LEASING LAW By Andrew Shoyer and Robert Torresen E Q&A: Complying with U.S. Economic Sanctions QUIPMENT LEASING AND FINANCE COMPANIES are increasingly impacted by U.S. economic sanctions, particularly recent changes aff ecting Cuba, Iran and Ukraine, as well as entities targeted for money laundering associated with drug traffi cking. Th is article provides a basic understanding of sanctions and common compliance pitfalls. What Are Sanctions? U.S. economic sanctions come in two fl avors: primary sanc-tions and secondary sanctions. Primary sanctions apply in situations where there is some nexus to the United States, such as transactions that involve either “U.S. persons” (see below) or goods, services or technology of U.S. origin or that are denominated in U.S. dollars. By contrast, secondary sanctions apply with broad extraterri-torial eff ect to transactions by non-U.S. persons where there is no other nexus to the United States. Some sanctions programs are applied geographically, aff ect-ing conduct in entire countries (e.g., Cuba, Iran, North Korea, Sudan, Syria) or regions (e.g., Crimea), while oth-ers are more focused, targeting particular individuals, companies, groups and vessels listed as “Specially Des-ignated Nationals and Blocked Persons” (SDNs). defense) that have been designated on OFAC’s “Sectoral Sanc-tions Identifi cation” (SSI) List. For example, a U.S. company is prohibited from fi nancing or leasing equipment to SSI parties if the maturity of those debt instruments exceeds 30 days (or 90 days for energy sector companies). Th e same prohibitions apply with respect to any entity that is 50% or more owned by listed parties, even if that entity is not itself on the SSI List. Who Must Comply? As indicated previously, primary sanctions apply to activities by “U.S. persons,” which are defi ned to include U.S. citizens and permanent residents (green-card holders), companies organized under U.S. law (including their foreign branch offices) and any persons physically in the United States. Under some sanctions programs (Cuba and Iran), foreign-organized companies that are owned or controlled by U.S. persons are subject to the same prohibitions. Regardless of where U.S. citizens or green-card holders are located, they must comply with U.S. economic sanctions. For example, a U.S. national employed by an equipment leas-ing company in Mexico is subject to U.S. sanctions. Con-versely, U.S. sanctions apply to all persons physically present in the United States, regardless of their citizenship. OFAC will occasionally publish a general license that au-thorizes a certain type of transaction that would otherwise violate sanctions. In addition, OFAC will consider applica-tions to authorize particular transactions, which it will do by issuing a specifi c license applicable only to the applicant. Regardless of where U.S. citizens or green-card holders are located, they must comply with U.S. economic sanctions. For example, a U.S. national employed by an equipment leasing company in Mexico is subject to U.S. sanctions. Conversely, U.S. sanctions apply to all persons physically present in the United States, regardless of their citizenship. What Do You Have to Do? Primary sanctions are administered by the Offi ce of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury, and are of two types: trade sanctions and fi nancial sanctions. Trade sanctions prohibit exports to and imports from sanctioned countries or blocked per-sons, as well as a wide range of other trade-related trans-actions. Financial sanctions prohibit U.S. persons from engaging in an extremely broad range of fi nancial transactions, including new investment, accepting funds from or sending funds to blocked persons or otherwise dealing in their property. To address the unique challenges presented in Ukraine, the U.S. Government created sectoral sanctions that prohibit only certain types of transactions with entities in three sec-tors of the Russian economy (fi nancial services, energy and 38 JULY/AUGUST/SEPTEMBER 2016 EQUIPMENT LEASING & FINANCE MAGAZINE OFAC does not prescribe certain compliance practices. It operates a strict liability system—meaning that you are re-quired simply to not violate sanctions. But there are steps that equipment leasing and fi nance companies can and should take to address these obligations. Th e most important step is to screen suppliers, lessees and any other counterparties against OFAC lists of blocked persons. Th e scope of screening depends on the company’s sophistication and the complexity of its operations. Like all good compliance programs, a sanctions screening program should be risk-based. A U.S. person should implement poli-cies and procedures to prevent “facilitating” non-U.S. parties engaging in trade or fi nancing with blocked entities. Com-panies should include clauses in contracts that prohibit the lessee of equipment from subleasing or otherwise using the SHUTTERSTOCK / VITAMINCO