Export Controls and OFAC Sanctions 2017 Update and 2018 Forecast: Key Takeaways

Nate Bolin and Mollie Sitkowski of Drinker Biddle’s Customs and International Trade Team presented a webinar at the close of the year titled “Export Controls and OFAC Sanctions Update.” The webinar addressed recent changes in the U.S. export and sanctions regime and highlighted some developments expected in 2018, including the following:

Changes to U.S. Economic Sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA)

Signed into law on August 2, 2017, CAATSA made a number of changes to the U.S. sanctions programs on Russia, North Korea and Iran, which continue to be implemented by the U.S. State Department and the Treasury Department’s Office of Foreign Assets Control (OFAC).

• Russia. CAATSA codified many of the substantive provisions of Obama-era Executive Orders and OFAC Directives that had implemented sanctions against certain individuals and entities and sectors of the Russian economy beginning in 2014. For example, CAATSA enacted into law prior OFAC directives (Directives 1 and 2) that prohibit persons subject to U.S. jurisdiction from transacting in or financing debt of certain Russian entities and – effective November 28, 2017 – significantly reduced the term of any remaining permissible debt transactions to as little as 14 days. CAATSA also expanded the scope of OFAC Directive 4 (which prohibits U.S. persons from providing or exporting goods, services or technology to certain energy projects owned or controlled by designated Russian individuals or entities) to make it applicable to projects outside Russia and to entities that are owned or controlled more than 33 percent by sanctioned persons.
  
  At the same time, CAATSA reduced the president’s discretion to reduce or waive Russian sanctions and required him to impose secondary sanctions on certain cybercriminals, individuals found to be involved in corrupt practices in Russia, and individuals or entities found to be engaging in specific “significant transactions” with certain sectors of the Russian economy. In compliance with these provisions, in October 2017, the State Department published a list of entities and individuals associated with the Russian intelligence and defense industries with whom significant transactions are prohibited. The State Department and OFAC are expected to continue to update that and similar lists of sanctioned Russian individuals and entities in the months ahead.
  
  
• North Korea. CAATSA expanded the already significant U.S. sanctions on transactions with North Korea by providing for secondary sanctions on individuals and entities that engage in certain transactions with North Korea and by requiring U.S. Customs and Border Protection to investigate and seize imported merchandise believed to have been produced by North Korean workers (wherever located) or from North Korean-origin inputs. Companies suspected of importing merchandise produced in whole or in part from those sources are now required to prove by “clear and convincing evidence” that their goods are “North Korea-free” or face seizure of their merchandise.
  
  
• Iran. CAATSA’s passage and President Trump’s increased criticism of Iran’s record of compliance with the 2015 Joint Comprehensive Plan of Action (JCPOA) also marked a possible turning point in the U.S. sanctions policy on Iran. CAATSA enhanced existing sanctions with respect to Iran by requiring the president to impose sanctions on persons contributing to Iran’s ballistic missile or weapons of mass destruction programs, increasing sanctions on individuals and entities supporting Iran’s armed forces, and codifying the designation of the Islamic Revolutionary Guard Corps as a sanctioned entity. In October, President Trump declined to certify Iran’s compliance with certain provisions of the JCPOA and threatened to resume secondary sanctions. His next opportunity to do so is January 12, 2018, when he must decide whether to continue certain secondary sanction waivers issued by President Obama. The current unrest in Iran, President Trump’s recent statements about protests there, and new legislation that seeks to sanction Iran for its ballistic missile development activities only add to the uncertainty surrounding the future direction of U.S. sanctions on Iran.

Other Changes to U.S. Sanctions Programs outside of CAATSA

• Sudan. On October 12, 2017, OFAC removed comprehensive U.S. sanctions on Sudan that had been suspended earlier in the year. Many transactions involving items on the Commerce Control List and certain transactions with sanctioned Sudanese individuals and entities remain restricted.
• Venezuela. On August 24, 2017, OFAC increased sanctions on Venezuela, prohibiting transactions involving certain debt, bonds and dividends of the Venezuelan government and Petroleos de Venezuela, S.A. and putting in place other restrictions on specific Venezuelan individuals and entities.
• Cuba. Some aspects of the Obama administration’s liberalization of U.S. sanctions on Cuba were rescinded or modified by the Trump administration in 2017. On November 9, 2017, OFAC revised the Cuban Assets Control Regulations to prohibit individual travel to Cuba. All travel to Cuba by U.S. persons must now be conducted under the auspices of authorized entities, educational institutions and non-governmental organizations. The license exception “Support for the Cuban People” remains in place but has been consolidated. Finally, the Trump administration prohibited transactions with entities on the State Department’s recently published list of entities associated with the Cuban government and communist party.

Changes to U.S. Export Controls

During 2017, the Bureau of Industry and Security and the Directorate of Defense Trade Controls continued to revise and review U.S. export control regulations as part of the “Export Control Reform” process that was launched in 2009 by President Obama. Among the changes on the horizon for 2018 are a wholesale revision of the International Traffic in Arms Regulations (ITAR); updates to the list of items controlled under the U.S. Munitions List and Commerce Control List; and the removal of certain semi-automatic rifles, handguns and ammunition from the jurisdiction of the ITAR. How quickly these changes will proceed will depend on agency staffing levels and the identification of areas where new regulations can be substituted for old regulations at the 1-for-2 ratio required by the Trump administration’s Executive Order 13771. Companies that are subject to these regulations should carefully review upcoming notices of proposed rulemaking and requests for comment and be prepared to make their views known.

Global Developments

The webinar also discussed a number of important changes expected in 2018 in other countries’ export control laws:

• China is expected to implement a new set of export controls that may mirror the extraterritorial aspects of the U.S. export control and sanctions laws. For example, Chinese authorities would be given the ability to regulate goods, technology and software of Chinese origin, and the international transactions of companies operating from China.
• In December 2017, India joined the multilateral Wassenaar Arrangement, which requires its members to control exports of goods, software and technology that have potential military applications or that could otherwise threaten the national security of Wassenaar members. As a result, the United States is expected to reduce U.S. export controls on transactions with India, making it easier for U.S. and Indian companies to work collaboratively on export-controlled projects and technologies.

Conclusion

Developments in 2017 illustrate the extensive reach of U.S. sanctions and export controls and how they are subject to almost constant change in line with changes in U.S. national security policies and global risks. The pace of change is expected to accelerate in 2018 as U.S. policy regarding Iran, North Korea, Russia and the perceived leakage of critical technologies to China remains subject to review and revision by the Trump administration and increased attention from Congress. At the same time, U.S. sanctions and export controls are becoming more nuanced, with many sanctions limited to specific individuals, entities and economic sectors. Companies should carefully follow these developments and be prepared to quickly adjust their own policies and activities in the months ahead.