Overview
On December 20, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued or amended general licenses (GLs) and FAQs to implement United Nations Security Council Resolution (UNSCR) 2664, which establishes humanitarian carveouts across UN sanctions regimes. The development of UNSCR 2664 was co-led by the United States and Ireland, and the Security Council adopted the Resolution on December 9, 2022. The amendments to OFAC’s regulations are set forth in OFAC’s Final Rule published in the Federal Register (see here and here).
Treasury had set a goal of calibrating sanctions to mitigate unintended humanitarian impacts in the Treasury 2021 Sanctions Review.[1] In this regard, during the pandemic, OFAC had issued policies on humanitarian exports and COVID-19 relief in countries and territories subject to comprehensive US sanctions (e.g., Covered Regions of Ukraine,[2] Cuba, Iran, North Korea, and Syria) and countries whose governments are subject to stringent US sanctions (e.g., Venezuela) (see Steptoe’s blog post on this topic). In addition, recent news reports indicate that Treasury is in discussions with banks to mitigate the unintended consequences of sanctions such as over-compliance and de-risking, especially as it relates to non-governmental organizations (NGOs) engaged in humanitarian activities.[3]
That being said, in practice, NGOs operating in sanctioned countries or in places where they have to interact with SDNs and other blocked persons continue to face significant hurdles in implementing and complying with the detailed requirements associated with OFAC’s general licenses as well as continued de-risking by banks. Some of these continued difficulties include the ambiguity of OFAC’s general licenses in the unusual circumstances NGOs often face when operating in these difficult areas, requiring many organizations to seek specific licenses from OFAC rather than risk running afoul of the agency’s interpretation of its general licenses. In some countries, such as North Korea, OFAC has, in effect, required specific licensing in most cases even when its NGO general license applies, based on a broad restriction on any “partnership” with the government. Banks in many cases refuse to support this activity due to its often low economic value to the bank and high regulatory complexity, forcing many organizations to operate on a cash basis or use other less traditional forms of financial services.
These longstanding concerns are not remedied by OFAC’s most recent rulemaking or by UNSCR 2664. These new general licenses, for example, do not significantly change the scope of the existing general licenses for NGO activity under OFAC’s country-based sanctions programs such as for North Korea, Cuba, and Iran. These new provisions are similarly broad and vague, leading to the same interpretive difficulties that organizations have long faced when confronting OFAC risk, and will likely lead to the same risk-averse approach by banks.
Overview
In summary, OFAC issued or amended four GLs across many, but not all, OFAC sanctions programs in four categories:
- Transactions in support of NGO activities, such as disaster relief, health services, and activities to support democracy, education, environmental protection, and peacebuilding (the “NGO-GL”);[4]
- The provision of agricultural commodities, medicine, and medical devices, as well as replacement parts and components and software updates for medical devices, for personal, non-commercial use (the “Ag-Med GL”);[5]
- The official business of the US government (the “USG-GL”);[6] and
- The official business of certain international organizations and entities, such as the United Nations or the International Red Cross (the “IO-GL”).[7]
For humanitarian-related activities that may fall outside the scope of these four categories and relevant GLs, OFAC may issue specific licenses (i.e., written approvals) on a case-by-case basis. OFAC noted in FAQ 1105 that it prioritizes license applications and other requests for guidance that are related to humanitarian activities. In our experience, this is indeed the case, and OFAC can be remarkably quick to respond to inquiries from humanitarian organizations and other NGOs with well-presented requests.
The NGO and Ag-Med GLs were added to OFAC’s activity-based sanctions programs, not to the country-based sanctions programs, which already had similar GLs in place.
The USG-GL was added to various activity-based sanctions programs that did not previously have this general license and,[8] in some cases, amended or updated existing regulations to conform to current general standards for OFAC regulations.[9]
The IO-GL was added to the various activity-based sanctions programs, including the Burma Sanctions Regulations,[10] the Venezuela Sanctions Regulations,[11] Global Terrorism Sanctions Regulations,[12] and the Foreign Terrorist Organizations Sanctions Regulations.[13] where it replaced existing web general licenses.[14] Lastly, OFAC updated the existing general licenses for the North Korea Sanctions Regulations (NKSR),[15] Somalia Sanctions Regulations,[16] Yemen Sanctions Regulations,[17] and the Iranian Transactions and Sanctions Regulations (ITSR)[18] to conform to current standards for OFAC general licenses.
What’s New?
NGO-GL
OFAC added a GL authorizing a significant scope of transactions with SDNs and other blocked persons across numerous sanctions programs. Specifically, the GL authorizes transactions by an NGO that are ordinarily incident and necessary to certain activities, provided that the NGO is not a person whose property or interests in property are blocked pursuant to the relevant sanctions program.[19]
The activities covered by this GL are non-commercial activities “designed to directly benefit the civilian population,” including:
- Humanitarian projects to meet basic human needs, such as disaster, drought, or flood relief; food, nutrition, or medicine distribution; the provision of health services, etc.;
- Democracy building, such as to support rule of law, human rights and fundamental freedoms, access to information, etc.;
- Education;
- Non-commercial development projects directly benefiting civilians, including those related to health, food security, and water and sanitation;
- Environmental and natural resource protection, including the preservation and protection of threatened or endangered species, responsible and transparent management of natural resources, and the remediation of pollution or other environmental damage, etc.; and
- Disarmament, demobilization, and reintegration (DDR) programs and peacebuilding, conflict prevention, and conflict resolution programs.
It is worth noting that these NGO activities are broader than those listed in some of the existing comprehensive sanctions programs with NGO-related GLs. For example, the existing NGO authorization under the NKSR does not authorize activities to support education or non-commercial development projects, based on the US government’s highly restrictive policy towards North Korea. Similarly, the authorization for certain disarmament activities does not appear in the NGO-GL under the ITSR.
As with previous versions, the new NGO-GL does not authorize funds transfers that are initiated or processed with knowledge or reason to know that the intended beneficiary is a person blocked pursuant to the relevant sanctions program, although it does allow such transfers “for the purpose of effecting the payment of taxes, fees, or import duties, or the purchase or receipt of permits, licenses, or public utility services.” Of note, similar limiting provisions in the NGO-GLs in the country-based sanctions programs such as the Syrian Sanctions Regulations do not include such a knowledge qualifier.
This knowledge qualifier potentially provides NGOs a relief from strict liability where the organization is not reasonably able to identify the involvement of a blocked person despite appropriate risk-based due diligence.
Ag-Med GL
OFAC added a GL authorizing transactions that are related to the provision of (i) agricultural commodities, (ii) medicine, (iii) medical devices, (iv) replacement parts and components, or software updates for medical devices, to an individual whose property and interests in property are blocked pursuant to relevant sanctions program, on the condition that the items are in quantities consistent with personal, non-commercial use. Of note, this provision does not have a knowledge qualifier (as with the NGO-GL) so those operating under this GL will be faced with potential “strict liability” risk.
USG and IO GLs
OFAC added or amended under various sanctions programs a GL authorizing transactions for the conduct of the official business of the United States Government by employees, grantees, or contractors thereof.
OFAC also added or amended a GL authorizing transactions for the conduct of the official business of certain international organizations and entities by employees, grantees, or contractors thereof. Such international organizations or entities include the United Nations (UN) and UN programmes, funds, and other entities and bodies, as well as its specialized agencies and related organizations, including the World Bank; the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA); certain regional development banks; the International Red Cross; and certain other funds and entities.
However, OFAC has noted that: “Based on the foreign policy considerations of each sanctions program, the general licenses may list different sets of international organizations across different programs, and some general licenses exclude funds transfers made with knowledge or reason to know they are intended for blocked persons, except in some cases for “the payment of taxes, fees, or import duties, or the purchase or receipt of permits, licenses, or public utility services.”
Guidance for Financial Institutions Facilitating Authorized Activity and OFAC’s Due Diligence Expectations
As noted in FAQ 1106, US financial institutions may operate accounts, including processing funds transfers, for persons engaging in activities authorized by the above four GLs. US financial institutions may “reasonably rely upon the information available to them in the ordinary course of business” while assessing whether a transaction complies with such GLs, “provided that the financial institution does not know or have reason to know that the transaction is outside the scope of the applicable GL.” This underscores the challenges that financial institutions will continue to face in this area, in light of these due diligence and screening expectations.
In addition, OFAC notes that foreign financial institutions and non-US persons facilitating or assisting the activities authorized by the four GLs will not be exposed to US secondary sanctions if the transactions would be exempt or authorized for US persons pursuant to these GLs.
For assistance in understanding how these GLs or other OFAC regulations may apply to your transactions, contact any of the authors.
[1] Specifically, the Treasury 2021 Sanctions Review states that: “In addition, the Treasury must address more systematically the challenges associated with conducting humanitarian activities through legitimate channels in heavily sanctioned jurisdictions. Where possible and appropriate, Treasury should expand sanctions exceptions to support the flow of legitimate humanitarian goods and assistance and provide clear guidance at the outset when sanctions authorities are created and implemented, particularly related to vulnerable populations. Going forward, Treasury will continue to review its existing authorities to consider the unintended consequences of current sanctions regimes on humanitarian activity necessary to support basic human needs, as well as potential changes to address them while continuing to deny support to malicious actors. We believe this effort is worthy of significant time and effort to ensure the world understands that the provision of legitimate humanitarian assistance reflects American values.”
[2] Currently, Crimea, the Luhansk Peoples Republic, and the Donetsk Peoples Republic.
[3] Daniel Flatley, Treasury Officials Warn Banks Over Sanctions Compliance Overkill, Bloomberg (Jan. 7, 2023), https://www.bloomberg.com/news/articles/2023-01-06/treasury-officials-warn-banks-against-sanctions-overcompliance.
[4] The NGO-GL was added to the following parts of 31 CFR: 536, 539, 541, 544, 546, 547, 548, 549, 551, 552, 553, 555, 558, 562, 569, 570, 576, 578, 579, 582, 583, 584, 585, 588, 590, 594, 597, 598, and 599.
[5] This Ag-Med GL was added to the same parts of 31 CFR as the NGO-GL.
[6] Amendments made to the following parts of 31 CFR: 513, 522, 536, 539, 541, 544, 546, 547, 548, 549, 552, 555, 558, 560, 561, 562, 569, 576, 579, 583, 584, 594, 596, 597, and 598. Except for 31 CFR parts 513 and 522, these amendments resulted in the addition of a new general licenses. For 31 CFR parts 513 and 522, there were amendments to the existing general license.
[7] Amendments made to the following parts of 31 CFR: 525, 536, 539, 541, 544, 546, 547, 548, 549, 555, 558, 561, 562, 569, 576, 579, 582, 583, 584, 585, 591, 594, 596, 597, and 598.
[8] The USG-GL was added to the following parts of 31 CFR: 536, 539, 541, 544, 546, 547, 548, 549, 552, 555, 558, 560, 561, 562, 569, 576, 579, 583, 584, 594, 596, 597, and 598.
[9] The amendments and updates were made to the following parts of 31 CFR: 211, 213, 513, and 522.
[10] 31 CFR Part 525.
[11] 31 CFR Part 591.
[12] 31 CFR Part 594.
[13] 31 CFR Part 597.
[14] The IO-GL is incorporated into 31 CFR part 525 the existing Burma General License No. 2, which was previously issued on OFAC’s website on March 25, 2021, and is incorporated into 31 CFR part 591 the existing Venezuela General License No. 20B, which was previously issued on OFAC’s website on January 21, 2020. The IO-GL is also added to 31 CFR parts 594 and 597, incorporating and expanding into both parts the authorization found in Counter Terrorism General License No. 1, which was previously issued on OFAC’s website on April 12, 2006. These web general licenses in 31 CFR parts 525, 591, 594, and 597 are removed from OFAC’s website.
[15] 31 CFR Part 510.
[16] 31 CFR Part 551.
[17] 31 CFR Part 552.
[18] 31 CFR Part 560.
[19] OFAC updated various activity-based sanctions programs “to explain that the property and interests in property of an entity are blocked if one or more blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest in the entity, whether or not the entity itself is incorporated into OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List).” As noted by OFAC, this interpretation conforms to existing OFAC guidance.
