Recognising 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 the COVID-19 response in Iran and Cuba – the Department of the Treasury Office of Foreign Assets Control (OFAC) recently issued web-based guidance to:
- remind the public of the many ways in which medical exports and other humanitarian services, supplies and donations can legally flow to sanctioned countries;
- offer reporting and compliance flexibility; and
- provide some Iran secondary sanctions relief.
Specifically, on 16 April 2020 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 relating 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 compilation of pre-existing policy is a COVID-19-related relaxation of Iran secondary sanctions.
On 20 April 2020 OFAC published further guidance ("OFAC Encourages Persons to Communicate OFAC Compliance Concerns Related to COVID-19"), offering flexibility for those experiencing reporting or compliance challenges due to COVID-19 and, similar to other US government agencies, providing an electronic mailbox for the submission of self-disclosures of possible violations.
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;
- US persons (individuals or entities); or
- entities owned or controlled by US persons (in some cases).
Many sanctions programmes 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 authorisations (ie, general licences), case-by-case licensing policies and interpretations in FAQs and other web-published guidance.
When humanitarian emergencies affecting sanctioned countries arise, OFAC often receives a surge of public enquiries and requests from policymakers about humanitarian exports and financial assistance. However, as with most people, the majority of OFAC's relatively small but capable staff and leadership are handling these inquiries and requests from their homes with myriad distractions. As such, OFAC is using its web-based guidance to address these enquiries, announce changes in sanctions policy and provide reporting, compliance and enforcement self-disclosure flexibility during this difficult time.
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 programmes, this one-stop-shop for COVID-19 sanctions-related needs is quite helpful.
Is there anything new?
Just a small change in Iran policy, as discussed below, and an explanation that OFAC is prioritising COVID-19-related requests; otherwise, OFAC has largely compiled existing policy.
Did OFAC miss anything?
These sanctions programmes are the largest and most complex and OFAC appears to have identified the most relevant humanitarian exceptions. Only a few additional provisions are worth noting.
Informational material and travel Each of these sanctions programmes has an exemption for the exportation of pre-existing informational material (eg, instructions for the use of PPE), provided that the information itself is not on the Commerce Control List. This exemption does not cover technical assistance and other services. For travel, each programme (except the Cuba programme) has an exemption for transactions relating to travel to and from, including related maintenance within, each country or region. Both the informational materials and travel exemptions are somewhat limited in the North Korea sanctions programme.
Cuba In addition to the exceptions noted in the fact sheet, there are exemptions for certain donations of food, general licences for certain medical research and air ambulance and emergency medical services and a Department of Commerce authorisation 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 Department of Commerce-licensed exports.
Ukraine/Russia In addition to the exceptions noted in the fact sheet, there is a general licence for emergency medical services.
Do humanitarian exceptions cover transactions with all blocked persons?
The policies listed in the fact sheet or noted above do not always apply to transactions involving persons that are separately sanctioned in the same sanctions programme or their 50% or more owned entities, and persons blocked under other sanctions programmes are frequently present in sanctioned countries. As such, parties must:
- check OFAC's sanctions lists;
- perform adequate due diligence on ownership; and
- review the relevant general licence or interpretation carefully to ensure that it applies.
What about OFAC's other sanctions programmes?
Most of OFAC's more than 30 other sanctions programmes (eg, Belarus, Narcotics, South Sudan, weapons of mass destruction proliferation and Zimbabwe) only identify persons for blocking and contain no geographic basis for sanctions. However, most of those programmes still contain:
- the abovementioned informational materials and travel exemptions (although some, such as the global terrorism sanctions programme, do not); and
- some form of general licence for emergency medical services.
Other PPE restrictions
Like many other countries, the United States has implemented various controls on exports of certain PPE, so parties will also need to check for possible restrictions in that respect (for further details please see "FEMA temporarily halts exports of certain PPE").(1)
What's new: 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 publicly 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 the purposes of Executive Order (EO) 13902. That EO, issued in January 2020, authorises OFAC to block entities that are part of Iran's manufacturing sector and third-country entities which provide goods or services used in connection with that sector (for further details please see "Maximum pressure squared: Trump turns up Iran sanctions amplifier"). 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 that 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 EO 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 that the items produced in Iran are for use there and not for export. Other secondary sanctions risks still exist for third-country entities doing business with Iran, including under other parts of EO 13902. However, OFAC has clearly signalled that it is not looking to target third-country suppliers to parts of the Iranian economy linked to Iran's ability to fight the COVID-19 pandemic.
OFAC's compliance and enforcement divisions are more interested in helping companies to get on the right path than catching them out for missing a reporting deadline. OFAC's follow-up web guidance from 20 April 2020 makes clear that it understands that present times are tough.
Deadline extensions
In its web guidance, OFAC signals that its deadlines – such as those for reporting blocked assets or rejected transactions, responding to administrative subpoenas and filing reports required by some licences – will be treated more flexibly for those facing delays due to the COVID-19 pandemic. However, those in need of additional time should reach out to OFAC as early as possible to let it know and arrange a possible extension.
Disclosure mailbox
As discussed above, OFAC has set up an electronic mailbox to encourage the electronic submission of self-disclosures ('[email protected]'). 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 licences ('[email protected]'), as well as for Specially Designated Nationals and Blocked Persons List delisting requests ('[email protected]').
COVID-19 compliance programme challenges
Finally, and perhaps most telling of the depth of OFAC's COVID-19 concerns, the web guidance hints that OFAC understands that compliance programmes are being challenged during the pandemic and may be underfunded or not performed as well. Notwithstanding OFAC's view that the lack of an adequate compliance programme is an aggravating factor that can increase a civil penalty amount, in the web guidance, it 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 (eg, remote work and unforeseen IT problems) during this difficult period. However, this is not guaranteed, and the web guidance is amorphous. Only time will tell how much the statement "it was during the COVID-19 pandemic" will count as a mitigating factor, but everything helps when faced with a possible civil penalty. Any entity considering a shift in compliance resources should document the need for the shift and how the resulting compliance funding continues to provide a risk-based approach to sanctions compliance.
Endnotes
(1) Further information is available here.
Sylvia G Costelloe, associate, assisted in the preparation of this article.
