Export Controls and Sanctions

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

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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It has always been a possibility that the United Kingdom would crash out of the European Union on 30 March 2019 but “no deal” preparation is now highly recommended by both sides.  For organisations that export dual use items, the possibility of the UK becoming a “third country” vis-à-vis the EU without an exit agreement or transition period means an overnight need for export licenses where none are required today.

Seasoned international businesses understand that dual use items, which can be used for both civil and military purposes, include far more products than one might assume.  In addition to the more obvious goods that may be used to produce or develop military items, such as machine tools and equipment used for chemical manufacturing, computers, drawings, technology, software, raw materials, and components also may be subject to dual use controls.   Even seemingly mundane items such as protective clothing used in medical laboratories, certain commonly used chemicals, certain ball bearings, and a wide variety of other products are controlled for export and they need to be properly classified to determine if a license would be needed to ship to a UK that has left the EU.  Many entities that have been operating exclusively within the EU could soon be confronted with dual use licensing requirements for the first time and global businesses may be faced with a potentially significant increase in the number of items that need be licensed.
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Earlier this week, the Bureau of Industry and Security (“BIS”) published a request for public comment regarding a proposed expansion of export controls under the Export Administration Regulations (“EAR”) for certain spraying or fogging systems, which are controlled under Export Control Classification Number (“ECCN”) 2B352.i.  Currently, the ECCN controls only spraying or fogging equipment that is specially designed or modified for use on certain aircraft that also meet certain technical specifications related to droplet size and flow rate.[1]

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Yesterday the U.S. government announced that it would implement new sanctions against Russia mandated under the Chemical and Biological Weapons Act of 1991 (the CBW Act) following the apparent deployment of a chemical weapon on British soil by Russia.

The first round of sanctions, which are expected to come into force on or around August 22, will prohibit many exports and reexports of goods, software, or technology to Russia controlled for national security reasons under the dual use Export Administration Regulations.  Such items include gas turbine engines, encryption items, electronics components, optical equipment, lasers, sensors, electronic components, materials, and certain unmanned systems, among many others. National security controlled items currently require a license to be exported to Russia, but the new rules will require the Commerce Department to apply a ‘presumption of denial’ to future license requests in many instances.  In a briefing announcing the new sanctions, the State Department indicated that certain exceptions will be made, including those related to joint space activities, aviation safety, and the activities of U.S. and other foreign companies in Russia.  While the scope of the sanctions has yet to finalized, the State Department suggested that up to half of all licensed exports to Russia are controlled for national security reasons.  If the sanctions are fully enforced, the impact could be substantial – based on 2016 figures over $1 billion in trade could be impacted.
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A set of changes to the U.S. dual use export control rules makes exporting sensitive goods, software, and technology to India less burdensome.

Over the last several years, India has joined three of the four major multilateral export control regimes – the Missile Technology Control Regime (MTCR), the Wassenaar Arrangement, and the Australia Group.  In

Tomorrow the United States will re-impose a set of secondary sanctions on Iran as the newly amended EU blocking statute comes into force.

Following the U.S. withdrawal from the multilateral Iran nuclear deal (the Joint Comprehensive Plan of Action or JCPOA), the United States is set to re-impose a raft of secondary sanctions targeting Iran.  The secondary sanctions are designed to penalize non-U.S. companies for conducting certain types of business involving Iran, even in cases where that activity occurs wholly outside of U.S. commerce.  Pursuant to prior announcements and a new Executive Order, tomorrow the United States will have the authority to sanction non-U.S. companies that engage in the following types of activity with Iran:

  • The purchase or acquisition of U.S. dollar bank notes by entities owned or controlled by the Government of Iran;
  • Trade in gold or precious metals;
  • The direct or indirect sale, supply, or transfer to or from Iran of certain materials, including graphite, raw and semi-finished metals (such as aluminum, steel, and coal), and certain software for integrating industrial processes;
  • Significant transactions related to the Iranian rial;
  • The purchase of, subscription to, or facilitation of the issuance of Iranian sovereign debt; and
  • The sale or supply of significant goods or services related to the Iranian automotive sector, including the manufacture and assembly of light and heavy vehicles, the manufacture of aftermarket parts, and the provision of auto kits or “knock-down kits.”


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On June 7th, Secretary of Commerce Wilbur Ross announced that the U.S. government reached an agreement with ZTE Corporation (ZTE) to lift a denial order suspending the export privileges of ZTE for a period of seven years.  Under this new agreement, ZTE must pay $1 billion and place an additional $400 million in escrow in a U.S.-approved bank within 90 days of this superseding order.  The Bureau of Industry and Security (BIS) will lift the denial order after the payment has been received and notify the public that ZTE has been removed from the Denied Persons List.

In addition to the civil monetary penalty, ZTE must adhere to several other conditions under the new agreement, which collectively are the most severe penalty BIS has ever imposed on a company.  Most notably:
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