August was another robust month in international trade that further signifies the need for corporations to invest in effective compliance programs. For starters, the DOJ unveiled a new program that incentivizes corporate whistleblowing that will undoubtedly lead to more penalty actions. OFAC issued a new slate of sanctions targeting Russia's supply chains, covering companies both in and outside of Russia. And DHS continued its expansion of the UFLPA list with five new Chinese entities.
August also saw some eye-popping penalties for compliance violations. One company entered into a $200 million settlement agreement with the State Department over violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). Another enforcement action from CFIUS resulted in a $60 million penalty – its largest penalty to date. Commerce's BIS imposed a $5.8 million penalty for export control violations.
To aid in compliance efforts, Departments and Agencies continue to release additional resources on recommended best practices and enforcement transparency. Both OFAC and CFIUS released new websites with additional guidance for the trade community. BIS issued export resources for academia aimed at improving export compliance. More on all of this below.
Compliance Updates
DOJ Unveils New Corporate Whistleblower Program
The DOJ unveiled its Corporate Whistleblower Awards Pilot Program on Aug. 1. The program incentivizes individuals to come forward and report corporate crime in four priority areas:
- Foreign bribery and corruption;
- Crimes involving financial institutions, such as obstructing or defrauding financial regulators;
- U.S. bribery and corruption; and
- Health care fraud involving private insurers.
In conjunction, the DOJ announced an amendment to its Corporate Enforcement and Voluntary Self-Disclosure Policy. Under the amendment, when a company receives an internal report from a whistleblower, if the company comes forward and reports the misconduct to the department within 120 days and before the department reaches out to the company, the company will be eligible for a presumption of a declination—so long as they fully cooperate and remediate.
The DOJ is expressly sending a message to corporate leadership that now is the time to make the necessary compliance investments to help prevent, detect, and remediate misconduct. And where misconduct does occur, companies should strongly consider self-reporting.
DHS Adds Chinese Entities to UFLPA List
On Aug. 8, DHS added five entities based in China to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List, bringing the total entities to 73. Effective Aug. 9, CBP will apply a rebuttable presumption that goods produced by Century Sunshine Group Holdings, Ltd.; Kashgar, Construction Engineering (Group) Co., Ltd.; Rare Earth Magnesium Technology Group Holdings, Ltd.; Xinjiang Habahe Ashele Copper Co., Ltd.; and Xinjiang Tengxiang Magnesium Products Co., Ltd. will be prohibited from entering the United States.
The UFLPA Entity List includes companies that are active in the apparel, agriculture, polysilicon, plastics, chemicals, batteries, household appliances, electronics, and food additives sectors, among others. DHS recommends that U.S. importers conduct due diligence and examine their supply chains for risks of forced labor to ensure compliance with the UFLPA.
CFIUS Expands its Enforcement Website
On Aug. 14, the Committee on Foreign Investment in the U.S. (CFIUS) unveiled website updates to provide further clarity and transparency regarding penalties and other enforcement actions.
The website shares detailed information about civil monetary penalties imposed by CFIUS over the last few years, with descriptions of the nature of the conduct that gave rise to the penalty and mitigating and aggravating factors. In 2023 and 2024 to date, CFIUS issued three times more penalties than it had previously issued in its 50-year history. This month, CFIUS issued its largest fine to date (more on that below). The website includes sections on enforcement, mitigation, and non-notified transactions.
BIS Issues Export Resources for Academia
On Aug. 14, the Department of Commerce's Bureau of Industry and Security (BIS) Export Enforcement published two new resources for the academic community: a compliance note on voluntary self-disclosure trends and a compendium of export compliance resources.
- The compliance note details conduct commonly disclosed by academic institutions over the past ten years that constitutes export control violations. The document also highlights actions universities can take to address and prevent these violations, including enhanced training programs and improved internal controls.
- The compendium of resources offers a comprehensive guide to export compliance tools, including informational and vetting resources, BIS-specific resources, and examples of recent enforcement actions. These tools should help academic institutions integrate export control requirements into everyday operations for professors, students, staff, and visitors, which in turn helps minimize the risk of violations.
ITAR Amendment
On Aug. 15, the State Department published its rule that amends section 120.54 with the addition of two activities that are outside the jurisdiction of the International Traffic in Arms Regulations (ITAR). Under the new rule, subject to certain conditions set out more fully in the regulation, the following activities "are not exports, reexports, retransfers, or temporary imports."
- The taking of a defense article subject to the reexport or retransfer requirements of this subchapter on a deployment or training exercise outside a previously approved country; and
- The transfer of a foreign defense article previously imported into the United States that has since been exported from the United States pursuant to a license or other approval under this subchapter ...
Both of these exceptions are subject to specific requirements that should be carefully reviewed by the exporting entity.
OFAC Expands its Sanctions Guidance
On Aug. 21, the Treasury Department's Office of Foreign Assets Control (OFAC) announced several initiatives underway aimed at assisting the public with sanctions implementation. As part of these efforts, OFAC amended several FAQs to ensure published guidance remains current. Economic and trade sanctions continue to be an important tool to support the United States' foreign policy goals and to address pressing national security concerns.
U.S. Unveils More Sanctions Targeting Russia's Supply Chains
On Aug. 23, the Treasury and State Departments targeted nearly 400 individuals and entities both in Russia and outside its borders — including in Asia, Europe, and the Middle East — whose products and services enable Russia to sustain its war effort and evade sanctions. The list includes several China-based suppliers and other non-Russian equipment manufacturers, and persons and entities operating in a wide range of Russian sectors. Identifying information on the sanctioned individuals and entities can be found here.
Enforcement Actions
Export Violations
The State Department reached a $200 million settlement with RTX Corporation (RTX) to resolve 750 alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).
The settlement addresses RTX's unauthorized exports of defense articles resulting from the failure to establish proper jurisdiction and classification; unauthorized exports of defense articles, including classified defense articles; unauthorized exports of defense articles by employees via hand-carry to proscribed destinations listed in 22 C.F.R. 126.1; and violations of terms, conditions, and provisos of DDTC authorizations.
Notably, RTX disclosed the alleged violations voluntarily. The Department has agreed to suspend $100 million of this amount on the condition that the funds will be used for the Department-approved Consent Agreement remedial compliance measures to strengthen RTX's compliance program.
The Department of Commerce's Bureau of Industry and Security (BIS) imposed a $5.8 million civil penalty against TE Connectivity Corporation (TE) and foreign affiliates as part of a settlement agreement to resolve alleged U.S. export control violations related to shipments of low-level items to parties tied to the People's Republic of China (PRC), involving hypersonics, unmanned aerial vehicles (UAV), and military electronics programs.
The alleged violations cover shipments of $1.74 million in items subject to the Export Administration Regulations (EAR) to parties on the BIS Entity List and for restricted end uses in China. TE voluntarily disclosed the conduct to BIS, cooperated with the investigation by BIS's Office of Export Enforcement, and took remedial measures after discovering the conduct at issue, which resulted in a significant reduction in the penalty.
CFIUS Violations
CFIUS resolved an enforcement action against T-Mobile US, Inc. (T-Mobile), resulting in a $60 million penalty, its largest penalty ever.
As publicly disclosed by T-Mobile, the company entered into a National Security Agreement (NSA) with CFIUS in 2018 in connection with T-Mobile's merger with Sprint and the foreign ownership of the resulting entity. CFIUS determined that between August 2020 and June 2021, in violation of a material provision of the NSA, T-Mobile failed to take appropriate measures to prevent unauthorized access to certain sensitive data and failed to report some incidents of unauthorized access promptly to CFIUS, delaying the Committee's efforts to investigate and mitigate any potential harm.
Anti-Boycott Violations
BIS imposed a civil penalty of $44,750 against Streamlight, Inc., a global manufacturer of portable lighting products located in Eagleville, Pennsylvania, to resolve three alleged violations of the antiboycott provisions of the Export Administration Regulations (EAR).
Streamlight participated in a trade show in Bahrain in 2019. In connection with the shipment of goods for display at the trade show, the company furnished to its freight forwarder/logistics provider a commercial invoice/packing list certifying that the goods were not of Israeli origin and not manufactured by a company on the "Israeli Boycott Blacklist." Streamlight voluntarily self-disclosed the conduct to BIS, cooperated with the investigation by BIS's Office of Antiboycott Compliance (OAC), and implemented remedial measures after discovering the conduct at issue, all of which resulted in a significant reduction in penalty.
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