Europe: EU / UK regulatory roundup
A round up of recent regulatory developments in the EU and UK.
On May 8, 2019, President Trump issued an Executive Order (EO) authorizing sanctions on Iran's iron, steel, aluminum and copper sectors. This action follows the US government's recent designation of the Islamic Revolutionary Guard Corps as a Foreign Terrorist Organization and revocation of sanctions waivers granted to eight countries for Iranian oil exports. The EO authorizes blocking sanctions on any person, including non-US companies, determined to be operating in these Iranian metal sectors; to have knowingly engaged in significant transactions involving these metals and products of these metals; to have materially assisted any person blocked pursuant to the EO; and to be owned, controlled by, or acting on behalf of any such blocked person. The EO also authorizes correspondent account or payable-through account sanctions on foreign financial institutions that conduct or facilitate related significant financial transactions. These sanctions have the potential to be broad because they cover not only persons engaged in significant transactions involving these metals, but also persons engaged in significant transactions involving "products" of those metals, a term which is not defined in the EO or in related guidance. Concurrent with this action, the President issued a statement and the Treasury Department issued a press release.
More specifically, the EO authorizes the Secretary of the Treasury to add persons to the list of Specially Designated Nationals and Blocked Persons (SDNs), if the Secretary of the Treasury in consultation with the Secretary of State, determines the person:
The result of a designation on the SDN List is that all property and interests in property of the SDN, and of any entities that are owned, directly or indirectly, 50 percent or more by one or more SDNs, that are in the US or in the possession or control of US persons are blocked and must be reported to the Treasury Department's Office of Foreign Assets Control (OFAC). OFAC's regulations generally prohibit all dealings by US persons or within (or transiting) the US that involve any property or interest in property of blocked or designated persons.
The EO also authorizes the Secretary of the Treasury to impose restrictions on foreign financial institutions1 if the Secretary determines that the foreign financial institution, on or after May 8, 2019, knowingly conducted or facilitated any significant financial transaction:
Restrictions that may be imposed on designated foreign financial institutions include prohibiting the opening of, and prohibiting or imposing strict conditions on maintaining, correspondent account or payable-through accounts in the US.
In determining whether a transaction or financial service is "significant," the Department of the Treasury expects to adopt the broad, discretion-based interpretation set out in the Iranian Financial Sanctions Regulations.2 OFAC's guidance on this interpretation states that the Department of the Treasury may consider the "totality of the facts and circumstances" as well as several factors including:
In its FAQs accompanying the EO, OFAC stated that companies will have a 90-day wind down period beginning on May 8, 2019 during which time persons "should take the necessary steps to wind down transactions … to avoid exposure to sanctions." Nevertheless, this guidance emphasizes that persons should not enter into new business that violates the EO during this time as new business will not be considered wind-down activity and could be sanctioned even during this period.4
This latest EO marks a significant expansion of sanctions on Iran's industrial metals sectors when compared to those previously enacted under Section 1245 of the Iran Freedom and Counter-Proliferation Act of 2012 (IFCA).5 The narrower IFCA sanctions applied to "raw or semi-finished metals," including aluminum and steel, as well as software for integrating industrial processes. The new EO potentially sweeps within its reach a broader class of metals and metal products regardless of whether they are raw, semi-finished, or finished, and explicitly adds copper and iron to the list of materials that can trigger sanctions. In addition, whereas the previous IFCA sanctions apply only when the materials in question are used in connection with Iran's energy, shipping, shipbuilding sectors, are used for military/nuclear purposes, or are supplied to an SDN, the most recent EO does not discriminate based on the intended use or user of the material. Finally, and significantly, this EO does not contain the IFCA's exception for persons who have exercised due diligence to avoid engaging in prohibited transactions.
President Trump's statements accompanying the EO make clear that the goal of the new sanctions is to deny Iranian government revenue derived through the export of iron, steel, aluminum, and copper products, which explains the broad language and application. President Trump declared, "Today's action targets Iran's revenue from the export of industrial metals—10 percent of its export economy—and puts other nations on notice that allowing Iranian steel and other metals into your ports will no longer be tolerated." The immediate effect of the EO on US and foreign companies as well as foreign financial institutions is to substantially raise the risk of doing business in Iran's metal-related sectors. Foreign and US businesses should take note of the enlarged scope of metals and goods that may trigger sanctions and examine their current risk exposure under the new EO, which took effect immediately upon signing. Foreign entities should also carefully consider the risk that engaging in business activities in Iran's metal sectors otherwise permitted by their own countries' laws and regulations may imperil their property or assets located in the US. Foreign financial institutions will also need to proceed cautiously to ensure financial services and funds are not used in ways that violate the EO.
As always, we will continue to monitor these developments and issue additional updates as warranted.
On July 16, 2020, the Court of Justice of the European Union (CJEU) published its decision in the landmark case Data Protection Commissioner v Facebook Ireland Ltd, Maximilian Schrems and intervening parties, Case C-311/18 (known as the Schrems II case).
On July 7, 2020, the Commission de Surveillance du Secteur Financier (CSSF) issued an FAQ document on Circular 02/77 concerning the protection of investors in case of NAV calculation errors and the correction of the consequences resulting from non-compliance with the investment rules applicable to undertakings for collective investment (the FAQ).