On December 20, 2019, President Trump signed into law the National Defense Authorization Act for Fiscal Year 2020 (“NDAA 2020”), which includes numerous sanctions-related provisions. The law includes the previously introduced Caesar Syria Civilian Protection Act of 2019 (the “CSCPA”), establishing additional sanctions related to the Syrian conflict. It also provides for further sanctions related to North Korea, authorizes additional sanctions related to the construction of the Nord Stream 2 and TurkStream pipeline projects and foreign traffickers of illicit synthetic opioids, imposes limitations on the transfer of F-35 aircraft to Turkey, and purports to restrict the Administration’s discretion to remove Huawei Technologies Co. Ltd. (“Huawei”) and its affiliates from the Entity List maintained by the Bureau of Industry and Security of the Commerce Department.
The CSCPA provides for the imposition of secondary sanctions on foreign persons that engage in certain activities related to Syria, using tools similar to those provided in various U.S. authorities that impose sanctions with respect to Iran. Starting 180 days after enactment, Section 7412 of the NDAA 2020 requires the President to impose sanctions with respect to a foreign person that he determines, on or after the date of enactment, knowingly engages in any of the following activities:
- Supply of significant financial, material, or technological support to, or participation in, a significant transaction with respect to: (i) the Government of Syria or a senior foreign political figure of the Government of Syria; (ii) a foreign military contractor, mercenary, paramilitary force operating in Syria in a military capacity for or on behalf of the Government or Syria, the Government of the Russian Federation or the Government of Iran; or (iii) any foreign person subject to sanctions pursuant to the International Emergency Economic Powers Act, as amended, with respect to Syria, or any other law imposing sanctions with respect to Syria;
- Sale or provision of significant goods, services, technology, information or other support that significantly facilitates the Government of Syria’s maintenance or expansion of its domestic production of natural gas, petroleum or petroleum products
- Sale or provision of aircraft or spare aircraft parts used for military purposes in Syria for or on behalf of the Government or Syria or associated forces or persons, or significant goods or services related to the operation of such aircraft; or
- Supply of direct or indirect significant construction or engineering services to the Government of Syria.
Sanctions to be imposed are blocking of property within the United States or within the possession or control of a U.S. person, as well as ineligibility for admission or parole to the United States or to receive a visa to enter the United States. The CSCPA provides for the suspension of sanctions by the President for certain periods of time if he makes certain determinations regarding the hostilities in Syria and actions by the Government of Syria. It also permits national security waivers by the President.
The CSCPA also requires that the Treasury Department, within 180 days of enactment, determine pursuant to Section 311 of the USA PATRIOT Act whether reasonable grounds exist for concluding that the Central Bank of Syria is a financial institution of primary money laundering concern and, if so, to impose one or more “special measures.” These special measures include, among others, a prohibition on the opening or maintaining in the United States of correspondent or payable-through accounts for or on behalf of the identified party. The Central Bank of Syria is already blocked pursuant to Executive Order 13572 for being part of the Government of Syria, and U.S. persons are generally prohibited from having direct or indirect dealings with the bank.
Finally, the CSCPA authorizes the State Department to assist entities conducting criminal investigations, supporting prosecutions or collecting evidence against persons who have committed war crimes in Syria.
The NDAA 2020 also includes the Otto Warmbier North Korea Nuclear Sanctions and Enforcement Act of 2019 (the “Otto Warmbier Act”), named in honor of American college student Otto Warmbier, who died in 2017 shortly after being released from a North Korea prison and returned to the United States. The act further ratchets up sanctions pressure on North Korea by targeting non-U.S. persons engaging in certain activities related to North Korea.
The Otto Warmbier Act amends the North Korea Sanctions and Policy Enhancement Act of 2016 (the “NKSPEA”), adding a section that provides for the imposition of secondary blocking and correspondent account sanctions on foreign financial institutions in specified circumstances. The U.S. government is to impose sanctions against financial institutions that it finds knowingly provide, 120 days or more after enactment, significant financial services to any persons designated for sanctions with respect to North Korea under specified provisions of NKSPEA, or any applicable Executive Order or United Nations Security Council (“UNSC”) resolution (collectively, the “Designated Authorities”).
In addition, under the Otto Warmbier Act, the Secretary of the Treasury must, within 180 days of enactment, prohibit foreign entities owned or controlled by U.S. financial institutions from knowingly engaging in a transaction directly or indirectly with the Government of North Korea or any person designated for sanctions with respect to North Korea under the Specified Authorities if the transaction would be prohibited for a U.S. person or in the United States.
The act also amends the NKSPEA to, subject to certain exemptions and waivers, block the assets of any person the President determines to knowingly:
- Directly or indirectly, engage in the importation from or exportation to North Korea of significant quantities of coal, textiles, iron or iron ore; refined petroleum products or crude oil above UNSC limits; or related services or technology.
- Facilitate a significant transfer of funds or property of the Government of North Korea that materially contributes to a violation of an applicable UNSC resolution;
- Directly or indirectly, engage in, facilitate or be responsible for the exportation or employment of workers from North Korea in a manner that generates significant revenue for the Government of North Korea or the Workers’ Party of Korea;
- Directly or indirectly, sell or transfer a significant number of vessels to North Korea;
- Engage in a significant activity to charter, insure, register or maintain insurance or a registration for a vessel owned, controlled, commanded or crewed by a North Korean person; or
- Contribute to and participate in certain bribery or corrupt activities related to the Government of North Korea.
The Otto Warmbier Act requires the President to notify Congress before taking any action to terminate or suspend sanctions under it and to submit certain reports to Congress regarding sources of support for the North Korean government, its financial networks and methods, and countries of concern with respect to transshipment or diversion of certain items to North Korea. The act also requires the Treasury Department to provide reports to Congress regarding the issuance of relevant licenses.
Nord Stream 2 and TurkStream Pipeline Projects
The NDAA 2020 includes the Protecting Europe’s Energy Security Act of 2019 (the “Energy Security Act”), which supplements statutory provisions that provide for sanctions in opposition to the Nord Stream 2 natural gas pipeline project. The Nord Stream 2 project is for development of an undersea pipeline to enable Russia to expand gas exports to Germany. The Energy Security Act also provides for sanctions against the TurkStream Pipeline project, which is for development of a pipeline to expand gas exports from Russia to Turkey.
The Energy Security Act requires the Secretary of State, in consultation with the Secretary of the Treasury, not later than 60 days after enactment, and every 90 days thereafter, to identify in a report to Congress, vessels engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline project, the TurkStream pipeline project, or any successor project, as well as foreign persons that have knowingly sold, leased or provided such vessels or facilitated deceptive or structured transactions to provide those vessels. Blocking and visa sanctions must be imposed on identified persons, their corporate officers and principal shareholders with controlling interests.
There is a wind-down period; no sanctions will be imposed on a person identified in the President’s first report if the President certifies that such person has engaged in good faith efforts to wind down the sanctionable activities. The Treasury Department’s Office of Foreign Assets Control issued frequently asked question 815, which provides that to comply with the wind-down period, parties that have knowingly sold, leased or provided vessels as described above “must ensure that such vessels immediately cease construction-related activity.” The wind-down provisions contain exceptions for certain activities related to safety of vessels or crews and for repair or maintenance of the relevant pipeline projects.
Section 1245 of the NDAA 2020 prohibits the Department of Defense from transferring, facilitating or authorizing the transfer of any F-35 aircraft or related support equipment or parts to Turkey, or from using any funds to do so. It also prohibits the transfer of intellectual property, technical data or material support related to any maintenance or support of the F-35 aircraft necessary to establish Turkey’s indigenous F-35 capability, and on the construction of storage facilities in Turkey for F-35 aircraft transferred to Turkey. It permits the Secretary of Defense and the Secretary of State jointly to waive these limitations if Turkey takes certain actions to dispose of the S-400 air and missile defense system it received from the Russian Federation and provides certain related assurances.
Section 1245 expresses the sense of Congress that Turkey’s acceptance of the S-400 air and missile defense system from the Russian Federation constitutes a significant transaction within the meaning of Section 231(a) of the Countering America’s Adversaries Through Sanctions Act of 2017 (“CAATSA”), which provides for the imposition of five or more types of menu-based sanctions on any party that engages in a significant transaction with a person that is part of the defense or intelligence sectors of the Government of the Russian Federation, with certain exceptions. Congress also calls on the President to implement CAATSA by imposing sanctions on any individual or entity that has engaged in such a significant transaction.
In 2019 the U.S. Commerce Department added Huawei and 114 of its affiliates to the Export Administration Regulations “Entity List.” The regulations generally forbid any person (U.S. or non-U.S.) to supply goods, software or technology to a designated Huawei entity that in whole or part originated in the United States or that are otherwise within the scope of the regulations.
Section 1260I of the NDAA 2020 purports to prohibit the Secretary of Commerce to remove Huawei or any of its affiliates from the Entity List until the Secretary makes certain certifications to Congress that:
- Huawei has resolved the economic sanctions-compliance charges that were the basis for its inclusion on the entity and any other charges that it violated U.S. economic sanctions;
- Regulations have been implemented that sufficiently restrict exporting to, and importing from, the United States that would pose a national security threat to telecommunications systems in the United States;
- The Commerce Department has mitigated, to the maximum extent possible, other threats to the U.S. national security posed by Huawei.
The Commerce Department must submit annual reports to Congress regarding licenses issued for exports to Huawei.
Synthetic Opioid Trafficking
The Fentanyl Sanctions Act included in the NDAA 2020 requires the President to submit a report to Congress identifying foreign persons he determines are “foreign opioid traffickers,” defined as any foreign person determined to play a significant role in “opioid trafficking.” Opioid trafficking means illicit activity to produce, manufacture, distribute, sell or knowingly finance or transport synthetic opioid or certain related active pharmaceutical ingredients or chemicals. The President must impose multiple menu-based sanctions on any foreign person identified as a foreign opioid trafficker, and on a person determined be owned, controlled, directed by, supplying precursors for, or knowingly acting on or behalf of, such a trafficker.
The President may waive the application of sanctions for specified time periods with respect to an entity owned or controlled by a foreign government if he makes certain certifications regarding a foreign government’s cooperation with the United States in efforts to prevent opioid trafficking. He may also implement national security waivers or to avoid harm to access by U.S. persons to prescription medications. The Fentanyl Sanctions Act also establishes a commission to combat synthetic opioid trafficking.
Economic sanctions continue to be a preferred tool of Congress to implement foreign policy. Several of the sanctions provisions included in the NDAA 2020 provide for secondary sanctions that target non-U.S. persons, reflecting efforts to impose costs on foreign parties that continue to support malign regimes and activities. In particular, foreign persons that engage in activities related to Syria or North Korea should consider the risks, which could include, in some cases, exclusion from the U.S. financial system and dealings with U.S. persons. At the same time, the statute seeks to limit the Administration’s discretion to rescind sanctions against Huawei and its affiliates. Companies are well served by understanding this legislation and monitoring its application as part of managing sanctions risk.
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