On September 17, 2021, the U.S. announced new sanctions with respect to Ethiopia in response to the growing conflict and humanitarian situation, creating an entirely new economic sanctions program. Specifically, the President issued a new Executive Order providing the U.S. Department of the Treasury with broad authority to impose a range of sanctions against those determined to be responsible for or complicit in actions or policies contributing to the crisis, among other grounds.
Notably, beyond the standard blocking sanctions, the new E.O. also permits the Treasury Department to implement sanctions that prohibit any U.S. person from investing in or purchasing significant amounts of equity or debt instruments of sanctioned persons. In addition, the Treasury Department’s Office of Foreign Assets Control (OFAC) advised through guidance that both the blocking and non-blocking sanctions contained in the E.O. do not necessarily apply to entities owned in whole or in part by the designated sanctioned actors, unless OFAC expressly lists that entity, meaning that subsidiaries and affiliates are not automatically the subject of sanctions unless they themselves are listed (and OFAC’s 50% Rule does not appear to apply here). See OFAC FAQs 923 and 924.
OFAC also issued three General Licenses authorizing certain activities. General License 1 authorizes all transactions and activities otherwise prohibited by the E.O. that are for the conduct of the official business of various entities, including the United Nations and the International Committee of the Red Cross. General License 2 authorizes all transactions and activities otherwise prohibited by the E.O. that are ordinarily incident and necessary to certain activities performed by nongovernmental organizations (NGOs), including certain activities to support humanitarian projects, democracy building, education, and non-commercial development projects, among others. General License 3 authorizes all transactions and activities otherwise prohibited by the E.O. that are ordinarily incident and necessary to the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, and other covered items.
Finally, OFAC advised through guidance that non-U.S. persons generally do not risk exposure to U.S. sanctions for engaging in, or facilitating transactions or payments for, activities that would be exempt or authorized for U.S. persons to engage in pursuant to GLs 1, 2, and 3. See OFAC FAQ 927.
In short, these new sanctions represent yet another effort by the Biden Administration to expand the use of economic sanctions to target human rights and other abuses. Of note in these particular sanctions is the specific focus on securities offerings, and in particular, equity or debt instruments issued by persons sanctioned under this new program. We will be closely monitoring for any developments in this regard, especially if the U.S. targets any major securities issuers or government agencies. Finally, as mentioned, OFAC advised via guidance that these new sanctions do not incorporate the 50% Rule, which is a departure from most OFAC sanctions programs, and a point to remember when performing screening and due diligence.
If you have any questions or concerns regarding U.S. sanctions, please contact Bruce G. Paulsen (212-574-1533) or Andrew S. Jacobson (212-574-1477) at Seward & Kissel’s Sanctions Practice Group.