Navigating Economic Sanctions … Successfully

NACM 118th Credit Congress & Expo

Orlando, FloridaJune 10, 2014

Law Offices of Jon P. Yormick Co. LPAAn International Law PracticeAttorney Advertising

Disclaimer

• The information provided is believed to be accurate as of the date of the presentation, but is subject to change without notice

• This presentation is designed for informational purposes only and is not intended to be, nor should it be deemed, specific legal advice. If such advice is required, please consult with qualified legal counsel

U.S. Economic SanctionsOffice of Foreign Assets Control (OFAC)

- Administers, enforces economic/trade sanctions againstforeign governments, government officials,persons/entities and placed on the SDN List

- Financial expertise – blocking/freezing assets; titleremains with sanctioned target

-Broad prohibitions on transfers/transactions

SDN List• Specially Designated Nationals List – 30 May

update

http://www.treasury.gov/ofac/downloads/t11sdn.pdf

• Individuals and companies owned/controlled by or acting for/on behalf of targeted countries

• Individuals, groups, and entities, (terrorists and narco- traffickers)

• Assets are blocked and U.S. persons are generally prohibited from dealing with SDNs

SDN List Entrants• CARIBBEAN EXPORT ENTERPRISE (a.k.a. CARIBEX; a.k.a. EMPRESA

CUBANA DE PESCADOS Y MARISCOS), Paris, France; Milan, Italy; Moscow, Russia; Madrid, Spain; Cologne, Germany; Downsview, Ontario, Canada; Tokyo, Japan [CUBA]

• ASH TRADING, INC., 14420 NW 16TH St., Pembroke Pines, FL 33028; US FEIN 65-1128351; Business Registration Document #P01000078571 (United States) [SDNT]

• ASSA (a.k.a. ASSA CORP.), New York, NY; Additional Sanctions Information - Subject to Secondary Sanctions; Tax ID No. 1368932 (United States) [NPWMD] [IFSR]

• BEIJING ALITE TECHNOLOGIES CO., LTD. (a.k.a. ALCO; a.k.a. BEIJING HAILI LIANHE KEJI YOUXIAN GONGSI), 12A Beisanhuan Zhong Road, P.O. Box 3042, Beijing, China; Additional Sanctions Information - Subject to Secondary Sanctions; and all other locations worldwide [NPWMD] [IFSR]

• AA ENERGY FZCO, United Arab Emirates; Additional Sanctions Information - Subject to Secondary Sanctions [IRAN].

OFAC SDN Search Tool

NEW: Foreign Sanctions Evaders List (FSE List)

• Released – 6 February 2014 (no updates)

• Legal authority - Executive Order (E.O.) 13608, “Prohibiting Certain Transactions With and Suspending Entry Into the United States of Foreign Sanctions Evaders With Respect to Iran and Syria.”

• “Evaders” - foreign persons who have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions

Foreign Sanctions Evaders List (FSE List)

• Prohibits: Transactions by U.S. persons or within the U.S. involving FSEs

– Canadian , Mexican nationals working in U.S. under TN visa

– German, Chinese, India nationals working in U.S. under H-1B or L visas

• FSEs by Country – Cyprus, Georgia, Liechtenstein, Turkey, Ukraine, UAE, Undetermined

• Caveat: Not part of SDN List

OFAC Licensing

• General v. Specific License – authorization to engage in transactions otherwise prohibited

• General License (GL) - authorizes performance of certain types of transactions

• Limitations on performance activities

• Documentation/recordkeeping

General License - Recent Examples

• Burma – G.L. 17 – Authorizing New Investment in Burma

• Syria – G.L. 4a - Exports or Reexports to Syria of Items Licensed or Otherwise Authorized by the Department of Commerce

• South Sudan - General Licenses Authorizing Activities Relating to Oil and Transshipment With Respect to the Republic of South Sudan

• OFAC License Application Page – case-by-case http://www.treasury.gov/resource-center/sanctions/Pages/licensing.aspx

– Trade Sanctions Reform and Export Enhancement Act of 2000 (TSRA) – agricultural commodities, medicine, or medical devices

– Cuba travel

– Blocked funds release – U.S. financial institution

– “Catchall” (including guidance) - Transactional

Specific Licenses

License Checklist Highlights

• Copies of documents relating to transaction – technical specs, CCATS from Commerce, purchase orders, invoices, bills of lading, payment, passport or other government issued-ID

• Identify any and all Specially Designated Nationals associated with the transaction

• Identify all sanctions programs involved

• Describe proposed transaction and why believe prohibited

– Is a G.L. available?

– Money flow

• Any prior license numbers

• Is everything in English?

Specific License Conditions

• Licensee shall provide and make records and reports available for inspection, upon request

• License is a privilege – non-transferrable; limited to specific facts and circumstances of transaction described in application; can be revoked or modified at any time

• Maintenance, replace/repair, installation, training? Is it “incidental and necessary” to transaction?

Sanctions Update Highlights:

Burma, Iran, Ukraine

Burma

• 1 April – updated FAQs

http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/ques_index.aspx#burma

• State Dept. “Reporting Requirements on Responsible Investment in Burma”

• $500,000+ “in any period”

• 180 days after hitting threshold; July 1

• FAQs: 280 – 283

Iran

• 12 January - P5+1 (US, UK, Germany, France, Russia, and China) and Iran reach tentative agreement - Joint Plan of Action (JPOA), implementation started January 20

• Limited sanctions relief – 6 months

• Petrochemical, auto, precious metals, civil aviation

• Mainly benefits Iran and non-US parties

Iran

• JPOA Guidance - http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa_guidance.pdf

• FAQs on JPOA - http://www.treasury.gov/resource-center/sanctions/Programs/Documents/jpoa_faqs.pdf

Iran – Not Open for Business…or is it?

• The Telegraph, Feb. 4 - Top US negotiator: Iran is “not open for business”

• Reuters, March 13 - U.S. has made clear Iran 'not open for business,' Kerry tells senators

• NYT, April 17 - Iran Gets an Unlikely Visitor, an American Plane, but No One Seems to Know Why

• NYT, April 18 - Paper Shows U.S.-Flagged Plane in Iran Has Ties to Ghana

JPOA FAQ

2. Q: How does the JPOA impact U.S. sanctions on Iran?

A: Except for the limited, temporary, and reversible relief provided pursuant to the JPOA, all U.S. sanctions with respect to Iran, including financial sanctions, sanctions pertaining to the purchase of Iranian crude oil, and sanctions on investment in Iran’s energy and petrochemical sectors, remain in effect with respect to U.S. and non-U.S. persons.

Iran

But we have a Canadian subsidiary…

Query: Is there a legally viable

“Canadian strategy” for Iran?

A. Yes – I like risk (or ignorance is bliss)

B. No – It sounds too good to be true

C. Not sure – the lawyer answer

Iran – A Canadian Strategy?

• Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) – extends sanctions to non-US subs

• May 2013 – amendments to Canada Special Economic Measures (Iran) Regulations. Persons in Canada and Canadians outside of Canada:

-prohibited from exporting, selling, supplying, or shipping goods … to Iran or to a person for the purposes of carrying on business in or operated from Iran

Ukraine-Related Sanctions

• March 6 – First Executive Order issued (E.O. 13660) – blocked property

• March 17 - New Executive Order (E.O. 13661) – expanded E.O. 13660; SDN Designations

- by extension entities majority owned or controlled

• March 20 – E.O. 13662 and additional SDN designations, including Bank Rossiya

• April 11 – Additional SDN designations, including Chernomoreneftegaz (Simferopol, Crimea only)

Ukraine-Related Sanctions

Related actions:

• BIS has suspended action on export/reexport license applications “until further notice”

• BIS added Chernomoreneftegaz to Entity List –

- subsidiary of Naftogaz

- covers EAR99 (NLR) items

- Presumption of Denial

• DDTC suspended review and issuance of export licenses and agreements “until further notice”

• Is it a potential violation?

– General license

– Specific license

– Applicable law/regulations at time

• Voluntary Self-Disclosure – credit on base penalty

– 50% of transaction value (non-egregious)

– $125,000 cap/violation ($32,500/TWEA)

Economic Sanctions Non-Compliance

OFAC Penalty Settlement – 6 March 2014Ubiquiti Networks, Inc.

• $504,225 - Iranian Transactions and Sanctions Regulations (the “ITSR”).

• From 2008 - 2010, Ubiquiti appears to have violated ITSR by engaging in transactions related to the exportation, reexportation, sale or supply, directly or indirectly, of goods for broadband wireless connectivity to Iran, and facilitating the reexportation, sale or supply of such goods to Iran

- entered exclusive distributorship agreement with UAE company to distribute products in Iran, then sold and exported broadband wireless equipment to distributor then reexported to Iran

• Dec. 2009 – Feb. 2011, Ubiquiti appears to have violated the ITSR by engaging in 13 exports of broadband wireless equipment to Greek distributor, with knowledge or reason to know that the goods were intended specifically for supply, transshipment, or reexportation, directly or indirectly, to Iran

Ubiquiti Networks, Inc. Penalty Settlement

• Not a voluntarily disclosure - base penalty: $560,250

• Factors considered:

– demonstrated reckless disregard for U.S. sanction requirements;

– on notice that the conduct at issue constituted a violation of U.S. law;

– members of senior management knew or had reason to know that products were reexported to Iran;

– conduct resulted in the provision of goods related to broadband wireless connectivity, worth nearly $600,000 to entities located in Iran;

Ubiquiti Networks, Inc. Penalty Settlement

– had no OFAC compliance program in place at the time of the apparent violations;

– has no prior sanctions history, including not being the subject of a penalty notice or Finding of Violation;

– cooperated with OFAC during its investigation of the apparent violations;

– took remedial action in response to the apparent violations.

OFAC Contact Information

OFAC Licensing Division 1.202.622.2480

Email ofac_feedback@do.treas.gov

Office of Foreign Assets Control

U.S. Department of the Treasury

Treasury Annex

1500 Pennsylvania Avenue, NW

Washington, DC 20220

Final Words

As always, with economic sanctions…

Stay tuned…

Thank you

Jon P. YormickAttorney and Counsellor at Law

Law Offices of Jon P. Yormick Co. LPA

Email: jon@yormicklaw.comToll Free: +1.866.967.6425 (Canada & U.S.)

Mobile: +1.216.269.5138Skype: jon.yormick

Twitter: @yormicklaw

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