Export Controls and Sanctions

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Today the president signed a new Executive Order (E.O.) announcing expanded primary and secondary sanctions on Iran, focused on the construction, mining, manufacturing, and textile industries.  OFAC also sanctioned a significant segment of the Iranian metals industry today, targeting the largest iron, steel, aluminum, and copper producers in Iran under an existing sanctions authority focused…

Late last month, the Directorate of Defense Trade Controls issued a long-awaited interim final rule regarding what qualifies as the export, re-export, or transfer of technical data (a “controlled event”) under the International Traffic in Arms Regulations (“ITAR”). Specifically, in 2016, the Bureau of Industry and Security (“BIS”) issued a final rule clarifying that the…

On October 31, 2019, the World Trade Organization (WTO) ruled in favor of the United States in determining that Government of India provides prohibited export subsidies to Indian producers and exporters.  The WTO dispute panel determined that the: Merchandise Exports from India Scheme (MEIS); Export Oriented Units Scheme (EOU) and related sector-specific schemes; Special Economic…

On October 22, 2019, the Office of Foreign Assets Control (OFAC) issued General License No. 2G authorizing U.S. persons to engage in transactions involving nine companies: Belarusian Oil Trade House, Belneftekhim, Belneftekhim USA, Inc., Belshina OAO, Grodno Azot OAO, Grodno Khimvolokno OAO, Lakokraska OAO, Naftan OAO, and Polotsk Steklovolokno OAO. Executive Order 13405 had previously…

Yesterday, the Office of Foreign Assets Control (OFAC) issued General License No. 8D, authorizing U.S. persons to engage in transactions and activities involving Petroleos de Venezuela, S.A. (PdVSA) that are ordinarily incident and necessary to the maintenance of operations, contracts, and other agreements involving Chevron, Halliburton, Schlumberger Limited, Baker Hughes, and Weatherford International in…

Today, the U.S. Bureau of Industry and Security (BIS) amended the Export Administration Regulations (EAR) to further tighten restrictions on Cuba.  The changes, which are effective immediately, are part of a broader U.S. government effort to tighten the embargo on Cuba after a tentative easing of relations under the Obama Administration.

The amendment lowers the applicable de minimis threshold for non-U.S. items that contain U.S.-origin content; tightens rules regarding the leasing or chartering of aircraft or vessels; and limits license exception Support for the Cuban People (SCP), including by clarifying the scope of authorized telecommunications exports and reexports.

10 percent de minimis threshold

First, and most importantly for non-U.S. companies, BIS lowered the de minimis threshold for Cuba from 25 percent to 10 percent. During the Obama Administration, the de minimis level for Cuba was raised from 10 percent to 25 percent.  This amendment reverses that change.

The amendment means that non-U.S. companies must now obtain a BIS license or use an EAR license exception before exporting any product (including goods, software, or technology) to Cuba if the product contains more 10 percent U.S.-origin content, by value.  According to BIS, such license applications will face a presumption of denial unless the project supports U.S. policy, defined in Section 742.2(b) of the EAR.  Non-U.S. companies should review pending and planned projects in Cuba to ensure compliance with the new rules.  There is no grace or wind down period associated with the change.

The EAR’s de minimis provisions are an example of the extraterritorial application of U.S. export control laws – non-U.S. items located outside of the United States are subject to the EAR’s license requirements if the items contain more than a de minimis level of controlled U.S.-origin content.

Aircraft & vessel restrictions

Second, BIS is rescinding a favorable a licensing policy regarding the export or reexport of aircraft leased to Cuban state-owned airlines and is revoking licenses issued under the prior licensing policy within seven days.  License requests related to such exports and reexports will now face a presumption of denial.  The amendment also tightens the restrictions in license exception Aircraft, Vessels, and Space (AVS) when applied to aircraft or vessels leased to or chartered by a Cuban national or a state sponsor of terrorism.

New limits on license exception Support for the Cuban People 

Finally, the amendment narrows license exception SCP with respect to certain donated items, clarifies the scope of the authorized telecommunications exports, and limits exports on…
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Yesterday, the U.S. government issued an Executive Order (E.O.) imposing new primary and secondary sanctions that target the government of Turkey in response to the escalating conflict in northern Syria.  Pursuant to the new sanctions, the Office of Foreign Assets Control (OFAC) also added the Turkish Ministry of Energy and Natural Resources, the Turkish Ministry of National Defense, and the Turkish ministers of Defense, Energy and Natural Resources, and Interior to the SDN List, formally blocking (freezing) those parties’ property and interests in property, subject to U.S. jurisdiction.  Entities owned 50 percent or more, directly or indirectly, by these SDNs are also subject to blocking sanctions pursuant to OFAC’s “50 percent rule.”

While the sanctions are currently narrowly targeted, the E.O. authorizes a broad array of future possible sanctions against other parties connected to the Turkish government and companies operating in Turkey.  Whether and to what extent sanctions are expanded on Turkey will depend on developments on the ground in Syria and U.S. domestic politics.  Various groups, including prominent voices in Congress, are pushing the administration for more aggressive action against Turkey, which could portend an expansion of sanctions against the Ankara government.

Blocking sanctions

The October 14, 2019 E.O. authorizes the U.S. government to block any person (e.g., designate that person as a Specially Designated National (SDN)) that the Secretary of the Treasury determines to:…
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Yesterday, the Office of Foreign Assets Control (“OFAC”) listed Petroleos de Venezuela, S.A. (“PdVSA”) as a Specially Designated National (“SDN”) pursuant to its authority under Executive Order 13850. As a result of the designation, all property and interests in PdVSA property subject to U.S. jurisdiction are blocked, and U.S. persons are generally prohibited from engaging in transactions with the entity and its 50-percent owned subsidiaries.

Concurrent with the designation, OFAC amended one existing and issued eight new General Licenses (“GLs”).  These GLs authorize activities that would otherwise be prohibited by Executive Order 13850 or other Venezuela-related sanctions, and fall into one of several categories: 1) authorizations regarding maintenance and wind down activities related to contracts with PdVSA or certain of its subsidiaries existing prior to January 28, 2019 (GL 11, GL12).  The most significant authorization allows parties to wind down pre-existing contracts with PdVSA until February 27, 2019; 2) authorizations regarding certain PdVSA subsidiaries, including PDV Holding, Inc. (“PDVH”), CITGO Holding, Inc. (“CITGO”), and Nynas AB (GL 7, GL 13). These GLs include an authorization for the export of certain U.S. items and services until July 27, 2019; 3) the purchase in Venezuela of gas from PdVSA and its subsidiaries for certain uses (GL 10); 4) authorization for certain Venezuela-based operations involving PdVSA (GL 8); and 5) transactions related to certain bonds and debts (GL 3A, GL 9), among others.

The GLs generally have difference scopes, apply to different entities, and have different validity periods. The key aspects of each of the GLs are described below.

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