In 2011, the world experienced historic events, particularly with regard to the Arab Spring and the violent repression that followed in nations like Libya and Syria. 2011 witnessed the expansion of a number of international sanctions programs, most particularly tied to political developments in countries such as Iran, Syria, Libya, Sudan, Cuba, and North Korea. Following is a summary of key developments in U.S. sanctions during 2011, as well as a brief look ahead at what may happen in 2012 in countries such as Iran, Yemen, and Myanmar (Burma).
- New Restrictions under CISADA. In May 2011, President Obama signed Executive Order 13574, which sanctioned seven companies under the Iran Sanctions Act of 1996, as amended by the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”), for doing business with Iran. In October 2011, the U.S. Department of Treasury Financial Crimes Enforcement Network (“FinCEN”) released a final rule imposing obligations on U.S. banks to seek information from foreign banks about those banks’ Iranian financial ties. See 76 Fed. Reg. 62607. And in November 2011, President Obama signed Executive Order 13590, which further tightened sanctions on the Iranian petroleum and petrochemical industries.
- Updates to the FAR. In November 2011, an interim rule from September 2010 was finalized (with limited changes) in the Federal Acquisition Regulation. FAR 52.225-25, Prohibition on Engaging in Sanctioned Activities Relating to Iran, implements CISADA and requires offerors for all federal contracts to certify that: (1) the contractor does not engage in any sanctioned activities with Iran (particularly with regard to the Iranian petroleum industry); and (2) the contractor does not export sensitive weapons technologies to Iran. See 76 Fed. Reg. 68027.
- New Legislation Targeting the Iranian Financial Sector. Beyond these regulatory updates, Section 1245 of the 2012 National Defense Authorization Act (Pub. L. No. 112-81; signed by the President on December 31, 2011), offers further sanctions against the Iranian financial sector, particularly the Central Bank of Iran. This new sanction has been the subject of much saber-rattling by the Iranians, claiming additional retaliation against the U.S. if sanctions are actually imposed.
- Limits to the Application of the Iranian Transaction Regulations. In October 2011, the U.S. Court of Appeals for the Second Circuit reversed the conviction of an individual for conspiring to violate the Iranian Transaction Regulations, noting that the prohibition on providing certain “services” to Iran was ambiguous. The case is notable because courts are rarely called upon to interpret sanctions regulations issued by the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”), and the court’s literal reading of the regulations may counterbalance the expansive scope of the regulations often advanced by OFAC regulators.
- State-Level Sanctions. States like California and Florida are also jumping on the anti-Iranian bandwagon by passing their own State-level sanctions against Iran, which operate in addition to the federal sanctions already in place. Such State-level sanctions, subject to certain restrictions, are specifically authorized under CISADA.
- Expanded Sanctions for Human Rights Abuses. President Obama issued no less than three Executive Orders in 2011 sanctioning the Syrian regime for human rights abuses associated with suppressing protests by the Syrian people. Executive Orders 13572, 13573, and 13582 all target specific individuals within the Syrian regime and impose significant new sanctions against Syria on a country-wise basis. As a result, U.S. persons are currently prohibited from conducting virtually all transactions with Syrian entities.
- Revisions to Syria Sanctions Under the EAR. On December 12, 2011, the U.S. Department of Commerce updated the Export Administration Regulations (“EAR”), moving the substantive provisions of the comprehensive sanctions on Syria from General Order No. 2 in EAR Supplement No. 1 to 15 C.F.R. Part 736 to a new, revised EAR § 746.9. See 76 Fed. Reg. 77195.
- Expansion (and Subsequent Loosening) of Sanctions Against Libya and the Qadhafi Regime. In February 2011, President Obama issued Executive Order 13566, which blocked assets of the Libyan Government, and targeted members of Qadhafi’s ruling regime, in response to Qadhafi’s violent response to protests by the Libyan people. In a similar vein, in July 2011, OFAC issued new Libyan Sanction Regulations to reflect Executive Order 13566. See 76 Fed. Reg. 38562. In November 2011, the International Traffic in Arms Regulations were updated to implement (in part) an expanded February 2011 arms embargo against Libya. See 76 Fed. Reg. 68313. Of course, with the death of Qadhafi in October 2011, OFAC began in December 2011 to unwind the sanctions against Libya in order to free up previously frozen assets for the benefit of the new transitional Libyan government.
- Loosening of Restrictions in the Newly Independent South Sudan. While the sanctions against Sudan have remained relatively stable for the last five years, the secession of southern Sudan in April 2011 and the creation of the new Republic of South Sudan in July 2011 have prompted a loosening of sanctions against the new republic. Of particular note, as of July 2011, the Bank of Southern Sudan (formerly known as the “Bank of South Sudan” when it was linked to the still-blocked “Central Bank of Sudan”), is no longer a blocked party for purposes of U.S. sanctions on Sudan. In addition, in December 2011, OFAC updated the Sudanese Sanctions Regulations to allow business dealing with the petroleum industry in the Republic of South Sudan, as well as certain intertwined transactions and shipments occurring in northern Sudan. See 76 Fed. Reg. 76617. Note, however, that exports to South Sudan may still require an export license under the EAR (and exports to South Sudan of defense articles almost certainly require a license under the ITAR), and that certain prohibited parties from Sudan continue to operate in South Sudan.
- Loosening Restrictions Against Cuba to Promote Independence. In January 2011, OFAC updated the Cuban Assets Control Regulations to implement a new U.S. policy in favor of more licensing of travel and remittances to Cuba. The Obama administration’s stated hope is that allowing greater individual contact with Cuba will help foster a more democratic government in the country. See 76 Fed. Reg. 5072.
- Expanded Sanctions Against North Korea. In April 2011, President Obama signed Executive Order 13570 to strengthen the sanctions against North Korea’s nuclear weapons program. In June 2011, OFAC updated its North Korean sanctions regulations to implement the Executive Order. See 76 Fed. Reg. 35740. It is not yet clear how the death of Kim Jong Il and the subsequent leadership transition to Kim Jong Un will impact U.S. policy toward North Korea, but if the new North Korean regime is willing to engage in diplomacy, then 2012 may find some of the new 2011 sanctions to be short lived.
- Harsh Penalties Against Financial Institution Where OFAC Did Not Feel Compliance Program Was Rigorously Followed. In August 2011, OFAC announced an $88.3 million settlement with a major financial institution relating to financial transactions with Iran, Sudan, Cuba, and other sanctioned individuals. While not the largest OFAC fine in recent years, the settlement is notable because of OFAC’s exceedingly harsh view of the bank’s compliance program.
While it is always difficult to predict when U.S. sanctions may be imposed or eased, we think the following developments are worth noting for 2012 and beyond:
- Bills to Expand Restrictions on Iran. Beyond the 2012 Defense Authorization Act discussed above, there are dozens of additional bills to expand sanctions on Iran that are currently under consideration in the U.S. Congress. While these proposed measures against Iran are only being discussed, they could easily progress (or even be scaled back) depending on Iranian government action in the coming weeks and months.
- Potential Sanctions Against Yemen. Following the crackdown on protests and opposition groups in Yemen during the course of 2011, the U.S. government has suggested that targeted sanctions on Yemen could be forthcoming. Similarly, in October 2011, the U.N. Security Council adopted a resolution expressing concern about the situation in the country, and leaving the door open for sanctions against the government or other specific targets in Yemen.
- Possible Easing of Sanctions on Myanmar (Burma). In December 2011, U.S. Secretary of State Hillary Clinton made an official visit to Myanmar in the wake of political and economic reforms by the Myanmar government. Those reforms included: (i) ending the ban on the principal opposition party, the National League for Democracy; (ii) freeing some political prisoners; and (iii) lifting heavy restrictions on using the Internet. Then, on January 13, 2012, Myanmar freed 651 political prisoners, including a former prime minister. President Obama declared the move “a substantial step forward for democratic reform,” and Secretary Clinton responded by announcing the United States will exchange ambassadors with Myanmar for the first time in nearly 25 years. Based on comments from experts and U.S. government spokespeople, it appears that the easing or lifting of U.S. sanctions against Myanmar – which currently prohibit virtually all financial transactions between U.S. persons and companies in Myanmar – could occur early in 2012.