Insights

Outlook for Export Controls and Economic Sanctions Under the Trump Administration

by: Olga Torres, Managing Member and Matt Fogarty, Of Counsel

The first weeks of the Trump Administration have been eventful, but there has been little action in the area of export controls and economic sanctions. In this regard, there's no clear consensus just yet as to whether and how significantly President Trump plans to deviate from the course set over the last eight years of the Obama Administration.

As is said, personnel is policy and many of the key export and sanctions officials are not yet in place. In many cases, the officials who will be charged with the ground-level implementation of the Trump Administration's export and sanctions initiatives have not even been named. Moreover, one of the new President's first acts was to issue a freeze on any new regulations that essentially stalled any export or sanctions reforms that may have been in the works.

Nevertheless, the new President has hinted at his foreign policy and national security priorities in responding to certain provocations from, for example, Iran. These hints, along with policy changes late in the Obama Administration and some more recent less consequential regulatory developments, give some insight into where export and sanctions policy may impact U.S. and non-U.S. companies in the coming months and years.

Iran

Candidate Trump pledged to undo the Joint Comprehensive Plan of Action ("JCPOA"), also known as the Iran nuclear deal. In some respects, the JCPOA appeared to represent an easing of sanctions on Iran by the United States and Europe. However, with the exception of certain secondary and nuclear-related sanctions, the Obama Administration retained most sanctions on Iran. We saw some minor adjustments to the Office of Foreign Assets Control’s (“OFAC”) Iran sanctions program in late 2016, including the addition of a Frequently Asked Question clarifying that the Iranian Transactions and Sanctions Regulations ("ITSR") authorize certain limited transshipments of non-Iranian origin items through Iran to another destination so long as they are shipped on vessels or aircraft and do not leave the boundaries of the port. Additionally, OFAC cleared the way for certain significant sales of civil aircraft to Iran.

President Trump has been less adamant about withdrawing from the JCPOA and early indications are that the Trump Administration will honor the JCPOA but will strictly enforce its terms. However, particularly following Iran's testing of a ballistic missile in late January, the Trump Administration has taken a harder line than the Obama Administration, with new National Security Adviser Michael Flynn suggesting that President Obama had been soft with respect to Iran.

Perhaps most telling of the direction the Trump Administration may take, however, is the round of designations of 25 entities and individuals imposed in response to the ballistic missile test. The designations appeared to target parties affiliated with the Iranian Revolutionary Guard Corps ("IRGC") and their supplier network, including some suppliers in China. President Trump could use this approach in the future—targeting individuals and entities in areas outside those covered by the JCPOA—to apply additional pressure on the Iranian regime in advance of the Iranian elections in May 2017.

Russia

Acting on intelligence community assessments that both private individuals and state actors in Russia were involved in manipulating the U.S. election (via cyber and other means), in late 2016, the Obama Administration added to its Crimea-related Russia sanctions by designating several individuals and entities, including certain Russian government agencies, under a number of executive orders. Indeed, President Obama left office having set U.S.-Russia relations on a clear path toward conflict and further tightened sanctions.

It is as yet unclear how the new Administration will deal with Russia, though it appears unlikely that the Trump Administration will continue to ratchet up sanctions. President Trump has indicated a willingness to engage with Russia, particularly with respect to Syria, but has also made clear that he will continue to press Russia to cease its support for the regime in Tehran.

As one of its only actions relating to Russia during the Trump Administration, OFAC issued a new general license allowing U.S. persons to engage in certain limited transactions with the Russian FSB, which is responsible for issuing import permits for encryption items (including consumer electronic devices) and which had been designated under OFAC's Cyber Sanctions. Some in the media took this action as evidence of a potential easing of sanctions. However, OFAC officials and the White House rightly clarified that the general license was intended as a technical fix similar to another general license issued in December with regard to the FAU Glavgosekspertiza Rossii, a Russian government agency responsible for issuing construction-related permits. In both cases, OFAC's designation of the agency had unintentionally prevented U.S. companies from requesting and paying for permits needed to do business with non-designated parties in Russia; both general licenses simply correct this mistake.

Sudan

One of the more surprising developments in the waning days of the Obama Administration was the issuance by OFAC of a broad general license authorizing essentially all transactions prohibited under the Sudanese Sanctions Regulations ("SSR"). The general license was the result of positive steps taken by the regime in Sudan. In an accompanying executive order, President Obama outlined the efforts toward ending the conflict in Sudan and established a six-month timeline after which, assuming the Sudanese conflict continues toward resolution, Sudan sanctions and the SSR will be lifted entirely.

Indications are that the Trump Administration is supportive of the lifting of sanctions on Sudan and that the general license will remain in force. Note, however, that OFAC's Darfur sanctions are still in place and that Sudan is still designated by the State Department as a State Sponsor of Terrorism. Note also that, based in part on this designation, many states still have divestment laws prohibiting investment in companies that do business in Sudan.

Cuba, North Korea, and Syria

As of now, it appears the Trump Administration will continue the Obama Administration's approach to liberalizing sanctions with regard to Cuba and tightening sanctions on North Korea and Syria. On Cuba, since 2014, the Obama Administration has gradually scaled back U.S. sanctions to allow U.S. companies to do business in Cuba, including reopening respective embassies in Havana and Washington and authorizing a number of commercial airline flights to Cuba in mid-2016. The Trump Administration appears poised to continue this gradual rapprochement, though perhaps at a slower pace, or at the very least not to undo the Obama Administration's efforts to ease sanctions.

With respect to Syria and North Korea, the Obama Administration continued to identify and designate sanctions targets in both countries through 2016 and January 2017 given ongoing conflict in Syria and ongoing defiance in North Korea, and even reimposed a full prohibition on transactions involving North Korea in late 2016. The Trump Administration seems likely to continue these measures unless and until hostilities cease and the regimes in either country demonstrate a willingness to abide by international norms.

Export Controls

The path ahead for the Obama Administration's export control reform initiative is unclear. In many ways, whether and how vigorously the Trump Administration continues working to achieve the aim of "higher fences" and a "smaller yard" will depend on who incoming Commerce Secretary Wilbur Ross appoints to key positions like that of Assistant Secretary for Export Administration, previously occupied by Kevin Wolf.

President Trump has expressed an interest in rebalancing trade with China primarily through tariffs and other import-related mechanisms. However, we could see greater attention on China in the export controls arena, as well, potentially involving stricter licensing requirements with regard to exports of technology to China and additional restrictions on Chinese companies that supply Iran and other U.S. sanctions targets. For example, as noted above, a number of Chinese suppliers were implicated in the Trump Administration's recent Iran sanctions.

Conclusion

Until the new administration fills key leadership positions at the various agencies, it is difficult to predict how President Trump will use export controls and economic sanctions to implement the foreign policy objectives he outlined during the campaign and in the first weeks of his administration. However, based on the limited evidence discussed above, it appears that the Trump Administration will continue to utilize export and sanctions tools as a means of applying economic and political pressure in trouble spots around the world. It also appears likely we may see heightened enforcement efforts, particularly in regions of greatest concern to the Trump Administration like Iran and Syria. In any case, without clearer signals as to potential export and sanctions revisions under the new administration, U.S. and non-U.S. companies alike would be best advised to proceed with caution in potential new or opening markets like Sudan and Cuba while continuing to be conservative with activities in hot spots like Iran, Syria, and Russia.

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