The fourth quarter of 2020 saw significant economic sanctions and export controls developments out of the U.S. Departments of Commerce and Treasury. In this article for Bloomberg Law, Kirkland attorneys Mario Mancuso, Sanjay Mullick, Anthony Rapa and Abigail Cotterill discuss these actions and changes that might come under the Biden administration, including renewed focus on Russia and possible easing of sanctions against Cuba.
The final months of the Trump administration were marked by numerous export controls and economic sanctions developments involving China, Hong Kong, Iran, Cuba, and Russia.
We expect the transition to the Biden administration may affect their implementation, including a tougher stance with Russia.
Last-minute restrictions targeting Chinese military and government-affiliated entities, as well as the rescission of Hong Kong’s special status, may reflect more bipartisan consensus that China poses a threat to U.S. national security and foreign policy, a position unlikely to change quickly.
Late-stage implementation of Russia-related sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) may foreshadow more robust enforcement of such sanctions under the Biden administration.
Recent Iran-related sanctions designations, consistent with the Trump administration’s campaign of “maximum pressure,” may give way to a renewed attempt to negotiate with Tehran.
Reinstatement of Cuba’s designation as a State Sponsor of Terrorism, and additional recent Cuba sanctions, are likely to receive scrutiny and possible reversal.
China and Hong Kong
On Jan. 11, restrictions on trading in public securities of Communist Chinese Military Companies (CCMCs) designated under Executive Order 13959 took effect. The EO prohibited U.S. persons, including individuals and entities (including, e.g., mutual funds), from investing in publicly traded securities of designated CCMCs, along with related derivatives and other instruments.
The current list includes a range of Chinese companies, including technology companies such as Huawei, Hikvision, and China Mobile Communications, and both the Department of Defense and the Department of the Treasury have the authority to make additional designations. These new sanctions are based on concerns that China raises capital for its “civil-military fusion” program from U.S. investors through securities exchanges. U.S. persons are required to divest CCMC securities within one year of the CCMC’s designation.
On Dec. 23, 2020, the Department of Commerce, Bureau of Industry and Security (BIS) published a Military End User List specifying Chinese and Russian companies subject to the military end user controls in the Export Administration Regulations (the EAR).
The same day, BIS amended the EAR to rescind Hong Kong’s special status, subjecting Hong Kong to the same export controls as mainland China. This means that certain license exceptions previously available for exports to Hong Kong no longer are available.
On Dec. 14, 2020, the Department of the Treasury, Office of Foreign Assets Control (OFAC) introduced a new Non-Specially Designated Nationals And Blocked Persons List (SDN) Menu-Based Sanctions List—the NS-MBS List—which designates parties subject to non-blocking sanctions under authorities including CAATSA.
On the same day, OFAC added the Turkish Presidency of Defense Industries (SSB) to the NS-MBS List in connection with SSB’s 2019 acquisition of S-400 missiles from Russian defense firm JSC Rosoboronexport, a “significant transaction” with the Russian defense sector sanctionable under CAATSA. Such sanctions authority has been available since 2017, but the Trump administration had used it only sparingly.
OFAC simultaneously designated four SSB executives on the List of Specially Designated Nationals and Blocked Persons (SDN List) and the U.S. Department of State, Directorate of Defense Trade Controls announced a prohibition on granting licenses or authorizations to export defense articles to SSB.
On Jan. 19, the Department of State also imposed CAATSA-based sanctions on KVT-RUS and the pipe-laying vessel FORTUNA for involvement in the ongoing construction of Nord Stream 2, a gas pipeline connecting Russia and Germany.
With a recent cybersecurity incident U.S. intelligence agencies have attributed to Russia, as well as Russia’s recent arrest of opposition leader Alexei Navalny, the Biden administration may take a tougher stance on Russia, potentially including additional use of the NS-MBS List and related CAATSA sanctions authority.
On Dec. 18, 2020, OFAC added four Chinese and United Arab Emirates entities to the SDN List for facilitating exports of Iranian petroleum to China by Hong Kong-based Triliance Petrochemical Co. Ltd., itself an SDN. These listings followed a series of SDN designations this fall, including against entities supporting Iran’s Supreme Leader.
These actions were emblematic of the Trump administration’s campaign of “maximum pressure,” by which it sanctioned both Iranian and non-Iranian entities in an attempt to cut Iran off from the U.S. dollar-driven global financial system.
Notwithstanding the above, and consistent with longstanding humanitarian exceptions to the Iran sanctions, on Oct. 26, 2020, and Oct. 29, 2020, respectively, OFAC issued a new General License 8A for certain humanitarian transactions involving the Central Bank of Iran and the National Iranian Oil Company, and General License M for the export of certain graduate-level online educational services and related software to Iran.
President Biden has signaled openness to rejoining the Iran nuclear deal under certain circumstances, a shift in policy that possibly may lead to more targeted use of designation authority and increased issuance of general licenses in the interest of encouraging such negotiations.
On Jan. 12, the Department of State reinstated Cuba’s designation as a State Sponsor of Terrorism (SSOT) for actions including its support of the Maduro regime in Venezuela. This reinstatement followed the Secretary of State’s Dec. 14, 2020, decision to rescind Sudan’s SSOT designation.
The Cuba designation triggers certain measures, including a formal ban on defense exports, further restrictions on dual-use exports, and restrictions on U.S. foreign assistance. It comes amidst several late-stage Trump administration actions designed to further tighten sanctions on Cuba, including the Oct. 26, 2020, restrictions on remittances involving Cuban military entities on the State Department’s Cuba Restricted List (CRL) and the Jan. 15 designation of the Cuban Ministry of the Interior to the SDN List for human rights abuses.
It is anticipated that the Biden administration may seek to reverse or ease certain of these actions in potential realignment with past Obama administration Cuba policies.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Mario Mancuso is a partner at Kirkland & Ellis and leads the firm’s International Trade and National Security practice. A former member of the president’s national security team, he specializes in guiding private equity sponsors and companies through the CFIUS process and resolving crises involving economic sanctions and export control-related investigations by the U.S. government.
Sanjay Mullick , a partner in Kirkland’s Washington, D.C., office, regularly represents clients on investigative, regulatory and transactional matters related to economic sanctions, export and import controls, anti-money laundering, and anti-corruption.
Anthony Rapa , a partner in Kirkland’s Washington, D.C., office, counsels companies, financial institutions, and private equity sponsors worldwide regarding U.S., U.K., and EU economic sanctions and export control issues.
Abigail Cotterill , of counsel in Kirkland’s Washington, D.C., office, regularly provides legal advice to companies, financial institutions, and private equity sponsors on the regulatory and other risks of operating or investing across international borders, with a focus on economic sanctions, export controls, and anti-corruption.