Worldwide: A List Of Lists And More Lists: Designations And What They Mean For U.S. And Non-U.S. Companies

Last Updated: July 2 2018
Article by Olga Torres

The U.S. government maintains a variety of lists of sanctioned or denied parties—including entities, individuals, aircraft, and vessels—with whom companies and individuals are prohibited or restricted from dealing. These lists are assembled for different reasons and under differing authorities. That is, what might get an entity onto a list and how that entity might work to get off the list depends on the authorities and the national security purposes underlying the designation.

Perhaps what each list has in common is that the prohibitions or restrictions can impact companies around the world. For example, the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC") maintains a list of Specially Designated Nationals (the "SDN List"). In general, U.S. persons are broadly prohibited from doing business, directly or indirectly, with any parties on the SDN List. But these prohibitions could impact non-U.S. companies in a number of ways, as well. In cases involving an SDN, OFAC tends to take an expansive view of U.S. jurisdiction, to include companies with a substantial presence in the United States; any participation by a company's U.S. entity or U.S. person employees could be sufficient justification for OFAC to assert jurisdiction over a foreign company. Moreover, transactions denominated in U.S. dollars—even transactions between foreign parties—must typically clear through a U.S. bank, and OFAC would require any U.S. bank to block such transaction. And foreign companies with substantial dealings with SDNs are also a regular target of secondary sanctions, a trend that is likely to continue with the enactment of the Countering America's Adversaries Through Sanctions Act targeting Russia, Iran, and North Korea and the Trump Administration's withdrawal of the United States from the Joint Comprehensive Plan of Action, the Iran nuclear deal.

Accordingly, it is critical for U.S. and non-U.S. companies alike to ensure they screen counterparties to transactions, including any beneficial owners and participating officers or directors, to ensure they are not captured on any of the lists of sanctioned parties outlined below.

Office of Foreign Assets Control Lists

The SDN List. The SDN List is a collated listing of entities, individuals, aircraft, and vessels designated under OFAC's various sanctions programs. The relevant program is identified at the end of each entry in brackets. To determine the prohibitions applicable to each party, refer to the Executive Order and/or implementing regulations for the program. Also note that, per OFAC's August 13, 2014 guidance, any entity in which one or more listed parties, individually or in the aggregate, directly or indirectly, holds a 50% or greater interest is also subject to sanctions. In most cases, any property in which an SDN has an interest, direct or indirect, must be blocked.

Sectoral Sanctions Identification List ("SSI List"). The SSI List collects the various individuals and entities subject to OFAC's more limited sectoral sanctions. Sectoral sanctions are a relatively new tool and have been used primarily in OFAC's Ukraine-related sanctions program, though similar restrictions have been imposed more recently with respect to Venezuela. Rather than subject listed entities to broad prohibitions, sectoral sanctions include more limited restrictions on, for example, financing transactions with targeted parties or with certain targeted sectors. The SSI List includes bracketed references to the relevant Directive, each of which detail the restrictions applicable to the SSI List entry.

State Department Lists

List of Debarred Parties. The State Department's Directorate of Defense Trade Controls ("DDTC") maintains lists of Debarred Parties, including entities and individuals that are ineligible to participate in defense-related export activities under the International Traffic in Arms Regulations ("ITAR"). There are two types of debarment: Statutory Debarment is mandated for parties who have been convicted of criminally violating certain provisions of the Arms Export Control Act; Administrative Debarment is a discretionary enforcement tool available to DDTC to resolve (typically more egregious) ITAR violations. In both cases, debarment means the listed entity may not engage in ITAR-related exports, whether as exporter, consignee, or end user.

Nonproliferation Lists. The State Department also maintains lists of sanctioned parties under a number of nonproliferation-related authorities. These are parties that, for various reasons, have been identified as ineligible to participate in transactions involving weapons of mass destruction or missiles. The sanctions applicable in each case differ depending on the program under which the party has been listed.

Bureau of Industry and Security Lists

Entity List. The BIS Entity List identifies a number of non-U.S. entities (including businesses, government organizations, and research institutions) and individuals for whom a license is required for certain items subject to the Export Administration Regulations ("EAR"). Parties can be added to the Entity List for a variety of reasons, most often because of some concern on the part of BIS that the party has engaged in proliferation activities or is otherwise acting in contravention of U.S. national security. The Entity List, which is incorporated as Supplement No. 4 to 15 C.F.R. Part 744 of the EAR, identifies the licensing requirements applicable to each party. License exceptions are generally unavailable for parties on the Entity List, and license requests involving parties on the Entity List are generally subject to a policy of denial.

Denied Persons List. Like State's Debarred Parties Lists, the BIS Denied Persons List identifies entities and individuals who have been denied export privileges in most cases as the result of an enforcement action. Identified persons are ineligible to participate in EAR-related export transactions, in whatever role. Further, no items subject to the EAR may be transferred to Denied Persons with knowledge that the items will be exported or reexported.

Unverified List. BIS regularly reviews and validates information provided by foreign parties to confirm that they are a valid export destination and that they use exports for stated end uses. Where BIS is unable to independently verify a foreign party's bona fides, the agency adds the party to the Unverified List ("UVL"). While the UVL does not impose any broad prohibitions, exports, reexports, and in-country transfers may not use license exceptions for anyone on the UVL. Further, if sending to a party on the list, an exporter must obtain a statement from the UVL party confirming the name and contact information of the UVL party; a statement that the UVL party agrees not to use the item for a use prohibited by the EAR and agrees not to reexport or transfer to destinations, uses or users prohibited by the EAR; and the UVL party must agree to cooperate with end-use checks conducted by the U.S. Government.

Other U.S. and Non-U.S. Lists

In addition to those identified above, the U.S. Government maintains a variety of other lists that impose restrictions that may or may not be relevant to a given transaction. For example, the U.S. Government maintains a list of parties that are ineligible for government contracts. Further, other countries (including Japan, the EU, and the UK), as well as the United Nations and the World Bank, maintain lists similar to those outlined above.

Note that, in connection with recent export control reform efforts, the U.S. Government developed a Consolidated Screening List ("CSL") that captures information from many of the lists identified above. While the CSL can be helpful and is a free tool, it is not comprehensive, and may not screen against lists relevant to a given transaction. A good screening service will include a comprehensive search of most or all of these lists and may also capture an informal list of Politically Exposed Persons ("PEP List") who present reputational, if not legal, exposure to international companies.

Procedures for Removal

For parties captured on these lists, the road to removal is often long, winding, and uphill. Each authority typically outlines a path for appealing the designation or seeking removal, though the procedures are often somewhat opaque. For example, procedures for seeking removal from the BIS Entity List are outlined in 15 C.F.R. § 744.16, which specifies that additions and removals are managed by the interagency End User Review Committee and directs parties seeking removal to submit a request in writing stating the reasons for removal.

It is often not enough to simply argue that, though the underlying facts are true, the designation is unjustified or unwarranted. The agencies above have broad discretion to designate parties, and designations tend to be subjected to extensive interagency review and vetting. In this regard, to get off a list, very often the designated party must be able to demonstrate: 1) that the designation is a case of mistaken identity; 2) that the facts supporting the designation are fundamentally inaccurate; or 3) that the circumstances giving rise to the designation have fundamentally changed.

Whether or not a change of circumstances is persuasive depends on the reasons for an entity's designation. But in general, a designated entity should demonstrate that they have severed whatever troublesome business ties prompted the designation, whether by ceasing concerning activities involving sanctioned countries or parties, initiating a change in company leadership or instituting a more rigorous compliance program and other remedial measures, or changing ownership or affiliation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Olga Torres
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