Trading in Gray Areas: How Sanctions Shape International Business

Kyle McEntee:

We're joined today by Audi Syarief, a senior associate who works with clients looking to conduct international trade. Specifically, they want to be sure that they're correctly navigating sanction and export enforcement laws. Let's start with a high-level look at your practice area. Why do these laws even exist?

Audi Syarief:

Ultimately, sanctions are a policy tool that manifests itself in restrictions on international trade. And these are tools used by governments to respond to national security threats, terrorism, nuclear proliferation, human rights abuses. So by restricting trade and financial flows to targeted countries, regimes, individuals, entities, tools like sanctions and export controls, they help exert pressure to accomplish these foreign policy goals without the need for going to war, without military conflict.

And I'm an attorney. I'm not an economist. I'm not a foreign policy expert. And so I help clients navigate the fallout from the sanctions that are imposed by decision makers. At the same time, I have to know what the foreign policy drivers are underlying the sanctions. And I have to see around the corner to understand, are these sanctions here to stay? Are they not? How are they going to change? Will they ratchet up? Will they be ratcheted down? And so that is some of the value add that I and others provide in this space.

Kyle McEntee:

So who are your typical clients?

Audi Syarief:

Our typical clients, they run the gamut. They are nonprofits. They are Fortune 500 companies. They are small companies. They are individuals. They are based in the U.S. They're based outside the U.S. And that's what makes the practice truly exciting because the problems that our clients come to us for can be as small as one business deal with a person in Burma who may or may not be sanctioned to a global online platform that can be accessed by anyone in the world at any time where there are millions of transactions that happen every month.

I'm not on a sort of four-year-long litigation that is consuming my entire life. I am advising lots and lots of clients at any given time. And that way, getting a sense of how these sanctions are being implemented and followed after they're imposed. I have this paint analogy where like sanctions are paint. You can paint entire countries black, and that means, hey, they're a no-go. Or you can paint individual companies or individuals with black paint, and you're kind of dotting them. And they're also no-go. And what makes this challenging is that the paint comes in different colors, and there's gray paint and blue paint. And it's getting more and more complex as sanctions become more and more complex because not only are there folks that you can't deal with, but there are folks that you can deal with but can't deal with in certain circumstances.

Kyle McEntee:

Is your day-to-day as varied as your client base?

Audi Syarief:

The day-to-day, I kid you not, looks different from day to day. I can give you a sense of the different tasks that I might be working on, and I think these reflect not only what a senior attorney would be working on, but someone more junior. And so I'll start with legal and fact research.

Legal research, as in looking at the regulations, or researching case law, reviewing enforcement actions to see if there's anything relevant to what you're advising your client on. When I say fact research, I really mean developing the facts of the issues that are presented to you. And that can mean learning more about the client's technology and getting on the phone with an engineer who knows the company's product in and out and can articulate to you the different steps of how the product is executed and who is involved at what steps, including when the company provides the services and when the customer makes the payment and when the banks are involved and when the compliance procedures kick in. So there's the facts review, there's legal research, and there is, frankly, policy research. I will oftentimes set Google Alerts for areas that I'm tracking.

I do a lot of work related to Burma, for example, and I have Google Alerts set to certain companies in Burma that I know are of interest to our clients. And that's reading like the Washington Post, the New York Times, that's following certain folks on Twitter. And there are people on the ground that are tracking foreign policy developments, and that can give you an edge in the advice that you provide because they're able to react quickly to new developments in the world.

Those are three buckets that are kind of consuming a lot of what I do, but that can come in the form of writing an email, writing a memo, drafting talking points, drafting a license application, drafting a due diligence report. Because you're a specialist of these different matters, you are asked to produce work in many, many different forms because your clients are differently situated. In addition to the work that I'm doing at my desk, the policy, in fact, and legal research, there's meetings with the client, meetings with government.

And I think what's cool about this practice area is that when you're a junior attorney, you're often invited to these meetings early on. If you're working with a team of two or three, you get invited to the client call. You get invited to the meeting with the Treasury Department or the State Department, and maybe at first you're taking notes, but as you get more senior, you're participating. You are asking questions. You are advocating for your client. And I've had some really interesting meetings as mid-level senior attorney that I think in other practice areas, you might have to wait years to really be involved in.

Kyle McEntee:

Can you give an example of what one of your clients might be trying to do? Are you evaluating deals that are pretty far along? Are you doing early due diligence? Are you seeking special permission, something else, all of that?

Audi Syarief:

So I see my work as falling into three different buckets. The first is advising clients on the rules and regulations and how to ensure that their operations are compliant with those rules and regulations.

The second bucket is transaction due diligence, where they are thinking about acquiring a company, for example, and want to understand whether that company is compliant or if there are potential liabilities that they may be inheriting.

And then the third bucket is my enforcement sort of criminal defense work, where you have a regulator that has sent a subpoena to a client, for example, and you're helping that client respond to the subpoena and sort of really anything in the lifecycle of a enforcement matter from getting questions from a regulator to settling a matter and negotiating a penalty.

Kyle McEntee:

So let's dig into this advisory work. And I'm imagining that these clients are mostly ongoing relationships. So something comes on their radar and they say, hey, I better talk to my lawyers. What's the kind of thing that might trigger that conversation for them?

Audi Syarief:

A lot of different things. Some of it can be proactive. Sometimes it is wanting to improve sanctions compliance procedures to make life easier for everyone at the company.

Sometimes it's like a routine sanction screening or compliance checkup where they want us to do some due diligence research about a potential counterparty or they want us to assess whether their compliance controls are consistent with what the market is doing. Other times the requests are a little bit more panicked and they're sort of after the fact, we realize that we've been engaging with a sanctioned company. What do we do next?

In either case, when we get a fact pattern from a client, we're trying to figure out what are the sanctions issues, right? And so there are lots of threshold questions we ask, but who's involved is really at the core of a lot of our sanctions work because once you know who's involved, you know what restrictions apply.

Kyle McEntee:

All right, so I'm going to explain this back to you to make sure I understand. So we've got a certain group that wants to take some kind of action and there's rules, regulations that apply to this group that is limiting what they're able to do with other parties. And those other parties can be an individual, it could be a company, it could be a country.

When someone says, hey, I want to work with one of those groups, or I think I might accidentally be working with one of those restricted groups, they're saying, do these rules apply to me? And then if they do, am I complying? And that's like in the panic, but otherwise it's having those compliance controls to make sure that they can identify any of those parties so that way they don't run into trouble. Did I get that right?

Audi Syarief:

I think you nailed it. There can be a proactive component to this where they want to do business in Iran, for example, where we try to see if there's a way to do that understanding authorizations or exemptions. And there are a lot of those when people talk about sanctions and not being able to do business in certain jurisdictions.

They don't always mention the sort of various exceptions to that, that the US government has sort of communicated to the industry, like, look, this activity is okay. Some of it, for example, if you're exporting medicines or food to Iran, there are exemptions for that. If you are providing services relating to the exchange of information or internet communications, that's something that the government carves out from the default sanctions restrictions.

So that can be a lot of fun, helping clients figure out how to move forward and start some of these really exciting initiatives and involves individuals in sanction jurisdictions that can benefit from these services where the sanctions may not actually apply. And then some of its reactive. Some of it is, look, we've had ongoing dealings or prior dealings with a sanctioned person. What is our liability risk here? And in that, we're assessing whether actually there was an authorization that applied. You may not have known it at the time, but it did apply and so you're okay. And an enforcement risk assessment, which is, well, maybe if there were a violation, what is the possibility of a regulator knocking on your door and ultimately penalizing you for that violation? And so that's where our experience and expertise really comes in handy because you don't necessarily get that from reading the laws or reading the press releases that regulators put out.

Kyle McEntee:

Or asking Chat GPT what you're allowed to do.

Audi Syarief:

Yeah, exactly. Exactly.

Kyle McEntee:

So you mentioned something about threshold questions that you ask to try to establish some baseline of facts for you to deal with. Are these questions that you are involved in asking now, like through client interaction, or is it something the partners are doing?

Audi Syarief:

Everyone I think is involved in that process of triaging and asking threshold questions and figuring out whether there's a sanctions issue. From a process standpoint, we get asked to join a call, we get an email. And I think instantly, me, the partner, other associates, we are talking through what some of the issues are, what questions we have, and then asking the client to get some clarity and then going from there.

Kyle McEntee:

It seems like a puzzle, right? Where there's all these parties involved and sometimes rules apply, sometimes they don't and you got to connect the dots.

Audi Syarief:

Absolutely. And that's what makes this part of the job a lot of fun, to get these fact patterns. And some of them are variations on stuff you've seen, and some of them are brand new, challenging fact patterns or puzzles where you're trying to put your Sherlock Holmes hat on, get the information you need and not necessarily like trying to solve the puzzle or find the bad guy, because a lot of this is in a gray area where there are different ways of interpreting the law as those laws apply to a particular scenario. And so it's mapping that out for the client, mapping out what the risks are and what the different interpretations are.

Kyle McEntee:

Can you give an example of a common gray area? You talked about a food exemption, medicine, communications. Are there ambiguities there, like what counts as food?

Audi Syarief:

There certainly are ambiguities. Not everything is sort of well-defined in the regulations. For example, there's a statutory exemption for activities that are incident to the exchange of informational materials.

What are informational materials? There's a list that the exemption provides and includes artwork and CD-ROMs and films and that speaks to how old that exemption is. It's from the 90s and we've moved beyond CD-ROMs. And so when you're applying that exemption to today's world where we've got instantaneous communication and information is packaged in lots of different ways, there's ambiguity as to what might be considered a covered information material and what is not.

Kyle McEntee:

How do you navigate that ambiguity with your clients who are trying to get the green light to take some action?

Audi Syarief:

I mean, just like any other lawyer, we try to see what the law says, what the plain meaning of that law is. Has there been agency interpretations of that law, any guidance? The Treasury Department's Office of Foreign Assets Control is the key regulator for U.S. sanctions, and they put out these frequently asked questions that will often be the first thing that we turn to and there are other guidance documents that are published. We look at case law. There isn't a lot of it. A lot of what we do isn't covered in judicial opinions, which makes things even more challenging when there's a gray area.

But in some ways that actually makes the job really interesting because you can sort of think through what are some creative interpretations, defensible but creative interpretations of the law and sort of figure out like what interpretations are most appealing and most consistent with your client's compliance approach. But even after you do all of that, oftentimes there's still gray left over. And so at that point, it's mapping out the interpretive risk for your client.

Is this an area where if you get it wrong, there are potentially massive penalties on the other side? Because what you're doing is in the crosshairs of the enforcers.

Kyle McEntee:

Okay, let's talk through an example. There's been some recent changes to Syrian sanctions. This provides a good example to explain how ambiguity can impact your clients. So from my understanding, there have been sanctions lifted on the Syrian government but not necessarily particular groups of people within Syria. How is that affecting the conversations you're having with a client of yours that wants to go do some business in Syria?

Audi Syarief:

So yes, sanctions on Syria have been lifted. It's no longer a country subject to what we would call comprehensive sanctions. It's no longer a no-go region if you're a U.S. company or a U.S. individual. And so you can do business there. The challenge, though, is ensuring that you're not dealing with any of the companies or individuals or groups that are still sanctioned. Even though the country is not off limits, there are individual companies or individuals that may be still off limits. And so figuring out whether you are dealing with anyone that is sanctioned, and the way you would do that is to look at the sanctions-related lists. There's a list maintained by the Treasury Department that identifies those sanctioned parties. But there's sort of an added complication to this, which is the government is run primarily by members of a group called Al-Nusra Front, or HTS for short.

And that group is still subject to sanctions, but the Syrian government itself is not. And in lifting the Syrian sanctions, the U.S. government, President Trump has made clear, you can deal with the Syrian government. But there may be instances where if you're dealing with a Syrian government official, you want to ensure that you're dealing with them in their capacity as a government official wearing their government official hat and not dealing with them when they're wearing their HTS sanctioned group hat.

And so when sanctions are lifted, it's always a challenge because it's not always clear what is permitted and what's not. And that's where attorneys like me can really help disentangle the issues and flag some of the risks.

Kyle McEntee:

I think I see three relatively clear areas of ambiguity. One is what do the sanctions or lack of sanctions actually mean? The second is when you're talking about who the sanctions apply to, there's ambiguity on whether someone even represents that entity or not.

And that's kind of out of your control and really depends on what the counterparty is saying to you. And then you got to do your due diligence on whether what they're saying is true or not. But then you have this like greater ambiguity that relates to U.S. foreign policy. Namely, the sanctions are policy tools to compel some behavior. And that can change because ultimately that's a matter of politics and politics on the ground in the U.S. are consistently changing. And so it strikes me that predictability is kind of the most important thing for businesses.

And then assessing the risk of things changing out from under you as a business can be very expensive if it goes wrong. Does that mean you're paying a lot of attention to U.S. foreign policy and trying to predict where it's going?

Audi Syarief:

A hundred percent. That's what's interesting about my job is that we really do live in the intersection of law and policy. And ultimately, the way that these laws are going to be interpreted and enforced and implemented is going to depend on the policy priorities of the current administration.

For example, I've talked about how to sort of move forward when dealing with a restricted group under a standing exemption or authorization. Well, if one doesn't exist, you can go ask the Treasury Department for one. You can ask them for a license to do business with the Venezuelan government or in Iran.

And when you're asking the government to give you that license, you're making policy arguments. You're making the case for why it is in the U.S. government's interest to allow you to interact with the Russian government in some way. And so that is an example of where our work is clearly focused on the policy. And we work with lobbyists. We work with the client to develop those arguments. And it can be quite fun.

You know, as a junior attorney supporting these license applications, I got to go to the State Department and NSA and the Commerce Department and really try to build support to get one of these licenses. And, you know, I find that aspect of the work really interesting because it's not all the law wins the day. It's you're trying to make the case for why you should get an exception to the law. And that can involve lots of different players than the usual enforcers and regulators of the sanctions.

Kyle McEntee:

How do you manage your client's expectations given the complexity?

Audi Syarief:

I think that's part of the job. It's something you get better at as you continue to practice. But you want to be careful not to guarantee results. And it's something that we are very clear with our clients that look, if you can ask the Treasury Department for a license, but not only are you not guaranteed a positive result, you're not even guaranteed a response to the license application within a certain amount of time. And so you might have applications that sit for months, even years, which can be frustrating to some clients. But if you do manage expectations, then you and the client are commiserating as opposed to the client being like, hey, what's up? Why is this holding up our billion dollar deal?

Kyle McEntee:

You don't have people saying to you, this is why I pay you, get this done.

Audi Syarief:

You get that sometimes. You work with all sorts of different personality types. I find that if you're clear in what is sort of outside of your control, that clients are understanding.

I will say it does help that oftentimes sanctions and export controls are like front page news. And so clients are not shocked to hear that getting a license to sell military equipment to China is not something that the U.S. government is looking to do or sell semiconductor related equipment or dealing with the Russian government. And so clients are often understanding that there are policies and politics that are informing some of these decisions, especially with respect to getting a license from the government.

Kyle McEntee:

So you do a lot of collaborative work, it sounds like, between you and your clients talking to different agencies, trying to understand policy goals of the administration, of different people within an administration. What does collaboration look like inside of your firm with the transactional lawyers, the people who are putting together these deals with your client?

Audi Syarief:

It's very collaborative. In that part of my work, I get the most exposure to the different parts of the firm. And it's the deal team that is driving things, whether it's a loan or an acquisition or a merger. And they are turning to specialists like myself to advise on the trade-related risks. And what the collaboration looks like day to day is we're there at every step of the process, asking our diligence questions, providing our assessments to the client, different forums, talking to both the potential counterparty and also talking to our client. And we're trying to achieve something. And it can be quite gratifying when, as a group, we've been able to kind of get a deal through. And so, yeah, I'm constantly talking to deal folks, picking up the phone. And I think there's sort of education on both sides of things, right? Like sometimes I need to understand the structure of a deal. And sometimes they need to understand why something I'm flagging is something that's worth flagging for the client.

Kyle McEntee:

Yeah, you can very easily be seen as a blocker, right? You're the guy who's making it that this deal can't get done.

Audi Syarief:

Absolutely. Absolutely. Subject matter experts on deals can be seen as blockers, as folks that are trying to hold up the deal, that think that their area of the law is the most important and should be paid attention to at all times.

I think what's important and what I've learned in years of practice is that you want to be commercially friendly to understand what the company is trying to accomplish in the transaction, where the potential risks that you are flagging sit within the overall risk profile. And so there's this concept of materiality that was important for anyone doing due diligence to understand, which is, is this material to the deal? Is this something that could actually hold up the deal or actually cause the client to think twice about moving forward?

And sometimes sanctions issues are a deal breaker. And I've been on matters where they have been a deal breaker, where the client has actually walked away. And it's important to understand where those deal breakers exist and where they don't.

And the matter that I'm thinking of, it turned out there was a systematic issue where there may have been unauthorized shipments to Russia, multiple of them. And it's something where we had to opine on not only like the nature of the violations and sort of the number of the violations, but like quantum, how much money are we talking about? If this company were to be hit with a penalty, there may be some things to fix after the deal closes.

But you want to be able to frame your assessment with the context of, hey, this is something that we should fix. Or hey, this is something that could lead to a potential penalty, but it's not something that should stop the deal or anything to that effect.

Kyle McEntee:

I think it's also really important to remember, like you're not the decision maker. You are providing the risk profile of the deal or at least one component of the risk profile. And then it's just on your client to decide, is the juice worth the squeeze on the deal overall?

Audi Syarief:

A hundred percent, a hundred percent. Yeah. You are providing your assessment based on your own experience. And ultimately it's the client that makes the decision. I couldn't have put it better than how you described it, Kyle. That's right.

Kyle McEntee:

So how did you end up falling into this work? It's enormously complex. It's really interesting, at least to me, I think, and to you, but it doesn't cross everyone's radar.

Audi Syarief:

So at my firm, we have a free market system where you get to try out lots of different practice areas. And I just happened to sit next to an attorney that was coming out of the treasury department and was working on a treatise on sanctions laws. He sort of enlisted me to help draft a chapter of that treatise and do research for it.

That was my gateway into the practice. And then I started taking on small matters at first. And early on at the firm, I maybe did sanctions related work 10% of the time. 90% of my time was doing what color criminal defense or government contracts or commercial litigation. And as my time at the firm continued, I shifted my focus to trade work, did more sanctions, started doing more export controls work. And then ended up doing it full time. And so it's been like a gradual evolution as opposed to being hired into a group that does international trade.