Category: Global

Brexit – Here We Go Again

The new Prime Minister of the UK, Boris Johnson, has taken up office following his decisive (66% : 34%) victory in the contest among Conservative Party members who were presented with a choice between him and the Foreign Secretary, Jeremy Hunt. He promised during the campaign to take the UK out of the EU by 31 October (when the extension to the Article 50 Brexit process expires) “do or die”. In his first speech as PM, he again underlined his determination that the UK should leave the EU by 31 October. He said that his intention was that this should be with a new deal – “no deal” was a remote possibility which would only happen if the EU refused to negotiate. But it was right to intensify preparations for “no deal”, which could be lubricated by retaining the £39 billion financial settlement previously agreed with the EU.

So the starting gun for the next phase of Brexit has fired.

What Does the Campaign Tell Us About the Approach to Brexit?

The Conservative leadership election campaign happened in two parts. The first, among MPs, whittled the long list of candidates down to two. Perhaps conscious of the broad spread of opinion among Conservative MPs, both final candidates took a nuanced line during that phase, stressing their desire to leave the EU with a (revised) deal. In the second phase, which involved selection between the two by the broader membership of the Conservative Party (roughly 160,000 people), the tone hardened notably. Polling suggests that a majority of the Conservative Party membership puts delivering Brexit ahead of the economy, the survival of the union of the UK and even the survival of the Conservative Party itself (polling after Theresa May’s European Parliament elections suggests that two thirds of party members voted for another party in those elections, with nearly 60% voting for Nigel Farage’s Brexit Party). Only averting the prospect of a Jeremy Corbyn-led Labour Government is apparently a higher priority for Conservative Party members. Responding to this sentiment, the position of both candidates became harder through the second phase of the campaign. While both favoured leaving with a deal, both were clear that the threat of a “no deal” exit must be real in order to stimulate further negotiations with the EU. Both, therefore, also favoured ramping up “no deal” preparations. In the end, the main difference between the two candidates was that Jeremy Hunt could countenance a “short” further delay to Brexit if that was necessary to secure a deal from the EU, whereas Boris Johnson promised that the UK would leave the EU on 31 October “come what may, do or die”. Significantly, in one of the last public hustings during the campaign, Boris Johnson also ruled out making changes to the Irish border backstop in the Withdrawal Agreement. His approach to how to deliver Brexit could be summarised as: deliver on citizens’ rights straight away, have a “standstill” on trade (not clear how this differs from the transitional period in the Withdrawal Agreement – it would certainly involve zero tariffs on both sides, but unclear whether it would involve regulatory alignment (see trade negotiations section below), still less continued jurisdiction of the European Court of Justice), resolve the Irish border through a comprehensive trade agreement and create “constructive ambiguity” about whether/when the UK would accept the €39 billion exit settlement in the Withdrawal Agreement – presumably making it contingent on the trade agreement. Boris Johnson called for optimism and determination to secure this outcome.

What Do the Key Ministerial Appointments Tell Us About Brexit?

In appointing his Cabinet, Boris Johnson has made far-reaching changes which shift the profile of government decisively towards pro-Brexit. All ministers were required to subscribe to keeping the possibility of “no deal” Brexit open. The principal portfolios concerning Brexit are all held by people who are either comfortable with, or even favour, a “no deal” Brexit. This looks like – and is no doubt intended to be seen in Brussels as – a government fully committed to a “no deal” Brexit, if necessary. Perhaps the most interesting appointment was, however, not of a minister at all, but of Dominic Cummings, campaign director for Vote Leave in the 2016 referendum, as a senior adviser. Taken together, this looks like a team both strongly committed to delivering Brexit and ready for a public campaign (election or referendum), if necessary.

What Happens Next?

The new Prime Minister effectively has more than five weeks’ respite from Parliamentary scrutiny, as Parliament starts its summer recess and returns on 3 September. This gives him time to consolidate his team, articulate his strategy (including boosting preparations for a “no deal” Brexit), and explore the possibilities for further negotiation with the EU. But even within his own party, on both pro-Leave and pro-Remain sides, he is, in effect, on probation.

The Parliamentary arithmetic has not changed significantly from that faced by Theresa May, but by carrying out such a substantial eviction of Mrs May’s ministers, Boris Johnson is likely to have increased the number of opponents to his Brexit policies on the Conservative back benches. They now also have an important figurehead in former Chancellor Philip Hammond. The Prime Minister has no majority without the support of the 10 Northern Ireland Democratic Unionist Party (DUP) MPs. And, within the Conservative Party, the hard Brexit supporting European Research Group (ERG) is now balanced by an anti “no deal” faction bolstered by ministers who resigned because they could not support his approach to Brexit or were sacked by him. Technically, the government’s majority, including the 10 DUP MPs, is down to two (three including one MP under criminal investigation). A by-election on 1 August is likely to reduce that by one. If the PM tries to push through a deal based on the existing Withdrawal Agreement (with changes to the accompanying Political Declaration about the future relationship, to which the EU has said it is open), he risks losing the DUP and some ERG from his majority. If his policy becomes “no deal”, he risks losing the more pro-European faction. In either case, he lacks a majority to deliver the result. The two big questions are whether Parliament (which has a substantial anti “no deal” majority) can find a way to erect a legal barrier to a “no deal” Brexit and, if not, how many Conservative MPs would really vote against their own party in a confidence vote to force either a change of direction or a fresh election – several have already indicated that they would do so if necessary. All of which points to the same Parliamentary deadlock Theresa May faced returning in September. So, unless the PM can come up with a renegotiated deal which the DUP and ERG would accept, the only way out of the deadlock would be to go back to the people. Mr Johnson’s strong opposition to a further referendum would make that a politically difficult choice. Current polling suggests that an election before Brexit is delivered would be a high risk strategy for the Conservatives.

As one influential commentator put it, the strategy may be to try for a new deal and see if the EU blinks. If they do not, go for “no deal” and see if Parliament blinks. If it does not, hold an election or referendum – an election is probably higher risk, but can be done more quickly and does not involve going back on strongly expressed views of the Brexiteers, including Mr Johnson.

What About the Europeans?

The debate about Brexit over the Conservative Party leadership campaign has been an entirely Brit-on-Brit affair, with reference to the EU position, but no engagement with it. European leaders’ reactions to Boris Johnson becoming Prime Minister have been polite, but also uncompromising, showing no willingness to re-open the Withdrawal Agreement. Michel Barnier looked forward to working with the Johnson Government to facilitate the ratification of the Withdrawal Agreement – signalling that negotiation is possible about the accompanying Political Declaration on the future relationship, and possibly other complementary accords, but not the Withdrawal Agreement itself. If the EU sticks to this position – and the EU team follows the UK Parliamentary arithmetic closely, so they know how much resistance there will be to “no deal” – the prospects for finding an agreed way forward look slim.

So “No Deal”, Then?

In April, we assessed the possibility of a “no deal” Brexit as very low. It has clearly now increased and, with a Cabinet committed to “no deal” if there is not a new deal, there are a number of ways in which it could come about. But Parliament’s majority against “no deal” remains, and there remain a number of obstacles to “no deal” in Parliament and in the economic analysis of the impact of “no deal” Brexit if the UK and EU are not able to agree on tariff-free trade using GATT XXIV. While some form of political process – such as an election – looks more likely than moving straight to “no deal” if the EU talks fail to yield a result, companies should certainly now put in place “no deal” contingency arrangements.

Free Trade Agreements

There are three interlinked free trade agreements (FTAs) in play: EU-US, EU-UK and UK-US. During the leadership campaign Boris Johnson spoke about making very rapid progress on the UK-US FTA (at one stage suggesting having a limited agreement in place by 31 October), but also about finding the long-term solution to the Irish border issue in the UK-EU FTA. In practice, it is likely that the UK-EU FTA has to come before the UK-US FTA, not least because the more the UK aligns to US regulatory standards through a UK-US FTA, the harder the solution to the Irish border issue will be – nowhere more so than in agriculture. The UK-EU FTA also has a unique character, in that the two parties start from a position of zero tariffs and complete regulatory alignment and the negotiation will, therefore, be about how far and in what respects to diverge. Both the EU-US and UK-US FTAs will have to address some highly charged political issues (agriculture, public procurement (in particular healthcare) and climate change); it could be argued that the UK would secure a better result on these issues by allowing the EU to find a politically workable way forward with the US first.

In an illustration of the complex interaction in the trade policy approach, the UK government has not been able to roll-over the EU-Canada FTA (CETA) into a bilateral UK-Canada FTA. This is because the Canadian government has analysed the impact for Canadian businesses of the UK moving to the interim “no deal” tariff policy published by the UK earlier this year – 87% of imported goods would be tariff-free to prevent harm to consumers – and concluded that the impact would be small. UK exporters to Canada would, however, face full Canadian WTO tariffs, rendering trade in some sectors unviable.

However the order of negotiations takes place, the three FTAs are effectively interlinked, and it will be important to ensure, for example, that something desirable in the UK-US FTA is not rendered more difficult to achieve by something agreed within the UK-EU FTA.

 

© Copyright 2019 Squire Patton Boggs (US) LLP
For more Brexit developments, see the National Law Review Global page.

Mexico Mandates Protection From Workplace “Psychosocial Risks”

Globalization, technology developments, and the world’s economy, among other factors, have changed our day-to-day dynamics and have transformed the way we work. This means that employees must deal with emotions and circumstances that in the past were not significant but today are studied and classified by scientists as “psychosocial risks.”

The World Health Organization (WHO) and the International Labour Organization (ILO) define psychosocial risks as the interactions within the work environment, content of the work, conditions of the organization and capacities, needs and culture of the employee, and personal considerations—external from work—based on perceptions and experience that can negatively influence health, performance at work, and labor satisfaction.

International organizations are trying to create a broad awareness of psychosocial risks and thereby prevent such risks from damaging employee health, both physical and psychological.

Mexico’s Regulation of Psychosocial Risks at Work

Mexico has taken a big step in the protection of employees with the amendment to the Federal Labor Law on November 30, 2012. This amendment incorporates into the law the concept of “decent and dignified work,” which encompasses respect for the human dignity of employees and, in consequence, the prevention of harm that employees may suffer because of the activities they perform at work.

The amendment and subsequent obligations agreed upon by the current federal government in its national development plan, as well as internationally, compelled the Mexican Ministry of Labor and Social Welfare to issue the Federal Regulation of Health and Safety at Work. Its goal is to establish health and safety provisions, which must be observed at the workplace, “in order to have the conditions to prevent risks, and as a consequence, guarantee employees their right to perform their activities in an environment that assures their lives and health, according to the Federal Labor Law.”

What to Expect in 2019 and 2020: The Psychosocial Risk Factors Standard

Based on the above and with the purpose of complying with current legislation, the Ministry of Labor and Social Welfare developed the Official Mexican Norm: NOM-035-STPS-2018 “Psychosocial Risk Factors at Work – Identification, Analysis and Prevention.” Its main objective is to “identify, analyze and prevent psychosocial risk factors, as well as to promote a favorable organizational environment at workplaces.”

Though the rule has been valid since October 23, 2018, the Ministry of Labor and Social Welfare will not review employers’ compliance with the rule until the October 2019 or October 2020, depending on the employer’s size. Since this matter requires specialist analysis and evaluation, employers may want to contact a specialist on psychosocial risks in order to achieve compliance.

The following are employers’ main obligations under the rule:

  • Establish, maintain, and disseminate among the employees a psychosocial risks prevention policy

  • Identify psychosocial risk factors and evaluate the organizational environment (applicable to work places with more than 50 employees)

  • Use questionnaires to identify psychosocial risk factors (applicable to work places with 16–50 employees)

  • Disseminate to employees the policy and measures adopted to reduce psychosocial risks

  • Identify the employees subject to psychosocial damages while working or derived from their work

  • Provide a registry where employees can learn about psychosocial risk factors and corrective actions taken

  • Maintain a confidential complaint system so the employees can inform the employer about psychosocial risk factors

  • Take actions to prevent psychosocial risk factors and corrective measures if psychosocial damage occurs

Co-Authored by Natalia Merino, a law clerk in the Mexico City office of Ogletree Deakins.

© 2019, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
Learn more about International Legal issues on the National Law Review Global page.

Is Paris Burning? France Considers Whether Damages for Employee Dismissals Should Be Capped

The latest version of Article L. 1235-3 of the French Labor Code, based on the “Macron Ordinances,” has recently been the subject of major dispute, with several labor tribunals issuing conflicting decisions.

The article limits a judge’s ability to determine compensation for an employee whose dismissal has been recognized as having no “real and serious” cause. It caps the damages awarded at an amount between 0.5 months’ salary (for an employee with less than one year of continuous service) and 20 months’ salary (for an employee with more than 29 years of continuous service).

However, this system is not applicable in a number of cases, particularly where the dismissal is declared null and void because, for example, of a “violation of a basic human right,” an “act of harassment,” or its “discriminatory” nature.

By introducing this new system, the government intended to “remove uncertainty” about the “cost of a termination” by allowing the employer to anticipate the risk incurred if the dismissal was found to be without real and serious cause (Report to the President of the Republic on Order No. 2017-1387 of 22 September 2017 on the predictability and security of labor relations).

However, in a series of decisions issued in December 2018 and January 2019, labor courts have ruled that this system conflicts with several international conventions applicable in France.

Even if the Constitutional Council had approved, both in principle (C.C., 2017-751 DC of 7 September 2017) and in its implementation (C.C., 2018-761 DC of 21 March 2018), the concept of a cap on compensation for damage caused by the fault of an employer, it is not up to the Council to ensure compliance of this system with the international agreements ratified by France.

It is judges who are responsible for checking that the system established by the labor tribunal complies with the international conventions applicable in France.

However, Article 10 of Convention 158 of the International Labour Organization stipulates that a judge who finds that a dismissal is unjustified, but does not propose reinstatement of the employee to his or her original position, must be able to order the “payment of adequate compensation or such other relief as may be deemed appropriate.” Similarly, Article 24 of the European Social Charter provides for the “the right of workers whose employment is terminated without a valid reason to adequate compensation or other appropriate relief.”

Considering these stipulations, two labor tribunals (Le Mans and Caen, the latter being ruled by a professional judge) adopted the applicable scale, considering that it provided for “appropriate” compensation for damages.

By contrast, the labor tribunals of Troyes, Amiens, Lyon, Grenoble, and Angers decided, in highly publicized decisions, not to apply the mandatory scale stipulated by Article L. 1235-3. As a result, they granted compensation in excess of the legal maximum. None of these five cases fell into the provided categories allowing a judge to exceed this maximum.

At present, while other councils could follow this reasoning, the impact remains limited. The Administrative Supreme Court has already been called upon in urgent situations to rule on the validity of these measures. It considered that because of the possibility of deviation from the scale when the dismissal is deemed null and void, so that the scale is compliant with the stipulations of the conventions (CE, 7 December 2017, CGT, N° 415243).

It will be up to the Courts of Appeal and then to the Court of Cassation, France’s Supreme Court, to decide whether it is appropriate to continue to apply this system or whether the international conventions ratified by France require that it be overruled.

Pending these decisions, the possibility that the scale is inapplicable may divide the courts and create judicial uncertainty in labor tribunal disputes. The underlying objective of legal certainty is therefore, at least temporarily, severely compromised: neither employees nor employers can use this scale to assess with certainty the chances of profit or the risks involved when making a decision on any given dismissal.

A rapid resolution would be desirable. To this end, referral to the Court of Cassation for a legal opinion in accordance with the provisions of Article L. 441-1 of the Code of Judicial Organization and Article 1031-1 of the Code of Civil Procedure (referral for an opinion) might have seemed particularly appropriate if the Court of Cassation had not recently refused to grant such an opinion regarding the compliance to conventional rules of another legal text (Cass, avis, 12 juillet 2017, 17-70.009).

Thus, it can only be hoped that a litigant whose rights are “imperiled” by a ruling requests that a Court of Appeals set a day for a priority hearing (Article 917 of the Code of Civil Procedure). Such proceedings would reduce the delay before the appeal hearing and would provide a finer outlook on the future of the mandatory scale.

© 2019, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
This post was written by Jean-Marc Albiol and Thibaud Lauxerois of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

Export Sanctions List: Know Your Customer

If your company sells products to customers or distributors located in foreign countries during this time of sanctions and export controls, you should consider the surprising case of Cobham Holdings Inc. a cautionary tale.

The U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”) publishes a sanctions list of foreign individuals and entities to which U.S. companies may not sell goods or services without first obtaining an export license. OFAC may fine the U.S. companies that violate these sanction regulations. Prudent companies check the OFAC sanctions list before selling products to foreign customers. In fact, many companies have purchased software that searches the sanctions list for prohibited individuals and entities. If your foreign customer is not found on the sanctions list, your company is free to sell products to that customer.

That’s what Cobham Holdings Inc. thought, but on November 27, 2018 they settled a case with OFAC that involved sales to a foreign customer that was not on the sanctions list. Cobham agreed to pay a fine of $87,507 for exporting approximately $745,000 worth of silicon switches to Almaz Antey Telecommunications LLC in Russia between 2014 and 2015 when that entity was not named on OFAC’s list of “Specifically Designated Nationals and Blocked Persons”. Cobham used software to search for OFAC sanctions, the customer came up clean, and Cobham shipped the goods.

Cobham used the software to search for “Almaz Antey Telecom” but not “Almaz Antey.” If it would have searched for the latter, there were numerous hits for entities under the Almaz Antey umbrella, including the entity allegedly responsible for providing the missile that shot down Malaysia Airlines Flight MH17 over Ukraine in 2014. Upon further investigation, OFAC determined that Almaz Antey owned 51% of Almaz Antey Telecommunications LLC. As a result, OFAC initially informed Cobham that it would face potential fines up to $1.9 million.

Cobham was able to reduce the potential fine by agreeing to utilize new and improved screening software, along with a business intelligence tool and new internal checks for high risk transactions. Given that companies now know (or should know) of the potential pitfalls of using these software solutions as a stand-alone procedure, OFAC may not be so generous to the next company to run afoul of its sanctions and export controls through negligence or inadvertent software errors.

This case highlights not only the dangers of exclusively relying on software solutions to search the combined sanctions list, but the inherent risk of the vast number of related entities and the difficulty of understanding their ownership structure. Even if your customers come up clean on the sanctions search, if they are owned more than 50% by a sanctioned entity, then the transaction is still prohibited. Best efforts must be used to ensure that neither the foreign customer nor its majority owner is on the OFAC sanctions list, and a simple software solution or minimal approach may not be enough. A thorough analysis of all relevant facts and information related to your customers and sanctioned entities is vital to ensure your company will not run into the same snare as Cobham.

 

©2019 von Briesen & Roper, s.c
Read more legal news at the National Law Review.

Japan’s Labor Reform Caps Overtime in a Bid to Curb Karoshi

From low productivity to the death of citizens by overwork, Japan’s labor practices have long maintained a complicated relationship with the country’s workforce. The problem of death by overwork is so prevalent the Japanese have created a word for it: karoshi. On June 29, 2018, Japan passed the “Work Style Reform Law” (the Law) to address some of these issues.

Currently, Japanese law permits employers to enter into special agreements with employees that require them to work an unlimited number of overtime hours. The Law however, generally will limit overtime work to 45 hours per month with a maximum of 360 hours in a year. During busy periods, the overtime limit will be relaxed allowing for up to 100 hours of overtime not to exceed a maximum of 720 hours in a year. In addition, employees may not work, on average, more than 80 hours of overtime per month. This figure will be averaged over a period of two, three, four, five, and six consecutive months. These overtime provisions will go into effect in April 2019 for large employers and April 2020 for small and mid-sized employers. Violation of these provisions will subject employers to financial penalties.

Highly skilled professional workers, however, are exempt from the protection of these overtime provisions. Under the law, highly skilled professional workers must: (i) work a job requiring specialized skills, and; (ii) earn an annual salary of ¥10.75 million or more (roughly $95,000 USD). Labor reform supporters have sharply criticized this exemption as a license to continue the practice of overwork. Meanwhile, supporters of the Law have characterized the exemption as a nod to the working style of professionals where hours and results do not necessarily correlate. Future administrative guidelines will provide employers insight as to what jobs fall into the exemption. The exemption will take effect in April 2019.

In addition, the Law will require employers to treat regular and fixed-term employees equally. Although further administrative guidelines will be issued regarding this provision, employers should: (i) prepare to provide increased compensation and benefits for fixed-term and other non-regular employees; and (ii) begin reviewing the compensation differences between their regular and fixed-term employees to identify any disparities. Enforcement of this provision will likely involve disclosure requirements for employers. This provision will take effect in April 2020 for large employers and April 2021 for small and mid-sized employers.

The Law also contains provisions mandating the use of paid time off. Japanese labor culture has long led to a chronic and voluntary under-usage of paid time off by employees. The Law addresses this issue by requiring that employees entitled to 10 days of annual paid leave or more use at least five of those days each year.

The use of a work-interval system is also encouraged under the law. The law notes that employers should “make efforts” to ensure that there is a minimum interval between the end of a day’s working hours and the beginning of the next day’s working hours. This provision will take effect in April 2019.

 

© 2018 Proskauer Rose LLP.

United States Imposes Additional Sanctions Against Russian Entities and Individuals

On April 6, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced expanded sanctions against Russian entities and individuals, targeting a number of Russian oligarchs in the energy, banking, and other sectors and companies they own or control, as well as 17 senior Russian government officials. The Treasury Department also issued a detailed press release outlining the rationale for each of these designations. Given the prominence of the targeted oligarchs in Russian business and the extent of their business holdings, as well as the size and importance of the targeted companies in the Russian economy, the action could have a significant impact on companies doing business in Russia.

The OFAC action blocks the property and interests in property of the targeted entities and individuals when it comes into the United States or the possession or control of a U.S. person, and also prohibits virtually all dealings or transactions by U.S. persons with the targeted parties, who are now on OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”). The sanctions also apply to entities that are owned 50 percent or more by sanctioned persons, including the newly sanctioned parties. Non-U.S. persons also could be impacted by the new designations, through potential exposure to secondary sanctions for undertaking significant transactions with these parties.

The action follows the enactment last year of the Countering Americas Adversaries through Sanctions Act of 2017 (“CAATSA”), as discussed in our client alert, which imposed certain sanctions on Russia that apply to U.S. and non-U.S. companies, and the release earlier this year of an Administration report to Congress that identified Russian oligarchs, as called for in CAATSA. A number of the individuals sanctioned in today’s action were identified in that report.

At the same time it announced the new designations, OFAC also issued two general licenses. One authorizes U.S. persons doing business with certain of the newly sanctioned entities to wind down their activities between now and June 5, 2018. The other general license authorizes U.S. persons to divest or transfer debt, equity, or other holdings in three of the blocked entities to non-U.S. persons (other than sanctioned parties) between now and May 7, 2018. OFAC also issued related guidance on these actions in the form of responses to new Frequently Asked Questions (“FAQs”).

Companies and Individuals Targeted by the Sanctions

The new sanctions were imposed under existing Executive Orders, but follow from the enactment last year of CAATSA, which among other things required (in CAATSA Section 241) that the Administration report to Congress on significant “senior political figures and oligarchs in the Russian Federation.” This report, filed with Congress on January 29, 2018, did not entail the imposition of sanctions against the individuals identified in the report. At the time, however, Treasury Secretary Steven Mnuchin warned that some of the individuals could be later targeted for sanctions, saying that “there will be sanctions that come out of this report.”

Today’s designations target several individuals included in the CAATSA Section 241 report, and others who are closely tied to Russian President Vladimir Putin. In total, 26 individuals and 15 entities were designated today (including several non-Russian parties designated under sanctions authorities related to narcotics trafficking and several Russian parties designated for activities involving Syria).

Among the designated Russian oligarchs are close associates of President Putin who are operating in the energy sector, such as Vladimir Bogdanov, Director General and Vice Chairman of the Board of Directors of Surgutneftegaz; Victor Vekselberg, the founder and

Chairman of the Board of Directors of the Renova Group; Oleg Deripaska, the founder of

Russia’s largest industrial group Basic Element, which includes EN+ and Rusal; Igor Rotenberg, the son of previously sanctioned Arkady Rotenberg and owner of the gas drilling company,

Gazprom Burenie; and Kirill Shamalov, who married President Putin’s daughter in 2013 and is a minority shareholder of SIBUR.

Among the sanctioned Russian government officials are top managers of state companies and financial institutions, such as Alexey Miller, the Chairman of the Management Committee and Deputy Chairman of the Board of Directors of Gazprom; Andrey Akimov, the Chairman of the

Management Board of Gazprombank; and Andrey Kostin, the President, Chairman of the Management Board, and Member of the Supervisory Council of VTB Bank. Additionally, the sanctioned Russian Senator, Suleiman Kerimov, is connected to Russia’s largest gold producer, Polyus, and Duma member Andrei Skoch has ties to USM Holdings.

Notably, Russia’s major state-owned weapons trading company, Rosoboronexport, also was designated for asset-blocking for having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the Government of Syria. Previously, Rosoboronexport had been targeted only by U.S. sectoral sanctions that restricted U.S. person dealings in new debt of Rosoboronexport of greater than 30 days’ maturity.

As noted above, the addition of these entities and individuals to OFAC’s SDN List has several important ramifications.

First, U.S. persons are required to block the property and interests in property—as broadly defined—of these parties when it comes into the United States or the possession or control of U.S. persons. A “U.S. person” for these purposes is a U.S. entity and its non-U.S. offices and branches; individual U.S. citizens and lawful permanent residents (“green-card” holders), no matter where located or by whom employed; and non-U.S. persons when present in or operating from the United States. Funds of SDNs that are blocked must be placed into segregated, “frozen” accounts and reported to OFAC within 10 business days.

Second, U.S. persons are broadly prohibited from transacting or dealing with SDNs, unless authorized by OFAC (such as through the two new general licenses described below or specific licenses issued by OFAC).

As noted above, the above-described restrictions extend not just to listed persons, but also to entities in which those persons own a 50 percent or greater interest, individually or collectively with other SDNs. The application of this long-standing OFAC rule is particularly significant here, where the named individuals have wide-ranging business holdings, since the sanctions on the designated oligarchs also apply to any companies in which they, individually or with other sanctioned parties, own a 50 percent or greater interest.

The designations also can impact non-U.S. persons dealing with the designated parties, as more fully described below.

New General Licenses

To minimize immediate disruptions to U.S. persons from these designations, OFAC issued General License 12,which temporarily authorizes all transactions and activities that are ordinarily incident and necessary to the maintenance or “wind down” of operations, contracts, or other agreements, including the importation of goods, services, or technology into the United States involving one or more blocked entities identified in the general license.

For those entities listed on General License 12, U.S. persons may, until June 5, 2018, permissibly wind down operations, contracts, or agreements in effect prior to April 6, 2018. This General License also would apply to any entity owned 50 percent or more by entities listed in the General License. In FAQs issued with the new sanctions designations, OFAC explains that the blocked entities listed in General License 12 may, for the duration of the General License, make salary and pension payments, and provide other benefits, to U.S. persons. In addition, U.S. persons may continue to provide services to the listed entities until the License expires. General License 12 also permits U.S. persons to import goods into the United States from blocked entities listed on General License 12.

Significantly, although wind-down activities would include accepting payments from the enumerated entities, General License 12 clarifies that U.S. persons may not make payments to such entities; instead, any payments to, or for the direct or indirect benefit of, a blocked person—whether listed in General License 12 or not—must be deposited in a blocked, interestbearing account located in the United States. Therefore, although the new FAQs explain that U.S. persons may import goods into the United States from blocked entities listed on General License 12 until its expiration, any outstanding payments for such goods must be deposited into a blocked account.

Importantly, the list of blocked persons with whom U.S. persons may conduct wind-down activities is not coextensive with the newly designated individuals and entities. Instead, General License 12 covers only 12 of the 15 newly designated entities. It omits three newly designated entities—Gallistica Diamante, Rosoboronexport, and Russian Financial Corporation, each of which was designated under authorities other than those related to Russia—and all newly designated individuals. Therefore, General License 12 does not permit wind-down activities with these three entities, with any of the newly designated individuals, or with any entity owned 50 percent or more by the designated persons and not separately listed on General License 12.

OFAC also issued General License 13, which authorizes transactions and activities that are ordinarily incident and necessary to divest or transfer debt, equity, or other holdings in three blocked entities to a non-U.S. person (other than a sanctioned party), or to facilitate the transfer of debt, equity, or other holdings in those same three entities by a non-U.S. person to another non-U.S. person (other than a sanctioned party). General License 13 applies only to three of the newly designated entities:  EN+ Group PLC, GAZ Group, and United Company RUSAL PLC. General License 13 expires on May 7, 2018.

The activities permitted by General License 13 include facilitating, clearing, and settling transactions to divest to a non-U.S. person debt, equity, or other holdings in the blocked persons, including on behalf of U.S. persons. The License does not authorize unblocking any property other than as described above, or for U.S. persons to sell debt, equity, or other holdings to, or to invest in the debt, equity, or other holdings in, any blocked person, including those listed on General License 13. (It also prohibits facilitating any such transactions.)

With respect to both General License 12 and General License 13, U.S. persons participating in transactions authorized by the licenses must file detailed reports with OFAC within 10 days of the applicable General License’s expiration. Those reports must include the names and addresses of the parties involved, the type and scope of activities conducted, and the dates on which the activities occurred. Reports under General License 12 are due on June 15, 2018, and reports under General License 13 are due on May 17, 2018.

Secondary Sanctions under CAATSA Sections 226 and 228

In addition to the direct implications for U.S. persons associated with the new SDN

designations, there are certain secondary sanctions risks for non-U.S. parties that have dealings with these parties.

Section 228 of CAATSA, in amending earlier legislation, requires that asset-blocking sanctions be imposed against non-U.S. persons that knowingly “facilitate a significant transaction…, including deceptive or structured transactions, for or on behalf of…any person subject to sanctions imposed by the United States with respect to the Russian Federation.” This would include any of the newly added SDNs or parties owned 50 percent or more, individually or collectively, by SDNs. And Section 226 of CAATSA, again amending earlier legislation, requires the imposition of mandatory secondary sanctions on foreign financial institutions if the Treasury Department determines that they have knowingly facilitated “significant financial transactions” on behalf of any Russian person added to OFAC’s SDN List pursuant to existing Ukrainerelated authorities. In particular, foreign financial institutions can lose the ability to maintain or open U.S. correspondent accounts or payable-through accounts as a consequence of certain dealings with the individuals or entities designated today.

OFAC’s FAQ guidance clarifies the scope of these secondary sanctions authorities. Among other things, FAQ 545 provides that “facilitating” a transaction for or on behalf of a sanctioned person means “providing assistance for a transaction from which the person in question derives a particular benefit of any kind,” and sets out factors OFAC will consider in evaluating whether a transaction is “significant.” It also provides that a transaction is not “significant” if a U.S. person would not require a specific license from OFAC to conduct the transaction.

FAQ 542 provides guidance on the term “significant financial transaction” in the context of secondary sanctions against foreign financial institutions. It confirms, among other things, that “OFAC will generally interpret the term ‘financial transaction’ broadly to encompass any transfer of value involving a financial institution.” This would include, but is not limited to, the receipt or origination of wire transfers; the acceptance or clearance of commercial paper; the receipt or origination of ACH or ATM transactions; the holding of nostro, vostro, or loro accounts; the provision of trade finance or letter of credit services; the provision of guarantees or similar instruments; the provision of investment products or instruments or participation in investment; and any other transactions for or on behalf of, directly or indirectly, a person serving as a correspondent, respondent, or beneficiary. FAQ 542 also provides that a transaction is not “significant” if a U.S. person would not require a specific license from OFAC to conduct the transaction.

In this regard, new FAQ 547 confirms that activity authorized by new General Licenses 12 and 13, if occurring within the time period authorized in these general licenses, would not be considered “significant” for purposes of a secondary sanctions determination. The new FAQ guidance also emphasizes that the “intent” of the new designations is to “impose costs on Russia for its malign behavior.” It indicates that the U.S. government “remains committed to coordination with our allies and partners in order to mitigate adverse and unintended consequences of these designations.”

© 2018 Covington & Burling LLP

Peter Flanagan, Corrine Goldstein, Peter Lichtenbaum, Kimberly Strosnider, David Addis, Stephen Rademaker, Elena Postnikova, and Blake Hulnick of Covington & Burling LLP

White House Issues Presidential Proclamations Imposing Section 232 Tariffs on Steel and Aluminum Imports

President Trump, on March 8, 2018, issued two presidential proclamations imposing global tariffs of 25 percent on steel imports and 10 percent on aluminum imports in connection with the Section 232 investigations recently concluded by the Department of Commerce. The effective date of the tariffs for both Section 232 actions is March 23, 2018; their duration has not been specified at this time.

Steel

Product Scope

The presidential proclamation covers steel imports entered under HTSUS 7206.10 through 7216.50, 7216.99 through 7301.10, 7302.10, 7302.40 through 7302.90, and 7304.10 through 7306.90, including any subsequent revisions to these HTS classifications.

Remedy

This trade action imposes a 25 percent tariff on steel imports from all countries, with the exception of Canada and Mexico.

Aluminum

Product Scope

The presidential proclamation covers the following aluminum imports: (a) unwrought aluminum (HTS 7601); (b) aluminum bars, rods, and profiles (HTS 7604); (c) aluminum wire (HTS 7605); (d) aluminum plate, sheet, strip, and foil (flat rolled products) (HTS 7606 and 7607); (e) aluminum tubes and pipes and tube and pipe fitting (HTS 7608 and 7609); and (f) aluminum castings and forgings (HTS 7616.99.51.60 and 7616.99.51.70), including any subsequent revisions to these HTS classifications.

Remedy

This trade action imposes a 10 percent tariff on aluminum imports from all countries, with the exception of Canada and Mexico.

Product Exclusions

There will also be a mechanism for U.S. parties to apply for the exclusion of specific products based on unmet demand or specific national security considerations. The Secretary of Commerce shall issue procedures for exclusion requests within 10 days of March 8, 2018.

Country Exclusions

Canada and Mexico will be temporarily exempt from these measures due to their security relationship with the United States. Other countries may be able to qualify for a modification or removal of the tariffs if they come up with “alternate ways to address the threatened impairment of national security caused by imports.” The United States Trade Representative will be responsible for negotiations regarding such alternative arrangements. According to a White House official, the tariff rate for other countries may increase if Canada and Mexico secure a permanent exemption.

 

©2018 Drinker Biddle & Reath LLP. All Rights Reserved
This post was written by Nate Bolin, Douglas J. Heffner and Richard P. Ferrin of Drinker Biddle.
Check out the National Law Review’s Global Page for more insights.

U.S. Restrictions on Travel to and Trade With Cuba Return

Effective November 9, 2017, new regulations took effect limiting U.S. travel and trade with Cuba. 

Decades ago, the United States imposed a commercial embargo on Cuba. The embargo existed in one form or another until 2015, when the United States eased some of its restrictions on trade and travel. Then, on June 16, 2017, President Trump signed the National Security Presidential Memorandum (NSPM) on Strengthening the Policy of the United States Toward Cuba. In accordance with the NSPM, the U.S. Department of State has now published a list of restricted entities associated with Cuba. The list names entities with which direct financial transactions will “generally be prohibited” under the Cuban Assets Control Regulations. The entities on the list are those that are “under the control of, or acting for or on behalf of, the Cuban military, intelligence, or security services or personnel with which direct financial transactions would disproportionately benefit such services or personnel at the expense of the Cuban people or private enterprise in Cuba.” Numerous hotels and tourism agencies, as well as retail shops popular with tourists, are included on the list. As a result, U.S. citizens will again have to travel as part of a group that is accompanied by a group representative and licensed by the U.S. Department of the Treasury.

The new restrictions will not impact certain existing transactions. Contracts that were in place and travel arrangements that were made prior to the new rule taking effect may move forward.

This post was written by Natalie L. McEwan of Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.,© 2017
For more Antitrust Law legal analysis, go to The National Law Review 

U.S. Implements President Trump’s Cuba Policy

On Nov. 8, 2017, the U.S. Government announced new regulations in furtherance of the Trump Administration’s policy regarding Cuba.

In June 2017, President Trump published his National Security Presidential Memorandum “Strengthening the Policy of the United States Toward Cuba” (NSPM), which announced modification of U.S. policy with respect to Cuba to target the Cuban military, intelligence, and security agencies.  In the NSPM, President Trump emphasized the need to promote the flow of economic benefits to the Cuban people, rather than to its military.  The NSPM further directed the Commerce, State, and Treasury Departments to take various actions implementing the new policy.

Accordingly, regulations were released this week by the U.S. Department of State, Department of Treasury’s Office of Foreign Assets Control (OFAC), and Department of Commerce’s Bureau of Industry and Security (BIS) to implement the NSPM, and clarify the limitations imposed on U.S. persons wishing to travel to or do business in Cuba.

This post was written by Sonali Dohale, Kara M. Bombach, Yosbel A. Ibarra & Carl A. Fornaris of Greenberg Traurig, LLP. All rights reserved.,©2017
For more Antitrust legal analysis, go to The National Law Review 

EU Adopts New Sanctions on North Korea

On 16 October, the Foreign Affairs Council adopted new EU autonomous measures reinforcing the sanctions on North Korea imposed by the UN Security Council, effective immediately. They include a total ban on EU investment in North Korea across all sectors, whereas previously the ban related to certain sectors, such as the arms industry and chemical industries. Also, there is a total ban on the sale of refined petroleum products and crude oil. The amount of personal remittances to North Korea has been lowered from €15,000 to €5,000 in light of suspicions that they are being used in support of nuclear and ballistic missile programmes. In addition, three persons and six entities were added to the list of those subject to an asset freeze and travel restrictions.

This post was written by International Trade Practice at Squire Patton Boggs of Squire Patton Boggs (US) LLP., © Copyright 2017
For more Antitrust Law legal analysis, go to The National Law Review