Sanctions Archives | Page 4 of 5

U.S. and Australia Start Negotiations over CLOUD Act Agreement and Host Roundtable on Trusted Technology Ecosystems

October 8, 2019 by Bruce Zagaris Leave a Comment

On October 7, 2019, the United States and Australia announced they have entered into formal negotiations for a bilateral agreement under the U.S. Clarifying Lawful Overseas Use of Data Act (the CLOUD Act). The two governments also hosted a roundtable on trusted technology ecosystems.

Negotiations of a CLOUD Act Agreement

United States Attorney General William Barr and Australian Minister for Home Affairs, Peter Dutton, announced the negotiations during a meeting.

Supported by Australian legislation yet to be introduced, a bilateral CLOUD Act agreement would enable Australian law enforcement to serve domestic orders for communications data needed to combat serious crime directly on U.S.-based companies, and vice versa.

On October 3, 2019, the United States and United Kingdom concluded the first ever CLOUD Act Agreement. It will permit U.S. and British law enforcement agencies, with appropriate authorization, to demand electronic data concerning serious crime, including terrorism, child sexual abuse, and cybercrime, directly from tech companies based in the other country, without legal barriers.

The announcement of U.S.-Australian negotiations of a CLOUD Act Agreement provides additional momentum to the U.S. government efforts of having an expedited process for directly obtaining access to electronic evidence from the platform providers.

Roundtable on Trusted Technology Ecosystems

Also on October 7, Attorney General William P. Barr and Australian Minister for Home Affairs Peter Dutton hosted a government-industry roundtable discussion titled, “Shaping a Trusted Technology Ecosystem,” with more than a dozen representatives from the tech-industry landscape.

A Department of Justice press release characterized the dialogue as a critical step in jointly addressing complex supply chain challenges faced by both nations. The collaborative discussion presented an opportunity for industry, Australia and the United States to work together on solutions to ensure an open marketplace, achieve a diverse range of secure technology options, and enhance global technology markets characterized by trust, transparency, and fair competition. One issue is whether to try to prevent Huawei from developing for the Western countries and the world in general the 5G network. The U.S. does not trust Huawei from a national security perspective because it believes that the Chinese government will control Huawei’s practices and enable the Chinese government to obtain surveillance periodically. Until now, Australia has cooperated with the U.S. on the initiative to block Huawei even though Australia is increasingly subject to Chinese economic and foreign policy pressure due to China’s growing role in Australia and the region. The issue of trusted technology ecosystems also concerns the Internet and data privacy.

The U.S. Responds to Iranian Attack on Saudi Oil Facilities with Heightened Sanctions

September 30, 2019 by Miranda Bannister Leave a Comment

The United States responded to Iran’s recent attacks on Saudi oil facilities with sanctions against the Central Bank of Iran (CBI), the National Development Fund of Iran (NDF), and the private Iranian corporation Etemad Tejarate Pars Co. The Trump administration called these the “strongest sanctions ever put on a country” and Treasury Secretary Stephen Mnuchin claimed, “We’ve now cut off all source of funds to Iran.”

The Road to the September Sanctions

The latest sanctions represent the culmination of a long economic campaign against Iran, which began when the U.S. withdrew from the Iran nuclear deal in May 2018. The campaign, described by President Trump as “maximum pressure,” started with the reinstatement of sanctions that had been lifted under the Obama administration. In the same week that President Trump withdrew from the nuclear deal, his administration designated the head of the CBI, Valiollah Seif, as a global terrorist in an unprecedented step.

The most recent U.S. sanctions on Iran have heightened pressure on other states to isolate Iran. Sigal Mandelker, Under Secretary for Terrorism and Financial Intelligence, stated, “We are putting governments on notice that they are risking the integrity of their financial systems by continuing to work with the Iranian regime’s arm of terror finance, its Central Bank.”

France, Germany, and the UK have led efforts to salvage the nuclear deal with Iran, despite the U.S.’s withdrawal in May 2018. However, these states have changed their rhetoric since Iran’s attack on the Saudi oil facilities. The three countries released a joint announcement on September 26, 2019 that any further action in violation of the nuclear deal on the part of Iran would trigger the deal’s “dispute resolution mechanism.” Under this mechanism, the EU, China, and Russia would have the option to reimpose economic sanctions on Iran that were formerly lifted. If taken, this move might spell an end to the nuclear deal.

The Targets of the Latest Sanctions

In recent years, the CBI and NDF have coordinated to provide funds to the Islamic Revolutionary Guards Corps (IRGC)—a terrorist organization—as well as its Qods Force (IRGC-QF) and terrorist proxy, Hizballah. Meanwhile, Etemad Tejarate Pars Co. has funded Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) in close coordination with CBI.

The CBI is responsible for providing the large majority of the IRGC-QF’s foreign funding, and CBI officials have collaborated with the officially designated terrorist organization’s leadership. It was responsible for sending billions in both USD and euros to the IRGS-QD, as well as for coordinating the transfer of funds from other Iranian institutions, including the NDF, to officially designated terrorist organizations. The NDF’s contributions to the IRGC-QF via the CBI totaled half a billion dollars in 2017 and hundreds of millions of dollars in 2018.

The NDF depends upon the CBI to transfer its funds and works closely with the CBI and Iranian government officials. The board of trustees for the NDF include the governor of the CBI, Abdolnaser Hemmati, as well as Iranian President Hassan Rouhani. It is the Board of Trustees that collectively determines the Executive Board at the helm of the organization.

The intended purpose of the NDF under Article 84 of the Fifth Development Plan of the Islamic Republic of Iran, enacted in 2011, is to redistribute national oil and energy revenue towards economic development in the states. The Treasury Department claims it has erred from this goal in its support of terrorist organizations.

The CBI transferred funds to MODAFL for military purchases via the private Iranian organization Etemad Tejarate Pars Co. The latter was also designated for sanctions last week.

The Effect and Efficacy of the Sanctions

The sanctions require U.S. persons to block and report to the Treasury Department’s Office of Foreign Assets Control (OFAC) any property these organizations hold within the U.S. Furthermore, the Treasury Department warns,

In addition, persons that engage in certain transactions with the entities designated today may themselves be exposed to designation. Furthermore, any foreign financial institution that knowingly facilitates a significant financial transaction or provides significant financial services for entities designated in connection with Iran’s support for international terrorism or any Iranian person on OFAC’s List of Specially Designated Nationals and Blocked Persons could be subject to U.S. correspondent account or payable-through account sanctions.

This means the new sanctions will be effective only if two conditions are met. First, the designated groups must have significant holdings tied up in the U.S. for there to be an effect. Second, enforcement of these sanctions, meaning the flagging and sanctioning of individuals and even foreign entities cooperating with the designated groups, must be strict.

Since May, the European diplomats from France, Germany, and the UK have objected to the U.S.’s high pressure campaign on the basis that it leaves no bargaining chips aside from further sanctions and further escalates aggression between Iran and the West. Several leading Member States of the EU remain unconvinced that further heightened sanctions will effect meaningful negotiation or peace in the coming months.

Updated Executive Order Provides Enhanced Counterterrorism Sanctions and Targets Foreign Financial Institutions

September 11, 2019 by Bruce Zagaris Leave a Comment

On September 10, 2019, President Donald Trump issued a revised Executive Order 13224, furnishing the Treasury and State Departments new mechanisms permitting the U.S. Government to better identify and designate perpetrators of terrorism worldwide, especially ones involved in terrorism financing. Also on September 10, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) used the new authorities in E.O. 13324 to designate a series of terrorist leaders, facilitators, and entities.

Treasury designated 15 leaders, individuals, and entities affiliated with terrorist groups. The action targets entities affiliated with HAMAS, the Islamic State of Iraq and Syria (ISIS), al-Qa’ida, and the Islamic Revolutionary Guard Corps-Qods-Force (IRGC-QF), and combined with actions taken by the State Department amounts to some of the furthest reaching designations of terrorists and their supporters in the past 15 years.

The President’s revised E.O. and Treasury’s announcement of new designations came just one day before the eighteenth anniversary of 9/11 attacks that occurred on September 11, 2001. The purpose of the original E.O. 13224 was to disrupt the financial infrastructure of terrorist groups worldwide. Treasury’s press release states that E.O. 13224 has helped to dismantle networks supporting a broad range of terrorist groups from al-Qa’ida and ISIS to Iranian-backed groups like Hizballah and HAMAS. The E.O. also is an important mechanism in the U.S. Government’s efforts to drain the financial resources of the Iranian regime’s bad actors including the IRGC, and its foreign expeditionary arm, the Qods Force (IRGC-QF).

Revised E.O. 13324 and New CounterTerrorism Tools

The revised E.O. 13224 gives the Treasury and State Departments new tools that permit the U.S. Government to better identify and designate terrorist perpetrators worldwide. In particular, the E.O.:

Has new designation criteria that permits the U.S. Government to more efficiently target leaders or officials of terrorists groups as well as individuals who participate in terrorist training;
Provides for secondary sanctions against foreign financial institutions that have knowingly conducted or facilitated significant financial transactions on behalf of any person sanctioned pursuant to E.O. 13224;
Authorizes Treasury to prohibit a foreign financial institution that has knowingly conducted or facilitated a significant transaction with any Specially Designated Global Terrorist (SDGT) from opening or maintaining a correspondent or payable-through account in the United States; and
Consolidates U.S. counterterrorism authorities under a single sanctions program by eliminating E.O. 12497 and combining that authority’s goal of defending the Middle East Peace Process with E.O. 13224’s global remit and expanded authorities.
The new authority warns foreign financial institutions that enabling terrorists and their financial backers to rely upon the international financial system to facilitate their malign activities will have consequences.

New Targets of Treasury’s Sanctions under E.O. 13224

Treasury has sanctioned a broad away of persons. Among them is the Turkish-based Redin Exchange for materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to, HAMAS. As of March 2019, the Redin Exchange and Treasury-designated financial facilitator Muhammad Sarur as having been involved in a $10 million dollar transfer to HAMAS’s operational arm, the Izz-Al-Din Al-Qassam Brigades. As of mid-2018, Redin Exchange was identified as a key part of the infrastructure used to transfer money to HAMAS. Throughout 2017, tens of millions of dollars was transferred to HAMAS with the assistance of Redin Exchange.

Treasury sanctioned Marwan Mahdi Salah Al-Rawi as Redin Exchange’s Chief Executive Officer, and Ismael Tash, as its Redin Exchange’s Deputy CEO and in charge of its foreign relations.

Treasury sanctioned Lebanon-based Muhammad Sa’id Izadi as a leader or official of the IRGC-QF who has materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, HAMAS.

The Turkey-based Zaher Jabarin was sanctioned as the head of HAMAS’s Finance Office. He allegedly manages HAMAS’s yearly budget amounting to tens of millions of dollars, is in charge of HAMAS’s income from around the world, and seeks to obtain add additional sources of funding for HAMAS.

Treasury has sanctioned SMART Ithalat Ihracat Dis Ticaret Limited Sirketi. Ismael Tash is also newly sanctioned. He is the owner of SMART, which is an import/export company and possible front company associated with Redin. Both SMART and Redin Exchange share the same Istanbul –based address.

Saksouk Company for Exchange and Money Transfer (Saksouk) was sanctioned for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, ISIS. In late 2018, Saksouk handled fund transfers on behalf of Syria-based ISIS members.

Treasury has sanctioned Mohamed Ahmed Elsayed Ahmed Ibrahim, a Brazil-based member of al-Qa’ida, who provided facilitation support to al-Qa’ida members and material support to al-Qa’ida.

Treasury has sanctioned Almaida Marani Salvin for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, ISIS-Philippines. In April 2019, Philippine authorities arrested Salvin in Zamboanga City, Philippines, based on her being suspected of unlawful manufacture, sale, acquisition, disposition, importation, or possession of an explosive or incendiary device.

Maldives-based Mohamad Ameen was sanctioned for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, ISIS-Khorasan (ISIS-K). He is allegedly an ISIS-K recruiter who encouraged people to join ISIS-Khorasan.

Treasury has sanctioned Al-Hebo Jewelry Company for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to ISIS. As of late 2017, al-Hebo’s location in Gaziantep, Turkey allegedly participated in an ISIS scheme to convert gold into cash to more efficiently and secretly send funds via hawalas in Turkey to ISIS sleeper cells in Iraq and Syria.

Analysis

A significant new tool in the revised E.O. 13224 is the provision of secondary sanctions against foreign financial institutions that have knowingly conducted or facilitated significant financial transactions on behalf of any person sanctioned pursuant to E.O. 13224. Treasury will be able to force people to choose between using foreign financial institutions under the threat of the secondary sanctions. The ability of Treasury to prohibit a foreign financial institution that has knowingly conducted or facilitated a significant transaction with any Specially Designated Global Terrorist (SDGT) from opening or maintaining a correspondent or payable-through account in the U.S. is also an important sanction.

The new persons sanctioned show the diversity of types of occupations sanctions (e.g., recruiters, financial institutions, jewelers, import-export businesses, CEOs and Deputy-CEOs of financial institutions).

The persons are located worldwide (e.g., Turkey, Lebanon, Maldives, Brazil, Syria, and the Philippines).

The current issue of the IELR will have a more comprehensive discussion of the revised E.O. and the new sanctions.

U.S. Imposes Sanctions in Effort to Curb Flow of Fentanyl from China

September 5, 2019 by Alexandra Haris Leave a Comment

On August 21, United States Department of Treasury imposed financial sanctions on three Chinese nationals and two companies accused of producing and shipping fentanyl, a deadly synthetic opioid, to the U.S.

The sanctioned nationals include Guanhua Zheng, 63, and Fuijing Zheng, 36, a father and son indicted in Ohio last year on charges of producing and smuggling fentanyl and fentanyl-related substances. The third man, Xiaobing Yan, 42, was linked to similar charges in Mississippi in 2017. The two companies were identified as Qinsheng Pharmaceutical Technology and the Zheng Drug Trafficking Organization, both of which are based in Shanghai.

The Under Secretary of the Treasury Department, Sigal Mandelker, claims their trafficking operations are “directly contributing” to the crisis of opioid addiction, overdoses, and deaths in the U.S. Mandelker also explained to reporters that the Zhengs and Yan shipped hundreds of packages of Fentanyl to the U.S., targeting their customers through online advertising and using commercial mail services to smuggle the deadly substance.

Since the indictments of the three nationals, the U.S. has pressured China to arrest them but they all, along with five other Chinese citizens indicted in the U.S. for fentanyl trafficking, remain free. This catalyzed the U.S. Treasury Department’s decision to identify the nationals as significant foreign narcotics traffickers pursuant to the Foreign Narcotics Kingpin Designation Act (the “Kingpin Act”), creating legitimate grounds for imposing sanctions.

This act enables anyone who is identified as a significant foreign narcotics trafficker to be placed under a law that freezes any property they control within the U.S. and bars American citizens from doing business with those properties. Additionally, the men face penalties ranging from civil fines up to $1.1 million per violation.

Along with these sanctions, the Foreign Crimes Enforcement Network (FinCEN) issued an advisory to financial institutions about financial schemes related to the trafficking of these synthetic opioids. The goal is to equip these institutions with sufficient information to assist them in detecting and reporting criminal activity.

White House counselor Kellyanne Conway expressed the administration would “continue to name and shame and prosecute and punish people who are peddling their poison into our kids and into our communities. Meanwhile, U.S. officials point to China as the main source of fentanyl and fentanyl-related substances and claim the substances are primarily entering the country from China via international mail.

China’s foreign ministry spokesman, Geng Shuang, responded to the sanctions on August 22, telling reporters in Beijing that the country’s government and the U.S. were cooperating on the anti-narcotics “front,” and had communicated on specific cases, although he declined to elaborate on specifics.

The two countries appear to have been working together on the issue since November 2018, when Xi made a pledge to Trump to take action as part of trade negotiations. A few months later, on May 1, Beijing announced the expansion of state controls to include the 1,400 known fentanyl-related substances, and new ones developed in the future. This move designated all of these substances as illegal.

Coincidentally, the sanctions come three weeks after President Trump took to Twitter to accuse Chinese President Xi Jinping of revoking its promise to stem the flood of fentanyl into the U.S. China responded to the accusation, labeling it as “blatant slander” and claiming authorities have made “unprecedented efforts” to address the country’s illicit fentanyl production and trafficking.

The Trump administration’s urgency to address the Chinese fentanyl trade is part of the government’s attempt to thwart the rampant opioid crisis plaguing the U.S. While there are a range of opioids contributing to the crisis, the presence of synthetic opioids, such as fentanyl, is rapidly increasing due to its ease of synthetization and affordability. Fentanyl, responsible for more than 30 percent of opioid overdoses, is so potent that it is 50 times stronger than heroin and just two milligrams, equivalent to a few grains of sand, can lead to death. The substance can be traced to the deaths of thousands of Americans, including the likes of Prince, Tom Petty, and Mac Miller.

U.S. authorities are continually trying to crack down on drug rings that are trafficking the substance. Most recently, on August 31, law enforcement officials busted a lab in Virginia linked to a multi-state drug ring and seized enough fentanyl from the Shanghai-based vendor to kill 14 million people. The vendor had mailed the fentanyl through the U.S. Postal Service.

Amidst this crisis and the clear tension between the U.S. and China over how it is being handled, is the ongoing trade war between the two countries. It is unknown whether or not the recent sanctions from the Treasury Department will have an impact on Beijing. Some experts believe any crackdown by Beijing on the production and trafficking of opioids will depend on meaningful progress toward resolving trade war. However, implications will soon become clearer. On September 5, the countries announced they will resume trade talks in early October with “good negotiating conditions.”

Former-MLB Players’ Alleged Involvement in Drug Trafficking Ring Brings Attention to OFAC’s Kingpin Act

August 28, 2019 by Alexandra Haris 1 Comment

On Tuesday, August 20, two ex-Major League Baseball (MLB) players, Octavio Dotel and Luis Castillo, and 16 others were accused of being linked to a criminal network in the Dominican Republic to smuggle drugs from South America to the United States. Authorities arrested Dotel and cited Castillo for their involvement.

The authorities who made these arrests are attempting to close in on a notorious drug-trafficking and money-laundering ring lead by kingpin César Emilio Peralta, also known as “César El Abusador.” According to prosecutors, this operation, which involves hundreds of narcotics agents, prosecutors, and other government officials, could be the largest targeting of organized crime in the Dominican Republic’s history. In addition, the country’s attorney general, Jean Alain Rodríguez, labeled the dismantlement of Peralta’s network as “the most important drug trafficking structure in the region.”

The charges of the former MLB players remain unclear, but Rodríguez indicated during a press conference that Peralta utilized them as a means to launder money with a “complicated corporate framework to disguise the origin of his fortune, also using numerous individuals belonging to his family and social circle to hide his assets.” During the press conference, Rodríguez also explained that the players are collaborating with the U.S.’ investigation and are exchanging information with the Federal Bureau of Information (FBI) and the Drug Enforcement Administration (DEA). Coincidentally, their alleged connections were announced two months after another Dominican MLB player, David Ortiz, was accidentally shot.

Prior to their present-day situation, Dotel and Castillo experienced fruitful baseball careers. Dotel earned $41.1 million during a 15-year pitching career for the MLB and, before retiring in 2013, he went to the World Series twice. He set a record for playing on more teams than any other player, at a total of 13 teams. Castillo made $56.8 million during his career as an infielder from 1996-2011 and was a three-time All-Star, acquired three Gold Gloves, and won the 2003 World Series with the Florida Marlins. Citing his success, Castillo denied his involvement on Twitter writing, “The truth is my country no longer works, my God, do you think that after making millions of dollars in Baseball I am going to dirty my hands with drugs?”

Shortly after Dotel’s arrest and Castillo’s alleged involvement was announced, the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) got involved by identifying Peralta and his organization as “significant narcotics traffickers” pursuant to the Foreign Narcotics Kingpin Designation Act (the “Kingpin Act”). As a result, all assets in which Peralta’s organization and members have an interest in the U.S. or in the possession of the U.S. will be blocked and must be reported to OFAC. According to the Under Secretary for Terrorism and Financial Intelligence, Sigal Mandelker, “Treasury is targeting these Dominican drug kingpins, their front persons, and the nightclubs they have used to launder money and traffic women…This administration continues to systematically target strategically important drug kingpins and cartels fueling our country’s opioid epidemic.”

Since OFAC issued the Kingpin Act, more than 2,100 entities and individuals—namely the Sinaloa Cartel, previously led by kingpin Joaquín “El Chapo” Guzman—have been named pursuant to the Kingpin Act for their role in international narcotics trafficking. The act became law in December 1999 with the intent to deny international narcotics traffickers access to the U.S. financial system and to prohibit trade between the traffickers and the U.S. As listed in Section 805(b) of the law, this denial is authorized when the President determines that a person or entity plays a significant role in international narcotics trafficking. The law was modeled after Executive Order 12978, which was issued in 1995. This order became an effective sanctions program against the Colombian drug cartels.

In order to implement the Kingpin Act, the U.S. Department of Treasury must identify drug kingpins as “significant narcotics traffickers,” and suggest the President impose sanctions on them. Not only may these sanctions target the kingpins themselves, but they can also include their businesses and, as is seen in the present case of Peralta’s organization, their operatives. Individuals who violate the Kingpin Act may face up to 10 years in prison and/or fines pursuant to Title 18 of the U.S. Code. Furthermore, officers, directors, and agents who knowingly participate in a violation of the act can be penalized up to $5 million in fines and/or up to 30 years in prison.

Since the Kingpin Act became law, there have been outspoken proponents and opponents of the law. The former head of the Office of Financial Operations at the DEA, Donald Semeski Jr., said the act has been “tremendously effective” in protecting the U.S. from the “scourge” of illegal drugs. Contrarily, Eric Olson, the deputy director of the Wilson Center’s Latin American Program, said the use of the Kingpin List, while “powerful and legitimate”, “carries with it the risk of collateral damage that can potentially undermine legitimate sectors of the financial system and ultimately the economy.” Olson cited the case of the Rosenthal family and their money-laundering network in Honduras as support for his claim. The family was sanctioned by the U.S. Department of Treasury in 2015, which undeniably hurt their criminal network but, as a result, created sentiments of uncertainly among the U.S. clients and employees of the family’s legitimate businesses.

Another critique of the Kingpin Act is the lack of due process for the sanctioned entities and individuals. Semesky claimed the process for adding names to the Kingpin List is thorough, but did admit to errors in the past. For example, in 2017, the U.S. had to withdraw more than 20 Latin American entities from the list after they successfully argued they were wrongfully sanctioned. In addition, it can sometimes be difficult for American individuals and organizations to determine if they are dealing with a blocked entity since most small U.S. businesses do not have the resources to uncover this information. Former U.S. federal prosecutor David Hall argued that “placing the burden on these businesses is not fair or practical.”

Now, 17 years after the implementation of the Kingpin Act, suggestions are pouring in over improving evaluation of the act’s effectiveness and commissioning a comprehensive review of the pros and cons of the Kingpin List’s sanctions. It is unknown if OFAC plans to make any amendments to the law, but it is clear that the office will continue to pursue Peralta’s operation and similar drug trafficking organizations.

Iran’s Foreign Minister Claims Trump’s Sanctions are Response to Declined Invitation

August 13, 2019 by Alexandra Haris Leave a Comment

On July 31, the Trump administration imposed sanctions against Iran’s Foreign Minister Mohammad Javad Zarif for complying with the Iranian ‘regime.’

Five days later, Zarif responded by claiming the Trump administration imposed financial sanctions on him in response to his declined invitation to visit the White House.

The current situation of Iranian sanctions has both the U.S. and Iran pointing fingers at the other. The U.S. Treasury Department’s Office of Foreign Assets Control claimed it was imposing the sanctions on Zarif for acting on behalf of Iran’s supreme leader, Ayatollah Ali Khamenei. Khamenei was recently placed under U.S. sanctions as well. Treasury Secretary Steven Mnuchin said, “Javad Zarif implements the reckless agenda of Iran’s Supreme Leader…The United States is sending a clear message to the Iranian regime that its recent behavior is completely unacceptable.” On the other hand, Zarif responded by saying the restrictions are a “failure of democracy” and he was told while in New York for United Nations (UN) meetings that if he didn’t accept an invitation to the White House, Trump would sanction him. He also claimed the U.S. was designating him because he is Iran’s primary spokesperson around the world. U.S. officials have yet to confirm his statements.

The Trump administration issued sanctions against Zarif that would block any property or interests he has in the U.S. These financial sanctions sound damaging; however, Zarif claims they will have no effect on him or his family as he has no property or interests outside of Iran. The Trump administration would not elaborate on how many assets Zarif has in the U.S. financial system, eluding that the strain placed on him may, in fact, be minimal.

After announcing the sanctions, the Trump administration faced some domestic praise and backlash. An avid supporter of the president, Sen. Lindsey Graham (R – SC), said he believes Zarif deserved the sanctions since he is empowering a regime that is “the largest state sponsor of terrorism.” Others, however, are more doubtful. Sen. Chris Murphy (D – CT) questioned the administration by saying “If our position is really that we want to negotiate with Iran then maybe we shouldn’t sanction their chief negotiator.” Murphy is referring to Trump’s goal of negotiating a new nuclear deal with Iran and he is correct when he states that Zarif is the primary negotiator between the U.S. and Iran. Even Republican Senator Rand Paul spoke out against Trump’s move, stating that sanctioning diplomats will bring less diplomacy.

Though the Trump administration does not consider Zarif to be a decision-maker, he undeniably played an instrumental role in the 2015 Nuclear Deal and has been the primary negotiator between the two nations in recent years.

While this is one of the more dramatic moves Trump has placed on Iran, it may not be the last. A State Department official claimed that the White House is attempting to block Zarif from acquiring a visa to attend the September UN General Assembly in New York. Although a spokesperson for the department later denied it, saying the U.S. takes its obligations as host of the UN seriously and his visits can still be allowed on a “case-by-case basis.”

These sanctions were announced as tensions between the U.S. and Iran continue to mount. In May 2018, Trump withdrew from the 2015 Iran nuclear agreement, claiming Iran failed to address its ballistic missile program. The goal of the agreement, backed by the Obama administration, was to encourage Iran to dismantle its nuclear program in exchange for relief from economic sanctions. Shortly after backing out of the deal, Trump began a “maximum pressure campaign” to isolate Tehran and re-impose the sanctions that were lifted under the agreement. Predictably, Iran responded by resuming nuclear activities.

In addition to Trump’s sanctions, the U.S. and its allies have been at odds with Iranian forces in the Persian Gulf, where Iran has tried to impede the passage of commercial tankers in the Strait of Hormuz. Recently, in June, Iran shot down a U.S. Navy spy drone and, in July, seized a British-flagged tanker that it said had violated maritime law. This action was interpreted as retaliation for Britain’s involvement in detaining an Iranian oil tanker near Gibraltar on July 4. Iran called the event an “act of piracy” but Britain alleged that the vessel was heading for a Syrian refinery at Baniyas, a violation of European Union sanctions.

Trump has claimed he would like a broader deal with Iran that would address its nuclear program, ballistic missile development, and support for proxy forces in the Middle East, but these additional sanctions are sure to undercut that goal. U.S. Secretary of State Mike Pompeo said on Wednesday the administration still seeks a diplomatic solution but “the only path forward is a comprehensive deal that addresses the full range of its threats. Until then, our campaign of diplomatic isolation and maximum economic pressure will continue.”

It is unclear what practical implications the Trump administration’s actions will bring, but more is sure to unfold in the coming weeks as Zarif travels to New York City for UN meetings.

Trump Caves to Mounting Pressure and Imposes Second Round of Sanctions on Moscow

August 9, 2019 by Alexandra Haris Leave a Comment

On August 1, 2019, the U.S. State and Treasury Departments announced Trump signed an executive order to impose additional sanctions on Russia. This is Trump’s second round of sanctions in response to increased congressional pressure to inflict greater punishment on Russia after they conducted a nerve agent attack in 2018 against a former Russian spy who Putin labeled a “traitor” and “scumbag.”

The sanctions target Russia’s economy and, according to analysts, have escalated tensions to be on par with the Cold War era. The executive order gives the Trump administration power to sanction countries that violate global chemical and biological weapons treaties, including the ability to prohibit U.S. financial institutions, like the World Bank, from lending to them. The official sanctions are as follows: “US opposition to loans or other assistance to Russia from international financial institutions (IFIs), such as the World Bank or the International Monetary Fund (IMF); a prohibition on U.S. banks (1) participating in the primary market for non-ruble denominated bonds issued by the Russian sovereign after August 26, 2019, and (2) lending non-ruble denominated funds to the Russian sovereign after August 26, 2019; and additional licensing restrictions on the export to Russia of US goods and technology on the Commerce Department-controlled list.”

The sanctions are drawn from the Chemical and Biological Weapons (CBW) Act. However, the State Department used waiver authorities to weaken the sanctions from those outlined in the Act – especially the banning of US bank loans to Russia, which will not apply to ruble transactions or to loans to state-owned enterprises.

The Trump administration imposed a first round of sanctions on Russia last year, after it concurred with the U.K.’s conclusion that Moscow was involved in exposing former Russian double agent, Sergei Skripal, and his daughter, Yulia, to a military-grade nerve agent, Novichok, in southwestern Britain. Additionally, the U.S. expelled 60 Russians from Moscow’s embassy. The administration stated that “more draconian” sanctions would be imposed in 90 days unless Russia gives “reliable assurances” that it will no longer use chemical weapons and allow inspections by the United Nations (UN). However, after 90 days there were no assurances and no signs of more sanctions. As a result, congressional pressure on Trump to impose additional sanctions continued to build until now, seven months later, when the administration decided to carry out its promise.

In response, Russian officials claimed they complied with the sanction’s campaign and that the U.S. political system is to blame. According to Russian Deputy Foreign Minister Sergei Ryabkov, “Sadly, the remnants of what was called the Russian-American partnership are now being sacrificed because of the demands of those who simply use relations with Russia as an instrument of domestic political struggle in the United States.” The lawmaker continued by shrugging off the potential consequences of the sanctions, claiming that the country is self-sufficient and this is not a significant threat to the economy. That being said, shortly after the Trump administration announced the sanctions, the Russian ruble plunged against the dollar and the country’s benchmark RTS stock index dipped 3 percent.

While the sanctions have potential to damage Russia’s economy, some economists say they will not have much of an impact since Russia has foreign currency and gold reserves exceeding $500 billion, preventing the need to borrow. In fact, the country’s dependence on U.S. loans is already waning. After sanctions were imposed following the Crimea annexation, Moscow’s U.S. bank loans fell from $45 billion in 2013 to $10 billion this year. On the other hand, the State Department claims that the sanctions will “restrict Russia’s access to the multilateral development bank system and…could curtail Russia’s access to billions of dollars of bilateral commercial activity within the United States.”

Prior to the executive order announcement, Trump faced criticism from lawmakers for delaying “legally mandated action” to follow up on the first round of sanctions. In November 2018, the administration was required to determine if Russia had given the assurances they were no longer using chemical weapons, or else the country would face more sanctions. While Russia never gave these assurances, a second round of sanctions were never imposed. To defend the delay, the Trump administration said the State Department was “consulting with Congress”. Congressional pressure increased last week when the House Foreign Affairs Committee’s top Democrat and Republican sent a letter to the president threatening congressional, “corrective”, action. To Congress’ relief, the second round of sanctions came this month, a day after Trump participated in a phone call with Vladimir Putin to discuss the wildfires currently ravaging through Russia.

As tensions between the U.S. and Russia continue to rise, the future relationship between the two powers remains unclear. While Trump invited Putin to a second summit in Washington last month, the governments are continuously at odds; choosing to be more confrontational than cooperative on seemingly every recent matter. Predictions about the U.S.-Russia relationship moving forward are pure speculation and will depend on domestic developments and international trends. Tensions could dissipate if one nation decides to take a backseat, or tensions could remain in the permanent state if neither country backs down from confrontation or competition.

Stay tuned on the IELR blog as more developments unravel.

U.S. Court of Appeals Affirms Contempt Order Against 3 Chinese Banks for Subpoena Noncompliance

July 31, 2019 by Bruce Zagaris Leave a Comment

By Bruce Zagaris

On July 30, 2019, the United States Court of Appeals for the D.C. Circuit unanimously affirmed a contempt order against three Chinese banks that failed to comply with subpoenas from the U.S. Department of Justice (DOJ).

On April 30, 2019, the U.S. District Court for the D.C. Circuit unsealed an opinion issued on March 18, 2019, by Chief Judge Beryl A. Howell enforcing grand jury subpoenas and an administrative subpoena against three Chinese banks for records of transactions for a now-defunct Hong Kong-based front company for North Korea’s state-operated company.

While the banks involved are not named in court papers, they were previously reported to be the Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank (SPD).

In a unanimous ruling, which is under seal, the circuit panel rejected the banks’ arguments that Chinese banking privacy rules and other laws require that requests for customer records in U.S. criminal inquiries be made through a legal assistance agreement between the two countries.

The case grew out of an investigation by the U.S. Department of Justice into Mingzheng International trading Limited, a Hong-Kong entity that allegedly moved $105 million to FTB, a sanctioned North Korean bank, between 2012 and 2015.

In 2017, a U.S. civil forfeiture action contended that Mingzheng used accounts at the three Chinese banks to transmit the money in violation of sanctions on North Korea. In 2017, the U.S. Treasury sanctioned Mingzheng.

Chinese bank regulatory officials have informed the banks that the only way the banks could comply under Chinese law was through the process established under the bilateral China-U.S. June 19, 2000 Mutual Legal Assistance Agreement (MLAA). The banks have informed the U.S. courts that the Chinese government has ordered them not to provide the requested records. The DOJ visited China in April and August 2018 to discuss China’s repeated failure to respond to MLAA requests, which required the U.S. to proceed through unilateral subpoenas. The DOJ informed the district court that China is unresponsive or much delayed in responding to MLAA requests.

Judge Howell has fined the three Chinese banks $50,000 a day, although the fines were stayed pending the appeal. In addition, SPD, China’s ninth-largest bank by assets risks losing access to U.S. dollars.

The case constitutes the first known instance in which a U.S. court has upheld subpoenas to a Chinese bank in a sanctions investigation. The affirmance by the appellate court will increase the tension between the U.S. and China over sanctions. Already, the U.S. and China are in a contest over the extradition of Meng Wanzhou from Canada, the CFO and Vice President of Huawei, for allegedly making false statements in connection with Huawei’s transactions and business with Iranian entities in violation of U.S. sanctions. Criminal and civil cases are pending in the U.S. against Huawei for, inter alia, stealing intellectual property of U.S. firms. The U.S. is pressuring countries around the world not to use Huawei for developing 5G technology.

Meanwhile, as North Korea has taken diplomatic initiatives to break out of its isolation and UN and U.S. sanctions, the U.S. – through enforcement actions against Mingzheng – has tried to maintain the pressure against North Korea. The next issue of the IELR will report further on this case.

U.S. Sanctioning of a Chinese Trading Company Raise Issues Regarding U.S. Use and Misuse of International Law in Dealing with Iran and China

July 29, 2019 by Evan Schleicher Leave a Comment

On July 22^nd, the Trump administration imposed economic sanctions on the Chinese trading company Zhuhai Zhenrong Co. and its chief executive, Li Youmin, over continuing violations of U.S. sanctions on Iranian oil exports. This decision by the Trump administration highlights a litany of ongoing international legal issues between the U.S., China, and Iran and indicates that the U.S. has no intention of allowing international law to dictate its actions. Instead, the U.S. seeks to use international legal mechanisms as convenient tools by which to pursue an aggressive and standoffish set of foreign policy decisions.

To begin, it is clear the Trump Administration will not allow international law to dictate its sanctions regimes against Iran. In early October 2018, the International Court of Justice (ICJ) reprimanded the United States for the re-imposition of sanctions on Iran, specifically ruling that the U.S. should lift restrictive measures regarding humanitarian aid, medicine, and civil aviation. This move came after Iran complained to the ICJ in July 2018 that the re-imposition of sanctions violated the Treaty of Amity, a 1955 pre-revolution treaty of friendship.

In response to this decision, Secretary of State Mike Pompeo “urg[ed] that the ICJ’s ruling in favour of Iran be ignored, arguing the ‘court failed to recognise its lack of jurisdiction’ and that Iran had ‘attempted to interfere with the sovereign rights of the United States’”. The U.S., far from supporting this ICJ decision, appear in recent days to be actively working against it. President Trump, on July 24, warned that civil aviation companies providing resources and support to Iranian aviation companies, including Mahan Air, would be subject to further sanctioning.

Despite the other parties to the 2015 nuclear deal uniformly rejecting U.S. unilateral sanctions and meeting as recently as July 28 with Iranian officials to try to salvage the nuclear deal, the U.S. continues to expand its sanctions regime. Given there is little global support for U.S. sanctions, China has decried the new sanctions against Zhuhai Zhenrong Co. as illegitimate. Hua Chunying, the Foreign Ministry Spokesperson for the PRC, said on July 23 that “China has stressed many times that the normal energy cooperation between Iran and the international community, including China, under the framework of international law is legal and reasonable, thus should be respected and protected.”

Continuing escalation of sanctions has also given Iran a legal and political window to ignore the only true cap on Iranian nuclear actions, the Joint Comprehensive Plan of Action (JCPOA). Iran is now claiming that it has the authority to respond to the U.S. walkout, meaning that its continuing accumulation of enriched uranium does not violate the nuclear deal. This is further concerning because there is no other international legal document which explicitly restricts Iranian uranium enrichment. Although some scholars argue that UN Security Council Resolution of 1929 prohibits Iran from enriching uranium, Daryl Kimball, executive director of the Arms Control Association, says that “there is no [current] international standard prohibiting Iran from enriching uranium”.

The U.S. is clearly using sanctions to pressure Iran and China politically rather than to support international legal concerns, deeply degrading international legal standards. First, Iran only began to breach the limitations of the nuclear deal after the U.S. abandoned it and re-imposed sanctions, suggesting that the goal of the sanctions themselves is not to limit Iranian nuclear production. Iranian leadership certainly seems to believe this, with the Iranian Ambassador to the United Nations asking: “How can we start a dialogue with somebody whose primary occupation is to put more sanctions on Iran?” Second, the Chinese will almost certainly use the perceived illegitimacy of U.S. sanctions to distract from their own underhanded and questionably legal actions in Iran. Prior to the 2015 nuclear deal, Zhuhai Zhenrong, along with several other Chinese companies, bought Iranian oil at a rate of around 500,000 barrels per day at a time when the U.S. sanctions regime was broadly seen as a legitimate enforcement of international principles.

The poor handling of recent sanctions will almost certainly turn international legal opinion against the United States, despite strong evidence that no side in this dispute is without significant faults.

Evan Schleicher is the Editorial Intern for the International Enforcement Law Reporter. He is currently an MA candidate in Security Policy Studies at George Washington University, focusing on transnational security and humanitarian issues.

OECD and IBA Issue Report on Proper Roles of Lawyers and International Commercial Structures

June 26, 2019 by Bruce Zagaris Leave a Comment

On May 31, 2019, the International Bar Association and the Secretariat of the Organization for Economic Co-operation and Development published a Report of the Task Force on the Role of Lawyers and International Commercial Structures.

The Report observes that lawyers’ professional obligations and clients’ rights are regulated by domestic laws and regulations, and/or ethical and deontological codes. The Task Force states that there are certain key principles that should apply in this context in order to balance between the rights of, and duties to, the client on the one hand and a lawyer’s other professional or legal duties on the other. The Report sets forth seven principles without prejudice to the rule of law and related legal conventions, a lawyer’s duty of confidence and laws relating to privilege.

The Task Force recommends the Statement of Principles to national bar associations and law societies with a view to encouraging them to adopt the principles and engage with their governments to explain the role of the principles in ensuring the proper administration of justice and in upholding the rule of law. The sponsors also published an executive summary of the report

The Task Force advocates that, where the Principles are adopted and become part of domestic law and/or professional regulations, their disregard should result in the application of proportionate disciplinary measures, including, where appropriate, disbarment, recognized also in foreign jurisdictions.

Principle 1: Non-facilitation of illegal conduct – Although a lawyer may be unwittingly associated with illegal conduct, including financial crimes, a lawyer should not facilitate illegal conduct, and should undertake the necessary due diligence to avoid doing so inadvertently.

Principle 2: Misuse of the duty of confidence and privilege. Notwithstanding the lawyer’s duty of confidence to a client and the concept of legal professional privilege, a lawyer should not use the confidential nature of the lawyer-client relationship or the principles of legal professional privilege to shield wrongdoers. A lawyer should give due and proper consideration to refraining from acting for a client if the lawyer is aware of, or has reasonable grounds to believe, that the primary purpose of the retainer is to permit the client to be able to rely on the confidential nature of the lawyer-client relationship or privileged communication) so as to permit or encourage the client to engage in illegal conduct.

Principle 3: Client due diligence. A lawyer should undertake and document all reasonable and proportionate inquiries in order to identify and verify a client, as well as identify any ultimate beneficiary of the conduct or transaction, the origin of the funds for the transaction (consistent with applicable anti-money laundering or counterterrorism financing legislation), the substantive nature of the conduct or transaction (including expected revenue and taxation consequence of the transaction) and, subject to Principle 5, be satisfied that the conduct and/or transaction is legal in the lawyer’s jurisdictions.

Principle 4: Action where client conduct is may be or becomes illegal. When the conduct of a client is, may be, or becomes illegal, even if it was originally legal and the lawyer continues to be retained by the client, a lawyer should advise the client of the consequences of the conduct and recommend that the client pursues alternative solutions. If the client persists in the conduct, the lawyer should give due and proper consideration to ceasing to act, and terminate the retainer.

Principle 5: Multijurisdictional risk. Where a transaction involves conduct by a client, agents or representatives of a client in more than jurisdiction and the lawyer has reasonable grounds to believe that the conduct may be or may become illegal in a jurisdiction(s), a lawyer should verify that expert advice is or has been obtained by the client from a lawyer experienced in the conduct or transaction in that jurisdiction. If such advice has not been obtained and the client wants to proceed with the transaction, the lawyer should recommend that such advice be obtained (at the cost of the client). If the client declines to obtain such advice and persists in the conduct, then the lawyer should give due and proper consideration to ceasing to act and terminate the retainer.

Principle 6: Use of illegal obtained information. Lawyers should strongly discourage a client from paying private parties or public officials to obtain illegally obtained evince, which of itself may constitute a criminal offense in many jurisdictions. To facilitate this, legal frameworks should be consistent across jurisdictions as much as possible, since it is often through cross-border conduct that confidential or secret information in country A is accessed (without the consent of the owner of the information) and then disclosed to a person in country B. An independent court should, where necessary, resolve the question as to what use can be made of such information, based on the applicable domestic framework.

Principle 7: Disclosure of beneficial ownership. A lawyer should obtain and maintain up-to-date beneficial ownership information and take reasonable measures to verify its accuracy in relation to the lawyer’s clients. Domestic laws should provide for the disclosure of ultimate beneficial ownership of any corporation, trustor other legal entity formed within that country’s jurisdiction. Beneficial ownership information should be available to state regulators, investigators and enforcement agencies. Governments must address whether it needs to be publicly available.

Principle 8: Advertising by lawyers on international commercial structures. Any advertising by lawyers should be transparent, accurate, and truthful. Domestic regulation, bar associations, and law societies should ensure the lawyer advertising is accurate and truthful.

The Report does not seek to duplicate existing international or other national guides for the legal profession in terms how a lawyer should act or not act in certain circumstance. The Report does not seek to cover the many anti-money laundering and counterterrorism financing laws, obligations and disclosure duties that exist in many countries. Instead, it focuses on high-level issues of principle that should assist governments in policy formulation and in guiding lawyers as to how they should conduct themselves, consistent with a lawyer’s underlying domestic legal and ethical obligations.

The Report also sets form the minimum good practice required when a lawyer proposes to accept instructions in a cross-border commercial matter, especially, but not exclusively, from a new client or a client with whom the lawyer has not worked for at least 12 months.

The Report provides detailed guidance for the eight above-mentioned principles with citations to guide legal professionals.

Annex B contains existing guidance concerning the role of lawyers with regard to international commercial structures.

The July issue of the IELR will have a more comprehensive discussion of the Report.