On February 13, 2019, a bipartisan group of senators introduced a draft bill that, if adopted, would significantly strengthen sanctions relating to the Russian Federation.  Introduced as the “Defending American Security from Kremlin Aggression Act of 2019” (“DASKA”), the wide-ranging bill covers a number of subjects, in particular a range of new cybersecurity provisions.  This note focuses on the sanctions provisions, which would: Continue Reading Russia Sanctions Bill Reintroduced by Bipartisan Group of Senators

The Office of Foreign Assets Control of the U.S. Treasury Department recently issued a series of instructive press releases regarding enforcement actions taken against several companies.  The decision to publicize these enforcement actions could signal a more activist and expansionist approach to sanctions enforcement matters and may evidence a broadening of OFAC’s enforcement priorities as the long run of enforcement against financial institutions begins to wind down.  The actions demonstrate a focus on acquisition due diligence and conduct by overseas entities, and in particular on aggressive action against U.S. companies who fail to terminate sanctioned business by their newly acquired overseas subsidiaries; indeed, in a number of these cases OFAC took enforcement action despite the fact that the U.S. acquiror explicitly directed the termination of the sanctioned business, was deceived by officials of the acquired entity, and voluntarily self-reported the violation after discovering it.  OFAC has also begun to spell out, in enforcement actions, the elements of sanctions compliance programs it imposes on violators (and, presumably, would consider a benchmark for other companies). Continue Reading OFAC Takes Aggressive Enforcement Action in Connection With M&A Transactions and Spells Out Compliance Expectations

After brisk movement through the EU legislative process, the proposed EU Regulation on Foreign Direct Investment Screening (the “Regulation”) was approved by the European Parliament on February 14, 2019. This development comes amidst a global sprint to strengthen and establish foreign direct investment laws, including in France, UK, Germany, and Hungary, as well as the US and China.

Although individual Member States retain their authority to screen (i.e., investigate, condition, prohibit, or unwind) foreign direct investments (“FDI”), the Regulation introduces and formalizes numerous procedures and criteria for cooperation among Member States and with the Commission.  Specifically, it sets out an EU-wide framework on this process and grants competence to the European Commission (“EC”) to intervene with an official opinion on the grounds of “public order and security”.  Additionally, it provides an official forum for Member States to weigh in and potentially affect the course of foreign investment activities across the European Union. Continue Reading New EU-wide Foreign Direct Investment Screening System Approved

Today the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued new general licenses (GL) 3C (amending GL 3B) and GL 9B (amending GL 9A) and amended previously issued FAQ 661 and FAQ 662.  The changes clarify that U.S. persons remain prohibited from purchasing or investing in listed GL 3C (GL 3C Bonds) or pre-sanctions PdVSA debt and equity (PdVSA Securities) and that OFAC’s facilitation prohibitions apply to such purchases other than (in both cases) purchases or investments that are “ordinarily incident and necessary” for divestment or transfers to non-U.S. persons. In other words, U.S. persons may purchase, invest in, or facilitate purchases and investments in GL 3C Bonds and PdVSA Securities where doing so is a necessary part of a transaction involving divestment or transfer to a non-U.S. person.  OFAC further specifically noted in the revised FAQs that this authorization includes activities such as acting as custodian for U.S. and non-U.S. persons’ holdings in GL 3C Bonds and PdVSA Securities (including acting as custodian for a non-U.S. person after that person receives the securities from a U.S. person) and receipt and processing of principal and interest payments. See FAQ 661, FAQ 662.  The wording is not fully clear, but the changes appear designed to reassure U.S. intermediaries in particular that they are authorized to provide services such as custody, transfer, and payment so long as no prohibited acquisition by a U.S. person is involved.

OFAC also made minor corrections to the list of GL 3C Bonds and to the GL 9B list of PdVSA Securities and made non-substantive changes to FAQ 650 conforming it to the updated General Licenses.

On February 1, 2019, the U.S. Department of Treasury’s Office of Foreign Assets Control issued FAQs providing guidance on the designation of Petróleos de Venezuela, S.A. under Executive Order 13850 and concurrent issuance of related general licenses. OFAC also issued amended general licenses governing secondary trading of pre-sanctions Government of Venezuela and PdVSA debt (General License (“GL”) 3B and 9A).

Highlights of the new OFAC guidance and license amendments include that:

  • holders of the PdVSA 2020 8.5 percent bond, including U.S. person bondholders, are licensed to execute on the underlying collateral despite the blocking of PdVSA property under GL 9A;
  • authorized trades in pre-sanctions GoV bonds pursuant to GL 3B are now limited to sales to non-U.S. persons, as was the case for PdVSA bonds;
  • technical fixes were added that are designed to permit settlement of open trades and securities transactions if the transactions were entered into before the effective time of the relevant sanctions (4:00 pm NY time on January 28 for PdVSA entities, and 4:00 pm NY time on February 1 for other GoV entities), regardless of whether the transferee is a U.S. person;
  • U.S. financial institutions’ authority to reject (rather than block) “U-turn” funds transfers relating to PdVSA has been limited to maintenance or wind down activities involving U.S. persons authorized under GL 11, and all other unlicensed, PdVSA-related U.S. dollar clearing transactions must be blocked;
  • U.S. and non-U.S. persons may continue to form and invest in funds providing synthetic exposure to PdVSA-related debt or equity where the underlying basket being tracked does not consist predominantly of blocked securities;
  • Non-U.S. persons can engage in transactions with a U.S. nexus to purchase PdVSA petroleum and petroleum products outside of the United States until April 28, 2019.

Please click here to read the full alert memorandum.

OFAC has clarified that, pursuant to the terms of General License 14 and General License 16, it still expects all U.S. persons who participated in transactions with United Company Rusal PLC, EN+ Group PLC, JSC EuroSibEnergo, or their subsidiaries in reliance on the general licenses during the period when these entities were SDNs (April 6, 2018 through January 27, 2019) to file reports with OFAC.  The delisting of these entities does not terminate the reporting requirement.  Reports are due Monday, February 11, 2019, and must include “a comprehensive, detailed report of each transaction, including the names and addresses of parties involved, the type and scope of activities conducted, and the dates on which the activities occurred.”  Reports are to be filed with the Office of Foreign Assets Control, Office of Compliance and Enforcement, U.S. Department of the Treasury, 1500 Pennsylvania Avenue N.W., Freedman’s Bank Building, Washington, DC 20220, or via email to OFACReport@treasury.gov.

Please contact Paul Marquardt or Sameer Jaywant with any questions.

On January 28, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control designated Petróleos de Venezuela, S.A.; effective immediately PdVSA is on OFAC’s Specially Designated Nationals and Blocked Persons List and all of its assets within U.S. jurisdiction are blocked.

Simultaneously, OFAC issued a number of general licenses intended to mitigate the impact of this designation outside of Venezuela by providing limited authorization for certain transactions and activities related to PdVSA and its subsidiaries. As a result:

  • all assets of PdVSA and its direct and indirect subsidiaries owned 50% or more by PdVSA or other specially designated nationals (SDNs) (in the aggregate) within U.S. jurisdictions are now blocked and all transactions within U.S. jurisdiction involving these persons and entities are prohibited, absent a license;
  • PdVSA and its subsidiaries may still service debt issued prior to August 25, 2017, and U.S. persons can continue to hold and provide services related to such debt, but transfers of such debt are now only permitted to non-U.S. persons (in other words, U.S. persons may only divest PdVSA debt, not acquire it);
  • purchase and importation into the United States of petroleum and petroleum products from PdVSA is permitted until April 28, 2019, so long as all proceeds from such sales are paid into blocked, interest-bearing accounts in the United States rather than released to PdVSA;
  • certain U.S.-linked PdVSA subsidiaries—including PDV Holding, Inc., CITGO Holding, Inc., and their subsidiaries—are not subject to blocking sanctions until July 27, 2019, and thus their assets are not frozen and transactions with these entities within U.S. jurisdiction remain permitted; and
  • U.S. financial institutions are permitted to reject rather than block (i.e., return rather than seize) funds transfers involving PdVSA or its subsidiaries, so long as the funds transfers originated outside of the United States and both the originator and beneficiary are non-U.S. persons located outside of the United States or Venezuela, until March 29, 2019.  Note that this does not authorize the processing of U.S. dollar transfers relating to PdVSA, which are now prohibited unless related to U.S.-licensed activities.

Please click here to read the full alert memorandum.

This Trade Summary provides an overview of WTO dispute settlement decisions and panel activities, and EU decisions and measures on commercial policy, customs policy and external relations, for the fourth quarter of 2018.

If you have any questions regarding the above, do not hesitate to contact fclaprevote@cgsh.com or tmuelleribold@cgsh.com.

On November 14, 2018, almost a year and a half after the British public voted to exit the EU, the UK and EU reached agreement on the terms of separation manifested in a draft Withdrawal Agreement.  This draft text updates an earlier version published in March 2018. Subsequently, on November 22, the EU and UK published the accompanying draft Political Declaration that sets out key principles of the future relationship.  On November 25, the European Council endorsed these two texts.  This post summarizes the key outcomes with respect to trade in goods, the continued applicability of EU law and European Court of Justice jurisdiction, and dispute settlement during the transition period, as well as the framework for the EU and UK’s future relationship. Continue Reading The EU and UK Agree on Arrangements for Brexit Transition Period and Future Relationship Framework

On November 28, 2018, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) identified for the first time digital currency addresses associated with sanctioned persons.  The newly sanctioned individuals, Iran-based Ali Khorashadizadeh and Mohammad Ghorbaniyan, were accused of converting digital currency payments into Iranian rial as part of a widespread ransomware scheme.  Since 2015, the ransomware scheme (known as “SamSam”) has infected the data networks of corporations, hospitals, universities, and government agencies.  According to OFAC’s announcement, the identified bitcoin addresses were used with over 40 digital currency exchangers to process more than 7,000 illicit transactions in bitcoins worth millions of U.S. dollars. Continue Reading OFAC Lists Digital Currency Addresses for First Time, Releases New Guidance