835. What does Global Magnitsky General License 2A authorize?
On July 31, 2020, OFAC designated, pursuant to E.O. 13818, the Xinjiang Production and Construction Corps (XPCC) for its connection to serious human rights abuse in the Xinjiang Uyghur Autonomous Region (XUAR). Concurrent with this action, OFAC issued Global Magnitsky General License (GL) 2. GL 2 was replaced and superseded by Global Magnitksy General License 2A on September 25, 2020. GL 2A does not authorize any transactions involving the XPCC itself; however, GL 2A does authorize, subject to certain conditions, U.S. persons to engage in transactions and activities prohibited by the Global Magnitsky Sanctions Regulations (GSMR) that are ordinarily incident and necessary to the wind down of transactions involving any entity in which the XPCC owns, directly or indirectly, a 50 percent or greater interest (Blocked XPCC Subsidiary), through 12:01 a.m. eastern standard time, November 30, 2020.
GL 2A also authorizes, subject to certain conditions, transactions and activities that are ordinarily incident and necessary to (1) divest or transfer debt, equity, or other holdings of any Blocked XPCC Subsidiary to a non-U.S. person, or (2) facilitate the transfer of debt, equity, or other holdings in any Blocked XPCC Subsidiary by a non-U.S. person to another non-U.S. person, through 12:01 a.m. eastern standard time, November 30, 2020. GL 2 does not authorize divestment activities involving the XPCC itself, nor does it authorize U.S. persons to sell to, purchase or invest in, or facilitate such transactions with any blocked person — including Blocked XPCC Subsidiaries, except for such purchases of or investments in Blocked XPCC Subsidiaries that are ordinarily incident and necessary to effectuate authorized divestment transactions. Further, GL 2A does not authorize any debit to the account of any Blocked XPCC Subsidiary on the books of a U.S. financial institution.
After the expiration of this general authorization, U.S. persons will be prohibited from engaging in or facilitating transactions with Blocked XPCC Subsidiaries unless exempt or authorized by OFAC. U.S. persons unable to wind down transactions with, or divest from, any Blocked XPCC Subsidiary before 12:01 a.m. eastern standard time, November 30, 2020, are encouraged to seek guidance from OFAC.
Non-U.S. persons may wind down transactions with, or divest from, a Blocked XPCC Subsidiary without exposure to sanctions under E.O. 13818, provided that such wind-down activity is consistent with GL 2A. Wind-down transactions involving non-U.S. persons may be processed through the U.S. financial system or involve U.S. persons as long as the transactions comply with the terms and conditions in GL 2A. Non-U.S. persons unable to wind down transactions with, or divest from, a Blocked XPCC Subsidiary before 12:01 a.m. eastern standard time, November 30, 2020, are encouraged to seek guidance from OFAC.
The unblocking of any property blocked pursuant to any other part of 31 C.F.R. chapter V is not authorized under GL 2A.
Date Released
September 25, 2020
1) The FAQ generally describes the face of Global Magnitsky General License 2, without providing anything that should be construed as "interpretive guidance" concerning the scope and operation of the GL.
Concerning the following paragraph:
Non-U.S. persons may wind down transactions with, or divest from, a Blocked XPCC Subsidiary without exposure to sanctions under E.O. 13818, provided that such wind-down activity is consistent with GL 2. Wind-down transactions involving non-U.S. persons may be processed through the U.S. financial system or involve U.S. persons as long as the transactions comply with the terms and conditions in GL 2. Non-U.S. persons unable to wind down transactions with, or divest from, a Blocked XPCC Subsidiary before 12:01 a.m. eastern daylight time, September 30, 2020, are encouraged to seek guidance from OFAC.
This accords generally with OFAC's informal policy of refraining from exercising its authority to "derivatively designated non-U.S. persons for activities in which U.S. persons could engage directly under authority of an OFAC-issued license. Here, "materially assisting" any person blocked pursuant to EO 13818 can result in a designation. OFAC affirms that the "material assistance" derivative designation criterion will not be invoked insofar as a given transaction would fall within the scope of the GL if it were engaged in by a U.S. person. See generally Sec. 7 of General Note on Secondary Sanctions and “Derivative Designation” Criteria; Identification of the Gap Between the Theoretical and Practical Scopes of Authorities Targeting Transactions with no U.S. Nexus; Enforcement Risk Management and refer generally to General Note on "Counterfactual Secondary Sanctions and Derivative Designation Safe Harbors" in Certain OFAC Guidance and FAQs (System Ed. Note).
2) FAQ Amended on 9-25-2020 to account for the issuance of Global Magnitsky General License 2A, which amended Global Magnitsky General License 2 to extend the expiration date.
3) See generally Examples of Transactions Deemed to be, and not to be, Within the Scope of the Standard "Wind-down" and "Maintenance" GLs
4) *Note Common to FAQ # 807, FAQ # 835, FAQ # 841, FAQ # 883, FAQ # 1102 and FAQ # 1112
FAQ # 835, FAQ # 841, FAQ # 883, FAQ # 1102 and FAQ # 1112 all stand for the notable proposition as it relates to U.S. person facilitation of other involvement in underlying transactions of non-U.S. persons that are described by a general license, but not within the scope of OFAC's jurisdiction to begin with. More specifically, the FAQs all interpret standard wind down GLs that authorize "all transactions prohibited by the [sanctions] that are ordinarily incident and necessary to the wind down of any transaction involving [certain blocked persons]..."
The FAQs, issued across three separate sanctions programs over a span of over two years, all specify that "Wind-down transactions involving non-U.S. persons may be processed through the U.S. financial system or involve U.S. persons as long as the transactions comply with the terms and conditions in [the GL]..."
What is notable about the statement is that, with the disjunctive "or," OFAC makes it relatively clear that U.S. banks may process a transaction involving the covered blocked entity even if the transaction does not otherwise involve a U.S. person, and other U.S. persons (e.g. U.S. person employees of non-U.S. persons) may facilitate transactions that have no other U.S. nexus, so long as those transactions are described by the applicable GL, which does not specify that a given "wind down" transaction must be one for the winding down of operations of U.S. persons with the given blocked person.
OFAC's longstanding interpretation of its standard "wind down" GLs requires a qualifying "wind down" transaction to be one that has some connection to pre-sanctions activitiy (accordingly "the entry into new purchase contracts, or the stockpiling of inventory, involving [the relevant blocked person]" is generally not within the scope of a wind down GL. The legal basis for determining that a U.S. person bank can process a payment between a two non-U.S. persons with no U.S. nexus is not that the U.S. person bank would be winding down its operations with the blocked person, but instead, the U.S. person bank processing would be "ordinarily incident" to the underlying transaction that is "licensed" in the sense that it is described by the GL, but not "licensed" in the sense that OFAC has jurisdiction over the underlying offshore transaction. For more on this, see General Note Pertaining to U.S. Person Engagement in Transactions Incident to Transactions by Foreign Persons. In other words, this is implicitly an interpretation of OFAC’s standard “ordinarily incident” interpretive provision.
Finally, note that in FAQ # 807 (Removed), the question asked is "Can U.S. financial institutions process transactions involving [the relevant blocked persons] under Iran General License K-1 if the U.S. financial institution is the only U.S. person involved in the transaction," and the answer is "[y]es, provided the transaction is ordinarily incident and necessary to the maintenance or wind down of transactions involving [the relevant blocked persons]..." The FAQs referenced above stand for the same proposition, but FAQ # 807 is more direct as it relates to the "U.S. financial institution is the only U.S. person involved in the transaction" factor.