On January 17, 2023, the US Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule (the “January 17 rule”), expanding its recent China-focused export controls, related to advanced computing and semiconductors, to Macau. These controls, initially imposed on China (including Hong Kong), were announced in an interim final rule on October 7, 2022 (the “October 7 rule”).
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.…
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
This year, we have witnessed an extraordinary set of coordinated economic sanctions and export control regulatory actions against Russia after its invasion of Ukraine. In contrast to the fast and furious pace of regulatory action, enforcement actions did not keep pace.
This year’s enforcement actions by the US Treasury Department’s Office of Foreign Assets Control (OFAC) are notable for their jurisdictional reach and expansion of liability theories that aren’t necessarily supported by the plain language of their regulatory authority. The Commerce Department’s Bureau of Industry & Security (BIS) enforcement actions have targeted the aerospace industry, especially in relation to Russia and Belarus. The Department of Justice (DOJ) expended much of its resources on seizing and forfeiting assets linked to Russian oligarchs, galvanizing its multilateral networks.
Interestingly, OFAC continued to target the Iranian petroleum and petrochemical sector despite news reports of intensive negotiations to revive the Joint Comprehensive Plan of Action (JCPOA).
Below we discuss some representative enforcement actions to date.…
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.
Continue Reading New Joint Alert Puts Export Compliance Focus on Financial Institutions
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.
Continue Reading Revamping BIS’s Administrative Enforcement Authorities: Time to Consider More Investment in Internal Corporate Compliance
The Uyghur Forced Labor Prevention Act (UFLPA) supports the existing prohibition on the importation of goods into the United States made with forced labor under Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307). Enforcement of the UFLPA began on June 21, 2022. Companies with supply chains that have links to Xinjiang specifically and China more generally should be concerned about the implications of UFLPA enforcement.
The UFLPA requires U.S. Customs and Border Protection (CBP) to apply a presumption that imports of all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China (Xinjiang), or by entities on the UFLPA Entity List (described below), are prohibited from entry into the United States under 19 U.S.C. § 1307. The scope of the UFLPA extends to goods made outside of or shipped through China that include inputs made wholly or in part in Xinjiang. There is no de minimis exception. Priority enforcement areas include polysilicon, cotton, and tomatoes.…
On June 15, 2022, the United Kingdom will introduce a strict civil liability standard for violations of UK financial sanctions committed after that date. In anticipation of this important change to the enforcement powers of HM Treasury’s Office of Financial Sanctions Implementation (OFSI), the OFSI enforcement and monetary penalties for breaches of financial sanctions guidance (Monetary Penalties Guidance) has been updated and will take effect from June 15. OFSI Director, Giles Thomson, also has outlined OFSI’s enforcement approach in light of these imminent changes in a blog post.
Between April 18 and May 2, 2022, the US government continued to ratchet up economic sanctions, export controls, and other restrictive trade measures targeting Russia. Most significantly, on April 21, President Biden issued a Proclamation prohibiting “Russian-affiliated vessels” from entering US ports. Otherwise, the US government has focused on utilizing its existing authorities to impose further costs on Russia.
Over the last two weeks of April, the US Treasury Department’s Office of Foreign Assets Control (OFAC) designated over 40 individuals and entities including Transkapitalbank (TKB), re-issued an expanded set of Ukraine- / Russia- Sanctions Regulations (URSR), and issued several new or revised general licenses, including one relating to the provision of assistance by nongovernmental organizations, and 8 Frequently Asked Questions (FAQs).
Separately, the Commerce Department’s Bureau of Industry and Security (BIS) continues to be focused on restricting the Russian aviation sector, issuing a temporary denial order (TDO) on the Russian cargo aircraft carrier, Aviastar, for operating aircraft on flights into and out of Russia without the BIS authorization required under the Export Administration Regulations (EAR), and providing weekly updates to its list of commercial and private aircraft operated in potential violation of the EAR.…
Between April 5 and April 17, 2022, the US government took several steps to ratchet up economic sanctions, export controls, and other restrictive trade measures targeting Russia and Belarus.
President Biden issued a new Executive Order prohibiting US persons from engaging in new investment in Russia, and also establishing a framework through which US persons could in the future be prohibited from providing certain services to any person in Russia.
The US Treasury Department’s Office of Foreign Assets Control (OFAC) designated a darknet market and cryptocurrency exchange, several Russian banks and their subsidiaries, and a number of companies allegedly assisting the Russian military by adding them to the Specially Designated Nationals and Blocked Persons (SDN) List pursuant to Executive Orders (EOs) 14024 and 13694. OFAC also published seven new and amended general licenses, including authorizations related to the recent designations of Public Joint Stock Company Sberbank of Russia (Sberbank), Joint Stock Company Alfa-Bank (Alfa-Bank), and Public Joint Stock Company Alrosa (Alrosa).
Separately, the US Commerce Department’s Bureau of Industry and Security (BIS) announced new, stringent export controls so that all items subject to the US Export Administration Regulations, except items designated “EAR99,” require a license for export, reexport, or transfer (in country) to or in the Russian Federation and Belarus.…