On April 19, 2017, a US Department of Commerce (DOC) Bureau of Industry and Security (BIS) rule implementing new documentation requirements for certain US exports or reexports to and from Hong Kong will take effect. The DOC published the final rule on January 19, 2017. The new rule emphasizes Hong Kong import and export licensing requirements that affect a variety of goods. It obligates companies using a DOC license or license exception pursuant to the US Export Administration Regulations (EAR) to obtain a Hong Kong import license or a written statement that a Hong Kong license is not required when specific items are exported or reexported to Hong Kong. This rule imposes a similar requirement for reexports from Hong Kong. For more information on the rule and how to comply, please see our advisory.
On February 3, 2017, the US Treasury Department’s Office of Foreign Assets Control issued a finding of violation against Taiwan-based B Whale Corp. (BWC), a member of the Taiwan-based shipping company TMT Group. The finding of violation was issued for activity occurring entirely outside the United States, based on the jurisdictional finding that “BWC was a US person … because it was present in the United States for the bankruptcy proceedings when the transaction occurred.” The case has led to much speculation on whether OFAC has asserted a broad new theory of jurisdiction that may now impact non-US companies conducting business entirely outside the United States. For an overview of some of the key facts of the case, as well as observations of OFAC’s assertion of jurisdiction in the context of the particular facts and US court proceeding, please see the full Law360 article here, authored by Peter Jeydel, Ed Krauland, and Fil Agusti of Steptoe.
On March 8, 2016, the US Department of Commerce’s Bureau of Industry and Security (“BIS”) added major Chinese telecommunications company Zhongxing Telecommunications Equipment (“ZTE”) and three ZTE affiliates to the BIS Entity List, alleging that the ZTE entities developed a scheme to re-export controlled items to Iran in violation of US export controls and sanctions laws. (See Steptoe advisory here for more information.) BIS subsequently published and renewed several times a temporary general license authorizing exports, reexports, and transfers to ZTE and its affiliate ZTE Kangxun without a license.
After months of negotiation, on March 7, 2017, ZTE entered into a settlement agreement with the US Department of the Treasury’s Office of Foreign Assets Control, the Department of Justice (“DOJ”), and BIS. As part of the settlement, ZTE has agreed to enter a guilty plea for conspiring to violate the International Emergency Economic Powers Act by illegally shipping US-origin items to Iran, obstructing justice, and making a material false statement. ZTE also faces a combined penalty of $1.19 billion; BIS will suspend $300 million of this obligation, which ZTE will be required to pay if it violates the settlement agreement. ZTE will have ongoing compliance obligations, including agreeing to a 3-year corporate probation period, submitting to an independent corporate compliance monitor for review and reporting on ZTE’s export compliance program, and cooperating fully with DOJ regarding any criminal investigation by US law enforcement authorities. Please check the blog in coming days for more insights and analysis from Steptoe.
The Trump Administration recently floated the idea of designating Iran’s Islamic Revolutionary Guard Corps (IRGC) and the Muslim Brotherhood as Foreign Terrorist Organizations (FTOs). This post focuses on the potential designation of the IRGC as an FTO, while a future post will discuss the implications of designating the Muslim Brotherhood as an FTO.
The IRGC proposal, reportedly slated to be rolled out in February, apparently has stalled in the face of objections from the U.S. Department of State and the U.S. Department of Defense. Fueling the reported objections have been concerns over Iran’s role in combating the Islamic State (IS), particularly in Iraq, where IRGC-backed militias have played a key role in combating IS forces.
In addition to raising such national security concerns, a designation of the IRGC as an FTO could seriously impact sanctions relief under the Joint Comprehensive Plan of Action (JCPOA) agreement regarding Iran’s nuclear program. How so? By making it a criminal offense for all persons worldwide to provide “material support” to the IRGC, which, as discussed in a previous post and as discussed below, reportedly controls major sectors of Iran’s economy.
The Russia Sanctions Review Act of 2017, as set out in companion House and Senate bills, seems to be gaining some traction. If enacted, it would codify into law the core portions of the U.S. sanctions regime on Russia and provide for congressional review of any proposed sanctions relief by the President, not unlike the Iran Nuclear Agreement Review Act of 2015, on which we previously advised. The Senate bill is sponsored by Sen. Lindsey Graham (R-SC). While it previously had an equal number of backers from each party, it currently has three Republican and 14 Democrat co-sponsors, as additional members have been signing on in recent weeks. The House version is sponsored by Minority Whip Steny Hoyer (D-MD) and also has bipartisan support. It too has added several new co-sponsors from each party over the past two weeks, which could be a sign of developing momentum. The House version currently has 11 Republican and 16 Democrat co-sponsors. If the Republican leadership in Congress decides to move forward with some type of legislation on Russia sanctions, this bill may be more palatable than the more far-reaching Countering Russian Hostilities Act of 2017, on which we previously advised. However, any congressional action in this area will depend in the first instance on how the Trump Administration’s Russia policy develops, and any resulting public pressure for Congress to take legislative action on Russia policy. Neither the Russia Sanctions Review Act nor the Countering Russian Hostilities Act appears to be a priority for quick movement at this time. Continue Reading
Financial institutions long have complained that current anti-money laundering (AML) regulations are costly and ill-suited to prevent crime and terrorism. According to one study, the cost of compliance with AML rules approaches $8 billion. The rise in compliance costs has coincided with a sharp increase in both the number and amount of penalties assessed by the Financial Crimes Enforcement Network (FinCEN). Continue Reading
On February 24, 2017, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) is publishing in the Federal Register a notice again extending its temporary general license for exports, reexports, and in country transfers to Zhongxing Telecommunications Equipment (ZTE) Corporation (ZTE Corporation) and ZTE Kangxun. BIS is extending the period of the license from its current expiration date of February 27, 2017 to March 29, 2017. BIS established the license in a notice published on March 24, 2016 (81 Fed. Reg. 15,633) after adding the two ZTE entities to its Entity List on March 8, 2016 (81 Fed. Reg. 12,004), and has extended the temporary license several times since that time. See our previous posts here, here, and here. The temporary general license allows the use of the authority of No License Required (NLR) and license exceptions that were available for exports to the two entities prior to March 8th. BIS has previously indicated that it will continue to renew the temporary general license if the U.S. government determines that ZTE Corporation and ZTE Kangxun continue to cooperate with the U.S. government in resolving the matter that resulted in their addition to the Entity List. According to the March 8th notice, that issue involved a scheme developed by ZTE Corporation to reexport controlled items to Iran contrary to U.S. law.
The year 2016 ushered in a flurry of activity in global anti-corruption and US Foreign Corrupt Practices Act (FCPA) enforcement. After 2015, when the US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) brought their lowest number of enforcement actions in a decade, 2016 not only saw the largest number and highest dollar-value of FCPA corporate enforcement actions in a single year, but reflected the impact of new policy directions as well. In 2015, the agencies instituted a combined total of 23 FCPA-related enforcement actions, 11 by the DOJ, and 12 by the SEC, accounting for a total of US $142.7 million in monetary sanctions. In contrast, 2016 saw 37 SEC and 24 DOJ enforcement actions resulting in US $2.43 billion in monetary penalties (including disgorgement) to be paid to the federal Treasury. The 2016 numbers were not just the result of a few, “blockbuster” matters as has occurred in some prior years, but instead a larger number of all types of settlements: large matters imposing monetary sanctions running into the hundreds of millions of dollars; prosecutions of individuals; and a number of smaller resolutions by the SEC where the DOJ either would not or could not prosecute. This increase in FCPA activity spilled into the first weeks of 2017 as well, with several corporate and individual enforcement actions announced just after the new year. For more information, please see our advisory.
In this age of heightened national security concerns, it might seem farfetched that an FBI field office was being housed in a foreign owned building. Yet, according to a new Government Accountability Office (“GAO”) report, it is not only true but a fairly common phenomenon. On January 30, 2017, the GAO released a new report entitled “GSA Should Inform Tenant Agencies When Leasing High-Security Space from Foreign Owners.” The report found that the General Services Administration (“GSA”) is leasing “high-security” space in 20 buildings with foreign owners. The leased space is used by 26 agencies and in some cases houses classified information, law enforcement evidence, and other sensitive data. The buildings in question are owned by entities from countries including Canada, China, Israel, Japan, and South Korea.
On February 3, 2017, a temporary restraining order (TRO) was issued in response to legal challenges to President Trump’s immigration and travel-related Executive Order (EO), “Protecting the Nation from Foreign Terrorist Entry into the United States.” The TRO halts the 90-day travel prohibition against citizens and nationals of seven designated countries. The TRO has survived an initial, emergency challenge filed by the US Department of Justice (DOJ); however, ongoing challenges to both the EO and TRO remain. Developments are moving quickly in the case currently pending with the United States Court of Appeals for the Ninth Circuit. For more information, please see our advisory.