US TREASURY SANCTIONS VIETNAMESE PERSONS FOR ACTIVITIES INVOLVING IRAN AND NORTH KOREA
On December 8 and 16, 2020, the US imposed sanctions on three Vietnamese persons: two are entities and one is an individual. They are (i) a Vietnamese gas company which provides transport services for petroleum, chemical products, liquefied petroleum gas (LPG), and bulk goods nationally and internationally throughout Asia, the Middle East, India and Northeast Asia (“Gas Company”); (ii) a Vietnamese individual who serves as a principal executive officer of the Gas Company (“Officer”); and (iii) a Vietnamese company in the transport business (“Transport Company”).
The Gas Company and its Officer
The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed sanctions on the Gas Company under Executive Order 13846 as a result of significant transactions involving the transport of petroleum products from Iran, on and after November 5, 2018.[1] The Officer is a principal executive officer of the Gas Company, and sanctions were imposed on him personally, all growing out of the transactions involving Iran. The Gas Company and its Officer have been listed on OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN” and “SDN List”).1
To implement the sanctions imposed on the Gas Company and the Officer, the US authorities have blocked all property and interest in property that is in the United States, that thereafter comes within the United States, or that is or that thereafter comes within the possession or control of any United States person of the sanctioned person. This property and interests in property may not be transferred, paid, exported, withdrawn, or otherwise dealt in. As a result, U.S. persons are generally prohibited from engaging in any transaction involving the Gas Company and the Officer.
The Transport Company
The US/OFAC imposed these sanctions on the Transport Company in accordance with Executive Order 13810 as a result of its operations in the transportation industry in North Korea, especially its transportation of coal from North Korea[2]. OFAC also identified a vessel in which the Transport Company has an interest as blocked property. The Transport Company is, hence, also listed on the SDN List. As a result, the property and interests in property of the Transport Company are blocked in the same manner as described above and US persons are generally prohibited from engaging in any transaction in which the Transport Company has an interest.
US “Secondary Sanctions”
The sanctions imposed on the Vietnamese persons described in more detail below were imposed as so-called “secondary sanctions”. Secondary sanctions, established either by statute or executive order, authorize OFAC or the State Department to impose sanctions on non-US persons for specified activity, including certain business with Iran and North Korea. These sanctions are intended to discourage non-US persons from engaging in certain transactions that the US government has determined are against its foreign policy interests, even if the transactions have no US nexus and would otherwise be outside of US jurisdiction. Under secondary sanctions, a non-US company may be restricted from US markets or the US financial system if it engages in certain conduct related to Iran, North Korea, the Syrian government, and certain designated Russian individuals and entities. In some circumstances, as is the case here, a non-US company or individual can be added to OFAC’s SDN List. Generally, if a person is on the SDN List it means that its assets in the United States have been blocked and that US persons are generally prohibited from dealing with them.
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DOES IT MATTER TO A PERSON OR ENTITY IF IT IS ON THE SDN LIST?
US sanctions restrict and prohibit access to the US market by designated persons (in the context of this article, SDNs are designated persons) and generally prohibit US persons, including US financial institutions, from engaging in any activity with the SDN. As a result of the prohibitions on US persons, SDNs are unable to transact in US dollars cleared by a US correspondent bank or engage in any business activity with a US person or in the United States. These consequences typically result in a material adverse impact on the business of such an SDN.
While being on the SDN List, of course, interferes with certain specific transactions involving US persons, it may also interfere with a company’s day-to-day operations involving non-US companies. Many non-US companies, including many non-US banks, maintain policies against doing business with an SDN, even where a transaction which is under consideration is not specifically banned by OFAC. They do so in order to avoid unacceptable levels of reputational and compliance risk. Quite simply, being on the SDN List raises concerns by existing and potential counterparties.
CAN AN ENTITY OR INDIVIDUAL BE REMOVED FROM THE SANCTIONS LIST?
OFAC does have a procedure for an SDN to be delisted and unblocked. This follows a very specific and regulated process. Generally:
- OFAC’s regulations offer a petition process for SDNs who believe they are no longer required to be listed. OFAC regulations provide that a person may submit, in writing, arguments or evidence that establish that there is no basis for the listing or that the circumstances which resulted in the listing no longer apply.
- There is a process for a designated/blocked person to apply to OFAC to be delisted, and this process is outlined in OFAC’s regulations. These procedures are described in the regulations as follows:
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- The submission must be made in writing and addressed to the Director, Office of Foreign Assets Control, US Department of the Treasury, 1500 Pennsylvania Avenue, NW.—Annex, Washington, DC 20220.
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- The information submitted by the blocked person seeking unblocking will be carefully reviewed by OFAC. The process is quite specific. In addition, OFAC may request clarifying, corroborating, or other additional information.
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- A blocked person seeking unblocking may request a meeting with OFAC; however, such meetings are not required, and the office may, at its discretion, decline to meet prior to completing a review.
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- After OFAC has conducted a review of the request for reconsideration, it will provide a written decision.
- The regulations provide that a blocked person may propose remedial steps, such as corporate reorganization, resignation of persons from positions in a blocked entity, or similar steps, which the person believes would remove or negate the basis for OFAC’s designation.
- SDNs can apply to OFAC for delisting and make the argument that they no longer engage in any sanctionable activity. The SDNs would be expected to cooperate with the State Department to wind down any sanctionable activity in an acceptable manner.
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The United States government does pay attention to sanctionable conduct. Such conduct raises the risk of US sanctions. However, there are avenues to challenge or remove sanctions that have been imposed if a party feels there is no basis for the designation or if the party believes the criteria for imposing the sanctions no longer apply. Vietnamese companies and banks must be aware of US sanctions when doing businesses with Iran, North Korea, Russia, and Syria, and any other countries for which secondary sanctions have been imposed. Vietnamese companies and banks should mitigate risks before engaging in activity that could be sanctionable. However, should a company or party become subject to sanctions, there are avenues by which the company or party can work with the United States government to have the sanctions lifted.
[1] See: https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20201216.
[2] See: https://home.treasury.gov/news/press-releases/sm1204.
This article was co-authored by Willkie Farr & Gallagher LLP
David Mortlock – Sesto E Vecchi – Le Quoc Duy
