New EO, GLs Signal Gradual Approach to Ethiopia Sanctions, Firms Say

Although President Joe Biden’s new executive order authorizing sanctions against Ethiopia (see 2109170036) allows for a potentially broad scope of designations, it also signals that the administration will take a slow, cautious approach to its new authorities, law firms said. Companies shouldn’t expect immediate U.S. action against Ethiopia, the firms said, as the administration seems primarily concerned about deterring bad behavior and assuring humanitarian access can still flow to the region.

“Based on the administration’s recent past practice, its approach to designations under the new Ethiopia-related sanctions program will be gradual and measured as opposed to sweeping,” Gibson Dunn said in a Sept. 17 alert. The administration’s decision to create a new sanctions regime rather than add Ethiopian entities to existing sanctions may indicate the U.S.’s “desire to put the Ethiopian and Eritrean governments on alert before additional actions are taken,” the firm added.

Gibson Dunn also pointed to an unusual aspect of the new sanctions regime that says the Office of Foreign Assets Control’s 50% rule -- which imposes sanctions on entities owned 50% or more by sanctioned people or companies -- doesn’t automatically apply here. This is “unlike nearly all other sanctions programs administered by OFAC,” the firm said. The “non-application” of the 50% rule suggests the administration is “focused on enabling humanitarian assistance to the region, and will likely take a gradual approach to designating individuals and entities,” Fried Frank said Sept. 20.

Both firms also pointed to the “broad” general licenses issued by OFAC, which are intended to keep humanitarian aid flowing to the region. This could signal the beginning of a trend by the Biden administration to include wide-ranging humanitarian licenses with future regimes, they said. “The new sanctions program appears calibrated to minimize any collateral effects on international and non-governmental organizations operating within the humanitarian aid space,” Gibson Dunn said.

Although the order authorizes “exceedingly broad” sanctions -- including designations against government officials, military groups and others who commit human rights violations, block aid or threaten peace -- specific designations haven't yet been issued, which is “telling,” Gibson Dunn said. This approach “makes clear the focus [is] on deterrence -- as opposed to punishment for past deeds,” the firm said. This is similar to the administration’s approach to Myanmar sanctions (see 2102110020), the firm said, which it has “gradually rolled out” over “a period of many months and prioritized humanitarian aid in its general licenses and guidance.”

But companies should still be careful before doing business in the region, firms said, because designations could be issued at any time. Industry should also look out for an upcoming amendment to the International Traffic in Arms Regulations, Kelley Drye said Sept. 20, which will impose a presumption of denial for exports of defense items and services to the region (see 2109200006). “This policy will effectively cut off the flow of U.S.-origin defense items and services to Ethiopia,” the firm said. Gibson Dunn said companies that violate ITAR restrictions or future sanctions actions may face “significant monetary penalties and reputational harm.”