On August 8, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the imposition of sanctions on the decentralized digital asset mixer Tornado Cash. The action marks the first time OFAC has targeted an on-chain decentralized protocol. To date, OFAC has not issued any guidance specific to decentralized finance (DeFi) as part of its broader sanctions guidance for the “virtual currency” industry, but the Tornado Cash action lays down an important marker and makes clear that OFAC will target projects or protocols engaged in illicit activity regardless of their centralized or decentralized status. (Our prior blog post on OFAC’s general virtual currency guidance is available here).
On August 2, 2022, the Committee on Foreign Investment in the United States (“CFIUS” or “Committee”) released its statutorily required Annual Report to Congress for Calendar Year 2021. CFIUS is the inter-agency body charged with conducting national security reviews for certain foreign investments in the United States. While the CFIUS process is generally confidential, the annual report provides aggregate data on certain CFIUS activities and offers industry a window into current Committee trends.
On July 19, 2022, the State Department’s Directorate of Defense Trade Controls (DDTC) published Open General License (OGL) No. 1 and OGL No. 2, which authorize reexports to or retransfers within the U.K., Canada, and Australia of certain types of defense articles, services and technical data controlled under the International Traffic in Arms Regulations (ITAR). In good news for industry, these groundbreaking ITAR provisions are relatively simple and easy to use. Both OGLs are valid for one year, effective August 1, 2022, through July 31, 2023.
On July 21, 2022, further amendments to the UK’s Russia sanctions regime were laid before parliament. The new measures introduced under the Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022 (“Amendment 14”) include the coal, oil and gold import bans and ban on the provision of professional and business services previously announced by the UK government. Amendment 14 also introduces trade restrictions targeting a significant number of new “G7 dependency and further” goods and expands existing restrictions with respect to energy-related goods and services.
Continue Reading UK Introduces Long Awaited Russia Sanctions Legislation Banning Coal, Oil and Gold Imports, and the Provision of Professional and Business Services to Russia and Further Expands Trade Restrictions
On July 19, 2022, President Biden issued Executive Order (EO) 14078 to strengthen the US Government’s efforts to combat and deter hostage-taking and wrongful detention of US nationals abroad. Issued pursuant to the Robert Levinson Hostage Recovery and Hostage-Taking Accountability Act (Levinson Act), the International Emergency Economic Powers Act, and other authorities, EO 14078 strengthens existing hostage recovery activities and infrastructure and authorizes the Secretary of State, in consultation with the Secretary of the Treasury and the Attorney General, to impose blocking sanctions on persons determined to be responsible for or complicit in, to have directly or indirectly engaged in, or to be responsible for ordering, controlling, or otherwise directing, the hostage-taking of a United States national or the wrongful detention of a United States national abroad, or to have attempted to engage in such activity.
On July 18, 2022, further amendments to the UK’s Russia sanctions regime came into force in response to Russia’s invasion of Ukraine. The new measures introduced under the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022 (“Amendment 13”) include an expansion of the designation criteria pursuant to which individuals and entities can be made subject to UK asset freeze sanctions and the introduction of a new trade sanctions exception for humanitarian assistance activity in non-government controlled areas of the Donetsk and Luhansk oblasts. Amendment 13 also expands certain definitions in relation to the interpretation of the concept of “ownership” of ships and aircraft subject to UK sanctions measures.
On July 19, 2022, new financial sanctions measures also came into force targeting certain new investment activities in relation to Russia. The measures, made pursuant to the Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022 (“Amendment 12”), include restrictions on the acquisition of any ownership interest in land in Russia and in entities connected with – or having a place of business in – Russia, as well as a prohibition on the establishment of commercial arrangements such as branches in Russia and joint ventures with persons connected with Russia. Investment services directly related to those activities also are prohibited by Amendment 12.
Continue Reading UK Expands Powers of Designation Under Russia Sanctions Regime; Prohibits Additional Types of New Investment in Russia and Introduces New Trade Sanctions Exception for Humanitarian Assistance
On June 28, 2022, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Joint Alert entitled “FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Increased Vigilance for Potential Russian and Belarusian Export Control Evasion Attempts” (“Joint Alert”). The Joint Alert marks the first time FinCEN and BIS have collaborated on an alert of this nature and has important implications for both financial institutions and exporters/international trade parties.
The National Economic Crime Centre (NECC), a multi-agency unit in the National Crime Agency (NCA), and HM Treasury’s Office of Financial Sanctions Implementation (OFSI) have published a “red alert” on financial sanctions evasion typologies by Russian elites and enablers (Red Alert) that synthesizes information from a range of UK law enforcement agencies as well as industry to identify common techniques designated persons and their enablers are suspected to be using to evade financial sanctions.
The Red Alert provides a series of sanctions evasion indicators identified from real world case studies. It also sets out recommendations as to the level and type of due diligence that companies should perform on higher risk transactions and counterparties. The stated purpose of the Red Alert is to combat and disrupt financial sanctions evasion by complementing the private sector’s existing knowledge of these issues and facilitating preventative action in the form of enhanced business processes and procedures to identify and mitigate the significant exposure that many sectors of industry have to sanctions evasion following the unparalleled volume of sanctions designations introduced since the start of the Russian invasion of Ukraine.
In practical terms, the Red Alert offers a timely reminder of the challenges companies can face in effectively identifying and mitigating the sanctions risks posed by higher risk transactions and counterparties and underscores the importance of companies undertaking robust due diligence that is calibrated to address appropriately the sanctions risks, including sanctions evasion risks, posed by such transactions and business relationships. In particular, companies should carefully consider whether their existing sanctions compliance processes take into consideration the sanctions evasion warning flags and due diligence recommendations outlined in the Red Alert.
On 5 July 2022, the UK Government introduced a further round of financial, trade and transport sanctions against Belarus in response to its continuing support of Russia’s invasion of Ukraine. The new sanctions measures were implemented pursuant to The Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2022 (“Amended Regulations”), which extends a range of sanctions measures previously introduced against Russia to Belarus.
The Department of Commerce’s Bureau of Industry and Security (BIS) has announced policy changes designed to strengthen its administrative enforcement of U.S. export controls. In a memorandum released on June 30, Matthew Axelrod, Assistant Secretary for Export Enforcement at BIS, outlined four new policy changes including (1) significantly higher penalties for egregious violations, (2) elimination of no admit/no deny settlements, (3) offering non-monetary settlement agreements in cases where the violations “do not reflect serious national security harm” but are more serious than cases that receive warnings or no-action letters, and (4) implementation of a dual-track processing system for Voluntary Self Disclosures (VSDs) involving minor or technical infractions and those involving potentially more serious violations. These changes have the potential to significantly increase export enforcement risks for U.S. and non-U.S. companies, and suggest it is time for exporters and reexporters to conduct internal audits, assessments, and monitoring for potential compliance gaps. It may be necessary for some exporters to consider tailoring and enhancing internal export compliance programs, processes, and resources to avoid costly penalties, investigations, business disruptions, and brand damage.