The COVID-19 pandemic has had profound economic and political effects over the past several months. Increasingly, those effects have led a number of US policymakers, US allies, and others to question certain US sanctions policies, and triggered debate over new sanctions with respect to the novel coronavirus and alleged coverups of information related to it. We urge companies to track these developments and consider how sanctions relief related to COVID-19—and potential new sanctions—might create new risks to, or even opportunities for, their business.
US Humanitarian-Related Sanctions Relief
On April 16, 2020, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) issued Fact Sheet: Provision of Humanitarian Assistance and Trade to Combat COVID-19 (Factsheet), a comprehensive compilation of all regulatory guidance, exemptions, and exceptions that, to varying degrees, allow humanitarian-related trade with countries and territories subject to comprehensive US sanctions (see WilmerHale's chart listing these authorizations and guidance). According to OFAC, “[t]he United States is committed to ensuring that humanitarian assistance continues to reach at-risk populations through legitimate and transparent channels as countries across the globe fight the Coronavirus Disease 2019 (COVID-19).”
The Factsheet appeared as the Trump Administration faced increasing criticism that it was not doing enough to facilitate humanitarian trade with countries impacted by the pandemic, Iran in particular. While the Factsheet contains some new details that are helpful to financial institutions, exporters, and others, it principally summarizes the scope and interplay of existing authorizations. But the Factsheet is now OFAC's best-consolidated resource regarding permissible humanitarian assistance and trade under OFAC's Iran, Venezuela, North Korea, Syria, Cuba, and Ukraine/Russia-related sanctions programs—particularly as they apply to COVID-19 related support.1
Notably, the Factsheet describes how existing OFAC authorizations apply to exports of personal protective equipment (PPE) and other items needed in fighting COVID-19 to US-sanctioned governments. For example, it confirms that existing general licenses for the export of medicine and medical products to Iran cover medical gowns, medical eye shields and goggles, surgical gloves, face shields, certain respirators and masks such as N95, N99, and N100 masks, and certain ventilators, whereas, in contrast, certain other items helpful for COVID-19 treatment (such as oxygen generators, full face mask respirators including powered air purifying respirators, certain diagnostic medical imaging equipment, and certain decontamination equipment) are subject to a specific licensing requirement from OFAC. The agency states that it “is prioritizing and expediting review of these license requests.”
Persons seeking to avail themselves of OFAC's humanitarian trade-related authorizations should read the Factsheet carefully, as there are various—and potentially impactful—differences in how the authorizations are applied under each sanctions program. For example, while the Iran, Cuba, Syria, and Venezuela sanctions programs contain general licenses for humanitarian-related activities conducted by nongovernmental organizations, the North Korea and Ukraine/Russia sanctions programs do not contain this exception, and even the extant general licenses vary in their conditions and parameters.
OFAC's Factsheet arrived after months of pressure from international and domestic critics who have been urging the Trump Administration to ease US sanctions—especially sanctions against Iran—in response to the humanitarian challenges faced by sanctioned countries because of the COVID-19 pandemic. Eight United Nations member states targeted by US sanctions succeeded in persuading UN Secretary-General Antonio Guterres to urge “the waiving of sanctions imposed on countries to ensure access to food, essential health supplies, and COVID-19 medical support.” UN High Commissioner for Human Rights Michelle Bachelet, likewise, called for the easing or suspension of sanctions that create “obstacles to the import of vital medical supplies.” Bachelet specifically identified “over-compliance with sanctions by banks” as one such obstacle. Indeed, European and other non-US banks that are not legally prohibited from facilitating humanitarian trade with Iran often refrain from doing so because of the complexity of ensuring compliance with US primary and secondary sanctions; the risk of drawing unwanted attention from US sanctions enforcement agencies; and complicating commercial relationships with US counterparties.
Domestically, 30 members of Congress wrote a letter to Secretary of State Mike Pompeo and Secretary of the Treasury Steven Mnuchin, asking that they “substantially suspend” US sanctions against Iran and “other countries facing outbreaks.” For his part, former Vice President and presumptive Democratic Party nominee for President, Joe Biden, issued a comparable statement in which he acknowledged that “[t]here are already humanitarian exceptions in place for sanctions, but in practice, most governments and organizations are too concerned about running afoul to offer assistance.” Biden specifically suggested that the Trump Administration issue broad licenses, create “a dedicated channel for international banks” and others to provide support, issue comfort letters, and provide clearer public guidance. On April 6, two dozen US and European national security experts and former officials issued a statement urging eight comparable, specific measures to ease US sanctions against Iran, including expanding existing humanitarian exemptions, adding staff to expedite licensing of humanitarian trade, and supporting the newly operational Instrument in Support of Trade Exchanges (INSTEX) in Europe.
Even prior to many of these criticisms and prior to the publication of the Factsheet, OFAC and the Treasury Department had made some effort to provide public guidance on the topic,2 while continuing to insist that existing humanitarian carveouts to their sanctions programs were adequate to ensure the delivery of humanitarian aid to sanctioned countries. On April 9, for example, the Department of the Treasury issued a statement affirming the US commitment “to ensuring the international flow of humanitarian aid continues through legitimate and transparent channels.” In the statement, Secretary Mnuchin affirmed that “Treasury sanctions do not target legitimate aid” and that the United States is “committed to working with financial institutions and non-profit organizations in their efforts to mitigate risks and allow humanitarian assistance and associated payments to flow to those who need it.” The statement suggested that the Treasury Department would “provide guidance and clarifications” on sanctions and anti-money laundering compliance in this context. In effect, the April 9 statement rejected calls for dramatic changes to US sanctions policy in response to COVID-19, previewed the publication of the Factsheet, and signaled some willingness by the Trump Administration to facilitate lawful trade with countries targeted by US sanctions.
Additionally, on February 27, 2020, OFAC announced that the Swiss Humanitarian Trade Arrangement (SHTA) had become fully operational. The announcement was accompanied by the issuance of General License 8 authorizing humanitarian trade transactions involving the Central Bank of Iran (a Specially Designated Global Terrorist) and several related Frequently Asked Questions. The SHTA is supervised by the Swiss State Secretariat for Economic Affairs, is intended for use by US and non-US persons domiciled in Switzerland, and it is designed in particular to assist foreign financial institutions facilitate authorized agricultural and humanitarian exports to Iran. It remains to be seen whether and to what extent exporters and banks will look to the SHTA to facilitate such trade.
In light of these developments, we recommend that US, European, and other companies that wish to engage in or facilitate humanitarian-related trade to carefully assess the existing US primary and secondary sanctions, with particular attention to OFAC's recent Factsheet, and—as appropriate—engage with the Treasury Department and other US government stakeholders to ensure that the transactions are consistent with US Government expectations.
OFAC Engagement
OFAC has recently signaled its willingness to maintain a degree of flexibility in response to challenges that companies and other persons may face in fulfilling certain OFAC-administered regulatory requirements.
On April 20, 2020, OFAC issued a notice encouraging persons affected by the COVID-19 pandemic to contact OFAC “as soon as practicable” if they believe that they may expect delays in meeting reporting or filing deadlines. This includes requirements related to filing blocked property and rejected transaction reports, responses to administrative subpoenas, reports required under general or specific licenses, or any other required submissions.
The notice also reiterates OFAC's support for a risk-based approach to sanctions compliance. Notably, OFAC states that “if a business facing technical and resource challenges caused by the COVID-19 pandemic chooses, as part of its risk-based approach to sanctions compliance, to account for such challenges by temporarily reallocating sanctions compliance resources consistent with that approach, OFAC will evaluate this as a factor in determining the appropriate administrative response to an apparent violation that occurs during this period.”
COVID-19 Sanctions and Other Restrictions
Earlier this month, several Republican members of Congress introduced the Li Wenliang Global Public Health Accountability Act, which would authorize the President to impose sanctions against any foreign government official involved in efforts “to deliberately conceal or distort information about a public health emergency of international concern,” including COVID-19. On April 14, 2020, Senator Ted Cruz (R-TX) introduced the Ending Medical Censorship and Cover Ups in China Act of 2020, which would mandate that the President impose sanctions against persons who engaged in censorship and related activities in China targeting Chinese citizens who disseminate “accurate epidemiological information, including information related to emerging diseases or pathogens,” among others. A former Canadian justice minister is urging his government to impose comparable sanctions against Chinese officials under Canada's Sergei Magnitsky Law.
On April 10, 2020, President Trump issued a Memorandum on Visa Sanctions to the Secretaries of State and Homeland Security. In it, he directed the Secretary of Homeland Security to notify the Secretary of State “if any foreign country denies or unreasonably delays the acceptance of aliens who are citizens, subjects, nationals, or residents of that country after being asked to accept those aliens, and if such denial or delay is impeding operations of the Department of Homeland Security necessary to respond to the ongoing pandemic caused by SARS-CoV-2.” The Secretary of State would then be required to impose visa sanctions under the Immigration and Nationality Act (INA). Specifically, under Sec. 243(d) of the INA, immigrant and nonimmigrant visas would be denied to aliens of that foreign country unless and until the foreign country acceded to the US request.
These efforts signal that the political response to the COVID-19 pandemic is likely to resemble the political response to other global challenges, including—at least potentially—through the deployment of new sanctions programs.
Footnotes
1. The State Department has similarly underscored that existing US sanctions allow for humanitarian relief to Iran in the wake of COVID-19. "U.S. sanctions are not preventing aid from getting to Iran. The United States maintains broad authorizations that allow for the sale of food, agricultural commodities, medicine, and medical devices by U.S. persons or from the United States to Iran." US Department of State Factsheet, Iran's Sanctions Relief Scam (Apr. 6, 2020).
2. On March 6, 2020, the US Department of the Treasury's Office of Foreign Assets Control (OFAC) issued a new Frequently Asked Question, FAQ # 828, specifically to address permissible transactions with Iran in response to the COVID-19 outbreak there. FAQ # 828 noted several existing general licenses and exceptions that authorize otherwise prohibited trade with Iran.
Originally published 4 May, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
