U.S. Agencies Issue Tri-Seal Compliance Note on Foreign-based Persons’ Obligations to Comply with U.S. Sanctions and Export Controls

On March 6, 2024, the three U.S. agen­cies charged with admin­is­tra­tion and enforce­ment of sanc­tions and export con­trol laws—the Department of the Treasury, the Department of Commerce, and the Department of Justice (“DOJ”)—released a new guid­ance doc­u­ment dis­cussing the legal and com­pli­ance oblig­a­tions of for­eign-based per­sons. The tri-seal com­pli­ance note focus­es on the legal expo­sure for non‑U.S. com­pa­nies with respect to U.S. sanc­tions and export con­trols and pro­vides com­pli­ance con­sid­er­a­tions for such enti­ties to help mit­i­gate risk.

Applicability of U.S. Sanctions and Export Controls to Non‑U.S. Persons 

Sanctions: The note high­lights how non‑U.S. per­sons are sub­ject to cer­tain pro­hi­bi­tions admin­is­tered by the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). 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.” Examples of such con­duct include when a non‑U.S. person:

• Obscures or omits ref­er­ence to the involve­ment of a sanc­tioned par­ty or juris­dic­tion to a finan­cial trans­ac­tion involv­ing a U.S. per­son in trans­ac­tion documentation;
• Misleads a U.S. per­son into export­ing goods ulti­mate­ly des­tined for a sanc­tioned juris­dic­tion; or
• Routes a pro­hib­it­ed trans­ac­tion through the United States or the U.S. finan­cial sys­tem, there­by caus­ing a U.S. finan­cial insti­tu­tion to process the pay­ment in vio­la­tion of OFAC sanctions.

OFAC may impose civ­il penal­ties for sanc­tions vio­la­tions on a strict lia­bil­i­ty basis—that is, the per­son in vio­la­tion need not know or have rea­son to know that it was engag­ing in a vio­la­tion. The note cites past sanc­tions enforce­ment actions tar­get­ing con­duct by non‑U.S. per­sons, includ­ing most recent­ly the set­tle­ment with Swedbank Lavia AS. In that case, the enti­ty, a sub­sidiary of a Sweden-based finan­cial insti­tu­tion, had allowed a cus­tomer to use its e‑banking plat­form from an inter­net pro­to­col address in a sanc­tioned juris­dic­tion to send pay­ments to per­sons locat­ed in a sanc­tioned juris­dic­tion through U.S. cor­re­spon­dent banks.

Export Controls: Export con­trols admin­is­tered by the Department of Commerce’s Bureau of Industry and Security (“BIS”) extend to items sub­ject to the Export Administration Regulations (“EAR”) any­where in the world and to the for­eign per­sons who deal with them. Export con­trols apply not only to exports from the Untied States, but also to re-exports from one for­eign coun­try to anoth­er and in-coun­try trans­fers. The EAR also applies to goods that incor­po­rate a cer­tain de min­imis thresh­old of con­trolled U.S. con­tent and cer­tain for­eign-made goods pro­duced using U.S. soft­ware, tech­nol­o­gy, or pro­duc­tion equip­ment (also known as goods sub­ject to the so-called for­eign direct prod­uct rules).

The note pro­vides exam­ples of recent enforce­ment actions against for­eign per­sons for vio­la­tions of U.S. export con­trol laws. Among them are the mul­ti­ple tem­po­rary denial orders imposed against for­eign air­lines for oper­at­ing U.S. and for­eign air­craft sub­ject to the EAR on flights into and out of Russia, pur­suant to the impo­si­tion of con­trols on avi­a­tion-relat­ed items export­ed to Russia fol­low­ing Russia’s inva­sion of Ukraine.

Criminal Enforcement

In addi­tion to civ­il lia­bil­i­ty, the note describes how the DOJ is autho­rized to bring crim­i­nal charges against non‑U.S. per­sons for wil­ful vio­la­tions of U.S. sanc­tions and export con­trol laws. Under the rel­e­vant statutes, pro­hib­it­ed con­duct includes (i) caus­ing a vio­la­tion of any license, order, reg­u­la­tion, or pro­hi­bi­tion issued pur­suant to the International Emergency Economic Powers Act and (ii) caus­ing or induc­ing of any act pro­hib­it­ed by, or the omis­sion of any act required by, the Export Control Reform Act or the EAR. 

The note pro­vides recent exam­ples of DOJ indict­ments against for­eign per­sons for sanc­tions and export con­trol vio­la­tions. For exam­ple, in November 2033, the DOJ announced a guilty plea by Binance, a cryp­tocur­ren­cy exchange com­pa­ny, for offens­es includ­ing vio­la­tions of U.S. sanc­tions. Binance “admit­ted to know­ing that it had a sig­nif­i­cant num­ber of users from com­pre­hen­sive­ly sanc­tioned juris­dic­tions, such as Iran, as well as a sig­nif­i­cant num­ber of U.S. users, and Binance fur­ther knew that its sys­tem would cause U.S. users to trans­act with users in sanc­tions juris­dic­tions.” In addi­tion, in December 2023, DOJ charged one Iran-based per­son and one China-based per­son “for con­spir­ing to ille­gal­ly pur­chase and export from the United States to Iran dual-use micro­elec­tron­ics com­mon­ly used in UAV pro­duc­tion.” The defen­dants alleged­ly caused Canadian and French com­pa­nies to place orders with U.S. man­u­fac­tur­ers to be re-export­ed to Iranian end users.

Compliance Considerations for Foreign-based Persons

The tri-seal com­pli­ance note con­cludes by dis­cussing com­pli­ance con­sid­er­a­tions for for­eign-based per­sons to avoid vio­la­tions of U.S. sanc­tions and export con­trols. These include: 

• Employing a risk-based approach to sanc­tions compliance;
• Establishing strong inter­nal con­trols and pro­ce­dures to gov­ern pay­ments and the move­ments of goods;
• Ensuring that know-your-cus­tomer infor­ma­tion and geolo­ca­tion data are appro­pri­ate­ly integrated;
• Ensuring that sub­sidiaries and affil­i­ates are trained on U.S. sanc­tions and export controls;
• Taking imme­di­ate and effec­tive action when com­pli­ance issues are identified;
• Identifying and imple­ment­ing mit­i­ga­tion mea­sures pri­or to merg­ing with or acquir­ing oth­er enter­pris­es; and
• Voluntarily self-dis­clos­ing poten­tial vio­la­tions of sanc­tions or export controls.

It should be not­ed that short­ly after the issuance of the note, Deputy Attorney General Lisa Monaco announced a new whistle­blow­er rewards pro­gram on March 7. Areas of focus for the pro­gram include crim­i­nal abus­es of the U.S. finan­cial sys­tem, such as sanc­tion vio­la­tions, and for­eign cor­rup­tion cas­es out­side the juris­dic­tion of the Securities and Exchange Commission. The DOJ will begin to devel­op the pro­gram over the next 90 days, with a for­mal start date expect­ed lat­er this year. Acting Assistant Attorney General Nicole Argentieri fur­ther stat­ed on March 8 that the pro­gram is intend­ed to incen­tivize dis­clo­sures of cor­po­rate mis­con­duct “where no such incen­tives cur­rent­ly exist.”

The DOJ’s National Security Division (“NSD”) also updat­ed its enforce­ment pol­i­cy on March 7. Updates include NSD’s encour­age­ment to com­pa­nies to vol­un­tar­i­ly self-dis­close, in addi­tion to sanc­tions and export con­trol vio­la­tions, poten­tial vio­la­tions “of oth­er crim­i­nal statutes that affect nation­al secu­ri­ty because they arise out of or relate to the enforce­ment of export con­trol and sanc­tions laws, such as mon­ey laun­der­ing, bank fraud, smug­gling, fraud­u­lent impor­ta­tion, and false state­ment offenses.”

Conclusion

The new tri-seal com­pli­ance note pro­vides a suc­cinct and clear expla­na­tion of the applic­a­bil­i­ty of U.S. sanc­tions and export con­trols to for­eign per­sons. The note builds on the three agen­cies’ pri­or engage­ment with the pri­vate sec­tor and empha­sis on trans­paren­cy to date, includ­ing the recent announce­ment of the whistle­blow­er rewards pro­gram. It also puts poten­tial vio­la­tors on notice for the types of con­duct that would war­rant the atten­tion of the U.S. reg­u­la­tors. Foreign com­pa­nies should con­tin­ue to reassess their exist­ing com­pli­ance frame­works and pro­to­cols based on this guidance.

Original arti­cle: Linklaters