US Government Targets Eritrea with Sanctions over Ethiopia Crisis

On November 12, 2021, the US Treasury Department’s Office of Foreign Assets Control (OFAC) designated the Eritrean Defense Forces, the Eritrean People’s Front for Democracy and Justice (PFDJ), two government-linked commercial entities, the head of the Eritrean National Security Office, and a prominent political advisor as Specially Designated Nationals (SDNs) pursuant to Executive Order (EO) 14046 of September 17, 2021, in response to the ongoing military conflict and humanitarian crisis in northern Ethiopia. These are the first designations made under the EO and OFAC’s recently adopted Ethiopia-related sanctions program. According to a Treasury Department news release, the designations target Eritrean actors that have contributed to the situation in northern Ethiopia and “undermined the stability and integrity of the Ethiopian state.” All property and interests in property of the SDNs that are in the United States, or in the possession or control of US persons are blocked (frozen). US persons are prohibited from dealing, directly or indirectly, with the SDNs. In conjunction with the designations, OFAC issued a new General License No. 4 authorizing US persons to wind down transactions involving the two commercial entities, Hidri Trust and Red Sea Trading Corporation (RSTC), both of which OFAC describes as affiliated with the PFDJ, until 12:01 a.m. eastern standard time on December 14, 2021. OFAC also issued two new FAQs (FAQs 935 and 936). Of particular note, FAQ 936 clarifies that OFAC’s “50 Percent Rule” does not apply to entities owned by Hidri Trust, RSTC, or other persons blocked under EO 14046. This distinguishes sanctions under EO 14046 from other OFAC blocking sanctions which typically apply to entities owned 50 percent or more by SDNs. Background President Biden issued EO 14046 on September 17, 2021, in response to the escalating humanitarian crisis in northern Ethiopia. The EO authorizes a menu of sanctions against persons responsible for, or complicit in, actions or policies that threaten the peace, security, or stability of Ethiopia; military or security forces operating in Ethiopia on or after November 1, 2020; entities (including government entities or political parties) obstructing a ceasefire or peace process; and other persons engaged in various other actions contributing to the emergency described in the EO. EO 14046’s menu-based sanctions include:

1. Blocking sanctions against property and interests in property of persons designated as SDNs under the EO;
2. A prohibition on US persons investing in, or purchasing significant amounts of equity or debt instruments of designated persons;
3. A prohibition on US financial institutions making loans or providing credit to designated persons;
4. A prohibition on any transactions in foreign exchange subject to US jurisdiction in which a designated person has an interest; and
5. Sanctions against any leader, official, senior executive officer, or director of a designated entity.

While EO 14046 put this sanctions framework in place, in September, OFAC did not initially designate any entities pursuant to the EO. General Licenses and FAQs Concurrently with the issuance of EO 14046, OFAC issued three general licenses authorizing certain humanitarian-related activities:

• General License No. 1, authorizing official activities of international organizations and entities including the United Nations, the African Union, the International Committee of the Red Cross and the International Federation of Red Cross and Red Crescent Societies, the International Centre for Settlement of Investment Disputes (ICSID); the Multilateral Investment Guarantee Agency; and several multilateral development banks named in the license;
• General License No. 2, authorizing transactions in support of nongovernmental activities, including humanitarian projects to meet basic human needs in Ethiopia; democracy building in Ethiopia or Eritrea; education in Ethiopia or Eritrea; non-commercial development projects directly benefiting the people of Ethiopia or Eritrea; and activities to protect the environment and natural resources; and
• General License No. 3, authorizing transactions related to the exportation or reexportation of agricultural commodities, medicine, and medical devices (including replacement parts, components, or software updates).

OFAC has issued a total of eight FAQs in connection with EO 14046:

• FAQ 922, summarizing the sanctions under EO 14046;
• FAQ 923, stating that OFAC’s 50 Percent Rule does not apply to entities owned by persons blocked under EO 14046, unless an entity is separately designated;
• FAQ 924, stating that OFAC’s 50 Percent Rule does not apply to entities owned by persons subject to non-blocking, menu-based sanctions under EO 14046;
• FAQ 925, identifying UN bodies covered by General License No. 1;
• FAQ 926, describing activities authorized under General License No. 2;
• FAQ 927, stating that non-US persons do not risk US sanctions exposure for engaging in activities described in the general licenses under EO 14046;
• FAQ 935, stating that both US and non-US persons can participate in humanitarian-related activities with Hidri Trust and RSTC that are licensed or exempted under EO 14046, including official business of the US government by its employees, grantees, and contractors; and
• FAQ 936, clarifying that OFAC’s 50 Percent Rule does not apply to Hidri Trust or RSTC.

OFAC’s Ethiopia-related sanctions reflect some of the strategies outlined in the Treasury Department’s recent 2021 Sanctions Review report. For instance, OFAC’s preemptive issuance of general licenses under EO 14046 was aimed at minimizing unintended consequences on humanitarian groups and vulnerable populations. For more information on how OFAC’s Ethiopia-related sanctions apply to your organization, contact a member of Steptoe’s Economic Sanctions team.

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