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Understanding global and US economic sanctions programmes

BY Christopher Pryce

Tuesday, January 15, 2019

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Over the latter half of 2018, and into 2019, there has been much talk in the local public domain, and in Parliament, about matters that touch on the topic of sanctions. Indeed, where very little was known about sanctions, it is clear that more citizens — and parliamentarians and government technocrats — have come to appreciate the fundamentals and nuances that attend to economic sanctions. The following comments and observations are presented in furtherance of a wider and deeper understanding of this topic as it doth appear that it will continue to be an unwelcome irritant for Jamaica and the economies of the world for the foreseeable future.

Sanctions are not new, and perhaps can be traced back at least to 432 BC when Pericles, the Greek statesman and general, issued the so-called “Megarian Decree” in a partial response to the abduction of two women of the house of Aspasia, she being a courtesan and the reputed mistress of Pericles. The decree, levied upon Megara by the Athenian Empire, was a set of economic sanctions that included the restriction of access to the Attic market and the use of the Athenian shipping harbours by the Megarians.

By way of definition, economic sanctions and trade embargoes (generally sanctions) are government actions to prevent economic support of certain foreign countries and governments and targeted individuals, entities, and organisations (eg, terrorists, narcotic traffickers, nuclear weapons proliferators) as a means of implementing foreign policy and protecting national security interests. Sanctions can be comprehensive — restricting interactions with an entire country, region or government — or they can be targeted to specifically named businesses, groups or individuals, eg list-based such as the UN Security Consolidated Sanctions List, and the US Office of Foreign Assets Control (OFAC) Sanctions List. Sanctions can include arms embargoes, import/export bans, travel bans, and the freezing of assets.

Every country, economy, local financial institution, individual and every entity is potentially vulnerable to sanctions. Even if sanctions are not legally binding in a local jurisdiction, the reality of our inter-connectedness and dependency on access to global financial markets and services puts that jurisdiction in scope via the extra-territorial reach of certain sanctions laws and regulations. US sanctions issued by the OFAC and European Union (EU) sanctions are such examples. The fact that Jamaica's major trading partners are the US, UK, Canada and the EU puts Jamaica and other countries in scope of US sanctions and EU sanctions. Generally, all UN sanctions programmes passed by the UN Security Council are in scope for Jamaica as all member states are obligated to comply with council decisions.

The main reason for our interest in sanctions is that there is a real risk that arises from violations of, or non-compliance with applicable UN and country-specific sanctions. Consequences of non-compliance or breaches of economic sanctions can be severe with direct and indirect impact on individuals, corporations and financial institutions in particular, governments and entire countries. For the individual, the consequences include the imposition of fines, loss of job and possible loss of career due to regulatory prohibitions, criminal prosecution, conviction and imprisonment. For companies and banks, they can be excluded from financial markets. In addition, for governments, they can be denied access to global trade and financial services.

As the United States currently has the most active and biting economic sanctions programmes, it is instructive to focus on some key elements of the US OFAC sanctions programme and regimes. OFAC is a financial intelligence and enforcement agency of the US Treasury Department that administers and enforces economic and trade sanctions in support of US national security and foreign policy objectives. All US persons must comply with US OFAC sanctions regulations, including all US citizens and permanent resident aliens (green card holders), regardless of where they are located. Under US sanctions regulations, any person and any entity in the US jurisdiction is considered a US person. All US incorporated entities and their foreign branches are considered to be US persons and are in scope of US sanctions.

OFAC administers and enforces over 30 economic and trade sanction programmes worldwide. These programmes innovatively target specific actors and regimes to separate them from access to the US financial system. These programmes include comprehensive initiatives against the Crimean region, Iran, Syria and North Korea; list-based programmes targeting individuals and entities such as the Global Magnitsky, the Palestinian Legislative Council and Hizhallah; sectoral programmes targeting a country's economy (public sector, financial services, energy, defence, etc) with examples being the Government of Venezuela and sectors within the Russian Federation.

Property that is subject to US sanctions require the US person, among other things, to do one or more of the following: entities that are in scope of US sanctions can be directed to block, reject or freeze transactions; or to avoid the facilitation of financial services, all at the direction of OFAC.

According to 2017 OFAC reporting, US$119 million in fines were imposed on individuals for violations of US sanctions. Reports are that for the period 2009- 2018, the US Treasury and other US government agencies extracted fines of approximately US$19.4 billion in comparison to US$8.5 million extracted by non-US governmental authorities for the same period.

US sanctions can impact Jamaica in the ordinary course of business by increasing the cost of remitting funds to Jamaica and, in particular, US dollar clearings of cheques and electronic funds transfers. Jamaicans and other nationals who cross US borders can be detained for enhanced interrogation if their names or other personal identifiers match any of the names or identifiers on US sanctions lists. Incidentally, the US sanctions list is not a secret list; it can be authoritatively accessed via the Internet at the website for the US Treasury Department using the URL https://www.treasury.gov/resource-center/sanctions/sdn-list/pages/other-ofac-sanctions-lists.aspx.

Bringing the commentary back to Jamaica, the Venezuela-related sanctions programme represents the implementation of multiple legal authorities, some in the form of presidential executive orders and some in the form of public laws (statutes) passed by the US Congress. These authorities are further codified by OFAC and, as of now, several individuals and government entities in Venezuela are sanctioned by the US. Included is Petróleos de Venezuela, SA (PDVSA), which is the Venezuelan State-owned oil and natural gas company which owns a 49 per cent stake in Petrojam. So while Petrojam is not sanctioned by OFAC, there is a geo-political nexus as a sanctioned entity is a joint partner with Petrojam.

In April 2018 OFAC imposed a sanction designation on United Company Rusal Plc, which exercises ownership of UC Rusal Jamaica Limited and operates in Jamaica. This is the first time that a Jamaican company has been sanctioned by the United States and the severe and adverse effects of the sanctions have been widely publicised.

It is likely that, over time, entities will be removed from the OFAC list but, for sure, other entities will be designated and placed on future OFAC lists. It behoves us all, including our government representatives and technocrats, our financial firms, and our emerging global entrepreneurial class to become aware of the risks inherent to global sanctions programmes and the US economic sanction regime in particular.

 

christopherjmpryce@yahoo.com


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