Month: October 2020

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has recently provided guidance or taken action on a number of issues relevant to the forwarding industry.

Secondary Sanctions on Iranian Financial Institutions
On October 8, 2020, the U.S. Department of the Treasury designated eighteen Iranian banks under Executive Order (E.O.) 13902 (2020), which effectively extended secondary sanctions to Iran’s entire financial sector. On October 9, 2020, we distributed a client alert summarizing the effects of this action. Among other things, OFAC noted on October 8 that it would be providing additional guidance on determining what types of non-humanitarian transactions with Iran would be considered significant and therefore sanctionable. OFAC has not yet released guidance on this issue.

On October 26, 2020, OFAC issued General License 8A (GL 8A) and amended six FAQs (821, 822, 823, 825, 828, and 844), all of which concern authorizations and policies for humanitarian trade with Iran. Under this new guidance:

• GL 8A authorizes transactions with the Central Bank of Iran (CBI), the National Iranian Oil Company (NIOC), and any entity in which NIOC holds a 50% or larger beneficial ownership interest, involving the shipment of food and medical supplies to Iran that are already licensed under 31 CFR §§ 560.530 to 560.533 of the ITSR.
• OFAC reemphasized that it will not pursue foreign companies for engaging in humanitarian transactions that would be authorized for U.S. companies under GL L and GL 8A.
• OFAC still has not provided guidance on how foreign companies can determine if business with Iranian banks is significant (i.e., sanctionable). We will send out a client alert once OFAC issues guidance on this issue.

As GL 8A only applies to certain licensed humanitarian activity, it is still prudent to review any transactions with CBI or NIOC carefully. In addition, when using GL L or GL 8A, it is important to review whether the activity is authorized under applicable provisions of the ITSR. If you or your customers have any questions about humanitarian trade with Iran, please let us know and we would be happy to discuss the specifics with you.

OFAC Sanctions Shipping Agents in the People’s Republic of China (PRC)
On October 19, 2020, OFAC imposed sanctions on the following PRC and Hong Kong-based companies for supporting the Islamic Republic of Iran Shipping Lines (IRISL): Reach Holding Group (Shanghai) Company Ltd.; Reach Shipping Lines; Delight Shipping Co., Ltd.; Gracious Shipping Co. Ltd.; Noble Shipping Co. Ltd.; and Supreme Shipping Co. Ltd. The IRISL affiliates involved here were E-Sail Shipping Company, Ltd., IRISL’s Shanghai-based subsidiary, and Hafez Darya Arya Shipping Company (HDASCO), another IRISL subsidiary.

According to the U.S. Department of State, the designated PRC companies supported IRISL and IRISL affiliates by:

1. Arranging port berths for IRISL vessels at Chinese ports;

2. Falsifying documents and engaging in other deceptive practices intended to conceal IRISL’s and its affiliates’ activities in the PRC from the PRC government and other parties;

3. Knowingly selling, supplying, or transferring four large container vessels to one of IRSIL’s affiliates; and

4. Knowingly selling, supplying, or transferring goods and services to IRISL and its affiliates with the intent to conceal IRISL’s and its affiliates’ activities in the PRC.

Further, the U.S. Department of State “reiterate[d] a warning to stakeholders worldwide: if you do business with IRISL, you risk U.S. sanctions.” In this designation action, it appears that the PRC and Hong Kong-based companies acted as part of IRISL’s sanctions evasion network to allow IRISL to continue doing business in the PRC. It also provides some insight into the types of services IRISL and its affiliates may request from local shipping agents.

While it is not clear whether OFAC is pursuing any enforcement action against parties that may have inadvertently been doing business with IRSIL through the designated PRC and Hong Kong-based companies, this action underscores the U.S. government’s vigilance regarding IRISL’s activities at foreign ports.

Amendments to the Cuban Assets Control Regulations (CACR)
On September 23, 2020, and October 26, 2020, OFAC amended the CACR to limit transactions with certain prohibited parties in Cuba. The CACR has become increasingly reliant on two lists of prohibited parties maintained by the U.S. State Department: the Cuba Prohibited Accommodations List (CPA) and the Cuba Restricted List (CRL). First, on September 23, OFAC revised the CACR to prohibit U.S. citizens and companies from lodging or arranging for lodging at certain properties owned by the Cuban government or its officials. See 31 CFR § 515.210. Accordingly, many of the travel-related general licenses have been amended to exclude transactions involving parties or properties on the CPA. Second, on October 26, OFAC revised the CACR to prohibit the involvement of parties on the CRL in generally licensed remittance transactions (e.g., the remittance of funds to family members in Cuba). The CRL is a list of entities connected to Cuba’s military, intelligence, and security organizations, some of whom have acted as intermediaries to family remittances in the past in order to grant the Cuban government control over the funds. Many other general licenses in the CACR already prohibit transactions with CRL entities.

Both the CPA and CRL are administered and maintained by the U.S. Department of State, not OFAC or the Bureau of Industry and Security (BIS). While we do not expect that these amendments will affect forwarder business directly, it is important for U.S. and foreign companies to incorporate the CPA and CRL into any existing screening procedures because OFAC’s Cuba-related sanctions are increasingly limiting licensed activities with parties on these State Department lists. Many third-party screening services have incorporated these lists into their consolidated screening solutions, but public databases such as OFAC’s sanctions search list do not include these prohibited parties.

On October 16, 2020, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) implemented a new streamlined procedure for exporters to request six-month extensions of BIS licenses that expire on or before December 31, 2020. These requests for license extensions can be emailed to: LicenseExtensionRequest@bis.doc.gov. BIS estimates that processing will take only two to three business days, and expects to approve most extension requests.
 
BIS’s press release on this new extension policy is attached below. If you or your customers have any licenses that are expiring this year, the streamlined process described above may assist in obtaining timely extensions from BIS.
 
Separately, on October 17, 2020, the People’s Republic of China (PRC) passed a new law to expand its export controls on certain items, including military and nuclear products. The law will come into effect on December 1, 2020, and PRC regulatory authorities have been tasked with publishing lists of specific items controlled under the new law. In addition, the law grants PRC agencies the authority to restrict exports to companies designated on the PRC equivalent of the U.S. Entity List. It is possible that China may use this list to reciprocate against U.S. Entity List designations of large PRC companies like Huawei. Once the law goes into effect, U.S. importers of certain PRC goods may need to provide end-use certificates and other information to PRC exporters to allow them to apply for export permits. We will provide another alert once there is more clarity on the new PRC export controls regime and licensing requirements.

BIS Press Release

Beginning in September 2020, thousands of companies have challenged the Section 301 China Tariffs under List 3 and 4A in the U.S. Court of International Trade. As part of this challenge, companies are seeking a refund of duties paid under List 3 and 4A, as well as revocation of those tariffs. The lawsuits allege that the U.S. Trade Representative (USTR) acted outside its authority by extending the initial China tariffs, which were focused on countering China’s policies with respect to intellectual property, into an open-ended trade war. In addition, the lawsuits allege that the USTR failed to provide appropriate due process to companies seeking to argue against the tariffs, seek exclusions to the tariffs, and seek extensions of exclusions to the tariffs.

The Section 301 List 3 and 4A tariffs have imposed a substantial burden on U.S. importers and their customers, often implementing high duty rates of 25% for China-origin goods even when these goods can only be produced at cost and scale in China. Over the past several years, companies have had to pay high duties and spend considerable time and money to adjust long-standing and secure supply chains.

The majority of lawsuits related to List 3 against the USTR were filed before September 18, 2020 in order to minimize questions related to the statute of limitations for filing an action. GKG Law, however, has identified several grounds upon which challenges can still be brought against List 3 tariffs. In addition, there is no question that challenges to List 4A tariffs are still within the statute of limitations.

If your company still wishes to file a challenge against the USTR to seek a refund of List 3 and List 4A duties, contact Brendan Collins (bcollins@gkglaw.com; 202-342-6793) or Oliver Krischik (okrischik@gkglaw.com; 202-342-5266) to learn more about the process. Challenges to List 4A are certainly still timely and even challenges to List 3 tariffs may be able to proceed depending on the circumstances.