Anti Money Laundering Efforts in Trade Finance

In recent years，the trade finance community has seen a surge of policy formulation or subsequent revision on global sanctions and Anti Money Laundering (AML). It is necessary that banks follow the trends and adopt their own risk-based approaches to have relative compliance risks in control. The following is a summary of important relevant guidance papers published in recent years. This includes some key changes made this year.

Highlights of OFAC Policies in 2019

On August 5，2019，President Trump issued Executive Order 13884 blocking all property of the government of Venezuela，a striking escalation of sanctions against the regime of President Nicolas Maduro. Statements issued by the White House and the State Department pointed out that this escalation was meant to target the Maduro regime for its continued abuses of human rights and repression. According to a Q&A from the Office of Foreign Assets Control (OFAC)，US persons without authorization from OFAC are generally prohibited from engaging in transactions with the government of Venezuela，or persons in which the government of Venezuela owns，directly or indirectly，a 50%  or greater interest. Financial institutions are expected to conduct due diligence on their own direct customers (including，for example，their ownership structure) to confirm that those customers are not persons whose property and interests in property are blocked. OFAC has issued 29 valid general licenses authorizing some transactions. Banks should make crystal clear what is prohibited and what is permitted in related transactions.

Sanction Risks in Civil Aviation

In recent year，several documents such as Sanctions Risks Related to North Korea’s Shipping Practices published by OFAC revealed deceptive shipping practices used by North Korea including ship-to-ship transfers，shutting down ship Automatic Identification System (AIS) and falsifying shipping documents，etc. to evade sanctions. These practices may create significant sanctions risks for parties involved in the shipping industry，including insurers，flag registries，shipping companies，and financial institutions.

A recent OFAC guidance paper -- Iran-related Civil Aviation Industry Advisory -- revealed emerging sanction risks in civil aviation. As stated，both US and non-US persons operating in the civil aviation industry face potential civil and criminal consequences for violating OFAC’s sanctions programs，including by engaging in unauthorized transfers of US-origin aircraft or related goods，technology，or services to Iran. Additionally，non-US persons could be designated or made subject to other sanctions actions for engaging in unauthorized activities with persons designated in connection with Iran’s proliferation of weapons of mass destruction，support for international terrorism，or human rights abuses，such persons including Mahan Air and such entities designated in the advisory and those on OFAC’s Specially Designated Nationals list.

For trade finance practitioners，they have mainly focused on screening and reviewing information such as shipping routes，shipper，carrier，etc. on bills of lading. However，emerging sanction risks in civil aviation will urge them to put more scrutiny on airway bills.

Sword and Armor

The European Union’s Blocking Statute (Council Regulation (EC) 2271/96) serves as armor protecting EU entities from the sword-like extra-territorial application of third-country laws. The EU does not recognize the extra-territorial application of laws adopted by third countries and considers such effects to be contrary to international law. In 1996，the United States took such measures concerning Cuba，Iran and Libya. In response，the EU adopted the Blocking Statute to protect EU entities against the effects of the extra-territorial legislation by prohibiting compliance with any requirement or prohibition based on the specified foreign laws.

Soon after its withdrawal from the Joint Comprehensive Plan of Action (JCPOA)，the US reimposed sanctions on Iran last year. The EU reacted in no time to update the Blocking Statute in order to include the re-imposed extra-territorial US sanctions，thereby mitigating the impact of these sanctions on EU operators doing legitimate business with Iran. On May 18，the Commission announced the launch of the formal process to activate the EU Blocking Statute (Council Regulation (EC) 2271/96) by updating the list of US sanctions on Iran falling within its scope.

In May，the UK Parliament approved the draft Protection against the Effects of the Extraterritorial Application of Third Country Legislation (Amendment) (EU Exit) Regulations 2019 which will transpose the EU Blocking Statute into UK domestic law in the event of a no-deal Brexit.

The Russian State Duma is also consider