Basic elements
Economic sanctions are another key element of the regulatory web that the U.S. government uses to control the conduct of U.S. people operating abroad. While export controls operate by regulating exports of U.S.-origin goods, information, software and technology, sanctions occupy the somewhat overlapping function of regulating the activities of U.S. persons and assets that come under the control of U.S. persons.
Most sanctions programs involve: (1) bans on trade in goods; (2) bans on the provision of financial services; (3) bans on the provision of other services; (4) bans on activities of U.S. persons; and (5) bans on behavior that would facilitate or evade any of the aforementioned banned conduct. The Office of Foreign Assets Control (OFAC) enforces bans by administering economic sanctions against targeted foreign countries and regimes, terrorists, narcotic traffickers, persons or entities engaged in the proliferation of weapons of mass destruction and others who take actions counter to U.S. national security and foreign policy objectives.
U.S. persons cannot deal with them, and generally must block property in their possession or control in which sanctioned individuals and entities have an interest. Further, the operation of sanctions trumps private contractual arrangements that may have preceded them, making them unenforceable in U.S. court.
The most common type of sanctions is country-based. The list of countries covered by sanctions varies periodically as OFAC adds or repeals regulations depending on events in the named country and its relations with the United States. Comprehensive country-based sanctions function by restricting most economic interactions, in the absence of a license from the U.S. government, with designated countries.
U.S. persons generally are prohibited from direct or indirect involvement with, or facilitation of, any transaction involving an embargoed country, its government, or an agent of its government. There may be restrictions on dealing with any nationals of the country as well. Under these sanctions, the shipments of goods and the provision of services to boycotted countries, or to restricted persons in those countries, cannot occur without a license.
Assets of sanctioned entities that come under the control of U.S. persons often must be kept in blocked accounts designed to prevent owners’ access to them. The prohibitions can cover a variety of transactions, including imports, exports, contracts, financial transactions and other interactions with the country, its government and its nationals.
Special restrictions on trade and investment that would aid the Iranian petroleum sector also have been passed by Congress.
Sudan. This U.S. embargo includes product exports, some product re-exports, product imports, financial services exports and financial transactions. Pursuant to Executive Order 13,412 of October 13, 2006, certain activities in certain areas of Sudan are exempt from the embargo.Syria. The prohibitions in this embargo focus on the export and re-export of most U.S.-origin products and technology, including coverage of most U.S.-origin goods, wherever located. Unique among U.S. economic sanctions, this embargo is administered by the Department of Commerce under the Export Administration Regulations, and not by OFAC. In addition to these comprehensive sanctions, there also are targeted country-based sanctions. The coverage of these sanctions varies for each of the following countries: Balkans, Belarus, Burma (Myanmar), Ivory Cost (Cote d’Ivoire), Iraq, Liberia, Libya (recently imposed, but in the process of being partially withdrawn), North Korea and Zimbabwe. In addition to these country-based sanctions, OFAC also administers activity-based sanctions, which are intended to curb specific activities, such as drug trafficking, proliferation, terrorism and criminal activities. These sanctions cover designated persons or entities, wherever in the world they reside, and are not necessarily linked to a specific country (except for some governments that are known to facilitate these types of activities, such as state sponsors of terrorism).
For these activity-based sanctions, the primary method of implementation is through the identification of persons and entities engaged in sanctioned activities and the requirement that no U.S. person engage in transactions with them. To implement these sanctions, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries, called Specially Designated Nationals (SDNs.) It also lists “Blocked Persons” (individuals, groups, and entities, such as terrorists or narcotics traffickers) under programs that are not country specific.
The named individuals who are Blocked Persons can fall in the categories of specially designated international terrorist organizations and terrorists (SDTs), specially designated global terrorists (SDGTs), foreign terrorist organizations (FTOs), persons engaged in the proliferation of weapons of mass destructions (NPWMDs), specially designated narcotics traffickers (SDNTs), and specially designated drug kingpins (SDNTKs). As a general shorthand, these groups together often are referred to simply as SDNs.
Next month, I will provide compliance tips regarding how to minimize the risks posed by these economic sanctions regulations.
