On October 20, 2022, the US Department of the Treasury (Treasury) issued, for the first time, Enforcement and Penalty Guidelines (Guidelines) for the Committee on Foreign Investment in the United States (CFIUS or the Committee). The Guidelines describe three categories of conduct that may constitute a violation, the process CFIUS generally follows in imposing penalties, and some of the factors the Committee considers in determining whether a penalty is warranted and the scope of any such penalty. The Guidelines also encourage prompt and complete self-disclosure of any conduct that may constitute a violation.

Continue Reading CFIUS Announces First Ever Enforcement and Penalty Guidelines

On October 24, the White House announced that President Biden signed Executive Order (EO) 14088 (amending EO 13851) which substantially expands the Nicaragua sanctions program with sectoral sanctions authorities, exposing individuals and entities operating in identified sectors to blocking sanctions. Specifically, the amended EO identifies the gold sector, which affects about $900 million of exports, most of it to the United States. Entities and individuals that operate or have operated in that sector are now at risk of US blocking sanctions. The EO also allows for the future identification of additional sectors that could become subject to sanctions, if warranted.

Continue Reading US Government Imposes New Sanctions and Visa Restrictions on Nicaragua

On October 7, 2022, in a move that was hailed by senior U.S. government officials as a paradigm shift in U.S. export controls policy toward China, the Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule that amends the Export Administration Regulations (EAR) to impose new and expanded controls on advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items. Transactions for supercomputer end-uses and transactions involving certain entities on the Entity List are now subject to additional export controls, as are certain semiconductor manufacturing items and transactions for certain IC end uses. U.S. person activities as they relate to certain semiconductor activities in China are also now restricted.

Certain aspects of the rule, specified below, including the availability of license exceptions, became effective immediately on October 7, 2022. The new restrictions on U.S. person activities under § 744.6 became effective on October 12, 2022. The remainder of the provisions with a delayed effective date are specified below and will become effective on October 21, 2022. BIS is also accepting public comments on the interim final rule through December 12, 2022.

Separately, also on October 7, 2022, BIS issued a final rule, which revised the Unverified List (UVL) and clarified the activities and criteria that may lead to the addition of an entity to the Entity List. BIS stated that a sustained lack of cooperation by the host government in a country where an end-use check is to be conducted, such as China, that effectively prevents BIS from determining compliance with the EAR, will be grounds for adding an entity to the Entity List.

The U.S. policy goals behind the new rules are ambitious and seek to degrade China’s advanced computing capabilities in an unprecedented manner. As summarized recently by National Security Advisor Jake Sullivan: “On export controls, we have to revisit the longstanding premise of maintaining ‘relative’ advantages over competitors in certain key technologies.  We previously maintained a ‘sliding scale’ approach that said we need to stay only a couple of generations ahead. That is not the strategic environment we are in today. Given the foundational nature of certain technologies, such as advanced logic and memory chips, we must maintain as large of a lead as possible.”

The broad implications of these new rules, along with their efficacy from a policy standpoint, may take some time to come fully in to focus. For now, it is clear that any U.S. or non-U.S. individuals or entities that play any role in the global semiconductor supply chain—whether as manufacturers, producers, consumers, or otherwise—need to carefully review the new rules to determine what is required to comply and, if necessary, seek guidance or a license from BIS.

Continue Reading BIS Issues Expansive New Rules Targeting China

On September 30, 2022, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published a final rule to implement the beneficial ownership information (BOI) reporting provisions of the Corporate Transparency Act (CTA), which was enacted as part of the Anti-Money Laundering Act of 2020 within the National Defense Authorization Act for Fiscal Year 2021.  The final rule responds to comments on the proposed rule published by FinCEN in December 2021, which was the subject of a prior blog post.

The final rule is intended to protect US national security and the US financial system by preventing and combatting fraud, corruption, money laundering, and terrorist financing, among other illicit activities, by parties seeking to hide money and other assets in the United States via shell companies and other opaque legal structures. The rule aims to provide essential information to national security, intelligence, and law enforcement agencies by requiring certain business organizations and entities to report information to FinCEN about the beneficial owners and controllers of such organizations and the individuals who have filed an application with specified government authorities to form the entity or register it to do business. The rule describes who must file a beneficial ownership information report, what information must be reported, and when a report is due.

Continue Reading FinCEN Issues Final Rule on Beneficial Ownership Information Reporting

In a new rule that took effect on September 15, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) expanded and clarified the scope of the Export Administration Regulations (EAR) in a number of ways, some of which impose significant new compliance challenges related to Russia and Belarus.  To stay up with the latest developments, readers are encouraged to monitor and review new guidance in the form of Frequently Asked Questions (FAQs) published by BIS at https://www.bis.doc.gov/index.php/policy-guidance/country-guidance/russia-belarus.

Continue Reading US Implements Subtle but Significant Expansions of Export Controls on Russia, Belarus, and Other Countries

On September 15, 2022, President Biden issued a new executive order (EO), entitled “Executive Order on Ensuring Robust Consideration of Evolving National Security Risks by the Committee on Foreign Investment in the United States,” that directs CFIUS to consider certain risk factors when reviewing covered transactions.  CFIUS-related executive orders are rare and have typically been used to establish procedures and processes, rather than provide substantive guidance to the Committee.  President Biden’s order is unusual in that it goes beyond process considerations and directs the Committee to consider specific substantive risks as part of its reviews.  According to a White House fact sheet, this is the first EO “since CFIUS was established in 1975 to provide formal Presidential direction on the risks that the Committee should consider when reviewing a covered transaction.”

The EO does not alter the legal powers granted to CFIUS, including the scope of transactions which it can review.  Nor does it contain any provisions regarding outbound investments (sometimes called “reverse CFIUS”), which was recently proposed in Congress and on which the Administration is considering taking executive action in the near term.

However, it provides important insight into the Administration’s thinking with respect to national security issues linked to foreign investment and puts both US businesses and foreign investors involved in certain industries, or engaged in certain activities, on notice that CFIUS may more closely scrutinize their deals.

Continue Reading Rare Executive Order Sharpens CFIUS Focus

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.

Continue Reading Key Takeaways from the 2021 CFIUS Annual Report