Creative Backlash to US Sanctions

January 30, 2020 4 minute read

US sanctions are seeing a creative backlash, Japan issues a fresh warrant for Ghosn and the German x North Korea relationship no-one knew about is under attack.

We share our financial regulatory highlights from the week of 27 January 2020.

New Warrant for Ghosn

Following on from his daredevil escape and press conference, Carlos Ghosn has had a fresh warrant issued for his arrest. It’s a move that’s sure to surprise no-one as fleeing bail is looked on poorly by most justice departments.

The warrant has been issued specifically in relation to Ghosn’s action to escape Japan. What’s interesting is it’s revealed more details about how he actually managed to leave the country, something that’s been a source of much speculation.

Warrants were issued for Michael Taylor, 59, a former U.S. Green Beret and George-Antoine Zayek, 60, a former Christian militia fighter and Peter Maxwell Taylor, 26 with no revealed militaristic background, for transporting Ghosn to a Tokyo hotel and from there to an airport and private plane.

Ghosn maintains his innocence and has stated that he only left Japan as he would not get a fair trial there.

Creative Backlash to US Sanctions

US sanctions have seen companies get creative in a bid to avoid the brunt of them. Swedish oil refiner, Nynas AB has planned restructuring in order to remove itself from the path of sanctions.

Nynas AB is co-owned by Venezuelan state-owned Petróleos de Venezuela SA (PdVSA) and Finnish company Neste Oyj. PdVSA has a slight majority stake in Swedish oil refiner and is on the US sanctions list.

Sanctions have become a weapon of first resort by the US administration and they’re being used against Venezuela as the US doesn’t recognize the regime’s legitimacy and has branded President Nicolas Maduro as corrupt.

This has given Nynas room to blame the sanctions for its financial issues, not being able to access basic banking services despite having received an exemption from the U.S. Treasury in order for the company to use those exact services. Nynas has been unable to make or receive payments or receive credit at various times, the restructure would see the company remove itself from the sanctioned entity that has ownership but is not a plan that they intend to use without explicit confirmation from the U.S. Treasury that it will be free of sanctions as a result.

The oil refiner’s problems highlight the issue of wielding sanctions so readily. Despite receiving exemptions from OFAC directly, which sits within the U.S. Treasury, sanctions are proving to be an imprecise tool. Even when exemptions are granted, FIs would evidently prefer to de-risk a client than appear to be in breach of a sanction.

OFAC has not made any comments regarding its sanctions. But it goes to show how without bringing in a more precise form of sanction and without explicit language detailing how banks and other FIs can work with sanction-adjacent entities there are bound to be further parties who are unfairly caught in the wake of the damage.

If this persists we may see steps taken to overturn dollar financial hegemony happening sooner rather than later.

Germany x North Korea

A previously unknown relationship between Germany and North Korea has been revealed. This week a Berlin court ruled that a hostel on the ground of the North Korean embassy must shut down as its rent payments to Pyongyang constituted a breach of UN sanctions.

City Hostel Berlin argued that it ceased paying rent to North Korea in 2017 but the courts found that the Turkish-owned hostel was still in breach of an EU directive that forbids the use of North Korean territory for anything other than diplomatic purposes.

The hostel was popular with school groups given that the rooms cost less than €13 per night. However, it’s worth noting that this is not the only business that operates on North Korean soil. It’s believed that many of Pyongyang’s embassies globally are being used to earn money that flows into North Korea. It’s expected that a portion of that money is used for the North Korean nuclear program, making it a rare case study of how nuclear proliferation financing operates in the real world.

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