United States: New Regulations Curb Dealings With Human Rights Abusers

The Office of Foreign Assets Control (OFAC) published in the Federal Register of June 29, 2018, additional regulations (31 CFR Part 583) to implement the Global Magnitsky Human Rights Accountability Act and Executive Order (E.O.) 13818 of December 20, 2017, which had the effect of blocking the property of persons involved in "Serious Human Rights and Abuse or Corruption." It is understood that these regulations, in the near term, will be followed by more comprehensive regulations.

Signed by President Obama on December 23, 2016, the Global Magnitsky Act allows the chief executive to "impose targeted sanctions on any foreign person... responsible for extrajudicial killings, torture, or other gross violations of internationally recognized human rights, or a government official, or a senior associate of such an official, responsible for, or complicit in, ordering, controlling, or otherwise directing, acts of significant corruption."

The regulations cover such areas as prohibitions, exempt transactions, key definitions, interpretations, licenses, authorizations, statements of licensing policy, reporting requirements, penalties and findings of violation, among others.

The regulations make clear that all transactions prohibited by E.O. 13818 are also prohibited by part 583. The names of persons listed in or designated pursuant to E.O. 13818 are identified in OFAC's Special Designated Nationals List (SDN List) and given the identifier "GLOMAG." Certain entities that are not identified in the SDN List may also be blocked (31 CFR 583.406).

The regulations identify certain transactions that are "exempt" from the identified prohibitions. For example, the prohibitions do not apply to "Personal communications" such as any postal, telegraphic, telephonic or other personal communications that do not involve the transfer of anything of value, or "Information or informational materials" as defined in 31 CFR section 583.306, "whether commercial or otherwise, regardless of format or medium of transmission." The information or informational materials must be fully created and in existence at the date of the transactions. Also excluded from the exemption are "substantive or artistic alteration or enhancement of information or informational materials, or to the provision of marketing and business consulting services"; payment of advances for information or informational materials not yet created and completed (with limited exception); provision of services to market, produce or co-produce, create or assist in the creation of information or informational materials are prohibited. In addition, the payment of royalties with respect to income received for enhancements or alterations made by U.S. persons to such information or informational materials are prohibited.

Of note is the fact that certain transactions that are incident to the exportation of certain software subject to regulation of the Department of Commerce (Export Administration Regulations part 730 through 774) are not exempt transactions (31 CFR 583.205(b)). Such transactions are blocked pursuant to 31 CFR section 583.201.

The term "financial, material, or technological support" as used in E.O. 13818 has been defined in section 583.304 of the new regulations as follows: "any property, tangible or intangible, including currency, financial instruments, securities, or any other transmission of value; weapons or related materials; chemical or biological agents; explosives; false documents or identification; communication equipment; computers; electronic or other devices or equipment; technologies; lodging; safe houses; facilities; vehicles or other means of transportation; or goods."

Also from section 583.304: "'Technologies' as used in this definition means specific information necessary for the development, production, or use of a product, including related technical data such as blueprints, plans, diagrams, models, formulae, tables, engineering designs and specifications, manuals, or other recorded instructions."

Please refer to the published regulations for definitions of other terms and phrases such as "Property" and "property interest" (section 583.311); "Transfer" (section 583.312); "United States person" (section 583.314); and "financial institution" (section 583.315).

The regulations provide guidance with respect to entities owned by one or more persons whose property and interests in property are blocked pursuant to section 583.201 of 31 CFR. This includes such persons that "have an interest in all property and interests in property of an entity in which such persons directly or indirectly own, whether individually or in aggregate, a 50 percent or greater interest." Therefore, the property and interests in property are blocked, regardless of whether the name of the entity is incorporated into Special Designated Nationals and Blocked Persons List.

With respect to transactions that are "ordinarily incident to a licensed transaction" and necessary to give effect to that transaction, OFAC states that the activity must be "explicitly authorized" within the terms of the license or an "ordinarily incident transaction, not explicitly authorized within the terms of the license, involving a debit to a blocked account or a transfer of blocked property."

For specific requirements and limitations relating to payments and transfers to blocked accounts in U.S. financial institutions, please refer to sections 583.504 and 583.505; provisions covering provision of legal services, please refer to 583.506 and 583.507.

For Further Information

If you would like further information about this Alert, please contact Brian S. Goldstein, any member of the International Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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