Sanctions Top-5 for the week ending 17 July 2020
Here are five things that happened this week in the world of economic sanctions that I think you should know about.
- Donald Trump signed the Hong Kong Autonomy Act (HKAA) into law. At the same time, he issued Executive Order 13936 which: (i) directs US agencies to take steps to revoke Hong Kong’s differential treatment from mainland China under US laws per the Hong Kong Policy Act of 1992; and (ii) authorizes blocking sanctions (i.e. asset freezes) under the International Emergency Economic Powers Act (IEEPA) on individuals and entities in relation to Hong Kong. (More on this below.) (To read more about Executive Order 13936, see my team’s client alert here.)
- The US Office of Foreign Assets Control (OFAC) announced a USD $665,112 settlement with a UAE-based cigarette filter maker for violations of the North Korea Sanctions Regulations. According to the OFAC settlement notice, the company exported products to North Korea using front companies and accepted payment into its account at a foreign branch of a US financial institution. The settlement was accompanied by a three-year Deferred Prosecution Agreement (DPA) with the US Department of Justice (DOJ).
- OFAC named three individuals and five entities located in Hong Kong, Russia, Sudan, and Thailand as Specially Designated Nationals (SDNs) under the Ukraine-/Russia-related, Cyber-related, and Election Interference programs for their connections to Yevgeniy Prigozhin, a Russian financier (known as “Putin’s chef”) sanctioned by OFAC in September 2019, March 2018, and December 2016.
- The US State Department updated its public guidance on Section 232 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) to state that secondary sanctions could apply to investments and loans related to “Russian energy export pipelines such as Nord Stream 2 and the second line of TurkStream” after 15 July 2020.
- OFAC named four individuals in China and one entity in the British Virgin Islands as SDNs under the Foreign Narcotics Kingpin Designation Act for their connections to a synthetic opioid trafficking network sanctioned by OFAC in August 2019.
I’ve been saying since early June that the President could use IEEPA to add to the sanctions in the HKAA. Indeed, last week’s executive order appears to supplement the potentially narrow restrictions on “property transactions” in Section 6(a) of the HKAA with SDN-style blocking sanctions. As I told the Financial Times last week, the White House could have taken a surgical approach, but instead opted for a stronger one. For the record, this is not the first time the Trump White House has used IEEPA to “amplify” sanctions given by Congress. (It did so under CAATSA in September 2018.)
What’s the big deal? For starters, sanctions under Section 4 of Executive Order 13936 (which combine elements of the HKAA with the Hong Kong Human Rights and Democracy Act of 2019) can be applied immediately, rather than following the 90-day timeline given in the HKAA. One reason this matters is that the State Department has said on numerous occasions that it is monitoring Hong Kong’s Legislative Council elections scheduled for 6 September 2020. The HKAA sanctions would not kick in until at least 12 October 2020, more than a month later. The new executive order makes up the difference.
Interestingly, sanctions on foreign financial institutions are not mentioned in Executive Order 13936. Those would kick under the HKAA around 11 November 2020, one week after the US presidential election. Will we see another executive order before then?
What’s the takeaway from OFAC and the DOJ’s latest North Korea settlement? Some of the violations involved payments made in AED to a bank account held by a branch of a US financial institution in the UAE. Remember: OFAC’s enforcement jurisdiction is not based on currency. It’s about the banks involved.
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(The views expressed are my own and do not constitute legal advice. Photo from Vladislav Reshetnyak.)