International Sanctions Lawyer
For more than a century, the United States has used trade restrictions to punish foreign nations and individuals who disagree with the foreign policy objectives of the United States. The task of implementing sanctions now falls to the Office of Foreign Assets Control of the U.S. Treasury Department (OFAC). Generally speaking, the President, in accordance with statute, will issue an Executive Order (EO) designating some country, company or individual as subject to sanctions. OFAC will then issue guidance as to the Executive Order and designate “Specially Designated Nationals” (SDN). American entities are then prohibited from conducting business with those entities under most circumstances.
Although the sanctions prohibit American entities from engaging in commercial transactions with SDN’s, they have a much broader affect. Secondary sanctions apply to entirely non-U.S. entities operating completely outside the territorial jurisdiction of the U.S. Entities that deal with SDN’s can themselves become SDN’s or Foreign Sanctions Evaders (FSE). Once an entity is identified as an SDN or an FSE, Americans are prohibited from conducting business with them as well.
OFAC administers a wide variety of sanctions, including nation-based sanctions and conduct based sanctions. We represent individuals in a variety of matters that arise under the various sanctions regimes. The services we offer include:
- Compliance and sanctions advice
- Applying for Special Licenses or to “unblock” funds
- Challenges to improper SDN listing
- Voluntary disclosures
- Representation in Civil or Criminal Enforcement Actions
Compliance and Sanctions Advice
Sanctions compliance is complex and involves understanding both the national sanctions programs and the conduct of “smart” sanctions programs. Avoiding issues with OFAC involves more than simply checking the computerized SDN list to see if a certain name appears on this list. Companies must have policies in place to ensure adequate due diligence. They must understand with whom they are dealing and take adequate steps to make sure they are not being taken advantage of by an SDN using a strawman. Some of the questions to be asked are: Who is the beneficial owner? Who controls an entity? Are there intermediaries, agents or others involved in the transactions that are SDNs.
OFAC regulations are not straight forward or easy to understand, and the sanction programs are constantly shifting. To supplement the written guidance it provides, OFAC issues “Frequently Asked Questions” or FAQ’s. Therefore, any compliance program has to be continuously reviewed and updated to include the latest OFAC guidance. There are also times when companies need advice concerning the applicability of sanctions to a particular transaction of the meaning and scope of a general license or the meaning and scope of the Sectoral Sanctions List.
Companies also need to be aware not only of American sanctions, but also sanctions from the E.U. and other countries around the world. In the Russian Federation, the government has issued “counter-sanctions” aimed at specific American or European concerns. These sanctions are retaliatory in nature. Nevertheless, for companies conducting business in the Russian Federation, these sanctions must be taken into account and harmonized with U.S., E.U. and other applicable sanctions regimes.
There are also times when a transaction or a payment may be rejected by a bank or other financial institution for sanctions related issues when, in fact, the sanctions do not apply. In some cases, a bank or financial institution may notify third parties that a company or individual is under sanctions when, in fact, they are not thereby ruining the reputation of the company or individual and interfering with its business operations.
We assist with the analysis of a transaction and/or the creation of a compliance program. We can also take corrective action against banks or financial institutions that wrongfully reject transactions, including instituting litigation.
Special Licenses and “Unblocking” of Funds
When a person wishes to deal with an entity on the SDN list, it is generally prohibited from doing so unless a general or special license is granted by OFAC. These licenses are granted when OFAC determines that the granting of a license would not undermine American national security or foreign policy goals. General licenses may apply to certain transactions with one SDN or certain types of transactions with all certain SDNs. Special licenses are granted to a company or an individual to allow a certain transaction or transactions with an SDN.
We represent companies in the application for special licenses with OFAC. In order to obtain a special license, it is necessary to understand the transaction, the parties to a transaction and American foreign policy goals. With this understanding, we can draft an application for OFAC. OFAC’s process for reviewing applications for special licenses is opaque, and it is difficult to know what OFAC is considering or where the application is in the process; nevertheless, a carefully prepared application can result in the granting of a special license.
Closely related to the application for a special license is a request to “unblock” funds. Whenever OFAC learns of a transaction with an SDN that results in payment to or from a U.S. person, it will “block” or freeze the transaction, meaning that the payment will not be processed. In these circumstances, it is necessary to apply to OFAC to have the blocked funds released. If the blocked funds are not claimed, they will ultimately be forfeited to the U.S. Treasury. We assist clients in both the obtaining of special licenses and the unblocking of funds.
Removal from the Specially Designated Nationals List
One of the most devastating things that can happen to a company or an individual is to find that they have been placed on an SDN list by OFAC. All of a sudden, they are cut off from the American banking system and most likely, their own banks. Their business quickly evaporates. Worst of all, OFAC does not explain how it happened or what evidence was used to destroy someone’s life or business.
OFAC makes its decisions based upon information it receives from a variety of sources, including classified sources. If the information OFAC received is inaccurate, incomplete or misleading, a party can wrongfully be placed on the list. Also, a party that was properly placed on the SDN list may have changed ownership, personnel or policies such that it should no longer be on the list.
The decision to place a company or a person on the list occurs without any prior notice or opportunity to object. The party’s name simply appears on the list. Even worse, there is no formal process or procedure for removing a party from the list and very little effective judicial review of OFAC’s determinations. There are, however, steps that can be taken to remove a company or an individual from the SDN list.
The first thing that a party seeking to challenge its listing must do is secure counsel to represent it. This is more difficult than one would think because counsel cannot simply begin representing someone on the SDN list. The attorney must first obtain a special license permitting the attorney to represent the client. This first step can be time-consuming.
Once OFAC has granted a special license permitting an attorney to represent the party on the SDN list, the attorney must conduct an investigation to determine why the party was placed on the SDN list. The attorney must then martial evidence to show that OFAC was wrong or that the circumstances with the party placed on the list has changed. When all the evidence has been assembled, it must be presented to OFAC with a request for removal from the list. OFAC indicates that it has no “pre-determined timetable” but that names are added to or removed from the SDN lists “as appropriate”. The good news is that a significant number of names, more than 1,300, have been removed from the list. The bad news is that the process can take years for OFAC to complete.
Please contact us if you have questions about an SDN listing or possible removal.
Representation in Civil or Criminal Enforcement Actions by OFAC
Whenever an entity, whether a company or an individual, conducts business with an SDN, it violated the International Emergency Economic Powers Act (IEEPA), a federal criminal statute that carries penalties of up to 20 years in prison and a fine of up to $1,000,000. Civil penalties are virtually unlimited. The largest civil penalty imposed thus far is $8.9 billion. This penalty was imposed on BPN Paribas, a French bank, for violating Iranian sanctions. The consequences of an IEEPA violation are significant.
There are a couple of ways that a party may become aware of a possible IEEPA violation. One is through a whistleblower, audit or some other internal sources. If a company becomes aware of a potential IEEPA violation, it should seek the assistance of qualified counsel experienced in this area immediately. Qualified counsel will then most likely recommend an internal investigation to determine the facts surrounding an alleged violation. Sometimes, the investigation will determine that there was, in fact, no violation. Other times, the investigation will reveal a violation. If this is the case, the company will need to determine what corrective measures are appropriate. In some cases, the company may decide to make a Voluntary Self-Disclosure to OFAC. The Voluntary Self-Disclosure may limit penalties that would otherwise be assessed against the entities.
The other way that a party may learn of a potential IEEPA violation is through the government itself, whether it be by way of subpoena, search warrant, visit from federal authorities or target letter from the Department of Justice. The existence of an investigation poses a possible existential threat to a company and a significant loss of freedom to an individual. The target must obtain experienced counsel to help it through the investigation and to defend it at trial.
We have extensive experience in white collar criminal defense matters. Please give us a call if you have any questions. The sooner we become involved in a matter, the greater the opportunity for a positive outcome.