On April 16, 2018, the U.S. Department of Commerce imposed a denial order involving Zhongxing Telecommunications Equipment Corporation of Shenzhen, China (ZTE Corporation) and ZTE Kangxun Telecommunications Ltd of Hi-New Shenzhen, China (ZTE Kangxun). The denial order, effective immediately, restricts ZTE Corporation and ZTE Kangxun from participating in any way in any transaction involving any hardware, software, or technology that is exported / re-exported or to be exported / re-exported from the United States and is subject to the U.S. Export Administration Regulations (EAR). The denial order also restricts any person from engaging, directly or indirectly, in certain EAR-related activities involving ZTE Corporation or ZTE Kangxun. Restricted activities include exporting or re-exporting to ZTE Corporation or ZTE Kangxun any hardware, software, or technology subject to the EAR (including U.S. origin items abroad and foreign-made items with more than 25 percent U.S. content), as well as facilitating acquisition of such items by the ZTE entities, and servicing EAR-controlled items that are owned, possessed or controlled by the ZTE entities. Restrictions on servicing also include servicing items in ZTE’s possession that are not subject to the EAR if, in providing the service, a person uses an item that is subject to the EAR. “Service” in this context means installation, maintenance, repair, modification, or testing. The restrictions in the order last for a period of seven years, until March 13, 2025. The Commerce Department’s action follows a March 23, 2017 settlement agreement related to ZTE activities in violation of U.S. law regarding Iran and North Korea. Commerce found that those activities involved “an elaborate scheme to hide the unlicensed transactions from the U.S. Government, by deleting, destroying, removing, or sanitizing materials and information.” Commerce activated the suspended denial order in reaction to Commerce’s findings that ZTE had continued to make false statements to Commerce, particularly regarding disciplinary action for ZTE employees involved in the activity with Iran and North Korea. Commerce stated that the activity was “part of an unacceptable pattern of false and misleading statements and related actions”. This denial order is already having a significant impact on the two entities, with collateral effects on affiliates, and on all entities who are in the supply chain or provide support services for ZTE where they have items subject to the EAR to be used in the relationship.
FCPA/Anti-Corruption Developments: 2017 Year in Review & Q1 2018 Preview
2017 was a year of transition for US enforcement of the Foreign Corrupt Practices Act (FCPA) and saw a substantial increase in global anti-corruption enforcement. As we advised in our 2017 FCPA Mid-Year Review, last year started with a flurry of FCPA enforcement at the conclusion of the Obama Administration, followed by a prolonged lull as the Trump Administration reviewed enforcement policies and filled key positions at the US Department of Justice (DOJ) and Securities and Exchange Commission (SEC). FCPA enforcement resumed in earnest in the third and fourth quarters of 2017, putting the year well within the usual range of reported corporate and individual prosecutions for the last five years. Those enforcement trends continued in the first quarter of 2018, with both the DOJ and SEC inking corporate resolutions.
For more information, please see our advisory.
New Sanctions Against Russian Oligarchs, Officials, and Companies May Have Significant Impact
Following up on our earlier blog post, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new blocking sanctions on April 6, 2018 against seven Russian oligarchs, 12 entities owned or controlled by those oligarchs, 17 senior Russian government officials, a Russian weapons trading company, and a banking subsidiary owned by the weapons trading company. Treasury Secretary Steven Mnuchin stated that the sanctions were issued in response to Russia’s “range of malign activity around the globe,” including actions in Crimea, Eastern Ukraine, and Syria, and “Russian oligarchs and elites who profit from this corrupt system will no longer be insulated from the consequences of their government’s destabilizing activities.”
For more information, please see our advisory.
How Far Can the U.S. Take Trade and Investment Restrictions on China?
Very far, under existing U.S. law. The authority already available to the President under the International Emergency Economic Powers Act (IEEPA) is vast, and could be applied to Chinese investments with the (relatively) simple declaration of a national emergency related to such investments. Reports have already been swirling about a plan by the Trump Administration to use IEEPA to impose tighter restrictions on Chinese investment in sensitive sectors of the U.S. economy, or to implement by executive order parts of the CFIUS reform legislation under consideration by Congress. But IEEPA could be used far more broadly than that.
Although rumors of new trade and investment restrictions against China have been in circulation for several months, the President’s March 22 order in response to the “Section 301 investigation” on Chinese trade practices has brought those rumors into sharper focus. In his order, President Trump directed the Secretary of the Treasury to develop options “under any available statutory authority” that could be used “to address concerns about investment in the United States directed or facilitated by China in industries or technologies deemed important to the United States.” Continue Reading
Rising Tensions in the US-China Trade Relationship
The Office of the US Trade Representative (USTR) published on April 3, 2018 a proposed list of products imported from China to target with an additional 25% tariff. These tariffs have been proposed in response to USTR’s findings in an investigation conducted under Section 301 of the Trade Act of 1974 (Section 301) and would cover $45-50 billion in Chinese exports. USTR concluded in the investigation that China engages in unreasonable and discriminatory practices — including the forced transfer of US technology to Chinese companies and the Chinese government and unfair conditions on IP licensing — that burden or restrict US commerce. The list of 1,333 articles targeted for additional duty primarily covers machinery, metals, electronics, and advanced medical products. USTR has established a process for interested parties to comment on the proposed list of products through written submissions as well as participation at a public hearing.
For more information, please see our advisory.
OFAC Sanctions Russian Oligarchs and Major Russian Companies
Today, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) designated several Russian individuals and companies as Specially Designated Nationals (SDNs). Specifically, in response to what Treasury Secretary Steven Mnuchin described as Russia’s “malign activity”, OFAC indicated that it sanctioned
seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.
In making the new designations, OFAC issued a press release, web notice, General License No. 12 under the Ukraine-Related Sanctions Regulations (URSR, 31 C.F.R. Part 589), General License No. 13 under the URSR, eight new Frequently Asked Questions (FAQs) related to the new designations, and one updated FAQ related to the Countering America’s Adversaries Through Sanctions Act (CAATSA).
OFAC made the designations pursuant to Executive Orders 13661 and 13662, which are focused on the crisis in Ukraine, as well as Executive Order 13582, which relates to the Syrian civil war.
Buy America 2.0 Bill Continues Emphasis on Domestic Purchasing
On March 1, House Democrats introduced the Buy America 2.0 Act (Buy America 2.0), H.R. 5137, continuing the recent emphasis on imposing “Buy America” requirements on federally funded projects. Other related actions include President Trump’s April 2018 Executive Order (EO) 13788, Buy American – Hire American and the BuyAmerican.gov Act of 2018 (S.2284). Buy America 2.0 has been referred to the House committees on Transportation and Infrastructure and Energy and Commerce.
For more information, please see our advisory.
Reminder: Webinar Tomorrow on Application of U.S. Export Controls Outside the United States
Tomorrow at 11:00 AM EST, Anthony Rapa will present “Dual-Use Export Controls: Application of U.S. Export Controls Outside the U.S.”, a webinar hosted by Federal Publications. You can sign up for the webinar here.
President Imposes First US Economic Sanctions Against Venezuelan Digital Currency
On March 19, President Trump issued Executive Order 13827, which imposes the first US sanctions against a virtual currency – namely, a digital currency known as the “petro” that has been issued by the Government of Venezuela (GOV). Specifically, the executive order prohibits “all transactions related to, provision of financing for, and other dealings in, by a United States person or within the United States, any digital currency, digital coin, or digital token, that was issued by, for, or on behalf of the [GOV] on or after January 9, 2018.”
For more information, please see our advisory.
Criminal Enforcement and Significant Penalties Continue in ‘Big Bank’ AML Cases
The US Department of Justice (DOJ) and federal financial regulators announced major public enforcement actions against two large banks with significant international business dealings in February. These enforcement actions resulted in a guilty plea, a deferred prosecution agreement (DPA), and near-record fines and penalties. Both financial institutions failed to comply with Bank Secrecy Act/Anti-Money Laundering (BSA/AML) requirements. They failed, in some instances willfully, to maintain procedures reasonably designed to assure and monitor compliance with the requirements of the BSA, including detecting suspicious activity indicative of money laundering, terrorist financing, and other crimes, and reporting suspicious transactions to the Department of the Treasury (Treasury) through the filing of suspicious activity reports (SARs). In some instances, these deficiencies, along with inadequate controls and lack of strong management and reporting structures, also led to fraudulent reporting to bank regulators regarding money laundering activity.
For more information, please see our advisory.
