1. Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. © 2014 Baker & McKenzie LLP MASSACHUSETTS EXPORT CENTER EXPORT EXPO Best Practices for Sanctions Compliance December 9, 2014 Sylwia A. Lis, Partner Lise S. Test, Associate Baker & McKenzie LLP Washington, DC

2. © 2014 Baker & McKenzie LLP Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) Responsible for administration and enforcement of various financial and trade sanctions programs Department of Commerce’s Bureau of Industry and Security (“BIS”) Responsible for administration and enforcement of the Export Administration Regulations (“EAR”) (controls on “dual use” and other commercial items) Department of State’s Directorate of Defense Trade Controls (“DDTC”) Responsible for administration and enforcement of the International Traffic in Arms Regulations (“ITAR”) (controls on defense articles, services, and brokering)  Note: These rules may overlap Key U.S. Agencies with Sanctions Jurisdiction

3. © 2014 Baker & McKenzie LLP U.S. Trade Sanctions ‒ Targets of U.S. sanctions:  Sanctioned countries  Sanctioned country governments  Including parties owned or controlled, or acting on behalf of governments  Sanctioned persons (located worldwide) 3

4. © 2014 Baker & McKenzie LLP U.S. Trade Sanctions (con’t) Limited Sanctions North Korea (limited OFAC sanctions) –Nearly total export/reexport embargo under the EAR Burma (most sanctions lifted in 2012) Russia (targeted OFAC sanctions and export/reexport controls under the EAR) List-Based Sanctions (SDNs) Includes parties designated under various U.S. sanctions programs, including those related to: –W. Balkans, Belarus, Central African Republic, Cote d’Ivoire, DR Congo, Iraq, Lebanon, Liberia, Libya, Russia, Somalia, South Sudan, Ukraine, Yemen, Zimbabwe –Anti-terrorism, narcotics trafficking Comprehensive Sanctions (1) ‒ Cuba and Iran  Apply to U.S. persons and U.S. owned/controlled entities  Full embargo Comprehensive Sanctions (2) ‒ Sudan and Syria  Apply primarily to U.S. persons  Full embargo 4

5. © 2014 Baker & McKenzie LLP 5 U.S. Trade Sanctions: Basic Prohibitions ‒ Target either countries or restricted persons (without reference to a country)  If country-based program, restrictions apply to any dealings related to the country or to the government of the country (including any state- owned or –controlled enterprises, wherever located)  “Specially Designated Nationals or Other Blocked Persons” are features of both country-based and restricted person programs ‒ Cover a wide range of activities, not limited to export/import ‒ Prohibit nearly all forms of U.S. Person involvement in transactions, direct or indirect ‒ Prohibit U.S. Person “facilitation” of transactions by non-U.S. persons that are prohibited as to U.S. Persons

6. © 2014 Baker & McKenzie LLP 6 Common Trade Sanctions Compliance Issues: ‒ Failure to identify indirect business activities with sanctioned countries ‒ Overlooking broad extraterritorial reach of sanctions ‒ Inadequate screening against the SDN List, other restricted parties lists ‒ Application of export and reexport embargoes for all U.S.-origin products to certain destinations ‒ Failure to address trade sanctions compliance in transfers of IP rights ‒ Failure to conduct trade sanctions compliance due diligence in M&A transactions

7. © 2014 Baker & McKenzie LLP 7 Sanctions Compliance Issues: Failure to identify indirect business activities with sanctioned countries Risk Areas: ‒ Transactions by non-U.S. affiliates (e.g., U.S. approvals; technical, IT, or administrative support; guarantees; strategizing; negotiations) ‒ Transactions with distributors (diversion risk) Best Compliance Practices: ‒ Extend U.S. trade sanctions program to non-U.S. affiliates ‒ Understand functions performed by U.S. Person entities or employees ‒ Conduct appropriate due diligence of distributors ‒ Use meaningful contract compliance clauses in distribution agreements

8. © 2014 Baker & McKenzie LLP 8 Sanctions Compliance Issues: Inadequate screening against the SDN List, other restricted parties lists Risk Areas: ‒ Screening does not capture all relevant parties ‒ Screening fails to capture owners ‒ Screening not performed in real time Best Compliance Practices: ‒ Implement screening program reflecting company’s business and risk profiles ‒ Screen at a minimum all information received in the ordinary course of business ‒ Implement enhanced screening procedures to address specific risks

9. © 2014 Baker & McKenzie LLP 9 Sanctions Compliance Issues: Failure to address trade sanctions compliance in transfers of IP rights Risk Areas: ‒ Unauthorized assignments and licensing arrangements Best Compliance Practices: ‒ Identify sanctioned country nexus in transfers, assignments, and licensing of IP rights ‒ Exclude sanctioned countries/sanctioned country IP rights from transfer, assignment, or licensing arrangements or obtain the required U.S. government authorizations

10. © 2014 Baker & McKenzie LLP 10 Sanctions Compliance Issues: Failure to conduct trade sanctions compliance due diligence in M&A transactions Risk Areas: ‒ Acquiring non-U.S. company with activities in sanctioned countries ‒ Inadequate pre-acquisition due diligence results in continued violations post- acquisition ‒ Successor liability Best Compliance Practices: ‒ Incorporate trade sanctions due diligence as part of M&A due diligence early in the transaction cycle ‒ In case of sanctioned country activities, identify those that should be terminated prior to acquisition or excluded ‒ Identify potential pre-acquisition violations and consider options (e.g., voluntary disclosure, contractual provisions re indemnity and/or escrow) ‒ Ensure compliance on Day One post-acquisition (e.g., integration of compliance programs, training, etc.)

11. © 2014 Baker & McKenzie LLP 11 Questions? Contact Information Sylwia A. Lis Partner Tel: (202) 835-6147 Email: sylwia.lis@bakermckenzie.comsylwia.lis@bakermckenzie.com Lise S. Test Associate Tel: (202) 835-6131 Email: lise.test@bakermckenzie.comlise.test@bakermckenzie.com