International Trade & Regulatory – Export Controls & Sanctions

Being compliant with export control and sanctions legislation is of great importance for companies engaged in international trade as violation of this legislation can lead to severe penalties as well as reputational damage. Companies should therefore be well aware of the risks related to export control and sanctions and take measures to mitigate these risks.

Please find set out below some interesting recent developments concerning EU and U.S. export controls and sanctions.

OFAC Sanctions – Leading Russian Businessmen, Government Officials and Companies

On April 6, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) placed seven prominent Russian businessmen, 12 companies, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary Russian bank on the Specially Designated Nationals and Blocked Persons List (“SDN List”). For further information please see the following link:

Effective immediately, U.S. persons are generally prohibited from dealing with these sanctioned persons and must block the property and interests in property of these sanctioned persons that come within such U.S. persons’ possession or control, unless otherwise authorized by OFAC. U.S. persons include U.S. citizens and permanent residents (wherever located), companies incorporated in the United States and their foreign branches, and persons in the United States (including non-U.S. persons when present or operating in the United States).These restrictions apply not only to the named individuals and entities on the SDN List, but also to any entity that is 50 percent or more owned, directly or indirectly, by one or more SDNs. Additionally, non-U.S. persons can face secondary sanctions for engaging in certain types of transactions with these sanctioned persons. Finally, non-U.S. persons should also consider and avoid transactions that the U.S. government may assert “caused” U.S. persons to deal impermissibly with SDNs.

These sanctions follow the enactment of the Countering America’s Adversaries Through Sanctions Act (CAATSA), a law passed by U.S. Congress in August 2017, which includes a variety of measures targeting Russia.

Venezuela buried in Economic Sanctions

On Wednesday 28th of March, 2018, the Federal Council of Switzerland adopted economic sanctions against Venezuela thus aligning themselves with earlier EU measures. This is another one in a growing number of sanctions imposed on Venezuela by the U.S. as well as the EU.

The measures consist of an arms and repressive goods embargo, as well as targeted measures against seven Venezuelan ministers and high-ranking officials. The sale, supply, export and transit of arms and goods which can be used for internal repression is prohibited. Furthermore equipment, technology and software that can be used for monitoring and intercepting telecommunications is banned. Lastly asset freezes and travel restrictions have been imposed on seven high-ranking officials because of their alleged involvement in the “non-respect of democratic principles or the rule of law as well as in the violation of human rights” (Council Decision (CFSP 2018/90 and Council Implementing Regulation (EU) 2018/88 of 22 January2018).

Measures imposed by the U.S. go even further. In August 2017 President Trump signed an executive order barring U.S. banks from any financial dealings with the Venezuelan government or state-run oil company PDVSA. Another executive order was signed on March 19, 2018 prohibiting U.S. persons from dealing with “any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the Government of Venezuela on or after January 9, 2018”. This last executive order was issued in order to keep the Venezuelan government (as well as PDVSA) from avoiding the earlier executive order by dealing with cryptocurrencies.

All of these sanctions have the main goal to disrupt President Nicolas Maduro’s dictatorship, the impoverishment of the Venezuelan people and to allow for humanitarian assistance.

NL simplifies license requirements in regard to cryptographic items

The Netherlands have introduced a national General Export License NL010 regarding cryptographic items. Thus following Germany towards achieving the goal of simplifying licensing of cryptographic items as anticipated in the new Dual-use Regulation.

The NL010 license can be used for worldwide export of ECCNs 5A002.a, 5D002.a, 5D002.c and 5E002. However there are exemptions in regard to the destination as well as to specific situations.

Exempt Destinations:

  • Australia, Canada, Japan, New Zealand, Norway, U.S., Switzerland;
  • countries that are subject to an arms embargo;
  • Afghanistan, Armenia, Azerbaijan, Bahrein, Bangladesh, Burundi, China, Cuba, Djibouti, Egypt, Equatorial Guinea, Ethiopia, Gambia, Guinea(-Conakry), Guinea-Bissau, India, Kazakhstan, Kuwait, Laos, Ukraine, Uzbekistan, Oman, Pakistan, Qatar, Rwanda, Saudi Arabia, Swaziland, Syria, Tadzhikistan, Thailand, Turkey, Turkmenistan, Venezuela, UAE, Vietnam and Yemen.

Exempt situations:

  • if the exporter is aware, or has been informed by the competent authorities of the EU Member State in which he is established, that the products, equipment, technology, software or services in question are, or may be, intended, in their entirety, or in part, for:
    • use in connection with the development, production, handling, operation, maintenance, storage, detection, identification or dissemination of chemical, biological, or nuclear weapons or other nuclear explosive devices, or the development, production, maintenance or storage of missiles capable of delivering such weapons;
    • military end use as defined in Article 4 paragraph 2 of the EU Dual Use Regulation 428/2009;
    • purposes related to violations of human rights, the democratic principles or the freedom of speech as defined in the Charter of Fundamental Rights of the EU, where use is made of equipment, technology and/or software for the disruption, interception, or monitoring of telecommunication and/or computer networks (for example, with the help of monitoring centers and lawful interception gateways).
  • if the final destination of the products in question is a customs free zone or free warehouse. If the products are temporarily stored in a customs free zone or free warehouse, then the final destination of the products in question must be a destination covered by this license.

Exporters established in the Netherlands have to take into account that applications for a NL010 license have to be submitted at least two weeks prior to the transaction taking place.

EU Seeks Input from the European Defense Industry on “Specially Designed for Military Use”.

The European Commission has published a draft guidance on the supposed interpretation of the phrase “specially designed for military use” and is now seeking input from the European defense industry via a survey.

By formulating guidelines the European Commission hopes to harmonize the widely varying interpretations of the phrase among the EU Member States. Harmonization is proposed through a two way approach, meaning that there are including rules as well as excluding rules.

Including (catch):

Items “specially designed for military use,” as applied to systems, platforms, equipment, components, accessories, materials, software and technology within the respective EU Member State’s national controls, taking into account characteristics, capabilities or functions that, as a result of development, uniquely distinguish them for the purposes described in the controls.

Excluding (release):

Items” are not “specially designed for military use” if one of the following conditions is fulfilled:

  1. They have been assessed by the respective competent national authority in writing not to be controlled on the respective national control list.
  2. They are of a minor mechanical, electrical or optical nature and they do not inherit unique production technology and having all of the following:
    • They are single purpose and
    • They have not been explicitly assessed by the respective competent national authority to be specially designed for military use.

Note 1:
Examples for these items are fasteners, screws, bolts, nuts, nut plates, studs, inserts, clips, rivets, pins, washers, spacers, insulators, grommets, bushing, springs, cable, wire and solder.

Note 2:
Examples for items not considered as single purpose are explosive bolts or shear pins.

  1. They are selected from a production line of commodities not specified in the respective national lists as derived from the EU Common Military List and the Annex of the Directive EC/2009/43 that happen to meet military specifications.

The survey closes on the 1st of June 2018.

Tim Hesselink - Partner / International Trade & Regulatory