SanctionsAlert.com Sanctions Round Up
December 28, 2017

UK Parliament Publishes Report on Potential Compliance Impact of ‘Post-Brexit’ Sanctions

On December 17, the UK Parliament’s European Union External Affairs Sub-Committee published a report on British sanctions policy, including the likely legislative framework for sanctions in a post-Brexit Britain. Deeply buried inside the 50-page report is a section with useful information for sanctions compliance professionals who may wonder to what extent businesses operating in the UK will be affected by any Brexit-inspired changes.

UK Finance, a UK trade association, warns that,given the role of the City of London as an international financial center, significant divergence would “have an adverse effect on both UK and EU financial markets”, and “differences in sanctions law between the UK and EU would likely impact on wider global correspondent banking relationships and trade finance”.

Ultimately, the report states that any impact on business will largely depend on how closely the UK continues to align with the EU’s restrictive measures. Should the UK choose to diverge from either the current measures in place, or future measures implemented by the EU’s 27 remaining countries, this could lead to additional administrative burdens for businesses.Nevertheless, Mr Giles Thomson, Deputy Director of Sanctions and Illicit Finance at Her Majesty’s (HM) Treasury, says the UK government has “the ambition of reducing burdens on business where we can with any additional flexibility that we may have once we exit the EU”.

This promise, however, may not extend to certain areas of potential business impact, such as licensing. Mr Thomson says that the UK wants to explore “a slightly more flexible system for licensing transactions” after Brexit. However, if the UK and EU no longer operate within the same licensing framework, this could lead to additional costs for exporters. Currently,businesses only need to apply for one license in order “for it to be valid across all EU Member States,” says the report quoting Ms. Maya Lester, a UK lawyer, specializing in sanctions law. If the licensing framework changes, UK businesses exporting via the EU to a third country, would “need to apply to two separate authorities for licenses”, which would be “an operational burden”, the report states quoting Mr. Roger Matthews, Senior Director at the London-based office of law firm Dechert LLP.

Other areas of potential business impact, such as guidance, could benefit from a post-Brexit regime. Mr Thomson highlights the opportunity for the UK to produce clearer guidance on implementation, as this would no longer need to be agreed by 28 Member States. Ms. Lester describes the possibility of “a greater provision of guidance, FAQs, policy documents and so on by the UK authorities” as an “advantage”.

The UK’s Foreign and Commonwealth Office is developing a dedicated sanctions unit, and depending on the UK’s sanctions policy decisions outside the EU, further resources may be needed, the report claims. This new sanctions unit will be separate from the UK’s recently created sanctions watchdog – HM Treasury’s Office of Financial Sanctions Implementation (OFSI).

US Congress Allows Iran Deadline to Pass; Trump to Decide

As of December 13, 2017, the U.S. Congress has missed its unofficial 60-day deadline (imposed by the President) to re-impose or amend sanctions against Iran. This follows President Trump’s decision in October 2017 to decertify the deal with Iran, thus passing the decision of whether to bring back Iran sanctions onto Congress. By letting the deadline pass, Congress has now thrown the ball back to Trump, who must decide in mid-January if he wants to continue to waive sanctions on Iran or pull out of the deal.

The Iran nuclear deal, or Joint Comprehensive Plan of Action (JCPOA), was agreed on July 14, 2015 between the U.S., Russia, China, France, the UK, Germany (aka, the “P5+1”) and Iran. Under the JCPOA, the Iranian government has agreed to significantly scale back its nuclear program in exchange for the relative easing of U.N., E.U., and U.S. sanctions. Unlike Europe, the U.S. has a domestic legal requirement to ‘certify’ every 90 days that Iran is adhering to the nuclear deal. The legislation that contains this requirement is called the Iran Nuclear Agreement Review Act, or INARA.

When the JCPOA comes up for review again on January 13, 2018, it will be for President Trump to decided whether to certify the agreement, decertify the JCPOA for a second time, or blow apart the deal entirely. The latter is a course vehemently opposed by all other parties to the accord as well as some of the President’s top aides, including Secretary of Defense Mattis.

EU Extends Russian Sectoral Sanctions (again); Renewed EU Sanctions Against Congo

At a EU summit in Brussels on December 14th, EU leaders agreed to extend sanctions on Russia for another 6-month period.  These are the measures that target the Russian financial, energy and defense industries, and are due for renewal again in July 2018. The EU, along with the U.S., initially imposed sectoral sanctions on Russia in 2014 over Moscow’s annexation of Crimea and destabilizing actions in Ukraine. Since that time, these sanctions have been extended every 6 months.

In the same week, on December 11th, the EU Council also decided to renew its sanctions against the Democratic Republic of the Congo (DRC) for a 12-month period. The sanctions target 16 individuals and consist of an asset freeze as well as a ban on entering the EU.The Council initially adopted sanctions against 7 high ranking DRC officials on 12 December 2016 in response to obstruction of the electoral process and related human rights violations, as well as 9 individuals who hold positions of responsibility in the DRC’s State administration on 29 May 2017.

OFAC fines Dentsply $1.2 million for Iran Violations, taking into account mitigating factors

On December 6th, 2017, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced a $1,220,400 settlement with Dentsply Sirona Inc. (“DSI”), a U.S. dental equipment and supplies manufacturing company incorporated in Delaware, the successor in interest to Dentsply International Inc. (“DII”) to settle Dentsply’s potential civil liability for 37 apparent violations of § 560.204 of the Iranian Transactions and Sanctions Regulations (ITSR) 31 C.F.R. Part 560.

According to OFAC’s web notice, DII subsidiaries UK International (“UKI”)and DS Healthcare Inc. (d.b.a. Sultan Healthcare) (“Sultan”) exported 37 shipments of dental equipment and supplies from the U.S. to distributors in third-countries, with knowledge or reason to know that the goods were ultimately destined for Iran.

Though the maximum penalty for such apparent violations can be over $9 million, OFAC took into account a number of mitigating factors, such as:

  1. Lack of a penalty notice or Finding of Violation received by Dentsply from OFAC in the 5 years preceding the date of the first transaction (even though Dentsply was previously the subject of a settlement involving similar violations in 2001);
  2. Exports in question were likely eligible for a specific license in any event, and thus harm to the ITSR program objectives was limited;
  3. Remedial steps taken by Dentsply, including voluntarily expanding the scope of the review to include a full, company-wide inquiry following a subpoena to one of its subsidiaries that led to the subsequent revelations involving the other subsidiary; and
  4. Cooperation by Dentsply with OFAC’s investigation, including(inter alia) by providing detailed and well-organized information for its review.

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