Foreign Assets Control Facilitation: g Preparing for Heightened - PowerPoint PPT Presentation

Presenting a live 90 ‐ minute webinar with interactive Q&A Foreign Assets Control Facilitation: g Preparing for Heightened Enforcement Identifying and Mitigating Risks for U.S. Persons and Companies Absent Clear Guidance THURS DAY, APRIL 7, 2011 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific T d Today’s faculty features: ’ f l f Ronald I. Meltzer, Partner, WilmerHale , Washington, D.C. Greta Lichtenbaum, Partner, O'Melveny & Myers , Washington, D.C. Erin L. Crockett, Director, Corporate Global Trade Compliance, Dresser , Addison, Texas The audio portion of the conference may be accessed via the p y telephone or by using your computer's speakers. Please refer to the instructions emailed to regist rants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .

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Prohibited Facilitation Under OFAC Regulations OFAC Regulations Ronald I. Meltzer Wil Wilmer Cutler Pickering Hale and Dorr, LLP C tl Pi k i H l d D LLP April 7, 2011

OVERVIEW 1. What is facilitation? 2. Exceptions 3. Recent enforcement cases WilmerHale 5

Part One: What is facilitation? Part One: What is facilitation?  Circumvention of OFAC requirements by routing or supporting otherwise prohibited routing or supporting otherwise prohibited transactions through foreign persons  Aiding or permitting non-US persons to  Aiding or permitting non US persons to perform activity that would be prohibited if undertaken by US persons  Explicit and imputed prohibition across all OFAC sanctions programs  Broad and elastic: even minor or indirect actions that support or approve another person’s transaction with OFAC targets can constitute transaction with OFAC targets can constitute prohibited facilitation WilmerHale 6

Definitions of facilitation: Iran, Sudan and Burma regulations g  Iran: approving, financing, facilitating, or guaranteeing any transaction by a foreign guaranteeing any transaction by a foreign person, where the transaction would be prohibited if performed by US person or within the United States (31 CFR §560.208)  Sudan: action by a US person that assists or supports transactions with Sudan by any other S person (31 CFR §538.407) WilmerHale 7

Definitions of facilitation: Iran, Sudan and Burma regulations g (continued)  Burma: approving, financing, facilitating, or guaranteeing a transaction by a foreign person, if such transaction would be prohibited when performed such transaction would be prohibited when performed by US person or within the United States (31 CFR §537.205(a))  Exception for certain types of new investment in Burma (31 CFR §537.205(b)), such as certain contracts to sell/purchase goods contracts to sell/purchase goods WilmerHale 8

Cuba: evasion/avoidance  CACR prohibits “[a]ny transaction for the purpose or which has the effect of evading or avoiding any part of the [CACR] prohibitions” (31 avoiding any part of the [CACR] prohibitions (31 CFR §515.201(c))  Interpreted to prohibit facilitation p p WilmerHale 9

Other examples of facilitation from OFAC regulations g  Altering policies or operating procedures to enable a foreign affiliate/subsidiary to perform enable a foreign affiliate/subsidiary to perform OFAC-prohibited transactions  Altering a foreign affiliate’s/subsidiary’s  Altering a foreign affiliate s/subsidiary s operating policies and procedures to facilitate OFAC-prohibited transactions  Referring purchase orders, requests for bids, or other business opportunities involving OFAC t targets to a foreign person t t f i WilmerHale 10

Penalties For Iran, Sudan and Burma (under IEEPA):  Civil: $250,000 per violation or twice transactional value  Criminal: $1 million per violation and 20 years For Cuba (under TWEA):  Civil: $65,000 per violation Civil: $65 000 per violation  Criminal: $1 million per violation and 10 years WilmerHale 11

Part Two: Exceptions 1. Authorized transactions 2. General inventory rule WilmerHale 12

Authorized transactions u o ed s c o s Prohibited facilitation requires that the underlying transaction be unauthorized transaction be unauthorized If the transaction is permitted (either by general authorization or a specific license) then taking authorization or a specific license), then taking action to approve, facilitate or support that transaction is not prohibited Examples:  Information and informational materials  Transactions covered by OFAC licenses WilmerHale 13

General Inventory Rule  What if a US person sells goods to a foreign  What if a US person sells goods to a foreign person in a third country that does business in Iran? Does that activity constitute prohibited facilitation?  General inventory rule : US persons may sell/transfer goods to a third-country party, even ll/t f d t thi d t t if a small/unidentifiable portion of such goods is destined for or ends up in OFAC targets p g  Not in the OFAC regulations—established by longstanding agency practice g g g y p WilmerHale 14

General Inventory Rule (continued) Two key limitations:  Items when shipped from the United States or b by a US person to the third-country party must US t th thi d t t t not be specifically intended for eventual sale to or use in OFAC targets g  Third-country party’s inventory must not be predominantly used for selling/sourcing such g g p y items to OFAC targets WilmerHale 15

Part Three: Recent Enforcement Cases  Trans Pacific National Bank (Jan. 2011)  Aon Energy (Jan. 2011) gy ( )  Stena Bulk LLC (Jan. 2009) Stena Bulk LLC (Jan 2009) WilmerHale 16

Trans Pacific National Bank Trans Pacific National Bank (Jan. 2011)  Trans Pacific (a San Francisco bank) processed two wire transactions to transfer $35,600 to a foreign person in September 2007 $35,600 to a foreign person in September 2007  The two wire transfer requests referenced “Iranian material” and “Iran material”  No voluntary disclosure  Trans Pacific settled the case for $12,500 Trans Pacific settled the case for $12 500 WilmerHale 17

Aon Energy (Jan. 2011)  Aon Energy (a Houston-based subsidiary of  Aon Energy (a Houston-based subsidiary of Aon Corporation) brokered reinsurance retrocession deals (i.e., reinsurance for reinsurers) on behalf of European reinsurer and retrocessionaires (policy sellers) in October 2005  The premium was $62,883 and covered Th i $62 883 d d construction risks associated with petroleum project in Iran p j  No voluntary disclosure  Aon settled the case for $36,000 Aon settled the case for $36 000 WilmerHale 18

Stena Bulk LLC (Jan. 2009)  Stena Bulk LLC is a US subsidiary of a Swedish shipping company  In 2003 and 2007-2008 period, Stena Bulk I 2003 d 2007 2008 i d St B lk provided “transportation related services” for shipment of oil to/from Sudan p  Stena Bulk voluntarily disclosed the violations  Settled for $426,486 Settled for $426 486 WilmerHale 19

Ronald I. Meltzer WilmerHale WilmerHale (202) 663-6389 ronald.meltzer@wilmerhale.com WilmerHale 20

Greta L.H. Lichtenbaum U S Economic Sanctions Laws: U.S. Economic Sanctions Laws: How Risks of Facilitation Violations Typically Arise

Facilitation – General  Basic principle: A U.S. person may not facilitate activities of a non-U.S. person that the U.S. person could not engage in directly  A risk for ALL sanctions programs  This provision refers to facilitating the activities of any This provision refers to facilitating the activities of any foreign person (including an affiliate), and can create many challenges  It can prevent U S companies and persons from It can prevent U.S. companies and persons from supporting transactions with sanctioned countries initiated outside the United States, even where the U.S. company’s role is limited 22