Brussels and Washington, DC, who advise clients ranging from local Partner SMEs to the world’s largest multinational corporations on all aspects Washington, D.C. of international trade, customs, and regulatory laws. +1.202.624.2757 [email protected] Our core practice areas are export controls and sanctions, WTO law, trade remedy procedures and litigation, customs and duty recovery, Carlton Greene anti-corruption, investment and market access rules, and preferential Partner trade agreements. Our clients are active in a wide range of industries, Washington, D.C. including aerospace & defence; information technology; financial +1.202.624.2818 services; automotive; semiconductor; construction; aluminium, iron [email protected] and steel; consumer products; agriculture and food products; sports and leisure; chemicals; and pharmaceuticals. Michelle Linderman Partner The International Trade Group provides clients with a range of London services, from straightforward licence applications and training +44.20.7413.1353 programmes to responding to government investigations and [email protected] counselling on difficult commodity jurisdiction or regulatory compliance issues. We counsel traditional financial institutions and Dj Wolff designated non-financial businesses and professionals on how to Counsel successfully navigate anti-money laundering laws and regulations. Washington, D.C. +1.202.624.2548 Our US and Brussels teams are consistently ranked among the world’s [email protected] leading practitioners by Chambers USA and Chambers Global, including for export controls and economic sanctions. Jana del-Cerro Counsel Our services include: Washington, D.C. +1.202.624.2843 l Advising on licensing requirements and preparing licence and [email protected] agreement applications l Performing internal investigations and assisting with voluntary Charles De Jager disclosures Counsel l Performing compliance audits Brussels l Designing and implementing compliance programmes +32.2.214.2822 l Performing jurisdictional assessments and preparing requests for [email protected] commodity jurisdiction determinations l Assisting in self-classification of products and preparing requests for commodity classification requests www.crowell.com l Performing export control/sanctions/anti-money laundering/ anti-corruption/import due diligence reviews related to proposed mergers and acquisitions l Representing clients in civil and criminal enforcement proceedings l Training on export controls, anti-money laundering, sanctions, anti-corruption/anti-bribery, import procedures and requirements

34 WorldECR l the Global agenda www.worldecr.com WorldECR The journal of export controls and sanctions

Contributors in this issue WorldECR Editorial Board Timothy P. O'Toole, Miller & Chevalier Chartered Michael Burton, Jacobson Burton Kelley PLLC www.milchev.com [email protected] Simon Fasterkjær Kjeldsen, Kromann Reumert Larry E. Christensen, Miller & Chevalier, Washington, DC www.kromannreumert.com [email protected] Hugo Munthe-Kaas, Thommessen Jay Nash, Nash Global Trade Services www.thommessen.no [email protected] Erik Lagerlöf, Vinge Dr. Bärbel Sachs, Noerr, Berlin www.vinge.se bä[email protected] J Christian Kessler, NorthRaven Consulting LLC George Tan, Global Trade Security Consulting, Singapore [email protected] [email protected] Richard Tauwhare, Dechert [email protected] Stacey Winters, Deloitte, London [email protected]

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