Syria Update: President Obama Signs Executive Order Imposing Additional Sanctions on Syria

Updated to include OFAC general licenses 1-6

In response to the recent events in Syria, President Obama issued a statement this morning calling for Syrian President Bashar-Al Assad to "step aside".

In addition, the President today signed an Executive Order (EO 13582) imposing the following additional sanctions on Syria.

• Requires the immediate blocking of all assets of the Government of Syria subject to U.S. jurisdiction.
• Prohibits U.S. persons from exporting or reexporting services to Syria. 
• Prohibits U.S. imports of Syrian-origin petroleum or petroleum products
• Prohibits U.S. persons from having any dealings in or related to Syrian-origin petroleum or petroleum products.
• Prohibits U.S. persons, wherever located, from operating or investing in Syria. 
• Prohibits U.S. persons from approving, financing, facilitating or guaranteeing transactions by foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person or within the U.S. 

Today's sanctions, which are effective immediately, supplement the recent and past sanctions that have been imposed by the U.S. on Syria. As a result of the Syria Accountability and Lebanese Sovereignty Restoration Act of 2003 (SAA), most exports and reexports of U.S. origin products to Syria have been prohibited since May 2004.

Today’s actions will not impact the export of humanitarian products to Syria, such as medicines, agricultural products and medical devices, which are authorized by the SAA either by general or specific licenses (authorized by OFAC General License No. 4 below).

In addition, the Treasury Department's Office of Foreign Assets Control (OFAC) added the following energy companies in Syria to the List of Specially Designated Nationals (SDN List):

• The General Petroleum Corporation: The state-owned company that controls Syria’s oil and gas industry and is responsible for the exploration, development and investment of Syria’s oil and gas exploration activities.
• Syrian Petroleum Company: Responsible for upstream oil production and development in Syria.
• Syrian Company for Oil Transport: Manages Syria’s domestic pipeline system and is responsible for transporting all Syrian crude and petroleum products. Syrian Company for Oil Transport manages Syria’s three major oil export/import terminals: Baniyas, Tartous and Latakia.
• Syrian Gas Company: Responsible for processing, transporting and marketing Syria’s natural gas.
• SYTROL: Syria’s state oil marketing firm that is responsible for selling Syrian crude to foreign buyers.

As a result of these designations, all property of these companies subject to U.S. jurisdiction must be blocked and U.S. persons cannot engage in any transactions with these parties.

This afternoon, OFAC issued the following six general licenses relating to transactions with Syria:

• General License 1 - Authorizing certain goods or services to Syrian Diplomatic Missions in the United States
• General License 2 - Authorizing the provision of certain legal services with respect to Syria​ (however, payment of legal fees and related expenses must be specifically licensed)
• General License 3 - Entries in certain accounts for normal service charges authorized with respect to Syria​ (authorizes financial institutions to normal service charges on blocked accounts)
• ​General License 4 - Exportation or reexportation to Syria of items subject to the Export Administration Regulations; and exportation or reexportation of services ordinarily incident to exportations or reexportations of items licensed or otherwise authorized and related services​
• ​General License 5 - Exportation of certain services incident to Internet-based communications authorized​ (authorizes services, such as instant messaging, social networking, web browsing and blogging, as long as they are no cost to the user, subject to certain conditions)
• ​General License 6 - Noncommercial, personal remittances authorized​ (authorizes banks, money transmitters and brokerage firms to process fund transfers involving non commercial personal remittances only)

The full text of these general licenses can be found here.

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Summary of BIS 2011 Update Conference on Export Controls and Policy (Part 2 of 2)

For those readers that were not able to attend last month's Update 2011 Conference on Export Controls and Policy in Washington, DC, we are presenting a two part summary of the conference prepared by Benjamin Tarr, a law student at the American University's Washington College of Law who is focusing on international law. Below is part two, which covers days two and three of Update 2011. Part one, which covers the first day of Update 2011, can be found here.

Wednesday July 20, 2011

This day began with an Interagency Panel featuring speakers from BIS and the Departments of State and Defense. The first speaker was Ann Ganzer, Acting Assistant Secretary of State for Non-Nuclear and Counter Proliferation. She underscored the need for a multilateral approach to export controls that would curtail and prevent instability. She noted that the State Department is working with the United Nations on arms embargo treaties and is working towards worldwide acceptance of non-proliferation standards in subsequent treaties.

Mr. Anthony Aldwell, Deputy Director of the Defense Technology Security Administration (DTSA) highlighted four factors to be considered for whether to issue export licenses. First, the end state’s policies should be evaluated for friendliness or antagonism towards America’s interests. Second, the end state’s technology level shall be considered. Third, consider the end-user and its history. Fourth, consider the export licenses’ impact on America’s international agreements to ensure compliance with international law. 

He also discussed the key objectives of export control policy, including: protecting assets that give America’s military a critical edge in the fight against terrorism; fostering partnerships among allies; it should enhance enforcement and intelligence agencies.

Wednesday's keynote address was presented by Georg Pietsch, who serves as Director General, Export Controls, of Germany's Federal Office of Economics and Export Controls, which is is commonly known as BAFA.  Mr. Pietsch noted in 2010 approximately 2,700 companies, most of these medium sized companies, submitted over 35,000 formal licence applications to BAFA. In addition, more than 10,000 general inquiries were sent to BAFA’s technical and administrative experts. He noted that number of licence applications has increased by over 50% in six years and the total value of export licence applications received by BAFA in 2010 was approximately 13 billion Euros. He noted that this growth has been very difficult to handle for BAFA and is another reason why BAFA has been following the export control reforms in the U.S. very closely.

Mr. Pietsch addressed how U.S. export controls impact German and other European companies and he noted some legal concerns on the implementation of the State Department's recently published final rule on dual and third country nationals. In addition, he addressed how U.S. export control rules involving classification, exports/reexport and de minimis calculations have a significant impact on German companies.

Mr. Pietsch also addressed BIS's new Strategic Trade Authorization (STA) license exception. On the one hand he noted that "the willingness to enact such liberalizations for long-time partners is without doubt a step in the right direction to get rid of some ineffective, unduly burdensome regulations that restrict German–American economic relations." On the other hand he asked "whether the additional documentation requirements that will come with the STA are really necessary in the case of your closest allies" and that such requirements raise a number of issues for companies located in the European Union. (Editor's note: the full text of Mr. Pietsch's  speech can be found here.)

During the afternoon, there were a number of break out sessions, including one on the new I-129 Form and Deemed Exports. The main theme was the poor communication between compliance officials within the private sector.

The first day concluded with a review of export enforcement issues, including a keynote address by David Mills, Assistant Secretary for Export Enforcement and with an export enforcement panel led by Donald Salo, Jr., Deputy Assistant Secretary for Export Enforcement.

Assistant Secretary Mills noted that he is a strong supporter of outreach and information aimed at small to medium sized businesses since understanding all the elements of export controls remains a challenge and compliance with such laws should not need large staffs.

Striking the right balance between compliance, enforcement and the competitiveness of our exporting community is critical, and as a result, we seek to broaden a two-way dialogue on key control and enforcement issues.

With respect to voluntary self-disclosures, which he called a "pivotal element of compliance", Assistant Secretary Mills said that BIS has implemented a process to centralized the review process of VSDs in Washington, DC, which has resulted in more consistent and speedier resolution. He noted that in fiscal year 2010 226 VSD’s were closed.  Of these, 19% were found not to involve any actual violation, and 67% resulted in warning letters only.  Only 6% of the VSDs resulted in administrative sanctions.  He also said that during the first three quarters of fiscal year 2011, BIS received 193 VSDs, a disclosure rate comparable to previous years.

Mr. Mills also discussed some recent export enforcement cases and BIS's current focus on  seeking penalties against individuals or supervisors who are complicit in deliberate export control violations made by subordinates. (Editor's note: the full text of Mr. Mills' speech can be found here.)

Thursday July 21, 2011

           

In addition to the the popular roundtable discussion sessions with staff from BIS and other agencies, the main program on Thursday was an encryption workshop. In this session, the panel examined the changes made to the encryption provisions of the Export Administration Regulations that were published in the Federal Register on June 25, 2010.

This workshop noted some common encryption mistakes made by applicants. One mistake is that companies use the old Supplement No. Five to Part 742 of the EAR. Another common mistake is that the new Note Four to Category 5, Part 2 of the Commerce Control List, which eliminates encryption controls on many items where encryption is not the primary function, does not require registration and Note Four overrides every other Category Five requirement. 

Editor's note: The presentations from most of the panel presentations can be found here on the BIS website.

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Summary of BIS 2011 Update Conference on Export Controls and Policy (Part 1 of 2)

For those readers that were not able to attend last month's Update 2011 Conference on Export Controls and Policy in Washington, DC, we are presenting a two part summary of the conference prepared by Benjamin Tarr, a law student at the American University's Washington College of Law who is focusing on international law.

Day 1 - Tuesday July 19, 2011

The Update 2011 conference presented by the Commerce Department's Bureau of Industry and Security (BIS) commenced with a short welcome address from Mr. Bernard Kritzer, who serves as the Director of the Office of Exporter Services. He applauded President Obama for his August 2009 pledge to reform the export system to create a classification system which allows government organizations to focus on examining sensitive items for classification while allocating less effort to classifying conventional, non-sensitive items for national security reasons.

After Mr. Kritzer’s speech, Deputy Under Secretary for Industry and Security Daniel O. Hill addressed conference attendees. He announced that President Obama’s export control policies have succeeded, despite widespread skepticism and opposition expressed during Update 2010. Mr. Hill placed special emphasis on the fact that President Obama has led the effort to place the Defense, State and Commerce departments all on the same export control IT system, thus enabling greater efficiency in the export control process. Mr. Hill commended the participants in Update for attending, as the sold-out nature of the conference indicates a surge in interest and attention given to this field.

The morning’s events culminated with a by Eric L. Hirschhorn, Under Secretary for Industry and Security. Under Secretary Hirschhorn opined that the current export control system is based on outdated Cold War technologies and “is not responsive to current threats.” He noted that export control policy and American global competitiveness is directly linked to national security. He applauded the current efforts to implement of a more simplified U.S. Munitions List that created a tiered structural system designed to control sensitive items. This is important, according to Mr. Hirschhorn, because the private sector now manufactures most of the goods used by the military. He believes that the government should focus its resources on the most sensitive items going to countries that pose great risks to U.S. national security. Less important military items should be subject to lesser scrutiny than should items of high sensitivity.

Mr. Hirschhorn elaborated on the Administration's three-tiered control list and mentioned the recent implementation of license exception Strategic Trade Authorization (STA) where exporters can export certain items license-free, absent any specific statutory requirements, to 36 countries including Canada, Australia and countries in the European Union. Specifically, these export reform efforts have focused on eliminating “easy cases” from governmental scrutiny vis-à-vis licensing to enable government resources to focus more of its energy on cases that require further examination as to whether or not to grant licenses. License exception STA will potentially eliminate 3,000 of the 22,000 licenses issued by BIS.

Under Secretary Hirschhorn also mentioned the Administration's role in continuing the sanctions regimes on North Korea, Iran, and Cuba. He also noted BIS's role in efforts to implement UN Security Council Resolution 1540, which directs U.N. members to establish an export control system and to collaborate to advance non-proliferation and counterterrorism goals. Additionally, he noted the Executive Order requiring the BIS, FBI, and military intelligence to share information in counterterrorism efforts.

With respect to enforcement of export control laws and regulations, Mr. Hirschhorn mentioned that BIS will continue to penalize individuals for deliberate violations of BIS regulations with punishment including, but not limited to, fines, imprisonment, and a denial of export privileges. However, the penalties can be mitigated if voluntary self-disclosed. (Editor's note: the full text of Under Secretary Hirschhorn's speech can be found here.)

The next speaker was Assistant Secretary for Export Administration Kevin Wolf who noted that his three goals since joining BIS were: first, to ensure aggressive compliance with the laws and regulations that we have now; second, trying to address the biggest problems that exporters face on a day-to-day basis, such as unnecessary impediments on trade with U.S. allies and dealing with the overlap between the U.S. USML and the CCL. His long-term goal is to address the compliance burden faced by those subject to the U.S. export control system.

Assistant Secretary Wolf then provided detailed information on the recently published proposed rule on how items removed from the USML will be eventually controlled on the CCL. He also mentioned that later this year BIS will be issuing a notice soliciting public comments on efforts that can be taken to streamline and clarify the EAR and are reviewing the public comments received on the notice seeking information on making the CCL a more positive list. He noted that it is BIS's goal by the end of 2012 to have a comprehensive proposal to simplify the EAR and start addressing the regulatory compliance burdens that drain corporate resources. (Editor's note: the full text of Assistant Secretary Wolf's speech can be found here.)

The lunch speaker was William Daley, President Obama’s Chief of Staff and a former Secretary Commerce. He noted that President Obama’s goals will allow the U.S. to double its exports in five years. He also criticized the U.S. control system because it still contains two control lists, each with its own control and IT policies and noted that “One branch doesn’t know what the other is doing.” (Editor's note: The White House's summary of Daley's remarks can be found here).

In one of the afternoon break out sessions, panelists from BIS, OFAC, the State Department and DTSA briefed attendees on sanctions policy issues. Among other things, they noted the recent sanctions imposed on certain companies under the amended Iran Sanctions Act and recently listed Iran Air and Tidewater Mid East Company as supporters of Iran’s WMD program and has imposed sanctions on these two companies. Regarding the situation in Libya, BIS has suspended all licenses to Libya. However, no changes have been implemented vis-à-vis exception eligibility for licenses to Libya.

South Sudanese independence has resulted in challenges to BIS since the U.S. must decide which sanctions, if any, apply to South Sudan. Currently, South Sudan is not subject to anti-terrorism controls that previously applied to all of Sudan. But, sanctions do apply to areas where Sudan and South Sudan cooperate, including much of the oil and gas industry.

Editor's note: The presentations from the Sanctions Panel and other panel presentations can be found here on the BIS website.

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Complimentary Export Controls and Sanctions Programs to be Held in Chicago and Milwaukee on September 7 and 8, 2011

ATTUS Technologies, a leading provider of restricted party screening solutions, will be hosting complimentary breakfast seminars in Chicago, Illinois and Milwaukee, Wisconsin on "Hot Topics in Export Controls and Sanctions Compliance."

The programs, which will be presented by Washington, DC-based export controls and trade attorney Douglas N. Jacobson, will be held in Chicago on September 7, 2011 and in Milwaukee on September 8, 2011. The programs will feature the following topics:

• Update on OFAC sanctions programs on Sudan, Libya, and other countries


• Export Controls and sanctions enforcement update


• Complying with I-129 Export Control Licensing Question and Deemed Export Compliance


• Antiboycott Compliance – What you need to know


• Merger and Acquisition Due Diligence: Importance of Reviewing Compliance With Export Controls and Sanctions Laws


• Plus, the latest news and status on U.S. export control reform efforts, including license exception STA 

Registration for these program is complimentary. For further information and to register see the following links: Chicago and Milwaukee.

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BIS Adds 15 Parties and Makes Other Changes to Entity List

Today the Bureau of Industry and Security (BIS) published a final rule in the Federal Register (pdf) adding 15 parties to the Entity List and making a number of changes to other entries as a result of the agency's annual review of the Entity List.

The Entity List includes the names of businesses, research institutions, government organizations and individuals that have been identified as being involved in activities that merit additional scrutiny and can trigger licensing requirements, even for items that may not otherwise require an export license.

The 15 parties added to the Entity List included a number of individuals, companies and airlines located in Cyprus, Greece, Iran, Syria, Ukraine and the United Kingdom.  These parties were added to the Entity List for violating U.S. restrictions involving exports to Syria and Iran. As a result of being added to the Entity List, a license will be required to export any item subject to the jurisdiction of the U.S. Export Administration Regulations (EAR) to any of the 15 parties and license exceptions are not available for transactions involving these parties. In addition, there will be a presumption of denial of any license application submitted involving any of these parties.

The changes to the Entity List also included modifying a number of current entries involving entities located in Syria and China.

For further information on the importance of checking the Entity List, see our previous post entitled "Failing to Check Entity List can be Costly."

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Failing to Check BIS Entity List Can be Costly (From the ATTUS Technologies Blog)

The following article was recently published on the ATTUS Technologies Blog and is reprinted by permission.

Failing to Check BIS Entity List Can be Costly

By Douglas N. Jacobson*

The recent payment of a $200,000 civil penalty to settle an enforcement action brought by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) serves as an important reminder to parties involved in export transactions of the need to check all restricted party lists maintained by the U.S. Government in connection with export transactions, including the Entity List.

On July 28, 2011, the Deputy Assistant Secretary for Export Enforcement signed an order approving a settlement agreement whereby freight forwarder Toll Global Forwarding (USA) Inc. agreed to pay $200,000 to settle allegations that a company that it had previously acquired, Baltrans Logistics, Inc., had arranged for the export of a number of shipments to organizations in India that were included on BIS’s Entity List.

BIS maintains three restricted party lists: the Denied Persons List, the Entity List and the Unverified List. The Entity List includes the names of businesses, research institutions, government organizations and individuals that have been identified as being involved in activities that merit additional scrutiny and licensing requirements. The entries on the Entity List specify the license requirements and license review policy that are applicable to shipments to each listed entity. In some cases, a license will be required to ship items classified as EAR99 to the customer, even when a license would not normally be required. In other cases, all items subject to the Export Administration Regulations will require a license. The export license review policy also varies from entity to entity. In some cases, there is a presumption of approval or denial and, in other cases, the license will be reviewed by BIS on a case-by-case basis.

In this case, the freight forwarder arranged for the export of electronic components and platinum pellets, both classified as EAR99, from the U.S. to Bharat Dynamics Limited and the Solid State Physics Laboratories in India. While the export of EAR99 items to India would not normally require an export license, Bharat Dynamics Limited and the Solid State Physics Laboratories were included on the Entity List at the time the shipments occurred. The BIS licensing policy for these entities was a “presumption of approval for EAR99 items” and thus an export license may have been issued if a license application would have been submitted.

Because the freight forwarder either did not check to determine whether these two organizations were included on the Entity List prior to the shipment or was not aware of the export license requirements, the freight forwarder was charged by BIS with nine violations of 15 CFR § 764.2(b), causing, aiding and abetting an act prohibited by the Export Administration Regulations (EAR).

In addition to agreeing to settle this case for $200,000, the settlement agreement requires the freight forwarder to undergo an external export compliance audit and submit the results of the audit to BIS next year. The settlement agreement also requires that any potential violations of the EAR must be submitted to BIS for review and that the failure to pay the penalty or submit the audit results as required could lead to a denial of the freight forwarder’s export privileges.

While Bharat Dynamics Limited and the Solid State Physics Laboratories were removed from the Entity List on Jan. 25, 2011, BIS adds new parties to the Entity List and the other lists that it maintains on a regular basis. The charging letter, settlement agreement and other documents related to this case can be found here.

*Douglas N. Jacobson is a Washington, D.C.-based attorney who specializes in export controls, sanctions and other international trade legal issues. He can be reached at (202) 431-2407 or info@djacobsonlaw.com.

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