OFAC Issues Guidance on Definition of 'Maintenance' in COSCO General License

The Treasury’s Office of Foreign Assets Control issued guidance on the definition of “maintenance” used in General License K, which allows certain transactions with COSCO Shipping Tanker (Dalian) Co. The guidance was released along with two new Frequently Asked Questions and two updated FAQs, according to a Nov. 27 notice.

Newly issued FAQ 806 explains which activities are considered “maintenance” under General License K, which authorizes certain transactions with the COSCO subsidiary through Dec. 21 despite U.S. sanctions (see 1910240015). In the license, “maintenance” refers to “all transactions ordinarily incident to the continuity of operations by U.S. persons involving” the subsidiary or any entities in which it has a 50 percent or more ownership stake, OFAC said. The term also applies to “transactions and activities ordinarily incident to performing under a contract or agreement” that was in effect before Sept. 25. The FAQ also specifies that the transactions are authorized “provided that the level of performance is consistent with the terms of the general license and consistent with past practices that existed between the party” and the COSCO subsidiary.

The term “maintenance” also includes all transactions relating to “obtaining goods or services from, or providing goods or services to” the subsidiary. OFAC said it will “consider the transaction history between the party, or any intermediary party,” when it determines whether “activity is consistent with past practices.” The definition for maintenance also authorizes entering into contracts beyond the expiration of the license where “any performance … is contingent on such performance either not being prohibited or being authorized by OFAC.”

OFAC said an example of authorized transactions and activities could include issuing or accepting purchase orders, “including sales of fuel,” and making or receiving payments, including “undertaking new charters or voyages,” that were “initiated” after Sept. 25 but were part of contracts in effect prior to Sept. 25. Transactions “not within the framework of a preexisting agreement” may be considered “maintenance” if the activity “is consistent with the transaction history” between the parties, OFAC said. The general license does not authorize transactions “where there was no preexisting relationship between” the parties or where “the contemplated activity exceeds past practices that existed between” the parties, OFAC said. “Stockpiling inventory, for example, would not be authorized unless transaction history indicates that the scope and extent of maintaining inventory is consistent with past practice.”

In newly issued FAQ 807, OFAC specified that financial institutions can complete transactions involving COSCO Shipping Tanker (Dalian) Co. using General License K if the U.S. financial institution is the “only U.S. person involved in the transaction.” OFAC said those transactions are authorized if they are “ordinarily incident and necessary to the maintenance or wind down of transactions.” The agency added that, “absent knowledge or a reason to know that the transaction is not authorized” by General License K, OFAC does not expect the U.S. financial institution “to conduct additional due diligence beyond the information collected in the ordinary course” of processing the transactions. “In the event of a potential violation, OFAC would consider the totality of the facts and circumstances in determining the appropriate administrative enforcement response, if any,” OFAC said.

Newly issued FAQ 805 specifies that U.S. people and companies are “generally not exposed to sanctions” for providing goods to a non-Iranian person sanctioned under section three of a 2018 Iran executive order. Section three details sanctions relating to Iran’s auto sector and “Trade in Iranian Petroleum, Petroleum Products, and Petrochemical Products.” While those actions are generally not sanctionable, OFAC is advising “non-U.S. persons” to ensure that the trade in goods do not involve banned transactions by U.S. people, the “knowing provision of significant support to an Iranian person” or to an entry on the SDN List, or knowingly facilitating goods to a person associated with Iran’s support for terrorism or sanctioned Iranian entities.

In a separate updated FAQ, OFAC provided guidance on which insurance, reinsurance or underwriting activities may be subject to sanctions under the Iran Freedom and Counter-Proliferation Act. The FAQ specifies that knowingly providing insurance to Iranian people or entities on the Specially Designated Nationals List or who support Iran’s weapons proliferation programs may subject the provider to U.S. sanctions. However, providing insurance, reinsurance or underwriting services to non-Iranian persons on the SDN List “is generally not sanctionable” if the services are not “to or for” an Iranian person “or for any person designated in connection with Iran’s support for international terrorism,” OFAC said.

In another updated FAQ, OFAC specified that sanctions on COSCO subsidiaries, issued in September (see 1909250050), do not apply to the subsidiary’s ultimate parent. The FAQ includes a mention of General License K, which was issued in October and which authorizes certain transactions involving COSCO Shipping Tanker (Dalian) Co.