Zvamaida Murwira Senior Reporter
AMERICAN exporters are feeling the pinch following the implementation of a “50 percent rule” imposed by the Office of Foreign Assets Control (OFAC) as part of sanctions imposed by Washington on blacklisted entities and individuals.
OFAC is the implementing arm of US trade restrictions that include Zimbabwean companies.
The 50 percent rule, introduced in 2008 by US Treasury Department’s OFAC, prevents US firms and individuals from conducting business with entities that are owned 50 percent by a sanctioned party.
The influential magazine, American Shipper, which analyses, surveys, presents and reports on global logistics, on Tuesday carried an expose of how the sanctions had affected American businesses in cross-border trade.
Ironically, the US denies that sanctions affect Zimbabwe’s economy, claiming that they are targeted.
But economists and lawyers decried the fact that OFAC’s “50 percent rule” had become one of the most onerous sanctions compliance obligations for American and foreign companies involved in cross-border trade.
According to the guidelines, the sanctioned parties have been placed on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) list and the Sectoral Sanctions (SSI) list for alleged activities that harm US national security and foreign policy interests.
“The 50 percent rule is difficult to comply with on a transactional basis,” said Brian Amero, head of global compliance and ethics for Boston-based Teradyne and a member of the American Shipper editorial board.
“Placing the burden on exporters to determine beneficial ownership of foreign companies doesn’t seem fair.”
Doug Jacobson, a Washington DC-based attorney with Jacobson Burton Kelly PLLC, who specialises in US export controls, spends “a great deal of time assisting companies and banks on compliance-related issues associated with the 50 percent rule”.
“This is one of the biggest compliance challenges for companies and banks today,” said Jacobson.
The agency by that time had added numerous wealthy individuals and entities connected to Russia’s defense, financial and energy sectors as punishment for Russia’s military incursion in Eastern Ukraine and takeover of Crimea.
Realising the enforcement challenges of the rule, Ofac revised its policy to state that if a blocked person or persons are collectively part of a property ownership arrangement that is 50 percent or greater than the property, is blocked.
To get around this obstacle, some businesspersons were selling their to relatives or colleagues who were not blacklisted.
“It’s onerous because trying to get corporate ownership information involving Russian individuals and entities is not easy,” said Jacobson.
With the increased use of sanctions and additions to the SDN List under the Trump administration, US companies not only have to worry about the 50 percent rule as it applies to Russia, but sanctioned individuals and entities in other countries, such as Iran and Venezuela.
OFAC’s first enforcement settlement involving a violation of the 50 percent rule was announced by the agency on February 8, 2016.
Barclays Bank Plc agreed to settle a US$2,48 million civil liability for 159 apparent violations of the Zimbabwe Sanctions Regulations.
According to the settlement, from July 2008 to September 2013, Barclays processed 159 transactions worth about US$3,37 million to or through financial institutions located in the US — including Barclays’ New York branch — for or on behalf of corporate customers of Barclays Bank of Zimbabwe Ltd that were owned 50 percent or more, directly or indirectly, by a person identified on the SDN List.
To avoid running foul of the 50 percent rule, US companies should analyse the ownership structure of their potential customers.
The problem is that information may be several layers deep or not be readily accessible, explained R. Clifton Burns, senior counsel to Washington DC-based law firm Crowell & Moring LLP, who focuses on sanctions and export control regulations.
“It’s hard to see that a 50 percent rule policy pursued in this way makes US sanctions policy more effective,” said Burns.
“The best policy if you want to sanction someone is to put them on the SDN List, but to impose on everyone to determine compliance with the 50 percent rule is problematic.”
However, inquiring about a customer’s ownership structure and obtaining and recording what information is available demonstrates to OFAC that a company used due diligence with regard to the 50 percent rule, he added.
“Obtaining a statement from a potential customer that is not 50 percent or more owned by parties on the SDN and SSI lists is a very useful way for companies to document that they have performed the necessary due diligence.
“Supplementing the end-user statement with information from other sources is also important. One has to be selective in screening through these types of modules for those countries and parties that may be owned or partially owned by government agencies that are high risk to the 50 percent rule,” said Jacobson.