Co-Authored by Sharath Patil
Background on U.S. Sanctions Programs
The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) administers a number of different sanctions programs. The purpose of U.S. sanctions programs is to advance U.S. foreign policy objectives and protect national security. Currently, OFAC administers 35 sanctions programs. These sanctions programs vary widely – some are comprehensive while others are highly selective.
The following is a list of current U.S. sanctions programs administered by OFAC:
- Balkans Sanctions
- Belarus Sanctions
- Burma-Related Sanctions
- Burundi Sanctions
- Central African Republic Sanctions
- Chinese Military Companies Sanctions
- Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA)
- Counter Narcotics Trafficking Sanctions
- Counter Terrorism Sanctions
- Cuba Sanctions
- Cyber-Related Sanctions
- Democratic Republic of the Congo-Related Sanctions
- Foreign Interference in a United States Election Sanctions
- Global Magnitsky Sanctions
- Hong Kong-Related Sanctions
- Iran Sanctions
- Iraq-Related Sanctions
- Lebanon-Related Sanctions
- Libya Sanctions
- Magnitsky Sanctions
- Mali-Related Sanctions
- Nicaragua-Related Sanctions
- Non-Proliferation Sanctions
- North Korea Sanctions
- Rough Diamond Trade Controls
- Russian Harmful Foreign Activities Sanctions
- Somalia Sanctions
- Sudan and Darfur Sanctions
- South Sudan-Related Sanctions
- Syria Sanctions
- Syria-Related Sanctions
- Transnational Criminal Organizations
- Ukraine-/Russia-Related Sanctions
- Venezuela-Related Sanctions
- Yemen-Related Sanctions
- Zimbabwe Sanctions
U.S. Sanctions Towards Iran
The United States has imposed restrictions on activities with Iran under various legal authorities since 1979, following the seizure of the U.S. Embassy in Tehran following the Iranian Revolution. In October 2015, the United States, the United Kingdom, France, China, and Russia, as well as Germany (known collectively as the P5 +1) met with Iran and successfully negotiated the Joint Comprehensive Plan of Action (“JCPOA”). Pursuant to the JCPOA, Iran agreed to roll back parts of its nuclear program in exchange for relief from some sanctions. According to United Nations Security Council Resolution 2231, the JCPOA would result in “the comprehensive lifting of all UN Security Council sanctions as well as multilateral and national sanctions related to Iran’s nuclear program, including steps on access in areas of trade, technology, finance, and energy.” The few years of decreased economic sanctions towards Iran came to an end in May 2018 when the Trump administration unilaterally withdrew from the JCPOA. The return of increased U.S. sanctions towards Iran came into effect in November 2018.
The United States’ Iran sanctions program includes secondary sanctions on firms that conduct certain transactions with Iran. This powerful tool has put pressure on foreign firms (including in the European Union) to adhere to U.S. sanctions laws.
The EU Blocking Statute
On November 22, 1996, the European Union (“EU”) enacted Council Regulation (“EC”) No. 2271/96 to counteract the sanctions imposed by the United States against Cuba, Iran, and Libya. Known as the EU Blocking Statute, the regulation shields member-state entities against the effects of the extraterritorial application of legislation adopted by a third country. Given the decision by the Trump administration in May 2018 to withdraw from the Joint Comprehensive Plan of Action (“JCPOA” or “Iran Nuclear Deal”) and reimpose sanctions, the contrasting sanctions policies of the United States and the European Union have been a difficult compliance issue for EU firms.
On May 12, 2021, Advocate General Gerard Hogan issued a preliminary opinion in the case of Bank Melli Iran v. Telekom Deutschland GmbH. In the ruling, AG Hogan described the difficult circumstances imposed by the opposing sanction regimes of the United States and the European Union vis-à-vis Iran.
AG Hogan wrote:
“As the facts of this case graphically show, the operation of the EU blocking statute gives rise to a series of hitherto unresolved legal issues and a variety of intensely practical problems, not least of which is that European companies find themselves facing impossible – and quite unfair – dilemmas brought about by the application of two different and directly opposing legal regimes. I cannot avoid observing that the nature of these dilemmas, together with the failure to provide clear guidance on important legal issues which directly arise from the operation of the EU blocking statute, is such that the EU legislature might with advantage review the manner in which that statute presently operates.”
Although the opinion by AG Hogan is a preliminary opinion, the ruling signals important changes to come with regards to how the European Union responds to U.S. secondary sanctions vis-à-vis Iran. Specifically, AG Hogan’s ruling will likely strengthen the EU Blocking Statute and potentially penalize EU parties for adhering to U.S. sanctions laws. EU parties should be conscious to justify their Iran business decisions demonstrating that it was not to adhere to U.S. sanctions laws in order not to violate the EU Blocking Statute. Potentially, EU parties can even be sued contractually for wrongfully terminating a business relationship in violation of the EU blocking statute. This is a very difficult and confusing place for EU parties doing business in Iran.
What You Can Do
Adhering to U.S. sanctions laws can be complex – particularly when U.S. sanctions policies are rapidly changing. We encourage you to engage in the following practices in order to be proactive about your sanctions compliance:
- Develop an effective sanctions compliance program – A key foundation of proactive and effective sanctions compliance requires the development of a sanctions compliance plan. A sanctions compliance plan establishes a set of procedures for your organization to ensure that everyone is on the same page about how standard processes work, who is responsible for what, how to identify violations, what to do when violations occur, etc. A sanctions compliance plan helps build consciousness in your organization that compliance is critical – both to avoid costly penalties and also to protect national security. Diaz Trade Law helps businesses create sanctions compliance manuals that help prove you have a process in place to vet proposed transactions and ensure you can prove you can take compliance seriously and implement all of the important great weight mitigating factors. Diaz Trade Law has significant experience in developing sanctions compliance plans for organizations without plans. Additionally, Diaz Trade Law can assist your business in auditing and improving your current plan so that it is in its best shape.
- Sanctions compliance training – A foundation of a strong sanctions compliance program is sanctions compliance training. Training is important because it (1) ensures that all employees understand the sanctions regulations and reinforces internal policies and procedures, (2) demonstrates to federal government agencies that your business is proactive about sanctions compliance, and (3) avoids your business from being subject to costly penalties and even criminal liability. Fortunately, sanctions compliance training can be highly tailored to meet your company’s needs. All of your training events include assessments for comprehension, certificates for successful participation, and ample opportunities for Q&A. For your next sanctions compliance training event, trust Diaz Trade Law to provide highly-effective, engaging training.
- Transaction vetting – Unsure whether a proposed transaction violates OFAC sanctions? Diaz Trade Law has significant experience vetting your potential transaction against U.S. sanctions laws. Through research and due diligence, Diaz Trade Law ensures that your transaction won’t get you in trouble later down the road. In particular, it is important to vet end-uses (how is your product going to be used?), end-users (who will be using your product?), and destinations (where will your product be used?).
- Voluntary self-disclosures – If your business believes it may have violated OFAC sanctions, it can be in your business’ strategic interest to submit a voluntary self-disclosure (“VSD”). OFAC encourages anyone who may have violated OFAC-administered regulations to disclose the apparent violation to OFAC voluntarily. A voluntary self-disclosure to OFAC is considered a mitigating factor by OFAC in enforcement actions, and pursuant to OFAC’s Enforcement Guidelines, may result in a reduction in the base amount of any proposed civil penalty. Diaz Trade Law has significant experience filing VSDs and mitigating penalties. For detailed information on filing a VSD with OFAC, check out our article Submitting a Voluntary Self-Disclosure to OFAC published by Bloomberg Law.
- Specific license applications – A specific license is an authorization from OFAC to engage in a transaction that otherwise would be prohibited. Businesses may apply for OFAC specific licenses to release blocked funds, generally authorize transactions, and many other purposes. Diaz Trade Law has significant experience submitting specific license applications and receiving authorization for proposed transactions on behalf of our clients.
- Mitigation and corrective action – If your business has violated U.S. sanctions laws, there is a lot you should do to get back into compliance, ensuring you work to prevent future violations, training your employees, updating your manuals, and this work can assist in mitigating potential penalties. Diaz Trade Law has significant experience representing businesses in dealing with the U.S. Treasury Department’s Office of Foreign Assets Control. Specifically, Diaz Trade Law has successfully assisted clients in (1) submitting voluntary self-disclosures to mitigate penalties, (2) negotiated agreements with OFAC, (3) built corrective action systems to help ensure that your business does not make the same violation again, and (4) updating and enhancing your current export compliance plan.
If you have questions on sanctions or export-related matters, contact Diaz Trade Law today at email@example.com or 305-456-3830.