Regulatory intelligence for US exporters

Regulatory Expectations Increasing for Sanctions Compliance Amid COVID-19, Trade Lawyers Say

Expectations for sanctions compliance are increasing amid the COVID-19 pandemic as both U.S. and United Kingdom agencies continue sanctions enforcement, trade lawyers said. The U.S. Treasury Department Office of Foreign Assets Control and the U.K. Office of Financial Sanctions Implementation continue to issue sanctions, pursue enforcement and expect heightened due diligence from industry, the lawyers said, “You've got OFAC doing its continuing expansion of U.S. sanctions and … you've got increasing pressure from even the U.K.,” said David Wolff, a trade lawyer with Crowell & Moring, speaking during an April 2 webinar hosted by the law firm. “The regulatory expectations, if anything, are getting worse.”

Even though sectors of industry have shut down due to the pandemic, sanctions enforcement has not subsided, said Caroline Brown, a trade lawyer with Crowell & Moring and a former attorney-adviser in the Treasury Department’s Financial Crimes Enforcement Network. Brown said most U.S. agencies in charge of sanctions are continuing their normal operations under “maximum telework policies,” with occasional work from the individual bureau offices. “The government is still open for business,” Brown said. “We're still seeing a lot of activity coming from all of these agencies.”

OFAC particularly is still “very much in business,” Wolff said. He said companies are still “getting follow-up requests on pending enforcement actions,” and communication with OFAC officials may even be more efficient. “I noticed many cases where they're actually sometimes being more responsive,” he said. Companies with pending OFAC actions, including license applications and enforcement cases, should be in constant communication with OFAC and inform the agency if the pandemic in “any way … affects the equities in that action,” Wolff said.

He added that OFAC may be lenient in cases in which companies are being heavily impacted by the virus. “I've had a conversation very recently where they are very much aware of both the health issues, but also the financial issues that people are seeing,” Wolff said. Wolff encouraged industry to “think about whether it makes sense to have some outreach” with OFAC. Wolff also stressed that most government agencies are requiring electronic copies of all relevant documents and records. Several agencies, including the Directorate of Defense Trade Controls (see 2003190017) and the Census Bureau (see 2003180029), have requested electronic copies for certain communications. “They do not want your hard copy mail and will not see it,” Wolff said.

The U.K. is also maintaining sanctions enforcement, said Crowell & Moring trade lawyer Michelle Linderman. She pointed to the OFSI’s recent £20 million penalty against Standard Chartered Bank (see 2003310031), which she said was the agency’s “largest fine that we've seen” by a large margin. “I think there will be more to come,” Linderman said. “We know that OFSI is investigating a number of other voluntary disclosures, and so we might expect to see further penalties being issued as time wears on.”

The U.S. is also likely monitoring INSTEX, which recently announced its first transaction of medical exports to Iran (see 2004010016). Europe is expected to continue processing humanitarian exports to Iran as the pandemic continues, Linderman said. Although the U.S. has warned Europe that anyone associated with INSTEX could face sanctions (see 1905300035), the U.S. may not take action if the mechanism is used solely for humanitarian exports, Wolff said. European governments, however, are split on whether to use the mechanism only for humanitarian purposes or whether to include broader trade, Wolff said. “While it stays humanitarian, it is likely not subject to secondary sanctions risk,” he said. “But if it starts to evolve and we see additional products flowing through, I think that risk increases.”