While the US export control and trade sanctions world is in something of a holding pattern until more officials are appointed and confirmed, there has been movement at the foreign policy level with respect to US relations with Russia, China, and the European Union. The US and Iran have been continuing to make clear that each side is interested in talking further about lessening tensions while they manage their own internal negotiations.
Russia and China Sanctions: Biden Administration Review of NordStream 2 Sanctions, Closer Cooperation with EU
The Biden Administration continues to limit the amount of public drama around the NordStream 2 project and its effect on US-EU relations. As reported by the Associated Press, on Friday the Administration declined to impose any new sanctions beyond the ones already in place related to the project and one of the vessels involved in construction. While Republicans on Capitol Hill squawked about the lack of additional pressure, this doesn’t seem like it will become a major issue for the Administration to resolve in US political terms.
Interestingly enough, it turns out that Secretary of State Blinken wrote a book way back when about a different Soviet era pipeline crisis between the US and Europe. The Financial Times reported how policymakers and analysts in Europe are re-reading this 1987 volume to guess what Blinken will do, now that he’s in charge. According to the article, German policymakers are working to develop creative structures allowing for NordStream 2 to be completed while retaining options for future sanctions.
More generally, President Biden’s speech last week to the Munich Security Conference seems to have been effective in drawing a line under the prior Administration’s certainly haphazard and often confrontational approach toward the EU. Biden and his European counterparts spoke openly about challenges to US-EU relations while emphasizing the basic shared interests across multiple issue areas.
In his keynote address, Biden assured other participants, including French President Emmanuel Macron, German Chancellor Angela Merkel and British Prime Minister Boris Johnson, that the United States was “determined to reengage with Europe, to consult with you, to earn back our position of trusted leadership.”… But Biden made no mention of Washington’s opposition to the Germany-Russia joint Nord Stream 2 pipeline project and steered away from criticizing Germany and others for failing to meet NATO defense spending goals. Instead, he emphasized Washington’s commitment to Article 5 of the NATO founding treaty, which states that an attack on one alliance member is considered an attack on all.
On specific policies like Russia and China sanctions specifically, this early US outreach to the EU may be bearing fruit. Currently, the EU is considering more sanctions on Russia resulting from the prosecution of Alexei Navalny. According to Politico Europe:
EU ministers on Monday will also discuss how to more concretely support civil society; how to combat disinformation; as well as areas where the dialogue with Moscow must remain open, like the Iran nuclear deal and climate change, according to one participant of a meeting of EU ambassadors on Wednesday outlining the agenda. According to three senior diplomats, none of the countries who spoke during Wednesday’s meeting objected to allowing preparation to move forward for possible sanctions, nor did anyone oppose the notion of using for the first time a new so-called EU Magnitsky Act — a mechanism agreed last December that offers more powers to punish individuals involved in human rights violations.
On China, the Wall Street Journal reported today that an EU internal position paper on Hong Kong is laying the groundwork for new EU actions to align with US efforts to pressure China over its limitations on democracy in Hong Kong.
Iran Sanctions: Analysis of Biden Administration Negotiating Room
Politico this week published a good analysis of the different paths available to the Biden Administration as it seeks to rejuvenate the multilateral agreement restricting Iran’s nuclear program. From simply rejoining the agreement as written to trying to create a broader agreement, each option has its challenges both internationally and domestically. People hoping for quick and public reengagement may be disappointed, but I think that there remains space for agreement once the parties start speaking with each other rather than at each other.
Global Magnitsky/Congo Sanctions: New Information from NYT on Dan Gertler’s OFAC License
After initially breaking the news of Israeli mining billionaire Dan Gertler’s unprecedented OFAC license in late January, the New York Times has now published a very detailed story about Gertler’s background and the extraordinary process (or lack thereof) involved in issuing the license. It includes comment from multiple government officials who were shocked by the license, including the former head of OFAC who sanctioned Gertler in the first place:
“This is a unique, one-of-a-kind response that you don’t see with the United States government,” Mr. Smith said of the so-called specific license that Mr. Gertler received. “It is the most shocking license I have ever seen in a few decades of working on economic sanctions.”
The article also points out, correctly, that the attorneys involved in the process were quite limited in what they could do for Gertler. OFAC regulations allow for the provision of legal services related to a person’s designation as an SDN, but not lobbying or similar services. The regulations also require specific licensing for payments to attorneys. Such licenses are typically issued as a matter of course but themselves have reporting obligations and restrictions.
The license was apparently handled at the most senior levels, never a good sign for a thoughtful and appropriate process. While Steve Mnuchin and Mike Pompeo were apparently both on board in issuing the license, multiple less senior people throughout the prior administration were kept out of the loop and may have only found out after the fact. Mnuchin and Pompeo declined to comment to the Times, also not a good sign for transparency.
Personally, as I suggested in the newsletter issue covering the license a few weeks ago, I suspect this license may be revoked once the new Administration turns its attention to the matter and it continues to surface unfavorably in the press.
Sanctions and Embargoes: OFAC Settlement with Payment Processor
Anyone reading this newsletter knows that complying with all the various US trade embargoes is an ongoing challenge, but this week OFAC announced a settlement agreement that caught my eye. The violator this time is BitPay, a payment processor that allows merchants to accept digital currencies as a form of payment.
The noteworthy item isn’t the digital currency aspect, which OFAC has been highlighting recently as an area rife with risks of sanctions violations; it’s that BitPay managed to hit the rare “double trifecta” or even “hexafecta” of violating each and every set of country-based embargo restrictions: Cuba, North Korea, Iran, Syria, Sudan, and the Crimea region of Ukraine. BitPay processed about 2100 transactions from these locations over five years, which could have led to a statutory maximum penalty of nearly $620 million. BitPay will naturally consider itself quite fortunate to have settled for the significantly smaller amount of $507,375.
Chinese Export Controls: Rare Earth Restrictions
After being beaten around the head and shoulders by US high-tech export controls in recent years, the Chinese government may start using controls as a form of foreign policy leverage itself. A Chinese government ministry has proposed controlling the export of 17 rare earth minerals, including some that are important to US systems like the F-35 fighter jet. That said, even within China there appear to be concerns that such controls will only motivate other suppliers to emerge and/or lead customers to design around the restrictions.
China maintains a near monopoly on rare earth refining, however, with 80% of capacity. Even US rare earths have to be exported to China for refining. According to the FT article, it’s not that the process is technologically sophisticated; rather, it is tremendously polluting and China’s tolerance for pollution, as we know, is relatively high.
And in case you’d like to know what the rare earth elements are, or would like to dominate in Scrabble or a spelling bee tournament, here they are:
Burma Sanctions: Formal Announcement of Commerce Restrictions
In Thursday’s Federal Register, the Commerce Department published the formal announcement of new EAR restrictions related to the recent coup in Burma. Going forward Commerce is moving from a case-by-case licensing policy for controlled items to a presumption of denial if an export or reexport is destined for the Burmese Ministry of Defense, Ministry of Home Affairs, armed forces, or security services.
BIS is also terminating the availability of the following License Exceptions for otherwise controlled exports to Burma: Shipments of Limited Value (LVS), Shipments to Group B Countries (GBS), Technology and Software Under Restriction (TSR), and Computers (APP).
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