Ransomware attacks have been increasing, forcing many businesses to choose between paying a ransom and losing access to their confidential and proprietary data or information networks and systems.

On September 21, the Department of the Treasury issued an updated advisory that highlights potential sanctions risks for companies that directly make or otherwise facilitate ransomware payments and offers “proactive steps” companies can take to mitigate such risks.

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On September 20, 2021, the Department of Commerce (Commerce) published in the Federal Register amended regulations to improve its administration and enforcement of the antidumping (AD) and countervailing duty (CVD) laws. The AD/CVD laws are intended to provide relief to domestic industries, including businesses, workers, farmers and ranchers, from the injurious effects of unfairly traded imports through the imposition of AD/CVDs. The final rule significantly modifies the agency’s regulations concerning industry support, new shipper reviews, scope inquiries, circumvention inquiries, covered merchandise inquiries, certifications and certain procedures. Aimed at closing loopholes and addressing inefficiencies, these revisions are Commerce’s first overhaul of the AD/CVD regulations in more than 20 years.

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On September 17, 2021, President Biden issued an Executive Order (EO), “Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia,” targeting persons responsible for the conflict in Ethiopia, obstructing humanitarian access and preventing a ceasefire. The White House issued a statement in connection with the new sanctions indicating they are directed at “the individuals and entities perpetrating the violence and driving a humanitarian disaster.” Along with the EO, OFAC also issued Frequently Asked Questions (FAQs) 922-927 and General Licenses 1, 2 and 3.

The EO authorizes the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) to sanction persons determined to be:

  1. responsible for or engaged in (a) actions or policies that are adverse to democracy, peace and security; (b) corruption and human rights violations; (c) obstruction of humanitarian relief; (d) the targeting of civilians with acts of violence; or (e) attacks in northern Ethiopia;
  2. a military or security force operating in northern Ethiopia; or
  3. a political agent of the government of Ethiopia, government of Eritrea or its ruling People’s Front for Democracy and Justice, the Tigray People’s Liberation Front, the Amhara regional government, or the Amhara regional or irregular forces.

As noted in the EO and detailed in the FAQs, the EO authorizes blocking sanctions and other non-blocking menu-based sanctions. Persons engaging in sanctionable activity may be designated to the Specially Designated Nationals and Blocked Entities (SDN) List or to the Non-SDN Menu-Based Sanctions (Non-SDN MBS) List. All property and interests in property of SDNs and entities owned 50% or greater by SDNs are blocked and cannot be dealt in by U.S. persons. Persons designated to the Non-SDN MBS List would be subject to menu-based sanctions set forth in the EO at Section 2(a)(i)(B)-(E) on a case-by-case basis including, but not limited to, the prohibition on new investments in debt or equity. The 50% rule does not apply to persons on the Non-SDN MBS List.

General Licenses 1, 2 and 3 authorize limited transactions that would otherwise be prohibited. GLs 1 and 2 authorize certain transactions and activities otherwise prohibited that are related to the official business of the U.S. government and official activities of certain international organizations, respectively. GL 3 authorizes the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices and software updates for medical devices, to Ethiopia or Eritrea, or to persons in third countries purchasing specifically for resale to Ethiopia or Eritrea.

On September 10, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 5H, “Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After January 21, 2022,” which continues to delay U.S. persons’ ability to enforce bondholder rights to the CITGO shares serving as collateral for the Petróleos de Venezuela, S.A. (PdVSA) 2020 8.5% bond until on or after January 21, 2022. The previous deadline had been October 21, 2021. Effective September 10, 2021, this GL 5H replaces GL 5G. Additionally, OFAC modified frequently asked question #595 to address the scope of GL 5H.

With this new General License, U.S. persons remain prohibited until January 21, 2022 from engaging in any transactions related to the sale or transfer of CITGO shares in connection with the PdVSA 2020 8.5% Bond, unless specifically authorized by OFAC. In the modified FAQ 595, OFAC notes a favorable licensing policy toward those seeking to apply for a specific license in an effort to reach an agreement on proposals to “restructure or refinance payments due to the holders of the PdVSA 2020 8.5% bond.” See Update of July 21, 2021 for prior OFAC activity on this issue.

On September 8, 2021, the Court of International Trade (CIT) issued an order that revised its July 6, 2021 order granting the plaintiff group’s motion for a preliminary injunction in the ongoing China Section 301 tariff refund litigation. That preliminary injunction suspended liquidation of unliquidated entries from China subject to List 3 and List 4A duties, which, the plaintiff group alleges, are not authorized under the original investigation of the U.S. Trade Representative (USTR) into China’s actions adversely affecting U.S. intellectual property rights, innovation and technology development. The July 6, 2021 order also established a U.S. government repository for collecting information on unliquidated entries and a process for the companies represented by the plaintiff group to request suspension of liquidation of entries during the remainder of the litigation. See Update of July 7, 2021.

After nearly two months of negotiations, status reports and conferences, the government defendants conceded that U.S. Customs and Border Protection (CBP) could not carry out this process. Instead, the government defendants informed the CIT that they would stipulate to any refunds of unliquidated entries before July 6, 2021, and entries on or after July 6, 2021, should the plaintiffs prevail on the merits – a position they had previously rejected. As a result, the CIT’s September 8, 2021 order acknowledges the stipulation, which the plaintiff group supports, and directs the following actions:

  • The government defendants may continue to liquidate List 3 and List 4A entries and collect those additional duties;
  • Should the CIT find that the List 3 and/or List 4A duties have been illegally collected, and should that decision become final and conclusive, including all appeals, the government defendants must reliquidate any subject entries without the assessment of List 3 and List 4A duties, or otherwise refund to the plaintiff group companies such duties, with interest; and
  • The requirement for the government defendants to establish a repository for the collection of suspended liquidation of entries has been removed.

With this stipulation and the removal of the repository requirement, the plaintiff group will no longer be required to submit List 3 and List 4 A entry data to CBP to request suspension of these duties. The CIT order, however, makes clear that its scope only applies to entries that were unliquidated at the time of the July 6, 2021 preliminary injunction, and to entries entered on or after July 6, 2021.

Key Notes:

  • U.S. sanctions regulations require persons subject to U.S. jurisdiction to file initial and annual reports on blocked property and rejected transactions with OFAC.
  • Annual reports of property blocked from July 1, 2020 to June 30, 2021 must be submitted by September 30, 2021.
  • There is no annual reporting requirement for rejected transactions.

On June 21, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended the Reporting, Procedures and Penalties Regulations, 31 C.F.R. Part 501 (RPPR), to require all U.S. persons and persons otherwise subject to U.S. jurisdiction, not only U.S. financial institutions as previously required, to file certain reports on blocked property and rejected transactions pursuant to RPPR §§ 501.603 and 604.

Any such person holding property that became blocked between July 1, 2020 and June 30, 2021 must file an annual report with OFAC in compliance with 31 C.F.R. § 501.603(b)(2)(i)–(iii) by September 30, 2021.

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Recent additions to the Specially Designated Nationals (SDN) List highlight an increasing enforcement focus on corruption and money laundering. On August 24, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated three Paraguayan individuals and five associated entities to the SDN List in response to a corruption and money-laundering scheme involving local and federal bureaucracies. OFAC noted that the Tri-Border Area (TBA) where Argentina, Brazil, and Paraguay converge “is marked by a large number of unregistered money exchange houses, trade based money laundering through export-import and retail businesses in the electronics and automotive sectors, the lack of awareness of money laundering and terrorist financing typologies and risk in the private sector, the intensive use of cash by businesses and individuals, and a large volume of transfers to high risk jurisdictions.” OFAC’s Director, Andrea Gacki, stated that this action “demonstrates the U.S. government’s ongoing effort to impose tangible and significant consequences on corrupt actors in order to protect the U.S. financial system from abuse.”

In this instance, three Paraguayan individuals, Kassem Mohamad Hijazi, Khalil Ahmad Hijazi, and Liz Paola Doldan Gonzalez, and five related entities connected to them were acting as “despachantes” (or dispatchers) in using their network of local and federal government officials to launder money. Through a network of front companies and business relationships, these individuals are able to move illicit proceeds “all around the world with ease,” including to the United States, South America, Europe, the Middle East, and China. For additional details on the overall scheme and role that each individual and front company played in the corruption and money laundering scheme, see OFAC’s press release.

As a result of these designations to the SDN List, all property and interests in property of these individuals and entities that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. U.S. persons are generally prohibited from engaging in transactions with these sanctioned individuals and entities. In addition, any entities that are owned, directly or indirectly, 50 percent or more by the designated persons and entities are also blocked.

The Office of the U.S. Trade Representative (USTR) is seeking public comments on whether to continue exclusions from Section 301 duties for certain medical care imports from China needed to address the COVID-19 pandemic.  These exclusions are set to expire on September 30, 2021 (see Update of March 8, 2021).  The USTR notice and request for public comment states:  “In light of developments in the production capacity of the United States in the subject products and continuing efforts in the battle against COVID–19, USTR is requesting public comments on whether to extend particular exclusions past September 30, 2021.”

The 99 COVID-19 exclusions cover a variety of Chinese medical care products, including but not limited to: face shields; certain sterile drapes and covers; gloves; face masks; hot and cold packs; otoscopes; certain woven gauze sponges; certain non-woven fabrics; certain microscopes; certain dispensers and hand pumps for liquids; certain plastic aprons for personal protection; certain molded acrylonitrile-butadiene-styrene (ABS) tubes; certain adhesive polyethylene films, sheets and strips; and certain parts and components for X-ray and MRI equipment. These exclusions are available for any product meeting a description in the annexes accompanying USTR’s December 29, 2020 Federal Register notice. The scope of each exclusion is determined by the 10-digit Harmonized Tariff Schedule subheadings and the product descriptions in Annexes A, B, C and D of the December 29 notice.

Written comments in support of or opposition to extending an exclusion beyond September 30, 2021 will be accepted through September 27, 2021, and must be submitted via the online portal at:  https://comments.USTR.gov under the heading “Comments:  Modifications to COVID-19 Exclusions.”

On August 23, 2021, the plaintiff group led by Transpacific Steel LLC filed a petition with the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) requesting a rehearing by all the Federal Circuit judges of the July 2021 three-judge panel decision reversing the ruling of the U.S. Court of International Trade (CIT) that former President Donald J. Trump violated the provisions of Section 232 of the Trade Expansion Act of 1962 (Section 232) by increasing tariffs on steel imports from Turkey beyond those previously implemented under an earlier presidential proclamation. In the July 2021 ruling, the Federal Circuit panel ruled 2-1 that former President Trump did not depart from the finding of the Secretary of Commerce of a national security threat and did not violate the process and timing standards applicable to the Secretary’s finding of a national security threat. See July 13, 2021 Update.

The plaintiff group seeks a rehearing before the full membership of the court “because the Majority [in the panel hearing] disregarded important statutory provisions in Section 232, reducing them to irrelevance,” and, if the decision stands, “Presidents will be able to usurp congressional authority to set tariffs by simply receiving an affirmative ‘threat to impair’ report from the Secretary of Commerce, who serves at the President’s pleasure.” The plaintiff group specifically argues that the panel majority overlooked or misapplied three points of law and fact:

  • Misread Section 232 as providing the President unfettered discretion to increase tariffs on, or otherwise adjust, imports at any time following an affirmative report by the Secretary of Commerce.
  • Transformed Section 232 into “an unlimited delegation of legislative power to the President to regulate international commerce.”
  • Misconstrued the equal protection guarantees of the Fifth Amendment to the U.S. Constitution.

In seeking a full rehearing, the plaintiff group asks that the Federal Circuit uphold the CIT’s July 14, 2020 decision that former President Trump’s tariff increase on steel imports from Turkey was unlawful. See July 14, 2020 Update.

On August 20, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) implemented additional sanctions on Russia in response to the state-sponsored poisoning of Russian opposition leader Aleksey Navalny in August 2020. Specifically, OFAC has designating nine Russian individuals and two Russian entities found to be involved in Navalny’s poisoning or Russia’s chemical weapons program. Additionally, the U.S. Department of State has designated two Russian Ministry of Defense scientific laboratories that have engaged in activities to develop Russia’s chemical weapons capabilities.

OFAC has placed the following Russian entities and persons on the Specially Designated Nationals (SDN) List:

  • FSB Criminalistics Institute – a sub-unit of the Federal Security Service of the Russian government (FSB).
  • State Institute for Experimental Military Medicine (GNII VM) – a scientific research organization specializing in security and defense that operates under the ultimate authority of the Russian Ministry of Defense.
  • Vladimir Bogdanov – Chief of the FSB’s Special Technology Center.
  • Stanislav Makshakov – reportedly an FSB official and toxicologist.
  • Konstantin Kudryavtsev – an FSB Criminalistics Institute operative.
  • Alexey Alexandrov  – an FSB Criminalistics Institute operative.
  • Ivan Osipov – an FSB Criminalistics Institute operative.
  • Vladimir Panyaev – an FSB operative.
  • Aleksei Sedov – Chief of the FSB’s Service for the Protection of the Constitutional System and the Fight against Terrorism (also referred to as the FSB’s 2nd Service).
  • Artur Zhirov – the former director of the 27th Scientific Center and a chemical weapons expert.
  • Kirill Vasiliev – the Director of the FSB Criminalistics Institute.

Effective immediately, all property and interests in property of these individuals and entities that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, U.S. persons are generally prohibited from engaging in transactions with these sanctioned individuals and entities. In addition, any entities that are owned, directly or indirectly, 50 percent or more by the designated persons and entities are also blocked.

The State Department has designated Russia’s 27th Scientific Center and the 33rd Scientific Research and Testing Institute for operating in the defense and related materiel sector of the Russian Federation. These two entities were previously placed on OFAC’s SDN List. As a result of these designations, the following sanctions will be applied under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act): (1) new and pending permit applications for the permanent importation of firearms and ammunition manufactured or located in Russia will be subject to a policy of denial; and, (2) additional Department of Commerce export restrictions on nuclear and missile-related goods and technology pursuant to the Export Control Reform Act of 2018.

For related past actions by the U.S. government towards Russia for its poisoning of Aleksey Navalny, see SmarTrade Update of March 8, 2021.