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US tightens sanctions concerning Cuba, Russia and Iran

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30-06-2017

The new US administration has been driving changes to certain sanctions programmes. In particular, changes have been proposed which could tighten the US sanctions against Cuba, Russia and Iran. These new developments present potential concerns for businesses exporting goods, services or technology to these countries, especially in light of the extra-territorial nature of the US sanctions regime.

Changes to Cuba policy on the horizon

On 16 June 2017, President Trump announced a new policy which seeks to impose additional restrictions on trading with and travelling to Cuba by way of two key changes to the existing sanctions programme.

Firstly, the new restrictions would prohibit transactions with entities owned by or affiliated with the Cuban military, intelligence, or security forces, which directly or indirectly control up to 60% of the Cuban economy.

Secondly, the administration seeks to revoke the existing authorisation for individual “people-to-people” travel to Cuba. Persons subject to US jurisdiction would be barred from making cultural visits to Cuba outside of a guided tour, and they would be prohibited from spending money in state-run hotels and restaurants. To this end, travellers would be required to keep records of any financial transactions made during trips to Cuba, which may be subject to audits by the Office of Foreign Asset Control (OFAC). Other authorised activities would be preserved, including “professional research” and “professional meetings” (meetings or conferences related to a traveller’s profession or expertise).

Potential expansion of the sanctions regime against Russia and Iran

On 15 June 2017, the US Senate passed a near unanimous vote on a new bill on sanctions targeting Iran and Russia (the “Bill”), which could significantly impact the sanctions regime these two jurisdictions.

Key points concerning Russia

The Bill not only codifies existing sanctions against Russia, but it also expands the scope of US sanctions against Russia to other sectors of the economy, such as railway, shipping, metals, as well as mining and energy. Additionally, the Bill introduces new powers to target Russian involvement in human rights abuses, cybersecurity breaches as well as military actions in Syria. It also proposes to extend the reach of Directive 4 of Executive Order 13662 to also prohibit the provision of goods, services (except financial services) and technology to entities involved in the development of Russia’s frontier oil projects anywhere in the world.

It is worth noting that the Bill proposes to put in place a new Congressional review process that limits the President’s ability to ease or lift existing sanctions against Russia. This could give rise to a push back from the Trump administration and adds to the uncertainty of whether the Bill would undergo any changes before it is approved by the House of Representatives and signed into law by the President.

Key points concerning Iran

The Bill also introduces additional measures targeting Iran. The measures do not affect the terms of the Joint Comprehensive Plan of Action (JCPOA) relating to Iran’s nuclear programme, however, the Bill provides the administration with new powers to target individuals and entities involved in the ballistic missiles programme in Iran, as well as those transferring or facilitating the transfer of arms and related materiel into Iran.

Commentary

The proposed measures against Cuba do not take effect until the new regulations are issued (the precise timing is still unclear). OFAC indicated that the regulations will be prospective and would not affect existing contracts operating on the basis of OFAC licences granted previously. That said, the policy shift signals the reversal of the easing of US sanctions against Cuba introduced under the Obama administration. The US-Cuba relationship might worsen if Cuba adopts any retaliatory measures in response. Therefore, it would be prudent for companies doing business with individuals or entities with affiliations to Cuba to re-assess the legal risks involved, especially where they may be exposed to the US jurisdictional reach.

The full scope of the proposed new sanctions on Russia and Iran remains unclear until the final legislation is passed and, as the President would retain discretion in relation to designation of entities and individuals under the sanctions programmes, the impact of these new powers will depend on how robustly they are utilised by the Trump administration. However, the proposed changes to the relevant sanctions have sent a clear message to all exporters that the US sanctions regime is evolving under the Trump administration. It is crucial for US companies or any foreign companies with US exposure to be aware of the latest developments and keep their sanctions compliance policy under review. It is also interesting to see that Congress has included in the Bill provisions requiring independent review of any efforts to terminate or waive the sanctions imposed on Russia. This is widely understood to reflect the current controversy surrounding the Trump administration’s relations with Russia. It remains to be seen whether the White House will succeed in removing this provision from the Bill.

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