by Anthony Lewis, Eric Kadel Jr., Sharon Cohen Levin, Craig Jones, Adam Szubin, Amanda Houle, and Bailey Springer

Statute Doubles the Statute of Limitations for Sanctions Violations, Expands the Scope of Sanctions Programs, and Focuses on China’s Technology Procurement, Iranian Petroleum Trafficking, and Fentanyl Production

Summary

On April 24, President Biden signed into law H.R. 815, a sweeping national security legislative package that—in addition to providing foreign aid funding for Ukraine, Israel, and Taiwan—includes the 21st Century Peace Through Strength Act, which contains a number of provisions implementing the Biden administration’s national security priorities. As summarized below, provisions of the Act align with U.S. authorities’ continued focus on China and emphasis on sanctions enforcement. In particular, the Act:

• Doubles the statute of limitations for civil and criminal violations of U.S. sanctions programs from five to 10 years—raising questions about retroactive application of the statute and whether authorities will amend current rules on corporate record-keeping practices;
• Requires additional agency reports to Congress, reflecting a focus on U.S. investments in, and supply-chain contributions to, the development of sensitive technologies used by China—a topic that has likewise been the recent focus of the Department of Justice and the Department of Commerce;
• Targets the Chinese government’s alleged evasion of U.S. sanctions on Iranian petroleum products and involvement in related financial transactions by directing the imposition of sanctions; and
• Directs the President to impose sanctions aimed at curbing China’s alleged involvement in fentanyl trafficking and calls for forthcoming guidance for financial institutions in filing related SARs.

A.     THE ACT EXTENDS THE STATUTE OF LIMITATIONS FOR SANCTIONS VIOLATIONS

The Act doubles the statute of limitations for civil and criminal enforcement of U.S. sanctions violations from five to 10 years. Effective immediately, the Act amends the two statutory authorities underlying all sanctions enforcement: the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). The amendment extends that statute of limitations to “10 years after the latest date of the violation upon which” the action is based. In recent congressional testimony, a Treasury Department official advocated for the expansion of the statute of limitations to permit time for complex cross-border investigations, to signal to institutions the importance of their compliance obligations, and to deter violations.[1]

B.     THE ACT EXPANDS AUTHORITIES AIMED AT ADDRESING CHINA’S ALLEGED INVOLVEMENT IN DEVELOPMENT OF SENSITIVE TECHNOLOGIES, SANCTIONS EVASION, AND FENTANYL TRAFFICKING

The Act includes provisions from multiple pieces of previously pending national security-related legislation and demonstrates a continued focus on China, including:

• Report on Emerging Technological Developments in China. The Act directs the Secretary of State and Secretary of Defense to provide information to Congress on emerging technological developments in China, including information on technologies in which the Chinese military apparatus is invested and related implications for U.S. national security. Congress also requests information about Chinese-controlled or domiciled entities involved in developing such technologies, including whether they are funded through U.S. investments or are procuring components from U.S. suppliers. Although the Act does not expand enforcement powers related to technological developments in China, Congress’s request for information suggests a potential interest in additional legislation in this area.
• Iranian Petroleum Exports and Focus on China’s Evasion of Sanctions Against Iran. The Act directs the President to impose new sanctions, including on foreign persons who own or operate vessels, refineries, or foreign ports engaged in significant transactions involving Iranian petroleum products. The Act directs the Secretary of State to submit a report to Congress on China’s involvement in evasion of U.S. sanctions with respect to Iranian-origin petroleum products, including an assessment of interference by China in U.S. attempts to investigate or enforce sanctions on certain Iranian petroleum product exports. The Act, in amending an existing sanctions program, also directs the President to impose sanctions on Chinese financial institutions engaged in transactions that involve the purchase of petroleum or related products from Iran.
• Fentanyl Trafficking and Shipment of Chemicals from China. In the Act, Congress finds that trafficking in fentanyl and fentanyl precursors presents a national security threat, and directs the President to impose sanctions against foreign persons involved in significant fentanyl trafficking. Congress cites the shipment of critical precursor chemicals from China to transnational criminal organizations, including Mexican cartels. The Act also authorizes the Treasury Secretary to impose conditions or special measures (such as additional recordkeeping requirements or prohibitions on opening certain accounts) on U.S. financial institutions involved in transmittal of funds with institutions, transactions, or accounts that have been deemed by the Treasury Secretary as a “primary money laundering concern” in connection with illicit opioid trafficking. The Act further directs the Director of the Financial Crimes Enforcement Network (FinCEN) to issue guidance to U.S. financial institutions for filing reports on suspicious transactions (SARs) related to suspected fentanyl trafficking by transnational criminal organizations.
• Prohibition on Applications Controlled by China and Other Foreign Adversaries. The Act makes it unlawful for any entity to distribute, maintain, or update a “foreign adversary controlled application,” including a website, desktop, mobile, or “augmented or immersive reality” application, in the United States. The Act defines such applications as those operated by TikTok, ByteDance, China, Russia, Iran, or North Korea.

Implications

THE EXPANSION OF THE STATUTE OF LIMITATIONS FOR SANCTIONS VIOLATIONS RAISES IMPORTANT ENFORCEMENT AND COMPLIANCE QUESTIONS

The Act raises a number of questions about how the extended limitations period will impact criminal and regulatory investigations and related record-keeping requirements.

For example, the Bank Secrecy Act’s recordkeeping requirements generally require banks to retain records for five years. OFAC record-keeping requirements also currently impose a five-year record retention obligation. The Act does not alter these requirements, though we may soon see expansion of these requirements to align with the Act.

As another example, it remains unclear if authorities may seek to apply the new statute of limitations period retroactively. While application of the statute retroactively in criminal actions would raise serious constitutional questions, it is unclear whether OFAC may seek to apply the statute retroactively in the civil enforcement context.[2]

We note as well that the expansion of the limitations period will reduce the need for sanctions enforcement authorities to seek agreements with institutions under investigation to toll the statute of limitations—a process that companies sometimes use to try and narrow the scope of investigation or to otherwise demonstrate cooperation in support of future leniency arguments.

Finally, the extension of the statute of limitations is likely to be an important tool for U.S. authorities pursuing corporate sanctions enforcement as a top priority. Deputy Attorney General Lisa Monaco has noted that the Department is pursuing sanctions-related corporate investigations in industries including fin tech, banking, and defense, and cautioned that national security risks should be at the top of every company’s compliance risk chart.[3] (See Sullivan & Cromwell’s Critical Insights podcast for additional information on DOJ’s focus on corporate resolutions in the national security and sanctions enforcement space.) In connection with passage of the Act, a Treasury Department official emphasized that the longer statute of limitations is needed for complex cross-border investigations, and that extension of the statute will, among other things, signal to covered entities the importance being placed on compliance with sanctions programs.[4]

THE ACT EXPANDS REGULATORY AND ENFORCEMENT POWERS IN LINE WITH RECENT EMPHASIS BY U.S. AUTHORITIES ON NATIONAL SECURITY PRIORITIES

Many provisions of the Act dovetail with significant cases and initiatives announced by the Department of Justice and other U.S. authorities in recent months. These developments continue to signal that financial institutions and other companies should be sensitive to this national security focus in designing compliance programs and assessing risks.

For example, Congress’s provision requiring information about technology being used by China’s military, the companies developing that technology, and any U.S. investment in those companies or involvement in the supply chain to those companies is consistent with other efforts by the U.S. government to disrupt the flow of strategic technology to China. In particular, the Disruptive Technology Strike Force is a strike force led by the Department of Justice and the Department of Commerce aimed at using the export control laws to block China and other countries deemed foreign adversaries from acquiring sensitive technologies. The Strike Force was launched last year, and in recent weeks the Department of Justice has touted its success, including highlighting four recent cases aimed at disrupting the transmission of sensitive technology to China.[5]

As another example, the Act’s focus on addressing alleged efforts by China to thwart U.S. enforcement of Iranian petroleum sanctions is consistent with the recent unsealing of three federal criminal cases charging sanctions and money laundering violations and alleging that Chinese government-affiliated companies and persons engaged in schemes to traffic and sell Iranian oil.[6]

Finally, the Act’s focus on China’s alleged connection to fentanyl trafficking and direction to FinCEN to distribute guidance on filing related SARs is consistent with the Department of Justice’s recent focus on prosecuting China-based companies distributing fentanyl precursor chemicals and engaging in related money laundering.[7] The forthcoming guidance from FinCEN, which may include red flag indicators, will be important in helping financial institutions understand the warning signs for transactions or accounts that may otherwise appear to involve a legitimate Chinese chemical company.

Ultimately, the Act broadens U.S. regulators’ ability to bring new enforcement actions amid an aggressive enforcement climate with a strong focus on national security priorities.

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Footnotes

[1]           Senate Banking, Housing and Urban Affairs Committee Hearing, Countering China: Advancing U.S. National Security, Economic Security, and Foreign Policy (May 31, 2023).

[2]           Recently, Congress, as part of the 2021 National Defense Authorization Act (NDAA), similarly extended the statute of limitations for the SEC to seek disgorgement from five to 10 years. See Sullivan & Cromwell’s memo on the SEC’s statute of limitations extension here. Unlike the Act, which does not clarify whether it applies to pending cases, the NDAA explicitly extended the longer limitations period to cases “pending” on the date of its passage.

[3]          Dep’t of Justice, Deputy Attorney General Lisa Monaco Delivers Remarks at American Bar Association National Institute on White Collar Crime (March 2, 2023), available here; Dep’t of Justice, Deputy Attorney General Lisa O. Monaco Announces New Safe Harbor Policy for Voluntary Self-Disclosures Made in Connection with Mergers and Acquisitions (Oct. 4, 2023), available here.

[4]          Supra note 1.

[5]           Dep’t of Justice, Disruptive Technology Strike Force Efforts in First Year to Prevent Sensitive Technology from Being Acquired by Authoritarian Regimes and Hostile Nation-States (Feb. 16, 2024), available here.

[6]          Dep’t of Justice, Justice Department Announces Terrorism and Sanctions-Evasion Charges and Seizures Linked to Illicit, Billion-Dollar Global Oil Trafficking Network That Finances Iran’s Islamic Revolutionary Guard Corps and Its Malign Activities (Feb. 2, 2024), available here.

[7]          See, e.g., Dep’t of Justice, Justice Department Announces Eight Indictments Against China-Based Chemical Manufacturing Companies and Employees (Oct. 3, 2023), available here; Dep’t of Justice, Justice Department Announces Charges Against China-Based Chemical Manufacturing Companies and Arrests of Executives in Fentanyl Manufacturing (June 23, 2023), available here.

Anthony Lewis, Eric Kadel Jr., Sharon Cohen Levin, and Craig Jones are Partners, Adam Szubin is Of Counsel, Amanda Houle is Special Counsel, and Bailey Springer is an Associate at Sullivan & Cromwell LLP. This post first appeared as a client alert for the firm.

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