Sanctions, Exports Controls, CFIUS and ICTS
PRIMARY AND SECONDARY SANCTIONS
Administered by: The Office of Foreign Assets Control, Department of Treasury, Department of State, Department of Commerce’s Bureau of Industry and Security, Department of Defense and Department of Justice.30
Primary Sanctions
Applicable to: Companies organized in the US, US citizens and permanent residents, and all persons located in the US, regardless of nationality.
Prohibition: Imposed by the US to prohibit the above from transacting with sanctioned countries or sanctioned persons. These US primary sanctions are generally in the form of asset freezes or trade embargoes.
Secondary Sanctions
Applicable to: Non-US individuals and companies to deter them from entering into certain transactions that are contrary to US national security and policy interests.
Prohibition/Restriction: More specifically, secondary sanctions (which are generally in the form of restriction/limitation to the US market or financial system) are imposed on non-US individuals and companies for their significant transactions with sanctioned countries or sanctioned persons.
Case Studies
Case Study 1: In the past, the US imposed secondary sanctions (such as denial of export licenses, prohibition of foreign exchange transactions with the US financial system, blocking of all property and interest in property within US, visa ban) on a Chinese company and its Director for engaging in significant transactions with a Russian sanctioned company. According to the US Department of State, the significant transactions between the Chinese company and Russian sanctioned company involved delivery of Su-35 combat aircraft in 2017 and S-400 surface-to-air missile related equipment in 2018 by the Russian company to the Chinese company.31
Case Study 2: An Indian company 32, its subsidiaries and individuals were recently sanctioned for its involvement with an Iranian network that supplied oil to Syria in breach of US Sanctions laws33. Consequently, all the property and interests of these Indian companies in the US or in control or possession of US persons were blocked. As a result, individuals or companies that engage in certain transactions with these designated companies may themselves be exposed to US sanctions laws.
BIS
Administered by: The US Bureau of Industry and Security (BIS), US Department of Commerce.
Applicable to: Non-US companies for acting contrary to US national security and foreign policy interests.
Prohibition/Restriction: The US maintains various lists/entity lists, whereby the US identifies certain foreign companies and its affiliates as posing a significant risk of involvement in activities contrary to US national security interests. Consequently, the exporters in the US and foreign re-exporters are required to apply for license for exporting, re-exporting or transferring any commodity, software or technology (collectively referred to as “items”) subject to the US Export Administration Regulations 34(EAR) to these listed companies.
BIS
Administered by: The US Department of Treasury, Committee on Foreign Investment in the United States (CFIUS) under the Defense Production Act of 195937 (Act of 1959) has the power to review certain transactions involving foreign investments in the US (“covered transactions”38) to determine the effect of such transactions on the national security of the US.
Applicable to: The US Department of Treasury has provided an illustrative list of transactions that have presented national security considerations for the US, whereby it has conducted a unilateral review of the covered transaction:
- A business – based out of the US which has government contracts/operations relevant to US national security or deals in certain advanced technologies or goods and services controlled for export
- Track record of the foreign person acquiring control of the US business, or the record of person’s country of origin
- Foreign government-controlled transaction
- Transaction is conducted by any person subject to US jurisdiction or involves property subject to US jurisdiction;
- Transaction involves any property in which any foreign country or foreign national has an interest; and
- Transaction was initiated, is pending, or will be completed after May 15, 2019.
