Partner Judith Lee and Of Counsel James Slear are authors of "Beware of OFAC" [PDF] published in September 2006 in the International Financial Law Review. Copyright 2006 by the International Financial Law Review.
Partner Judith Lee and Of Counsel James Slear are authors of "Beware of OFAC" [PDF] published in September 2006 in the International Financial Law Review. Copyright 2006 by the International Financial Law Review.
Partner Judith Lee and Of Counsel James Slear are authors of "Special problems concerning the Foreign Corrupt Practices Act in the People’s Republic of China" [PDF] published in September 2006 in the IBA Legal Practice Division’s Litigation Committee Newsletter. Copyright 2006 by the International Bar Association. This article first appeared in the September 2006 issue of International Litigation News, the Newsletter of the Litigation Committee of the Legal Practice Division of the International Bar Association, and is reproduced by kind permission of the International Bar Association, London, UK.
On July 28, 2006, the Federal Financial Institutions Examination Council (FFIEC) released the 2006 Bank Secrecy Act/Anti-Money Laundering Manual ("BSA/AML Manual"). The section addressing compliance with economic and trade sanctions programs administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) has been revised to provide expanded guidance regarding automated clearing house (ACH) transactions. Additional guidance is found in the section of the BSA/AML Manual dedicated to ACH transactions. A critical component of an OFAC compliance program is a procedure for screening ACH transactions to identify blocked parties. When developing that procedure, it is helpful to know which financial institution involved in a transaction is responsible for verifying that a party is not blocked. In screening domestic ACH transactions, the Originating Depository Financial Institution (ODFI) is responsible for confirming that the Originator is not a blocked party, and must make a good faith effort to ensure that the Originator is not sending blocked funds. Similarly, the Receiving Depository Financial Institution (RDFI) is responsible for verifying that the Receiver is not a blocked party. FFIEC has stated that, in the context of a domestic ACH transaction, the ODFI and RDFI may, in effect, rely on each other to ensure OFAC compliance. However, the ODFI and RDFI may not rely on each other in the context of cross-border ACH transactions. For outbound transactions, the ODFI may not rely on the RDFI outside the United States. The ODFI is responsible for verifying that none of the parties to the transaction is blocked, and that the underlying purpose of the transaction does not violate OFAC regulations. The RDFI similarly is responsible for ensuring that transactions in-bound to the United States comply with OFAC regulations. The OFAC section of the BSA/AML Manual describes the understanding of federal agencies regarding screening obligations. Incorporating that insight into an OFAC compliance program could result in a more effective program. Moreover, the level of care demonstrated by such an action could serve to mitigate penalties in the event of a violation.. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn attorney with whom you work or Judith A. Lee (202-887-3591, firstname.lastname@example.org), Amy G. Rudnick (202-955-8210, email@example.com) or Andrea Farr (202-955-8680, firstname.lastname@example.org) in the firm’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
Brussels Associate Vassili Moussis is the author of "Japanese leniency process evolves" [PDF] in the August 30, 2006 edition of Global Competition Review. ——————————————————————————–Reprinted with permission. www.GlobalCompetitionReview.com
The United States Treasury Department announced today that Bank Saderat Iran will be denied even indirect access to the U.S. financial system, because of its efforts "to transfer money to terrorist organizations, including Hizballah, Hamas, the Popular Front for the Liberation of Palestine-General Command and Palestinian Islamic Jihad." Bank Saderat is one of the largest Iranian banks, with approximately 3,400 branch offices worldwide. Under the current rules, U.S. banks may process certain funds transfers involving an Iranian bank, including transfers for authorized or exempt transactions and what are known as "U-turn" transactions. U-turn transactions allow U.S. banks to process payments involving Iran that begin and end with a non-Iranian foreign bank. According to today’s notice, Bank Saderat will not be able to participate in any transfers involving U.S. banks, effective from the date of publication in the Federal Register early next week. This will effectively cut off Bank Saderat from the U.S. financial system, which will inhibit its ability to deal in any U.S. dollar-denominated transactions. This is a significant escalation in the financial pressure on Iran and will also likely cause problems for European and other non-U.S. banks that continue to maintain a relationship with Bank Saderat. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is available to assist with any questions you may have regarding these issues. For further information, please contact the Gibson Dunn attorney with whom you work or Judith A. Lee (202-887-3591, email@example.com), Jim Slear (202-955-8578, firstname.lastname@example.org), Dave Wharwood (202-887-3579, email@example.com) or Andrea Farr (202-955-8680, firstname.lastname@example.org) in the firm’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
The Office of Foreign Assets Control ("OFAC") has taken two recent actions related to transactions with countries and entities in the Middle East. On July 20, 2006, OFAC issued a Statement of Licensing Policy that establishes a favorable licensing regime through which U.S. persons can request OFAC approval of participation in projects in support of the Iranian people and their aspirations for freedom. Also on July 20, 2006, OFAC published a set of guidelines on transactions with the Palestinian Authority that explain the scope of OFAC sanctions against the Palestinian Authority and describe OFAC’s specific licensing policy with respect to transactions with the Palestinian Authority. Statement of Licensing Policy for Iran This policy statement explains that specific licenses may be issued to U.S. nongovernmental organizations and other corporate entities authorizing them to (1) engage in projects, including conferences and training, to support human rights, democratic freedoms and democratic institutions and to meet basic human needs; and (2) to establish or support of independent civic organizations. Specific licenses may also be issued to U.S. persons (both entities and individuals) authorizing them to engage in the following projects or activities: (1) the provision of donated professional medical services; (2) certain targeted educational, cultural and sports exchange programs, provided such programs are not in furtherance of Iranian military, industrial or technological infrastructure or potential; (3) environmental projects, provided such projects are not in furtherance of Iranian military or industrial infrastructure or potential; and (4) projects, including exchanges and technical training, to improve the flow of public information through independent media available to the Iranian public. The guidance notes that specific licenses issued pursuant to this policy generally will not authorize the exportation or reexportation to Iran of goods (including software) and technology listed on the Commerce Control List. Guidance on Palestinian Authority This guidance explains that the OFAC sanctions against the Palestinian Authority affect only transactions by U.S. persons with the Palestinian Authority. Therefore, the sanctions generally do not prohibit U.S. persons from providing assistance to, or engaging in business dealings with, private individuals, corporations, or organizations in the West Bank or Gaza. In regard to licensing policy, the guidance notes that on April 12, 2006, OFAC issued 6 general licenses authorizing U.S. persons to engage in certain transactions with the Palestinian Authority. The guidance also explains that specific licenses may be issued on a case-by-case basis to authorize U.S. persons to engage in the following types of transactions with the Palestinian Authority: Assistance projects for critical food, health, or welfare aid that is distributed from Palestinian Authority-run facilities such as schools, hospitals and clinics. In-kind donation of medicines, medical supplies and medical devices to hospitals, clinics or other health care facilities owned or operated by the Ministry of Health. Donated medical services in the West Bank and Gaza involving the Ministry of Health. Goods and services related to disease eradication. Dealings with universities and other educational institutions in the West Bank and Gaza. Goods and services relating to education, including teaching, in the West Bank and Gaza. Provision to and receipt from the Palestinian Authority of informational materials. Small-scale water projects in the West Bank and Gaza, for the benefit of municipalities not controlled by a Hamas mayor and/or a Hamas majority in the municipal council. The guidance further notes that specific license applications are more likely to receive favorable treatment when they meet all three of the following conditions: (1) a compelling case exists that there is no practical means to achieve the desired humanitarian goal outside of the proposed transactions with the Palestinian Authority; (2) the activities are designed to benefit directly persons in the West Bank and Gaza under circumstances in which, notwithstanding the practical need to involve the Palestinian Authority, the activities will not be subject to the control of the Palestinian Authority other than for routine administrative approvals; (3) the activities will not provide any significant material benefit, including technical advisory assistance, to the Palestinian Authority. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is monitoring these issues. For further information, please contact the Gibson Dunn attorney with whom you work or Judith A. Lee (202-887-3591, email@example.com), or Matthew Crispino (202-887-3617, firstname.lastname@example.org) in the firm’s Washington, DC office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
Partner Judith Lee and Of Counsel James Slear are authors of "Doing Business in China – Unique Corruption Compliance Concerns and Strategies" [PDF] published in August 2006 by the Washington Legal Foundation in their Contemporary Legal Note Series, No. 51. Copyright 2006 Washington Legal Foundation
Effective August 17, 2006, the United States revoked all licenses and approvals authorizing the export of or other transfers of defense articles or services to Venezuela and will no longer authorize the export of such articles or services to Venezuela. The revocation extends to the deletion of Venezuela from any manufacturing license or technical assistance agreement involving Venezuela, including any agreement that has Venezuela as a sales territory. Additionally, all exemptions from licensing as provided for in the International Traffic in Arms Regulations with regard to Venezuela were also revoked with the exception of the license exemptions used in connection with certain temporary exports of firearms and ammunition for personal use. This appears to be an acceleration of the arms embargo announced by the United States Department of State on May 15, 2006, due to Venezuela’s deemed failure to cooperate with U.S. counterterrorism efforts. According to that announcement, licenses were to be available until October 1, 2006, though proposed sales of defense articles to Venezuela until that date were to be scrutinized on a case-by-case basis. This change may be in response to a break down in bilateral cooperation in anti-narcotic and anti-terrorism actions and Venezuelan President Chavez’s heated rhetoric against broader U.S. counterterrorism and political interests. Gibson Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is monitoring these developments and others and is prepared to address any questions regarding export control laws and sanctions for other countries. For further information, please contact Judith A. Lee (202-887-3591) or Jim Slear (202-955-8578) in the firm’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
The Department of Defense (DoD) on August 14, 2006, published a proposed rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) to address requirements for preventing the unauthorized disclosure of export-controlled information and technology under DoD contracts. The proposal follows an earlier proposed rule, which was published at 70 Fed. Reg. 39976 on July 12, 2005. The earlier proposal was widely criticized, particularly by the educational research community. As a result of the negative feedback received in response to the first proposal, DoD has taken the unusual step of publishing a second proposed rule. The second proposed rule largely eliminates the specific DoD requirements regarding export control compliance programs contained in the first proposed rule, including requirements for segregated work areas and badges for research participants. In lieu of these specific requirements, the second proposed rule is intended to remind contractors of their obligation to comply with export regulations and place responsibility on both the contractor and the government to notify the contracting officer if contract performance will generate or require access to export-controlled information or technology. The proposed rule would direct the requiring activity to notify the contracting officer prior to the issuance of the solicitation if (1) the contract is for research and development, supplies or services, and export-controlled information or technology will be involved; (2) the contract is for supplies or services, and the requiring activity is unable to determine that export-controlled information or technology will not be involved; or (3) the contract is for fundamental research only, and export-controlled information or technology will not be involved. The definition of "fundamental research" is taken from National Security Decision Directive (NSDD) 189, and means basic and applied research in science and engineering, the results of which ordinarily are published and shared broadly within the scientific community, as opposed to proprietary research or industrial development, design, production and product utilization, the results of which ordinarily are restricted for proprietary or national security reasons. The proposed rule notes that the Export Administration Regulations (EAR) exempt information resulting from fundamental research from export controls, but information required to conduct fundamental research is not exempted from export controls. The proposed rule includes three new contract clauses: DFARS 252.204-70XX, Requirements for Contracts Involving Export-Controlled Information or Technology. This clause applies when the requiring activity has given the contracting officer pre-solicitation notice that performance of the contract will involve export-controlled information or technology. It includes a space for the contracting officer to identify the specific export-controlled information and technology that will be involved in performance of the contract. However, it also provides that if, during performance of the contract, either the government or the contractor becomes aware that the contractor will generate or need access to export-controlled information or technology not listed in the clause, that party shall notify the other party and either (1) modify the listing of export-controlled information or technology, or (2) negotiate a contract modification to eliminate the requirement for performance of work that would involve access to or generation of export-controlled information or technology not already listed in the clause. DFARS 252.204-70YY, Requirements Regarding Access to Export-Controlled Information or Technology — Fundamental Research. This clause applies when the requiring activity has given the contracting officer pre-solicitation notice that the work is fundamental research only, and export-controlled information or technology will not be involved. It imposes the same obligation on each party to notify the other if, during performance of the contract, the party becomes aware that the contractor will generate or need access to export-controlled information or technology. In the event of such notice, the clause provides that the parties may modify the contract to either include the clause at DFARS 252.204-70XX or eliminate the requirement for performance of work involving export-controlled information or technology. DFARS 252.204-70ZZ, Requirements Regarding Access to Export-Controlled Information or Technology. This clause applies to research and development contracts that do not include the first proposed clause, DFARS 252.204-70XX, and supply or service contracts for which the requiring activity notified the contracting officer that it is unable to determine that export-controlled information or technology will not be involved. This clause is similar to the second proposed clause, DFARS 252.204-70YY, in that it states that the parties do not anticipate that performance of the contract will generate or require access to export-controlled information or technology, and imposes the same post-award notification and modification requirements discussed above. Although less administratively burdensome than the first proposal, the second proposed rule will nevertheless impose an additional notification requirement on the contractor. The proposed rule is an important reminder to ensure that you are complying with all export control laws and regulations, including those administered by the Bureau of Industry and Security at the Commerce Department for commercial or dual-use items, and those administered by the State Department for military items. The burden of export compliance — including the knowledge and training necessary to determine whether a product or technology is controlled for export to a particular destination — remains with the exporter or the company that allows access to such product or technology to a foreign national in the United States. The proposed rule makes clear that DoD is intent upon ensuring government contractors comply with export control laws and reinforces the need for government contractors to develop and maintain robust export compliance programs. Comments on the second proposed rule are due not later than October 13, 2006. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance and Government and Commercial Contracts Practice Groups are monitoring these issues. For further information, please contact the Gibson Dunn attorney with whom you work or Karen L. Manos (202-955-8536, email@example.com), Judith A. Lee (202-887-3591, firstname.lastname@example.org), or Jim Slear (202-955-8578, email@example.com) in the firm’s Washington, DC office. Proposed rule to amend the Defense Federal Acquisition Regulation Supplement (DFARS) © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
On Monday, August 7, 2006, the Ninth Circuit reinstated a lawsuit brought by residents of Bougainville, Papua New Guinea (“PNG”) against London-based Rio Tinto PLC (“Rio Tinto”) under the Alien Tort Claims Act, 28 U.S.C. § 1350 (“ATCA”). The lawsuit alleges that these residents are victims of numerous violations of international law, including racial discrimination, environmental devastation, war crimes and crimes against humanity, resulting from Rio Tinto’s Bougainville mining operations and Rio Tinto’s conduct during the ten-year civil conflict following an uprising at its mine. The case Sarei v. Rio Tinto, PLC, 221 F. Supp. 2d 1116 (C.D. Cal. 2002) was dismissed on the grounds that all of the plaintiffs’ claims presented nonjusticiable political questions. Specifically, because the U.S. government had issued a Statement of Interest, which had expressed concern that adjudication of these claims would have potentially serious implications on, among others, U.S.-PNG foreign relations, the case implicated (1) the impossibility of the court’s undertaking independent resolution without expressing lack of the respect due coordinate branches of government and (2) the potentiality of embarrassment from multifarious pronouncements by various departments on one question. In reinstating the case, the Ninth Circuit, guided by separation of powers principles and precedent, concluded that although this case presents some risk to the Bougainville peace process, the above-mentioned factors were not, in fact, implicated. The court on Monday also concluded that (1) most of the plaintiffs’ claims can be tried in the United States under the ATCA, (2) the district court erred in dismissing the plaintiffs’ racial discrimination claim and United Nations Convention on the Law of the Sea claim under the act of state doctrine and (3) the district court was correct in concluding that the ATCA does not require exhaustion of local remedies. This decision comes after the Supreme Court’s opinion in Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), which discussed when claims are cognizable under the ATCA. Thus, the Ninth Circuit’s reinstatement of the ATCA claims against Rio Tinto is further support for granting jurisdiction to U.S. courts over claims of war crimes and other violations of international humanitarian law. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is available to assist with any questions you may have regarding these issues. For further information, please contact Judith A. Lee (202-887-3591) in the firm’s Washington, DC office or Paytre R. Topp (213-229-7966) in the firm’s Los Angeles office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
The Office of Foreign Assets Control (OFAC) is under new leadership. On August 1, 2006, the U.S. Treasury Secretary Henry M. Paulson named Adam Szubin as the new Director of the Office of Foreign Assets Control OFAC. As the head of OFAC, Mr. Szubin will be responsible for administering and enforcing United States Government economic sanctions programs. These programs target supporters of terrorist activities, weapons of mass destruction (WMD) proliferation, narcotics trafficking, certain foreign countries and regimes, and other economic and national security threats. Mr. Szubin previously served as the Senior Advisor to the Under Secretary for Terrorism and Financial Intelligence in the Treasury Department. In this role, he helped develop and coordinate programs on terrorist financing, money laundering, economic sanctions, WMD proliferation and intelligence analysis. Mr. Szubin also chaired the Money Laundering Threat Assessment Working Group, which produced the first government-wide analysis of U.S. money laundering vulnerabilities. Before his work at Treasury, Mr. Szubin served in the Department of Justice as Counsel to the Deputy Attorney General. Earlier, he also worked as a trial attorney in the Justice Department Civil Division as part of the Terrorism Litigation Task Force. Szubin replaces Robert Werner as OFAC Director. Barbara Hammerle had served as Acting OFAC Director since Werner’s departure earlier this year. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is available to assist with any questions you may have regarding these issues. For further information, please contact Judith A. Lee (202-887-3591), Jim Slear (202-955-8578) or Dave Wharwood (202-887-3579) in the firm’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
On August 1, 2006, President Bush signed a bill renewing the Burmese Freedom and Democracy Act of 2003 (BFDA). This bill renews sanctions against Burma under the BFDA for an additional year and amends the BFDA to allow annual renewal of this law for up to six more years. The BFDA imposes a general import ban on products from Burma and bars investment in Burma. The law also prohibits the export of financial services to Burma, which includes among other things the transfer of funds by U.S. persons to Burma. The law aims to pressure the Burmese government to improve human rights and workers rights, to implement democratic reforms, and to improve counter-narcotics efforts. This renewal and extension of the BFDA is part of a broad range of sanctions the United States has implemented against Burma over the past decade. In May 1997, President Clinton issued Executive Order 13047 prohibiting new investment by U.S. persons in Burma and facilitation of investment in Burma by non-U.S. persons. President Bush signed Executive Order 13310 in July 2003, implementing the BFDA. This order blocks property and interests in property of persons related to the Burmese regime, imposes a ban on all imports from Burma, and bans the export of financial services to Burma from the United States or by U.S. persons. Exports of goods and non-financial services to Burma are permitted, but the broadly defined ban on the export of financial services may make lawfully engaging in such transactions difficult. The Burmese Sanctions Regulations (BSR) implement the BFDA and Executive Orders 13047 and 13310. A willful violation of the BSR or related rules can be punished by a fine of up to $50,000 for a corporation or an individual, up to 20 years in prison for an individual, or both. Penalties for criminal violations of the regulations can reach $500,000 for a corporation and $250,000 for an individual, or twice the gain or loss from the violation. Civil fines of up to $50,000 per violation are possible. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is monitoring the development of sanctions regulations for Burma and is prepared to address any questions regarding these rules or regarding sanctions or export control rules for other countries. For further information, please contact Judith A. Lee (202-887-3591), Jim Slear (202-955-8578) or Dave Wharwood (202-887-3579) in the firm’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
The U.S. Department of Commerce recently proposed changes in export rules for the People’s Republic of China (the “PRC”). The proposed changes will purportedly loosen controls on many exports intended for civil end-use while tightening restrictions on exports that may contribute to the PRC’s military capabilities. The proposed changes include a revision to the review policy for all items destined for the PRC under a license and stricter controls for 47 ECCNs on the Commerce Control List (“CCL”) where there is knowledge of military end-use. The proposed changes also create additional end-use certification requirements. Because the proposed changes could give rise to uncertainties and additional burdens on exporters, exporters should closely monitor its development and be prepared to adapt to these changes should they ultimately be implemented. The proposed rules will be open to public comment until November 3, 2006. Primary Elements of Proposed Rule The proposed rule change would effect the following changes: All license applications for the PRC, regardless of ECCN, would be on a case-by-case basis to determine whether the export, reexport, or transfer “would make a material contribution to the military capabilities of the PRC and would result in advancing the country’s military activities contrary to the national security interests of the United States.” New restrictions would be put in place for 47 specified ECCNs where there is “knowledge” of a “military end-use” on exports to the PRC. Controls on exports to the PRC would be subject to additional restrictions based on notification from the Department of Commerce Bureau of Industry and Security (“BIS”) of actual or potential military end-use, with respect to a particular end-user. There would be additional reviews by BIS of license applications for items controlled for chemical, biological, nuclear and missile technology proliferation reasons to determine if the end-user may be involved in proliferation activities. A new process would be instituted to identify and qualify “validated end-users” (“VEUs”) in certain destinations, including the PRC, to whom certain specified items could be exported or reexported. VEUs would have to meet a number of criteria, including a demonstrated record of engaging only in civil end-use activities and not contributing to the proliferation of weapons of mass destruction or otherwise engaging in activity contrary to U.S. national security or foreign policy interests. Exporters would be required to obtain an End-User Certificate from the PRC Ministry of Commerce (“MOC”) for items requiring an export license (for any reason), which are valued over $5,000. Although the current requirement that exporters submit end-user certificates to BIS with their license applications would be withdrawn for the PRC, exporters would still be required to include the serial number of the PRC End-User Certificate in the license application, and retain the PRC End-User Certificate in accordance with the recordkeeping provisions of the EAR. Proposed Rules Could Raise Significant Concerns for Exporters Several concerns are raised by the proposed rule changes. For example, the “knowledge” standard applicable to military end-use creates uncertainty regarding the extent of an exporter’s due diligence responsibilities. The proposed standard is that in Section 772.1 of the EAR, which defines knowledge as “positive knowledge that the circumstance exists or is substantially certain to occur,” and also “an awareness of a high probability of its existence or future occurrence. Such awareness is inferred from evidence of the conscious disregard of facts known to a person and is also inferred from a person’s willful avoidance of facts.” This standard has proven problematic in other contexts and can be expected to have a larger impact in respect to the proposed rule because of the volume of trade with the PRC. Further contributing to the difficulty in conducting due diligence for exports to the PRC is that the rule proposes to broadly define “military end-use” as “incorporation into, or use for the production, design, development, maintenance, operation, installation, or deployment, repair, overhaul, or refurbishing of items” (1) described on the U.S. Munitions List (“USML”); (2) described on the Munitions List as set out on the Wassenaar Arrangement Web site at http://www.wassenaar.org; or (3) listed under ECCNs ending in “A018’’ on the CCL in Supplement No. 1 to Part 774 of the EAR. If read broadly, this could, for example, affect sales of components that are used in the production of items that are intended for sale to military and commercial customers even though such items have no real military value or function. Another cause for concern for exporters is the proposed new control based on BIS notification that an item is or may be intended for military end-use in the PRC. Commerce has not specified how much notice it would give before such notices become effective and so exporters may find themselves required to act quickly to halt exports on short notice. Additionally, the proposed requirement for a PRC MOC End-User Certificate may prove burdensome for exporters and problematic in practice. The MOC may not be able to reliably provide certificates in a timely fashion or may be unwilling to do so for political or other reasons. Therefore, securing a certificate could require significant efforts and associated costs and there is a risk that such certificates will not be provided in spite of those efforts. With regard to Commerce’s selection of VEUs, the process set forth in the proposed changes may prove too cumbersome and intrusive. Further, because the rule does not specify the potential effect of a denial of a VEU request, the VEU program may have only uncertain benefits for exporters. It would, in any event, frequently require a more careful and costly assessment of licensing needs. As these proposed rules could have wide-ranging impact on timing and the approval process, exporters with business in the PRC should pay close attention to their development. Exporters should consider participating in the development of these rules, and actively prepare for their possible implementation. In this regard, the Commerce Department hosted a public hearing to answer questions on the proposed rules on July 17, 2006. The Commerce Department acknowledged that important parts of the proposed rule (e.g., the interpretation of the “knowledge” standard and the development of the VEU process) require further consideration and will require further clarification before it is implemented. Commerce anticipates and welcomes comments on the proposed rule. Gibson, Dunn & Crutcher’s International Trade Regulation and Compliance Practice Group is monitoring the development of new export control rules for China and is prepared to address any questions regarding these rules or regarding export controls for other countries. For further information, please contact Judith A. Lee (202-887-3591), Jim Slear (202-955-8578) or Dave Wharwood (202-887-3579) in the firm’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
In a May 15, 2006 announcement, the Bush Administration signaled Libya’s removal from the list of countries not supporting U.S. antiterrorism efforts and the reopening of diplomatic relations with Libya. On the same day, Secretary of State Condoleezza Rice announced that Libya would not be certified this year as a country not cooperating fully with U.S. antiterrorism efforts. This change in policy is expected to eventually have far reaching implications for U.S. exporters to Libya, removing some existing restrictions on trade with that country. These changes, however, will not be automatic. Congress has 45 days from the President’s announcement to review and approve the change in Libya’s status. And even with Congress’ approval, current regulations will remain in place until changes are published by relevant agencies. The Bureau of Industry and Security, the State Department and the Defense Department will have to rewrite relevant regulations, which could take several months. After implementation of Libya’s status change, Export Administration Regulations ("EAR") anti-terrorism controls licensing requirements for Libya are expected to be removed. Additionally, Libya may also be removed from Country Group E:1 under the EAR, which may cause additional license exceptions to become available for items remaining subject to licensing requirements. Libya may also be removed from the list of countries at 22 C.F.R. 126.1, which identifies countries for which there is a policy of not granting licenses under the International Traffic in Arms Regulations (“ITAR”). Until such changes are published, however, exporters should be aware that current limits remain in effect. Exporters should also be aware that important limitations to exporting to Libya will not be affected by Libya’s change in status. For example, non-antiterrorism related controls, e.g., under the EAR, will not be affected by this announcement. Also, restrictions on transactions with Libyan Specially Designated Nationals ("SDNs") and other restricted persons will also remain in effect. Until the President’s announcement, the United States and Libya had not had official diplomatic relations since 1972, when the United States withdrew its ambassador over concerns that Libya was sponsoring terrorism. Export controls on military equipment and civil aircraft were imposed during the 1970s. The U.S. Government designated Libya as a "state sponsor of terrorism" in December 1979. Gibson Dunn & Crutcher’s International Trade Regulation and Compliance practice group will continue to monitor developments regarding Libya’s status under export regulations and other rule changes stemming from the President’s announcement on Libya. For further information, please contact Judith A. Lee (202-887-3591), Jim Slear (202-955-8578) or David Wharwood (202-887-3579) in Gibson, Dunn & Crutcher’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP
On May 15, 2006, the United States Department of State announced an arms embargo against Venezuela, identifying that country as not fully cooperating with U.S. counterterrorism efforts. This embargo will also bar the provision of defense-related services and technical data, creating a potentially broad and complex set of restrictions. While this embargo targets defense articles and related services, the announcement may also trigger broader restrictions on exports to Venezuela. As of October 1, 2006, no new licenses for the commercial export of defense articles to Venezuela will be available. Retransfer of U.S.-origin defense goods and technology will also be prohibited after this date. Additionally, even before October 1, the State Department has announced that exports to Venezuela will be more closely reviewed, saying that it will "carefully scrutinize all" proposed sales of defense articles to Venezuela on a case-by-case basis. However, until the arms embargo takes effect, and barring publication of additional rule changes, exports allowed under existing International Trade in Arms Regulations ("ITAR") exemptions will still be allowed. Because Venezuela has now been identified as not fully cooperating with U.S. counterterrorism efforts, the United States Department of Commerce may also impose anti-terrorism controls on exports to Venezuela under the Export Administration Regulations ("EAR"). Export or reexport of commercial items to Venezuela may, therefore, require additional export licensing. While the United States and Venezuela have close commercial ties, especially in the energy sector, political relations have been severely strained of late. Bilateral cooperation in anti-narcotics and anti-terrorism actions has broken down, and Venezuela’s President Chavez has applied heated rhetoric against broader U.S. counterterrorism and political interests. Venezuela now joins Cuba, Iran, North Korea, Sudan, Syria and Libya on the list of countries not cooperating with U.S. counterterrorism efforts. (Libya is expected to be removed from this list later this summer.) Gibson Dunn & Crutcher’s International Trade Regulation and Compliance practice group is monitoring the development of new export controls for Venezuela and is prepared to address any questions regarding the embargo and its commercial effects. For further information, please contact Judith A. Lee (202-887-3591), Jim Slear (202-955-8578) or David Wharwood (202-887-3579) in Gibson, Dunn & Crutcher’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP
London Partner Cyrus Benson is the author of "Wanted: An Ethical Compass" [PDF], which appeared in Global Arbitration Review, Volume 1, Issue 3, June 2006. Mr. Benson authored this article while at his previous firm. Reprinted with permission from Global Arbitration Review (www.globalarbitrationreview.com)
Effective May 10, 2006, OFAC amended its Global Terrorism Sanctions Regulations, Terrorism Sanctions Regulations and Foreign Terrorist Organizations Sanctions Regulations to add general licenses (referred to below as "the May 10 amendments") authorizing certain transactions with the Palestinian Authority (PA). OFAC determined that, as a result of recent elections, HAMAS, a designated terrorist organization, has a property interest in the transactions of the PA. Thus, U.S. persons are generally prohibited from doing business with the PA. The May 10 amendments codify certain exceptions to this prohibition. In the introduction to the Final Rule implementing the amendments, OFAC clarifies that "the prohibitions involving the Palestinian Authority do not bar all transactions involving individuals and entities in Palestinian territory." The May 10 amendments authorize transactions with the Palestinian Authority by (i) persons who conduct official business on behalf of the United Nations; (ii) U.S. persons who are employees of the governments of states bordering the West Bank or Gaza; (iii) U.S. persons engaging in transactions incident to travel, employment, residence and maintenance within the jurisdiction of the PA; (iv) U.S. persons paying taxes and fees to the PA; (v) U.S. persons dealing with the Palestinian Authority Presidency (as defined in the regulations), the Palestinian Judiciary, Palestinian legislators not affiliated with HAMAS, and certain independent agencies; and (vi) U.S. persons providing in-kind donations of medicine. These general licenses are subject to the provision that no authorized payment may include a debit to an account of the PA on the books of a U.S. financial institution, or to any other blocked account. Thus, U.S. companies may continue to transact business with individuals and entities in Palestinian territory who are not affiliated with the PA, as well as with the PA itself under the limited circumstances summarized above. For further information, please contact Judith A. Lee (202-887-3591) or Radu Costinescu (202-955-8259) in Gibson, Dunn & Crutcher’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
In a case that demonstrates the risks associated with the cross-utilization of even minor components in military and commercial applications, a major aerospace company recently agreed to pay $15 million to settle allegations that it violated the Arms Export Control Act ("AECA"), as implemented by the International Traffic in Arms Regulations ("ITAR"). Specifically, the company was alleged to have exported commercial airliners that contained a motion sensor chip to various countries, including the People’s Republic of China ("PRC"). This is among the largest fines a company has paid for violations of the ITAR, which regulates the export of military products, and the company also was required to submit to oversight requirements, including the appointment of an outside Special Compliance Official. According to the U.S. State Department’s draft charging letter, the chip, which was contained in a flight instrument system the company incorporated into some of its airliners, was also used in the guidance system of the Maverick missile. The proposed charges were based on the State Department’s July 30, 1993 determination that the chip’s capabilities were inherently military and on the company’s failure to cease aircraft exports involving the chip after State Department notification that it considered the aircraft sales to be in violation of the ITAR. Under State Department interpretations of the ITAR, the incorporation of the chip into a flight instrument that was then integrated into commercial airliners required that both the systems and the airliners themselves be treated as military items. This was so even though the chip made up only a tiny fraction of the cost of the airliner and more than 80 percent of the chips are reportedly used in commercial applications. Additionally, the charges were proposed even though control of the chip was later transferred to the jurisdiction of the Commerce Department, and thus are no longer even subject to ITAR. Companies that use component parts originally manufactured for military items in developing commercial items, no matter how minor, may be violating the ITAR. Many companies undertake such practices to improve efficiency and reliability. Other companies may unwittingly purchase component parts that are controlled under the ITAR. The U.S. State Department has a voluntary disclosure program that may help companies avoid penalties once such problems are identified and remedied. Additionally, in some cases component parts can be removed from the State Department’s U.S. Munitions List through what is known as a commodity jurisdiction request. This can dramatically reduce export restrictions, including the ITAR’s absolute prohibition on exports of defense articles to several countries, including the PRC. For further information, please contact Judith A. Lee (202-887-3591) or James D. Slear (202-955-8578) in Gibson, Dunn & Crutcher’s Washington, D.C. office. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
The Office of Foreign Assets Control ("OFAC") has recently taken four actions of potential interest to companies participating in international exports: First, OFAC recently codified the Syrian sanctions regulations that had been imposed by a 2004 Executive Order. Second, President Bush has just issued an Executive Order imposing sanctions against the Cote d’Ivoire. Third, the Federal Register has published OFAC’s new Economic Sanctions Enforcement Procedures for Banking Institutions. Fourth, the U.S. parent of ABN AMRO has been assessed stiff penalties for its overseas branches’ lack of adequate export compliance and maintenance programs. OFAC Codifies Syrian Sanctions Regulations in the CFR OFAC recently adopted a new Code of Federal Regulations part that implements the Syrian sanctions regulations, which were previously codified only in Executive Order 13338. New Part 542 blocks the property of all individuals who have been directing or significantly contributing to the Syrian Government’s (1) provision of safe haven to or support for any person whose property or interests in property are blocked under U.S. law for terrorism-related reasons, (2) military or security presence in Lebanon, (3) chemical, biological or nuclear weapon production and development and (4) steps taken to undermine U.S. and international efforts toward stabilization and reconstruction of Iraq. It also blocks the property of those who are controlled by or directly or indirectly acting for any individual whose property or property interests have been blocked. Once the property or property interest is blocked, it may not be transferred, paid, exported, withdrawn or otherwise dealt in. Blocking of property and interests in property includes, but is not limited to, the prohibition of (1) contributing any funds, goods or services to or for the benefit of any person whose property has been blocked pursuant to these sections, (2) receiving funds, goods or services from such person and (3) dealing in any security that is in the control of a U.S. person but inscribed or held for the benefit of any such persons, unless otherwise authorized by these sections or by special license. Any transfer that violates this part will be deemed null and void unless the transfer was made before the part’s effective date and the person who holds or maintains the property had written notice of or by written evidence had recognized the transfer. These prohibitions on transactions involving blocked property apply to transactions by any U.S. person in a location outside the U.S. with respect to property that the U.S. person knows, or has reason to know, is held in the name of a person whose interests in the property are blocked. The prohibition on dealing in blocked property also prohibits U.S. financial institutions from performing under any existing credit agreements, including, but not limited to, charge cards, debits cards, or other credit facilities issued by a U.S. financial institution to a person whose property or property interest are blocked. Likewise, a setoff against blocked property, whether by a U.S. bank or person, is a prohibited transfer. President Bush Imposes Sanctions Against the Cote d’Ivoire On February 7, 2006, the President imposed sanctions against the Cote d’Ivoire in response to the United Nations Security Council’s determination that the situation in Cote d’Ivoire poses a threat to international peace and security in the region. These sanctions prohibit U.S. persons, wherever located, or anyone in the United States from engaging in any transaction with any person or entity found to: constitute a threat to the peace and reconciliation process in Cote d’Ivoire, be in serious violation of International law in Cote d’Ivoire, have directly or indirectly supplied, sold or transferred to Cote d’Ivoire arms or assistance, advice or training related to military activities, to have publicly incited violence and hatred contributing to conflict or to have provided material, financial or technical assistance to those qualified above or to any persons designated pursuant to this order. Any property or interest in property of these persons that is in the United States or comes into the possession of a U.S. person, including an overseas branch, must be blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. In addition, the following persons fitting the above description were added to the OFAC Specially Designated Nationals list: Eugene Ngoran Kouadio DJUE (Leader of Union for the Total Liberation of Cote d’Ivoire, born December 20, 1969); Martin Kouakou FOFIE ("New Forces" Zone Commander in Korhogo, born January 1, 1968) and Charles BLE GOUDE (Head of "Young Patriots," born January 1, 1972). The Federal Register Publishes OFAC’s New Economic Sanctions Enforcement Procedures for Banking Institutions Because of their unique role in the implementation of OFAC sanctions programs and the nature of banking institutions’ transactions, OFAC is publishing enforcement procedures for banking institutions effective February 6, 2006. Banking institutions under this rule are depository institutions supervised or regulated by the Board of Governors, the Federal Reserve System, the FDIC, the National Credit Union Administration, the Office of the Comptroller of the Currency or the Office of Thrift Supervision. Pursuant to these new rules, OFAC will be reviewing banking institutions with economic sanction violations or suspected violations on a periodic basis. As part of its investigation, OFAC will require the subjected institutions to identify what actions led to the violation and what actions the institution has taken to overcome the deficiencies in its system that enabled these actions. Such an investigation may lead to one or more of the following: an administrative subpoena, an order to cease and desist, a blocking order, an evaluative letter summarizing concerns, a civil penalty proceeding or the suspension and possible revocation of an OFAC license. When making its decision as to administrative action OFAC will consider, among others, the following factors: the institution’s history of sanctions violations, the size of the institution and the ratio of OFAC-related transactions handled correctly to OFAC-related transactions handled incorrectly, the quality and effectiveness of the institution’s overall OFAC compliance program, if violations are the result of systemic failures or are atypical and actions taken by the institution to correct the problems that led to the apparent violation or violations. In conjunction with this interim final rule, OFAC published a notice of partial withdrawal of the 2003 proposed Economic Sanctions Enforcement Guidelines. The proposed rule (68 FR 4422-4429, January 29, 2003) is withdrawn with respect to "banking institutions" as defined in the interim final rule. OFAC will be taking comments on the new procedures any time before March 13, 2006. ABN AMRO Bank Assessed Civil Money Penalties for Unsafe and Unsound Practices On December 19, 2005, the Board of Governors, OFAC, the State of Illinois Department of Financial and Professional Regulations ("IDFPR") and the New York State Banking Department ("NYSBD") assessed civil money penalties for unsafe and unsound practices against ABN AMRO Bank. One of ABN AMRO’s overseas branches developed special procedures concerning funds transfers, check clearing and letter of credit transactions that circumvented the branch’s U.S. law compliance systems. These special procedures allowed the overseas branch to engage in transactions related to Iran, dealings in services of Iranian origin, the facilitation of exportation of services to Iran, and transactions in which the Government of Libya had an interest. ABN AMRO failed to adequately review these special procedures to determine if they were consistent with U.S. law. ABN AMRO also failed to adequately document, report, and follow up on negative findings from certain internal audits; failed to produce negative internal audit findings in a timely manner to U.S. supervisors; failed to follow up on inquiries referred to the New York branch from overseas offices regarding compliance with U.S. law; overstated the extent of its due diligence efforts and failed to escalate the special procedures for review outside of the trade processing business or reporting line. In short, ABN AMRO lacked effective systems of governance, audit and internal control to oversee the activities of its branches with respect to legal, compliance and reputational risk; justifying the imposition of strong penalties on the U.S. parent. The Board of Governor’s assessed a $40 million penalty against ABN AMRO, and FinCEN assessed a $30 million penalty, which will be satisfied with a single payment of $40 million by ABN AMRO. In addition, ABN AMRO will pay the NYSBD $20 million and the IDFPR $15 million. ABN AMRO will also make a voluntary endowment to the Illinois Bank Examiners’ Education Foundation in the amount of $5 million. OFAC further ordered that a qualified independent third party review ABN AMRO’s transactions in its Chennai, India operations from January 1, 2003, to August 31, 2004, to determine whether any of its transactions subject to the ITR or the LSR were processed through, or on behalf of any U.S. individual or entity. in its Dubai, U.A.E. branch and its Chennai, India operation from August 1, 2002, through August 31, 2004, to determine whether any transactions subject to any OFAC regulation, other than the ITR and LSR regulations, were processed through, or on behalf of, any U.S. individual or entity. in its Dubai, U.A.E. branch and Chennai, India operations, on an annual basis for a three year period beginning September 1, 2004, to determine whether any transaction subject to OFAC regulation was processed through, or on behalf of, any U.S. individual or entity. These recent cases suggest that OFAC has become increasingly active in monitoring export compliance and that sanctions can be severe. Gibson, Dunn & Crutcher LLP helps many of its clients develop and maintain their export compliance programs. If you have questions or concerns about the effectiveness of your compliance procedures, the lawyers in our International Trade practice are available to assist you. For further information, please contact Judith A. Lee (202- 887-3591) or Scott Dodson (202-887-3772) in Gibson, Dunn & Crutcher’s Washington, D.C. office or Paytre R. Topp (213-229-7966) in the firm’s Los Angeles office. ©2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.
On January 27, the Act to End Atrocities and Terrorism in the Sudan, Public Act 094-0079 ("the Act"), will become effective in Illinois. This legislation amends the Illinois Deposit of State Moneys Act to prohibit the investment of state funds in Sudanese entities and in domestic companies who do business with Sudan. Due to its broad scope, the new law will likely affect a large number of companies. The Act provides that the State Treasurer may not invest Illinois funds in debt instruments issued by "forbidden entities," which are defined as: the government of Sudan; companies managed or controlled, in whole or in part, by the government of Sudan; companies who are incorporated in Sudan or have their principal place of business in that country; companies who were identified by the Office of Foreign Assets Control (OFAC) as sponsors of terrorism; companies who violate United States sanctions against Sudan after January 27, 2006 and become subject to OFAC penalties; and companies who fail to certify under oath that they do not have assets or employees in Sudan and that they do not engage in business with Sudanese entities. Media organizations, non-governmental organizations certified by the United Nations, and other entities who provide humanitarian relief or educational services are specifically excluded from the definition of forbidden entities. The Act further provides that Illinois funds can only be deposited at financial institutions who require loan applicants to certify that they are not forbidden entities. Finally, the Act prohibits the investment of pension funds with intermediaries who fail to fully divest such funds from any forbidden entities within eighteen months after the effective date of the Act. For further information, please contact Judith A. Lee at (202) 887-3591 or Radu Costinescu at (202) 955-8259 in the Washington, D.C. office of Gibson, Dunn & Crutcher LLP. © 2006 Gibson, Dunn & Crutcher LLP The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.