Category Archives: Export Controls

Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note: Obligations of foreign-based persons to comply with U.S. sanctions and export control laws

by the Department of Commerce, Department of the Treasury, and Department of Justice

Photos of authors

OVERVIEW

Today’s increasingly interconnected global marketplace offers unprecedented opportunities for companies around the world to trade with the United States and one another, contributing to economic growth. At the same time, malign regimes and other bad actors may attempt to misuse the commercial and financial channels that facilitate foreign trade to acquire goods, technology, and services that risk undermining U.S. national security and foreign policy and that challenge global peace and prosperity. In response to such risks, the United States has put in place robust sanctions and export controls to restrict the ability of sanctioned actors to misuse the U.S. financial and commercial system in advance of malign activities.

These measures can create legal exposure not only for U.S. persons, but also for non-U.S. companies who continue to engage with sanctioned jurisdictions or persons in violation of applicable laws. To mitigate the risks of non-compliance, companies outside of the United States should be aware of how their activities may implicate U.S. sanctions and export control laws. This Note highlights the applicability of U.S. sanctions and export control laws to persons and entities located abroad, as well as the enforcement mechanisms that are available for the U.S. government to hold non-U.S. persons accountable for violations of such laws, including criminal prosecution. It further provides an overview of compliance considerations for non-U.S. companies and compliance measures to help mitigate their risk.

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“Expect Some Illumination”: A Fresh Look at U.S. Congressional Hearings in the Era of Sanctions and Export Controls as the New FCPA

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

The 118th U.S. Congress has taken an active and bipartisan interest in U.S. sanctions and export controls. With reports that U.S. executives have been asked to testify before the U.S. House Select Committee on the Chinese Communist Party[1] and recent hearings before a U.S. Senate subcommittee previewing further questions for both companies and regulators,[2] U.S. companies whose products might require a license for export to China or that might be found in Russian or Iranian weapons should prepare for congressional scrutiny—and congressional pressure on the U.S. Executive Branch departments to deliver enforcement results. Continue reading →

How Not to Stand Out Like a Sore Thumb (Part 2): A Fresh Look at the “High Probability” Definition of Knowledge Applied to Export Controls and Sanctions Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

Media coverage concerning the widespread use of U.S. or Western microelectronics in recovered Russian- or Iranian-manufactured missiles and drones is putting pressure on governments, manufacturers, and exporters to consider ways to reduce more effectively the flows of such items to prohibited end-users. Even considering that many of the items are ubiquitous consumer electronics, the discovery of such items after mass-casualty events—including fatalities—on the front lines puts manufacturers and exporters on the front pages and in the crosshairs of U.S. regulators, prosecutors, media, and congressional committees. However the items arrived on the battlefield, their presence begs the questions of how and through whom they arrived. Continue reading →

How Not to Stand Out Like a Sore Thumb (Part 1): A Fresh Look at the “Willful” Intent Standard for Criminal Liability in Export Controls and Sanctions Corporate Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

“The ‘willfulness’ standard for criminal prosecutions appears nearly insurmountable to reach.”

So concluded a “90-Day Review Report” issued January 2, 2024 by the Chairman of the Foreign Affairs Committee of the U.S. House of Representatives, following congressional hearings in May and December 2023.[1] The report further contended that “the statutory requirement to prove ‘willfulness’” for there to be a criminal violation of U.S. export controls (and sanctions) is a “high bar” that “often results in [the Department of Commerce’s Bureau of Industry & Security (“BIS”)] export enforcement personnel pursuing administrative enforcement actions with lower penalties,” compared to the alternative (unstated but implied by the report) of U.S. Department of Justice (“DOJ”) personnel pursuing criminal penalties.[2]

This conclusion is not accurate. BIS is not itself responsible for criminal enforcement, yet it has partnered closely with the DOJ’s National Security Division—including by co-leading the inter-agency Disruptive Technology Strike Force launched on February 16, 2023—to bring several high-profile convictions or resolutions. Nor is the requirement to prove willfulness “insurmountable” for U.S. federal prosecutors, whose cases achieve the standard regularly and can do so not only with direct evidence of intent but also indirect evidence, i.e., the relevant facts and circumstances. Such facts and circumstances often—especially in the eyes of jurors—make the willful nature of criminal evasion schemes stand out like a sore thumb. Continue reading →

Export Controls Experts Comment on Enhancements to Voluntary Self-Disclosure Policies for Export Control Violations

Panelists John D. Sonderman, Director, Office of Export Enforcement, BIS; Jana del-Cerro, Partner, Crowell & Moring LLP; Michael H. Huneke, Partner, Hughes Hubbard & Reed LLP; Sharon Cohen Levin, Partner, Sullivan & Cromwell LLP; and Joseph Facciponti, Executive Director, PCCE (Moderator) (©Hollenshead: Courtesy of NYU Photo Bureau)

On January 16, 2024, the NYU Law Program on Corporate Compliance and Enforcement hosted Matthew Axelrod, Assistant Secretary for Export Enforcement at the Bureau of Industry and Security (BIS), U.S. Department of Commerce, to deliver remarks on enhancements to BIS’s corporate enforcement policy for voluntary self-disclosures of export control violations. Assistant Secretary Axelrod’s speech was accompanied by the release of an enforcement policy memo, available here. After Secretary Axelrod’s remarks, he participated in a fireside chat and took questions from the audience. The event also featured a panel of experts on export control enforcement policy. A full agenda of the event is available here. In this post, participants from the panel share further thoughts on the issues.

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Matthew Axelrod, Assistant Secretary for Export Enforcement, Delivers Remarks on Enhancements to Voluntary Self-Disclosure Policies for Export Control Violations at PCCE Event on January 16, 2024

On January 16, 2024, the NYU Law Program on Corporate Compliance and Enforcement hosted Matthew Axelrod, Assistant Secretary for Export Enforcement at the Bureau of Industry and Security (BIS) at the U.S. Department of Commerce, to deliver remarks on enhancements to BIS’s corporate enforcement policy for voluntary self-disclosures of export control violations. Assistant Secretary Axelrod’s speech was accompanied by the release of an enforcement policy memo, available here. After Secretary Axelrod’s remarks, he participated in a fireside chat and took questions from the audience. The event also featured a panel of experts on export control enforcement policy. A full agenda of the event is available here.

Matthew Axelrod, Assistant Secretary of Export Enforcement, BIS (©Hollenshead: Courtesy of NYU Photo Bureau)

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Boards of Directors Lovin’ It after McDonald’s? A Fresh Look at Directors’ Duty of Oversight in the New Era of Sanctions & Export Control Corporate Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

In this era of heightened geopolitical tensions with a renewed focus on national security, a perfect storm of liability risk is brewing for boards of directors.

Sanctions and export controls violations can be costly and dangerous, with multi-billion-dollar fines and jail sentences imposed in 2023.

For companies engaged in international trade, these events engage directors’ fiduciary duties. Looking to bellwether Delaware corporate law, Delaware’s Chancery Court recently reiterated in the McDonald’s shareholder litigation that directors’ Caremark duty of oversight is a function of their duty of loyalty. As such, this reinforces the limits of the protections directors would otherwise have if it were instead a function of the duty of care—under both the business judgment rule and “exculpation,” i.e., the option corporations have to excuse in their certificates of incorporation directors’ liability for breaches of their duty of care (but not of loyalty).[1] Directors’ duty of oversight further requires ensuring that they receive information regarding any “central compliance risks,” not just “mission critical” risks, and that there is an appropriate response to red flags. Continue reading →

Matthew Axelrod, Assistant Secretary for Export Enforcement at the United States Department of Commerce, Bureau of Industry & Security, to Announce Enhancements to Corporate Voluntary Self-Disclosure Policies for Export Control Violations at PCCE Event on January 16, 2024

Matthew Axelrod, Assistant Secretary for Export Enforcement at the United States Department of Commerce, Bureau of Industry & Security, will announce enhancements to corporate voluntary self-disclosure policies for export control violations. After delivering his remarks, Assistant Secretary Axelrod will engage in a moderated fireside chat and will be taking questions from the audience.

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An Ounce of Prevention is Worth a Pound of Cure . . . or an Imposed Compliance Monitorship: A Fresh Look at the DOJ’s Corporate Enforcement Toolkit Applied to Sanctions and Export Controls Enforcement

by Brent Carlson and Michael Huneke

From left to right: Brent Carlson and Michael Huneke (Photos courtesy of authors)

In our last article, we discussed the evolution of export controls penalties.[1] Beyond monetary penalties, the U.S. Department of Justice (“DOJ”) has additional items in its corporate enforcement toolkit that dramatically increase the cost of non-compliance. These include the DOJ’s new policies requiring companies to claw back or withhold executive compensation, requiring CEOs and chief compliance officers to make pre-release compliance certifications, and expanding the grounds for appointing independent compliance monitors.

Such corporate enforcement trends significantly increase the value of making front-end investments to avoid the “pound of cure.” In this post, we take a “fresh look” at these trends with an eye towards sanctions and export controls enforcement and offer practical guidance for dealing with them. Continue reading →

FinCEN and BIS Issue Joint Notice Emphasizing That Financial Institutions Should Monitor for Possible Export Control Violations

by Jessica S. Carey, John P. Carlin, Roberto J. Gonzalez, Brad S. Karp, Richard S. Elliott, David Fein, David Kessler, Nathan Mitchell, and Jacobus J. Schutte

Top left to right: Jessica S. Carey, John P. Carlin, Roberto J. Gonzalez, Brad S. Karp, and Richard S. Elliott. Bottom left to right: David Fein, David Kessler, Nathan Mitchell, and Jacobus J. Schutte. (Photos courtesy of Paul, Weiss, Rifkind, Wharton & Garrison LLP)

On November 6, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) jointly issued a notice (the “Notice”) announcing a new Suspicious Activity Report (“SAR”) key term, “FIN-2023-GLOBALEXPORT,” that financial institutions should reference when reporting potential efforts by individuals or entities seeking to evade U.S. export controls.[1]

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