FINRA Manual: Contents
|View Whole Section||Text only||Print Manager||Link|
87-8 South African Sanctions Act Regulations
TO: All NASD Members and Other Interested Persons
The U.S. Department of the Treasury recently adopted regulations under the South African Sanctions Act. The provisions of the Act were the subject of NASD Notice to Members 86-76.
This notice provides information relating to the new investment provisions of the Act which became effective on November 16, 1986.
The full text of the regulations and the Treasury Department's interpretive summary, as published in the Federal Register on December 29, 1986, are attached to this notice.
On October 2, 1986, Congress enacted the Comprehensive Anti-Apartheid Act of 1986 (Sanctions Act) (Public Law 99-440) which contains prohibitions against certain transactions in securities issued by South African entities. An outline of the provisions of the Act was provided to members in Notice to Members 86-76, dated November 10, 1986.
This notice provides members with the new investment provisions under the Act. Members and associated persons should consult with their counsel to ensure that their trading activities comply with the Sanctions Act.
The new investment provisions of the Act became effective on November 16, 1986, and were issued pursuant to the foreign affairs exception to the Administrative Procedure Act. To a large degree, the new investment provisions restate the statutory provisions.
NEW INVESTMENT PROVISIONS UNDER THE SANCTIONS ACT
Some of the pertinent provisions are as follows.
- Section 545.210 substantially restates the general prohibition of "new investment in South Africa."
- Section 545.304 defines a "loan" to include the purchase of debt or equity securities issued by the government of South Africa or a South African entity on or after October 2, 1986.
- Section 545.319 defines "new investments" and sets forth the secondary trading exemption pursuant to the provisions of Section 3(4) of the Act as described in Notice to Members 86-76.
- Section 545.415 specifically recognizes the applicability of trading in American Depositary Receipts (ADRs) to the exemption for securities issued prior to October 2, 1986. This section also provides an exemption for shares issued as part of a stock split, dividend, recapitalization, merger or other reorganization transaction. Such securities will be deemed to have been issued on the date of issuance of the underlying shares unless the transaction results in payments to or for the benefit of the South African issuer from or on behalf of the security holder.
However, this exemptive treatment is not available for shares acquired on or after October 2, 1986, through the exercise of warrants or pre-emptive rights, although rights or warrants received after October 2 may be sold by the security holder without being in violation of the Act.
* * *
If any further clarification of these provisions is forthcoming, such information will be provided to members. Questions regarding this notice may be addressed to T. Grant Gallery, NASD Associate General Counsel, at (202) 728-8285.
Frank J. Wilson
Executive Vice President and General Counsel
DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
31 CFR Part 545
South African Transactions Regulations
AGENCY: Department of the Treasury.
ACTION: Final rule.
SUMMARY: This rule amends the South African Transactions Regulations, 31 CFR Part 545 (the "Regulations"), to implement sections 308 and 310 of the Comprehensive Anti-Apartheid Act of 1986, Pub. L. 99-440,100 Stat. 1086, as amended by H.J. Res. 756, Pub. L. 99-631, 100 Stat. 3515 ("the Act"). Section 308 prohibits United States depository institutions from accepting, receiving, or holding deposit accounts from the South African Government or its controlled entities, except for diplomatic or consular accounts authorized by the President (Regulations, § 545.209). Section 310 prohibits U.S. nationals from making any new investment in South Africa (Regulations, § 545.210). These sections became effective on November 16, 1986. The Treasury Department is also amending the Regulations to reflect approval by the Office of Management and Budget of the information collection provision contained in § 545.807 of the Regulations.
EFFECTIVE DATE: All sections except § 545.423 are effective at 12:01 a.m. Eastern Standard Time, November 16, 1986. Section 545.423 is effective at 12:01 a.m., Eastern Daylight Time, October 2, 1986.
FOR FURTHER INFORMATION CONTACT: Marilyn L. Muench, Chief Counsel, Office of Foreign Assets Control, Department of the Treasury, 1331 G Street, NW., Washington, DC 20220 (telephone: 202/376-0408).
SUPPLEMENTARY INFORMATION: The initial set of amendments to the Regulations, implementing the immediately effective provisions of the Act, was published on November 19, 1986 (51 FR 41906). The amendments published today implement §§ 308 and 310 of the Act, effective November 16, 1986. Section 309 of the Act, banning importation of South African uranium ore, uranium oxide, coal, and textiles into the United States, will become effective on December 31, 1986.Regulations implementing this provision will be issued at a later date.
Section 545.209 prohibits depository institutions located in the United States from accepting, receiving, or holding deposit accounts of the South African Government or its controlled entities, with the exception of diplomatic and consular accounts authorized by the Office of Foreign Assets Control by specific license.
Section 545.210 prohibits U.S. nationals from making new investments in South Africa, unless the new investment is in a firm owned by South African victims of apartheid. Section 545.319 defines "new investment" to include a commitment or contribution of funds or other assets, and a loan or other extension of credit. Exceptions are made for reinvestment of profits earned by a U.S.-controlled South African entity in that or another South African entity; contributions required to enable a U.S.-controlled South African entity to operate in an economically sound manner, without expanding its operations; and for the ownership or control of an interest in a South African entity, or of securities of the South African Government or a South African entity issued prior to October 2, 1986, and the transfer or acquisition of such a pre-October 2 interest or security, where no payment, contribution of funds or assets, or credit to the entity or issuer results. Trading in South African securities issued on or after October 2, 1986 is prohibited, whether by direct purchase, purchase of American Depository Receipts evidencing such securities, mutual fund investment or reinvestment, or otherwise (§§ 545.415).
New investment does not include expenses to comply with the Code of Conduct (Sullivan principles) in § 208 of the Act (§ 545.417); market-rate sales of goods, services or technology (§ 545.418); purchase of a residence for personal use by the purchasing U.S. national (§ 545.419); opening and holding personal bank accounts in South Africa by U.S. nationals permanently resident in that country, or corporate bank accounts for U.S. businesses doing business through permanent establishments in South Africa (§ 545.420); opening and holding bank accounts in South Africa used strictly to pay for and clear transactions (§ 545.420); or charitable contributions (§ 545.421).
Since these regulations involve a foreign affairs function, the provisions of the Administrative Procedure Act, 5 U.S.C. 553, requiring notice of proposed rulemaking, opportunity for public participation, and delay in effective date, are inapplicable. Because no notice of proposed rulemaking is required for this rule, the Regulatory Flexibility Act, 5 U.S.C. 601 etseq., does not apply. Because these regulations are issued with respect to a foreign affairs function of the United States, they are not subject to Executive Order 12291 of February 17, 1981, dealing with Federal regulations. The information collection requests contained in this document are being submitted to the Office of Management and Budget (OMB) under the Paperwork Reductions Act of 1980, 44 U.S.C. 3501 et seq. Notice of OMB action on this request will be published in the Federal Register.
List of Subjects in 31 CFR Part 545
Banks, Investments, Loans, Namibia, Reporting and recordkeeping requirements, and South Africa.
PART 545—SOUTH AFRICAN TRANSACTIONS REGULATIONS
31 CFR Chapter V, Part 545, is amended as set forth below:
Authority: 50 U.S.C. 1701 et seq.; E.O. 12532, 50 FR 36861, Sept. 10, 1985; E.0.12535, 50 FR 40325, Oct. 3, 1985; Pub. L. No. 99-440, 100 Stat. 1086; H.J. Res. 756, Pub. L. 99-631, 100 Stat. 3515; E.0.12571, 51 FR 39505, Oct. 29, 1986.
§ 545.203 Effective dates.
* * * * *
§545.209 Prohibition on South African Government bank accounts.
A United States depository institution may not accept, receive, or hold a deposit account from the Government of South Africa or from any agency or entity owned or controlled by the Government of South Africa, except for such accounts which may be authorized pursuant to specific license for diplomatic or consular purposes.
§ 545.210 Prohibition on new investment in South Africa.
§ 545.306 Government of South Africa; South African Government.
§545.311 Prohibited borrower.
The term "prohibited borrower" means a person, including the Government of South Africa, to whom the making of a loan or other extension of credit is prohibited by the terms of § 545.202(a) or 545.210(a).
§ 545.313 National of the United States; U.S. national.
* * * * *
§545.317 Code of Conduct.
The term "Code of Conduct" means the Code of Conduct set forth in § 208(a) of the Act, as well as the additional actions stated in, or adopted pursuant to, that section which are intended to promote the end of the apartheid system.
§ 545.318 Controlled South African entity.
The term "controlled South African entity" means—
§ 545.319 New investment.
For purposes of § 545.210, the term "new investment" means—
§545.320 Prohibited recipient.
The term "prohibited recipient" means a person in whom the making of a new investment is prohibited pursuant to § 545.210.
§ 545.321 United States depository institution.
§ 545.404 Rescheduling existing loans.
Provided that no new funds or credits are thereby transferred or extended to a prohibited borrower or a prohibited recipient, |§ 545.202 and 545.210 do not prohibit a national of the United States or a financial institution in the United States from rescheduling loans or otherwise extending the maturities of existing loans, or from charging fees, or interest at commercially reasonable rates, in connection therewith.
§ 545.406 Loans through intermediaries.
Sections 545.202 and 545.210 prohibit a national of the United States or a financial institution in the United States from making a loan to any person in the United States or a foreign country, where the U.S. national or financial institution has reason to believe that the loan is being obtained for, or on behalf of, a prohibited borrower or recipient, and that the relevant funds or credit will be made available to a prohibited borrower or recipient.
§545.408 Approval of loans by foreign affillates
Sections 545.202 and 545.210 prohibit nationals of the United States or financial institutions in the United States from approving loans by their foreign affiliates to prohibited borrowers or recipients.
§545.409 Loan participations.
Sections 545.202 and 545.210 prohibit a national of the United States or a financial institution in the United States from purchasing, or otherwise acquiring a participation in, all or part of any loan made by any other person or persons to a prohibited borrower or recipient, regardless of the date of the original loan. However, the prohibition of § 545.202 does not apply if, in the case of a financial institution, it is obligated to make the purchase under an agreement entered into before September 9, 1985, or, in the case of a national of the United States that is not a financial institution in the United States, it is obligated to make the purchase under an agreement entered into before October 2, 1986. The prohibitions of §§ 545.202 and 545.210 do not apply to the acquisition of all or part of a loan made by any other person or persons to a prohibited borrower or recipient if such acquisition is incidental to the purchase or acquisition of an entity or all or substantially all of the assets of an entity that has previously made, or acquired a participation in, such a loan.
§545.410 South African law.
If, under applicable laws of South Africa, a national of the United States or a financial institution in the United States cannot obtain enough information from a person in South Africa to enable it reasonably to conclude that a loan is not being obtained for, or on behalf of, a prohibited borrower or recipient, or that a new investment is not being made in, or with respect to, a prohibited recipient, §§ 545.202 or 545.210 prohibits the loan or new investment.
§ 545.415 Trading in South African securities; American Depositary Receipts; recapitalizations.
§ 545.416 Trading in commodities.
Trading in commodities futures or options thereon with respect to South African commodities will be treated as the purchase or sale of the underlying goods. However, no such commodities subject to import prohibitions may be imported into the United States on or after the effective date of a relevant import prohibition.
§ 545.417 Expenses to comply with Code of Conduct.
Expenses incurred by U.S. nationals to comply with the Code of Conduct will not be treated as prohibited new investment in South Africa.
§545.418 Sales of goods, services, and technology.
Purchases and sales of goods, services, and technology in arms' length transactions on normal commercial terms will generally not be treated as new investment in South Africa for purposes of the prohibition in § 545.210.
§ 545.419 Real estate acquisition.
The purchase of real estate in South Africa for use as a residence by the purchasing individual U.S. national will not be treated as new investment in South Africa for purposes of § 545.210,provided that no commercial or rental use is made of such real estate.
§545.420 Bank accounts in South Africa.
§ 545.421 Charitable contributions.
Contributions to charitable organizations engaged in social welfare, public health, religious, educational, and emergency relief activities in South Africa will not be treated as "new investments" for purposes of § 545.210.
§ 545.422 Foreign exchange transactions.
A foreign exchange transaction executed at current market prices, for immediate or future delivery but without an extension of credit, will not be deemed a "loan" as defined in § 545.304.
§545.423 Confirmation of short-term trade credits.
The confirmation of short-term trade financing instruments, such as commercial letters of credit, is authorized, provided that the instrument being confirmed is not within the definition of "loan" in § 545.304.
§545.424 Firm owned by Mack South Africans.
For purposes of § 545.210, the term "firm owned by black South Africans" means an entity owned by South African victims of apartheid.
§545.603 Registration of new investment in firms owned by black South Africans.
Every person m«Kng a new investment in a firm owned by black South Africans pursuant to the exception to the prohibition on new investment in § 545.210(b) shall, prior to making such new investment, file with the Office of Foreign Assets Control a report with respect to such investment, including: (a) The name and address of the U.S. national making the investment; (b) the name of the black-owned firms, (c) full information on the black-owned firm's ownership, sufficient to demonstrate its eligibility under § 545.210(b); and (d) the amount and nature of the U.S. national's new investment.
§ 545.604 Registration of contributions necessary to enable a controlled South African entity to operate in an economically sound manner.
Every person making a contribution necessary to enable a controlled South African entity to operate in an economically sound manner, pursuant to the exception to the prohibition on new investment in § 545.317(c)(2), shall, prior to making such contribution, file with the Office of Foreign Assets Control a report with respect to such contribution, including: (a) the name and address of the U.S. national making the contribution; (b) the name and address of the controlled South African entity; (c) full information on the circumstances requiring the contribution, sufficient to demonstrate its eligibility under § 545.319(c)(2); and (d) the amount and nature of the U.S. national's contribution.
§ 545.901 Paperwork Reduction Act notice.
The information collection requirements in §§ 545.503, 545.504, 545.601, and 545.602 have been approved by the Office of Management and Budget (OMB) and have been assigned control number 1505-0091. The information collection requirements of § 545.807 have been approved by OMB and have been assigned control number 1505-0097.
Dated: December 12, 1986.
Dennis M. O'Connell,
Director, Office of Foreign Assets Control.
Approved: December 19, 1986.
Francis A. Keating II,
Assistant Secretary (Enforcement).
[FR Doc. 88-29172 Filed 12-23-88; 4:42 pm]
BILLING CODE 4810-25-M