Six months into the Trump Administration, lingering questions continue regarding whether Trump’s rhetoric will match his actions with regard to rolling back Obama-era policies on Iran and other markets. Despite saying repeatedly that sanctions would be a top priority, sanctions have largely taken a back seat in the President’s agenda. This may be due to his other (daily) crises and difficulties in passing other agenda items, such as healthcare reform. Once the Trump Administration gets its footing, we expect sanctions – particularly as to Iran — to return to the top of the agenda. This article discusses where sanctions might be headed under the Trump Administration and the importance of compliance in the current state of uncertainty.
Iran: On 16 January 2016, the US and the EU implemented certain nuclear-related sanctions relief for Iran in accordance with the Joint Comprehensive Plan of Action (JCPOA). Through a series of waivers and Executive Orders, Obama significantly eased secondary sanctions on non-US persons, including financial and banking-related secondary sanctions. Non-US banks may now provide banking services in support of business with Iran – provided no US persons are involved. US financial institutions may likewise transact with non-US, non-Iranian financial institutions that maintain correspondent banking relationships or otherwise transact with Iranian financial institutions – as long as they are not on the SDN List.
Notwithstanding this, global banks remain hesitant to finance deals involving Iran because of a lack of clarity, the potential impact of policy changes, and the risk of the US reimposing sanctions regardless of Iran’s conduct.
The President and Congressional Republicans have expressed common ground in their opposition to and criticism of the JCPOA. Trump is under some pressure to keep the JCPOA intact, however, in light of its relative success to-date. Nevertheless, Trump can take actions against the Iranian economy otherwise by implementing secondary sanctions or imposing new non-nuclear related sanctions on key sectors of the Iranian economy, including the energy and automotive sectors. He can do this via his Executive authorities. Depending on the sanctions, the impact could be immediate for French companies doing business with Iran. For example, sanctions could prevent US persons (including banks) from dealing with French companies that support certain economic sectors in Iran.
Signals from Administration suggest it may use Iran’s ballistic missile program to justify additional sanctions on Iran, thereby leaving the JCPOA in place. For example, on 17 July 2017, the Trump Administration certified that Iran is still complying with the JCPOA. The following day the Trump Administration designated 18 individuals and entities for supporting Iran’s ballistic missile program and weapons procurement.
Russia: It is unclear what action President Trump may take with regard to sanctions that Obama imposed on Russia for its incursion into the Crimea and US elections. President Trump has expressed his desire to improve relations with Russia and indicated he may consider lifting sanctions. Congress is vocally opposed, with many congressional members arguing for more sanctions on Russia. On 25 July 2017, the House of Representatives overwhelmingly passed a bill that would sharply limit the president’s ability to suspend or terminate sanctions against Russia. The bill aims to punish Russia for its alleged interference in the 2016 US presidential elections, as well as human rights abuses, annexation of Crimea, and continuing military operations in eastern Ukraine. The bipartisan bill also encompasses new sanctions against Iran and North Korea in response to their respective weapons programs. The bill is expected to pass in the Senate, as the original bill passed the Senate 98-2 in June 2017.
As questions regarding contacts between the Trump campaign and Russian officials continue to leak, it appears Trump’s efforts to thaw diplomatic relations and ease sanctions on Russia may be placed on hold for the near future.
Cuba: Since 2014, the US has eased certain economic sanctions and export controls on Cuba. The long-standing embargo largely remains intact. But, US investment in Cuba has increased substantially over the last two years under liberal licensing and interpretive guidance.
On 16 June 2017, President Trump announced he was “cancelling the last administration’s completely one-sided deal with Cuba” and contemporaneously issued a presidential directive announcing the reinstatement of certain travel and commercial restrictions on Cuba eased by the Obama administration. In particular, the policy changes prohibit commercial transactions involving the Cuban military, intelligence, or security services, which own large segments of the Cuban economy through the Grupo de Administracion Empresarial S.A. (GAESA). The announced changes could potentially impede US companies’ ability to pursue certain business opportunities in Cuba. The announced policy changes will not take effect until the US Department of Treasury and US Department of Commerce implement amended regulations, a process that may take several months.
Sudan: In January 2017, Obama conditionally lifted sanctions on Sudan authorizing a broad range of activities previously prohibited under the Sudanese Sanctions Regulations (SSR), including most transactions with individuals and entities in Sudan. The US did not alter the underlying SSR. Rather, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a general license to allow business between the US and Sudan and to unfreeze Sudanese assets blocked under the SSR, including assets of the government of Sudan.
On 11 July 2017, the Trump administration announced its need for additional time to determine whether the US should permanently lift sanctions against Sudan, delaying the final decision until 12 October 2017. Temporary sanctions relief remains in place in the interim. It is unclear whether Trump will stick to the policy. He could easily snapback sanctions by Executive Order with little or no political backlash by revoking the general license.
Importance of Compliance: President Trump’s posture with respect to national security and sanctions has added uncertainty to the status of US sanctions. For non-US companies and financial institutions in particular, demonstrably effective compliance procedures and confirmatory data regarding compliance under current US laws are important. Should the US snapback sanctions, data demonstrating compliance throughout supply chain and development efforts prior to the snapback would be the most effective defense against any US government inquiry into the company’s compliance with US sanctions.
Categories: US Regulations