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: Final 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: July 25, 2001.

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 (``LEU'') for use in commercial reactors and sold to 
the United States in the form of LEU. 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

[[Page 38555]]

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'').
    Interim rules were published in the Federal Register on January 12, 
2001, with an invitation for public comment. Public comments were 
received and considered and these final rules incorporate certain 
comments as appropriate.
    Section 540.201 of subpart B of the Regulations implements section 
2 of Executive Order 13159 (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. The 
property covered is defined by the Executive Order and public comments 
that may have altered or expanded this definition were not adopted. 
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. Public comments suggesting clarification of the effect 
of transfers violating the provisions of Sec. 540.202 were adopted.
    Subpart C provides definitions of terms used in the Regulations. 
Public comments suggesting consistency in language and correcting a 
spelling error are reflected in these final rules. Other public 
comments suggesting edits to the definitions of the terms entity, 31 
CFR 540.303, HEU Agreements, 31 CFR 540.305, Property and property 
interests, 31 CFR 540.311, and Uranium enrichment, 31 CFR 540.316 were 
not adopted as they are unnecessary to those definitions.
    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. Public comments suggesting inclusion within 
this general license of authorization for U.S. financial institutions 
to perform U.S. dollar clearance and exchange transactions were 
adopted. Public comments suggesting designation of priority license 
applicants for whom different licensing procedures would be established 
were not adopted. Similarly, public comments suggesting a regulation 
identifying specific persons or classes of persons who qualify as 
license applicants also were not adopted. 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, all written public comments 
received were fully considered.
    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

    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 revising 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
Sec.
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
Sec.
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 (HEU).
540.307  Licenses; general and specific.
540.308  Low Enriched Uranium (LEU).
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
Sec.
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.

[[Page 38556]]

540.405  Transactions incidental to a licensed transaction.
Subpart E--Licenses, Authorizations, and Statements of Licensing Policy
Sec.
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
Sec.
540.601  Records and reports.
Subpart G--Penalties
Sec.
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, 3 CFR Comp., p. 277.

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 of 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, 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) The Director of the Office of Foreign Assets Control may, in 
his discretion, retroactively license a transfer of property that is 
null and void or unenforceable by virtue of the provisions of this 
section so that such a transfer 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.


[[Page 38557]]




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) Except as otherwise licensed, authorized or directed by OFAC, 
funds subject to this section may not be invested, used for collateral 
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, corporation, or other organization.


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 
for or 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 Nuklear Gmbh and OAO Techsnabexport, and 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.

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.

[[Page 38558]]

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.


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.

[[Page 38559]]

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.

    Except as otherwise authorized, licensed or directed by the Office 
of Foreign Assets Control, 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. U.S. 
financial institutions are authorized to engage in routine currency 
exchange transfers involving funds directly associated with the 
implementation of the HEU agreements that flow through correspondence 
accounts in U.S. financial institutions.

    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.

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 (Pub. L. 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.

[[Page 38560]]

    (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 Sec. 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 
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

[[Page 38561]]

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 a 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 a federal district court.

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 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: June 6, 2001.
Loren L. Dohm,
Acting Director, Office of Foreign Assets Control.
    Approved: June 25, 2001.
James F. Sloan,
Acting Under Secretary (Enforcement), Department of the Treasury.
[FR Doc. 01-18372 Filed 7-24-01; 8:45 am]
BILLING CODE 4810-25-P