On August 6, 2020, the White House issued a pair of Executive Orders (EOs) (available here and here) under the International Emergency Economic Powers Act (IEEPA) that could limit US users’ access to mobile apps from China’s Tencent Holdings Ltd. (Tencent) and ByteDance Ltd. (ByteDance). The EOs, which direct the Commerce Department to identify prohibited transactions within 45 days, could also limit other transactions involving US-origin goods, technology, and software to the companies and certain subsidiaries.

The two EOs build on the IEEPA national emergency declared in EO 13873 of May 15, 2019, Securing the Information and Communications Technology and Services Supply Chain, which, among other things, directs the Commerce Department to restrict the “acquisition, importation, transfer, installation, dealing in, or use of any information and communications technology or service” that is “designed, developed, manufactured, or supplied, by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary.”

(Click here to read Steptoe’s earlier blog post on EO 13873.)

Continue Reading Executive Orders Aim to Restrict US Dealings with Chinese App Makers TenCent, ByteDance within 45 Days

In over half a year, the virus has spread world-wide—leaving in its trail tragic losses in virtually every country it has touched. While the actual “costs” of the virus will likely never be quantified, the question of “who should pay for this?” is already being posed in American courts.

To date, over a dozen lawsuits have already been filed against China with plaintiffs ranging from putative classes of medical providers and small businesses to laid off workers to the state of Missouri. Each of these cases remains in its early stages, and, while the allegations are wide-ranging, most of the cases will start with the same bedrock question—can a sovereign government, like China, be sued in American courts for losses due to the virus?

Click here to read Steptoe’s Client Alert for more information on how sovereign immunity could play out in COVID-19 litigation.

Skirting over financial crime due diligence when considering a quick transaction in an emerging market can cost you dearly down the line when regulators or shareholders discover issues with regulatory compliance after your transaction. The safer and ultimately more cost-effective course may be an independent assessment of the financial crimes compliance risks before completing cross-border transactions. Recent, high-profile government enforcement actions against respected companies and high-stakes civil litigation by shareholders, investors, and corporate officers, reinforce what is at stake.

Responsibility for financial crimes due diligence often falls to deal counsel, along with other tasks required to “get the deal through.” However, there is a case to be made for hiring independent compliance counsel for FCC due diligence. For starters, an independent counsel can bring a neutral perspective from the deal counsel who may overlook issues that are not central to completing the transaction.

Click here for Steptoe’s Client Advisory explaining 10 reasons for considering hiring due diligence counsel on your next deal.

On July 16, 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued two new Ukraine-/Russia-related general licenses:  General License 15I, Authorizing Certain Activities Involving GAZ Group, which replaces General License 15H; and General License 13O, Authorizing Certain Transactions Necessary to Divest or Transfer Debt, Equity, or Other Holdings in GAZ Group, which replaces General License 13N.  OFAC also updated nine related FAQs – 570, 571, 586, 588, 589, 590, 591, 592, and 625 – on July 22.

Most notably, General License 15I expands the scope of the pre-existing authorization (covering only maintenance, wind-down and a very limited set of additional activities involving GAZ Group) to include new activities relating to the manufacture and sale of vehicles and related products.  Although many activities were able to continue under the prior GAZ Group general licenses (due to the expansive definition of “maintenance” in FAQ 625), this appears to be an important development for GAZ Group and for prospective or new business partners of GAZ Group.  OFAC has not disclosed any specific developments triggering this change, such as with respect to the ownership or control of Oleg Deripaska in GAZ Group, although the new license does provide for new reporting obligations related to ownership and control of GAZ Group.

General License 15I authorizes certain activities, subject to numerous limitations stated therein, for 190 days – from July 16, 2020 through 12:01 a.m. eastern standard time, January 22, 2021 – which is over a month longer than any of its predecessors.

Continue Reading OFAC Authorizes Additional Activities Involving GAZ Group

On July 31, The Commerce Department’s Bureau of Industry and Security (BIS) will publish a notification in the Federal Register amending the Export Administration Regulations (EAR) to suspend the availability of all License Exceptions for Hong Kong that provide differential treatment as compared to those available to China.  This EAR change implements the announcement made on BIS’s website on June 30, 2020 that these License Exceptions are no longer available for exports and reexports to Hong Kong, and transfers within Hong Kong, of all items subject to the EAR.  To implement the change, BIS is adding a new, Hong Kong-specific paragraph to EAR Section 740.2 (“Restrictions on all License Exceptions”), as well as making some other conforming changes to Section 740.2.

BIS is taking this action as part of revised U.S. policy toward Hong Kong in response to the newly imposed security measures on Hong Kong by China.  Although the Federal Register notice does not make other changes to the EAR regarding Hong Kong or China, the notice indicates that BIS, in consultation with other executive branch agencies, continues to review the EAR to assess whether additional amendments are warranted.

On July 3, the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC) issued the second edition of the Resource Guide to the US Foreign Corrupt Practices Act (the 2020 Guide), the first full-scope overhaul of the Resource Guide since its issuance in 2012.

As with the original edition, the 2020 Guide will be an important desktop reference for all whose work touches this area, if not as the definitive word, at least to provide the current perspective of the key US enforcement agencies.

Click here to read Steptoe’s full client alert distilling the top 10 changes to the 2020 Guide, along with a more detailed discussion of these and other updates.

On July 15, 2020, the U.S. Department of State updated its public guidance on Section 232 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), which authorizes (but does not require) the president to impose sanctions on “a person” that “knowingly” invests in Russian energy export pipelines, or that sells Russia goods, technology or services for such pipelines where certain monetary thresholds are met.

The Department of State announced that the purpose of the updated guidance is “to expand the focus of implementation of Section 232 to address certain growing threats to U.S. national security and foreign policy interests related to Russian energy export pipelines, particularly with respect to Nord Stream 2 and the second line of TurkStream.” This is a significant change, as the prior public guidance stated “The focus of implementation of Section 232 sanctions would be on . . . [Russian] energy export pipeline projects initiated on or after August 2, 2017 . . . For the purposes of Section 232, a project is considered to have been initiated when a contract for the project is signed. Investments and loan agreements made prior to August 2, 2017 would not be subject to Section 232 sanctions.”  This prior guidance had suggested that the focus of implementation of Section 232 would not be on Nord Stream 2 or Turkstream (either line), because these projects were “initiated” before August 2, 2017.

Continue Reading US Clarifies Secondary Sanctions on Nord Stream 2

Beginning August 13, 2020, executive agencies will be prohibited from contracting with companies that use “covered telecommunications products or services” (i.e., technologies from certain China-based companies) – even if the use is unrelated to performance of federal contracts.

On July 13, 2020, the FAR Council issued an interim rule amending the Federal Acquisition Regulation (FAR) to implement section 889(a)(1)(B) of the National Defense Authorization Act (NDAA) for FY 2019. Section 889 has several rules prohibiting the use of federal funding for the procurement of the “covered telecommunications products or services,” including Section 889(a)(1)(A), which went into effect in August 2019 and prohibits federal agencies from procuring any equipment, system, or service that uses covered telecommunications equipment or services as a substantial or essential component or as critical technology as part of any system.

Click here to read the full client alert explaining the potential impacts of the rule on US federal contractors and their suppliers.

On July 14, President Trump issued an Executive Order (EO) strengthening and expanding sanctions mandated by Congress under the Hong Kong Autonomy Act (HKAA), which the president also signed into law on July 14. In particular, the EO introduces blocking sanctions against foreign persons pursuant to the International Emergency Economic Powers Act in response to recent developments in Hong Kong.

The EO also directs US agencies to undertake steps to suspend or eliminate different and preferential treatment for Hong Kong pursuant to section 2020 of the United States-Hong Kong Policy Act of 1992.

Click here to read the full client alert which summarizes the background of the EO, sanctions provisions of the HKAA, and open questions that may be addressed by the US government in the coming weeks.

For decades the US Department of Justice (DOJ) has investigated and prosecuted individuals for violations of the Foreign Corrupt Practices Act (FCPA) and other US federal laws with an extraterritorial focus, even if the conduct transpired outside the United States.  For experienced people doing business across borders, that is not a new topic.  However, what may be unknown to some executives, entrepreneurs, and others is the possibility of also running afoul of the US Internal Revenue Service (IRS) and DOJ Tax Division.

Many corporate executives in China, India, and elsewhere studied at universities in the United States and obtained US citizenship or permanent resident status before returning to their native country to start their own business or to rise up the ranks at an existing company.  There are also many native-born Americans working and living overseas.  This is notable because US citizens and permanent residents are subject to US federal income tax on their worldwide income no matter where earned.  In the author’s experience, having practiced in Hong Kong for several years, this reporting obligation has not historically been widely understood by many expats.  IRS enforcement mechanisms, such as the Foreign Account Tax Compliance Act (FATCA) and tax information exchange agreements, are improving but there is still a very large “tax gap” of unreported tax liability.  Some expats living abroad gamble that the IRS will not uncover their noncompliance, while others are simply unaware of or confused about their reporting obligations.

Continue Reading US Tax Compliance Adds to Risks for US Citizens, Permanent Residents Abroad