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Trade Compliance Flash: Executive Order Targets Gold Mining in Nicaragua and Lays Groundwork for Expanded Sanctions and Trade Restrictions

International Alert

On October 24, 2022, the Biden administration issued a new executive order (E.O.) that lays groundwork for significantly expanded sanctions, export controls, import restrictions, and investment restrictions that could be imposed on Nicaragua (October 24 E.O.). Most immediately, the sanctions imposed under the October 24 E.O. target Nicaragua's gold mining sector and added the General Directorate of Mines (DGM), an office within Nicaragua's Ministry of Energy and Mines, and Reinaldo Gregorio Lenin Cena Juarez, a close confidante of Nicaraguan President Daniel Ortega, to the U.S. Department of the Treasury's Office of Foreign Assets Control's (OFAC) Specially Designated Nationals and Blocked Persons List (SDN List), meaning they are now subject to blocking sanctions. In tandem with the announcement of the new sanctions, OFAC issued General License 4 (GL 4), which authorizes U.S. persons to engage "transactions ordinarily incident and necessary to the wind down of any transaction" involving DGM or any entity in which DGM owns, directly or indirectly, a 50 percent or greater interest through 12:01 a.m. eastern standard time, November 23, 2022. 

Background

E.O. 13851, issued in November 2018, initially authorized blocking sanctions to be imposed on persons involved in certain "Targeted Activities."

  • Serious human rights abuses 
  • Undermining democratic processes or institutions in Nicaragua 
  • Actions or policies that threaten the peace, security, or stability of Nicaragua 
  • Transactions involving deceptive practices or corruption related to the Nicaraguan government

The original E.O. 13851 also authorized sanctions to be imposed on "Targeted Persons." 

  • Nicaraguan government officials or persons who served as an official of the Nicaraguan government at any time on or after January 10, 2007
  • Leaders or officials of entities that has, or whose members have, engaged in the Targeted Activities 
  • Persons determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of, the Targeted Activities or persons sanctioned under E.O. 13581. 

Expanded Sanctions and Trade Restrictions Under the October 24 E.O. 

The October 24 E.O. expands the lists of the Targeted Activities and Targeted Persons under E.O. 13581, as well as the types of trade and investment restrictions that the U.S. government can impose on Nicaragua. Specifically, as a result of the amendments enacted under the October 24 E.O., E.O. 13581's Targeted Activities will now include persons determined to be involved in "the arrest or prosecution of a person, including an individual or media outlet disseminating information to the public, primarily because of the exercise by such person of the freedom of expression, including for members of the press, or assembly."1 Additionally, E.O. 13581's Targeted Persons will now include persons determined "to operate or have operated in the gold sector of the Nicaraguan economy or in any other sector of the Nicaraguan economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State."2 At this stage, it remains to be seen how aggressively these new authorizations will be utilized to add additional persons and entities to the SDN List, but the fact that the bases for imposing sanctions are increasing is noteworthy. 

The other amendments in the October 24 E.O. authorize restrictions on certain imports to, exports from, and investments in Nicaragua, although these specific restrictions require further determinations by the Secretaries of State, Treasury, and Commerce before being enacted. While these provisions effectively create the infrastructure for future potential restrictions, they do not enact any particular restrictions on their own just yet. Specifically, the E.O. 13581, as amended by the October 24 E.O. now prohibits:

  • "the importation into the United States of any products of Nicaraguan origin as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Commerce."
  • "the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any items as may be determined by the Secretary of Commerce, in consultation with the Secretary of State and the Secretary of the Treasury, to any person located in Nicaragua."
  • "new investment in any sector of the Nicaraguan economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, by a United States person, wherever located."3  

As is typical for these kinds of executive orders, E.O. 13581, as amended, also prohibits "any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this subsection if performed by a United States person or within the United States."

Notably, on the same day the October 24 E.O. was issued, the U.S. Department of State took action under a separate presidential proclamation to impose visa restrictions on over 500 Nicaraguan individuals and their family members, which, according to a statement issued by Secretary of State Antony Blinken, included "members of Nicaraguan security services, such as the Nicaraguan National Police, penitentiary officials, judges, prosecutors, higher education officials, and non-government actors who enable regime repression and corruption as well as their family members." Commenting on the action and the October 24 E.O., Secretary of State Antony Blinken stated: 

The regime's accelerating actions this year closing space for civil society, increasing its security cooperation with Russia, and silencing independent voices despite broad international calls for dialogue and moderation compel the United States to act. Governments that deny their people's basic rights or threaten the security interests of their neighbors should not expect that their political, economic, and trade relationships will remain unaffected.

The Secretary of State's comments suggest that both domestic crackdowns on political dissenters and opposition parties by the Ortega-Murillo regime as well as international geopolitical factors involving the Russian Federation are driving the Biden administration's various actions on Nicaragua. 

Key Takeaways

  • Based on this significant ramping up of the potential sanctions risk for Nicaragua, companies should identify their business partners and fully understand the scope of their operations and activities in Nicaragua, as well as remain vigilant for new sanctions announcements or developments that may increase their sanctions risks. This is particularly important because the October 24 E.O. establishes an infrastructure for the U.S. government to impose any new restrictions and sanctions very rapidly, and violations of those restrictions and sanctions can lead to significant civil and, in some cases, criminal penalties.
  • Given the variety of the measures announced under the October 24 E.O, the subsequent presidential proclamation, and Secretary Blinken's statement, companies with business partners in Nicaragua should pay careful attention to the sectors their partners are operating in, as certain industries, particularly those with ties to the Ortega regime, are likely the most at-risk of being subject to trade restrictions or sanctions.
  • In addition to evaluating the potential compliance and trade risks, companies with operations, interests, business partners, or interest in doing business in Nicaragua should consider the potential impact of the expanded U.S. sanctions on their current or future international business transactions. 
  • Given the extraterritorial effect of U.S. sanctions, should additional U.S. sanctions and other trade restrictions on Nicaragua be enacted, both sanctioned parties and their business partners may face a minefield of contractual risks, including breach of contract disputes, some of which will be resolved through international commercial arbitration. Assessing the potential impact of the October 24 E.O. on their current and future transactions in Nicaragua is essential. Parties should carefully review their contracts with their Nicaraguan business partners — in particular, dispute resolution clauses and other key clauses related to their rights and obligations, including inter alia, force majeure, frustration, and specific performance — to prepare for and mitigate potential commercial disputes associated with the sanctions. Parties should also carefully examine their contracts to determine if they contain a "sanctions clause" expressly referring to compliance with U.S. sanctions legislation. 
  • Companies with interests in Nicaragua should watch for significant political or geopolitical events in Nicaragua that could be deemed to harm U.S. foreign policy interests, as those will likely trigger the next found of sanctions or other trade restrictions. With more than 20 treaties with investment provisions and bilateral investment treaties currently in force between Nicaragua and other countries (including Chile, South Korea, France, Spain, and the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) signatories) foreign investors in Nicaragua should monitor all measures impacting their investments in Nicaragua. Nicaragua has been a member of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) since 1995 and is a signatory of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral awards (the NY Convention). Nicaragua's alternative Dispute Resolution (ADR) framework is based on the United Nations Commission on International Trade Law (UNCITRAL) model law.

For more information, we recommend listening to or watching our latest EMBARGOED! podcast discussing this new executive order. 

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We are continuing to closely monitor developments in this space. Our Economic Sanctions and Export Controls and International Arbitration teams assist clients in assessing the potential risks on trade, compliance, and cross border disputes involving Nicaragua and Nicaraguan entities, as the intersection in these areas can create particular challenges for parties with interests in this Latin American country. For more information, please contact:

Alejandra Montenegro Almonte, aalmonte@milchev.com, 202-626-5864

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Margarita R. Sánchez, msanchez@milchev.com, 202-626-5808

Manuel Levitt, mlevitt@milchev.com, 202-626-5921

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1October 24 E.O. Sec. 2 (adding a new subsection 1(a)(i)(E) to E.O. 13581). 
2October 24 E.O. Sec. 3 (replacing E.O. 13581's subsections 1(a)(iv)(B) through 1(a)(v)). 
3October 24 E.O. Sec. 4. (replacing subsection 1(b) of E.O. 13581) (emphasis added). 



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