Regulatory Updates and Guidance
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U.S. Issues Trade Sanctions Against Turkey
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On October 9, Sen. Lindsey Graham (R-SC) and Sen. Chris Van Hollen (D-MD) announced bipartisan legislation that would impose a number of different sanctions on Turkey and its leadership, but not an outright trade embargo. The draft legislation is summarized
here
.
Unless the terms of the measure as finally implemented would be much broader than the current draft legislation, it appears unlikely that the legislation would have a material impact on most private commercial transactions, except for transactions in the energy and defense sectors.
In reaction to the Graham-Van Hollen legislation, and to Congressional concern over President Trump’s announced pull-out from Syria and the “abandonment” of the Kurdish forces that have been working in conjunction with US interests there—particularly, anger expressed by some senior officials within the President’s own party—Treasury Secretary Steven Mnuchin announced on October 11 that the President would soon sign an Executive Order authorizing certain sanctions on selected parties “connected to the Government of Turkey.”
OFAC Sanctions
On October 14, the US Treasury Department’s Office of Foreign Assets Control (OFAC) released the mentioned
executive order
, and issued sanctions on three Turkish Government officials, and two government agencies—the Ministry of Energy and Natural Resources and the Ministry of National Defense
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U.S. Delays October 15 Section 301 Tariff Hike
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On October 11, the White House announced intentions to hold off on additional duties scheduled to go into effect on Chinese goods on October 15, which would have increased the tariff rate on $250 billion worth of products from 25% to 30%. The tariff increases would have impacted items on Lists 1, 2, and 3. This news follows President Trump’s recent meeting with Chinese Vice Premier Liu He, where the two leaders came to an agreement on “phase one” of their trade talks. Although specific details of the current arrangement between the U.S. and China are not yet known, Treasury Secretary Steve Mnuchin stated that tariffs will rise in mid-December if an official deal cannot be reached.
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U.S. Imposes Section 301 Duties on EU Goods
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On October 9, the USTR
published
a Notice of Determination and Action Pursuant to Section 301 in the Federal Register, which places Section 301 tariffs on a variety of products imported from certain European Union (EU) member states. These new duties were authorized by the World Trade Organization (WTO) on October 2, 2019 as a result of EU subsidies granted to Airbus. The USTR has placed an additional 10% duty on airplanes and 25% duty on other items, such as food products, machinery, and clothing. The additional duties are applicable to products that are entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on October 18, 2019.
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Twenty-Eight Chinese Organizations Added to BIS’s Entity List for Activities Contrary to US Foreign Policy
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On October 9, BIS
added
28 Chinese governmental and commercial organizations to its Entity List for "acting contrary to the foreign policy interests of the United States." BIS noted that these entities are implicated in human rights violations and abuses in the implementation of China’s campaign of repression, mass arbitrary detention, and high-technology surveillance against Uighurs, Kazakhs, and other members of Muslim minority groups in the Xinjiang Uighur Autonomous Region (XUAR) of China. The action targets the XUAR and 19 of its subordinate entities as well as eight Chinese technology companies. Notably, this is a rare occasion where BIS is using the Entity List for human rights violations, particularly with respect to the eight commercial entities that are targeted for their roles in supplying equipment used in the XUAR.
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OFAC Issues Further Advisory to the Maritime Petroleum Shipping Community
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On September 4, OFAC issued a new
advisory
regarding sanctions risks related to shipping petroleum and petroleum products from Iran. In a separate
press release
, Treasury announced that it was taking action against a network of vessels and facilitators directed by the Islamic Revolutionary Guard Corps-Qods Force (IRGC-QF), which has moved oil worth hundreds of millions of dollars to benefit the Assad regime, Hizballah, and other illicit actors. The Treasury Department noted that the network features dozens of ship managers, vessels, and facilitators that enable the IRGC-QF to obfuscate its involvement in selling Iranian oil. The advisory was issued to warn the maritime community of the types of schemes and the sanctions risks associated with blocked persons. OFAC advised that non-U.S. persons – including foreign financial institutions and those who knowingly own, operate, control, or insure a vessel that transports crude oil exported from Iran after the expiration of any applicable significant reduction exception – could be subject to sanctions. This advisory, together with the advisory issued on
March 25, 2019
regarding sanctions risks related to petroleum shipments involving Iran and Syria, illustrates OFAC’s increased focus on the role of the maritime petroleum shipping community in facilitating illicit transactions.
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BIS Issues Guidance on Pakistan in Light of Nuclear and Missile Activities
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On August 30, BIS published
due diligence guidance
regarding exports, reexports, and transfers (in-country) to Pakistan, providing information on supplemental licensing requirements related to items potentially destined for nuclear or missile end-users or end-uses. BIS highlighted best practices for screening customers in Pakistan in order to decrease the risk of diversion to unauthorized end uses and end users. This guidance comes as a result of BIS recently adding certain companies from Pakistan to their Entity List, as well as investigations by the Office of Export Enforcement that uncovered schemes to ship items subject to the EAR to Pakistani end-users on the Entity List without meeting the proper licensing requirements. The guidance also identifies a number of EAR99 items and items controlled for Antiterrorism reasons only that have been sought by nuclear- or missile (including UAV)-related entities, including certain connectors, electromechanical relays, gas measurement equipment, and power supplies.
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New CFIUS Regulations Issued
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On September 17, the Treasury Department proposed
regulations
comprehensively implementing the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA). Treasury issued a
press release
,
fact sheet
, and
FAQ
about the proposed regulations. FIRRMA broadens the authorities of the President and the Committee on Foreign Investment in the United States (CFIUS) with respect to national security concerns arising from certain foreign non-controlling investments and real estate transactions that were previously outside CFIUS’s jurisdiction. The type of non-controlling investments covered by the regulations are those that afford a foreign person certain access, rights, or involvement in certain U.S. businesses. These regulations apply only to investments in U.S. businesses involved in specified ways in critical technologies, critical infrastructure, or sensitive data. The regulations regarding real estate apply to transactions that afford a foreign person three or more of the following property rights: to physically access; to exclude; to improve or develop; or, to affix structures or objects. Covered sites are areas in and around specific airports, maritime ports, and military installations.
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Notable Enforcement Actions
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DOJ Charges Turkish Bank for Alleged Conspiracy to Avoid Iranian Sanctions
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On October 15, the Department of Justice (DOJ) charged Türkiye Halk Bankası AŞ (Halkbank) in a six-count indictment with fraud, money laundering, and sanctions offenses related to the bank’s participation in a multibillion-dollar scheme to evade U.S. sanctions on Iran. The charges are summarized in a DOJ
press release
. From approximately 2012 to 2016, Halkbank’s senior officials used money service businesses and front companies in various countries “to evade and avoid prohibitions against Iran’s access to the U.S. financial system, restrictions on the use of proceeds of Iranian oil and gas sales, and restrictions on the supply of gold to the Government of Iran and to Iranian entities and persons.” Halkbank, whose majority shareholder is the government of Turkey, orchestrated the conspiracy and bribed Turkish officials to ensure its protection and continuation over the years. The Assistant Attorney General for National Security John C. Demers commented: “This is one of the most serious Iran sanctions violations we have seen, and no business should profit from evading our laws or risking our national security.” The United States also previously charged nine individuals in the scheme, with one defendant pleading guilty, another convicted following trial, and seven others remaining fugitives. The case against Halkbank will be handled in Manhattan federal court.
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OFAC Issues Findings of Violation to Two Companies for Failure to Provide Complete and Accurate Subpoena Responses
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In August, OFAC
announced
a Finding of Violation issued to DNI Express Shipping Company (DNI), incorporated in Virginia, for violation of the Reporting, Procedures and Penalties Regulations (RPPR). OFAC issued a Cautionary Letter to DNI for the underlying apparent violations of the Sudanese Sanctions Regulations, but it determined that the company’s conduct in response to OFAC’s investigation warranted an administrative response. According to OFAC, DNI provided information during the investigation, including a subpoena response, that included “contradictory, false, materially inaccurate, materially incomplete, and misleading statements.” Together with the DNI announcement, OFAC
announced
a Finding of Violation issued to Southern Cross Aviation, incorporated in Florida, also for violating the RPPR “by failing to provide complete information to OFAC in response to an Administrative Subpoena.” In the Southern Cross case, unlike in the DNI case, there was no underlying apparent violation of sanctions regulations. OFAC emphasized in both notices, “Companies and individuals alike should be diligent in their review of information and documentation that may be responsive to an administrative subpoena issued by OFAC.” These notices underscore that OFAC will not hesitate to issue penalties for failure to provide complete and accurate responses to subpoenas, even when there is no underlying violation.
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GE Settles with OFAC for $2.7 Million over Cuba Violations
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On October 1, OFAC
announced
a settlement agreement with The General Electric Company (GE) where GE agreed to pay $2.7 million to settle potential civil liability for 289 alleged violations of the Cuban Assets Control Regulations (CACR). OFAC noted that from 2010 to 2014, three current and former GE subsidiaries accepted payments totaling approximately $8 million from The Cobalt Refinery Company (Cobalt) for goods and services provided to a Canadian customer of GE. Cobalt has been listed on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List since June 1995 as a specially designated national of Cuba. As such, GE appeared to have violated the CACR by accepting payment from an SDN. OFAC noted that publicly available information also demonstrated that GE’s former Canadian customer is a corporation with strong ties to Cuba. GE voluntarily disclosed the alleged violations, and OFAC determined that the alleged violations constituted a non-egregious case.
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For more information on how these could impact your business, contact:
Click
here
to read more recent updates.
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McGinnis Lochridge Upcoming Events
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Lunchtime Seminar Hosted by Amereller and McGinnis Lochridge
Recent Developments in Foreign Direct Investment in the UAE and Broader Gulf Cooperation Counsel
Tuesday, November 5
11:45 a.m.–1:00 p.m.
McGinnis Lochridge Houston Office
609 Main St., Ste. 2800, Houston, TX 77002
Lunch will be served. Complimentary parking.
Accreditation: 1-hour CLE Pending
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McGinnis Lochridge Updates
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Our Houston Office Has Moved
Please update your records. Our new address is:
609 Main St., Ste. 2800, Houston, TX 77002
Our phone numbers have not changed.
Click
here
to learn more about the recent growth in our Houston office.
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McGinnis Lochridge International Trade and Transactions Practice Group
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Click
here
to download our brochure and learn more about some of the key areas of representation we provide to our clients.
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