Trade and Manufacturing Monitor

OFAC Issues Africa Gold Advisory

Eric McClafferty — Thu, 29 Jun 2023 10:33:00 -0400

On June 27, 2023, the Treasury Department’s Office of Foreign Assets Control (“OFAC”), in conjunction with USAID, and the Departments of Commerce, Homeland Security, and Labor, published an Africa Gold Advisory identifying risks related to the gold industry. At the same time, OFAC added several entities in the industry to its list of Specially Designated Nationals and Blocked Persons (“SDNs”) for their connections to and support of the Russian mercenary group, the Wagner Group, and its leader, Yevgeny Prigozhin. The Advisory highlights the sanctions, corruption, and other key risks associated with the gold industry and provides guidance on how to mitigate those risks.

U.S. parties with business in Africa’s gold industry face heightened risk of a counterparty being designated as an SDN, particularly given the Advisory and recent SDN designations. As a reminder, SDNs are subject to “blocking sanctions,” meaning that U.S. persons are broadly prohibited from conducting business with the SDN or any entity owned 50 percent or more by SDN, and U.S. persons must formally “block” (freeze and report) any property or interests in property that are in an SDN’s possession or control. The Advisory notes several possible reasons for designation, including human rights violations, support for terrorist or armed forces organizations, or support for Russia’s war efforts. Even if OFAC does not designate a contractual counterparty, U.S. persons could face liability or reputational damage if the African entities are supporting SDNs or other sanctioned actors, or engaging in other malign activity such as corruption, money laundering, or smuggling.

It is critical to conduct fulsome, risk-based due diligence prior to engaging with the gold industry. Due diligence should not end at onboarding, and companies should develop procedures for ongoing auditing to quickly detect and deter any compliance concerns. Rights to exit the contractual relationship are also essential to avoid breach of contract concerns when terminating dealings with a newly designated SDN. As with other industries flagged by OFAC as high-risk (e.g., shipping, aviation), the gold industry presents unique challenges that require close attention and a robust compliance program to avoid potentially costly mistakes.

OFAC Targets Corruption In Bulgaria With Designation of Influential Individuals and Companies

Thu, 03 Jun 2021 10:55:22 -0400

Yesterday, the Office of Foreign Assets Control (“OFAC”) announced sanctions against three prominent Bulgarian individuals and 64 related companies for corruption. The designations are the largest action in the history of Executive Order 13818, which implements the Global Magnitsky Human Rights Accountability Act and authorizes sanctions on parties that engage in significant corruption or human rights abuses overseas. According to OFAC, the newly designated individuals and entities abused public institutions and government for personal profit.

The addition of Vassil Kroumov Bojk, Delyan Slavchev Peevski, Ilko Dimitrov Zhelyazkov and their companies to the List of Specially Designated Nationals (“SDN List”) effectively cuts the sanctioned parties off from the U.S. financial system and U.S. market. U.S. persons are broadly prohibited from conducting business with the sanctioned parties and with any entities owned 50 percent or more, directly or indirectly, by the SDNs. Further, any property or interests in property within the possession or control of U.S. persons must be formally “blocked” (or frozen) and reported to OFAC.

Companies that do business in Bulgaria should carefully review the new additions to the SDN List, as many of the sanctioned entities are prominent in the local media and entertainment sectors. Further developments are possible with upcoming elections in Bulgaria.

COVID-19 – Four Key International Trade Compliance Considerations

Eric McClafferty — Fri, 10 Apr 2020 12:39:15 -0400

Even as companies make rapid changes to respond to business challenges posed by the COVID-19 pandemic, executives and compliance team leaders must protect their company and employees by continuing to comply with critical U.S. international trade laws and regulations (including those addressing customs, anti-corruption, export controls, and economic sanctions). Trade regulations are not suspended, and it is important to not make assumptions or conclude that the law does not apply during this difficult time with all of the issues competing for attention, not least family and employee health and company survival. With the need to move so quickly, we have seen clients inadvertently come close to trade compliance violations that would not pose a problem for them in normal times. The following suggestions are intended to help companies reduce the risk of certain significant federal international trade law violations and avoid inbound and outbound shipment delays – while continuing to operate.

Trade rules and surrounding circumstances are changing quickly. For example, the Administration very recently appeared to be seriously considering suspending or lowering certain import tariffs, but backed away from that approach given the complexity of administering a revised system on short notice, among other problems. You are likely also seeing reports about various countries’ restrictions on exports of medicine, medical equipment (including protective equipment and ventilators), and food, among other products. How do you keep up with what is actually happening that may affect your company and what is just rumor that you do not need to react to?

One step companies are taking is to include key personnel from their trade compliance and legal teams in the decision processes related to changing international transactions. You need to move quickly, but including a team member who knows trade rules can help keep things on track and help avoid clear compliance errors.

Here are four substantive areas of U.S. trade regulation that should continue to be part of international transaction diligence: U.S. anti-corruption, export controls, and sanctions laws (that permit most exports of medicines, medical devices, and food to sanctioned locations), and U.S. Customs rules on personal protective equipment and medical devices (among other imported items).

Foreign Corrupt Practices Act (FCPA):

Due to the pandemic and disruptions in supply chains, companies should be on high alert regarding potentially illegal and/or unethical activities by brokers, freight forwarders, and other agents who may be suggesting or paying bribes or taking other similar steps to move products in the face of delays caused by the pandemic. Payments to or otherwise providing anything of value to a government official outside the United States in order to receive an improper commercial advantage could result in a violation of the federal FCPA[1] and/or other applicable anti-bribery laws. For example, companies need to watch for unusual requests for fees, surcharges, extra commissions, unusually large discounts, or other payments – particularly to third parties - that could be shared with foreign officials, including Customs personnel in the form of a side payment or bribe intended to preferentially move product. It can be tempting to authorize such payments in this context. Consult with counsel for guidance if this comes up.

Importation, Exportation or Re-exportation of Controlled Pathogens and Medical Equipment

Although the U.S. Commerce Department’s Bureau of Industry and Security (BIS) has stated that COVID-19, including virus samples, is not generally controlled for export and re-export under the Export Administration Regulations (EAR),[2] a license for a variety of associated activities could be required depending on the end-user, end-use, and destination country. For example, exporting a virus sample from the United States to Iran would require a license, as would any export creating potential biological weapons proliferation concerns. Additionally, U.S. persons are prohibited from exporting a virus sample to an individual or company on BIS’s Entity List.

Moreover, certain “equipment capable of use in handling biological materials” (e.g., those used for manufacturing vaccines) and “protective and detection equipment and components” related to biological threats may also require a license for export or re-export. [3] There are also potential licensing requirements for software specially designed or modified to enable such biological detection systems.

Next, companies should be aware of potential licensing requirements to export “technology” related to controlled items. Controlled technology includes information related to the production, development or use of controlled items, such as vaccines. For example, technology related to the production of certain protective gear to prevent against controlled pathogens or for manufacturing a vaccine might also require a license. Additionally, releasing controlled technology to a foreign person (e.g., foreign person working in a U.S. laboratory on a vaccine) would be considered a “deemed export” under the EAR and may require a license. There might be a license exception or license available, but, even in an emergency, it is necessary to check to ensure compliance with applicable laws.

Finally, many countries, like the European Union countries,[4] have imposed stringent export control restrictions on certain medical supplies due to COVID-19.[5] While the United States has not yet imposed similar measures on such items as respirators and face masks, they may do so in the future so it is necessary to monitor U.S. policy as the response to the pandemic evolves.

Office of Foreign Assets Control (OFAC) Sanctions Concerns, including humanitarian exports of food, medicine and medical devices

It is important to comply not only with export control laws but also the laws and regulations administered by the Office of Foreign Assets Control (OFAC). Most of the comprehensive sanctions programs have a general license (GL) or other authorization for exporting certain medicines or medical supplies, but each license is different and must be reviewed in its entirety to ensure compliance.[6] Additionally, many of the general licenses have exclusions as well as reporting requirements that must be followed.

Note that there are certain medicines and medical devices that are not covered by the GLs, and would require a specific license.[7] Before exporting to a sanctioned country, companies need to evaluate whether a particular general license is applicable in its entirety or whether they need to request a specific license.

Finally, transactions with, including exports to, any individual or entity on OFAC’s Specially Designated National List remain generally prohibited, so it is important for companies to continue their general denied party screening processes.

Remote Work Arrangements

As companies have moved toward increased remote work arrangements, they should also consider potential export and deemed export issues in light of these changes. As noted above, the export or re-export of controlled technology is subject to export controls. Because many employees are now working from home, the places from which controlled technology may be accessed, or to which controlled technology may be sent, may change. This situation may arise with respect to U.S. persons who are temporarily abroad, or for individuals who typically work inside the United States but are now working from a place outside of the United States, such as individuals who live near the Mexican or Canadian border. Non-U.S. persons may have been granted access to databases that they require a license to access. In assessing compliance risk, companies should seek to ensure that working at alternative locations, use of technology and software, and access to information comport with all regulatory requirements and that companies continue to adhere to their Technology Control Plan, even in this environment.

As companies are struggling to maintain normal business operations due to the numerous disruptions created by the COVID-19 pandemic, it is important to ensure that any necessary adjustments do not compound these difficulties by creating violations with strict liability U.S. international trade compliance laws and regulations. Because of the constantly changing circumstances, companies could very easily commit inadvertent violations in an attempt to solve business challenges as they arise. As companies develop strategies to cope with the disruptions caused by the pandemic, international trade compliance must be an element of those discussions. Should any of the above considerations apply to your company, we are happy to discuss.

[1] 15 U.S.C. §§ 78dd-1, et seq.

[2] https://www.bis.doc.gov/index.php/documents/pdfs/2532-severe-acute-respiratory-syndrome-coronavirus-2-sars-cov-2-faq/file

[3] Examples include fermenters, centrifugal separators, freeze-drying equipment, aerosol challenge chambers, cross-flow filtration equipment and components, among others. These items can be subject to very restrictive controls, such as “Chemical and Biological Weapons” (CB) controls, and require an authorization for export to most destinations. Note that some related items could be controlled for export under the International Traffic in Arms Regulations, see, e.g., Category XIV of the U.S. Munitions List at 22 C.F.R. § 121.1.

[4] https://eur-lex.europa.eu/legal-content/GA/TXT/?uri=CELEX:32020R0402

[5] https://www.marketplace.org/2020/03/30/countries-race-to-limit-ban-exports-of-masks-ventilators-other-gear/

[6] For example, see our March 11, 2020 post on Iran General License 8, which authorizes transactions involving the Central Bank of Iran where such transactions involve the authorized export of food, medicine, and medical devices to Iran.

[7] See, e.g. https://www.treasury.gov/resource-center/sanctions/programs/documents/iran_gl_med_supplies.pdf

EVENT ANNOUNCEMENT: What European Companies Need to Know About U.S. Sanctions, Export Controls, and FCPA Compliance

Mon, 02 Oct 2017 15:18:08 -0400

Join us in Brussels on November 9th, for this 2 hour seminar on what European companies need to know about U.S. sanctions, export controls, and anti-bribery compliance, co-hosted with the American Chamber of Commerce in Belgium. We’ll tackle some of the most recent updates to U.S. sanctions rules, including the broad new sanctions on Russia mandated by the U.S. Congress, changes to the U.S. embargo on Cuba, new sanctions on Venezuela, and the current state of play with Iran and North Korea. We’ll also provide an update on U.S. export control and FCPA rules and discuss how those laws interact with legal requirements in EU member states.

You can register for the event through AmCham Belgium’s website or contact us directly for discounted registration information.

The event will be held at Science14, 14b Rue de la Science, 1040 Brussels from 17:00 to 19:00. A reception will be held after the talk.

We hope to see you in Brussels!