The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) is specifically targeting businesses and individuals involved in the provision of jet fuel to Burma’s (a.k.a. Myanmar) military regime. In particular, on March 24, 2023 OFAC:
- Imposed full blocking sanctions under Executive Order (“E.O.”) 14014 on 2 individuals and 6 entities connected to Burma’s military, which have enabled the military regime’s continuing atrocities, especially through the supply of jet fuel to Burma’s military; and
- Issued an Alert on the U.S. sanctions risks associated with the provision of jet fuel to the Burma’s military regime.
OFAC’s efforts are intended to counter the military regime’s continued atrocities and violence against the people of Burma, especially through an increased reliance on air strikes and unguided munitions and rockets in civilian populated areas. Whether such efforts will actually be able to deprive the Burmese military of its ill-used jet fuel ultimately depends on relevant business’s compliance with the legal implications of these sanctions actions, many of which were done on the heels of similar sanctions actions by the United Kingdom, Canada, and the European Union, and apparently in response to a call for such sanctions by Amnesty International and Justice for Myanmar. I’ll stick to delineating legal and compliance considerations under U.S. laws, which include so-called “primary” and “secondary” sanctions risks under E.O. 14014, leaving the sanctions and compliance concerns of other jurisdictions to the attorneys of their respective bars.
What Sanctions Did OFAC Impose?
In relevant part, E.O. 14014 authorizes the Secretary of the Treasury to impose full blocking sanctions—and thereby for OFAC to identify on its Specially Designated Nationals and Blocked Persons (“SDN”) List—on any person determined to be operating in the defense sector of the Burmese economy. Pursuant to this specific authority, OFAC has designated Asia Sun Group, Asia Sun Trading Co. Ltd, and Cargo Link Petroleum Logistics Col. Ltd., based on their involvement in the importation, storage, and distribution of jet fuel to Burma’s military. Indeed, these are some of the key players in Burma’s jet fuel supply chain. In the same March 24th designation action, OFAC sanctioned certain Burmese defense related cronies under E.O. 14014 for their provision of military arms and equipment, including drones and aircraft parts, to Burma’s military.
U.S. Primary Sanctions Implications Under E.O. 14014
U.S. persons—as defined under E.O. 14014 and OFAC’s implementing regulations in 31 C.F.R. Part 525 (the Burmese Sanctions Regulations (“BSR”))—are required to block and report to OFAC any property interests of persons designated under the Order that are or come within their possession or control, including the property interests of any entity in which such designated persons maintain a 50 percent or more ownership interests (either individually or in the aggregate), pursuant to OFAC’s 50 Percent Rule. U.S. persons are also prohibited from engaging in virtually any transactions or dealings with persons designated under the Order, unless authorized by an OFAC license or statutorily exempt.
Even non-U.S. persons can become subject to such prohibitions where their transaction(s) with a designated person causes a violation to occur through the direct or indirect involvement of a U.S. person in the transaction. This typically occurs—and there are numerous published OFAC enforcement actions to illustrate the “causation principle”—where the financial transactions underlying the non-U.S. person’s commercial activity with an OFAC designated party are indirectly processed through a U.S. financial institution (e.g., the clearing of U.S. dollar payments by intermediary banks), thereby violating applicable OFAC regulations by causing the U.S. bank to inadvertently export prohibited financial services to designated party. See e.g., Sojitz (Hong Kong) Limited (Jan. 11, 2022). Such non-U.S. persons are considered to have a U.S.-nexus in their transaction involving the sanctioned target for purposes of a potential OFAC civil and/or U.S. Department of Justice criminal enforcement response.
Secondary Sanctions Implications
OFAC’s Alert highlighted the sanctions risks, especially for non-U.S. persons, who would otherwise consider engaging in any transactions involving the provision of jet fuel to Burma’s military. As described above, parties have already been and can be sanctioned under E.O. 14014 to the extent that OFAC—at its discretion—determines they have operated in the defense sector of the Burmese economy. However, there are other designation criteria to consider under E.O. 14014, including the following that were specifically underscored in OFAC’s Alert:
- Being responsible for or complicit in, or having directly or indirectly engaged or attempted to engage in serious human rights abuses or in actions that threaten the peace, security, or stability of Burma;
- Being owned or controlled by, or having acted or purported to act for or on behalf of, directly or indirectly, the military or security forces of Burma or any person blocked under E.O. 14014; or
- Being determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person blocked under E.O. 14014.
The Alert notes that OFAC is committed to using the foregoing designated criteria against any person involved in providing jet fuel to Burma’s military regime. Should OFAC determine that an individual or entity has engaged in any such conduct, it can impose full blocking sanctions against such person under E.O. 14014, subjecting them to the primary sanctions authorities detailed above.
In addition, given the very broad and ambiguous nature of all the foregoing designation criteria, it is important to keep in mind that OFAC’s designation authority under E.O. 14014 isn’t just limited to jet fuel related transactions.
Compliance Considerations
Businesses and individuals involved in the supply and procurement of jet fuel and related commodities and services should assess their exposure to potential dealings with Burma, either directly, or indirectly through intermediaries. In assessing such risks, businesses should also rely on government and/or non-governmental organization’s publications related to the Burmese military’s procurement of goods and services for malign purposes, including for example OFAC’s foregoing Alert and Amnesty International and Justice for Myanmar’s published report citing companies involved in the aviation fuel supply chain in Burma.
As detailed above, the relevant risks include primary sanctions—not just for U.S. persons but also for non-U.S. persons where a U.S.-nexus could be present in their transactions—as well as secondary sanctions risks for non-U.S. persons, who engage in transactions involving the Burmese military and any persons already designated and/or blocked under E.O. 14014. To the extent such risks are present, businesses should further assess whether they have commensurate internal controls in place to ensure that they do not engage in any prohibited transactions or expose themselves to the otherwise broad designation criteria of E.O. 14014. For example:
- Are your screening procedures and/or third-party software adequately calibrated to identify any customers or counterparties identified on OFAC administered sanctions lists under E.O. 14014? How about Burmese entities that may be blocked under OFAC’s 50 Percent Rule?
- To the extent that your business does have operational touch-points involving Burma, and doesn’t prohibit dealings with the country as a matter of company policy, do you have any enhanced due diligence procedures—in addition to list-based screening—to ensure that relevant transactions are neither prohibited nor in furtherance of potentially sanctionable activity under E.O. 14014? For example, do you use end-user statements and have sanctions-related clauses in underlying contracts?
- Have you provided sufficient training to your personnel and/or third-party agents on relevant OFAC sanctions risks related to Burma and your business’s corresponding internal controls that are intended to prevent violations?
Although Burma is not a comprehensively sanctioned country under U.S. economic sanctions programs, businesses should address the heightened sanctions risks under potentially applicable OFAC administered sanctions laws and regulations, and take necessary steps to implement and administer relevant internal compliance controls. These are just a few of the important compliance related questions to be asking.
The author of this blog post is Kian Meshkat, an attorney specializing in U.S. economic sanctions and export controls matters. If you have any questions please contact him at [email protected].
