OFAC Authorizes Maintenance and Wind Down Transactions Involving Cosco Shipping Tanker (Dalian) Co., Ltd.: Legal and Practical Points
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued on October 24, 2019 General License K, “Authorizing Maintenance or Wind Down of Transactions Involving Cosco Shipping Tanker (Dalian) Co., Ltd.” (“Cosco”). The Cosco License comes just under one month after the United States imposed sanctions on Cosco and other Chinese entities for shipping Iranian crude oil in violation of U.S. sanctions.
U.S. Sanctions on Cosco, Cosco’s Principal Executive Officers, and Entities Owned 50% or More by Cosco
Cosco was sanctioned pursuant to Executive Order 13846 of August 6, 2018, “Reimposing Sanctions With Respect to Iran.” The sanctions imposed on Cosco prohibit the following transactions, among others, involving Cosco or “an interest of Cosco” by U.S. persons, within the United States, or where such transactions are otherwise subject to the jurisdiction of the United States:
- Foreign exchange transactions;
- Financial transactions involving credits or payments between financial institutions, or by, through, or to any financial institutions;
- Transactions in the property or interests in property of Cosco, where such property is or comes within the United States or the possession or control of a U.S. person (anywhere in the world);
- Imports of goods, technology, or services, directly or indirectly, into the United States from Cosco; and,
- Investments in or purchases of “significant amounts” of equity or debt instruments of Cosco.
General License K Authorizes Prohibited Transactions for Maintenance or Wind Down Purposes
General License K authorizes, until 12:01 a.m. eastern time on December 20, 2019 (essentially, through the end of December 19 eastern time), the above-listed prohibited transactions where they directly or indirectly involve Cosco or entities owned 50% by Cosco and are “ordinarily incident and necessary to the maintenance or wind down of transactions.”
Transactions Expressly Not Authorized by General License K
General License K expressly states that the authorization to conduct maintenance and wind down transactions does not apply to Cosco Shipping Tanker (Dalian) Seaman and Ship Management Co., Ltd. or entities owned 50% or more by that entity alone or together with other sanctioned parties.
In addition, General License K does not authorize the unblocking of property blocked pursuant to EO 13846.
Finally, General License K does not authorize any additional transactions or activities prohibited by EO 13846, any other Presidential Executive order, or OFAC regulations set forth at Title 31, Part V of the Code of Federal Regulations (CFR), including the Iranian Transactions and Sanctions Regulations.
Practical Steps for Parties Engaging in Transactions Authorized by General License K
Parties undertaking transactions pursuant to General License K should ensure that those transactions are strictly for maintenance or wind down purposes. The nature of transactions should be assessed at the outset and on an ongoing basis to determine that the transactions fit OFAC’s “maintenance and wind down” criteria, including to avoid transaction creep over time.
In addition, parties should plan their transactions to ensure that they are concluded by 12:01 a.m. eastern time on December 20, 2019. Where there is doubt as to whether a transaction or any part of a transaction is “ordinarily incident and necessary to” maintenance or winding down, or if a transaction is expected to require more time than is granted by General License K, parties should consider seeking OFAC’s guidance and, as necessary, applying for a specific license.
Finally, parties undertaking transactions pursuant to General License K should take steps to ensure that entities that are not covered by General License K are not involved in or benefit from such transactions. In addition, parties should be careful to avoid any principal executive officers of Cosco that may be subject to U.S. sanctions.
For More Information
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 In addition to Cosco, the United States on September 25 imposed sanctions China Concord Petroleum Co., Limited, Kunlun Shipping Company Limited, Pegasus 88 Limited, Kunlun Holding Company Ltd., and COSCO Shipping Tanker (Dalian) Co., Ltd., along with six executive officers of one or more of those companies. Thus, executive officers of Cosco may be sanctioned. As indicated in MassPoint’s September 27, 2019 update on the Cosco sanctions, COSCO Shipping Corporation, Ltd. is not subject to U.S. sanctions (Iran).