On January 31, 2020, the US Treasury Department’s Office of Foreign Assets Control (OFAC) lifted sanctions on China-based COSCO Shipping Tanker (Dalian) Co., Ltd. (COSCO Dalian), five affiliates, and one individual who were named as Specially Designated Nationals (SDNs) in September 2019 for knowingly engaging in a significant transaction for the transport of oil from Iran. Despite last week’s reprieve, another COSCO subsidiary, COSCO Shipping Tanker (Dalian) Seaman and Ship Management Co., Ltd., as well as several affiliates and their executives, remain on the SDN List.
The September 2019 designations disrupted parts of the global shipping market, leading to a significant increase in some rates. OFAC’s announcement came several days before the scheduled expiration on February 4, 2020 of a general license authorizing US persons to engage in transactions for the maintenance or winding down of certain transactions with COSCO Dalian.
De-Listing Demystified?
OFAC has previously stated that it would consider removing persons from the SDN List under some circumstances because the “ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior.” While there is little public guidance for companies hoping to be removed from the SDN List, OFAC advises that a sanctioned person (acting alone or with the assistance of counsel) “may submit arguments or evidence that the person believes establishes that insufficient basis exists for the designation.” Additionally, the person “may propose remedial steps on the person’s part, such as corporate reorganization, resignation of persons from positions in a blocked entity, or similar steps, which the person believes would negate the basis for designation.”
In the case of COSCO Dalian, the Chinese government may have sought de-listing as part of ongoing US trade negotiations. While diplomatic considerations may play a role in de-listing, the decision ultimately comes down to OFAC’s view of the facts underlying the SDN designation and, taking into consideration the views of other relevant agencies, whether the target’s commitments are sufficient to assuage US foreign policy or national security concerns. According to reports, US officials may have decided to continue sanctioning other COSCO affiliates to maintain leverage through secondary sanctions designed to discourage Iranian oil trading.
Persons who intend to file an application for de-listing must ensure that any disclosure made to the US government is not only accurate and complete, but typically must demonstrate one or more of the following: (i) the US government’s designation was based on incorrect factual information, (ii) US policy has changed in a way that no longer warrants designation, or, most typically, (iii) the target has changed its behavior in a way that is consistent with US policy objectives. The latter includes, among other things, ceasing any sanctionable activity. However, even a successful application for removal from the SDN List can take many months.
For additional information on these issues, including managing risks from exposure to SDNs or entities owned 50% or more by them, follow the Steptoe International Regulation and Compliance (IRC) Blog or contact one of our lawyers located in the United States, Europe (London and Brussels), and Asia (Beijing and Hong Kong).