12 January 2001
Source: http://www.access.gpo.gov/su_docs/aces/fr-cont.html

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[Federal Register: January 12, 2001 (Volume 66, Number 9)]
[Rules and Regulations]
[Page 3303-3311]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr12ja01-19]

[[Page 3303]]

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Part VIII

Department of the Treasury

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Office of Foreign Assets Control

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31 CFR Part 540

Highly Enriched Uranium (HEU) Agreement Assets Control Regulation;
Interim Rule

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DEPARTMENT OF THE TREASURY

Office of Foreign Assets Control

31 CFR Part 540


Highly Enriched Uranium (HEU) Agreement Assets Control
Regulations

AGENCY: Office of Foreign Assets Control, Treasury.

ACTION: Interim rule.

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SUMMARY: The Office of Foreign Assets Control of the U.S. Department of
the Treasury is issuing regulations to implement the President's
declaration in Executive Order 13159 of June 21, 2000 of a national
emergency and order blocking certain property and interests in property
of the Government of the Russian Federation that are directly related
to the implementation of the Agreement Between the Government of the
United States of America and the Government of the Russian Federation
Concerning the Disposition of Highly Enriched Uranium Extracted from
Nuclear Weapons, dated February 18, 1993, and related contracts and
agreements.

DATES: Effective date: January 12, 2001.
    Comments: Written comments must be received no later than February
12, 2001. Comments may be submitted either via regular mail to the
attention of David W. Mills, Chief, Policy Planning and Program
Management Division, rm. 2176 Main Treasury Annex, 1500 Pennsylvania
Ave., NW., Washington, DC 20220 or via OFAC's website (http://
www.treas.gov/ofac).

FOR FURTHER INFORMATION CONTACT: Dennis P. Wood, Chief of Compliance
Programs, tel.: 202/622-2490, Steve I. Pinter, Acting Chief of
Licensing, tel.: 202/622-2480, or Barbara C. Hammerle, Acting Chief
Counsel, tel.: 202/622-2410, Office of Foreign Assets Control,
Department of the Treasury, Washington, DC 20220.

SUPPLEMENTARY INFORMATION:

Electronic Availability

    This document is available as an electronic file on The Federal
Bulletin Board the day of publication in the Federal Register. By
modem, dial 202/512-1387 and type ``/GO FAC,'' or call 202/512-1530 for
disk or paper copies. This file is available for downloading without
charge in ASCII and Adobe Acrobat readable (*.PDF) formats.
For Internet access, the address for use with the World Wide Web (Home
Page), Telnet, or FTP protocol is: fedbbs.access.gpo.gov. This document
and additional information concerning the programs of the Office of
Foreign Assets Control are available for downloading from the Office's
Internet Home Page: http://www.treas.gov/ofac, or in fax form through
the Office's 24-hour fax-on-demand service: call 202/622-0077 using a
fax machine, fax modem, or (within the United States) a touch-tone
telephone.

Background

    On June 21, 2000, the President issued Executive Order 13159 (65 FR
39279, June 26, 2000), declaring a national emergency with respect to
the risk of nuclear proliferation created by the accumulation of a
large volume of weapons-usable fissile material in the territory of the
Russian Federation and invoking the authority of, inter alia, the
International Emergency Economic Powers Act, 50 U.S.C. 1701 et seq.
(``IEEPA''). Pursuant to the Agreement Between the Government of the
United States of America and the Government of the Russian Federation
Concerning the Disposition of Highly Enriched Uranium Extracted from
Nuclear Weapons, dated February 18, 1993, and related contracts and
agreements (collectively, the ``HEU Agreements''), weapons-grade
uranium extracted from Russian nuclear weapons is converted to low
enriched uranium for use in commercial reactors. The order blocks and
protects from attachment, judgment, decree, lien, execution,
garnishment, or other judicial process that property and interests in
property of the Government of the Russian Federation that are directly
related to the implementation of the HEU Agreements that are in the
United States, that are or hereafter come within the United States, or
that are or hereafter come within the possession or control of U.S.
persons, including their overseas branches. The order authorizes the
Secretary of the Treasury, in consultation with the Secretaries of
State and Energy, to take such actions, including the promulgation of
rules and regulations, as may be necessary to carry out the purposes of
the order. To implement Executive Order 13159 the Office of Foreign
Assets Control of the U.S. Department of the Treasury is promulgating
the HEU Agreement Assets Control Regulations (the ``Regulations'').
    Section 540.201 of subpart B of the Regulations implements section
2 of Executive Order 13129 (the ``Executive Order'') by blocking that
property and interests in property of the Government of the Russian
Federation that are directly related to the implementation of the HEU
Agreements that are in the United States, that hereafter come within
the United States, or that are or hereafter come within the possession
or control of U.S. persons, including their overseas branches. Section
540.201 implements section 2 of the Executive Order by prohibiting U.S.
persons from transferring, paying, exporting, withdrawing or otherwise
dealing in property blocked pursuant to the Executive Order.
    Section 540.202 also implements section 2 of the Executive Order by
making null and void any transfer or attempted transfer of blocked
property after the effective date of the Executive Order absent a
license or other authorization issued pursuant to the Executive Order
and this part.
    Subpart C provides definitions of terms used in the Regulations.
Subpart D sets forth interpretive guidance for the Regulations. For
example, Sec. 540.405 makes clear that any transaction that is
ordinarily incident to a licensed transaction and necessary to give
effect to the licensed transaction is also authorized, except in the
case where such an ordinarily incident transaction involves any
attachment, judgment, decree, lien, execution, garnishment, or other
judicial process which has the effect of encumbering the property or
interest in property of the Government of the Russian Federation
directly related to the implementation of the HEU Agreements in any
manner that is not explicitly authorized within the terms of the
license.
    Transactions otherwise prohibited under part 540 but found to be
consistent with U.S. policy may be authorized by general licenses
contained in subpart E or by a specific license issued pursuant to the
procedures described in subpart D of part 501 of 31 CFR chapter V. The
general licenses contained in subpart E include an authorization in
Sec. 540.504 for U.S. financial institutions to debit blocked accounts
for normal service charges. Penalties for violations of the Regulations
are described in subpart G of the Regulations.
    Because the Regulations involve a foreign affairs function, the
provisions of Executive Order 12866 and the Administrative Procedure
Act (5 U.S.C. 553) (the ``APA'') requiring notice of proposed
rulemaking, opportunity for public participation, and delay in
effective date, are inapplicable. However, because of the importance of
the issues raised by these regulations, this rule is issued in interim
form and comments will be considered in the development of final
regulations. Accordingly, the Department encourages interested persons
who wish to comment to do so at the earliest possible time to permit
the fullest consideration of their views.

[[Page 3305]]

    The period for submission of comments will close February 12, 2001.
The Department will consider all comments received before the close of
the comment period in developing final regulations. Comments received
after the end of the comment period will be considered if possible, but
their consideration cannot be assured. The Department will not accept
public comments accompanied by a request that a part or all of the
material be treated confidentially because of its business proprietary
nature or for any other reason. The Department will return such
comments and materials when submitted by regular mail to the person
submitting the comments and will not consider them in the development
of final regulations. In the interest of accuracy and completeness, the
Department requires comments in written form.
    All public comments on these regulations will be a matter of public
record. Copies of public record concerning these regulations will be
made available, not sooner than March 13, 2001, and will be obtainable
from OFAC's website (http://www.treas.gov/ofac). If that service is
unavailable, written requests for copies may be sent to: Office of
Foreign Assets Control, U.S. Department of the Treasury, 1500
Pennsylvania Ave., NW., Washington, DC 20220, Attn: Merete Evans.
    Because no notice of proposed rulemaking is required for this rule,
the Regulatory Flexibility Act (5 U.S.C. 601-612) does not apply.

Paperwork Reduction Act

    The collections of information related to the Regulations are
contained in 31 CFR part 501 (the ``Reporting and Procedures
Regulations''). Pursuant to the Paperwork Reduction Act of 1995 (44
U.S.C. 3507), those collections of information have been previously
approved by the Office of Management and Budget (``OMB'') under control
number 1505-0164. An agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless the
collection of information displays a valid control number.

List of Subjects in CFR Part 540

    Administrative practice and procedure, Blocking of assets,
Government of the Russian Federation, HEU Agreement, Nuclear materials,
Penalties, Reporting and recordkeeping requirements, Uranium.

    For the reasons set forth in the preamble, 31 CFR chapter V is
amended by adding part 540 to read as follows:

PART 540--HIGHLY ENRICHED URANIUM (HEU) AGREEMENT ASSETS CONTROL
REGULATIONS

Subpart A--Relation of This Part to Other Laws and Regulations
Sec.
540.101   Relation of this part to other laws and regulations.
Subpart B--Prohibitions
540.201   Prohibited transactions involving blocked property.
540.202   Effect of transfers violating the provisions of this part.
540.203   Holding of funds in interest-bearing accounts; investment
and reinvestment.
Subpart C--General Definitions
540.301   Blocked account; blocked property.
540.302   Effective date.
540.303   Entity.
540.304   Government of the Russian Federation.
540.305   HEU Agreements.
540.306   Highly Enriched Uranium.
540.307   Licenses; general and specific.
540.308   Low Enriched Uranium.
540.309   Natural uranium.
540.310   Person.
540.311   Property; property interest.
540.312   Transfer.
540.313   United States.
540.314   United States person; U.S. person.
540.315   Uranium-235 (U235).
540.316   Uranium enrichment.
540.317   Uranium feed; natural uranium feed.
540.318   Uranium Hexafluoride (UF6).
540.319   U.S. financial institution.
Subpart D--Interpretations
540.401   Reference to amended sections.
540.402   Effect of amendment.
540.403   Termination and acquisition of an interest in blocked
property.
540.404   Setoffs prohibited.
540.405   Transactions incidental to a licensed transaction.
Subpart E--Licenses, Authorizations and Statements of Licensing Policy
540.501   Effect of license or authorization.
540.502   Exclusion from licenses.
540.503   Payments and transfers to blocked accounts in U.S.
financial institutions.
540.504   Entries in certain accounts for normal service charges
authorized.
Subpart F--Reports
540.601   Records and reports.
Subpart G--Penalties
540.701   Penalties.
540.702   Prepenalty notice.
540.703   Response to prepenalty notice; informal settlement.
540.704   Penalty imposition or withdrawal.
540.705   Administrative collection; referral to United States
Department of Justice.
Subpart H--Procedures
540.801   Procedures.
540.802   Delegation by the Secretary of the Treasury.
Subpart I--Paperwork Reduction Act
540.901   Paperwork Reduction Act notice.

    Authority: 3 U.S.C. 301; 31 U.S.C. 321(b); 50 U.S.C. 1601-1651,
1701-1706; Pub. L. 101-410, 104 Stat. 890 (28 U.S.C. 2461 note);
E.O. 13159, 65 FR 39279 (June 26, 2000).

Subpart A--Relation of This Part to Other Laws and Regulations

Sec. 540.101  Relation of this part to other laws and regulations.

    (a) This part is separate from, and independent of, the other parts
of this chapter, with the exception of part 501 of this chapter, the
recordkeeping and reporting requirements and license application and
other procedures which apply to this part. Actions taken pursuant to
part 501 of this chapter with respect to the prohibitions contained in
this part are considered actions taken pursuant to this part. Differing
foreign policy and national security circumstances may result in
differing interpretations of similar language among the parts of this
chapter. No license or authorization contained in or issued pursuant to
those other parts authorizes any transaction prohibited by this part.
No license or authorization contained in or issued pursuant to any
other provision of law or regulation authorizes any transaction
prohibited by this part.
    (b) Nothing contained in these regulations shall relieve a person
from any requirement to obtain a license or other authorization from
any department or agency of the United States Government in compliance
with applicable laws and regulations subject to the jurisdiction of
that department or agency, and no license contained in or issued
pursuant to this part relieves the involved parties from complying with
any other applicable laws or regulations.

Subpart B--Prohibitions

Sec. 540.201  Prohibited transactions involving blocked property.

    (a) Except as otherwise authorized by regulations, orders,
directives, rulings, instructions, licenses, or otherwise, the property
or property interests of the Government of the Russian Federation that
are directly related to the implementation of the Highly Enriched
Uranium (HEU) Agreements, that are in the United States, that hereafter
come within the United States, or that are or hereafter come within the
possession or control of U.S. persons are blocked and may not be
transferred, paid, exported, withdrawn or otherwise dealt in.
    (b) Unless otherwise authorized by this part or by a specific
license expressly referring to this part, any attachment, judgment,
decree, lien,

[[Page 3306]]

execution, garnishment, or other judicial process is null and void with
respect to any blocked property or interest in blocked property covered
by this part.

Sec. 540.202  Effect of transfers violating the provisions of this
part.

    (a) Any transfer after the effective date (see Sec. 540.302) that
is in violation of any provision of this part or of any regulation,
order, directive, ruling, instruction, or license issued pursuant to
this part, and that involves any property or interest in property
blocked pursuant to Sec. 540.201(a) is null and void and shall not be
the basis for the assertion or recognition of any interest in or right,
remedy, power, or privilege with respect to such property or property
interests.
    (b) No transfer before the effective date shall be the basis for
the assertion or recognition of any right, remedy, power, or privilege
with respect to, or any interest in, any property or interest in
property blocked pursuant to Sec. 540.201, unless the person with whom
such property is held or maintained, prior to that date, had written
notice of the transfer or by any written evidence had recognized such
transfer.
    (c) Unless otherwise provided, an appropriate license or other
authorization issued by or pursuant to the direction or authorization
of the Director of the Office of Foreign Assets Control before, during,
or after a transfer shall validate such transfer or render it
enforceable to the same extent that it would be valid or enforceable
but for the provisions of the International Emergency Economic Powers
Act, this part, and any regulation, order, directive, ruling,
instruction, or license issued pursuant to this part.
    (d) Transfers of property that otherwise would be null and void or
unenforceable by virtue of the provisions of this section shall not be
deemed to be null and void or unenforceable as to any person with whom
such property was held or maintained (and as to such person only) in
cases in which such person is able to establish to the satisfaction of
the Director of the Office of Foreign Assets Control each of the
following:
    (1) Such transfer did not represent a willful violation of the
provisions of this part by the person with whom such property was held
or maintained;
    (2) The person with whom such property was held or maintained did
not have reasonable cause to know or suspect, in view of all the facts
and circumstances known or available to such person, that such transfer
required a license or authorization issued pursuant to this part and
was not so licensed or authorized, or if a license or authorization did
purport to cover the transfer, that such license or authorization had
been obtained by misrepresentation of a third party or withholding of
material facts or was otherwise fraudulently obtained; and
    (3) The person with whom such property was held or maintained filed
with the Office of Foreign Assets Control a report setting forth in
full the circumstances relating to such transfer promptly upon
discovery that:
    (i) Such transfer was in violation of the provisions of this part
or any regulation, ruling, instruction, license or other direction, or
authorization issued pursuant to this part;
    (ii) Such transfer was not licensed or authorized by the Director
of the Office of Foreign Assets Control; or
    (iii) If a license did purport to cover the transfer, such license
had been obtained by misrepresentation of a third party or withholding
of material facts or was otherwise fraudulently obtained.

    Note to paragraph (d) of Sec. 540.202: The filing of a report in
accordance with the provisions of paragraph (d)(3) of this section
shall not be deemed evidence that the terms of paragraphs (d)(1) and
(d)(2) of this section have been satisfied. [End Note]

Sec. 540.203  Holding of funds in interest-bearing accounts; investment
and reinvestment.

    (a) Except as provided in paragraphs (c) or (d) of this section, or
as otherwise directed by the Office of Foreign Assets Control, any U.S.
person holding funds, such as currency, bank deposits, or liquidated
financial obligations, subject to Sec. 540.201 shall hold or place such
funds in a blocked interest-bearing account located in the United
States.
    (b)(1) For purposes of this section the term blocked interest-
bearing account means a blocked account:
    (i) In a federally-insured U.S. bank, thrift institution, or credit
union, provided the funds are earning interest at rates which are
commercially reasonable; or
    (ii) With a broker or dealer registered with the Securities and
Exchange Commission under the Securities Exchange Act of 1934, provided
the funds are invested in a money market fund or U.S. Treasury Bills.
    (2) For purposes of this section, a rate is commercially reasonable
if it is the rate currently offered to other depositors on deposits or
instruments of comparable size and maturity.
    (3) Funds held or placed in a blocked account pursuant to this
paragraph (b) may not be invested in instruments the maturity of which
exceeds 180 days. If interest is credited to a separate blocked account
or sub-account, the name of the account party on each account must be
the same.
    (c) Blocked funds held in instruments the maturity of which exceeds
180 days at the time the funds become subject to Sec. 540.201 may
continue to be held until maturity in the original instrument, provided
any interest, earnings, or other proceeds derived therefrom are paid
into a blocked interest-bearing account in accordance with paragraph
(b) or (d) or this section.
    (d) Blocked funds held in accounts or instruments outside the
United States at the time the funds become subject to Sec. 540.201 may
continue to be held in the same type of accounts or instruments,
provided the funds earn interest at rates which are commercially
reasonable.
    (e) This section does not create an affirmative obligation for the
holder of blocked tangible property, such as chattels or real estate,
or of other blocked property, such as debt or equity securities, to
sell or liquidate such property at the time the property becomes
subject to Sec. 540.201. However, the Office of Foreign Assets Control
may issue licenses permitting or directing such sales in appropriate
cases.
    (f) Funds subject to this section may not be held, invested, or
reinvested in a manner which provides immediate financial or economic
benefit or access to the Government of the Russian Federation or its
entities, nor may their holder cooperate in or facilitate the pledging
or other attempted use as collateral of blocked funds or other assets.

Subpart C--General Definitions

Sec. 540.301  Blocked account; blocked property.

    The terms blocked account and blocked property shall mean any
account or property subject to the prohibition in Sec. 540.201 and with
respect to which payments, transfers, exportations, withdrawals, or
other dealings may not be made or effected except pursuant to an
authorization or license from the Office of Foreign Assets Control
expressly authorizing such action.

Sec. 540.302  Effective date.

    The term effective date refers to the effective date of the
applicable prohibitions and directives contained in this part which is
12:01 a.m., Eastern Daylight Time, June 22, 2000.

Sec. 540.303  Entity.

    The term entity means a partnership, association, trust, joint
venture,

[[Page 3307]]

corporation, or other organization, group, or subgroup.

Sec. 540.304  Government of the Russian Federation.

    (a) The term Government of the Russian Federation means the
Government of the Russian Federation, any political subdivision,
agency, or instrumentality thereof, and any person owned or controlled
by, or acting for or on behalf of, the Government of the Russian
Federation.
    (b) Any person or entity to the extent such person or entity is or
has been, or to the extent that there is reasonable cause to believe
that such person or entity is, or has been, since the effective date,
(see Sec. 540.302) acting or purporting to act directly or indirectly
on behalf of any of the foregoing.

Sec. 540.305  HEU Agreements.

    The term HEU Agreements means the Agreement Between the Government
of the United States of America and the Government of the Russian
Federation Concerning the Disposition of Highly Enriched Uranium
Extracted from Nuclear Weapons, dated February 18, 1993; the Initial
Implementing Contract, Contract Number DE-AC01-93NE50067, dated January
14, 1994; and all current and future amendments thereto; as well as the
related current and future implementing agreements, memoranda of
understanding, protocols, and contracts, including all current and
future amendments thereto, to include without limitation the following:
    (a) Memorandum of Agreement Between the United States, Acting By
and Through the United States Department of State, and the United
States Department of Energy and the United States Enrichment
Corporation (USEC), for USEC to Serve as the United States Government's
Executive Agent under the Agreement Between the United States and the
Russian Federation Concerning the Disposition of Highly Enriched
Uranium Extracted from Nuclear Weapons, dated April 18, 1997;
    (b) Agreement Between the United States Department of Energy and
the Ministry of the Russian Federation for Atomic Energy Concerning the
Transfer of Source Material to the Russian Federation signed at
Washington on March 24, 1999, with Implementing Agreement and
Administrative Arrangement, dated March 24, 1999, and related letter
agreements; and
    (c) UF6 Feed Component Implementing Contract Among Cameco Europe
S.A. and Compagnie General des Matieres Nucleaires and Nukem, Inc. and
Nukem Nukclear Gmbh and AO Techsnabexport, Tenex Contract
# 08843672/90100-02D, dated March 24, 1999.

Sec. 540.306  Highly Enriched Uranium (HEU).

    The term highly enriched uranium or HEU means uranium enriched to
twenty (20) percent or greater in the isotope U235.

Sec. 540.307  Licenses; general and specific.

    (a) Except as otherwise specified, the term license means any
license or authorization contained in or issued pursuant to this part.
    (b) The term general license means any license or authorization the
terms of which are set forth in subpart E of this part.
    (c) The term specific license means any license or authorization
not set forth in subpart E of this part but issued pursuant to this
part.

    Note to Sec. 540.307. See Sec. 501.801 of this chapter on
licensing procedures. [End note]

Sec. 540.308  Low Enriched Uranium (LEU).

    The term low enriched uranium or LEU means uranium enriched to less
than twenty (20) percent in the isotope U235.

Sec. 540.309  Natural uranium.

    The term natural uranium means uranium found in nature, with an
average concentration of 0.711 percent by weight of the isotope U235.

Sec. 540.310  Person.

    The term person means an individual or entity.

Sec. 540.311  Property; property interest.

    The terms property and property interest include but are not
limited to, money, checks, drafts, bullion, bank deposits, savings
accounts, debts, indebtedness, obligations, notes, guarantees,
debentures, stocks, bonds, coupons, any other financial instruments,
bankers acceptances, mortgages, pledges, liens or other rights in the
nature of security, warehouse receipts, bills of lading, trust
receipts, bills of sale, any other evidences of title, ownership, or
indebtedness, letters of credit and any documents relating to any
rights or obligations thereunder, powers of attorney, goods, wares,
merchandise, chattels, stocks on hand, ships, goods on ships, real
estate mortgages, deeds of trust, vendors' sales agreements, land
contracts, leaseholds, ground rents, real estate and any other interest
therein, options, negotiable instruments, trade acceptances, royalties,
book accounts, accounts payable, judgments, patents, trademarks,
copyrights, insurance policies, safe deposit boxes and their contents,
annuities, pooling agreements, services of any nature whatsoever,
contracts of whatever nature whatsoever, and any other property, real,
personal, or mixed, tangible or intangible, or interests therein,
present, future, or contingent.

Sec. 540.312  Transfer.

    The term transfer means any actual or purported act or transaction,
whether or not evidenced by writing, and whether or not done or
performed within the United States, the purpose, intent, or effect of
which is to create, surrender, release, convey, transfer, or alter,
directly or indirectly, any right, remedy, power, privilege, or
interest with respect to any property and, without limitation upon the
foregoing, shall include the making, execution, or delivery of any
assignment, power, conveyance, check, declaration, deed, deed of trust,
power of attorney, power of appointment, bill of sale, mortgage,
receipt, agreement, contract, certificate, gift, sale, affidavit, or
statement; the making of any payment; the setting off of any obligation
or credit; the appointment of any agent, trustee, or fiduciary; the
creation or transfer of any lien; the issuance, docketing, filing, or
levy of or under any judgment, decree, attachment, injunction,
execution, or other judicial or administrative process or order, or the
service of any garnishment; the acquisition of any interest of any
nature whatsoever by reason of a judgment or decree of any foreign
country; the fulfillment of any condition; the exercise of any power of
appointment, power of attorney, or other power; or the acquisition,
disposition, transportation, importation, exportation, or withdrawal of
any security.

Sec. 540.313  United States.

    The term United States means the United States, its territories and
possessions, and all areas under the jurisdiction or authority thereof.

Sec. 540.314  United States person; U.S. person.

    The term United States person or U.S. person means any United
States citizen, permanent resident alien, juridical person organized
under the laws of the United States or any jurisdiction within the
United States, including foreign branches, or any person in the United
States.

Sec. 540.315  Uranium-235 (U235).

    The term uranium-235 or U235 means the fissile isotope found in
natural uranium.

[[Page 3308]]

Sec. 540.316  Uranium enrichment.

    The term uranium enrichment means the process of increasing the
concentration of the isotope U235 relative to that of the isotope U238.

Sec. 540.317  Uranium feed; natural uranium feed.

    The term uranium feed or natural uranium feed means natural uranium
in the form of UF6 suitable for uranium enrichment.

Sec. 540.318  Uranium Hexafluoride (UF6).

    The term uranium hexafluoride or UF6 means a compound of uranium
and fluorine.

Sec. 540.319  U.S. financial institution.

    The term U.S. financial institution means any U.S. entity
(including its foreign branches) that is engaged in the business of
accepting deposits, making, granting, transferring, holding, or
brokering loans or credits, or purchasing or selling foreign exchange,
securities, commodity futures or options, or procuring purchasers and
sellers thereof, as principal or agent; including but not limited to,
depository institutions, banks, savings banks, trust companies,
securities brokers and dealers, commodity futures and options brokers
and dealers, forward contract and foreign exchange merchants,
securities and commodities exchanges, clearing corporations, investment
companies, employee benefit plans, and U.S. holding companies, U.S.
affiliates, or U.S. subsidiaries of any of the foregoing. This term
includes those branches, offices and agencies of foreign financial
institutions that are located in the United States, but not such
institutions' foreign branches, offices, or agencies.

Subpart D--Interpretations

Sec. 540.401  Reference to amended sections.

    Except as otherwise specified, reference to any section of this
part or to any regulation, ruling, order, instruction, direction, or
license issued pursuant to this part shall be deemed to refer to the
same as currently amended.

Sec. 540.402  Effect of amendment.

    Any amendment, modification, or revocation of any section of this
part or of any order, regulation, ruling, instruction, or license
issued by or under the direction of the Director of the Office of
Foreign Assets Control shall not, unless otherwise specifically
provided, affect any act done or omitted to be done, or any civil or
criminal suit or proceeding commenced or pending prior to such
amendment, modification, or revocation. All penalties, forfeitures, and
liabilities under any such order, regulation, ruling, instruction, or
license continue and may be enforced as if such amendment,
modification, or revocation had not been made.

Sec. 540.403  Termination and acquisition of an interest in blocked
property.

    (a) Whenever a transaction licensed or authorized by or pursuant to
this part results in the transfer of property (including any property
interest) away from the Government of the Russian Federation, such
property shall no longer be deemed to be property in which the
Government of the Russian Federation has or has had an interest unless
there exists in the property another interest of the Government of the
Russian Federation, the transfer of which has not been effected
pursuant to license or other authorization.
    (b) Unless otherwise specifically provided in a license or
authorization issued pursuant to this part, if property (including any
property interest) is transferred or attempted to be transferred to the
Government of the Russian Federation, such property shall be deemed to
be property in which there exists an interest of the Government of the
Russian Federation.

Sec. 540.404  Setoffs prohibited.

    A setoff against blocked property (including a blocked account),
whether by a U.S. bank or other U.S. person, is a prohibited transfer
under Sec. 540.201 if effected after the effective date (see
Sec. 540.302).

Sec. 540.405  Transactions incidental to a licensed transaction.

    Any transaction ordinarily incident to a licensed transaction and
necessary to give effect thereto is also authorized, except for any
attachment, judgment, decree, lien, execution, garnishment, or other
judicial process which has the effect of encumbering the property or
interest in property of the Government of the Russian Federation
directly related to the implementation of the HEU agreements, or any
transaction involving a debit to a blocked account or transfer of
blocked property not explicitly authorized within the terms of a
license.

Subpart E--Licenses, Authorizations and Statements of Licensing
Policy

Sec. 540.501  Effect of license or authorization.

    (a) No license or other authorization contained in this part, or
otherwise issued by or under the direction of the Director of the
Office of Foreign Assets Control, authorizes or validates any
transaction effected prior to the issuance of the license, unless
specifically provided in such license or authorization.
    (b) No regulation, ruling, instruction, or license authorizes any
transaction prohibited under this part unless the regulation, ruling,
instruction or license is issued by the Office of Foreign Assets
Control and specifically refers to this part. No regulation, ruling,
instruction, or license referring to this part shall be deemed to
authorize any transaction prohibited by any provision of this chapter
unless the regulation, ruling, instruction, or licenses specifically
refers to such provision.
    (c) Any regulation, ruling, instruction, or license authorizing any
transaction otherwise prohibited under this part has the effect of
removing a prohibition contained in this part from the transaction, but
only to the extent specifically stated by its terms. Unless the
regulation, ruling, instruction, or license otherwise specifies, such
an authorization does not create any right, duty, obligation, claim, or
interest in, or with respect to, any property which would not otherwise
exist under ordinary principles of law.

Sec. 540.502  Exclusion from licenses.

    The Director of the Office of Foreign Assets Control reserves the
right to exclude any person, property, or transaction from the
operation of any license or from the privileges conferred by any
license. The Director of the Office of Foreign Assets Control also
reserves the right to restrict the applicability of any license to
particular persons, property, transactions, or classes thereof. Such
actions are binding upon all persons receiving actual or constructive
notice of the exclusions or restrictions.

Sec. 540.503  Payments and transfers to blocked accounts in U.S.
financial institutions.

    Any payment of funds or transfer of credit in which the Government
of the Russian Federation has any interest that is directly related to
the implementation of the HEU Agreements and that comes within the
possession or control of a U.S. financial institution must be blocked
in an account on the books of that financial institution. A transfer of
funds or credit by a U.S. financial institution between blocked
accounts in its branches or offices is authorized, provided that no
transfer is made from an account within the United States to an account
held outside the United States, and further provided that a transfer
from a blocked account may only be made to another blocked account held
in the same name.

[[Page 3309]]

    Note to Sec. 540.503. Please refer to Sec. 501.603 of this
chapter for mandatory reporting requirements regarding financial
transfers. See also Sec. 501.203 concerning the obligation to hold
blocked funds in interest-bearing accounts. [End note]

Sec. 540.504  Entries in certain accounts for normal service charges
authorized.

    (a) A U.S. financial institution is authorized to debit any blocked
account held by that financial institution in payment or reimbursement
for normal service charges owed to it by the owner of the blocked
account.
    (b) As used in this section, the term normal service charge shall
include charges in payment or reimbursement for interest due; cable,
telegraph, internet, or telephone charges; postage costs; custody fees;
small adjustment charges to correct bookkeeping errors; and, but not by
way of limitation, minimum balance charges, notary and protest fees,
and charges for reference books, photocopies, credit reports,
transcripts of statements, registered mail, insurance, stationery and
supplies, and other similar items.

Subpart F--Reports

Sec. 540.601  Records and reports.

    For additional provisions relating to required records and reports,
see part 501, subpart C, of this chapter.

Subpart G--Penalties

Sec. 540.701  Penalties.

    (a) Attention is directed to section 206 of the International
Emergency Economic Powers Act (the ``Act'') (50 U.S.C. 1705), which is
applicable to violations of the provisions of any license, ruling,
regulation, order, direction, or instruction issued by or pursuant to
the direction or authorization of the Secretary of the Treasury
pursuant to this part or otherwise under the Act. Section 206 of the
Act, as adjusted by the Federal Civil Penalties Inflation Adjustment
Act of 1990 (Public Law 101-410, as amended, 28 U.S.C. 2461 note),
provides that:
    (1) A civil penalty not to exceed $11,000 per violation may be
imposed on any person who violates or attempts to violate any license,
order, or regulation issued under the Act;
    (2) Whoever willfully violates or willfully attempts to violate any
license, order, or regulation issued under the Act, upon conviction,
shall be fined not more than $50,000, and if a natural person, may also
be imprisoned for not more than 10 years; and any officer, director, or
agent of any corporation who knowingly participates in such violation
may be punished by a like fine, imprisonment, or both.
    (b) The criminal penalties provided in the Act are subject to
increase pursuant to 18 U.S.C. 3571.
    (c) Attention is also directed to 18 U.S.C. 1001, which provides
that whoever, in any matter within the jurisdiction of the executive,
legislative, or judicial branch of the Government of the United States,
knowingly and willfully falsifies, conceals, or covers up by any trick,
scheme, or device, a material fact, or makes any materially false,
fictitious, or fraudulent statement or representation or makes or uses
any false writing or document knowing the same to contain any
materially false, fictitious, or fraudulent statement or entry shall be
fined under title 18, United States Code, or imprisoned not more than
five years, or both.
    (d) Violations of this part may also be subject to relevant
provisions of other applicable laws.

Sec. 540.702  Prepenalty notice.

    (a) When required. If the Director of the Office of Foreign Assets
Control has reasonable cause to believe that there has occurred a
violation of any provision of this part or a violation of the
provisions of any license, ruling, regulation, order, direction, or
instruction issued by or pursuant to the direction or authorization of
the Secretary of the Treasury pursuant to this part or otherwise under
the International Emergency Economic Powers Act, and the Director
determines that further proceedings are warranted, the Director shall
notify the alleged violator of the agency's intent to impose a monetary
penalty by issuing a prepenalty notice. The prepenalty notice shall be
in writing. The prepenalty notice may be issued whether or not another
agency has taken any action with respect to the matter.
    (b) Contents of notice--(1) Facts of violation. The prepenalty
notice shall describe the violation, specify the laws and regulations
allegedly violated, and state the amount of the proposed monetary
penalty.
    (2) Right to respond. The prepenalty notice also shall inform the
respondent of respondent's right to make a written presentation within
the applicable 30 day period set forth in section 540.703 as to why a
monetary penalty should not be imposed or why, if imposed, the monetary
penalty should be in a lesser amount than proposed.
    (c) Informal settlement prior to issuance of prepenalty notice. At
any time prior to the issuance of a prepenalty notice, an alleged
violator may request in writing that, for a period not to exceed sixty
(60) days, the agency withhold issuance of the prepenalty notice for
the exclusive purpose of effecting settlement of the agency's potential
civil monetary penalty claims. In the event the Director grants the
request, under terms and conditions within his discretion, the Office
of Foreign Assets Control will agree to withhold issuance of the
prepenalty notice for a period not to exceed 60 days and will enter
into settlement negotiations of the potential civil monetary penalty
claim.

Sec. 540.703  Response to prepenalty notice; informal settlement.

    (a) Deadline for response. The respondent may submit a response to
the prepenalty notice within the applicable 30 day period set forth in
this paragraph. The Director may grant, at his discretion, an extension
of time in which to submit a response to the prepenalty notice. The
failure to submit a response within the applicable time period set
forth in this paragraph shall be deemed to be a waiver of the right to
respond.
    (1) Computation of time for response. A response to the prepenalty
notice must be postmarked or date-stamped by the U.S. Postal Service
(or foreign postal service, if mailed abroad) or courier service
provider (if transmitted to OFAC by courier) on or before the 30th day
after the postmark date on the envelope in which the prepenalty notice
was mailed. If the respondent refused delivery or otherwise avoided
receipt of the prepenalty notice, a response must be postmarked or
date-stamped on or before the 30th day after the date on the stamped
postal receipt maintained at the Office of Foreign Assets Control. If
the prepenalty notice was personally delivered to the respondent by a
non-U.S. Postal Service agent authorized by the Director, a response
must be postmarked or date-stamped on or before the 30th day after the
date of delivery.
    (2) Extensions of time for response. If a due date falls on a
federal holiday or weekend, that due date is extended to include the
following business day. Any other extensions of time will be granted,
at the Director's discretion, only upon the respondent's specific
request to the Office of Foreign Assets Control.
    (b) Form and method of response. The response must be submitted in
writing and may be handwritten or typed. The response need not be in
any particular form. A copy of the written response may be sent by
facsimile, but the original must also be sent to the Office of Foreign
Assets Control Civil Penalties Division by mail or courier and must be

[[Page 3310]]

postmarked or date-stamped, in accordance with paragraph (a) of this
section.
    (c) Contents of response. A written response must contain
information sufficient to indicate that it is in response to the
prepenalty notice.
    (1) A written response must include the respondent's full name,
address, telephone number, and facsimile number, if available, or those
of the representative of the respondent.
    (2) A written response should either admit or deny each specific
violation alleged in the prepenalty notice and also state if the
respondent has no knowledge of a particular violation. If the written
response fails to address any specific violation alleged in the
prepenalty notice, that alleged violation shall be deemed to be
admitted.
    (3) A written response should include any information in defense,
evidence in support of an asserted defense, or other factors that the
respondent requests the Office of Foreign Assets Control to consider.
Any defense or explanation previously made to the Office of Foreign
Assets Control or any other agency must be repeated in the written
response. Any defense not raised in the written response will be
considered waived. The written response should also set forth the
reasons why the respondent believes the penalty should not be imposed
or why, if imposed, it should be in a lesser amount than proposed.
    (d) Default. If the respondent elects not to submit a written
response within the time limit set forth in paragraph (a) of this
section, the Office of Foreign Assets Control will conclude that the
respondent has decided not to respond to the prepenalty notice. The
agency generally will then issue a written penalty notice imposing the
penalty proposed in the prepenalty notice.
    (e) Informal settlement. In addition to or as an alternative to a
written response to a prepenalty notice, the respondent or respondent's
representative may contact the Office of Foreign Assets Control as
advised in the prepenalty notice to propose the settlement of
allegations contained in the prepenalty notice and related matters.
However, the requirements set forth in paragraph (f) of this section as
to oral communication by the representative must first be fulfilled. In
the event of settlement at the prepenalty stage, the claim proposed in
the prepenalty notice will be withdrawn, the respondent will not be
required to take a written position on allegations contained in the
prepenalty notice, and the Office of Foreign Assets Control will make
no final determination as to whether a violation occurred. The amount
accepted in settlement of allegations in a prepenalty notice may vary
from the civil penalty that might finally be imposed in the event of a
formal determination of violation. In the event no settlement is
reached, the time limit specified in paragraph (a) of this section for
written response to the prepenalty notice remains in effect unless
additional time is granted by the Office of Foreign Assets Control.
    (f) Representation. A representative of the respondent may act on
behalf of the respondent, but any oral communication with the Office of
Foreign Assets Control prior to a written submission regarding the
specific allegations contained in the prepenalty notice must be
preceded by a written letter of representation, unless the prepenalty
notice was served upon the respondent in care of the representative.

Sec. 540.704  Penalty imposition or withdrawal.

    (a) No violation. If, after considering any response to the
prepenalty notice and any relevant facts, the Director of the Office of
Foreign Assets Control determines that there was no violation by the
respondent named in the prepenalty notice, the Director shall notify
the respondent in writing of that determination and the cancellation of
the proposed monetary penalty.
    (b) Violation. (1) If, after considering any written response to
the prepenalty notice, or default in the submission of a written
response, and any relevant facts, the Director of the Office of Foreign
Assets Control determines that there was a violation by the respondent
named in the prepenalty notice, the Director is authorized to issue a
written penalty notice to the respondent of the determination of
violation and the imposition of the monetary penalty.
    (2) The penalty notice shall inform the respondent that payment or
arrangement for installment payment of the assessed penalty must be
made within 30 days of the date of mailing of the penalty notice by the
Office of Foreign Assets Control.
    (3) The penalty notice shall inform the respondent of the
requirement to furnish the respondent's taxpayer identification number
pursuant to 31 U.S.C. 7701 and that such number will be used for
purposes of collecting and reporting on any delinquent penalty amount.
    (4) The issuance of the penalty notice finding a violation and
imposing a monetary penalty shall constitute final agency action. The
respondent has the right to seek judicial review of that final agency
action in federal district court.

Sec. 540.705  Administrative collection; referral to United States
Department of Justice.

    In the event that the respondent does not pay the penalty imposed
pursuant to this part or make payment arrangements acceptable to the
Director of the Office of Foreign Assets Control within 30 days of the
date of mailing of the penalty notice, the matter may be referred for
administrative collection measures by the Department of the Treasury or
to the United States Department of Justice for appropriate action to
recover the penalty in a civil suit in federal district court.

[[Page 3311]]

Subpart H--Procedures

Sec. 540.801  Procedures.

    For license application procedures and procedures relating to
amendments, modifications, or revocations of licenses; administrative
decisions; rulemaking; and requests for documents pursuant to the
Freedom of Information and Privacy Acts (5 U.S.C. 552 and 552a), see
subpart D of part 501 of this chapter.

Sec. 540.802  Delegation by the Secretary of the Treasury.

    Any action that the Secretary of the Treasury is authorized to take
pursuant to Executive Order 13159 of June 21, 2000 (65 FR 39279, June
26, 2000) and any further executive orders relating to the national
emergency declared in Executive Order 13159 may be taken by the
Director of the Office of Foreign Assets Control or by any other person
to whom the Secretary of the Treasury has delegated authority so to
act.

Subpart I--Paperwork Reduction Act

Sec. 540.901  Paperwork Reduction Act notice.

    For approval by the Office of Management and Budget (``OMB'') under
the Paperwork Reduction Act of 1995 (44 U.S.C. 3507) of information
collections relating to recordkeeping and reporting requirements,
licensing procedures (including those pursuant to statements of
licensing policy), and other procedures, see Sec. 501.901 of this
chapter. An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it displays
a valid control number assigned by OMB.

    Dated: December 26, 2000.
R. Richard Newcomb,
Director, Office of Foreign Assets Control.
    Approved: January 2, 2001.
Elisabeth A. Bresee,
Assistant Secretary (Enforcement), Department of the Treasury.
[FR Doc. 01-689 Filed 1-8-01; 8:45 am]
BILLING CODE 4810-25-P

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