On September 14, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the Department of State, and the Department of Commerce’s Bureau of Industry and Security (“BIS”) announced new sanctions designations and export control guidance related to Russia. These developments are the latest updates in the U.S. government’s ever-evolving response to Russia’s war in Ukraine through economic sanctions and export controls.
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Critical Tornado Cash Developments Have Significant Implications for DeFi AML and Sanctions Compliance
By Evan Abrams, Dave Stetson & Jack Hayes on
After months of anticipation, a federal judge has finally ruled in the closely watched case of Joseph Van Loon, et al. v. Department of Treasury, et al. This important case addressed challenges to the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) decision to impose sanctions on Tornado Cash as a Specially Designated National and Blocked Person (SDN). The judge granted summary judgement in favor of OFAC, finding it had sufficient legal authority to designate Tornado Cash, and denied summary judgement on the plaintiffs’ claims. Shortly after that ruling, OFAC announced the SDN designation of Roman Semenov, one of three alleged co-founders of Tornado Cash, and the Department of Justice (DOJ) charged Semenov and Roman Storm, another Tornado Cash founder, with multiple alleged criminal violations related to anti-money laundering (AML) and economic sanctions laws.
All three actions are critical developments that contain key insights on how the US government views the AML and sanctions obligations of decentralized protocols and individuals associated with those protocols. The developments make clear that, at least in certain scenarios, individuals involved in the creation of a DeFi platform can be held responsible for the activities conducted on that platform where such conduct violates US economic sanctions or AML laws, or constitutes sanctionable activity under applicable executive orders. …
OFAC Sanctions Former Governor of Lebanon Central Bank and Associates
By Ryan Pereira, Jack Hayes & Dave Stetson on
Posted in Economic Sanctions
On August 10, 2023, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), in coordination in the United Kingdom and Canada, designated the former governor of Lebanon’s central bank, Riad Salameh (“Salameh”) and four close associates, pursuant to Executive Order (“E.O.”) 13441. According to OFAC’s press release, Salameh was designated for alleged “corrupt and unlawful actions [that] have contributed to the breakdown of the rule of law in Lebanon” and his close associates were designated for “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, Salameh.” The designations are noteworthy in that they were undertaken pursuant to OFAC’s determinations under sections 1(a)(i)(A) and (B) of E.O. 13441 – which provide authority for OFAC designations in response to actions “contribut[ing] to the deliberate breakdown in the rule of law in Lebanon”, among other sanctionable activities – rather than E.O. 13818 (the “Global Magnitsky Act E.O.”), which authorizes the imposition of sanctions against individuals and entities involved in serious human rights abuses, corruption, or other malign activities, including any person determined to “degrade the rule of law,” on a worldwide basis. …
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Biden Administration Announces New Outbound Investment Regime Targeting China
By Evan Abrams, Wilson Zhao, Ali Burney, Wendy Wysong, Cindy Shen, Jack Hayes, Dave Stetson, Brian Fleming, Bo Yue, Meredith Rathbone, Ed Krauland & Alexandra Baj on
Posted in China, Outbound Investment
Overview
On August 9, 2023, the White House issued a long-awaited Executive Order, entitled Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern (“EO 14105”). The EO establishes a new national security regulatory regime, implemented principally by the US Department of the Treasury (“Treasury”), in consultation with other federal agencies including the US Department of Commerce, that will require the notification of, as well as prohibit, certain investment activity by US persons in named “countries of concern,” currently China.
EO 14105 does not restrict all US person investment activity regarding China, and is tailored to focus on specific products, technologies, and capabilities involving: (1) semiconductors and microelectronics (including advanced integrated circuits and supercomputers); (2) quantum information technologies (e.g., computers, sensors, networking, and systems); and (3) certain artificial intelligence systems (e.g., with certain military, intelligence, or surveillance end uses).…
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Assistant Secretary for Export Enforcement Matthew Axelrod Addresses Recent Developments in Export Controls and Antiboycott Regulations
On July 26, 2023, Assistant Secretary for Export Enforcement Matthew Axelrod of the US Department of Commerce’s Bureau of Industry and Security (“BIS”) spoke at the Society for International Affairs “Back to Basics” conference about BIS’s recent efforts to build partnerships in export controls regulation and enforcement and developments in antiboycott rules. In his address, Assistant Secretary Axelrod likened the Marvel cinematic universe—the blockbuster superhero films that feature intertwined characters and storylines—with the current export control landscape. By way of this analogy, Assistant Secretary Axelrod articulated BIS’s view that an ensemble cast of its interagency colleagues, international partners, private industry, and academia is central to a successful export control strategy.…
Commerce, Treasury, and Justice Issue Joint Compliance Note on Voluntary Self-Disclosure
On July 26, 2023, the US Department of Commerce’s Bureau of Industry and Security (BIS), the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), and the US Department of Justice (DOJ) issued a joint compliance note (the Note) focusing on the voluntary self-disclosure (VSD) policies that apply to US sanctions, export controls, and other national security laws. The Note is the second collective effort by the three agencies to inform the private sector about civil and criminal enforcement trends, as well as to provide guidance to the business community and all persons regarding compliance with US sanctions and export laws. The first joint note, which focused on combatting third-party intermediaries used to evade Russia-related US sanctions and divert export-controlled items that are contributing to Russia’s foreign harmful activities, was issued on March 2, 2023.
The Note does not change the existing VSD policies of the three agencies, but highlights the benefits of their existing VSD policies to incentivize companies to promptly disclose and remediate. Likewise, the Note highlights the risks companies face, in at least some instances, should they choose not to disclose.
The Note also encourages whistleblowers to report suspected violations of sanctions and anti-money laundering laws to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), for which persons that submit whistleblower tips may be awarded up to 10% to 30% of the monetary penalty collected for successful US government enforcement actions.…
New US Interagency Guidance Targets Iranian UAVs and Compliance Risks
Posted in Export Controls, Iran Sanctions
On June 9, 2023, the US Departments of Commerce, Justice, State, and the Treasury published a joint advisory and guidance (the “Guidance”) related to Iran’s procurement, development, and proliferation of unmanned aerial vehicles (“UAVs”). Notably, the agencies warned industry participants that key components of Iranian UAVs are US-origin technologies, some of which are “low-technology items” that are designated as EAR99, i.e., not included on the Commerce Control List (“CCL”), Supplement No. 1 to part 774 of the EAR. The Guidance provides specific Harmonized System (HS) codes that exporters/reexporters may use to identify items that are of diversion/transshipment concern.
Further, the agencies provided clear guidance on the US government’s expectations for private industry compliance programs, identified numerous red flags for industry participants, and highlighted several best practices for how to address a red flag.
This Guidance is the most recent activity in a series of measures implemented by US government agencies to disrupt Iran’s UAV program. The Guidance may signal an increased focus on both US and non-US manufacturers and suppliers of commodities that can be used in the production of UAVs.…
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OFAC and State Department Significantly Expand Russia-Related Sanctions
By Ryan Pereira, Jack Hayes, Wendy Wysong & Dave Stetson on
Posted in Economic Sanctions, Russia/Ukraine Sanctions
On May 19, 2023, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the US Department of State announced a new round of multifaceted sanctions against Russia. These sanctions actions were announced alongside additional export controls imposed by the US Commerce Department’s Bureau of Industry and Security (“BIS”) and the publication of a new joint alert by BIS and the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), which are the subject of a separate blog post.
The new sanctions include expanded secondary sanctions authorities targeting additional sectors of the Russian economy; designations of more individuals and entities on the List of Specially Designated Nationals and Blocked Persons (“SDN List”); the inclusion of additional services among those that are prohibited for export to Russia; and new reporting requirements for US holders of property in which Russia’s Central Bank, Finance Ministry, or National Wealth Fund have an interest.
US persons, and others doing business that involves US jurisdiction, should continue to be vigilant against transacting with SDNs or entities that are owned by 50% or more by SDNs. US and non-US persons alike should also carefully consider whether any of their business could constitute operations in one of the newly sanctioned sectors of Russia’s economy.…
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US Imposes Additional Export Controls, Sanctions, and Tariffs targeting Russia, Belarus, and Iran On First Anniversary of Russia’s War Against Ukraine
On February 24, 2023, the US government announced a range of new export controls, sanctions, and tariffs to coincide with the first anniversary of Russia’s ongoing war against Ukraine. These actions by the US Department of Commerce, Bureau of Industry and Security (BIS), the US Department of the Treasury, Office of Foreign Assets Control (OFAC), the US Department of State, and the White House reflect the continued efforts of the US – in coordination with its allies – to impose costs on Russia for the war.
Each successive round of US export controls and sanctions presents new compliance challenges, against the backdrop of heightened enforcement risk resulting from aggressive, well-coordinated US government actions. US and non-US entities and individuals who engage in transactions related to Russia or Belarus should pay close attention to this complex and evolving regulatory framework. Additionally, entities and individuals exporting to Iran should take note of the expanded scope of the US Export Administration Regulations (EAR) under a new Iran Foreign Direct Product (FDP) Rule.…
Justice and Commerce Departments Announce Creation of Disruptive Technology Strike Force
By Brian Fleming, Peter Jeydel, Ryan Pereira & Dave Stetson on
On February 16, 2023, the Department of Justice (DOJ) and Commerce Department announced the creation of the Disruptive Technology Strike Force with a mission to prevent nation-state “adversaries” from acquiring “disruptive” technologies. The strike force will be co-led by Assistant Attorney General Matthew Olsen of the DOJ’s National Security Division (NSD) and Assistant Secretary for Export Enforcement at the Commerce Department’s Bureau of Industry and Security (BIS) Matthew Axelrod, and will bring together the DOJ’s NSD, BIS, the Federal Bureau of Investigation, Homeland Security Investigations, and 14 US Attorneys’ Offices in 12 metropolitan regions.
The strike force’s mandate, and remarks by Deputy Attorney General Lisa Monaco announcing the new initiative, illustrate the US government’s continuing focus on protecting sensitive data and “disruptive” technologies, as well as the regulatory and enforcement tools that the US government has used and will continue to use to prevent the acquisition, use, and “abuse” of “disruptive” technologies by autocratic governments to commit human rights abuses and seek strategic advantage vis-à-vis the United States.…