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Biden E.O. labels China as a country of concern; Treasury issues ANPR
On August 9, the White House announced that President Biden signed an Executive Order on Addressing United States Investments In Certain National Security Technologies and Products In Countries of Concern (E.O.). The President explained his view that some countries create national security risks by using particular technologies to advance their “military and defense industrial sectors” rather than civilian and commercial sectors. Biden stated that although open global capital flows substantially benefit the U.S., the E.O. stated that certain investments may “accelerate and increase the success of the development of sensitive technologies and products in countries that develop them to counter United States and allied capabilities.” The E.O. directs the Secretary of the Treasury to issue regulations that (i) prohibit U.S. persons from participating in specific transactions associated with particular technologies and products that present a significant and urgent risk to national security; and (ii) mandate U.S. persons to notify the Treasury about different transactions related to specific technologies and products that may contribute to the national security threat. The annex to the E.O. identifies China, including Hong Kong and Macau, as the sole nation warranting concern. The E.O. also requires the Secretary to communicate with Congress and the public regarding the E.O., consult with other agency leaders, assess whether to amend the regulations within one year, and provide reports to the President and Congress.
The Treasury simultaneously issued an Advance Notice of Proposed Rulemaking, requesting public comment on the implementation of the E.O., along with proposed definitions of key terms, before the program goes into effect. Written comments may be submitted within 45 days here.
OFAC sanctions network supporting Iran’s missile and military programs
On June 6, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions, pursuant to Executive Order 13382, against seven individuals and six entities in Iran, China, and Hong Kong for supporting Iran’s ballistic missile program. These sanctions build on OFAC’s March 30, 2022, designations against other supporters of the Iran-based missile program (covered by InfoBytes here) in an effort to target weapons of mass destruction proliferators and their supporters. OFAC explained that the designated individuals and entities have done business with and supported the procurement of critical parts and technology for Iran’s ballistic missile development.
As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the designated individuals or entities may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today pursuant to E.O. 13382 could be subject to U.S. sanctions.”
OFAC sanctions Iranian entities for petrochemicals and petroleum sales
On September 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13846 against an international network of companies involved in the sale of Iranian petrochemicals and petroleum products in South and East Asia. According to OFAC, the designations target Iranian brokers and several front companies in the UAE, Hong Kong, and India that have facilitated financial transfers and shipping of Iranian petroleum and petrochemical products. OFAC also noted that the sanctioned entities have played a critical role in concealing the origin of the Iranian shipments and enabling two sanctioned Iranian brokers to transfer funds and ship Iranian petroleum and petrochemicals to buyers in Asia. In addition to OFAC’s designations, the State Department is designating two entities based in the People’s Republic of China for their involvement in Iran’s petrochemical trade. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by an OFAC general or specific license. Persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation. Additionally, OFAC warned that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.”
OFAC reaches $5.2 million settlement with Hong Kong company for apparent Iranian sanctions violations
On January 11, the U.S. Treasury Department’s Office of Foreign Assets Control announced a $5.2 million settlement with a Hong Kong, China-based company for allegedly processing certain transactions related to goods of Iranian origin through U.S. financial institutions in violation of the Iranian Transactions and Sanctions Regulations (ITSR). According to OFAC’s web notice, from August 2016 through May 2018, certain company employees violated company-wide policies and procedures by causing the company to purchase Iranian-origin goods from a supplier in Thailand for resale to buyers in China. Under the terms of the trading arrangement, the company made 60 separate U.S. dollar payments from its bank in Hong Kong to the Thai supplier’s banks in Thailand, transferring a total of $75.6 million. Each of these payments were allegedly “processed and settled through multiple U.S. financial institutions, including the U.S. correspondent banks of the Hong Kong and Thai banks.” Due to the noncompliant employees’ misconduct, the funds transfer instructions omitted references to Iran. As a result, U.S. financial institutions were unable to flag the transfers as violating the ITSR, which would have “caused them to reject and report each of these U.S. dollar denominated funds transfers.”
In calculating the settlement amount, OFAC considered the following aggravating factors: (i) the noncompliant employees omitted Iranian country of origin references from all relevant transactional documents over a period of two years, despite knowing and having been advised repeatedly that this conduct violated the ITSR and company policy; (ii) the noncompliant employees “had actual knowledge about the [supplier’s] relation to Iran”; (iii) the company’s actions conferred significant economic benefits to Iran, specifically with respect to Iran’s petrochemical sector; and (iv) the company “is a sophisticated offshore trading and cross-border trade financing company with ready access to experience and expertise in international trade, investment, financing, and sanctions compliance.”
OFAC also considered various mitigating factors, including that (i) the company repeatedly reminded noncompliant employees not to make U.S. dollar payments in connection with Iran-related business transactions; (ii) senior management and compliance personnel were unaware of the violations due to the concealment of the information internally; (iii) the company has not received a penalty notice from OFAC in the preceding five years; and (iv) the company voluntarily self-disclosed the apparent violations, cooperated with OFAC’s investigation, and has undertaken significant remedial measures to ensure sanctions compliance.
OFAC issues advisory for China and Hong Kong
On July 16, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), along with the Departments of State, Treasury, Commerce, and Homeland Security, issued an advisory on the risks associated with actions carried out by the Government of the People’s Republic of China and the Government (PRC) of the Hong Kong Special Administrative Region (SAR) that may impact U.S. companies operating in the Hong Kong SAR of the People’s Republic of China. The advisory divides risks into four categories: (i) risks for businesses following the imposition of the NSL; (ii) data privacy risks; (iii) risks regarding transparency and access to critical business information; and (iv) risks for businesses with exposure to sanctioned Hong Kong or PRC entities or individuals. As previously covered by InfoBytes, OFAC issued regulations implementing Executive Order (E.O.) 13936 issued last July. E.O. 13936, among other things, targets and authorizes the imposition of sanctions on persons who materially assist, sponsor, or provide financial, material, or technological support to activities contributing to the undermining of Hong Kong’s democracy and autonomy (covered by InfoBytes here). In addition to the advisory, OFAC added several individuals and entities to its Specially Designated Nationals List.
OFAC announces Hong Kong-related designations
On March 17, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added several Chinese citizens and Hong Kong nationals to the Specially Designated Nationals List. The individuals were designated under Executive Order (E.O.) 13936, which, among other things, authorizes the imposition of sanctions on persons who are determined to be responsible for or complicit in actions or policies that threaten the peace, security, stability, or autonomy of Hong Kong. Under E.O. 13936, “[a]ll property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, . . .are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in” with any foreign person identified to have engaged in the aforementioned activities.
OFAC issues Hong Kong-related sanctions regulations, updates SDN List
On January 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued regulations implementing Executive Order (E.O.) 13936 issued last July. As previously covered by InfoBytes, E.O. 13936, among other things, targets and authorizes the imposition of sanctions on persons who materially assist, sponsor, or provide financial, material, or technological support to activities contributing to the undermining of Hong Kong’s democracy and autonomy. The regulations outline prohibitions, including prohibited transactions, and provide general definitions, interpretations, licensing authorizations, and penalties and findings of violations. OFAC noted it intends to supplement Part 585 of the regulations with more comprehensive regulations that “may include additional interpretive and definitional guidance and additional general licenses and statements of licensing policy.”
The same day, OFAC also added several individuals and entities to its Specially Designated Nationals List. These persons have been added pursuant to OFAC’s Hong Kong-related designations, Global Magnitsky designations, E.O. 13846, and the Iran Freedom and Counter-Proliferation Act, among others.
OFAC announces Hong Kong-related designations
On December 7, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added 14 Chinese citizens to the Specially Designated Nationals List. The individuals were designated under Executive Order (E.O.) 13936, which was issued by President Trump in July and, among other things, targets and authorizes the imposition of sanctions on persons who materially assist, sponsor, or provide financial, material, or technological support to activities contributing to the undermining of Hong Kong’s democracy and autonomy. Additionally, E.O. 13936 states that “[a]ll property and interests in property that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any United States person, . . .are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in” with any foreign person identified to have engaged in the aforementioned activities.
Treasury submits Hong Kong Autonomy Act report to Congress
On December 11, the U.S. Treasury Department released a report submitted to Congress pursuant to Section 5(b) of the Hong Kong Autonomy Act (the Act), which was enacted on July 14. The Act requires that the Secretary of State submit to Congress a report (Section 5(a) Report) that includes (i) “an identification of the foreign person”; and (ii) “a clear explanation for why the foreign person was identified and a description of the activity that resulted in the identification.” The Secretary submitted the Section 5(a) Report on October 14, which identified 11 foreign persons that OFAC designated pursuant to Executive Order 13936 on August 7. The Act requires Treasury to submit the Section 5(b) report between 30 and 60 days of the Section 5(a) submission, detailing any foreign financial institution (FFI) that knowingly conducts a significant transaction with a foreign person identified by the Secretary in the Section 5(a) Report. The 5(b) Report notes that Treasury has no information on any FFIs that have conducted significant transactions with the designated foreign persons, after conducting “regular searches of all available sources of information, including classified and unclassified holdings.” Treasury notes that it will continue to monitor for new activity that meets the criteria and engage with foreign governments and FFIs to ensure they “they understand the reporting requirements and sanctions risks under the [the Act].”