Sanctions Are Pouring: Here's Advice for General Counsel on Where to Hold the Umbrella
New economic sanctions on other countries, foreign companies and individuals are popping up everywhere, and general counsel of global companies must be wondering if they should add outside counsel sanctions experts to their speed dials.
November 04, 2019 at 06:02 PM
6 minute read
New economic sanctions on other countries, foreign companies and individuals are popping up everywhere, and general counsel of global companies must be wondering if they should add outside counsel sanctions experts to their speed dials.
After nearly a decade with few sanctions, just since June the U.S. Office of Foreign Assets Control sanctioned the entire government of Venezuela, imposed secondary sanctions on several major Chinese shipping companies for transporting oil from Iran, imposed new sanctions on Russia over chemical weapons attacks and election interference, and sanctioned three North Korea-sponsored hacking groups for malicious cyberattacks.
In the first week of November alone, the government added nine specially designated Iran-related nationals, along with the entire Iranian armed forces general staff; removed two Venezuela-related companies; and amended two Ukraine-related actions.
In an effort to understand the flurry of actions and how they impact general counsel, Corporate Counsel recently spoke with Melissa Schwartz and Wynn Segall, partners at Akin Gump Strauss Hauer & Feld in Washington, D.C. They are both experts in the area of international trade and sanctions.
Here are excerpts from the conversation, edited for brevity and clarity.
Corporate Counsel: The sanctions landscape seems to be constantly changing lately. Has that always been the case, or is so much change a recent phenomenon?
Wynn Segall: Looking at the long picture of the use of economic sanctions, it goes back before World War II but really became a more active area of law starting in the 1980s and the [President Ronald Reagan] administration. In the years since, different administrations, both Democrat and Republican, have increasingly favored using sanctions as an alternative force. It's fair to say there has recently been more frequent change in, and use of, sanctions as the preferred tool for foreign policy and national security.
CC: What do you see as the most significant recent change that general counsel should be aware of?
Melissa Schwartz: We're seeing more recently a divergence between U.S. sanctions policy and that of our European allies. For example, a few years ago sanctions were coordinated with our allies. More recently with Venezuela and Turkey we are going down that path on our own without Europe doing something similar.
For general counsel, one really important thing to consider is which laws are applicable to my business. Is this just U.S. sanctions, or are European sanctions also at play? It's a matter of law to know which ones are applicable to your company.
CC: If a general counsel calls you, what is your first move?
WS: One of the first things we do when we talk to the general counsel is to look at their risk profile in terms of their jurisdiction, their touch points to the sanction and their exposure.
MS: We specifically look at whether they are contractually obligated to comply with any sanctions. Financing agreements with banks, for example, often require companies to comply with any sanctions. So when thinking about compliance and mitigating risk, they need to be also thinking about their financing and any other type of contractual arrangements.
CC: How much are the banks scrutinizing sanctions?
WS: There are trends in increased sanctions, but also in increased "derisking" by financial institutions, with important consequences for companies, including the compliance that general counsel need to have in place. We're often seeing situations where banks will limit borrowing not just to compliance with the law but also will exclude any business that will intersect with other parties subject to sanctions, regardless of whether the law would require that or not.
CC: After the risk assessment and studying the contracts, what comes next?
MS: We would ask the general counsel to think about policies and procedures to comply with those requirements. It's important to recognize that OFAC has issued a framework for compliance, a very useful document that not only includes what should go into policies but also has a list of select root causes of the basis of enforcement actions. This is a very helpful, user- friendly guide for general counsel to look at to see if their compliance policies measure up.
CC: Let's say the general counsel has done all that but wakes up one morning and suddenly finds there's a new sanctions regime. What should they do?
WS: First is to send out a communication to the business alerting the executives and key compliance people that something has occurred and they need to essentially hold still until the company can understand what the new action means to them, and if it imposes new trade restrictions not there the day before.
Second is to call outside counsel for immediate practical guidance. For example, a couple weeks ago at the end of the day the White House announced it was imposing sanctions on Turkey and issued an executive order with a stroke of the pen, and with little warning against five specific entities and individuals in Turkey.
The U.S. did not impose a blanket embargo, but did what is more common for this administration, they issued limited restrictions on a limited number of parties. That raises all kinds of questions on who does it affect.
MS: I would just add that when new sanctions are announced, every general counsel will need to take stock of the company's operations in that country. Sanctions are effective immediately. All activities in a newly sanctioned country need to cease. It's important to be able to reach out in the organization and communicate that quickly and effectively.
CC: Is there any other advice you can offer to in-house counsel?
MS: Sanctions are one of the issues that should be on every general counsel's checklist of questions when looking at mergers and acquisitions, supply chains, investment decisions, financing and everyday compliance.
WS: [In dealmaking] my mantra is sanctions are issues that need to be considered at the beginning of a transaction and not at the end. They can have a defining impact on the viability of a transaction, they can redefine value and pricing, and as a baseline issue it is critical for the company to know if it is contemplating an action that will put it in breach of U.S. law.
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