On July 31, 2023, the Committee on Foreign Investment in the United States (CFIUS) released its Annual Report to Congress for Calendar Year 2022. CFIUS is the inter-agency body charged with conducting national security reviews for certain foreign investments in the United States. The CFIUS process is generally confidential, but the annual report provides aggregate data on certain CFIUS activities and offers the private sector insight into current Committee trends.Continue Reading Key Takeaways from the 2022 CFIUS Annual Report
On August 11, 2023, the U.S. Nuclear Regulatory Commission (“NRC”) and the U.S. Department of Commerce, Bureau of Industry & Security (“BIS”) announced amendments to their existing regulations concerning exports of nuclear materials and related equipment destined for China and Macau. (BIS extends its export controls policies and regulations applicable to China to the territory of Hong Kong.) Although the notice from the NRC provided little explanation, the notice issued by BIS explained that the change in the Export Administration Regulations (15 CFR Parts 730-774 or EAR) is based on an increased concern with China’s military-civil fusion policy and efforts to expand its military nuclear capability. The changes implemented by the NRC are effective as of August 8, 2023, and the changes implemented by BIS are effective as of August 11, 2023.Continue Reading U.S. Government Revises Export Controls Regarding Commercial Nuclear Commerce with China
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 June 16, 2023, the US Department of Commerce published a final rule (the “June 16 rule”) to implement Executive Order (EO) 14034, Protecting Americans’ Sensitive Data From Foreign Adversaries, by amending Commerce’s previously-issued Securing the Information and Communications Technology Supply Chain regulations (the “ICTS rule”). Among other requirements, EO 14034 directed the Secretary of Commerce to consider the risks posed by “connected software applications” and take “appropriate action” in accordance with the previously issued ICTS rule and EO 13873, Securing the Information and Communications Technology and Services Supply Chain, pursuant to which the ICTS rule was issued.
The ICTS rule authorizes Commerce to prohibit or otherwise regulate certain transactions involving information and communications technology or services (“ICTS”) with a nexus to “foreign adversaries” that pose an “undue or unacceptable risk” to US national security. (For additional detail on the ICTS rule, see our prior blog post.) The June 16 rule amends the ICTS rule to clarify Commerce’s ability to regulate transactions involving software, including so-called “connected software applications,” and to further enumerate the criteria that Commerce will consider when reviewing such transactions. The changes are effective July 17, 2023.Continue Reading Commerce Issues Final Rule Targeting Connected Software Applications
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.Continue Reading New US Interagency Guidance Targets Iranian UAVs and Compliance Risks
On June 8, 2023, The Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2023 (“Regulations”) were laid before parliament. The Regulations significantly expand the UK’s package of sanctions targeting Belarus in response to the continued facilitation of Russia’s invasion of Ukraine by the Belarusian regime. The new measures expand the criteria pursuant to which persons can be designated under the regime, target Belarusian imports used to fund the Lukashenko regime, crack down on Russia’s efforts to circumvent sanctions, and seek to limit the spread of propaganda by Belarusian organisations in the UK. The new measures come into effect on June 9, 2023.
In a press release announcing the measures, the Foreign, Commonwealth and Development Office stated that the Belarusian regime has facilitated Russia’s invasion of Ukraine by permitting the use of its territory and airspace by Russia to conduct missile and drone strikes against Ukraine, as well as providing significant training and logistical support to Russian forces. Foreign Secretary, James Cleverly, also underscored that the UK’s “support for Ukraine will remain resolute for as long as it takes and the UK will not hesitate to introduce further measures against those who prop up Putin’s war.”Continue Reading UK Significantly Expands Sanctions Targeting Belarus
On May 22, 2023, the Department for Business and Trade’s Export Control Joint Unit published new guidance on trade sanctions circumvention under the UK’s Russia sanctions regime (the “Guidance”). While direct trade between the UK and Russia reportedly has fallen significantly since the introduction of a broad package of trade sanctions in response to Russia’s invasion of Ukraine, there is a growing associated risk of displacement of trade and diversion of goods to Russia via indirect routes.
The Guidance seeks to prevent the trade sanctions, export controls, and other measures implemented in response to Russia’s invasion of Ukraine being undermined by raising awareness of the risks associated with trade in goods subject to UK trade sanctions and export controls and the obligations that trade in such goods places on those subject to UK jurisdiction to conduct appropriately robust due diligence that considers certain key risks associated with the product, customer, and destination.Continue Reading UK Issues New Russia Trade Sanctions Circumvention Guidance
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