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OFAC’s COVID-19 Response: Existing Exceptions, Filing and Compliance Flexibility, and a Little Loosening on Iran

Recognizing that COVID-19 is further straining humanitarian needs in sanctioned countries and complicating compliance with economic sanctions, and perhaps also in response to reports that US sanctions are hindering COVID-19 response in Iran and Cuba, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued web-based guidance to remind the public of the many ways medical exports and other humanitarian services, supplies, and donations can legally flow to sanctioned countries, to offer reporting and compliance flexibility, and to provide some Iran “secondary sanctions” relief.

In a Nutshell

On April 16, OFAC published a fact sheet (“Fact Sheet: Provision of Humanitarian Assistance and Trade to Combat COVID-19”) compiling brief explanations of, and links to, most existing sanctions exceptions related to humanitarian exports of products, such as food and personal protective equipment (PPE), and services and the provision of financial assistance in the Cuba, Iran, North Korea, Syria, Ukraine/Russia, and Venezuela sanctions. Somewhat buried in this garden of pre-existing policy is a COVID-19-related relaxation of Iran secondary sanctions.

On April 20, OFAC published further guidance (“OFAC Encourages Persons to Communicate OFAC Compliance Concerns Related to COVID-19”) offering flexibility for those having reporting or compliance challenges due to COVID-19 and, like other US Government agencies, providing an electronic mailbox for submission of self-disclosures of possible violations.

Background

Economic sanctions administered by OFAC restrict the flow of goods, services, and funds to sanctioned countries, regions, governments, entities, and individuals when those goods or funds come from the United States, from U.S. persons (individuals and entities), and in some cases from entities owned or controlled by US persons. Many sanctions programs also threaten non-US persons with sanctions (often called “secondary sanctions”) if they engage in transactions with specified persons or industry sectors in targeted countries. To avoid causing undue humanitarian hardship, most sanctions contain exceptions in the form of exemptions, standing authorizations (i.e., general licenses), case-by-case licensing policies, and interpretations in Frequently Asked Questions (FAQs) and other web-published guidance.

When humanitarian emergencies affecting sanctioned countries arise, OFAC often receives a surge of public inquiries and requests from policymakers about humanitarian exports and financial assistance. As with most of the country, however, the majority of OFAC’s relatively small but capable staff and leadership currently is handling these inquiries and requests from their homes with their kids screaming, dogs barking, and internet blinking on and off. OFAC is using its web-based guidance to address these inquiries, announce changes in sanctions policy, and provide reporting, compliance, and enforcement self-disclosure flexibility in this difficult time.

A Collection of Existing Exceptions

OFAC’s extensive 10-page Fact Sheet provides a country-by-country list with brief descriptions of, and links to, the most relevant humanitarian exceptions in the Cuba, Iran, North Korea, Syria, Ukraine/Russia, and Venezuela sanctions. Given the complexity of each of these sanctions programs, this one-stop-shop for your COVID-19 sanctions-related needs is quite helpful.

But is there anything new here? Just a little change in Iran policy, as discussed below, and an explanation that OFAC is prioritizing COVID-19-related requests; otherwise OFAC has largely compiled existing policy.

Is there anything OFAC did not include? These sanctions programs are the largest and most complex ones, and OFAC appears to have done a good job identifying the most relevant humanitarian exceptions. Our review identified only a few additional provisions worth noting:

  • Informational material and travel: Each of these sanctions programs has an exemption for the exportation of pre-existing informational material, such as instructions for the use of PPE, provided the information itself is not on the Commerce Control List. This exemption does not cover technical assistance and other services. For travel, each program except for Cuba has an exemption for transactions related to travel to and from, including related maintenance within, each country/region. Note that both the informational materials and travel exemptions are somewhat limited in the North Korea sanctions program.
     
  • Cuba: In addition to the exceptions noted in the Fact Sheet, there is an exemption for certain donations of food, general licenses for certain medical research and air ambulance and emergency medical services, and a Department of Commerce (Commerce) authorization for exports of certain items that support the Cuban people.
     
  • North Korea: In addition to the exceptions noted in the Fact Sheet, there is an exemption for additional UN activities and an exception for Commerce-licensed exports.
     
  • Ukraine/Russia: In addition to the exceptions noted in the Fact Sheet, there is a general license for emergency medical services.

Do the humanitarian exceptions cover transactions with all blocked persons? The policies listed in the Fact Sheet or noted above sometimes do not apply to transactions involving persons that are separately sanctioned in the same sanctions program or their 50% or more owned entities, and frequently there are persons blocked under other sanctions programs present in sanctioned countries. It is critical to check OFAC’s sanctions lists, do adequate due diligence on ownership, and review the relevant general license or interpretation carefully to make sure it applies.

What about OFAC’s other sanctions programs? The vast majority of OFAC’s 30+ other sanctions programs (Belarus, Narcotics, South Sudan, WMD Proliferation, Zimbabwe, etc.) only identify persons for blocking and do not contain any geographic basis for sanctions. Even those programs, however, usually contain the informational materials and travel exemptions noted above (though some, such as the Global Terrorism sanctions program, do not), and most contain some form of a general license for emergency medical services.

Don’t forget about other restrictions on exports of PPE. As covered in our other alerts (FEMA Temporarily Halts Exports of Certain PPE and Reference Guide: Worldwide Export Controls on Face Masks and Other Medical Personal Protective Equipment) and more recent updates – the United States and many other countries have put in place various controls on exports of certain PPE, so you will need to check for those possible restrictions as well.

What’s New: A Relaxation of Iran-Related “Secondary Sanctions”

The Fact Sheet contains one piece of guidance different from the rest – not a reference to a pre-existing policy, but an interpretation, provided publically in writing for the first time, that OFAC will not consider certain Iranian manufacturers of medicine, medical devices, PPE, hygiene items, and several other products to be part of the “manufacturing sector of the Iranian economy,” for purposes of Executive Order (EO) 13902, on which we previously reported. That EO, issued this past January, authorizes OFAC to block entities that are part of Iran’s manufacturing sector as well as third-country entities providing goods or services used in connection with that sector. The provision to Iran of agricultural commodities, food, medicine, and medical devices is exempted in the EO, but it appeared that Iranian manufacturers of medicine and medical supplies were part of the manufacturing sector, and the provision of other goods or services to them would risk sanctions.

Following the issuance of the Fact Sheet, third-country entities no longer risk being blocked under E.O. 13902 when they sell any of their products or services to entities in Iran producing “medicines, medical devices, or products used for sanitation, hygiene, medical care, medical safety, and manufacturing safety, including soap, hand sanitizer, ventilators, respirators, personal hygiene products, diapers, infant and childcare items, personal protective equipment, and manufacturing safety systems” provided the items produced in Iran are for use there and not for export from Iran. Other “secondary sanctions” risks are still out there for third-country entities doing business with Iran, including under other parts of E.O. 13902, but OFAC has clearly signaled that it is not in the business of targeting third-country suppliers to these parts of the Iranian economy linked to Iran’s ability to fight the COVID-19 pandemic.

A Nod to the Need for Flexibility

While no one has ever mistaken OFAC’s Compliance or Enforcement division for their compassionate and forgiving brother Steven, the good folks who work there are far more interested in helping companies get on the right path than playing “gotcha” when a reporting deadline is missed. OFAC’s follow-up web guidance on April 20 makes clear that, while OFAC may wield a big stick, it understands that times are tough all around right now.

Deadline extensions. In its web guidance, OFAC signals that its deadlines – such as for reporting blocked assets or rejected transactions, responding to administrative subpoenas, and filing reports required by some licenses – will be treated more flexibly for those facing delays due to the COVID-19 pandemic. Those in need of additional time, however, should reach out to OFAC as early as possible to let it know and arrange for a possible extension.

Disclosure mailbox. As discussed above, OFAC has set up an electronic mailbox to encourage the electronic submission of self-disclosures (OFACdisclosures@treasury.gov), and submitters should take note of OFAC’s data delivery standards for enforcement and compliance submissions. OFAC also provides email submission options for reports on blocked property, rejected transactions, and licenses (ofac_feedback@treasury.gov) as well as for SDN de-listing requests (ofac.reconsideration@treasury.gov).

COVID-19 compliance program challenges. Finally, and perhaps most telling of the depth of OFAC’s COVID-19 concerns, the web guidance hints that OFAC understands that compliance programs are challenged during the pandemic and perhaps will be under-funded or not performed as well. Notwithstanding OFAC’s view that the lack of an adequate compliance program is an aggravating factor that can increase a civil penalty amount, in the web guidance, OFAC announces that it will view COVID-19 challenges as a factor (presumptively a mitigating one) for those companies that need to temporarily reallocate some sanctions compliance resources or that face technical issues, such as remote work and unforeseen IT problems, during this difficult period. This is no unbreakable vow, however, and the web guidance is amorphous. Only time will tell, and likely not until several years from now, how much the statement “it was during the COVID-19 pandemic” will count as a mitigating factor, but everything helps when you are staring down a possible civil penalty. Any entity considering a shift in compliance resources would be well advised to document the need for the shift and how the resulting compliance funding continues to provide a risk-based approach to sanctions compliance.

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