Are Your Software Transfers Compliant with U.S. Economic Sanctions?

by Miller Canfield
Contact

The international nature of information technology has led to the globalization of software. Globalization can have unintended negative consequences on an organization, if a company’s software should find its way to a country, foreign government, or specially designated national subject to U.S. economic sanctions. These unintended negative consequences may arise whether a company’s software is proprietary or developed as a product.

The U.S. government imposes economic sanctions against countries, foreign governments and specially designated nationals in furtherance of U.S. foreign policy and national security objectives. Congress has the authority to pass Economic Sanction Regulations, while the U.S. Treasury Department’s Office of Foreign Asset Control (“OFAC”) issues and administers these laws. OFAC can impose civil penalties up to $250,000 (USD) or twice the amount of the transaction per violation.

Currently the following countries are subject to OFAC sanctions: Balkans, Belarus, Burma, Cote d'Ivoire (Ivory Coast), Cuba, Democratic Republic of the Congo, Iran, Iraq, Lebanon, Libya, North Korea, Somalia, Sudan, Syria, and Zimbabwe.

Software Transfer Types. Software regulation under OFAC may arise through multiple types of software transfers: 

  • Software delivered as a physical good on a CD-ROM;
  • Software downloaded by electronic transmission to the end-user;
  • Software provided online in an environment hosted by the vendor; and,
  • Software provided as a customized service, tailored to fit business objectives.

Software transfers may occur between software retailers, custom software developers, information technology service providers and their customers, as well as U.S. companies that develop proprietary software for use by their non-U.S. affiliates. 

Location Matters. OFAC regulates software differently depending on the applicable country specific regulation, which results in different OFAC treatment for different software transfers to different country destinations.

The specific country sanctions dictate specific restrictions. For example, the Libya Sanction Regulations permit the provision of tangible goods or the conveyance of services, including Software as a Service, to individuals, except as narrowly defined in Executive Order 13566, blocking broad transfers to senior officials for the Government of Libya and the Central Bank of Libya. To contrast, the Iranian Transactions Sanction Regulations (“ITSR”) prohibit the release of technology or software by a U.S. person simply “with knowledge or reason to know the technology is intended for Iran or the Government of Iran.” 

Similar to the ITSR, the Cuban Asset Control Regulations Sanctions (“CACR”) are vastly prohibitive, precluding a property transfer to Cuba or a Cuban national by any person or business entity subject to U.S. jurisdiction, either directly or through a third country. The “property” subject to the CACR, includes “licenses affecting patents, trademarks and copyrights,” “services” as well as any other property “tangible or intangible.” Blocked parties under the CACR, include any person domiciled in, or a permanent resident of, Cuba, as well as any partnership, association, or corporation organized under the laws of Cuba. Those persons or business entities subject to U.S. jurisdiction are further blocked from dealing in any property in which the Cuban Government has any interest.  

The Syrian Sanctions Regulations (“SSR”) block the conveyance of goods, services, software and technology to persons in Syria and those affiliated with its Government.  The SSR’s general information conveyance exemption permits the transfer of information including CD-ROMs, but it does not permit the transfer of supporting information incident to software exportation, if that software is subject to the Export Administration Regulations (“EAR”). Thus, even ancillary supporting information regarding EAR-regulated software remains blocked.

Screening Software End-Users.  Companies can improve their compliance with OFAC Economic Sanctions Regulations by adopting an effective end-user screening program.  An effective end-user screening program helps a company providing software to confirm that the software or Software-as-a-Service will not be provided to an embargoed country, specially designated national, blocked person, or ultimately for the benefit of the government of an embargoed country regulated by OFAC.

Finally, those subject to U.S. jurisdiction receiving payments from OFAC-designated countries should vigilantly confirm that OFAC permits those payments without a governmental license. If the underlying payment originates from a specially designated national or blocked party, then costly complications, including an OFAC violation, may arise, including, again, a maximum civil penalty of the greater of $250,000 or an amount that is twice the amount of the transaction that is the basis of the violation, as well as possible criminal penalties for willful violations of up to $1 million and 20 years in prison.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Miller Canfield | Attorney Advertising

Written by:

Miller Canfield
Contact
more
less

Miller Canfield on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.