On March 21, 2024, the Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a final rule under the U.S. Export Administration Regulations (“EAR”) that imposes new export controls on certain individuals and entities identified on the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (“OFAC’s”) List of Specially Designated Nationals and Blocked Persons (“SDN List”).  More specifically, the final rule imposes a BIS licensing requirement on exports, reexports, or transfers (in-country) of all items “subject to the EAR” when certain categories of SDNs are parties to the transaction.  The covered types of SDNs are designated under 11 OFAC-administered sanctions programs (as noted by BIS), including those relating to Russia, Belarus, transnational criminal organizations, and narcotics traffickers (as well as making slight changes to similar preexisting controls on SDNs designated for activities related to terrorism or proliferation of weapons of mass destruction).

The U.S. government has described these broader EAR restrictions as a “force multiplier” to complement OFAC’s jurisdiction, by allowing these controls in Part 744 of the EAR to “act as a backstop for activities over which OFAC does not exercise jurisdiction.”  OFAC’s sanctions regulations generally prohibit U.S. persons from engaging in any transactions or dealings involving SDNs and blocked parties (i.e., entities owned 50 percent or more by one or more SDNs or blocked parties), and the property or interest in property of such parties in the United States or within the possession or control of a U.S. person must be blocked (i.e., frozen) and reported to OFAC.  Non-U.S. persons can violate U.S. sanctions programs by, among other things, “causing” a U.S. person to violate U.S. sanctions.  With limited exceptions such as under the Cuban Assets Control Regulations and the Iranian Transactions and Sanctions Regulations, OFAC’s sanctions regulations generally do not specify whether they apply to transactions taking place entirely outside the United States that do not involve U.S. persons simply because the transactions involve items subject to the EAR.  This new rule aims to close this gap by providing BIS with clear authority to take export controls enforcement action in such cases where U.S. products or technologies, but not U.S. persons, are involved.   

As a result of BIS’s rule, non-U.S. persons outside the United States, who may not clearly be prohibited (absent the involvement of U.S. persons) by U.S. sanctions regulations from dealing in the property or interests in property of an SDN or blocked party, will now generally be subject to licensing requirements under the EAR if reexporting or transferring (in-country) any item “subject to the EAR” when an SDN designated under at least one of these sanctions programs is a “party to the transaction,” including as purchaser, intermediate consignee, ultimate consignee, or end user.  This underscores the guidance in the Tri-Seal Compliance Note of March 6, 2024 that non-U.S. persons have export controls (and sanctions) licensing obligations under U.S. law, even if operating wholly offshore, and therefore, they should consider enhancing compliance screening protocols and controls to prevent violations of U.S. export controls and sanctions.Continue Reading Export Controls and Sanctions Converge: New BIS Restrictions on SDNs

On February 23, 2024, the United States issued a broad set of new Russia-related sanctions and export controls in response to the second anniversary of Russia’s invasion of Ukraine and the February 16, 2024, death of opposition leader, Aleksey Navalny, in Russian custody.

The Treasury Department’s Office of Foreign Assets Control (OFAC), the Commerce Department’s Bureau of Industry and Security (BIS), and the State Department all issued new designations.  The agencies also issued an inter-agency advisory warning non-Russian companies from doing business in or with Russia.Continue Reading US Government Imposes New Russia Sanctions, Designating Over 500 Parties and Issuing Interagency Russia Business Advisory

Asia Pacific (APAC) countries continue to “stagnate” in their rankings in 2023, only minimally above the global average, with most well below, according to two anti-corruption due diligence tools, TRACE’s 2023 Bribery Risk Matrix (TRACE Matrix) and Transparency International’s 2023 Corruption Perceptions Index (TI CPI). While the two ranking systems share the same view of the least and most risky countries, the TRACE Matrix presents a slightly more positive view overall, ranking most Asia Pacific counties as moderate risk. In contrast, the TI CPI ranks most as being high risk. When considered together, the two systems allow for a more complete and accurate view of the risks and opportunities offered in the APAC region based on their different methodologies and factors.  

TRACE considers just a quarter of the countries in the region to be high to very high risk, but two thirds are at least moderate risk. However, for the TI CPI, the average score of APAC countries was above the global average score (45 versus 43, as for the past four years), with more than half perceived as high to very high, hence TI’s description of the region’s scores as stagnating. The 2023 TRACE Matrix publication packet is available at https://www.traceinternational.org/trace-matrix, and the 2023 TI CPI is available at https://www.transparency.org/en/cpi/2023.

Although these tools offer a good starting point for assessing risk, they are not a substitute for adequate risk-based due diligence on counterparties in the region. Notably, many international bribery cases involve companies headquartered or conducting business operations in jurisdictions with very low-risk rankings. This is probably because their anti-corruption efforts support the investigation and prosecution of bribery. Countries with no track record of meaningful enforcement against their own companies for overseas bribery should be closely reviewed for bribery and corruption risks. These bribery risk tools should also be supplemented with other publicly available reports on money laundering and bank secrecy risks, as these are also indirect indicators of bribery and corruption risk.Continue Reading Asia Pacific 2023 Anti-Corruption Rankings: Transparency International’s CPI and the TRACE Bribery Risk Matrix

On January 16, 2024, the Assistant Secretary for Export Enforcement at the Department of Commerce’s Bureau of Industry and Security (BIS) issued a memorandum, announcing that:

  1. parties disclosing minor or technical violations that occurred close in time can submit a single Voluntary Self-Disclosure (VSD) on a quarterly basis, which may include an abbreviated narrative account of the suspected violations; and
  2. parties sending formal requests to BIS’s Office of Exporter Services to engage in otherwise prohibited activities with respect to items involved in violations of the Export Administration Regulations (EAR) should also send courtesy copies to the Office of Export Enforcement (OEE), which will help expedite BIS’s processing of such requests.

The memorandum builds upon previous changes to BIS’s administrative enforcement program, which were announced in memoranda dated June 30, 2022 and April 18, 2023.  These changes are intended to help OEE fast-track its review of “minor” or “technical” VSDs and to encourage additional disclosures of potentially significant violations of the EAR, but do not apply to VSDs relating to Part 760 of the EAR (antiboycott and restrictive trade practices).  For a detailed analysis of the previous memoranda, see our blog posts from July 6, 2022 and April 26, 2023.  Continue Reading BIS Makes Further Changes to Administrative Enforcement, But Questions Remain

On December 22, 2023, President Biden issued a new Executive Order (“EO”) 14114 “Taking Additional Steps With Respect to the Russian Federation’s Harmful Activities” which amended EOs 14024 and 14068. These amendments introduce the authority to impose secondary sanctions with respect to foreign (i.e., non-US) financial institutions determined to have engaged in any significant transaction for or on behalf of certain entities designated under EO 14024, or to have engaged in any significant transaction or provided any service involving the Russian military-industrial base (which is broadly defined). The amendments also expand upon the ban on the importation and entry into the United States of Russian-origin fish and seafood, alcoholic beverages, non-industrial diamonds, and gold.Continue Reading New Secondary Sanctions Target Non-US Banks That Engage in Transactions with Russia’s Military-Industrial Base

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).Continue Reading Biden Administration Announces New Outbound Investment Regime Targeting China

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.Continue Reading Assistant Secretary for Export Enforcement Matthew Axelrod Addresses Recent Developments in Export Controls and Antiboycott Regulations

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.Continue Reading Commerce, Treasury, and Justice Issue Joint Compliance Note on Voluntary Self-Disclosure

On May 19, 2023, in conjunction with the G7, Australia, and other international partners, the US government announced a range of new export controls and sanctions and added 71 entities to the Entity list, primarily for supporting Russia’s military and defense sectors.  The new export controls – and new sanctions, which are the subject of a separate blog post – reflect the continued efforts of the US (in coordination with international allies) to target those attempting to circumvent or evade sanctions or export controls against Russia and Belarus.  The new measures are intended to further undermine the Russian and Belarusian industrial bases and counteract their ability to continue to support the war in Ukraine and to further limit Russia’s energy revenue and future extractive capabilities.  

Also on May 19, 2023, 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 Supplemental Alert entitled “FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Continued Vigilance for Potential Russian Export Control Evasion Attempts” (the “Supplemental Alert”), which is intended to assist financial institutions in the risk-based screening of export-related financial transactions in order to determine whether customers and transactions may be connected to export controls evasion.Continue Reading BIS Expands Export Controls on Russia and Belarus and Issues New Joint Alert with FinCEN