On March 6, 2024, the Department of Commerce, the Department of the Treasury, and the Department of Justice published a Tri-Seal Compliance Note titled "Obligations of foreign-based persons to comply with U.S. sanctions and export control laws" (the "Note"). The Note stresses that U.S. persons are not the only entities subject to U.S. sanctions and export controls, and that foreign individuals and companies face legal exposure should they engage with sanctioned persons/jurisdictions or deal with items subject to the Export Administration Regulations (EAR). In addition to highlighting specific enforcement examples in which non-U.S. persons were held accountable for violations of U.S. sanctions and export control laws, the Note provides an overview of compliance considerations and measures for non-U.S. persons to help mitigate these risks.
As stated, the Note covers different areas of potential enforcement exposure, organized by agency, including:
- The Office of Foreign Assets Control's ("OFAC") duties and authority to administer economic and trade sanctions, primarily against targeted foreign regimes, jurisdictions, entities, and individuals—as well as the forms sanctions may take and the penalties for violating these laws and regulations;
- The Bureau of Industry and Security's ("BIS") responsibility to administer and enforce export controls on dual-use and certain munitions items as set out under the EAR, as well as other types of covered shipments, including U.S.-origin items; products containing more than a de minimis amount of U.S.-origin components; and certain foreign produced products developed using U.S.-origin software or technology.
- The Department of Justice's authority under the International Emergency Economic Powers Act (IEEPA) and the Export Control Reform Act (ECRA) to pursue criminal prosecution against individuals and entities who willfully violate U.S. sanctions and export control laws. Violations of either statute are punishable by up to 20 years imprisonment and a $1 million fine.
Helpfully, the Note contains a section covering compliance considerations for non-U.S. persons, which recommends that foreign companies:
- Employ a risk-based approach to sanctions compliance by developing, implementing, and routinely updating a sanctions 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 and geolocation data are appropriately integrated into compliance screening protocols and information is updated on an ongoing basis based on its overall risk assessment and specific customer risk rating;
- 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, to the extent possible, to identify and implement compensating controls until the root cause of the weakness can be determined and remediated; and
- Identify and implement measures to mitigate sanctions and export control 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.
The Note serves to inform the private sector about enforcement trends and to provide guidance to the business community about the U.S. government's expectations as to compliance with U.S. sanctions and export laws. The Note concludes by warning that "[g]lobal business organizations and others who participate in international trade should 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."
Crowell & Moring, LLP continues to monitor developments in sanctions and export control enforcement and their potential impact on customers and businesses going forward.
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