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On Thursday November 9th,  the Office of Foreign Assets Control (“OFAC”) published new regulations in the Federal Register executing June’s National Security Presidential Memorandum (“NSPM”) regarding U.S. sanctions against Cuba.  (See our previous post on the NSPM here).  The State Department and Bureau of Industry and Security (“BIS”) also published complementary rules giving effect to the changes in the Cuba sanctions.  The rules became effective with their publication in the Federal Register.

The primary purpose of the rule changes is to prevent commerce between the U.S. and Cuba from benefiting the Cuban military.  The State Department’s regulation includes a new Cuba Restricted List, which lists parties deemed to be under control of or acting on behalf of the Cuban military, intelligence, or security services personnel. 
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Treasury Secretary Mnuchin announced Wednesday that the Trump Administration was considering sanctioning any country that continues trade with North Korea if the United Nations does not approve additional sanctions against the country.  At an emergency UN meeting in the wake of an additional North Korean nuclear test over the weekend, the U.S. proposed stricter sanctions

Late last week, President Trump issued a directive that would purportedly “cancel” the recent changes in the Cuban Assets Control Regulations made under President Obama’s administration.  This announcement caused confusion in the business community, which had relied on the Obama administration’s changes to begin commercial engagement in Cuba.  Even though the directive actually leaves many of the Obama administration’s policies in place, the new directive – once implemented – will likely create issues for U.S. businesses in Cuba.

The directive is designed to ensure that Cuba’s Grupo de Administracion Empresarial (“GAESA”), a business conglomerate run by Cuba’s military, does not benefit from any increase in U.S.-Cuba engagement.  To implement this portion of the directive, the State Department has been directed to list entities with which transactions will be prohibited, and it is unclear how many entities the State Department will list.  GAESA is estimated to control up to 60 percent of the Cuban economy.  However, according to the FAQs issued by OFAC, deals that are in place prior to the issuance of new regulations implementing the directive will be permitted.
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On May 26, the U.S. Court of Appeals for the DC Circuit remanded for further consideration OFAC’s imposition of a $4 million penalty against Epsilon Electronics for 39 shipments found to violate the Iranian Transactions and Sanctions Regulations (“ITSR”).  According to the DC Circuit, OFAC failed to meet its burden to justify its finding of violation with respect to five of the 39 shipments in question.  The Court therefore directed OFAC to reconsider its findings with respect to the five violations and to recalculate the penalty.  Despite this being a rare circumstance in which a company (temporarily?) successfully challenged an OFAC determination in court, this ruling is not a broad rebuke of OFAC’s authority to interpret its regulations.

Even in remanding a portion of OFAC’s determination to the agency, the Court upheld OFAC’s broad interpretation of the ITSR.  OFAC’s final Penalty Notice imposed liability for 39 exports of car audio/visual equipment to the UAE that Epsilon knew, or should have known, were intended for reexport to Iran.  OFAC relied on evidence from the UAE company’s site advertising extensive relationships with Iran, among other factors, to draw its conclusion.  Epsilon argued that OFAC did not prove that any of the 39 shipments actually arrived in Iran.  The Court agreed with the government that actual arrival in Iran is not necessary to find a violation – that exporting with reason to know the items were intended for Iran is sufficient to sustain a finding of violation.
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