The general federal five-year statute of limitations (see 28 U.S.C. § 2462) has long applied to civil and criminal violations of U.S. sanctions and trade laws. But that period of exposure to civil and criminal enforcement has now been significantly extended for many of the principal U.S. sanctions programs due to an amendment tucked away in H.R. 815, a broad emergency appropriations bill signed into law by President Biden on April 24, 2024. That provision extends from five to 10 years the statute of limitations ("SOL") for civil and criminal violations ofthe International Emergency Economic Powers Act, 50 U.S.C. 1705 ("IEEPA"), and the Trading with the Enemy Act, 50 U.S.C. 4315 ("TWEA"), the primary statutory authorities underlying a number of major sanctions programs enforced by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"), the Department of Commerce's Bureau of Industry and Security ("BIS"), and the U.S. Department of Justice ("DOJ").
The amendment provides:
- with respect to civil violations of IEEPA and TWEA, that "[a]n action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, under this section shall not be entertained unless commenced within 10 years after the latest date of the violation upon which the civil fine, penalty, or forfeiture is based." It also provides that "the commencement of an action, suit, or proceeding includes the issuance of a pre-penalty notice or finding of violation."
- with respect to criminal prosecutions, that "[n]o person shall be prosecuted, tried, or punished for any offense under [the applicable subsection] unless the indictment is found or the information is instituted within 10 years after the latest date of the violation upon which the indictment or information is based."
It is unclear whether OFAC, DOJ, and BIS will apply the new 10-year SOL, which became immediately effective on April 24, 2024, retroactively in cases where the prior five-year SOL had not already expired on the date of enactment. Doing so, particularly in criminal prosecutions, could expose such action to challenge under the ex post facto clause of the U.S. Constitution.
The new SOL will affect not only existing IEEPA and TWEA-based economic and financial sanctions but also, absent specific provisions to the contrary, future national security programs based on those laws, e.g., IEEPA-based regulations such as OFAC's developing "reverse-CFIUS" outbound investment program. Note, however, that the SOL for civil and criminal offenses arising under the Export Control Reform Act (which is a principal statutory authority for the Export Administration Regulations ("EAR")), and the Arms Export Control Act (including the International Traffic in Arms Regulations ("ITAR")) remains unchanged at five years.
Legal and Practical Impacts of the Extended SOL
The impacts of the extended statute of limitations are significant and will be felt not only by subjects of active U.S. sanctions and trade investigations but far more widely by persons, both U.S. and foreign, engaged directly or indirectly in international business transactions – including M&A, private equity, financial transactions, exports, licensing and distribution deals, and a host of other cross-border commercial activities. For example:
- Extended period of exposure to liability. Previously, some companies that knew or feared that they had committed sanctions or export violations chose to lie low and not voluntarily disclose those transgressions, gambling that the five-year period of limitations would run without the violations being discovered by federal authorities. With the doubled SOL now giving OFAC, DOJ and BIS up to 10 years – a decade! – to root out and take enforcement action against suspected sanctions violators, the lie-low strategy may be less viable.
- Increased need for vigorous compliance. The extended period of exposure, and the reduced effectiveness of a lie-low strategy, make vigorous compliance programs more important than ever for companies that engage in international transactions. This means not merely having an adequate written compliance policy on the shelf but also actively implementing that policy, including training, screening, program review, auditing, and diligence.
- Heightened deal due diligence. The extended SOL will complicate deal due diligence, particularly in the M&A and private equity world. Going forward, transaction parties will need to consider conducting due diligence on their counterparties covering a much longer period. Doing so will impose more expense, consume more time, and give rise to more frequent disagreements. Failing to do so will create more risk. Obtaining adequate diligence responses will prove more difficult as many counterparties will not have maintained records that are adequate to demonstrate sanctions compliance during the longer lookback period.
- More difficult negotiations over reps and warranties. Standard form sanctions and trade reps and warranties will now need to be expanded to account for the longer period of limitations, as well as for the possibility that there may be some elements of retroactivity in the enforcement agencies' application of the new 10-year SOL.
- Expanded recordkeeping and retention. Although there have not yet been any updates to either the OFAC or BIS record retention rules (which currently prescribe a five-year retention period), it is not unreasonable to expect that the agencies will revise retention rules that relate to IEEPA and TWEA compliance to mirror the longer SOL. Companies need to expand their recordkeeping and retention policies to be prepared to respond to investigations and discovery that undoubtedly will reach back considerably further than in the past. Similarly, deal parties certainly will demand broader reps and warranties and define a longer period for their transaction due diligence. In both respects, companies will need to maintain records longer than before to be prepared to demonstrate compliance with sanctions laws.
- Dangers arising out of past transactions. Buyers may need to reexamine past transactions to determine whether they could now be responsible for violations committed by acquired companies more than five years before the acquisition date, which previously likely would have been outside the buyer's diligence purview. This takes on added significance given enforcement agencies' application of successor liability and strict liability in post-acquisition cases.
- Greater potential liability. Given the doubling of the period of limitations and the fact that some sanctions penalties are time-based, companies may be incentivized to discover and possibly voluntarily disclose sanctions violations sooner rather than later to avoid accumulating penalties.
- Additional reasons to conduct internal compliance reviews and consider voluntary self-disclosures. With the extended period in which the government will be able to conduct investigations and discover and take action against alleged violators, and the potential for greater accumulating penalties, companies will need to consider whether circumstances warrant conducting internal compliance reviews and, if potential violations are discovered, voluntarily disclosing those violations to the appropriate enforcement agency/agencies.
Takeaways
In September 2022, Deputy Attorney General Lisa Monaco described as a "sea change" the U.S. government's "new level of intensity and commitment to sanctions enforcement," coining it "the new FCPA." Since then, OFAC, BIS, and DOJ's National Security Division have ratcheted up their respective sanctions enforcement programs in a number of ways. For example, BIS eliminated its prior practice of accepting no admit/no deny settlements and also announced that a party's failure to make a voluntary self-disclosure concerning a significant possible violation would be considered an aggravating factor in the application of the BIS Penalty/Settlement Guidelines.
In this environment, we have every reason to believe that OFAC, BIS, and DOJ will seek to take full advantage of the doubling of the statute of limitations applicable to violations of IEEPA, TWEA, and the regulations promulgated thereunder by conducting more investigations, bringing more enforcement actions, and reaching back further in time. This development calls for companies to thoroughly reexamine their sanctions compliance history and, where appropriate, strengthen their compliance programs.
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