- In-house counsel must be familiar with US sanctions to avoid illegal interactions with sanctioned foreign companies or individuals.
- Anti-money laundering laws requires US companies to engage in due diligence when dealing with foreign companies.
- In-house counsel should be familiar with US laws that govern bribery of foreign officials.
Global sanctions can present challenges to in-house counsel because sanctions can potentially impact the foreign businesses and individuals a US company may deal with. Geopolitical events can also affect a company’s interactions with vendors in other countries, which can in turn affect a US company’s customers and investors.
This article prepared by the Association of Corporate Counsel stems from the ACC 2021 Annual Meeting presentation “In-House Counsel’s Role in Anticipating and Managing Global Sanctions & AML Risks: Geopolitics, Transnational Crime & Economic Warfare” by Laura Martino, Associate General Counsel, Global Jet Capital, Cece Baute Mavico, SVP, Associate General Counsel, LPL Financial, Andreanna Truelove, Senior Legal Counsel, Fidelity Investments, Claire Rauscher, Partner, Womble Bond Dickinson (US) LLP, and Steve Ganis, Mintz Levin.
Any US company that has international dealings will probably have to interact with vendors or customers in countries against which sanctions have been placed. There are sanctions against countries, and there are also sanctions against individuals. The United States has laws such as the Trading with the Enemy Act and the International Emergency Economic Powers Act that govern a US company’s interactions with foreign entities and individuals.
In-house counsel must keep an eye on international affairs because the sanctions issue could come up. The US Department of the Treasury administers various sanction programs through its Office of Foreign Asset Control (OFAC). Key considerations to keep in mind include the following ones:
- US sanctions cover all US companies and citizens including any US citizen anywhere in the world.
- Sanctions may apply if, for example, a company in a foreign country has a US citizen on its board of directors or is an executive of the company who makes decisions involving international transactions.
- There is strict liability, so it does not need to be known that someone is sanctioned to have a civil violation for dealing with them directly.
- There is a knowledge requirement for a criminal violation, but conscious avoidance isn’t allowed.
- Companies should have a strict compliance program.
Exceptions to sanctions:
- Even when sanctions would otherwise apply, there are exceptions that allow for a license from OFAC for certain things, such as humanitarian transactions.
- Companies can also get a special license if they can show they are selling a product in a country on a sanctions list, but that nothing bad can be done with the item being sold.
Another area of concern that in-house counsel must watch is anti-money laundering issues. The United States has enacted laws to combat money laundering. The Bank Secrecy Act (BSA) of 1970 requires reporting of cash transactions in excess of $10,000. The Money Laundering Control Act (MLCA) enacted in 1986 bars transactions using ill-gotten gains for any monetary transaction even if the transaction does not involve a financial institution, and makes money laundering a federal crime.
The most recent law on money laundering is the Patriot Act of 2001, which enacted a Customer Identification Program (CIP) for financial institutions. The Patriot Act requires US financial institutions to perform due diligence for foreign financial institutions and private banking accounts established or maintained for non-US individuals or entities, where the entity or individual owns or controls 25% or more of the ownership interest in an entity a US company has business with.
The Corporate Transparency Act of 2019 provides that a foreign company registered to do business in the US must disclose the beneficial ownership of the company to the US Treasury. A beneficial owner is defined in the Act as “an individual who (1) exercises substantial control over a corporation or limited liability company, (2) owns 25% or more of the interest in a corporation or limited liability company, or (3) receives substantial economic benefits from the assets of a corporation or limited liability company.”
In-house counsel should also be familiar with the Foreign Corrupt Practices Act (FCPA), which outlaws bribes by US individuals or companies and foreign entities or persons in the US, but only applies to bribery of foreign officials.
Read “The Brief: A Legal Quick Hit Overview – Key Developments in U.S. Sanctions” by Jim Kearney, Womble Bond Dickinson LLP & Laura Martino, Global Jet Capital, Inc., April 2020.
Read “Update on US Sanctions Against Communist Chinese Military Companies and the Implications for Hong Kong’s Securities Markets” by Richard Mazzochi, Partner and Minny Siu, Partner, King & Wood Mallesons, Feb. 4, 2021.
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