ILMA Compoundings - October 2018 - 27

Like many other world
nations, the EU intends to
maintain and perhaps strengthen
its commercial ties with Iran."
Continued from page 24
the adequacy of their internal controls to prevent sending or
receiving ineligible supply, directly or indirectly, to or from
the Iranian persons or entities.
SECONDARY SANCTIONS
Beyond the primary sanctions discussed above, the August and
November wind-down effective dates renew and potentially
broaden secondary sanctions, which are directed at non-U.S.
persons or entities. Like the topic of primary sanctions, space
here is inadequate to provide meaningful details. But unlike
primary sanctions, secondary sanctions are intended to prevent
non-U.S. persons or entities from supplying to or receiving
from the Iranian persons or entities they own or control.
Those who violate the secondary sanctions face two
categories of penalty. The first category includes potential
prosecution and penalty by U.S. authorities, limited only by
the inability of the U.S. authorities to enforce their extensive
jurisdiction. This jurisdiction is typically available through a
combination of reciprocal agreements between the U.S. and
numerous other countries. This typically makes enforcement by U.S. authorities against non-U.S. persons and
entities (without any connection with or presence related
to the U.S.) a very effective and relatively efficient process.
Nevertheless, disagreement among global governments with
the U.S. withdrawal from the JCPOA threatens some of
this enforcement potential, as is discussed below concerning
European Union (EU) blocking sanctions.
The second category of penalty associated with U.S.
secondary sanctions is far less reliant on jurisdictional cooperation by foreign governments. The thrust of this category
is to declare the non-U.S. person or entity ineligible to do
business (directly or indirectly) with any U.S. person or
entity. The consequence of this action creates prohibition
for any U.S. person or entity to directly or indirectly engage
with an ineligible non-U.S. person or entity. The primary
enforcement approach involves penalty against the U.S.
persons or entities involved with the prohibited activity. The
penalties tend to be sufficiently significant to deter any U.S.
person or entity from taking the risk - with the intended
result to be loss of U.S. market by the non-U.S. violator(s).
Perhaps it goes without saying, but the renewal and
potential broadening of these secondary sanctions creates
an immediate obligation for U.S. persons and entities

(including foreign affiliates, subsidiaries and others that are
U.S.-owned or -controlled) to ensure that their denied party
screening and related policies and controls (with special
attention to evaluation of potential "false positives") are well
enforced, with sufficiently high screening sensitivity.
EU BLOCKING SANCTIONS - DOUBLE JEOPARDY
The renewal and enhancement of U.S. sanctions on Aug. 8
triggered a response by the EU in the form of "blocking
sanctions." Like many other world nations, the EU intends
to maintain and perhaps strengthen its commercial ties with
Iran. Europe has pushed back against the U.S. sanctions,
with its own blocking sanctions that are intended to prevent
European entities from complying with the U.S. sanctions
by penalizing them if they do.
This action by the EU creates a double jeopardy for
European entities that are owned or controlled by a U.S.
entity or are participants in a U.S. product supply chain that
must now comply with U.S. sanctions concerning Iran. The
blocking sanctions force the European entity to continue its
commercial interaction with Iran (or Iranians) in the normal
course of business, allowing the entity to discontinue such
engagement only for reasons other than and not including
consideration of the U.S. sanctions. The blocking sanctions
only provide allowance for very limited exceptions, and
these remain vague at present. The net effect within the EU
is an obligation for the EU entity to choose which penalty
it prefers to risk. In some cases, the same entity might face
penalty from both the U.S. sanctions and the EU blocking
sanctions. For example, the EU entity might alter the nature
of its activity with Iran to lessen its exposure to U.S. sanctions and find itself accused by both countries of violating
their respective sanctions.
VIGILANCE IS PARAMOUNT
There are no current indications that either the U.S. or the
EU will relax its posture on this subject. In fact, the reverse
is predicted on the part of the U.S., which will probably
set the stage for more reprisal by the EU. Of course, others
might join the fray as well.
The point of this discussion is a call to attention about the
controls needed to survive the threatening commercial and
geopolitical landscape. More will follow about details, but safety
begins with having the ability in place to control these dangers
associated with prohibited commercial activity. Once the
controls are in place, the details targeted by these or any future
sanctions can be addressed with relative ease and quickness.
Eggenschwiler, an ILMA consultant, is an international
trade attorney and director of Global Trade for
the Redstone Group LLC. He can be reached at
614-923-7472 or jeggenschwiler@redstonegrp.com.

ILMA Compoundings - October 2018

Table of Contents for the Digital Edition of ILMA Compoundings - October 2018