Understanding and Mitigating US Sanctions Risks in Latin America

Sanctions are increasingly the preferred tool to further the national security and foreign policy interests of the United States. Because of the US president’s ability to swiftly impose sanctions in response to global crises, sanctions are often seen as the ‘tip of the spear’ of the US response to malign conduct all over the world. However, this ability to implement sudden, and sometimes broad, restrictions also creates unique compliance challenges. With significant regulatory changes for entities and individuals, including outside of the United States, occurring with increased frequency, it is important for companies in Latin America to understand how their transactions could violate US sanctions as well as the steps they can take to mitigate the risk of a violation.

In this chapter, we first provide a general overview of US sanctions and how they operate. We next discuss the sanctions risks specific to Latin America. Then, we summarise considerations for Latin American companies to mitigate those risks.

Sanctions overview

US economic sanctions and embargo programmes are administered by the US Department of the Treasury, Office of Foreign Assets Control (OFAC). At its broadest, the United States may impose a full comprehensive economic embargo against an entire country or territory. The United States currently administers comprehensive economic embargos against Cuba, Iran, North Korea, Syria, the Crimea region of Ukraine, and the breakaway regions of Ukraine known as the Donetsk People’s Republic and the Luhansk People’s Republic.[2] Generally, with some narrowly specified authorisations and exceptions, transactions involving US persons, US-origin goods or services, or US dollars are prohibited from these territories or involving their residents.

The sanctions programmes targeting Russia, Venezuela and Myanmar are not full embargos, but include restrictions targeting broad sectors of those countries’ economies and target a large number of blocked persons.[3]

Most other country-specific sanctions programmes – such as, for example, those targeting Nicaragua – are more limited in scope, and principally authorise asset-blocking sanctions against specific, narrow categories of parties. Generally, these sanctions programmes target specific government officials and government-adjacent persons, although the specific rationale for the sanctions can vary across programmes. Transactions with these countries are broadly permissible as long as a sanctioned party is not involved directly or indirectly in the transaction.

OFAC also administers sanctions programmes that target persons engaging in actions contrary to US interests. These actions include, for example, human rights violations, political corruption, undermining democratic processes, participation in transnational criminal organisations, narcotics trafficking, terrorist financing, proliferation of weapons of mass destruction and dealing in conflict diamonds. Persons subject to activity-based sanctions could be located in any country around the world and of any nationality.

Across almost all programmes, the OFAC often implements sanctions by adding individuals and entities to the Specially Designated Nationals (SDNs) and Blocked Persons List (SDN List).[4] US persons are required to block the property and interests in property of SDNs, which effectively means that they are prohibited from all transactions directly or indirectly involving an SDN. SDN restrictions also apply to any entity owned 50 per cent or more, directly or indirectly, by one or more SDNs in the aggregate, regardless of whether such entity is itself on the SDN List or another sanctions list.[5] There are thousands of SDNs located across the globe.

Most country-specific sanctions programmes are authorised under the International Emergency Economic Powers Act (IEEPA).[6] Civil violations of IEEPA are subject to a strict liability standard and carry a maximum penalty of up to US$330,947 (as adjusted for inflation) or twice the value of the transaction, whichever is greater.[7] Criminal violations of IEEPA have a heightened intent requirement, specifically that the unlawful conduct was ‘wilful,’ and carry a maximum penalty of US$1 million and up to 20 years’ imprisonment, and may also risk criminal forfeiture of any property or funds involved in the violations. In addition, significant non-monetary collateral consequences may result from a violation, including significant reputational harm. Many financial institutions and other third parties that are notoriously risk averse, for example, apply a level of compliance beyond the minimum required under law and may refuse to transact with a party who violated sanctions even if it is lawful to do so to protect against perceived reputational risks.

Notably, while these are the maximum penalties, OFAC’s Economic Sanctions Enforcement Guidelines create an analytical framework for civil violations under which OFAC determines a ‘base’ penalty that is either adjusted upward or downward depending on certain factors.[8] For example, voluntarily disclosing a violation to OFAC can reduce the maximum applicable civil penalty by half, but other factors (for example, attempting to conceal facts from OFAC, acting with reckless disregard for US sanctions requirements, or having a history of sanctions violations) can adjust the penalty upward from the base amount. In no event, however, can the civil penalty per transaction exceed the statutory maximums described above.

Historically, US sanctions programmes have focused on the activities of ‘United States persons’, as defined in the various sanctions programmes, or involved activities that otherwise had some nexus to the United States (e.g., transactions involving US goods or services, or payments involving US dollars). These sanctions are referred to as ‘primary’ sanctions. However, the United States sanctions rules also contain elements that can impose penalties against non-US persons even in the absence of any US nexus. At present, these ‘secondary,’ or extra­territorial, sanctions are applied most extensively in the context of the Iranian, Russian, Syria, and North Korean sanctions programmes. Other sanctions programmes can also have extraterritorial effect in some circumstances, particularly when a non-US person provides material assistance, or provides financial, material or technological support for, or goods or services in support of, persons subject to sanctions under a sanctions programme.

US primary sanctions

Jurisdiction under US primary sanctions requires that a US person be involved in the transaction. Under all sanctions programmes, US persons are US citizens (including dual nationals), US permanent residents, persons physically in the United States (including US territories) regardless of their nationality, and entities formed under US law (including foreign branches). In all but two sanctions programmes, non-US subsidiaries of US companies are not treated as US persons. Those two exceptions are the sanctions programmes targeting Iran and Cuba, which apply the restrictions for US persons to any non-US entity that is owned or controlled by a US person.

The restrictions on US persons extend broadly to prohibit not only direct transactions with sanctioned parties, but also any transaction where the US person ‘facilitates’ a sanctioned transaction between two or more non-US persons. OFAC broadly interprets the phrase ‘facilitation’ to prohibit, for example, referring business opportunities involving sanctioned parties to non-US persons, approving non-US person subsidiaries or employees to engage in sanctioned transactions, adjusting policies to avoid the necessity of a US person approval for a sanctioned transaction or executing transactional documents involving a sanctioned party. Importantly, the provision of compliance advice is not considered improper ‘facilitation’.

Non-US persons may also face liability under US primary sanctions if non-US persons ‘cause’ a US person to violate sanctions. Causing liability arises most often when the only US nexus to a transaction is via the use of US dollars; because virtually all US dollar transactions must be cleared through a correspondent account with a US bank, a non-US party transacting with a sanctioned party in US dollars could have liability for causing the US bank to process the transaction. While the use of US dollars is the most common way causing liability arises, there could also be causing liability when the US nexus is US-origin goods or services; for example, if a non-US person orders US-origin goods from a supplier with knowledge that they will be transferred to a destination where the reselling of such goods is prohibited (such as the comprehensively embargoed territories).

US secondary sanctions

Certain sanctions programmes carry ‘secondary’ sanctions authority that apply extraterritorially even in the absence of a US nexus. Rather than a monetary fine, non-US persons that violate US sanctions may themselves be sanctioned. The imposition of secondary sanctions is generally a policy decision and results in a non-US person found to have engaged in prohibited conduct themselves becoming sanctioned (typically through addition to the SDN List). Secondary sanctions may target transactions with parties designated under a certain sanctions programme (as is the case under the sanctions targeting Russia, Syria and Iran) or transactions involving certain sectors of a country’s economy (as is the case with North Korea and Iran).

While secondary sanctions are generally idiosyncratic to their specific sanctions programme, and the specific criteria for liability could differ, most secondary sanctions require that a transaction be engaged in ‘knowingly’[9] and be ‘significant’ or ‘material’ before secondary sanctions liability will arise. OFAC generally considers a highly fact-dependent seven factor test in weighing whether a transaction should be considered ‘significant’ or ‘material’.[10] Additionally, in some sanctions programmes, OFAC has issued guidance in the form of a frequently asked question (FAQ) noting if an activity is authorised for a US person, that is, if a US person would not need a specific licence to engage in such activity, OFAC would consider it ‘non-significant’ and therefore not sanctionable under the relevant secondary sanctions authorities.[11]

Many other US sanctions programmes have the potential for extraterritorial application. As a general rule, these programmes provide that any person (regardless of nationality) who is determined ‘to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person included on the SDN List maintained by OFAC whose property and interests in property are blocked pursuant to this order’ may also be named as an SDN.[12]

US sanctions and recent developments in Latin America

Cuba

Cuba has been subject to a comprehensive embargo by the United States since 1963. The Cuban Assets Control Regulations (CACR), codified at 31 C.F.R. Part 515, broadly restrict US persons, persons within the US, and non-US entities (such as corporations, partnerships, joint ventures, etc.) that are owned or controlled by US persons (collectively, ‘persons subject to the jurisdiction of the US’ or PSJUS) from trade or other transactions involving Cuba.

Cuba has been the recent subject of a tug of war between presidential administrations cycling between periods of détente and escalation. In December 2014, for example, President Obama announced his intention to re-establish diplomatic relations with Cuba, and to begin dismantling the 50-year-old US embargo against Cuba. In January 2015, the administration announced that US persons could engage in a limited number and kind of transactions with Cuba. However, beginning in November 2017, the Trump administration curtailed a number of favourable policy decisions that had been made by President Obama. The principal changes involved the recission of the ‘U-turn’ exception, which previously allowed certain US dollar transactions involving Cuba and non-US third-parties; the creation of a Cuba Restricted List, consisting of entities and sub-entities said to support the Cuban military, intelligence, or security services, and with whom PSJUS are prohibited from transacting; and the lowering of the de minimis threshold appliable to Cuba under US export controls from 25 per cent to 10 per cent, which has caused more partial US-origin items to be subject to US jurisdiction when destined for Cuba. So far, the Biden administration has not yet walked back the Trump administration’s heightened controls. It is worth noting that the Cuban Liberty and Democratic Solidarity Act of 1996 (popularly known as the Helms-Burton Act) codified into the US Code the CACR as they existed at that time, limiting what changes US presidents can make to the embargo without the consent of Congress.

The Trump administration also took another significant step in escalating sanctions against Cuba by allowing Title III of the Helms-Burton Act to become effective. Title III of the Helms-Burton Act created a right of action in US federal courts against ‘any person that, after the end of the 3-month period beginning on the effective date of [the Helms-Burton Act], traffics in property which was confiscated by the Cuban Government on or after January 1, 1959.’[13] However, Title III also allowed the president to suspend that right of action against foreign party ‘traffickers’ of expropriated US property for up to six months at a time. Under that provision, Title III had been continually waived by every US president since the Act became law in 1996 until the Trump administration declined to re-waive Title III on 22 May 2019, allowing it to become effective for the first time in history. As a result, US plaintiffs may assert claims against non-US ‘traffickers’ of their confiscated property for monetary damages of three times the value of their property. The actions filed so far under Title III have staggering potential damages, with a claim against Société Générale for US$792 million,[14] a claim by Exxon against Cuba’s state-owned oil company and state-owned pipeline for US$280 million,[15] and a claim by North American Sugar Industries Inc. against a Chinese wind turbine manufacturer for US$291 million.[16] However, about half of the cases filed so far – including the claims against Société Générale and by North American Sugar Industries Inc. – have been dismissed.

Venezuela

Starting in 2015, the United States imposed broad sanctions against the government of Venezuela to pressure the Nicolás Maduro regime. The current sanctions were created in March 2015, when US President Barack Obama declared a national emergency regarding the civil unrest in Venezuela and the instability of the Nicolás Maduro regime.[17]

Most significantly, in August 2019, the United States designated the entire government of Venezuela as an SDN, and broadly defined the government of Venezuela to include:

the state and Government of Venezuela, any political subdivision, agency, or instrumentality thereof, including the Central Bank of Venezuela and Petróleos de Venezuela, S.A. (PdVSA), any person owned or controlled, directly or indirectly, by the foregoing, and any person who has acted or purported to act directly or indirectly for or on behalf of, any of the foregoing, including as a member of the Maduro regime.[18]

Owing to the government of Venezuela’s heavy involvement in the country’s economy and banking system, vast swaths of the country are indirectly subject to sanctions as a result of this designation.

Further, Executive Order 13850 issued on 1 November 2018, authorises OFAC to sanction ‘any person determined by the Secretary of the Treasury, in consultation with the Secretary of State . . . to operate in the gold sector of the Venezuelan economy or in any other sector of the Venezuelan economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State’. In addition to the gold sector, the Venezuelan defence and security, financial, and oil sectors have been designated by the Secretary of the Treasury as economic sectors targeted for secondary sanctions enforcement.

OFAC has been especially aggressive in targeting parties operating within Venezuela’s oil industry, especially where OFAC has concluded that the parties have provided ‘material assistance’ to Venezuela’s oil industry. For example, on 18 June 2020, OFAC designated Mexico-based entities Libre Abordo and Schlager Business Group for having ‘materially assisted’ PdVSA, the Venezuelan state-owned oil company, through having ‘brokered the re-sale of over 30 million barrels of crude oil on behalf of PdVSA, approximately 40% of PdVSA’s oil exports in April 2020.’[19] Similarly, on 11 March 2019, OFAC designated Russia-based Evrofinance Mosnarbank for having ‘materially assisted’ PdVSA through providing financing as well as being ‘the primary international financial institution willing to finance the Petro’, the failed Venezuelan cryptocurrency.[20]

Nicaragua

Between December 2017 and July 2018, the United States imposed sanctions on four senior members of the Daniel Ortega administration in Nicaragua following allegations of human rights abuses in connection with the government’s violent repression of protests following the announcement of social security reforms. Those designations were made pursuant to the Global Magnitsky Human Rights Accountability Act (Global Magnitsky Act), which, among other things, authorises sanctions against the perpetrators of human rights abusers around the world, and is discussed in greater detail below.

On 27 November 2018, with the protests and government crackdown continuing, President Trump issued Executive Order 13851, which provided an independent basis for sanctions related to human rights abuses occurring in Nicaragua. Since that time, OFAC has designated 51 parties – consisting mostly of high-ranking government officials and close associates of President Ortega – as SDNs under the order.

Like the Venezuela sanctions programme, the Executive Order authorising the Nicaragua sanctions programme authorises OFAC to designate and block the property of any party determined by OFAC ‘to have materially assisted’ persons designated under the order.[21] However, unlike the Venezuela programme, there have not been a significant number of designations under this provision.

Human rights

The Global Magnitsky Act targets persons responsible for human rights abuses and corruption throughout the world. An increasing trend, as illustrated in the implementation of the Nicaraguan sanctions programme, is to use the existing Global Magnitsky Act authorities for the preliminary rounds of designations where the underlying concern is human rights or corruption and then create an independent, dedicated country-specific sanctions programme if justified after the initial sanctions.

While most US sanctions programmes allow OFAC full discretion to decide whether to implement sanctions and against whom, the Global Magnitsky Act requires the president to respond within 120 days to a request from the heads of certain Congressional committees for a determination as to whether specific parties engaged in human rights violations, and if so, to impose sanctions. This mechanism was utilised in the sanctions imposed in response to the 2 October 2018, murder of journalist Jamal Khashoggi at the Saudi consulate in Istanbul. On 10 October 2018, 22 senators co-authored a letter to President Trump requesting such a determination and, on 15 November 2018, OFAC sanctioned 17 individuals for their role in the murder.

A recent designation illustrates the Global Magnitsky Act risks in Latin America. Specifically, on 17 May 2019, OFAC designated Roberto Sandoval Castañeda, the former governor of the Mexican state of Nayarit, for allegedly accepting bribes from Mexican drug trafficking organisations.[22] Sandoval Castañeda is alleged by OFAC to have received bribes from Cártel de Jalisco Nueva Generación and Beltrán Leyva Organization, and to have unspecified ties to the Flores Drug Trafficking Organization.

Similarly, in 2021 alone, OFAC used the Global Magnitsky Act authorities to target a member of the Alvaro Colom presidential administration and a member of Congress in Guatemala for corruption;[23] two senior members of the El Salvadorean government and one related family member with ties to MS-13;[24] and two affiliates of the governments in Guatemala and El Salvador, respectively, for procurement fraud.[25]

Narcotics trafficking

The Counter Narcotics Trafficking Sanctions programme was created on 21 October 1995, when President Clinton signed Executive Order 12978 and declared a national emergency with respect to the ‘unusual and extraordinary’ threat that Colombian narcotics traffickers posed to the United States. That authority blocks any property that is within the United States or comes under the possession or control of a United States person that belongs to any party identified in the annex of the Executive Order or any party, as determined by the Secretary of the Treasury, who plays a significant role in international narcotics trafficking centred in Colombia, as well as any party who provides material assistance to or is owned or controlled by such a party. Parties whose property is blocked pursuant to this programme (i.e., specially designated narcotics traffickers) are identified on the SDN list. Any transaction that would be blocked by Executive Order 12978 would require prior authorisation from OFAC.[26]

In 1999, President Clinton signed into law the Kingpin Act,[27] which more broadly authorises the president to block the property and interests in property of persons determined to be owned or controlled by significant foreign narcotics traffickers, that is, any person who plays a significant role in international narcotics trafficking, as well as any party who provides material assistance to or is owned or controlled by such a party.[28]

There are three significant differences between the two sanctions programmes. First, the Counter Narcotics Trafficking Sanctions are limited primarily to trafficking in a specific geographic area (i.e., Colombia), whereas the Foreign Narcotics Kingpin Sanctions apply to trafficking globally. Second, consistent with other sanctions programmes authorised under IEEPA, transactions involving ‘informational materials’ (i.e., materials transmitting information or ideas, such as publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds) are exempt from the Counter Narcotics Trafficking Sanctions, but not from the Foreign Narcotics Kingpin Sanctions, which are independently authorised by the Kingpin Act. Third, civil violations of the Counter Narcotics Trafficking Sanctions, consistent with other IEEPA sanctions programmes, have a maximum penalty of up to US$330,947 (as adjusted for inflation) or twice the value of the transaction, and criminal violations can carry a penalty of up to US$1 million or 25 years in prison. Civil penalties under the Foreign Narcotics Kingpin Sanctions, on the other hand, are set much higher at US$1.075 million per violation, and criminal penalties can range up to a fine of US$5 million or up to 30 years in prison.

At the time of writing, over 400 parties have been designated by OFAC under one or both of the narcotics trafficking authorities, including many throughout Latin America, such as:

  • On 10 February 2022, OFAC designated an Ecuadorian national and a Mexican national for providing support to the Sinaloa Cartel and Cártel de Jalisco Nueva Generación.[29]
  • On 12 May 2021, OFAC designated a Mexican national for leading production and distribution in the Sinaloa Cartel.[30]
  • On 20 August 2019, OFAC designated Dominican-based César Emilio Peralta and the Peralta Drug Trafficking Organization under the Kingpin Act.[31]
  • On 14 February 2018, OFAC designated two individuals and four companies related to the Colombian-based criminal group La Oficina de Envigado under the Kingpin Act.[32]
  • On 9 August 2017, OFAC designated Mexican national Raúl Flores Hernández and the Flores Drug Trafficking Organization, as well as 21 Mexican nationals and 42 entities who provided material support to the organisation under the Kingpin Act. These designations included professional soccer player Rafael Márquez Álvarez and singer Julio César Álvarez Montelongo, both of whom were alleged to have ‘longstanding relationships’ with Flores and to have held assets on his behalf.[33]
  • On 5 May 2016, OFAC designated the Waked Money Laundering Organization, including, among other entities, Grupo Wisa S.A. (which owns the La Riviera chain of duty-free stores operating throughout Latin America), Soho Panama S.A. (which owns a luxury mall and real estate development in downtown Panama City), and Balboa Bank & Trust in Panama.[34]

Russian invasion of Ukraine

In response to Russia’s recent invasion of Ukraine, the United States has significantly expanded its Russia and Ukraine sanctions programmes to prohibit US and non-US companies from engaging in a wide range of activities in the region. Recent actions include restrictions on trade and investment in certain regions of Ukraine: restrictions on certain financial sector activity with Russia, debt and equity restrictions, the designations of numerous financial institutions, oligarchs and high-ranking politicians, and the removal of seven Russian banks from the SWIFT messaging system, among others. Most recently, on 6 April 2022, President Biden issued a ban on all new investment in the Russian Federation by US persons, wherever located, as well as the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation. While the US government has not yet made any determinations on which categories of services are included in these prohibitions, we anticipate they will identify covered categories of service in the near future.

If Russia continues its military actions in Ukraine, we anticipate further restrictions by the US government with respect to Russia. We encourage Latin American companies who engage in business in the region to closely monitor US sanctions developments to ensure compliance with US law.

Compliance recommendations for Latin American companies

As illustrated above, the sanctions risks in Latin America can be significant, especially considering that the United States is by far the largest trade partner for the region both in imports and exports. To help mitigate these risks, companies in Latin America should consider the following:

Ensure appropriate, risk-based compliance procedures are in place. In guidance entitled ‘A Framework for OFAC Compliance Commitments’ (OFAC Framework), OFAC has stressed that companies subject to its jurisdiction should take a risk-based approach toward developing a compliance programme. [35] OFAC has set out guidance that identifies ‘five essential components of compliance: (1) management commitment; (2) risk assessment; (3) internal controls; (4) testing and auditing; and (5) training.’[36] It is critical even for non-US companies to have in place a compliance programme appropriately tailored to the company’s risk because a ‘lack of a formal OFAC [sanctions compliance programme or ‘SCP’]’ is a common ‘root cause’ of violation of US sanctions laws.[37] In particular, the OFAC Framework explains:

OFAC regulations do not require a formal SCP; however, OFAC encourages organizations subject to U.S. jurisdiction (including but not limited to those entities that conduct business in, with, or through the United States or involving U.S.-origin goods, services, or technology), and particularly those that engage in international trade or transactions or possess any clients or counter-parties located outside of the United States, to adopt a formal SCP.[38]

Further, in the event of an enforcement action by OFAC for a sanctions violation, lack of a formal SCP is considered an ‘aggravating factor’ that could cause OFAC to assess a civil monetary penalty, or assess a higher civil monetary penalty than they would have with an SCP.[39] On the other hand, ‘OFAC will consider favorably subject persons that had effective SCPs at the time of an apparent violation.’[40]

Establish know-your-customer or counterparty diligence and screening procedures. Appropriate procedures should also be developed for companies in Latin America to understand who their customers and other third-parties are as well as who they are owned and controlled by. The OFAC Framework explains that OFAC looks for companies to establish internal controls that ‘enable the organization to clearly and effectively identify, interdict, escalate, and report to appropriate personnel within the organization transactions and activity that may be prohibited by OFAC’.[41] Further, OFAC recommends that:

organization[s] develop[] a sanctions risk rating for customers, customer groups, or account relationships, as appropriate, by leveraging information provided by the customer (for example, through a Know Your Customer or Customer Due Diligence process) and independent research conducted by the organization at the initiation of the customer relationship.[42]

Because OFAC flows down asset blocking sanctions to any entity owned, directly or indirectly, by an SDN, a robust know-your-customer or counterparty programme is essential to being able to determine if a specific customer or third party is subject to sanctions, especially in regions where the use of shell companies and nominees is common. Companies should therefore ensure that they collect sufficient information to identify and screen the owners of each counterparty, up to and including the ultimate beneficial owners.

Identify US touchpoints and ring-fence from high-risk transactions. To appropriately assess a transaction’s risk, companies in Latin America should carefully evaluate potential US touchpoints. These touchpoints could take the form of US person employees (including dual national employees), transactions conducted in US dollars, US-origin goods, services or technology, or US-based customers or suppliers. Because a single US touchpoint could be sufficient to create primary sanctions jurisdiction, and because OFAC has been aggressive in asserting jurisdiction for primary sanctions under theories of facilitation and causing liability, any US touchpoint should be carefully segregated and ring-fenced from any high-risk transaction, such as a transaction involving a comprehensively embargoed country or a sanctioned party. For US person employees, in particular, Latin American companies should consider implementing standing recusal policies requiring such employees to stand down from any transaction in which they may be prohibited from participating.

Consider voluntarily disclosing any identified violations. Companies that ultimately discover a potential sanctions violation, once confirmed, should consider submitting a voluntary self-disclosure to OFAC. As a matter of policy, violations that are voluntarily self-disclosed to OFAC (i.e., are disclosed before OFAC begins its own internal investigation of the same conduct) are subject to only one-half of the maximum statutory penalty as a matter of policy, and many voluntarily disclosed violations result in only a warning letter with no monetary penalty.

Conclusion

US sanctions can apply extremely broadly, even to transactions with little or no connection to the United States. Because civil sanctions violations are assessed under a strict liability standard, even inadvertent mistakes can potentially lead to significant liability for unwary companies. By being aware of these risks, and the specific sanctions risks present in Latin America, companies in the region can take proactive steps to mitigate the likelihood of a violation and ultimately liability.


Footnotes

[1] Ryan Fayhee and Diego Durán de la Vega are partners, Tyler Grove is a counsel and Anna Hamati is an associate at Hughes Hubbard & Reed LLP.

[2] See 31 C.F.R. Parts 515 (Cuban Assets Control Regulations), 560 (Iran Transactions and Sanctions Regulations), 510 (North Korea Sanctions Regulations), 542 (Syrian Sanctions Regulations), 589 (Ukraine Related Sanctions Regulations (i.e., Crimea)), and Executive Order 14065 (i.e., the Donetsk People’s Republic and the Luhansk People’s Republic).

[3] See 31 C.F.R. Parts 589 (Ukraine Related Sanctions Regulations); 591 (Venezuela Sanctions Regulations); 525 (Burma Sanctions Regulations) and 587 (Russian Harmful Foreign Activities Sanctions Regulations).

[5] See Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked, US Dep’t of the Treas. (13 August 2014), https://home.treasury.gov/system/files/126/licensing_guidance.pdf.

[6] The Cuba sanctions are authorised under the Trading with the Enemy Act, codified at 12 U.S.C. § 95 and 50 U.S.C. App. §§ 1–44, and have a maximum civil monetary penalty per transaction of US$97,529. Certain other behaviour-based sanctions programmes are authorised under the Antiterrorism and Effective Death Penalty Act of 1996, codified at 18 U.S.C. § 2339B, with a maximum civil penalty amount of US$87,361; the Foreign Narcotics Kingpin Designation Act, codified at U.S.C. §§ 1901-1908, with a maximum civil penalty amount of US$1,644,396; or the Clean Diamond Trade Act, codified at U.S.C. §§ 3901-3913, with a maximum civil penalty amount of US$14,950. See 87 Fed. Reg. 7369 (Feb. 9, 2022).

[8] See Appendix A to 31 C.F.R. Part 501.

[12] See, e.g., Executive Order 13884 (Venezuela); Executive Order 13662 (Russia); Executive Order 13810 (North Korea).

[13] See 22 U.S.C. § 6082.

[14] See Sucesores de Don Carlos Nunez y Dona Pura Galves, Inc. d/b/a Banco Nuñez v. Societe Generale, S.A., d/b/a Societe Generale Americas, No. 1:19-cv-22842 (S.D. Fla.).

[15] See Exxon Mobil Corp. v. Corporacion Cimex S.A. and Union Cuba-Petroleo, No. 19-CV-1277 (D.D.C.).

[16] See North American Sugar Industries Inc. v. Xinjiang Goldwind Science and Technology Co., Ltd., No. 20-cv- 22471 (S.D. Fla.).

[17] See Exec. Order 13682 (8 March 2015), 80 Fed. Reg. 12747 (11 March 2015).

[18] See Exec. Order 13884 (5 August 2019): Blocking Property of the Government of Venezuela, 84 Fed. Reg. 38,843 (7 August 2019).

[19] See Press Release, Treasury Targets Sanctions Evasion Network Supporting Corrupt Venezuelan Actor, US Dep’t of Tres. (18 June 2020), https://home.treasury.gov/news/press-releases/sm1038.

[20] See Press Release, Treasury Sanctions Russia-based Bank Attempting to Circumvent U.S. Sanctions on Venezuela, US Dep’t of the Treas. (11 March 2019), https://home.treasury.gov/news/press-releases/sm622.

[21] Exec. Order 13851 (Nov. 27, 2018), 31 Fed. Reg. 61505 (29 November 2018), https://www.treasury.gov/resource-center/sanctions/Programs/Documents/nicaragua_eo.pdf.

[22] See Press Release, Treasury Works with Government of Mexico Against Perpetrators of Corruption and their Networks, US Dep’t of the Tres. (17 May 2019), https://home.treasury.gov/news/press-releases/sm692.

[23] See Press Release, Treasury Sanctions Current and Former Guatemalan Officials for Engaging in Corrupt Activities, US Dep’t of the Tres. (26 August 2021), https://home.treasury.gov/news/press-releases/jy0147.

[24] See Press Release, Treasury Targets Corruption Networks Linked to Transnational Organized Crime, US Dep’t of the Treas. (8 December 2021), https://home.treasury.gov/news/press-releases/jy0519.

[25] See Press Release, Treasury Issues Sanctions on International Anti-Corruption Day, US Dep’t of the Treas. (9 December 2021), https://home.treasury.gov/news/press-releases/jy0523.

[26] The regulations for the Counter Narcotics Trafficking Sanctions programme are set forth at 31 C.F.R. Part 536.

[27] 31 U.S.C. §§ 1901-1908 and 8 U.S.C § 1182.

[28] The regulations for the Foreign Narcotics Kingpin Sanctions programme are set forth at 31 C.F.R. Part 598.

[29] See Press Release, Treasury Sanctions Major Ecuadorian and Mexican Narcotics Traffickers With Ties to the Sinaloa Cartel and CJNG, US Dep’t of the Tres. (10 February 2022), https://home.treasury.gov/news/press-releases/jy0592.

[30] See Press Release, Treasury Identifies Sinaloa-based Mexican Narcotics Trafficker That Helps Fuel the US Opioid Epidemic, US Dep’t of the Tres. (12 May 2021), https://home.treasury.gov/news/press-releases/jy0172.

[31] See Press Release, Treasury Designates Dominican Republic-Based Peralta Drug Trafficking Organization Under the Kingpin Act, US Dep’t of the Tres. (20 August 2019), https://home.treasury.gov/news/press-releases/sm755.

[32] See Press Release, Treasury Targets Colombians Linked to Oficina de Envigado Crime Boss Under Kingpin Act, US Dep’t of the Tres. (14 February 2018), https://home.treasury.gov/news/press-release/sm0289.

[33] See Press Release, Treasury Sanctions Longtime Mexican Drug Kingpin Raul Flores Hernandez and His Vast Network, US Dep’t of the Tres. (9 August 2017), https://home.treasury.gov/news/press-release/sm0144. Note that Rafael Márquez Álvarez was removed from the SDN list on 22 September 2021. See https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20210922.

[34] See Press Release, Treasury Sanctions the Waked Money Laundering Organization, US Dep’t of the Treas. (5 May 2016), https://www.treasury.gov/press-center/press-releases/pages/jl0450.aspx.

[35] See A Framework for OFAC Compliance Commitments, OFAC, at 1, https://www.treasury.gov/resource-center/sanctions/Documents/framework_ofac_cc.pdf (OFAC Framework).

[36] OFAC Framework at 1.

[37] OFAC Framework at 8.

[38] OFAC Framework at 9.

[39] See Economic Sanctions Enforcement Guidelines, Appendix A to 31 C.F.R. Part 501 (OFAC Enforcement Guidelines).

[40] OFAC Framework at 1; see also OFAC Enforcement Guidelines at § III.E (OFAC will consider ‘the existence, nature and adequacy of a Subject Person’s risk-based OFAC compliance program at the time of the apparent violation, where relevant).

[41] id. at 6.

[42] id. at 4.

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