Photo of Brian Egan

Brian Egan

Subscribe to Brian Egan's Posts

Brian Egan advises on a number of international legal issues that affect US and foreign clients, including economic sanctions, export controls, and anti-money laundering programs; national security trade and investment reviews; international arbitration and other cross-border disputes; international cybersecurity and data privacy; and issues of public international law. He has worked in various senior legal positions for the US government, giving him keen insight into domestic and international legal matters that influence US government national security and foreign relations policies and programs. Before joining Steptoe, Brian served as the Legal Adviser to the US Department of State, the Legal Adviser to the National Security Council, Deputy White House Counsel, and Assistant General Counsel for Enforcement and Intelligence with the US Department of the Treasury. Brian has regularly appeared in public fora to speak on international legal issues, including testifying before Congress, public speaking engagements, and panel presentations.

Read Brian's full bio.

OFAC’s January 4, 2021 civil settlement with France-based Union de Banques Arabes et Françaises (“UBAF”) provides another case study of the agency’s expansive view of its jurisdiction over transactions occurring outside the United States, when the US financial system is involved even indirectly.  This case is particularly noteworthy coming after OFAC’s recent settlement with British Arab Commercial Bank, which we previously analyzed.  A key lesson from the UBAF settlement is that OFAC’s jurisdiction may extend to transactions conducted outside the United States – including internal transfers on the books of a non-US bank – that are “closely correlated” with subsequent transactions involving the US financial system.  In light of this case, non-US persons operating outside the United States should consider reviewing their OFAC risk if their activity may rely on the US financial system even indirectly.

This case focused on UBAF’s trade finance business, and specifically its business with Syrian financial institutions.  Between August 2011 and April 2013, OFAC determined that UBAF operated accounts in USD and other currencies for US-sanctioned Syrian financial institutions, “and indirectly conducted USD business on behalf of these institutions through the US financial system.”  The key word is “indirectly.”   Below is a brief discussion of each of the types of transactions that OFAC focused on in this settlement and how OFAC asserted jurisdiction over these transactions that relied on the US financial system “indirectly.”…

Continue Reading OFAC Asserts Jurisdiction over French Bank’s Internal Transfers and Foreign Exchange Transactions

On January 1, 2021, the United States enacted the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”) after the US House of Representatives and US Senate voted to override a presidential veto of the law.  Included within the NDAA are a significant number of provisions related to anti-money laundering (“AML”) and countering the financing of terrorism (“CFT”), including provisions reforming the Bank Secrecy Act (“BSA”), a collection of statutes underpinning most of the current AML regulatory framework.  These amendments, many of which have been under consideration for years, represent the most substantial AML-related reforms enacted since at least the USA PATRIOT Act of 2001.  Below, we outline ten of the most significant AML provisions contained in the NDAA.  Given the breadth of the reforms, it is particularly important for US “financial institutions” – including money services businesses (“MSBs”) and other non-traditional financial institutions subject to the BSA – to carefully review the Act to understand how their compliance obligations may have changed or may change in the future as the Act is implemented via regulation.

  1. Amendments to BSA to Explicitly Cover Digital Assets

The NDAA includes several changes to make clear that cryptocurrency and other digital assets are within the scope of the regulatory requirements of the BSA.  For example, the NDAA amends the BSA in several provisions to clarify that the BSA also may apply to “value that substitutes for currency.”  For example, Section 6201(d) of the NDAA amends 31 USC § 5312 to include “value that substitutes for currency” in the definitions of a financial agency, currency exchanger, and licensed sender of money, types of US financial institutions subject to the BSA’s AML obligations.  It also amends the definition of “monetary instrument” to include “value that substitutes for any monetary instrument.”  Section 6102(a)(3) of the NDAA, expressing the sense of Congress, explains that “although the use and trading of virtual currencies are legal practices, some terrorists and criminals, including transnational criminal organizations, seek to exploit vulnerabilities in the global financial system and increasingly rely on substitutes for currency, including emerging payment methods (such as virtual currencies), to move illicit funds.”

Some of this reflects useful codification of existing guidance from the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).  For example, FinCEN has long taken the position that “administrators” and “exchangers” of so-called “convertible virtual currency” are subject to FinCEN’s BSA regulations, and, in 2011, the agency amended the regulatory definition of “money transmission” to include the transmission of “other value that substitutes for currency.” 31 CFR § 1010.100(ff)(5)(i)(A).  (Money transmitters are a type of MSB subject to FinCEN regulation).  While FinCEN has held this position for several years, industry has raised questions regarding the scope of FinCEN’s statutory authority with respect to digital assets.  The amendments contained in the NDAA appear intended, at least in part, to resolve any doubts regarding Congress’s delegation of authority to regulate this space under the BSA.…

Continue Reading Ten Key Takeaways from the NDAA’s AML Reforms

In the latest shoe to drop in the escalation of tensions between the United States and China, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule on December 23, 2020, removing Hong Kong as a separate destination under the Export Administration Regulations (EAR). Rather than adding Hong Kong alongside the People’s Republic of China to Country Group D in the Commerce Country Chart, BIS eliminated references to it in all but a few sections of the EAR.

The removal of Hong Kong as a separate destination is a further step toward implementation of Executive Order (EO) 13936, signed July 14, 2020. (85 FR 43413, 7/17/2020). Steptoe’s prior analysis of EO 13936 is available here. EO 13936 directed relevant agencies to amend their regulations to remove differential and preferential treatment for exports, reexports, or transfers (in-country) to or within Hong Kong of all items subject to the EAR when compared to the treatment for such transactions to or within China. The final rule codifies the BIS rule issued July 31, 2020, which required that Hong Kong be treated the same as China in almost all circumstances; that is, Hong Kong would be subject to the same license requirements, license exceptions, and other applicable provisions as China under the EAR (85 FR 45998).

Specifically, in this new rule, BIS removes the entry for Hong Kong from the Commerce Country Chart at Supplement No. 1 to Part 738, since Hong Kong is now to be governed by the entry for China. Most references to Hong Kong in Part 740 of the EAR governing license exceptions were previously removed, consistent with the July 31 final rule. The Hong Kong entities listed separately on the Unverified List, Supplement No. 6 to Part 744, are now merged, alphabetically under the entries for China.…

Continue Reading Hong Kong Removed as a Separate Destination from China Under the EAR

On December 23, 2020, the US Department of Commerce, Bureau of Industry and Security (BIS) added its long-anticipated Military End User (MEU) List to the Military End Use/User Rule (MEU Rule) of the Export Administration Regulations (EAR). The initial tranche of parties included on the MEU List consists of 102 “military end users,” comprising 57 Chinese companies and 45 Russian companies. Exporters are now on notice that a license is required for exports, reexports, or transfers of any item subject to the EAR listed in Supplement No. 2 to Part 744 (MEU Item) if any of these newly-listed companies are the purchaser, intermediate or final consignee, or end user. License exceptions are generally not available for exports, reexports, or transfers of MEU Items to a MEU listed entity (unless authorized under License Exception GOV as specified). License applications for MEU Items will be reviewed with a presumption of denial.

The published MEU List is substantially revised from the draft that was previously leaked, and widely publicized a month earlier, which listed 117 companies (89 Chinese companies and 28 Russian companies).

The MEU List was published as part of a new final rule that amended the EAR’s MEU Rule, which requires licenses for shipments of MEU Items to “military end users” or for “military end uses” in China, Russia, or Venezuela. The MEU Rule places the onus on exporters to determine whether a transaction is to a military end user or for a military end use and therefore, requires a license. After the MEU Rule was amended and broadened in April 2020, exporters had requested further guidance from BIS to assist with determinations as to whether specific shipments would require licenses under the MEU Rule.  BIS subsequently published FAQs that provided some additional guidance.  The MEU List provides further guidance and clarification to exporters, by informing and providing notice to the public when an entity is considered by the US government to be a “military end user” for purposes of the MEU Rule.…

Continue Reading Bureau of Industry and Security Issues New Military End User List

On November 17, 2020, OFAC issued Venezuela General License 8G, “Authorizing Transactions Involving Petróleos de Venezuela, S.A. (PdVSA) Necessary for the Limited Maintenance of Essential Operations in Venezuela or the Wind Down of Operations in Venezuela for Certain Entities.”  General License 8G extends the pre-existing authorization for US persons to engage in certain transactions and activities involving the Venezuelan state-owned oil company PdVSA through 12:01 a.m. eastern daylight time, June 3, 2021, for Chevron, Halliburton, Schlumberger, Baker Hughes, and Weatherford International.  These are some of the most significant petroleum companies with US connections operating in Venezuela.  Aside from extending the expiration date – which had been December 1, 2020 – General License 8G is substantively the same as general License 8F, which it replaces.

Specifically, General License 8G authorizes US persons to engage in transactions and activities “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements” for the above-mentioned companies and their subsidiaries that –

  1. are for safety or the preservation of assets in Venezuela;
  2. involve PdVSA or any entity in which PdVSA owns, directly or indirectly, a 50 percent or greater interest; and
  3. were in effect prior to July 26, 2019.

…
Continue Reading OFAC Issues Updated General License 8G Extending Authorization of Transactions with PdVSA for Five Petroleum Companies

(For more recent information, see our blog post of January 15, 2021, “Updated: Amended Executive Order Makes Clear US Persons Must Divest Securities of Chinese Military Companies as Defense Department Identifies Nine More Entities.”)

On November 12, 2020, the White House issued an Executive Order (“EO”), “Addressing the Threat from Securities Investments that Finance Communist Chinese Military Companies,” which will prohibit US persons from purchasing securities of certain “Communist Chinese military companies,” including 31 companies previously identified by the US Department of Defense (“DoD”) in June and August 2020 (available here and here). The prohibitions in the EO will take effect on January 11, 2021.

Background

The EO, which was issued pursuant to the president’s authority under the International Emergency Economic Powers Act (“IEEPA”), declares a national emergency with respect to the “PRC’s military-industrial complex,” which is said to be “directly supporting the efforts of the PRC’s military, intelligence, and other security apparatuses” and threatening the national security, foreign policy, and economy of the United States.

In response to this stated threat, the EO will prohibit US persons from purchasing publicly listed securities of specific “Communist Chinese military companies,” as that term is defined  in Section 1237 of the National Defense Authorization Act for Fiscal Year 1999, as amended (“NDAA 1999”).  Restrictions will go into effect on January 11, 2021 against the 31 companies already identified by DoD, and will take effect 60 days after any subsequent listings by the DoD or the US Department of the Treasury.…

Continue Reading Executive Order Prohibits US Persons from Buying Securities of Chinese Military Companies as of January 11, 2021

On October 14, 2020, the U.S. State Department issued a much-anticipated report pursuant to Section 5(a) of the Hong Kong Autonomy Act (HKAA), identifying ten individuals who were determined by the State Department to be “foreign persons” who “are materially contributing to, have materially contributed to, or attempt to materially contribute to the failure of the PRC to meet its obligations under” the Sino-British Joint Declaration of 1984 or Hong Kong’s Basic Law.

Under Section 5(b) of the HKAA, the U.S. Treasury Department is now given 30 to 60 days to release a report identifying any foreign financial institution (FFI) “that knowingly conducts a significant transaction with a foreign person identified” in the October 14 report. This report could be released by mid-November or December. Within one year of this Section 5(b) report, the Treasury Department could impose secondary sanctions on the FFIs identified therein, based on a menu of 10 sanctions laid out in Section 7 of the HKAA.

In conjunction with the State Department’s report, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued four Frequently Asked Questions (FAQs) providing additional guidance on how the agency intends to implement the secondary sanctions.

For additional background on this issue and a description of the secondary sanctions under the HKAA, see our blog post of July 15, 2020, “U.S. Executive Order Implements, Strengthens Hong Kong Sanctions.”…

Continue Reading Update: Hong Kong Financial Institutions Face U.S. Secondary Sanctions after State Department Issues First Report under Hong Kong Autonomy Act

On September 15, 2020, the Committee on Foreign Investment in the United States (CFIUS), the inter-agency U.S. government body responsible for reviewing certain forms of inbound investment for national security risks, published a final rule, effective October 15, making important changes to the rules defining “critical technology” transactions subject to mandatory filing requirements.

CFIUS has traditionally allowed, but not required, parties to “covered transactions” to submit a filing to CFIUS to seek approval of their transaction.  However, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) authorized CFIUS to mandate filings for certain types of transactions.  Transactions subject to mandatory filings under FIRRMA fall into two categories: certain investments involving “critical technology” and certain investments involving foreign governments.  (See our prior International Law Advisory on FIRRMA’s implementing regulations here).

The final rule changes the circumstances in which a “critical technology” investment will trigger a mandatory filing requirement.  The rule ends the use of North American Industry Classification System (NAICS) codes to identify specific industries subject to mandatory “critical technology” filings, in favor of a filing requirement based on U.S. export controls.  A mandatory “critical technology” filing requirement is triggered under the final rule when a “U.S. regulatory authorization” would be required for the export, reexport, or transfer (in country) of the U.S. target company’s goods or technologies to the foreign investor or certain other foreign persons involved in the transaction.  The final rule also makes modest clarifications to the second category of transactions involving foreign government interests.  (See our prior blog post on the proposed version of the rule here).…

Continue Reading New CFIUS “Critical Technology” Mandatory Filing Rules Increase Importance of Export Controls Analysis

On September 18, 2020, the US Commerce Department announced the prohibited transactions (which would be effective as of September 20, subject to a court-ordered suspension discussed below) aimed at limiting the use of WeChat (and possibly also TikTok) within the United States. These prohibitions may have some effect outside the United States as well. Technology companies, Internet infrastructure companies, financial institutions, and other companies that support these apps should take particular note since the prohibitions are directed at business-to- business engagement, as opposed to individual users of these apps. However, users should consider that their ability to continue to use WeChat in particular within the United States may become severely restricted, and perhaps eventually eliminated. The Commerce Department’s September 18 announcement explains that these prohibitions are intended to “protect users in the U.S. by eliminating access to these applications and significantly reducing their functionality.”

As background, on August 6, President Trump issued Executive Orders 13942 and 13943, directing the Secretary of Commerce to identify, within 45 days, specific types of prohibited transactions related to ByteDance Ltd. (including TikTok) and WeChat. See our earlier blog post for more detail. In two Notifications issued on September 18 (the WeChat notice is available here, and the ByteDance / TikTok notice is here), the Commerce Department identified a broad set of business-to-business transactions involving WeChat and ByteDance / TikTok that would be prohibited under US law.

Importantly, the timing for these prohibitions is different for each of the two Notifications.

  • The WeChat prohibitions were to take effect on September 20. However, they were temporarily blocked by a preliminary injunction issued by a US federal magistrate judge on September 19. The outcome of this litigation remains uncertain.
  • The limited ByteDance / TikTok prohibitions that were slated to take effect on September 20 were suspended by the Commerce Department until September 27 at 11:59 p.m. eastern. In a press release issued after the Notifications themselves, the Commerce Department stated that this delay was provided “in light of recent positive developments . . . at the direction of President Trump.” The effective date of most of the ByteDance / TikTok prohibitions as stated in the Notification is not until November 12, 2020, which would align with the 90-day period for divestment of TikTok in the United States that was ordered by the President on August 14. A proposed divestment or other type of partnership to operate TikTok within the United States is currently under review by the Committee on Foreign Investment in the United States (CFIUS). President Trump stated that he has given the most recent proposed deal for TikTok his “blessing,” but the CFIUS process is not yet complete; nor has the deal closed. Commerce’s press release states that “the President has provided until November 12 for the national security concerns posed by TikTok to be resolved. If they are, the prohibitions in this order may be lifted.” The Chinese government has also indicated that any such deal would be subject to its approval as well.

…
Continue Reading US Commerce Department Identifies Prohibited Transactions Involving WeChat and TikTok

On August 28, China’s Ministry of Commerce and Ministry of Science and Technology jointly released a newly revised Catalogue of Technologies Prohibited and Restricted from Export (“Catalogue”), which is the second revision since the creation of the Catalogue in 2001. While China has separate control lists for items (including technology) controlled for non-proliferation reasons (i.e. nuclear, biological, chemical and missile-related control lists), this Catalogue sets forth technologies that otherwise warrant control, including on grounds of national security, public interests, environmental protection, etc.[1]

The Catalogue is structured in accordance with the industry classification issued by China’s National Bureau of Statistics, with the controlled technologies listed by category under each industry with a code assigned to the category. Before the revision, the Catalogue contained 150 categories/codes of technologies related to 34 industries, including 33 prohibited categories and 117 restricted categories. The controlled technologies include techniques related to China’s indigenous cultural and natural resources (e.g. manufacturing techniques of certain tea, alcohol, food and Chinese medicine, certain panda nurturing techniques) as well as technologies that are important to safeguarding China’s economic interests and national security.

The revision this time removed 4 categories of “prohibited” technologies and 5 categories of “restricted” technologies, while adding 23 new categories of “restricted” technologies. Moreover, changes were made to 21 existing categories with respect to the nature and parameters of the specific technology covered. Those newly added include technologies related to encryption, cyber defense, metal 3D printing, aero remote sensors, UAVs, lasers, major power and petrochemical facilities, etc.…

Continue Reading China Updates its Catalogue of Technologies Prohibited and Restricted from Export