June 3, 2017
By: Anna Sayre, Legal Content Writer, SanctionsAlert.com

In this series, we present the comments and assertions made by President Donald Trump and his top assistants concerning economic sanctions and export controls so that compliance professionals can make informed decisions as to the likely positions of the new U.S. administration in the next four years.

In this sixth part, we present the views of the 77th U.S. Secretary of the Treasury, Steven T. Mnuchin, Hollywood film investor and former executive at investment bank Goldman Sachs.

The Treasury’s Role in Sanctions Policy and Enforcement

Secretary Mnuchin’s views on the enforcement and implementation of sanctions are important due to the significant role the Treasury Department plays in influencing sanctions policy and enforcement:

  1. Administration and enforcement of economic and trade sanctions based on U.S. foreign policy through Office of Foreign Assets Control (OFAC);
  2. Investigating, providing strategic analysis, as well as fostering interagency and global cooperation against financial crimes through the Financial Crimes Enforcement Network (FinCEN). This body at Treasury is tasked with protecting the U.S. from money laundering;
  3. Identification and development of initiatives and strategies to combat of all forms of illicit finance to the international financial system, WMD proliferation and other criminal activities through the Office of Terrorist Financing and Financial Crimes (TFFC); and
  4. By mutual cooperation with the Department of State, Department of Commerce and the Department of Justice, to investigate and prosecute cases in breach of sanctions programs.
  5. Finally, the U.S. Treasury Secretary chairs the Committee on Foreign Investment in the United States (CFIUS). As a powerful interagency committee, CFIUS reviews transactions that could result in control of a U.S. business by a foreign person in order to determine the effect of such transactions on U.S. national security. Export controls can play a role in these reviews.

Our earlier article on the role of Treasury in shaping sanctions policy is here.

A ‘More Balanced’ Relationship with China

Throughout his short tenure, Mnuchin has repeatedly demonstrated an intention to cement ties with China and improve trade relations.

In April 2017, after a series of meetings with Chinese President Xi Jinping and his delegation, Mnuchin said the Chinese acknowledged that they could do more to promote a more balanced trade policy between the two countries.

Though economic sanctions have briefly been imposed against China in the past, these actions were always short lived and gave way to economic considerations. In response to the Beijing’s Tiananmen Square incident, President George Bush Senior ordered sanctions against the Chinese government in 1989, which included a ban on arms shipments, the cessation of high-level talks with Chinese officials, and a suspension of talks about nuclear cooperation. Similarly, President George W. Bush ordered economic sanctions against five Chinese companies in 2003 and also a tariff on imports of glossy paper in 2007.

It is unclear at present whether the Trump administration will follow in the footsteps of its Republican predecessors, or maintain an amicable relationship with the Asian giant. Thus far, Mnuchin has expressed a strong desire to work with his Chinese counterparts rather than sever economic ties.

OFAC Actions against Chinese Companies

Although OFAC does not maintain a sanctions program on China as a country, several Chinese companies and individuals have been designated in the past. Most recently, under Mnuchin’s leadership, China has been charged with violations of sanctions and export controls programs against other countries, such as Iran.

In March 2017, Zhongxing Telecommunications Equipment Corporation, a Chinese telecom giant, paid a record $100 million to settle with OFAC, for apparent violations of Iranian sanctions. ZTE used third-party companies to conceal and facilitate its illegal business with Iran, such as supplying Iran with U.S. goods controlled for anti-terrorism, national security, regional stability, and encryption purposes. The ZTE case was a long-running investigation involving multiple agencies, and started under the Obama administration.

Further, in April 2017, OFAC designated Chinese national, Ruan Runling, and three associated Chinese companies for proliferation activities in support of a designated Iranian defense entity.  Ruan was sanctioned pursuant to E.O. 13382 for providing navigation, guidance systems and other dual-use technology to Iran’s blacklisted Shiraz Electronics Industries (SEI).  SEI produces electronics equipment for the Iranian military, including missile guidance technology.

Russian Sanctions “100 percent” Likely to Continue

In his confirmation hearing, when asked if he was committed to enforcing Russian sanctions, Mnuchin responded, “Oh yes, 100 percent so”. Mnuchin also stated that he thought the U.S. should“hold Russia accountable for its actions” and that he would “continue to support and enforce the existing sanctions against Russia to the fullest extent.”

Since that time, however, Secretary Mnuchin has kept mum about whether he shares Trump’s ideas about easing sanctions on Russia. In February 2017, Mnuchin declined to comment on reporter’s questions as to whether the Trump administration planned to ease sanctions against Russia, instead deciding to provide the oblique statement of: “our current sanctions programs are in place.”

Nevertheless,recently,Mnuchin has kept a hard line on Russian sanction enforcement. On April 21, 2017, Mnuchin rejected a request for waiver of sanctions by ExxonMobil in order to drill for oil in Russia, stating that, “the Treasury Department will not be issuing waivers to U.S. companies, including Exxon, authorizing drilling prohibited by current Russian sanctions”.

The U.S. and much of the international community imposed sanctions against Russia when it annexed Crimea in 2014. As it stands, there is no congressional approval needed to lift U.S. sanctions on Russia, thus allowing the President to simply lift several sanctions on Russia by Executive Order. The Trump Administration has, more than once, expressed its views that easing of Russian sanctions would be considered if a “deal” could be struck.

Mnuchin, as with other existing rules and practices in place, has thus far exemplified his preference to follow those rules rather than rewrite them.

JCPOA to be Enforced, but Aircraft Licenses to be Reviewed

The Trump Administration has repeatedly expressed an aversion to the nuclear deal with Iran, otherwise known as the Joint Comprehensive Plan of Action (JCPOA). The agreement partially suspends nuclear-related sanctions on Iran by the U.S., EU and UN, in exchange for Iran agreeing to dismantle its nuclear infrastructure. The JCPOA was largely put into force through executive orders and, therefore, does not need Congressional approval to be revoked.

In his confirmation hearing, in opposition to the views of the Trump administration, Mnuchin stated that he intends “to coordinate with the Secretary of State on the Administration’s efforts to engage with the international community regarding the need to vigilantly enforce the Joint Comprehensive Plan of Action.” It was also added, however, that Mnuchin intends“to remind other nations that waived secondary sanctions remain available for re-imposition by the United States in the event that Iran fails to comply with its commitments” and that “that powerful secondary sanctions remain a viable and available tool for the foreseeable future with respect to Iran’s compliance with the JCPOA.” Secondary sanctions impact non-U.S. persons.

Though he has given little indication as to his personal views, on May 24 during a testimony to a U.S. House of Representatives Committee,Mnuchin said that sanctions “really work” and were responsible for bringing Iran to the negotiating table ahead of the nuclear deal.He went on to say during the hearing that he is reviewing licenses for Boeing Co and Airbus to sell aircraft to Iran Air, but did not elaborate further on the issue.

Current licenses for aircraft sales to Iran were issued by Treasury under the JCPOA in 2015.

Sanctions on Syria

On April 24, 2017, OFAC designated 271 employees of Syria’s Scientific Studies and Research Center (SSRC), the Syrian government agency responsible for developing and producing non-conventional weapons.  This action was taken in response to a chemical attack by the Assad regime and seeks to hold those connected to the attack accountable for the regime’s blatant violations of the Chemical Weapons Convention and UN Security Council Resolution 2118.

“The United States is sending a strong message with this action that we will hold the entire Assad regime accountable for these blatant human rights violations in order to deter the spread of these types of barbaric chemical weapons,” said Treasury Secretary Mnuchin in a White House briefing.

“We take Syria’s disregard for innocent human life very seriously, and will relentlessly pursue and shut down the financial networks of all individuals involved with the production of chemical weapons used to commit these atrocities,” he added.

The Future of Cuban Sanctions To Be Determined

As the Secretary of Treasury,Mnuchin plays an important role in deciding whether to further lift restrictions on Cuba, retain the status quo, or re-instate past prohibitions.

Since December 2014, when U.S. President Obama vowed to improve relations with Cuba, sanctions on Cuba have been gradually eased. This has been done, for the most part, by amending the Cuban Assets Control Regulations (CACR), which has been the main regulatory mechanism of domestic enforcement of the U.S. embargo against Cuba. This process of normalization set in motion by President Obama in 2014, can easily be rolled back by the new administration.

The CACR states, in part, that “All of the following transactions are prohibited, except as specifically authorized by the Secretary of the Treasury . . . ”. As such, if not specifically prohibited by Congress, Mnuchin has considerable sway in influencing the future of Cuban-American commerce.

An example of how this authority has been used in the past occurred most recently in 2016 when OFAC granted a general license, which eased certain travel restrictions between the U.S. and Cuba and allowed U.S. companies to go into Cuba for the purposes of business development. The general license even allowed binding contracts relating to transactions prohibited by the CACR to be signed, as long as those deals did not enter into force until they had been authorized in full by the U.S. government.

In his confirmation hearing, when asked if he supports past and future easing of Cuban sanctions, Mnuchin replied generically that he will “implement and enforce Cuba sanctions pursuant to their statutory construct.”

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