There have been a number of reports in recent days that the European Union may ramp up sanctions against Russia following the continuation of the crisis in Ukraine and the Crimea.

While there were reports of the EU removing certain entities connected with former Ukraine President Victor Yanukovych’s inner circle from its sanctions list, there have been threats that more sanctions can come if the violence was to increase.

The Wall Street Journal this week reported that about $640 million in assets held by banks owned upstream by three of Russian President Vladimir Putin’s friends are effectively frozen in the United States.  These holdings include significant amounts in banks such as Citibank and J.P. Morgan Chase, among other large companies.  Nonetheless, there has been virtually no official action on Ukraine by OFAC since the issuance of three somewhat-boilerplate general licenses in late January, authorizing activities such as mail and communications and certain types of remittances.

Those who are monitor Russia have surely noticed the drop in the Ruble’s value versus some hard currencies such as the Dollar and even the Euro.  Compounded with the drop in oil prices, this has been particularly significant.  With Russia in a bind, will it weather extra sanctions or will it even want to take any step that could push the tide in the United States and Europe towards that direction?

The bigger question (at least for purposes of this blog) is what what OFAC and the EU could do to tighten the sanctions regime against Russia. If trends continue, one may expect to see further designations, and a tightening of restrictions on certain types of sensitive goods going to Russia. Payments may become particularly tougher. However, it does appear that the consensus is not quite there to take a large step at the time being.

OFAC this week issued a new general license expanding the range of informational technology (IT) related goods and services U.S. persons can now export to Sudan.  The amended general license, which went into effect on February 18, is incorporated into the Sudanese Sanctions Regulations, 31 CFR Part 538, and opens many windows for U.S. persons, as well as opportunities for people in Sudan to be better engaged with the outside world.

Notably, the new general license expands on a 2010 general license allowing U.S. persons to export certain types of personal communication software and services to Sudan, primarily those related to free, publicly available applications that was “EAR99,” i.e., not subject to U.S. export controls for potential dual use.  As OFAC itself states, the new general license follows the Iran General License D-1 model, whose precursor, General License D, was issued in May 2013 to allow Iranians to have more access to information and communication tools. General License D and D-1 authorizes U.S. persons to export of a host of computing hardware, software and services to Iran.

Here are some basic features of the new Sudan General License:

1. Software. The general license has been expanded to include certain fee-based software as well (formerly only some free applications and services were allowed), so long as they are “widely available to the public” and related to personal communications.  Interestingly, these have also been made available to the Government of Sudan. Certain non-U.S., non-EAR controlled software can also be exported to Sudan by U.S. persons if necessary to enable certain types of personal communications.

2. Hardware. A host of technologies are now exportable to Sudan under certain circumstances. These include certain internet communications technologies and tools, as well as items such as computers, modems, personal data assistants, harddrives, and mobile phones.

As can be seen, the general license is certainly not a blank check to deal in whatever types of IT goods, services, and technologies with Sudan. However, within the parameters set forth in the general license, this general license does open many doors for the exportation of a wide range of goods and services to Sudan, and may hopefully have a positive impact in empowering communications in and with that country.

Following allegations that the Democratic People’s Republic of Korea (DPRK, or more commonly, North Korea) was involved in certain cyber-terrorist activities involving Sony Pictures, President Obama moved on Friday, January 2 to add to the North Korean sanctions regime by issuing a new Executive Order (EO).  The controversy surrounds Sony’s production of the movie The Interview, which tells a fictional tale of a plot against DPRK Premier Kim Jong Un.

The yet-unnumbered EO orders the blocking of certain assets coming into the possession of U.S. persons if it is deemed that certain North Korean entities (such as entities owned or controlled by the DPRK government and the Worker’s Party). Notably a number of DPRK nationals have been added to the Specially Designated Nationals (SDN) list and the EO includes a general visa ban on North Korean officials (generally, this does not preclude North Korean diplomats from serving at the country’s UN Mission, due to certain public international law protocol).

Interestingly, we are seeing increasing use by the Administration of the punishment of entities helping designated entities.  This EO also subjects to blocking those parties deemed “to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, the Government of North Korea or any person whose property and interests in property are blocked pursuant to this order.” Clearly this language is aimed at reducing the DPRK’s ability to use proxies.

With the recent historical decision by the President to reestablish relations with Cuba, the prospect of a nuclear agreement with Iran, and the tightening of the vise on Russia and now North Korea, it appears that a partial realignment of the balances in the U.S. sanctions regime is underway. 2014 was a momentous years for sanctions, and 2015 could be equally significant.

President Barack Obama today announced a major policy shift making a significant turn in an over half-century theme in U.S. Cuba relations.  This change will bring about a vastly different landscape in bilateral relations and therefore the nature of the U.S. embargo on Cuba, a legacy policy tracing its origins to the Kennedy Administration. But don’t expect to pack your bags just yet.

Following discussions leading to the release of U.S. contractor Alan Gross, who had been imprisoned for five years and reciprocal action by the U.S. government, the United States has set to make a major turn on relations with Cuba. This announcement also dovetails extensive, secret bilateral discussions between the two nations.  While the change has met with some opposition in Washington, it appears to be landmark move by the Administration.

How Will Changes Be Implemented?

Although many U.S. restrictions on Cuba are codified in legislation that would need to be overturned by Congress to enable a full lifting of the embargo, a large part of the restrictions are codified in the Cuban Assets Control Regulations, 31 CFR Part 515 (the “CACR”) and the Export Administration Regulations, 15 CFR 730-774 (the “EAR”), administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), respectively. (Remember that BIS is the entity that is known for primarily regulating so-called “dual-use” goods which can have both civilian and military application).  As such, some of the regulations therein can be revised.

Diplomatic Ties

The hallmark of President Obama’s speech was the plan to reestablish of U.S.-Cuban diplomatic relations, cut in January 1961. This includes the eventual reopening of embassies in the two capitals, and review of Cuba’s designation on the U.S. list of State Sponsors of Terror. This move can better facilitate the expanded authorizations described below.

Trade & Commerce

President Obama broadly signaled in his speech that commerce will be better facilitated, as will the free flow of information. As such, many goods will be authorized for export to Cuba and some importations will be allowed, as detailed below.  The exact scope of the goods to be permitted is not completely clear, but the White House has indicated it will include some agricultural equipment, building materials and other similar type goods.

The expansion of authorized goods and services export to Cuba to facilitate the free flow of information marks an expansion of restrictions lifted by the President in 2009. Given the very modest rate of internet reach in the island state, the new policy will authorize the exportation of more computer, internet, and telephony technologies, including hardware, software, and related services.

While there does not appear to be any decision to allow the free flow of Cuban imports on a commercial scale, U.S. travelers to Cuba will be able to import up to $400 of goods, $100 of which can be spent collectively on alcohol and tobacco products (obviously a ceiling on Cuban cigars and Rum). There will also be some lifting of restrictions on foreign ships entering U.S. waters after delivering humanitarian trade to Cuba.

Banking & Financial Regulations

President Obama also announced that U.S. financial institutions will be able to maintain accounts at their Cuban counterparts, which will substantially help facilitate authorized trade between the two countries. Furthermore, the U.S. will ease regulations prohibiting the use of U.S.-issued credit and debit cards. This marks a significant change in the decades-long practice of financially isolating Cuba and blocking virtually all funds to the island.

Beyond easing the above bank restrictions, there will also be a lifting of licensing requirements on U.S. remittance forwarders. Caps on personal remittances will also be relaxed–increasing from $500 to $2,000 per quarter by U.S. persons to Cuban nationals.

Notably, the United States will also through general license unblock U.S. accounts of Cuban nationals no longer resident in Cuba and expand certain other restrictions connected to third country activity relating to Cuba.

Travel

While travel will be eased, don’t expect U.S. airliners to start flights to Cuba any time soon.  Most importantly for many U.S. persons, the United States is set to ease some travel to Cuba. To date, such travel has been largely limited to family, academic, and religious trips. There will be an issuance of general licenses for travel in 12 categories, including but not limited to family visits; official business of the U.S. government; journalism; professional research; religious activities; as well as certain activities of private foundations, research and educational institutions. Purely recreational, touristic travel appears to remain prohibited. While no announcement was made, it would appear that current regulations restricting the
amount of money U.S. persons can spend per day in Cuba, may be removed or eased.

General Themes

Indicating that Congress has a major role in ultimately lifting the decades-long embargo, President Obama has made it clear that today’s announcement does not herald a removal of all Cuba sanctions. Details will naturally be made clearer through the eventual announcement of changes in OFAC and BIS regulations.

What is evident, however, is that the relaxing of sanctions even in a limited form may take some time, and may be subject to some bottlenecks as the private sector adjusts to the new regulatory framework.

As is the case of any easing of sanctions, it will be critical that businesses and individuals seeking to engage in transactions with Cuba temper their ambitions and take care to note the limitations that will continue to exist. Accordingly, they should place special care to ensure compliance. Accordingly compliance programs should be revisited, and the full scope of the new changes should be noted in full detail. Service providers such as financial institutions should also take care to ensure that transactions they facilitate for their customers are compliant with the imminent changes in the laws and regulations.

Reuters carried a story Sunday about the Office of the U.S. Attorney in the Southern District of New York (SDNY) investigating London-based Standard Chartered bank (known by many as “StanChart”) for potential violations of U.S. sanctions against Iran.  According to the report, the investigation is tied to information obtained by U.S. authorities in their investigation of French-based BNP Paribas for sanctions violations – a case which ultimately settled for a hefty $8.9 billion.

But wait, wasn’t StanChart recently fined for sanctions matters? Yes – if you recall, in 2012, the bank, which does quite a bit of business in emerging markets, settled for $667 million for alleged violations of the U.S. sanctions regime against Iran, including allegations that the bank engaged in so-called “wire stripping,” whereby references to the Iranian connection of a payment were stripped from the actual bank wire.  Those fines were paid to a number of entities, including the New York Department of Financial Services, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the U.S. Department of Justice (DOJ).

Did StanChart not learn its lesson last time? Well, it looks like the potential violations happened a number of years ago, but were not revealed and have only been uncovered.  It will have to be seen what comes of this.

What to Make of this Development

This story really highlights two important issues.  First off, the U.S. has not lightened up on sanctions enforcement in light of the increased dialogue between it and Iran in the past year following the election of Iranian President Hassan Rouhani, and the November 2013 deal between Iran and the P5+1. While that agreement resulted in some sanctions being suspended, contrary to some belief, the Administration isn’t taking other violations lightly. This is a prime example. Iran sanctions are still very popular in the halls of government, and the government has made it clear that it will continue to enforce the existing laws.  Notably, many have also emphasized that even if sanctions are lightened, meaning even if a deal is reached by November 24 over Iran’s nuclear file, they will not be lifted overnight. The common, conventional wisdom is that assuming there is a deal, it will still take a few years.

Second, the key (often mentioned on this blog) is that even if the Iran sanctions are lifted, we live in a world of compliance and a vigorous anti-money laundering (AML) culture. The U.S. and European Union (E.U.) are increasingly using sanctions as a tool of foreign policy and whether it’s Iran, Russia, Syria, Cuba, or anywhere else, thorough compliance is now the name of the game. Even outside sanctioned jurisdictions, banks and other businesses cannot turn a blind eye to U.S. law and will have to implement best practices (if they have not already).  Be they financial institutions, manufacturers or trading companies, compliance programs featuring education on the laws, updating of policies, transparency, know your customer provisions and contractual clauses will continue to be important if not more vital.

Compliance Programs Are For Everybody

While StanChart is a huge bank of global proportions, any company doing business internationally should place careful emphasis on compliance. A good compliance program is one that is adapted to the needs of the company – what may work for a large UK-bank may very likely not be appropriate for a small trading company in the U.S. focused on Latin America or East Asia. That does not, however, mean that such a company should not worry about compliance.  Rather, such a business should adopt policies that better ensure its own compliance.  The key is to be proactive, knowledgeable, and willing to institute good practices that will keep the business on the right side of the law and minimize risk.

Moments ago, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) released a two page primer on its position on humanitarian assistance to sanctioned jurisdictions.  Although this document is not binding in the sense that it is not a codification of law, it is a clarification of policy.  Some key points highlighted are that:

(1) While the U.S. government supports humanitarian assistance, this is generally conditioned on assistance not being directed towards entities that are designated by OFAC or owned or controlled by such entities.

(2) In the case of regions that are under control of individuals who are blocked, the payment of certain fees such as taxes is not necessarily prohibited.

(3) Interestingly, OFAC has also clarified that in certain cases, humanitarian aid may unintentionally wind up in the hands of designated entities but that this is not a focus of its enforcement agenda. This of course, should not be seen as any type of tacit authorization to aid designated entities as that remains prohibited.

The case of humanitarian assistance is one that is causing increasing compliance challenges, particularly due to the dire situation in jurisdictions such as Syria and Iraq where parts of territory are under control of the Islamic State (IS).  Furthermore, even in the case of fully sovereign jurisdictions such as Iran, the logistics chain of delivering aid has been made considerably more difficult by the fear of third party actors (such as banks in the United States and third countries) to facilitate even authorized transactions.  You may recall this article in Al-Monitor two weeks ago where I was interviewed on this same issue.

As such, those seeking to engage in charitable and humanitarian assistance in sanctioned countries or in areas where exposure to potential violations is high (such as in Iraq) should be particularly careful to (1) understand the scope of U.S. laws; (2) ensure compliance; and (3) educate third party actors and vendors of the legality of their transactions.  The latter is a significant part of what I do for many compliance clients.

The so-called P5+1 and Iran have decided to extend talks on Iran’s nuclear program for another four months – extending the deadline (which would have been today) till November. What this effectively means is that the sanctions relief afforded Iran is similarly going to be extended. But how will this affect the compliance and business world?

Back in November 2013, the parties entered into an interim agreement whereby in exchange for certain nuclear concessions, Iran received certain limited sanctions relief, such as the ability to procure certain spare parts for civilian aircraft, and a lifting of certain secondary sanctions, such as those on precious metals, the automotive sector, and others.  That relief was extendable, and that is what will happen now. 

How does this affect business though? While the fact that a permanent agreement was not reached does infuse some uncertainty into the business world and dealings with Iran in permissible areas, it will further serve to “detoxify” the proposition of doing business with Iran. We may see more logistical and other actors coming back onto the scene, which can help grease the wheels of legitimate trade.  In other words, it may be easier to say, export medicine than it was before, as maybe more banks will be willing to get into that field. 

Real momentous change will surely come only in the event of a complete accord with Iran. Even that will not lift all the US sanctions against Iran, as these sanction began very long before the nuclear file became the issue it is today. The question remains as to what the US will offer Iran once the final deal is reached, if it is indeed reached.