Category Archives: Sanctions

It May Not Be Worth the Paper (or Pixel) It’s Written On (Part 1): A Fresh Look at Letters of Assurance Used to Bolster Sanctions and Export Controls Compliance

by Brent Carlson and Michael Huneke

photos of the authors

Left to right: Brent Carlson and Michael Huneke (Photos courtesy of the authors)

“The world has changed. And we must change with it.” So stated Assistant Secretary of Commerce for Export Enforcement Matt Axelrod at a recent summit in California.[1] This simple statement reflects the increasingly complex challenges companies now face in navigating export controls and sanctions in a world driven by new geopolitical realities.

These challenges call into questions past assumptions about compliance programs. The foundation of a robust compliance program starts with the reliability of the inputs relied upon to make informed, risk-based decisions. In the halcyon days of the post-Cold War era, export controls took on an administrative character. In that environment, certifications from counterparties—themselves the targets of the due diligence—were taken largely at face value. Yet today passive reliance, without more, carries profound risks because export controls and sanctions enforcement has already become more of a white-collar corporate enforcement environment driven by Russia’s continued ability to secure U.S.-brand microelectronics (both legacy and new production). Certifications alone accordingly may not be worth the paper they are written on—or the pixels of which they are made—especially when other data includes “red flags” that cast doubt on certifications’ veracity.

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Biden Administration Releases Proposed Rule on Outbound Investments in China

by Paul D. Marquardt and Kendall Howell

Photos of authors

From left to right: Paul D. Marquardt and Kendall Howell (Photos courtesy of Davis Polk & Wardwell LLP)

The Biden administration released its proposed rule that would establish a regulatory framework for outbound investments in China, following its advanced notice of proposed rulemaking released last August.

On June 21, 2024, the U.S. Department of the Treasury (Treasury) released its long-awaited notice of proposed rulemaking that would impose controls on outbound investments in China (the Proposed Rule). The Proposed Rule follows Treasury’s advanced notice of proposed rulemaking (the ANPRM) released in August 2023 (discussed in this client update) and implements the Biden administration’s Executive Order 14105 (the Executive Order), which proposed a high-level framework to mitigate the risks to U.S. national security interests stemming from U.S. outbound investments in “countries of concern” (currently only China). Like the Executive Order and ANPRM, the Proposed Rule reflects an effort by the Biden administration to adopt a “narrow and targeted” program and is in large part directed at the “intangible benefits” of U.S. investment (e.g., management expertise, prestige, and know-how), rather than capital alone.[1]

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DOJ National Security Division Issues First-Ever Declination Under Enforcement Policy

by Satish M. Kini, David A. O’Neil, Jane Shvets, Rick Sofield, Douglas S. Zolkind, Carter Burwell, Connor R. Crowley, and Hillary Hubley

Photos of the authors

Top left to right: Satish M. Kini, David A. O’Neil, Jane Shvets, and Rick Sofield. Bottom left to right: Douglas S. Zolkind, Carter Burwell, Connor R. Crowley, and Hillary Hubley. (Photos courtesy of Debevoise & Plimpton LLP)

Key Takeaways

  • Even in criminal national security matters, early self-reporting, remediation and cooperation can enable companies to avoid prosecution and penalties.
  • Federal enforcement agencies are continuing to collaborate in investigating and prosecuting criminal cases at the intersection of national security and corporate crime.
  • Multinational corporations and academic institutions should be aware of the risk of outsiders fraudulently affiliating themselves with legitimate institutions to skirt export control laws.

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BIS Primes the Corporate Enforcement Engine: A Fresh Look at What Recent BIS Actions & Statements Mean and a Proposed Framework for How U.S. Companies Can Best Prepare

by Brent Carlson and Michael Huneke 

Photos of the authors.

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

The risk of corporate criminal enforcement actions for export controls evasion or diversion is significantly increasing. Recent actions and statements by the Department of Commerce’s Bureau of Industry & Security (“BIS”) suggest that, beyond saber-rattling, BIS is deliberately priming the corporate enforcement engine with the fuel for an enforcement wave that will follow the Foreign Corrupt Practices Act (“FCPA”) “playbook” that the U.S. Department of Justice (“DOJ”) has successfully deployed for the last two decades.

The fuel comes in the form of official, multiagency guidance documents and other actions that describe circumstances indicating a “high probability” of misconduct, which as we have previously written is a freestanding basis for enforcement actions under both the FCPA and the Export Administration Regulations (“EAR”).[1] Such agency actions by BIS notably include the issuance to U.S. companies of lists of counterparties under cover of what BIS officials describe as “red flag” letters. Since our prior analysis,[2] BIS has reemphasized the significance of such letters and underscored the importance of how U.S. companies respond.

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FinCEN and SEC Move Closer to New AML Requirements for Investment Advisers & ERAs

by Joel M. Cohen, Claudette Druehl, Marietou Diouf, Tami Stark, Prat Vallabhaneni, and Robert DeNault

Photos of the authors

Top: Joel M. Cohen, Claudette Druehl, and Marietou Diouf
Bottom: Tami Stark, Prat Vallabhaneni, and Robert DeNault
(Photos courtesy of White & Case LLP)

On May 13, 2024, FinCEN and the SEC jointly proposed a new rule that would require SEC-registered investment advisers and exempt reporting advisers to maintain written customer identification programs (CIPs).  The new rule supplements a proposal in February to impose requirements on investment advisers similar to those that have existed for broker-dealers since 2001, as a means to address illicit finance and national security threats in the asset management industry.

For investment advisers who do not currently have an AML/CFT program, this compliance obligation will create a large shift in the way they operate.  This will require significant legal time and attention, but it will be time well spent considering potential regulatory exposure and likely indemnification obligations which flow through commercial agreements in favor of counterparties.

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New U.S. Law Extends Statute of Limitations for Sanctions Violations and Enhances Regulatory and Enforcement Focus on National Security Priorities

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

Photos of the authors

Top: Anthony Lewis, Eric Kadel Jr., and Sharon Cohen Levin
Bottom: Craig Jones, Adam Szubin, and Amanda Houle
(Photos courtesy of Sullivan & Cromwell LLP)

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.

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A Whole New National Security Ballgame: Key Practical Takeaways for Export Control Compliance from the 2024 BIS Update Conference

by Brent Carlson and Michael Huneke

Photos of the authors.

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

On March 27–29, 2024, the U.S. Department of Commerce’s Bureau of Industry & Security (“BIS”) hosted an Update Conference on Export Controls & Policy. The event was a major outreach effort by the U.S. government. Nearly 100 BIS and other U.S. agency officials engaged with 1,200 attendees over three days.

As was appropriate for an event coinciding with Opening Day of the U.S. Major League Baseball season, BIS officials emphasized that they—and those they regulate—are playing a whole new national security ballgame. This theme ran through every topic. It also drives the key practical takeaways that we highlight below for in-house compliance professionals assessing evasion and diversion risks and responding to reports of the same—particularly reports that some U.S. companies recently received directly from the U.S. government. Continue reading →

Executive Order Prohibits Transfer of Sensitive Personal Data to “Countries of Concern”

by Patrick J. Austin and John Pilch

Photos of authors

From the left to right: Patrick J. Austin and John Pilch

On February 28, 2024, U.S. President Joe Biden issued Executive Order on Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern (EO), which authorizes the U.S. Attorney General to restrict large-scale transfers of personal data to “countries of concern.” The “countries of concern” identified in the EO include China (along with Hong Kong and Macau), Russia, Iran, North Korea, Cuba and Venezuela, according to a summary issued by the White House.

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Monitoring What Matters: A Fresh Look Proposal to Government and Industry for How Post-Resolution Oversight Can Best Deny Hostile Actors the Means to Cause Deadly Harm

by Brent Carlson and Michael Huneke

Photos of the authors.

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

U.S. economic sanctions and export controls serve a wide range of national security interests. When hostile actors rely on U.S.-designed or -manufactured components in weapons used in fatal attacks on U.S. and coalition military personnel and civilian populations, there is an acute need to quickly identify the illicit trade flows and stop those components from reaching the battlefield. Continue reading →

EU AI Act Will Be World’s First Comprehensive AI Law

by Beth Burgin Waller, Patrick J. Austin, and Ross Broudy

Photos of authors

Left to right: Beth Burgin Waller, Patrick J. Austin, and Ross Broudy (photos courtesy of Woods Rogers Vandeventer Black PLC)

On March 13, 2024, the European Union’s parliament formally approved the EU AI Act, making it the world’s first major set of regulatory ground rules to govern generative artificial intelligence (AI) technology. The EU AI Act, after passing final checks and receiving endorsement from the European Council, is expected to become law in spring 2024, likely May or June.

The EU AI Act will have a phased-in approach. For example, regulations governing providers of generative AI systems are expected to go into effect one year after the regulation becomes law, while prohibitions on AI systems posing an “unacceptable risk” to the health, safety, or fundamental rights of the public will go into effect six months after the implementation date. The complete set of regulations in the EU AI Act are expected to be in force by mid-2026.

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