Sanctions Compliance Issues for Non-U.S. Companies - Global Trade Magazine
  December 8th, 2015 | Written by

Sanctions Compliance Issues for Non-U.S. Companies

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  • All “U.S. persons” must comply with the current sanctions involving Cuba and Iran.
  • U.S. citizens must comply with sanctions even if they are not located in the U.S. nor working for a U.S. company.
  • Regulations prohibit U.S. persons from “facilitating” prohibited transactions by non-U.S. persons.

Foreign companies or affiliates of U.S.-based companies may not be aware that they may be subject to U.S. sanctions laws, including programs on Iran and Cuba, which are administered by the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC).

Both of these programs not only apply to U.S. persons but to a much larger group, including those owned or controlled by U.S. persons and organizations. While there has been a recent loosening of the sanctions on Cuba, and a plan to potentially reduce sanctions against Iran, these sanctions are currently very broad and continue to prohibit most transactions.

As all U.S. persons must comply with the current sanctions involving Cuba and Iran, it is important to know whether your foreign affiliate or employees may be subject to these rules. For these purposes, a U.S. person includes the following: (1) all U.S. citizens and residents, wherever located, (2) any person acting within the U.S., (3) any corporation, partnership, association, or other organization organized under the laws of the U.S. or any state, territory or possession of the U.S., and (4) any corporation, partnership, association or other organization, wherever organized, that is owned or controlled by persons in (1) through (3).

Many American citizens and residents are currently employed by companies located outside of the United States. As a result, it is important to note that these sanctions follow all U.S. citizens “wherever located” and all citizens working abroad must ensure that they are not engaging in any prohibited activity despite the fact that they are neither in the U.S. nor working for a U.S. company. When facing work activities that may involve transactions with Cuba and Iran, it is especially important that these U.S. citizens and residents need ensure that their activities are authorized under a general or specific license.

Many foreign companies also do not realize that the prohibitions may apply to them if they are owned or controlled by a U.S. person, corporation, or other U.S. entity. Control includes 50 percent or more ownership, but may also be implicated if a U.S. person influences a foreign company’s operations. For example, if a U.S. citizen board member has control over the policies and personnel decisions of a foreign entity, then, depending on the facts, that entity may be considered “owned or controlled” by a U.S. person and therefore subject to U.S. sanctions regulations.

Finally, the OFAC regulations prohibit U.S. persons from “facilitating” transactions by non-U.S. persons engaged in activities that would be prohibited if engaged in by a U.S. person. For example, a U.S. citizen board member of a foreign entity cannot approve, finance, direct, or otherwise involve herself in a transaction by that foreign entity that the U.S. citizen is otherwise prohibited from engaging in. Identifying the types of activities that constitute facilitation under OFAC’s broad interpretation of the regulations is highly fact-specific and a frequent source of confusion for companies.

Foreign entities affiliated with U.S. companies should have procedures in place to determine whether their actions are subject to U.S. sanctions. If they are subject to U.S. jurisdiction, they should also determine to what extent they need to review their transactions to ensure that they and their U.S. affiliates remain compliant.

Elsa Manzanares and Michelle Schulz are co-chairs of the International Trade group at Gardere Wynne Sewell LLP.