Treasury Sanctions Review Could Lead to Fewer Designations, More Carve-Outs, Law Firms Say

Although companies shouldn’t expect the Treasury Department's recently released sanctions review to lead to major policy changes, it could result in slightly fewer designations, clearer humanitarian exemptions and more sanctions guidance, law firms said.

The results of the review, released last month, didn’t propose “a seismic shift in sanctions policy and implementation,” Skadden said in an October alert. Instead, it described how the agency hopes to better coordinate designations with trading partners and establish more modern, effective sanctions regimes (see 2110190044).

But it also suggested sanctions “will be used more deliberately to ensure they are the right tool,” DLA Piper said, which could translate into less frequent sanctions activity. “We may expect to see fewer designations on OFAC’s Specially Designated Nationals and Blocked Persons List,” the firm said Oct. 28. Even so, sanctions will continue to be a “key tool” for U.S. foreign policy, Akin Gump said in an Oct. 28 alert, and companies shouldn’t look for a significant dropoff in designations. “[W]e do not expect a drastic reduction in the imposition of sanctions,” the firm said.

The review may also lead to more “explicit” humanitarian carve-outs in sanctions regimes, Akin Gump added. Treasury has been criticized by non-governmental organizations for imposing sanctions that inadvertently block aid from flowing to sanctioned regions (see 2109020064, 2004100044 and 2004070028), but the agency suggested in its review that it will start issuing general licenses alongside sanctions programs instead of waiting until it receives complaints from aid groups (see 2110220005).

Treasury may also “be more open to expanding existing humanitarian authorizations in its current programs,” Akin Gump said. This may include approving more applications for specific licenses “where an activity does not fit within an existing exemption or authorization.” The review “sends a clear signal to the public that the Treasury is proactively working to enhance the efficacy of U.S. sanctions,” Skadden said.

Along with more general licenses, the results of the review suggest the Treasury may issue more guidance to make its program objectives as clear as possible, Akin Gump said, specifically surrounding digital assets. The agency recently issued guidance to help the virtual currency industry comply with sanctions (see 2110150069) and has worked multilaterally to disrupt illegal virtual currency exchanges (see 2110130038).

Although the guidance was notably the first major OFAC document focused entirely on dealings involving virtual currency, it didn’t “delve into the very complex implementation questions that arise for those operating in this industry,” Akin Gump said. “As Treasury bolsters its expertise in this area, we may begin to see OFAC grappling on a more technical basis on these critical issues.” Eversheds Sutherland said Oct. 28 the guidance could translate into “increased sanctions enforcement activity” targeting digital assets.

DLA Piper said companies with “exposure to high-risk sectors” should take the sanctions review as an opportunity to create closer working relationships with sanctions officers, especially as Treasury looks to cooperate more closely with industry on sanctions compliance. Those relationships may be useful as global sanctions compliance grows more complex, particularly with the rise of a sanctions regime in China (see 2107080057) and the European Union’s blocking statute (see 2108020030). “Experience indicates that creating close working operational relationships with Treasury and State sanctions enforcement and compliance teams yields tremendous benefits,” the firm said.