US trade compliance – recent changes and changes to come?
February 2017 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
2016 was a pivotal year for US trade compliance, which has enjoyed a vastly expanded role in the planning and legal strategies of not only US, but foreign companies over the past decade. Key changes in the US’ sanctions, anti-corruption and anti-money laundering regimes, and a new incoming White House administration, are leaving many around the US and the world scratching their heads and wondering how to plan for 2017 and beyond.
Donald Trump’s victory in the US presidential election surprised many around the world. Many questioned how Trump’s presidency will impact US trade and business laws, with significant speculation in regards to trade compliance. Addressing this speculation with certainty is naturally a challenge given the diversity of opinions, statements and actions that have either come from him or from within his team of advisers.
Sanctions: more of the same?
As the Obama administration passes the torch to president-elect Trump’s team, three areas in the sanctions programme stand out very prominently – Russia, Iran and Cuba. How will the Trump administration address these issues? While it is challenging to envision a complete undoing of the last eight years, the new president may indeed signal some pragmatism and an ability to be a bit bolder than his predecessor in certain areas. Sanctions remain one of the few areas where both sides of the political aisle are generally in agreement, even in the aftermath of the heated presidential election.
On Iran, Mr Trump indicated during the campaign that he will apply his business savvy and experience toward negotiating a better deal than the Joint Comprehensive Plan of Action (JCPOA), negotiated between Iran and the “P5+1” (US, UK, France, Russia, China and Germany) over its nuclear programme. Will Trump revise the JCPOA? Will his “America first” attitude cause him to widen the range of business US persons can lawfully do with Iran? The answer to both these questions may be yes. Iran is already notably absent from the incoming administration’s policy priorities for its first 100 days.
Furthermore, it is unlikely that the Trump administration would want to spend its political capital with its negotiating parties in the P5+1 on unravelling what has been considered by many to be a landmark deal aimed at stemming Iran’s access to nuclear weapons. With respect to direct unilateral sanctions, there is little the president can tighten given the still expansive reach of sanctions barring US persons from most trade in goods, services and technologies with Iran.
On Russia, the Obama administration designated a number of entities in December following allegations of Russian attempts to influence the outcome of the US presidential election. The administration’s action follows its imposition in 2014 of significant sanctions in response to Russia’s annexation of the Crimea. While president Trump has consistently indicated an intent to improve relations with Russia, it is unlikely that these restrictions will be immediately repealed. Some have claimed the regulations provide leverage to the new administration in its attempt to repair bilateral relations.
With respect to Cuba, the last two years have seen the reestablishment of formal diplomatic relations between that country and the US. This has in turn caused a relaxation of the decades-long embargo, but not a repeal. The Obama administration vastly expanded the categories of lawful travel by US persons to Cuba and significantly widened the types of goods that can be lawfully exported there. While reports have claimed that Mr Trump’s team has explored potential opportunities on the island state, he has called for extracting more concessions from Cuba in exchange for normalised ties. As such, it would be safe to say that his administration may be less aggressive on expanding the scope of activities that US persons can lawfully do with Cuba.
Foreign Corrupt Practices Act (FCPA)
There has been much speculation as to the incoming administration’s enforcement approach toward the US Foreign Corrupt Practices Act (FCPA). 2017 will mark 40 years since the first enactment of this law which has led to many similar laws by other peer countries aimed at preventing illicit payments to foreign officials. President-elect Trump’s nomination of New York lawyer Jay Clayton to head the US Securities and Exchange Commission (SEC), and his other statements, have caused many to speculate that FCPA enforcement may wane under the new administration. However, the Department of Justice (DOJ) has an arguably more central, all-encompassing role in FCPA enforcement and it will be key to watch how the Trump DOJ will view its mandate. Given the aggressive posturing in the president-elect’s statements, it is unclear whether he will actively support policies that may potentially place US companies at a disadvantage over their foreign counterparts.
Anti-money laundering (AML)
2016 saw several key changes in anti-money laundering (AML) regulations. Among other actions, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCen) enacted significant regulations requiring transparency in the foreign upstream real ownership of certain real estate acquisitions in key popular US jurisdictions. These directives, referred to as “Geographic Targeting Orders” originally targeted Manhattan and Miami, but later expanded to include all of New York’s boroughs, certain other counties in Florida, as well as large swathes of the Los Angeles and San Francisco metropolitan areas, among other locales.
Given the central role that AML has played in fighting terrorist financing and the fact that its rise to prominence as a foreign policy tool predates the Obama Administration, there is an argument that its significance may heighten in the Trump Administration, and heightened enforcement of violations by Money Service Businesses (MSBs) may ensue. Given the close relationship between AML and sanctions policies, it will be particularly important to see what form the administration’s policy and approach will assume.
Compliance will remain key at least in the interim and businesses should not expect an overnight change even if any significant shifts are to occur in the next four years. One should also understand that while Republicans often do favour deregulation, many of these regulations can serve Mr Trump’s stated goals of advancing US economic interests. Most notably, while president Obama’s legacy is one of a dramatically changed landscape on the trade regulatory front, it is also one that has arguably faced substantially less criticism from the Republican Party compared to many of his other initiatives.
The level of enforcement by US federal government bodies may shift, but such changes are unlikely to be seismic, at least not in the short-term. If this in fact proves to be the case, it is absolutely critical that businesses stay abreast of these changes as even minor shifts can signal major changes in exposures to liability. Accordingly, businesses around the globe are advised to keep an eye on these changes, update their compliance policies regularly, and if they have not by now, implement compliance policies. While the government’s focus in compliance may change, the need for compliance will clearly not disappear.
Mr Trump’s moves are hard to predict, so what we can predict is unpredictability and a need to stay atop of regulatory changes. This will be impacted by the very significant emphasis the new president made during the campaign on primarily domestic issues, including expanding job opportunities and developing infrastructure, as these issues can easily spill over into trade and tax matters.
While Mr Trump’s incoming cabinet and advisers appear to be significantly more hardline on certain trade policy issues than those advisers counselling president Obama, the new president’s policies will likely reconcile tough talk and posturing with realism and practicality. This is consistent with post-election shifts in Mr Trump’s statements on other issues. As such, while change is largely inevitable, it may be more nuanced than expected and within the existing framework – not more of the exact same, but perhaps more of largely the same. The one thing for certain is the need to be on the lookout for the new administration’s actions and plan accordingly.
Farhad Alavi is the managing partner at Akrivis Law Group PLLC. He can be contacted on +1 (202) 686 4859 or by email: firstname.lastname@example.org.
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Akrivis Law Group PLLC