The Biden administration recently released a compliance note advising foreign-based companies and individuals to take seriously the impacts of U.S. sanctions and export control laws on their business and operations. The note also urges global business organizations and others that participate in international trade to take appropriate steps to understand how these laws may apply to them, what risks are posed by their business operations, and how they can mitigate these risks.
For more information on sanctions and export controls and how to ensure your company is in compliance, please contact attorney Kristine Pirnia at (202) 730-4964 or via email.
Sanctions
Trade and economic sanctions are administered and enforced by the Treasury Department’s Office of Foreign Assets Control and take various forms, including blocking the property of specific individuals and entities, restricting a narrower range of dealings with specified actors, and prohibiting transactions involving an entire jurisdiction or country (e.g., a trade embargo or sanctions related to particular economic sectors).
Some sanctions programs require compliance with applicable restrictions by foreign entities owned or controlled by U.S. persons, and/or foreign persons in possession of U.S.-origin goods. Further, non-U.S. persons are prohibited from causing or conspiring to cause U.S. persons to wittingly or unwittingly violate U.S. sanctions, as well as engaging in conduct that evades U.S. sanctions.
Export Controls
Unlike in many other countries, U.S. export control laws may extend to items subject to the Export Administration Regulations anywhere in the world and to foreign persons who deal with them. In addition to the initial export, the EAR also applies to (1) reexports, or shipments from one foreign country to another, (2) in-country transfers, (3) goods that incorporate a certain percentage of controlled U.S. content (the de minimis thresholds), and (4) exports from abroad, reexports, and in-country transfers of certain foreign-made items produced using U.S. software, technology, or production equipment (thus subject to a foreign direct product rule).
Anyone involved in the movement of items subject to the EAR must adhere to U.S. export control laws, and the Bureau of Industry and Security actively enforces these laws regardless of where the offending party is located. As a result, parties to an export transaction cannot bypass the EAR by shipping items through a third country, shipping the item from a location outside the U.S., or changing the end-use or end-user of an item within a foreign country.
Enforcement
Violations of OFAC regulations may result in criminal or civil penalties, the latter of which may be imposed even if the person did not know or have reason to know that it was engaging in a prohibited transaction. Examples of violations include misleading a U.S. person into exporting goods ultimately destined for a sanctioned jurisdiction, routing a prohibited transaction through the U.S. or the U.S. financial system, and obscuring or omitting from transaction documentation any mention of the involvement of a sanctioned party.
BIS may respond to export control violations by issuing temporary denial orders, which suspend not only the right to export items subject to the EAR from the U.S. but also the right to receive or participate in exports from the U.S. or reexports of items subject to the EAR. BIS may also issue civil penalties.
The Department of Justice can bring criminal prosecutions for willful violations of U.S. sanctions and export control laws, which are punishable by imprisonment of up to 20 years and a $1 million fine.
Compliance
To avoid sanctions and export control violations, the note advises foreign-based persons to undertake robust compliance measures, including the following.
- develop, implement, and routinely update a compliance program
- establish strong internal controls and procedures to govern payments and the movement of goods involving affiliates, subsidiaries, agents, or other counterparties
- ensure that know-your-customer information (such as passports; phone numbers; nationalities; countries of residence, incorporation, and operations; and addresses) and geolocation data are appropriately integrated into compliance screening protocols and updated regularly
- ensure that subsidiaries and affiliates are trained on U.S. sanctions and export controls requirements, can effectively identify red flags, and are empowered to escalate and report prohibited conduct to management
- take immediate and effective action when compliance issues are identified
- identify and implement measures to mitigate risks prior to merging with or acquiring other enterprises, especially where a company is expanding rapidly and/or disparate information technology systems and databases are being integrated across multiple entities
- voluntarily self-disclose suspected violations to the relevant agency
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