OFAC revokes so-called U-turn authorization for Cuba-related financial transactions
OFAC published a final rule that modifies the Cuban Assets Control Regulations to revoke the so-called "U-turn" authorization.
Sanctions consist of a wide range of political and/or economic measures which are put in place by international, regional and state bodies with the aim of influencing the behaviour of a particular country’s regimes, individuals or groups.
The types of sanctions measures put in place can vary widely including (inter alia): financial restrictions, import/export restrictions and travel bans.
Sanctions are created by a variety of international, regional and state bodies.
The creation of sanctions by multiple bodies within the international system means that there can be various layers of sanctions which may need to be considered in any one scenario.
UN sanctions derive from UN Security Council Resolutions which require nation states to implement local legislation to comply with the Resolutions. It is the responsibility of states to comply with UNSC Resolutions. They do not directly bind individuals or companies.
Given the UN has limited ability to compel states to comply with sanctions introduced through UNSC Resolutions, some nation states do not always implement (in whole or in part) the relevant UNSC1 Resolutions.
EU sanctions may be put in place in order to implement UNSC Resolutions, although will sometimes be much stricter and include additional measures to the minimum requirements set out in the UNSC Resolutions (e.g. sanctions against Iran go further than UN sanctions).
In addition to sanctions which are linked to UNSC Resolutions, the EU also implements sanctions autonomously pursuant to its own independent foreign policy objectives (e.g. sanctions against Russia in response to developments in Ukraine).
The EU Council imposes EU sanctions through Council decisions which must be agreed unanimously. Once agreed, additional legislation is generally required to give full legal effect to the sanctions.
Certain sanctions, such as arms embargoes and travel bans, are implemented individually by EU member states through their own national legislation.
Other sanctions, including non-military trade and investment, financing and technical assistance relating to military items and asset freezes, are implemented by EU Regulations which are directly effective in individual EU member states. This means that EU Regulations do not need to be transposed into local law in EU member states in order to be binding upon companies and individuals within the EU. However, aspects such as enforcement of the offences and penalties for breach created by the EU Regulations are delegated to the relevant authorities in each EU member state and therefore, member states also introduce their own local legislation to supplement the EU Regulations.
The UK generally implements sanctions pursuant to UN and EU sanctions, and also OSCE 2arms embargoes (for example, Azerbaijan).
However, the UK Parliament may implement its own sanctions autonomously. By way of example, in 2011 the UK implemented the Financial Restrictions (Iran) Order 2011 which went further than EU sanctions by prohibiting UK financial institutions from dealing with Iranian banks except under licence (although EU sanctions were subsequently brought into line with this UK legislation).
The UK also generally extends the application of sanctions to overseas territories such as the British Virgin Islands and Cayman Islands via Overseas Territories Orders although the scope of these may not precisely mirror the UK regulations.
US sanctions programs represent the implementation of multiple legal authorities, including presidential orders, statutes, and regulations. The core of the country-based sanctions programs are regulations promulgated by the Secretary of the Treasury pursuant to executive orders issued by the President under the International Emergency Economic Powers Act of 1977 and the Trading with the Enemy Act of 1971. In addition, there are various sanctions measures enacted by other statutes that are often implemented by executive order and/or regulation. Many US sanctions are also based on United Nations and other international mandates.
Canada has sanctions in place against countries as well as against specific individuals, entities, and terrorist organizations. United Nations Security Council sanctions against specific destinations or individuals are set out in orders made under Canada’s United Nations Act. Other sanctions are enacted pursuant to the Special Economic Measures Act and the Freezing Assets of Corrupt Foreign Officials Act. Lists of designated persons, including individuals and corporate entities, can be frequently updated depending on current events. The Area Control List also lists countries for which it is mandatory to obtain a permit prior to exporting any goods to those countries.
Australia maintains two distinct sanctions regimes.
The first mirrors the nature and scope of certain sanctions imposed by the United Nations Security Council. As a result, there can be degree of overlap between some Australian sanctions and those imposed by other UN Security Council member nations.
However, Australia also maintains an autonomous sanctions regime – one that derives its political impetus from Australia’s own foreign policy. Under the Autonomous Sanctions Act 2010, the Minister for Foreign Affairs has the power to enact regulations that contain specific sanction measures in relation to a given individual, body corporate or entity. Before imposing a specific sanction measure, the Minister must be satisfied that the measure facilitates the conduct of Australia’s relations with other countries, entities or persons outside Australia.
Specific sanction regimes are implemented and amended by delegated legislation enacted under powers conferred by an enabling Act of Parliament.
The EU imposes sanctions as part of its Common Foreign and Security Policy with unanimous consent from member states in the Council of the EU required if proposed sanctions are to pass into EU law.
The day to day administration and enforcement of EU sanction is delegated to the relevant competent authorities in each EU member state.
The Foreign and Commonwealth Office has broad oversight for sanctions policy in the UK. However, responsibility for administering and enforcement of sanctions in the UK is delegated to various government departments.
HM Treasury administers financial sanctions such as asset freezes and restrictions on the transfer of funds.
The Department of Business Innovation and Skills, and in particular the Export Control Organisation within BIS, administers sanctions relating to export controls and arms embargoes. HM Revenue & Customs and the Crown Prosecution Service are responsible for investigating and prosecuting export-related violations.
Travel bans are administered by the UK Border Agency.
The main regulator of US sanctions programs is the US Department of the Treasury, Office of Foreign Assets Control (OFAC). OFAC is responsible for promulgating the sanctions regulations, designating individuals and entities to the Specially Designated Nationals and Blocked Persons (SDN) List, and enforcing these measures. OFAC has broad subpoena powers. OFAC imposes civil fines for violations, but criminal penalties are handled by the DOJ. The US Department of State collaborates with OFAC, is also a key player in policy guidance and licensing decisions, and has a primary role in administering extraterritorial (“secondary”) sanctions.
Sanctions are enforced by Global Affairs Canada, which is assisted by the Canada Border Services Agency. The Royal Canadian Mounted Police also assist in executing search warrants and in conducting investigations. The Minister of Foreign Affairs can, exceptionally, issue a permit or certificate that authorises an activity that would otherwise contravene Canadian sanctions.
The Australian sanction regimes are administered by the Department of Foreign Affairs and Trade, the Minister for Foreign Affairs, the departmental Secretary and delegates. These officers have a range of administrative, investigative, exemption and referral powers.
Sanctions can be focussed on a variety of different targets in an attempt to influence the activities of a particular state, regime or group of individuals. Targets can include (amongst other things):
Individuals: particular individuals or groups of individuals can be targeted by various measures such as an asset freeze and/or travel ban.
Companies and other entities: companies and other entities (such as terrorist groups) can be subject to asset freezes or more targeted restrictions, such as the current EU restrictions on supplies of dual-use goods to certain designated Russian companies.
Industries: restrictions can be implemented against industries linked to a particular state. For example, aspects of EU sanctions on Russia specifically target (inter alia) certain Russian financial and credit institutions, deep water oil exploration and production, Arctic oil exploration and production, and shale oil projects in Russia.
Vessels/aircraft: certain vessels or aircraft may be blacklisted.
State-wide: comprehensive sanctions are sometimes implemented against an entire state. For example, U.S. Sanctions prohibit U.S. Persons from engaging in almost any transactions with Iranian persons, or in Iran.
EU sanctions apply:
EU sanctions do not purport to have extra-territorial effect on actions outside the EU, although they do apply to EU nationals, EU companies and EU aircraft/vessels wherever located.
Although the EU hasn’t issued any guidance on this point, HM Treasury (the UK competent authority for financial sanctions) has stated that non-EU subsidiaries of an EU parent company are not subject to EU sanctions if they are incorporated outside the EU, and do not do business in the EU.
There are extensive anti-circumvention provisions in the EU sanctions regulations, and EU guidance specifically warns EU companies against using controlled non-EU subsidiaries to circumvent EU sanctions.
Generally, US sanctions programs apply to the activities of all US persons, typically defined to include: (a) US citizens and permanent residents wherever located; (b) companies and other entities organized under US law; (c) all people and organizations, whatever their origin, physically in the United States; and (d) all branches of US companies and other entities throughout the world. Additionally, US sanctions with respect to Cuba apply not only to US persons, but also to non-US entities owned or otherwise controlled by US persons. Further, the United States can sanction non-US entities (regardless of US-ownership or control) that engage in certain transactions with Iran (and in very limited circumstances, with Syria).
Generally, any Canadian (business, citizen, or permanent resident) anywhere in the world, as well as any person in Canada, must comply with Canadian sanctions legislation. There is also a duty for Canadian financial institutions to determine, and report, any assets that they may hold which are controlled by a designated entity.
There are also extensive anti-circumvention provisions in the sanctions legislation.
Although each specific Australian sanction regime varies in scope, all are applicable within Australia. Australian sanction laws are enforceable against Australian nationals, whether they are in Australia or overseas. A number of autonomous sanctions are expressed to have extraterritorial effect. Where this is the case, generally Australian sanction laws will be enforceable against a body corporate that is registered in Australia, including in respect of its controlled entities (wherever incorporated or situated), or in the case of certain sanctions, an Australian body corporate that has ‘effective control’ over the actions of another body corporate or entity.
Specific sanction laws are enforceable for conduct occurring wholly or partly in Australia, or on board an Australian aircraft or ship, or wholly outside Australia where a result of the conduct What are the potential penalties and risks for a business in breach of sanctions?
Penalties vary depending on the state or institution enforcing the sanctions. The most common penalties include fines or (more rarely) imprisonment (to varying degrees), depending on the severity of the breach of sanctions.
Businesses need to be alert to the different ways in which sanctions can affect their operations, even if they are not directly dealing with a sanctioned party or a sanctioned country. For example, depending on the relevant sanctions, there could be risk where a business exports an item to a non-sanctioned country with knowledge that it will be re-exported (whether by itself or integrated into something else) to a sanctioned country or end-user; or where the immediate counterparty to a transaction is owned or controlled by a sanctioned party. These risks highlight the importance of conducting appropriate due diligence to identify potential connections to sanctioned parties or countries.
Businesses must be careful not to take actions that have the purpose or effect of circumventing sanctions. For example, although non-EU companies are not subject to EU sanctions with respect to activities conducted wholly outside the EU, EU parents of non-EU subsidiaries must not use them as means of engaging in EU-sanctioned business by proxy. Therefore, if a non-EU subsidiary did propose to engage in EU-sanctioned business, its relationship with its EU parent would need to be carefully analysed to assess circumvention risk.
There is no standard due diligence process which should be carried out in order to ensure that a reasonable level of due diligence has been conducted. The level of due diligence required is highly case specific and a risk based approach must be adopted.
Due diligence is a continuing obligation – regulations may change, parties may be added to lists of restricted or sanctioned parties. A robust methodical approach must be established to ensure continuing compliance.
United Nations Security Council.
Organization for Security and Co-operation in Europe.
OFAC published a final rule that modifies the Cuban Assets Control Regulations to revoke the so-called "U-turn" authorization.
On 5 September 2019, Professor John McMillan AO’s Final Report (Report) on the operation of the Narcotic Drugs Act 1967 (ND Act) was tabled in Parliament. Section 26A of the ND Act required the Minster to cause a review of the operation of the ND Act to be undertaken.