Causing a Sanctions Violation With U.S. Dollars: Differences In Regulatory Language Across OFAC Sanctions Programs
55 Pages Posted: 10 Mar 2020
Date Written: February 10, 2020
Since 2007, the International Emergency Economic Powers Act (IEEPA), one of the principal statutes enabling U.S. economic sanctions, has prohibited any party from causing a violation of any license, order, regulation, or prohibition issued under its authority. When this statutory requirement appears in regulatory text, however, it does so in two different forms. More commonly, this prohibition is framed in general terms applicable to “[a]ny transaction,” but sometimes this same restriction is phrased as applicable only to “[a]ny transaction by a U.S. person or within the United States.” This difference in phrasing may appear minor and indeed, the U.S. Department of the Treasury does not seem to have intended to create two versions of the causation language having distinct meanings. The broader form of this language, however, has been used on at least one occasion as the basis for government enforcement against non-U.S. parties based solely on the use of U.S. dollars in transactions with a sanctioned party that would be prohibited if performed by a U.S. party. Where the broad causation provision has been used in this way, the Office of Foreign Assets Control (OFAC) within the U.S. Department of the Treasury based its theory of liability on the foreign party having caused a U.S. entity to violate the sanctions regulations by way of the U.S. entity participating in the dollar clearing process.
Part I of this Article discusses the different versions of the causation provisions found within the sanctions regulations and examines their relationship to relevant statutes and Executive Orders. Part II reviews how a broad causation provision was used as the basis for the government enforcement action brought by OFAC against CSE Global Limited and its subsidiary CSE TransTel Pte Ltd. (TransTel). It also examines how OFAC has also brought enforcement actions in the past based on similar facts but based instead on a theory of export of financial services from the United States, either directly or indirectly. This Article argues that the government’s use of the causation provisions therefore does not constitute an entirely new area of enforcement, even though different regulatory provisions are used as the stated basis. Part III explores the nature of U.S. dollar clearing and settlement, both in U.S. and offshore payment systems, and concludes that U.S. dollar-denominated transactions generally do require the involvement of a U.S. party and thus necessarily cause a sanctions violation where the broad version of the causation language is present or where a theory of indirect export of financial services is used. Part IV analyzes how OFAC has publicized prohibitions concerning the use of U.S. dollars in transactions with sanctioned entities and discusses how those legal requirements might be made clearer and more broadly understandable in the future. Finally, Part V recommends that the causation provisions be made consistent and standardized into the more expansive form in order to create transparency around the applicability of U.S.sanctions to transactions involving U.S. dollars.
Keywords: Economic sanctions, OFAC
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