Sanctions Top-5 for the week ending 14 May 2021
Here are five things that happened this week in the world of economic sanctions that I think you should know about.
This week’s briefing covers the weeks ending 7 and 14 May 2021.
- The Department of Defense will remove Xiaomi Corporation from the list of so-called “Communist Chinese military companies,” according to a filing in the District Court for the District of Columbia. In March 2021, the Court granted Xiaomi’s request for a preliminary injunction against the designation and subsequent ban on US persons transacting in the company’s publicly traded securities under Executive Order 13959.
- A few days before, the District Court also granted a preliminary injunction for Luokung Technology Corp. for basically the same reasons as Xiaomi. The US Office of Foreign Assets Control (OFAC) confirmed in an FAQ that Luokung’s securities are not subject to Executive Order 13959 as a result of the Court’s decision.
- OFAC identified members of a Mexico-based drag trafficking network — referred to as the Gonzalez Penuelas Drug Trafficking Organization — as Significant Foreign Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act. The group is one of the “largest sources of raw opium gum and heroin in northern Mexico” and a “major distributor of fentanyl” to the United States, according to a Treasury Department news release.
- EU companies that terminate contracts solely to conform to US secondary sanctions could breach the EU Blocking Statute, according to an opinion from the Advocate General of the EU Court of Justice in a closely watched case brought by an Iranian bank against a German telecommunications company. Even more, the Blocking Statute “imposes an obligation to give reasons justifying the termination of a commercial relationship” with a US-sanctioned counterparty, the Advocate General said.
- The US Department of Justice (DOJ) announced charges against two individuals in Maryland, USA accused of bank fraud and illegally importing Iranian rials into the United States. According to a DOJ news release, the individuals told their banks that wire transfers used to pay for the currency “were for jewelry, watches, and/or other items.”
More than 20 percent of companies identified by the Department of Defense as CCMCs on 14 January 2021 (that is to say, two out of nine companies) are no longer subject to Executive Order 13959 as a result of preliminary injunctions. Those are remarkably good odds, and it makes me wonder what the other seven companies are planning to do after seeing the District Court’s decisions. It looks like the Biden administration is picking its fights rather than defending out-there actions made one week before the inauguration. (See also Dan Gertler.)
The EU Advocate General’s opinion on the Blocking Statute underscores the conundrum faced by EU companies in navigating secondary sanctions risk involving Iran and Cuba. To my eyes, the opinion seems to be limited to companies that are “subject to US primary sanctions” — which seems to mean Specially Designated Nationals (SDNs). In other words, there is a higher bar when terminating a contract with an SDN because an EU company would have to show that it had a reason other than wanting to conform to US secondary sanctions when it broke the deal. Meanwhile, the opinion floats the idea that a company would not breach the Blocking Statute if the termination fell under “a coherent and systematic corporate social responsibility policy which leads them, inter alia, to refuse to deal with any company having links with the Iranian regime.” But why wait for the SDN designation in that case?
I’m looking forward to discussing this case and more with Benjamin Miao of Fangda Partners on our panel “Secondary Sanctions and Conflicts of Law: How to Navigate Complex and Potentially Conflicting Obligations” at next weeks’ virtual Asia Pacific Advanced Conference on Economic Sanctions hosted by ACI on 27 and 28 May. (You can still register for the conference here.)