March 26, 2019 First Quarter 2019 Sanctions Round Up

U.S. Government Advisory Highlights Sanctions Risks for Maritime Petroleum Shipping Community (and their Insurers)

On March 25, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), with U.S. Department of State and the U.S. Coast Guard updated an Advisory to the Maritime Petroleum Shipping Community to highlight risks associated with shipments to Syria.

This advisory updates Treasury’s November 20, 2018 Advisory to include additional guidelines and risks associated with facilitating the shipment of petroleum destined for Syrian Government-owned and -operated ports, to include petroleum of Iranian origin. It adds dozens of new vessels involved in illicit oil shipments, including 16 shipping to Syria and more than 30 engaging in ship-to-ship transfers, and highlights concerns with shipments of petroleum from Iran. Many of names of the vessels have also been updated to reflect name changes.

United States sanctions regulations broadly prohibit trade and other transactions, subject to U.S. jurisdiction, with the Government of Syria, and has the authority to sanction entities or individuals who provide support to the Government of Syria—including those who deliver or finance petroleum shipments to the Government of Syria or government-owned entities, 2 such as the U.S.-designated Syrian Company for Oil Transport or Banias Refinery Company.

The advisory also contains a list of examples of tactics used to disguise the destination of petroleum bound for Syria, including

  • Falsifying cargo and vessel documents
  • Ship to ship (STS) transfers
  • Disabling Automatic Identification Systems (AIS)
  • Vessel name changes

Under Secretary for Terrorism and Financial Intelligence, SigalMandelker says “Shipping companies, insurers, vessel owners, managers, and operators must aggressively counter the ongoing deceptive shipping practices deployed by Iran and Syria and other questionable jurisdictions.  Any violations of prohibitions or weaknesses in compliance that result in sanctionable conduct exposes the shipping community to significant risks and can trigger severe consequences.”

The Advisory also warns for sanctions risk related to the provision of underwriting services or insurance or reinsurance to certain Syrian and Iranian maritime-related persons or activity.

New Venezuela Sanctions On Banking Sector

On March 22, 2019, the Treasury Department imposed further sanctions on the Venezuelan banking sector, targeting Venezuela’s state-owned and controlled bank- Banco de DesarrolloEconomico y Social de Venezuela, or BANDES – and four other financial institutions: Banco Bandes Uruguay S.A., based in Uruguay; Banco Bicentenario del Pueblo, de la ClaseObrera, Mujer y Comunias, Banco Universal C.A., based in Venezuela; Banco de Venezuela, SA Banco Universal, based in Venezuela; and Banco Prodem SA, based in Bolivia.

As of March, the Treasury Department has designated 111 individuals and the State Department has revoked the visas of more than 250 individuals connected to Venezuela.

These sanctions are the latest effort in a broad campaign led by the White House to pressure the socialist country’s President, Nicolás Maduro, to step down. This follows the Trump administration’sand European Union’s recognition of Juan Guaidó, the head of Venezuela’s National Assembly, as the country’s interim president and rejection of Maduro as the president of Venezuela in January 2019.

Further, the Miami Herald reported on March 15 2019 that the Trump administration is considering imposing sanctions on companies from third countries that facilitate the shipment of Venezuelan oil to Cuba. This was after the Venezuelan National Assembly, controlled by the opposition, agreed to suspend the shipment of crude oil to Cuba to respond to the chaos caused by a major electrical blackout. Guaidó published on Twitter a chart estimating that the Maduro regime sends 47,000 barrels of oil per day to Cuba, the equivalent of about $2.5 million under current world oil prices. The decision “to cut the oil supply to Cuba asserts our independence,” Guaidó wrote on Twitter.

Earlier, on January 28, 2019, the Trump Administration announced new sanctions on Venezuela’s state-owned oil company, Petróleos de Venezuela, S.A., or PdVSA.

Russian Shipyards, Manufacturers Targeted by New U.S., E.U. and Canadian Sanctions

On March 15, 2019, six Russian companies, with operations in Crimea, including shipbuilders and marine equipment manufacturers, have been sanctioned by OFAC, in coordination with Canada and the E.U.

The firms being designated are

  • shipbuilders Yaroslavsky Shipbuilding Plant
  • Zelenodolsk Shipyard Plant
  • equipment manufacturer AO KontsernOkeanpribor
  • supplier PAO Zvezda
  • electronics manufacturer AO ZavodFiolent and
  • defense component producer GUP RK KTB Sudokompozit.

The sanctions are in response to Russia’s “unjustified” military actions against three Ukrainian vessels and the capture of Ukrainian sailors in the Black Sea in November 2018.

“The international community is strongly aligned against Russia’s naval attacks in the Kerch Straight, purported annexation of Crimea, and support for the illegitimate separatist-conducted elections in eastern Ukraine,” Treasury Secretary Steven T. Mnuchin pointed out.

Chrystia Freeland, P.C., M.P., Minister of Foreign Affairs of Canada, said: “Alongside our international partners, we call on Russia to immediately release the 24 detained Ukrainian servicemen and return the seized vessels. Russia must allow free and unhindered passage through the Kerch Strait and the Sea of Azov.”

Simultaneous Settlement Against U.S.-based Kollmorgen and Turkish National

On February 7, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced an agreed settlement of  $13,381 with Virginia-based Kollmorgen Corporation (“Kollmorgen”), a technology and manufacturing company, regarding six apparent violations of OFAC’s Iran sanctions regulations. In addition, OFAC determined that Kollmorgen’s Turkish subsidiary, ElsimElektroteknik, serviced machines located in Iran and knowingly provided products, parts, or services to Iranian end-users. Simultaneously, OFAC designated EvrenKayakiran (“Kayakiran”), the former Elsim managing director whom OFAC determined to be primarily responsible for directing the apparent violations and seeking to conceal them, as a Foreign Sanctions Evader (FSE) and added his name to the Foreign Sanctions Evaders List.

The Foreign Sanctions Evaders List, pursuant to Executive Order 13608 of May 2012, lists foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions. Transactions by U.S. persons or within the U.S. involving FSEs are prohibited.

Not only does this mark the first time that OFAC has concurrently designated an FSE and announced a related settlement with a U.S. company, but it also:

  • signals the Trump Administration’s willingness to hold U.S. parent companies liable for their subsidiaries’ Iran sanctions violations. Enforcement for Iran sanctions has been a touchy issues since the Trump announced he was scrapping the Joint Comprehensive Plan of Action (JCPOA) in defiance of its remaining signatories; and
  • shows an increased personal risk of sanctions designations for any non-U.S. persons in managerial roles that knowingly engage in conduct in violation of U.S. sanctions.

New U.K. ‘Brexit’ Guidance Unsuccessfully Attempts to Prevent Chaos of ‘No Deal’

In preparation for the U.K.’s impending ‘divorce’ from the E.U., the U.K. government has tried to assuage fears of a gap in sanctions and a delay in exports in the event of a ‘No Deal”.

The European Union (Withdrawal) Act 2018, passed by Parliament in June 2018, provides for the U.K.’s withdrawal from the E.U. after ‘Brexit’ and formally incorporates most existing E.U. laws into U.K. law. Nevertheless, despite Parliament passing the Sanctions and Anti-Money Laundering Act 2018 in May 2018, which provides a legal basis to create new sanctions regimes for the UK after the country’s departure from the E.U., there is still a great amount of uncertainly about what this will mean practically for businesses and individuals alike.

In its February 2019 Guidance “Sanctions Policy If There’s No Brexit Deal”, the U.K. tries to explain how it would implement sanctions in the event of a ‘No Deal’ At first, it states that Britain will “look to carry over all E.U. sanctions at the time of… departure”. However, only a few paragraphs later, it also states that one “should not assume that all aspects of existing EU sanctions will be replicated exactly.” This and other contradictions relating to Brexit, have led to huge headaches for compliance suites.

If you are worried about how certain transactions will be viewed after the U.K. leaves the E.U., it may be wise to contact the U.K.’sOffice for Financial Sanctions Implementation(OFSI) as well as the Export Control Joint Unit (ECJU) and ask for specific advise about your situation.

OFAC $996K Settlement withELF Cosmetics Highlights Importance of Compliance Audits

On January 31, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced an agreed settlement of $996,080with e.l.f. Cosmetics, Inc. (ELF), a cosmetics company headquartered in Oakland, California. ELF agreed to settle their potential civil liability for 156 apparent violations of the North Korea Sanctions Regulations by importing 156 shipments of false eyelash kits from two suppliers located in the People’s Republic of China that contained materials sourced by suppliers from the Democratic People’s Republic of Korea (DPRK).

According to the notice, ELF’s OFAC compliance program was either “non-existent or inadequate”. This is the main reason that ELF’s compliance program failed to discover that a whopping 80% of the false eyelash kits supplied by two of its China-based suppliers contained materials from the DPRK. OFAC determined that ELF voluntarily self-disclosed the apparent violation, and that the apparent violation constituted an egregious case.

The fact that OFAC has highlighted the remedial steps taken by ELF is a potential indicator of OFAC’s expectations around supply chain audits, some of which appear to be quite onerous. OFAC mentions examining payments related to production materials as well as reviewing supplier bank statements. Such added obligations may require the engagement of staff who have the expertise to perform such audits, as well as adequate training and resourcing in such functions.