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A Gibson Dunn International Trade and National Security

Presentation:

The New Era of Fluid Global Sanctions

Presenters:

October 21, 2015

F. Joseph Warin Aleksi Pursiainen

Adam M. Smith David A. Wolber

<Presentation Title/Client Name>

TODAY’S PRESENTERS

2

F. Joseph Warin

Partner

Gibson, Dunn & Crutcher LLP

202-887-3609

[email protected]

Aleksi Pursiainen

Head of Trade Compliance

Nokia Corporation

+358 40 5076571

[email protected]

Adam M. Smith

Of Counsel


202-887-3547

[email protected]

David Wolber

Associate


202-887-3727

[email protected]


Discussion Topics

3

Global Sanctions: Where Are We and How Did We Get Here?

• Size, Scope, and Bite of Sanctions

The Coming Inflection

• What is Changing?

• Where are the new Opportunities? Where are the New Risks?

Iran: New Complexities Come from Old Complexities

Russia: The “New New” Sanctions

Cuba: What Next? How Soon and How Far?

Burma: “Strategic Unwinding” of Sanctions

U.S. and Global Compliance Challenges and Best Practices

• Strategies When Facing Conflicting Sanctions Obligations


Global Sanctions: Where are We and How did we Get Here?

4


In the mid-1990s sanctions

were vilified,

misunderstood, and

comparatively rare.

By 2015, sanctions have become

the tool of choice to address a

growing number and diversity

of policy challenges.

From Nowhere to Everywhere


The United States continues

to rely on economic sanctions

as a primary tool of

diplomacy and national

security.

New programs have been

instituted very quickly, black-

listed entities have been

added and removed at an

unprecedented pace, and the

number and severity of

enforcement actions – at both

the federal and state level –

have increased remarkably.

6

Growth of Sanctions

An ever-expanding footprint for the Office of Foreign Assets Control

5

10

15

20

25

30

35

40

2000 2005 2010 2015

Active Sanctions Programs

Since 2009, the increase

in the number of

individuals and entities

on the “Specially-

Designated Nationals”

(SDN) black-list

Annual changes to the

SDN List – listings and de-

listings. On an annual

basis the average rate of

change has almost doubled

since 2007

Since 2000, the growth

in US active sanctions

programs

Most recent program

launched in April 2015

– Cyber Crime


7

Sanctions Overview

Distribution of parties sanctioned by the United States


8

Tota

l OFA

C S

ettl

em

en

ts (

$ M

)

Ave

rage O

FAC

Settlem

en

ts ($ M

)

U.S. Treasury – Sanctions Enforcement

Assessed Civil Penalties

OFAC Civil Enforcement –

Quick Facts:

• Since 2008, OFAC has

opened more than 5,000

enforcement investigations

against entities alleged to

have violated U.S.

sanctions

• OFAC has assessed nearly

$4 billion in fines over that

period – averaging more

than 30 penalties a year

• Since 2012, the average

penalty has been nearly

$45 million

• Penalized firms have

included major financial

institutions from Europe

and Asia, and energy,

technology, manufacturing

and services companies

from throughout the world.

Q

These fines are in addition to penalties and forfeitures assessed by other federal and state

authorities including the Department of Justice, the Federal Reserve, the Office of the Comptroller

of the Currency, the NY Department of Financial Services and the District Attorney of NY.

These agencies often follow OFAC findings, but have regularly exceeded the amount and scope of

penalties assessed by OFAC.

OFAC’s Active Enforcement Docket


9

Recent Actions

OFAC Enforcement Cases

2015 (to date) – A Diversity of Industries

Major European financial institutions settled allegations of violating Iran, Sudan,

Myanmar, Cuba, Terrorism, and/or Weapons Proliferation sanctions – fined $258 m,

$1.7 m, and $330 m respectively

Largest online payment processer settled accusations of violating Iran, Cuba, Sudan,

Terrorism, and Weapons Proliferation sanctions – fined $7.6 m

Manufacturer settled allegations that it violated Weapons Proliferations sanctions –

fined $390,000

Large Non-Governmental Organization settled accusations of violating Iraq

sanctions – fined $780,000


10

37 sanctions programs;

6,500+ entities listed

from 156 jurisdictions

31 sanctions programs;

2,500+ entities listed

from 88 jurisdictions

EU and U.S. Sanctions An Increasing(ly Similar) Reach

United Nations

Even United Nations sanctions have expanded substantially.

The UN now has 13 sanctions programs and more than 1,000 entities

and individuals listed.


Switzerland

2014: Following actions taken in the U.S. found

that the Swiss branch of a major financial

institution had assisted in breaching U.S.

sanctions and failed to “assure proper

business conduct and risk management.

2015: Investigations continue into board,

management and employees involved.

Austria

2014: Froze land of a company connected with a

person listed under Ukraine sanctions

2014: Investigated major bank for potential

Russia sanctions violations

Spain

2014: Firm fined as much as € 6 m. for Iran

sanctions violations

2014: Several individuals arrested in relation to

attempted violation of Iran sanctions

2015: Spain remains a very active EU state in

enforcement matters

United Kingdom

2014: Firm fined £ 225,000 + £ 1 m. confiscated;

Director pled guilty – 30 month jail –

following Iran sanctions violations

2014: Following review of 21 institutions

regarding sanctions risk, FCA commenced

investigation against two banks.

2015: FCA promises crackdown on sanctions

11

Italy

2014: Seized € 30 m. of property from a person

listed under Russia sanctions

Recent Actions

EU and European Enforcement Cases


Changing Sanctions Regulations

• Existing Programs – Multilateral Divergence:

‒ Iran

‒ Russia

‒ Cuba

• New Programs: Cyber Sanctions, Human Rights?

New Faces and a Wider Range of Enforcement Authorities:

• U.S. (federal and state) – new leadership at OFAC

and DFS; widely-reported regulator “brain drain”

• UK – Office of Financial Sanctions Implementation

Set to launch April 2016

• Others?

12

What is Changing?

“The (UK Government)

will establish…an Office of

Financial Sanctions

Implementation…to help

ensure that financial

sanctions are

properly…enforced….”

Statement accompanying

UK Summer Budget -2015

Flux throughout “Sanctions World” – Personalities, Processes, Policies


Litigation Challenges:

Added to these changes is

the increasingly forceful

role of the courts –

especially in the EU – on

sanctions issues.

The continued success of

judicial challenges to

sanctions across the Union

has contributed to sanctions

weariness and wariness in

many Member States.

Increasingly Overlapping Regulatory Exposure:

Authorities are scrutinizing sanctions violations alongside

corruption, money laundering, and other regulatory

violations. • Scrutinizing direct and indirect violations

• Penalizing outcomes and systems & controls shortcomings

• Increasingly looking to assign personal civil and criminal

liability for senior officers at implicated firms

Growing Power of Pressure Groups to Shape Debate:

Well-placed non-governmental groups are increasingly

adept at both: • Pressuring governments to act (e.g. to divest from specific

companies or organizations); and

• Exacting reputational damages on entities that do not comply

with their view of sanctions.

13

What is Changing? Flux throughout “Sanctions World” – Personalities, Processes, Policies


14

Three Primary Sanctions Risks

Companies are Facing Increasing Legal and Reputational Risks

Black-Listing

Governments can list a bank or a

company for engaging in sanctioned

conduct and bar them from access to

their jurisdiction. The consequences

of being listed are severe: assets are

frozen and access to markets – retail,

investment, insurance, reinsurance,

and correspondent banking

prohibited.

1

A company that even accidently

engages with black-listed parties can

face reputational, civil, and

criminal liability – for itself and its

officers and directors. Authorities

have assessed billions of dollars of

fines, required divestment of state

funds from companies, mandated

post-settlement monitoring, and

suspended operating licenses.

Penalties

2

A bank or a company can face

sanctions-related consequences if its

business partners are concerned that

its compliance is unsatisfactory.

Dozens of major firms have “de-

risked” – cutting off customers,

licensees, bankers, investors, and

even whole lines of business due to

perceived direct or indirect

sanctions risks.

De-Risking

3

The growth of sanctions

programs adds to the number

and type of sanctionable conduct

and increases the potential of

being listed.

The large number of enforcement

agencies involved and the ever-

growing number of black-listed

entities increases the likelihood of

engaging with sanctioned parties.

The rising risks of being black-

listed and of being penalized –

combined with reputational

harm – means that no firms are

“too big to de-risked.”


Sanctions on Iran: New Complexities Come From Old Complexities

15


Most comprehensive U.S. sanctions regime: black-lists hundreds of organizations, entities

and individuals, as well as targets the jurisdiction of Iran generally and specific sectors of

Iran’s economy – especially the energy sector

• Innovations in the Iran program include the advent of “secondary sanctions” and

the extension of compliance obligations to foreign-incorporated U.S. subsidiaries

16

Timeline of Iran-Related U.S. Sanctions

U.S. Sanctions The Iran Baseline

- Executive Orders can be additive and augmented by Congressional legislation.

- The result, in the case of Iran, is a dense web of sanctions.

Legislation

Exec. Orders


Extension of Sanctions to Foreign Subsidiaries

17

U.S. Sanctions Iran Sanctions Innovations in Force Today

Secondary Sanctions

United States Iran

Non-U.S. / Non-Iranian Entities

If a non-U.S. / Non-Iranian company, organization, or entity engages in nearly any sort of transactions:

• with specified Iran-linked entities (e.g. certain sanctioned banks), or

• or in support of specified Iran-linked activities (e.g. nuclear development)

That non-U.S. / Non-Iranian entity could lose their access to the U.S. market or face even more severe consequences.

U.S. Parents

Subject to U.S. Sanctions

France India

Australia

China

Foreign Subsidiaries

In nearly every other sanctions program, foreign subsidiaries operating without U.S. persons and incorporated in third countries are NOT subject to U.S. sanctions.

Legislation passed in 2013 makes these entities – in the case of Iran sanctions – subject to the same U.S. sanctions as their parents.


Transition Day (2023)

Termination Day (2025)

Iran – Nuclear Deal – Sanctions Relief “Adoption Day” is Here – “Implementation Day” is Coming

Finalization Day

July 14, 2015

UN and EU Endorsement

July 20, 2015

Congressional Review Concludes

September 17, 2015

Majlis Endorses Deal

October 13, 2015

Adoption Day

October 18, 2015

Prep for Sanctions Relief

Implementation Day

~ Q1 2016

U.S.: Substantial

sanctions relief –

100s of entities removed

from sanctions list;

many sanctions waived;

licenses issued

UN: Termination of UN

Sanctions

EU: Termination /

Suspension of first (and

largest) set of EU

sanctions

* Primarily affecting Non-U.S. Persons only

…see next slide

*


19

Comparison of U.S. and EU Relief Granted on Implementation Day

United States

Principal relief will be on sanctions with extra-

territorial reach – the “innovations.” Iran sanctions

still largely in effect for U.S. persons:

• U.S. citizens, U.S. companies and any individual

or entity within the U.S.

For non-U.S. persons:

• parts of several sanctions laws will be waived and

hundreds of entities will be removed from the

sanctions list.

• engaging with many Iranian entities no longer

endangers U.S. market access.

Some U.S. persons will benefit:

• Civil aviation companies may export to Iran

• Imports of Iranian foodstuffs and carpets

authorized

• Foreign subsidiaries of U.S. companies will be

able to resume work in Iran

• Potential for new licenses depending upon

commercial/political atmosphere

European Union

No secondary sanctions exist - principal focus will be on removing primary sanctions:

• A broad spectrum of European firms will be

able to enter (or re-enter) the Iranian market.

• Hundreds of Iran-linked entities will be removed

from the EU sanctions lists.

• Primary sanctions regulations will be suspended,

terminated, or eased including measures

concerning:

‒ Finance, banking, and insurance

‒ Oil, gas, and petrochemical

‒ Shipping and transport

‒ Gold and banknotes

‒ Metals

‒ Software

Iran – Nuclear Deal – Sanctions Relief


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Description of Relief

The United States shall “cease the

application of secondary sanctions for

transactions with individuals and entities”

that the U.S. had sanctioned for “nuclear-

related” reasons.

JCPOA, Annex II, para 7.9

Iran – Challenges and Best Practices on Implementation Day Core U.S. Sanctions Relief – Secondary Sanctions

Non-U.S. firms can

again engage with

many of Iran’s largest

banks, corporations,

and organizations

without risking their

U.S. market access.

Opportunities

Challenges

Secondary sanctions

will remain for

entities sanctioned

due to terrorism,

human rights and

connections with the

Islamic Revolutionary

Guard Corps (IRGC).

Best Practices

U.S. parties that are

allowed to engage

with Iran will find

more willing and

potential

counterparties for Iran

transactions.

How can a

company find

comfort that its

counterparties will

not subject it to

secondary

sanctions risk?

Enhanced and continual due diligence –

combining corruption, AML, and sanctions

Review of both 50 percent-owned entities and

non-official OFAC lists – e.g. pressure group

lists of additional IRGC entities

Pro-active compliance outreach to business

partners to share information and gain comfort

Broader contract provisions – e.g. enhanced

reps and warranties, foreign law provisions


21

Description of Relief

The United States shall “license non-U.S.

entities that are owned or controlled by a

U.S. person to engage in activities within

Iran that are consistent with the JCPOA.”

JCPOA, Annex II, para 5.1.2

Iran – Challenges and Best Practices on Implementation Day Core U.S. Sanctions Relief –Sanctions on Foreign Subs of U.S. Companies

Foreign-domiciled

subsidiaries of U.S.

companies will be

able to operate in

Iran as they were

prior to the 2013

legislation.

Opportunities

Challenges

“Consistent with the

JCPOA” means that

transactions with

SDNs shall remain

prohibited – finding

comfort with the

identity of Iranian

counterparties could

be difficult.

Best Practices – Building a Firewall

Non-U.S. companies

will be able to partner

with these subsidiaries

to engage in Iranian

business.

U.S. companies

will need to build

a sufficient

firewall between

domestic and

foreign operations

to limit

facilitation risk.

Enhanced and continual due diligence –

sanctions, corruption, AML, and export control

Review of recusal policies for U.S. persons and

sanctions opt-out contractual clauses

Exercise caution regarding U.S.-nexus “hidden”

backend processes (e.g. approvals, corporate

services [including email and software] and

expertise).

Perform periodic internal and third-party audits


22

Iran – The Way Ahead Near Term Considerations

Roadmap - Considerations -

Preparation – How Far Can you Go Now? Informational exchange; not contractual 1

Timing of Relief Not yet; likely Q1 2016 before Implementation Day

Compliance Diplomacy Engagement with partners to ensure mutual comfort

Legal and Reputational Risk Assess full scope of risks regarding dealings

Plan for U.S. – EU Differences Consider “blocking statutes” and firewalls

“Practical Lag” Post-Implementation Banks and others may not re-engage immediately

Licenses / “Snap Back” Prepare for new opportunities and sanctions return

7

2

3

4

5

6


Sanctions on Russia The “New New” Sanctions

23


24

Two principles guiding U.S. response to President Putin’s incursion into Ukraine:

Maximize impact on Russia while minimizing pain on allies and broader economy

As far as possible, move “in lock step” with closest allies and partners

Difficult because the Russian economy is

more globally linked and significantly

larger than any country the U.S. has ever

sanctioned.

Russia Sanctions A New Sanctions and Economic Challenge

Size of Russian economy: $3.6 trillion

Combined size of all other economies

U.S. have sanctioned: $2.6 trillion

Several core allies rely on Russia for

energy and trade

(% total domestic supply, av. 2011-13)

Imports of National Gas from Russia


25

U.S. Sanctions on Russia A Three-pronged Approach

List-Based Sanctions

120+ individuals, companies and organizations

are blocked, e.g.:

Region-Based Sanctions

Crimea is essentially off-limits to U.S. persons

Investments

Exports

Imports

Facilitation

United

States Crimea

Traditional “List-Based” Sanctions

Traditional “List-Based” Sanctions

Implemented through a series of four Executive Orders

Executive Order 13,660 (Mar. 6, 2014)


Executive Order 13,685 (Dec. 19, 2014)

Traditional “Region-Based” Sanctions


26

U.S. Sanctions on Russia A Three-pronged Approach (cont.)

“Sectoral” Sanctions

Targets core drivers of the Russian economy in the finance, energy, and defense sectors -

Rather than blocking/freezing companies, the sanctions seek to prevent growth in certain sectors.

• Innovative, targeted approach.

• Implemented through a series of “Directives” targeting specific entities in specific sectors.

• Creation of the Sectoral Sanctions Identifications (“SSI”) List

• “50% Rule” applies.

Finance Sector

Unable to raise capital via

new long-term debt or

equity

Energy Sector

Unable to raise capital via new long-term debt or

acquire U.S. technology for key projects

Defense Sector

Unable to raise capital via new

long-term debt



Directive 1, 2 and 3

Prohibits U.S. persons from transacting in, providing financing for, or otherwise dealing in:

• new debt with >30 days maturity or new equity of SSI-listed entities in the Russian financial services sector

• new debt with >90 days maturity for SSI-listed entities in the Russian energy sector

• new debt with >90 days maturity for SSI-listed entities in the Russian defense sector

Scope -- the definition of “of” matters.

• The prohibition is intended to limit the ability of targeted financial institutions to grow, not conduct business.

• Only those transactions that involve capital raising for the targeted institution itself are covered.

27

U.S. Sanctions on Russia Closer Look at U.S. Sectoral Sanctions

Directive 4 – Oil Production

Prohibits the provision, exportation, or reexportation, directly or indirectly, of goods,

services (except for financial services), or technology in support of exploration or

production for deepwater, Arctic offshore, or shale projects that have the potential to

produce oil in the Russian Federation or its maritime area and when involving SSI-listed

entities designated pursuant to this Directive.

Some terms defined but many ambiguities remain.


28

EU Sanctions on Russia An Ally Working in Tandem

Four distinct EU sanctions regimes in place for

Russia/Ukraine/Crimea

Ukraine – Misappropriation

• Freezing assets of former Ukrainian government officials

Ukraine – Sovereignty and Territorial Integrity

• Mostly targeted asset freezes of Ukrainian separatists

Russian sectoral sanctions

• Focused on state-owned entities, and the oil and gas sector

• Restricting access to EU capital markets, imports and

technology

Crimea – Sectoral and Trade Sanctions

• Broad ranging sectoral, economic and trade sanctions on

Crimea and Sevastopol

~ to U.S. …

Executive Orders

13660 and 13661

Executive Order

13685

Executive Order

13662


29

U.S. Sanctions Russia – What’s next?

• EU sanctions must be renewed by January 31

‒ Pressure not to renew from some countries,

supported by continued judicial challenges

‒ Russia’s Syria incursions may have made it

more likely that EU sanctions will remain

• If diverge – U.S. and EU would be on different

pages with respect to Russia (and Iran)

• Last U.S. action was in July 2015

‒ Deemed a “maintenance” action to “maintain

pressure”

• No new authorities on the horizon

• Ukraine Freedom Support Act, with secondary

sanctions available, but unlikely to be used


Sanctions on Cuba: What’s Next? How Soon and How Far?

30


31

Cuba How Far? How Fast?

Since then:

Cuba removed from State Sponsor of Terrorism List.

Diplomatic relations restored.

Two rounds of sanctions relief (Jan. and Sept. 2015).

Country Designation Date

Iran January 19, 1984

Sudan August 12, 1993

Syria December 29, 1979

Cuba March 1, 1982

December 17, 2014: President Obama announces "the most significant changes in [U.S. Cuba] policy in more than fifty years."

How much farther can it go?

Many sanctions frozen in place by Congress (e.g., Cuban Democracy Act; Helms-Burton)

Nearly all of the recent Cuban sanctions relief has been granted by general license pursuant to Executive’s power.

Can the President effectively end the embargo through general license authority? When does Congress push back?


32

Cuba Summary of Key Sanctions Relief to Date

Travel

12 available categories for

U.S. travelers. No straight

tourism.

Travel and carrier services

authorized

A host of activities related or

“incident to” authorized travel

Exports and Imports

Imports of select Cuban

goods/services from Cuban

entrepreneurs

Support for small business

growth and humanitarian

projects

Transactions involving newly

authorized exports

Financial Services

Opening of U.S. correspondent accounts in Cuba

Bank accounts – Cuba, U.S. and abroad

Credit and debit card use in Cuba

Expansion of allowable remittances and remittance services

Establishing a Business in Cuba

Establishment of physical

commercial presence in Cuba for

authorized activities

e.g., provision and establishment

of telecommunications and

Internet-based services and

facilities.

U.S. Operations Abroad

“Persons subject to U.S. jurisdiction” can provide goods and services to Cuban nationals in third countries…

…as long as it does not involve an export/import to or from Cuba

Miscellaneous

Payment for certain legal services

Additional education-related activities

Supporting diplomatic relations

“transactions ordinarily incident to…”


33

Cuba Navigating the Waters – A Few Examples

Can a U.S. Person… Yes, because… Can a U.S. Person… No, because…

Pay for a hotel room in Cuba with a U.S.-issued credit card?

Card use is incident to valid travel. U.S. institutions are authorized to enroll merchants and process valid payments.

Use a credit card for a deposit on the rental of luxury sailboat in Havana.

Likely involves unauthorized recreational travel/tourism.

Meet with Cuban business leaders in the automotive sector in Cuba?

Travel for professional meetings/research is authorized.

Sign an agreement to explore trade development options once the embargo is lifted?

Cannot enter into contracts, even if executory. Auto not a sector generally licensed.

Build a retail outlet in Cuba to sell telecommunications equipment and services?

Physical presence allowed for authorized goods/ services

Build a hotel? Hospitality is not authorized good or service; construction is not a transaction incident to travel

Offer a checking account from a bank’s subsidiary in Spain to a Cuban national in Spain?

Goods and services can be provided by U.S. foreign subs to Cubans in third countries.

Provide accounting services to a Cuban national in Spain for a business in Cuba.

Likely involves an export of services to Cuban.

Process a remittance to a friend in Cuba for $10,000?

No limit on donative remittances. Process a $50 remittance to a friend in the Cuban government to buy Castro-era memorabilia

No remittances to government officials; remittance is commercial.

Import a Cuban cigar?

Limited tobacco imports under $100 authorized.

Import a crate of Cuban cigars from a municipal-owned distributor.

Tobacco not fully authorized for import by State. Import is not from an independent Cuban entrepreneur.


Burma Sanctions: “Strategic Unwinding” of Sanctions

34


Through a series of general licenses issued in 2012 and 2013, now incorporated as such

into the regulations, and Executive Order 13651, OFAC has now authorized:

exports of financial services to Burma

imports of Burmese goods into the U.S. (except certain gemstones)

new investment in Burma (with reporting requirements to Dept. of State)

most transactions with four blocked financial institutions designated as SDNs:

• Asia Green Development Bank, Ayeyarwady Bank, Myanma Economic Bank, and

Myanma Investment and Commercial Bank

• NOTE: this is a unique license, explicitly allowing broad dealings with SDNs

35

Burma Most U.S. Sanctions have been Lifted


Companies looking to do business in Burma need to be aware that some sanctions still exist.

36

Burma Some Restrictions Still in Place

115 Burmese entities or individuals remain designated as SDNs. Dealings with these entities or

individuals, or their property remains prohibited– this includes core players in the Burmese

economy including port operators.

• The designated port operator has been a major problem

Certain exports of financial services and new investments involving the Burmese Ministry of

Defense, state or non-state armed groups (including the military).

Certain transaction involving the four SDN banks noted above:

• No new investment in or with these four banks.

• Any property of these banks blocked prior to issuance of the general license remains blocked.

• Funds transfers between U.S. financial institutions and these banks must be routed through a

third country.

And remember the “50% Rule.”

What Can’t You Do in Burma?

Elections on November 8 – If elections are successful, there may be more room and

political appetite in the United States for further relaxation (via general or specific licenses).


Compliance Challenges

37


38

Enforcement Priorities

Banks, banks, and more banks

Recent cases at the federal and state levels suggest a rising importance of other sectors:

• Insurance: Insurance is a sector similar to banking; it is highly regulated, critical for

international trade, and has both a history of enforcement actions and a distinct US nexus

giving US sanctions unique power;

• Technology: Authorities have begun to look closely at tech – due to the sector’s global

exposure and lack of sanctions history; OFAC has new cyber sanctions and DFS is examining

cyber security in relation to its bank and insurance supervision;

• Energy: Sector is very active in jurisdictions where sanctions are at play. The Iran Deal may

increase scrutiny depending upon investment in the sector.

• “Structures”: Parent-Sub firewall sufficiency; IRGC connections, etc.

Different Member States have different goals

The UK promises to become even more active, with existing authorities and the

creation of a standalone, dedicated sanctions implementation and enforcement body

– the Office of Financial Sanctions Implementation


OFAC Compliance Tips

• Exercise caution when dealing

with entities owned 50% or less

by sanctioned parties – they

may be sanctioned in the future

• Treat entities owned more than

50% by sanctioned parties as

blocked – even if they are not

officially listed

• Conduct comprehensive due

diligence to determine

beneficial ownership

• Consider all potential

restrictions on sanctioned

entities – multiple sanctions

programs may apply in

different ways

• Do not overstate any reduction

in sanctions (e.g. Iran)

39

U.S. Sanctions

OFAC Compliance

OFAC requires compliance with all sanctions rules and

regulations, but:

The agency does not mandate the existence of, or

provide robust guidance on the required form of,

an adequate program.

There is no one-size-fits-all approach – and each

institution’s program needs to be tailored to

address specific needs, risks, and transactions.

• How big is your company? Where is it located?

• How well do you know your customers?

• Who are your partners, brokers, and suppliers?

• How complicated are your transactions? Are

they cross-border? Is there potential for

diversion?


40

Global Compliance Best Practices

“Best practice” requires (1) maintaining leading-edge sanctions compliance policies and processes internally, as well as (2) engaging externally with business partners, banks and others to provide mutual assurances.

Key Components of Establishing a Compliance Program

Inculcating a “culture of compliance” from the top

Establishing a strong compliance department including dedicated, empowered officers

Developing robust internal controls

Deploying accurate risk analysis and measurement tools

Implementing training programs for key personnel

• Employees in high-risk areas

• New employees

• Continuing training for existing employees

Developing periodic risk assessments and compliance audits

• Monitoring key changes to policies


Different offenses may arise

out of parallel investigations

focused on related conduct.

Weatherford (Sanctions +

Corruption, Export Controls);

HSBC (Sanctions + Anti-Money

Laundering).

• Integrate compliance reviews

such that investigations into

allegations are not focused on

a single potential violation.

•Allocate training and

compliance resources

according to the type of

potential violation(s) most

relevant to your business.

Issu

e

Exa

mp

les

Be

st P

ract

ice

s

Non-Governmental Agencies

are increasingly involved in

enforcing ethical business

conduct.

NGOs publicizing apparent

wrongdoing; state authorities

relying on NGO assessments in

making divestment decisions.

•Understand that scrutiny into

business practices may come

from both government and

non-government sources.

•Understand the compliance

requirements of those to

whom you are contractually

obligated.

•Watch for increasing use of

integrity pacts.

The same or similar conduct

may be investigated by both

local and foreign enforcement

agencies.

Sanctions violations being

investigated by US federal and

local authorities; and

increasingly European agencies

•Understand key differences

between local and federal

regulations.

•Remember that governments

are increasingly

implementing OFAC-like

processes (e.g. UK’s OFSI).

•Never assume misconduct is

limited to local business units. It may be indicative of

a global problem.

Case Studies: Multinational / Multimodal Enforcement Accounting for the Increasingly Complex Enforcement Environment

41


Many countries impose inconsistent sanctions

In some cases, states make it illegal to follow some third-country prohibitions

• What should companies do when faced with conflicting obligations?

Navigating this challenge involves:

• Rigorous due diligence to determine if sanctions are actually implicated

• Assessing risks and consequences – business, reputational – of strategies

• Potential engagement with regulators for guidance

• Highly-tailored, creative – operationally and contractually – solutions

42

Case Study – Challenging Jurisdictions Addressing Conflicting Sanctions Obligations

Example

Problem: Proposed Deal Between U.S. and EU Entities:

U.S. partners require compliance with all OFAC

sanctions and regulations;

EU partners cannot comply with all OFAC sanctions

and regulations unless Brussels has imposed similar

measures (Regulation 2271/96)

Potential solution:

If operationally, both U.S. and EU entities are

necessary to the deal:

engagement with U.S. banks and other partners

is critical.

Robust contractual language could potentially

provide sufficient assurances regarding OFAC

compliance without mentioning U.S. sanctions –

while mentioning EU regulations


Questions?

43


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MCLE CERTIFICATION INFORMATION

Most participants should anticipate receiving their certificate of attendance in 3 to 4 weeks following the webcast.

Virginia Bar members should anticipate receiving their certificate of attendance in 6 weeks following the webcast.

Questions regarding MCLE information should be directed to Jeanine McKeown (National Training Administrator) at 213-229-7140 or [email protected].


TODAY’S PRESENTERS

45

F. Joseph Warin

Partner


202-887-3609

[email protected]

Aleksi Pursiainen

Head of Trade Compliance

Nokia Corporation

+358 40 5076571

[email protected]

Adam M. Smith

Of Counsel


202-887-3547

[email protected]

David Wolber

Associate


202-887-3727

[email protected]

Documents

The New Era of Fluid Global Sanctions - Welcome to Gibson … · Burma: “Strategic ... on the “Specially-Designated Nationals” (SDN) black-list ... or entity engages in nearly