Sanctions Risk ManagementSymposium

September 18-19, 2017 | The Princeton Club | New York, NY

incooperation with

September18,201711:15AM– 12:15PMOFACandBIS:HowtheyWorkTogetherandHowtheir

RegulatoryandCriminalPowersAreApplied

1

MatthewBellDeputyChiefCompliance

Officer,ChiefExportComplianceOfficer&

LegalCounsel– ZTECorp.

JeannetteL.ChuManagingDirector

ExportControls&TradeSanctionsPricewaterhouseCoopers

PeterJeydelAssociate

Steptoe&JohnsonLLP

HowardR.FieldsSVP/GroupHeadAMLTradeSanctionsandExportControls

ComplianceCounselMasterCard

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

2

PeterJeydelAssociateSteptoe&JohnsonLLP

IntroductiontoBISandhowitissimilarto/differentfromOFAC

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

3

MatthewBellChiefComplianceOfficer&LegalCounselZTECorporation,USA

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

4

§ Heavyrelianceonvoluntarydisclosuresandsettlementagreements§ Civilpenaltiesmaybeimposedonastrictliabilitybasis§ Extraterritorialapplicationofregulations§ Appeals ofcivilenforcementactionsaredifficultandrarelypursued§ Increasedfocusonchargingindividualsforwillfulviolations§ Adoptedsimilarguidelinesonsettlement(e.g.,egregious;voluntarydisclosures)

§ Eachoftheresponsibleagencieshasitsownprioritiesandapproachtoenforcementactions

KeyElementsofOFAC&BISEnforcementApproach

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

5

TreasuryDepartment:OfficeofForeignAssetsControl(OFAC)

§ Enforceseconomicsanctionsregulations

§ Publishedpenaltyguidelinesestablishapproachtoassessingcivilpenalties

§ Largestenforcementactionshistoricallyhavefocusedonbanksandfinancialtransactions§ Highprofile,highdollarsettlements

§ Concertedefforttoincreaseeffectivenessofsanctionsthroughenforcement

§ AccesstoU.S.financialsystemandmarketskeysourceofleverage

§ ThreatofSDNdesignation

§ Othersectors§ Telecommunications(ZTE)§ Energy(Weatherford,Haliburton,Schlumberger)

§ Insurance(NavigatorsInsuranceCompany)

§ Aircraft/Aerospace(Fokker)§ Medicalproducts(Alcon)§ ConsumerElectronics(Epsilon)

§ SECreportingrequirementsfortransactionswithSDNsandGovernmentofIranentities

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

6

CommerceDepartment– BureauofIndustryandSecurity(BIS)

§ EnforcestheExportAdministrationRegulations(EAR)

§ “GeneralProhibition10”orneedforfuturelicenseshastheeffectofforcingdisclosureinmanycases

§ EARpenaltyguidelines§ CommerceDepartmentpublishedupdatedpenaltyguidelinesforEARenforcementcasesinJune2016

§ BasedonOFAC’spenaltyguidelines

§ Includesmitigationforvoluntarydisclosureandimplementationofcomplianceprograms

• IncreasedEnd-UserChecksandCompanyVisits

• AdditionaloutreachrelatedtoExportControlReformtoverifyproperhandlingof“600Series”itemsanduseofLicenseExceptionSTA

• Visitsservebotheducationalandcompliancefunctions

• StrategicplacementofcompaniesontheEntityListtoforcenegotiationsandchangeconduct

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

NotableEnforcementCases

§ ZTE(2017)

§ AlconLaboratories,Inc.(2016)

§ Schlumberger(2015)

§ FokkerServicesB.V.(2014)

§ Weatherford(2013)

7

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BIS&OFACAreasofConvergenceinInvestigations

§ Comparablelengthoftollingagreements§ Focusonselecttransactionstoincludeaschargesinsettlementagreement§ Analysiscandifferbasedonstrength/weaknessofjurisdiction§ Canimposeauditingandreportingrequirements§ Workinparalleltopushresolution§ Keeplinesofcommunicationopenwitheachagencyastheycoordinateduringthe

investigation§ Provideclearandconsistentinformationtoeachagencyeventhroughoneagencymight

askformoredetailedinformationonaparticulartransaction

8

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

9

JeannetteChuManagingDirectorPwC

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BIS&OFACAreasofDivergenceinInvestigations

10

BIS

§ Investigationsdevelopedfrommultiplesourcesofinformationincludingdisclosures,outreachvisits,end-usechecks,anonymousleads,intelligenceanalysisetc.

§ +/-100CriminalInvestigatorsincludingExportControlOfficersstationedoverseas

§ Focusondevelopingcasesforcriminalprosecution

OFAC

§ Relianceondisclosures§ Nocriminalenforcementauthority§ Nodedicatedinvestigativeresources

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

WhattoExpectandHowtoPrepare

11

§ OutreachvisitsconductedbySpecialAgentsfromBIS,OfficeofExportEnforcementmaybetransaction-focusedorgeneralinnature§ Haveaprocedureinplacethatisbuiltonimmediatenotificationofin-housecounselandtheExportComplianceOfficial

§ Understandrecordretentionrequirements(15CFR762.2)§ “timelyproduction”maybeopenforinterpretation

§ Sentineltrips,Pre-LicenseChecks/PostShipmentVerifications§ Whereappropriate,explainthepurposeofsuchvisitstotherecipient§ ForPSVsmakesureend-usershavelicenseconditionsandunderstandcomplianceimplications

Sanctions Risk ManagementSymposium

September 18-19, 2017 | The Princeton Club | New York, NY

incooperation with

Questions?

12

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BonusSlidesProvidedby

13

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

OfficeofForeignAssetsControl(OFAC)

14

§ FallsundertheTreasuryDept.

§ OFAC’shistoricalmissiontocutofftradewithenemystates,primarilythroughtheUSfinancialsector

§ Hotline1 (800) 540-6322 or(202)622-2490

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

OFAC’sSpeciallyDesignatedNational(SDN)

15

§ Alistofindividualsandcompaniesownedorcontrolledby,oractingfororonbehalfof,targetedcountries.

§ Alsolistsindividuals,groups,andentities,suchasterroristsandnarcoticstraffickersdesignatedunderprogramsthatarenotcountry-specific.

§ Collectively,suchindividualsandcompaniesarecalled“SpeciallyDesignatedNationals”or“SDNs.”

§ TheirassetsareblockedandU.S.personsaregenerallyprohibitedfromdealingwiththem.

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

OFACEnforcementGuidelines

16

§ EconomicSanctionsEnforcementGuidelines§ Issuedin2009§ SetsforththeEnforcementGuidelinesthatOFACwillfollowindetermininganappropriateenforcementresponsetoapparentviolationsofU.S.economicsanctionsprogramsthatOFACenforces.

§ https://www.treasury.gov/resource-center/sanctions/Documents/fr74_57593.pdf

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BasePenaltyMatrixfromOFAC

EnforcementGuidelines

17

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

OFACLicenses

18

Specificlicense:Allowsapartytoengageinanotherwiseprohibitedtransaction.

Generallicenses:Authorizecategoriesoftransactions,suchasallowingreasonableservicechargesonblockedaccounts,withouttheneedforcase-by-caseauthorizationfromOFAC.

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BureauofIndustryandSecurity(BIS)

19

§ FallsunderDepartmentofCommerce§ Mission:AdvanceU.S.nationalsecurity,foreignpolicy,andeconomicobjectivesbyensuringaneffectiveexportcontrolandtreatycompliancesystemandpromotingcontinuedU.S.strategictechnologyleadership.

§ AdministersandenforcestheExportAdministrationRegulations(EAR)

§ ExportEnforcementHotline- 1-(800)424-2980§ www.bis.doc.gov

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BISEnforcementGuidelines

20

§ GuidanceonChargingandPenaltyDeterminationsinSettlementofAdministrativeEnforcementCases

§ RevisedJune22,2016§ Promotesgreatertransparencyandpredictabilitytotheadministrative

enforcementprocess.§ AlignsproceduresofDOC’OfficeofExportEnforcementwiththoseofOFAC,

bothofwhichadministerbulkofprogramsunderInternationalEmergencyEconomicPowersAct.

§ https://www.bis.doc.gov/index.php/documents/pdfs/1567-administrative-enforcement-guidelines/file

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BISLists

21

§ DeniedPersonsList:Individualsandentitiesthathavebeendeniedexportprivileges.Anydealingswiththemthatwouldviolatethetermsofitsdenialorderareprohibited.

§ TheEntityList: ForeignpartiesthatareprohibitedfromreceivingsomeorallitemssubjecttotheEARunlesstheexportersecuresalicense.

§ UnverifiedList:PartieswhosebonafidesBIShasbeenunabletoverify.Nolicenseexceptionsmaybeusedforexports,reexports,ortransferstoUVLparties.Astatementmustbeobtainedpriortoshippingitemsnotsubjecttoalicenserequirement.

§ ConsolidatedScreeningLists:consolidatesexportscreeninglistsoftheDOC,StateandtheTreasurytoassistinscreeningpartiestoregulatedtransactions http://apps.export.gov/csl-search#/csl-search

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BIS’CommerceControlList(CCL)

22

AkeyindeterminingwhetheranexportlicenseisneededfromtheDOCisknowingwhethertheitemyouintendtoexporthasaExportControlClassificationNumber(ECCN).

ECCNsarelistedinthe CommerceControlList(CCL) (SupplementNo.1toPart774oftheEAR)

See:https://www.bis.doc.gov/index.php/regulations/commerce-control-list-ccl

Navigating the Turbulent Currents of International Sanctions and Export Controls | September 18-19, 2017 | The Princeton Club | New York, NY

Sanctions Risk Management Symposiumincooperation with

BasePenaltyMatrixfromOFAC

EnforcementGuidelines

23