September 17, 2021
On September 17, 2021, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) imposed sanctions in response to the ongoing humanitarian and human rights crisis in Ethiopia, particularly in the Tigray region of the country. The new sanctions program provides authority to the Secretary of the Treasury, in consultation with the Secretary of State, to impose a wide range of sanctions for a variety of activities outlined in a new Executive Order (“E.O.”). No individuals or entities have yet been designated under the E.O. However, U.S. Secretary of State Antony Blinken has warned that “[a]bsent clear and concrete progress toward a negotiated ceasefire and an end to abuses – as well as unhindered humanitarian access to those Ethiopians who are suffering – the United States will designate imminently specific leaders, organizations, and entities under this new sanctions regime.”
This action comes on the heels of repeated calls by the United States for all parties to the conflict to commit to an immediate ceasefire as evidenced in the Department of State’s press statement on May 15, 2021, and Secretary of State Blinken’s phone call to Ethiopian Prime Minister Abiy Ahmed on July 6, 2021. Similarly, on August 3-4, 2021, U.S. Agency for International Development (“USAID”) Administrator Samantha Power traveled to Ethiopia to “draw attention to the urgent need for full and unhindered humanitarian access in Ethiopia’s Tigray region and to emphasize the United States’ commitment to support the Ethiopian people amidst a spreading internal conflict” according to a USAID press release at the time. And prior to the actions on September 17, on August 23, 2021, OFAC sanctioned General Filipos Woldeyohannes, Chief of Staff of the Eritrean Defense Forces, for engaging in serious human rights abuses under the Global Magnitsky sanctions program and condemned the violence and ongoing human rights abuses in the Tigray region of Ethiopia.
The nature and scope of this new sanctions regime suggests that the Biden administration is taking a measured, flexible, and cautious approach to the situation in Ethiopia. OFAC is able to impose sanctions measures of varying degrees of severity, without those sanctions necessarily flowing down to entities owned by sanctioned parties – which should limit ripple effects on the Ethiopian economy. Alongside the Chinese Military Companies sanctions program, this new sanctions program is one of the very few instances where OFAC’s “50 Percent Rule” does not apply, perhaps signaling a more patchwork approach to sanctions designations going forward. The decision to hold off on any initial designations is also telling, and makes clear the focus on deterrence – as opposed to punishment for past deeds. Moreover, at the outset, OFAC has issued general licenses and related guidance allowing for humanitarian activity in Ethiopia to continue. The approach here, although slightly different, is broadly consistent with the Biden administration’s handling of the situation in Myanmar, in which it has gradually rolled out sanctions designations over a period of many months and prioritized humanitarian aid in its general licenses and guidance.
Menu-Based Sanctions Permit Targeted Application of Restrictions
With respect to persons or entities engaged in certain targeted activities, the E.O. permits the Department of the Treasury to choose from a menu of blocking and non-blocking sanctions measures. In keeping with recent executive orders of its kind, the criteria for designation under the E.O. are exceedingly broad. The E.O. provides that the Secretary of the Treasury, in consultation with the Secretary of State, may designate any foreign person determined:
Upon designation of any such foreign person, the Secretary of the Treasury may select from a menu of sanctions options to implement as follows:
The restrictions above not only prohibit the contribution or provision of any “funds, goods, or services to, or for the benefit of” any sanctioned person, but also the receipt of any such contribution of provision of funds, goods, or services from any sanctioned person. Those persons subject to blocking sanctions would be added to OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”), while those subject to non-blocking sanctions would be added to the Non-SDN Menu-Based Sanctions List (“NS-MBS List”).
In addition to the restrictions described above, the E.O. directs other heads of relevant executive departments and agencies to, as necessary and appropriate, to (1) “deny any specific license, grant, or any other specific permission or authority under any statute or regulation that requires the prior review and approval of the United States Government as a condition for the export or reexport of goods or technology to the sanctioned person” and (2) deny any visa to a leader, official, senior executive officer, director, or controlling shareholder of a sanctioned person.
OFAC’s “50 Percent Rule” Does Not Automatically Apply
Importantly, and unlike nearly all other sanctions programs administered by OFAC, this E.O. stipulates that OFAC’s “50 Percent Rule” does not automatically apply to any entity “owned in whole or in part, directly or indirectly, by one or more sanctioned persons, unless the entity is itself a sanctioned person” and the sanctions outlined within the E.O. are specifically applied. OFAC makes clear in Frequently Asked Questions (“FAQs”) 923 and 924 that such restrictions do not automatically “flow down” to entities owned in whole or in part by sanctioned persons regardless of whether such persons are listed on OFAC’s SDN List or NS-MBS List.
Parallel Issuance of New General Licenses and FAQs to Support Wide Range of Humanitarian Efforts
Recognizing the importance of humanitarian efforts to addressing the ongoing crisis in northern Ethiopia, OFAC concurrently issued three General Licenses and six related FAQs:
Concluding Thoughts and Predictions
The implementation of this new sanctions program targeting “widespread violence, atrocities, and serious human rights abuse” in Ethiopia highlights the Biden administration’s efforts to apply pressure to Ethiopian and Eritrean forces to implement a ceasefire and permit the free flow of humanitarian aid into the Tigray region. We will continue to monitor further developments to see how the Biden administration chooses to deploy the flexible tools of economic pressure that it has created. As noted, we anticipate that, based on the administration’s recent past practice, its approach to designations under the new Ethiopia-related sanctions program will be gradual and measured as opposed to sweeping. Notably, the administration’s decision to create a new sanctions program as opposed to simply designating additional individuals and entities under an existing OFAC program (such as the Global Magnitsky sanctions program) may indicate the administration’s desire to put the Ethiopian and Eritrean governments on alert before additional actions are taken. The new Ethiopian sanctions program’s broad general licenses as well as the non-application of OFAC’s “50 Percent Rule” give further support to this assessment.
Moreover, the new sanctions program appears calibrated to minimize any collateral effects on international and non-governmental organizations operating within the humanitarian aid space, and may signal that the Biden administration will include broad humanitarian allowances in new sanctions actions moving forward.
Although the Department of the Treasury had not yet designated any foreign persons pursuant to this new sanctions regime, companies considering engaging with parties in the Horn of Africa should remain abreast of any new developments and designations, as unauthorized interactions with designated persons can result in significant monetary penalties and reputational harm to individuals and entities in breach of OFAC’s regulations.
 According to the accompanying press release from the Department of the Treasury, the imposition of new sanctions represents an escalation of the Biden administration’s efforts to hold accountable those persons “responsible for or complicit in actions or policies that expand or extend the ongoing crisis or obstruct a ceasefire or peace process in northern Ethiopia or commit serious human rights abuse.” In the same statement, the Treasury Department made clear the purpose of the E.O. was to target “actors contributing to the crisis in northern Ethiopia” and was not “directed at the people of Ethiopia, Eritrea, or the greater Horn of Africa region.”
 For more background on the NS-MBS List, please see our December 2020 client alert which discussed the designation of Republic of Turkey’s Presidency of Defense Industries (“SSB’) to the then newly created NS-MBS List. To date, SSB remains the only designee on the NS-MBS List.
The following Gibson Dunn lawyers assisted in preparing this client update: Chris Mullen, Audi Syarief, Judith Alison Lee, Adam Smith, Stephanie Connor, Christopher Timura, Allison Lewis, and Scott Toussaint.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments. Please contact the Gibson Dunn lawyer with whom you usually work, the authors, or any of the following leaders and members of the firm’s International Trade practice group:
Judith Alison Lee – Co-Chair, International Trade Practice, Washington, D.C. (+1 202-887-3591, firstname.lastname@example.org)
Ronald Kirk – Co-Chair, International Trade Practice, Dallas (+1 214-698-3295, email@example.com)
Jose W. Fernandez – New York (+1 212-351-2376, firstname.lastname@example.org)
Nicola T. Hanna – Los Angeles (+1 213-229-7269, email@example.com)
Marcellus A. McRae – Los Angeles (+1 213-229-7675, firstname.lastname@example.org)
Adam M. Smith – Washington, D.C. (+1 202-887-3547, email@example.com)
Stephanie L. Connor – Washington, D.C. (+1 202-955-8586, firstname.lastname@example.org)
Christopher T. Timura – Washington, D.C. (+1 202-887-3690, email@example.com)
Courtney M. Brown – Washington, D.C. (+1 202-955-8685, firstname.lastname@example.org)
Laura R. Cole – Washington, D.C. (+1 202-887-3787, email@example.com)
Chris R. Mullen – Washington, D.C. (+1 202-955-8250, firstname.lastname@example.org)
Samantha Sewall – Washington, D.C. (+1 202-887-3509, email@example.com)
Audi K. Syarief – Washington, D.C. (+1 202-955-8266, firstname.lastname@example.org)
Scott R. Toussaint – Washington, D.C. (+1 202-887-3588, email@example.com)
Shuo (Josh) Zhang – Washington, D.C. (+1 202-955-8270, firstname.lastname@example.org)
Attila Borsos – Brussels (+32 2 554 72 10, email@example.com)
Nicolas Autet – Paris (+33 1 56 43 13 00, firstname.lastname@example.org)
Susy Bullock – London (+44 (0)20 7071 4283, email@example.com)
Patrick Doris – London (+44 (0)207 071 4276, firstname.lastname@example.org)
Sacha Harber-Kelly – London (+44 20 7071 4205, email@example.com)
Penny Madden – London (+44 (0)20 7071 4226, firstname.lastname@example.org)
Steve Melrose – London (+44 (0)20 7071 4219, email@example.com)
Matt Aleksic – London (+44 (0)20 7071 4042, firstname.lastname@example.org)
Benno Schwarz – Munich (+49 89 189 33 110, email@example.com)
Michael Walther – Munich (+49 89 189 33-180, firstname.lastname@example.org)
Richard W. Roeder – Munich (+49 89 189 33-160, email@example.com)
© 2021 Gibson, Dunn & Crutcher LLP
Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.