On May 17, 2024, the Department of Homeland Security (DHS) issued a Federal Register notice announcing that effective immediately, 26 Chinese entities have been added to the UFLPA Entity List. These entities include cotton traders and warehouse facilities within China, but the majority of which operate outside of the Xinjiang Uyghur Autonomous Region (XUAR). DHS determined that there was reasonable cause to believe that 21 of the entities source and sell cotton from the XUAR on the wholesale market, and that five entities also source cotton from the XUAR.

As a result of their listing on the UFLPA Entity List, goods produced by these 26 entities will be presumed to be made by forced labor and subject to detention under the Uyghur Forced Labor
Prevention Act. DHS Secretary Alejandro N. Mayorkas stated, “Today’s announcement strengthens our enforcement of the UFLPA and helps responsible companies conduct due diligence so that, together, we can keep the products of forced labor out of our country. We will continue to execute on our textile enforcement strategy and hold the PRC accountable for their exploitation and abuse of the Uyghur people.”

For general background information on the Uyghur Forced Labor Prevention Act (UFLPA), see Thompson Hine’s International Trade Update of June 2022.

Citing national security concerns, President Biden issued an executive order (EO) on May 13, 2024, demanding a Chinese-affiliated company “sell or transfer” its ownership interests and any other rights in an approximately 12-acre lot that comes within one mile of Francis E. Warren Air Force Base (“Warren AFB”) in Cheyenne, Wyoming. The divestment order is particularly noteworthy because it is uncommon for the Committee on Foreign Investment in the United States (CFIUS), the interagency committee tasked with reviewing national security implications of certain foreign investments and real estate transactions in the United States, to refer matters to the President for final resolution. Nonetheless, CFIUS determined a negotiated mitigation agreement “would not be possible” with the Chinese-affiliated company, hence the need for conclusive presidential action.

According to the EO, the Chinese-affiliated company acquired the Wyoming land in June 2022, and subsequently made improvements to the real estate to support “specialized cryptocurrency mining operations.” However, the Chinese-affiliated company never reported the initial real estate acquisition with CFIUS, and only began cooperating after CFIUS initiated an investigation reportedly prompted by a public tip. The relatively new Foreign Investment Risk Review Modernization Act empowers CFIUS to review certain real estate transactions that are in close proximity to specific, sensitive U.S. facilities, such as Warren AFB, even when such acquisitions are not initially notified to CFIUS (see Update of January 22, 2020).

Ultimately, President Biden concluded that the national security risks posed by land owned by a Chinese-affiliated company that abuts Warren AFB, coupled with the related risk associated with the presence of specialized cryptocurrency mining equipment there—some of which is foreign-sourced and “potentially capable of surveillance and espionage activities”—were too problematic and necessitated divestment. Warren AFB is not only a “strategic missile base and key element of America’s nuclear triad,” but also home to Minuteman III intercontinental ballistic missiles.

The Chinese-affiliated company now has 120 days until September 10, 2024 to complete the divestment. However, “all items, structures, or other physical objects” that have been stockpiled, stored, deposited, or installed onto the land or connected to it must be removed within 90 days. Nothing can be sold or transferred without the knowledge and consent of CFIUS, though.

For more details on CFIUS’ functions, see Thompson Hine’s CFIUS/National Security Practice.

Key Notes:

  • The Section 301 tariff actions have been effective in encouraging China to take steps toward eliminating its unfair practices, but it has not eliminated many of its forced technology transfer-related acts, policies and practices.
  • Products currently subject to Section 301 duties will remain subject to the existing additional duties.
  • The USTR will implement new tariffs on seven specific sectors where China continues to rely on government policies and nonmarket practices to unfairly capture market share.
  • The USTR will establish a product exclusion process for certain critical machinery used in domestic manufacturing.

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Key Notes:

  • The Department of Commerce’s Bureau of Economic Analysis requires the reporting of certain statistical data on foreign direct investment in the United States. This includes reporting data when a foreign entity acquires a U.S. business, when a foreign entity or its existing U.S. affiliate establishes a new legal entity, or when an existing U.S. affiliate of a foreign entity expands its U.S. operations.
  • Filing a response is mandatory under the International Investment and Trade in Services Survey Act unless the business does not meet the filing requirements. The act protects the confidentiality of the data that companies submit.
  • A qualifying U.S. business must file a response no later than 45 days after the date of the investment transaction.

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On May 10, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8N, extending authorization until November 15, 2024 for certain activities previously authorized under General License 8M. General License 8N authorizes the continuation of transactions and activities “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements,” that:

  1. are for safety or the preservation of assets in Venezuela;
  2. involve Petróleos de Venezuela, S.A. (PdVSA) or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest; and
  3. were in effect prior to July 26, 2019, for the following entities and their subsidiaries:
    1. Halliburton
    2. Schlumberger Limited
    3. Baker Hughes Holdings LLC
    4. Weatherford International, Public Limited Company

The term “safety or the preservation of assets” covers transactions and activities necessary “to ensure the safety of personnel, or the integrity of operations and assets in Venezuela; participation in shareholder and board of directors meetings; making payments on third-party invoices for transactions and activities authorized” under this general license (or prior to April 21, 2020, if such activity was authorized at that time) as well as “payment of local taxes and purchase of utility services in Venezuela; and payment of salaries for employees and contractors in Venezuela.” The general license authorizes such activities involving PdVSA and the other listed entities through 12:01 a.m. EST, May 16, 2024.

As with past extensions, General License 8N does not authorize any activities related to Venezuelan-origin petroleum or petroleum products; the provision or receipt of insurance or reinsurance for such products; the design, construction or work on wells or other facilities or infrastructure in Venezuela; contracting any additional personnel or services (except as required for safety); or the payment of any dividends to PdVSA. Further, this General License does not authorize transactions related to the export or re-export of diluents to Venezuela; the issuance of any loans to, or accrual of additional debt by, or subsidization of PdVSA; or any transactions otherwise prohibited by OFAC’s Venezuela Sanctions Regulations (31 C.F.R. part 591) or with any blocked persons other than those identified in this General License.

General License 8N replaces and supersedes General License 8M.  See also SmarTrade Update of November 20, 2023.

On April 24, 2024, President Biden signed into law a broad national security package which included the Israel Security Supplemental Appropriations Act, 2024; Ukraine Security Supplemental Appropriations Act, 2024; Indo-Pacific Security Supplemental Appropriations Act, 2024; 21st Century Peace through Strength Act; FEND off Fentanyl Act; and the Rebuilding Economic Prosperity and Opportunity for Ukrainians Act. This new law is organized into 20 separate Divisions A-T, and not only provides substantial aid to Ukraine, Israel and Indo-Pacific security for Taiwan but also encompasses extensive amendments to U.S. sanctions and export control laws.

Key Notes

The aid package provides additional foreign aid while also bolstering U.S. national security and enhancing sanctions and export control laws with the enactment of provisions that:

  • Increase the statute of limitations for U.S. sanctions violations to ten years, affecting compliance and reporting for businesses.
  • Require the president to report to Congress on the overlap of U.S. sanctions on Russian entities and persons with EU and UK sanctions, potentially increasing the number of sanctioned individuals.
  • Authorize the seizure of Russian assets in the U.S. to rebuild Ukraine.
  • Introduce sanctions targeting Iran’s petroleum exports and missile activities and expands U.S. export controls.
  • Implement a ban on TikTok and other apps linked to foreign adversaries and addresses security risks from foreign-controlled digital platforms.
  • Prohibit data brokers from transferring sensitive U.S. data to foreign adversaries or their controlled entities.
  • Set sanctions and reporting mandates to reduce the capabilities of Palestinian terrorist groups.
  • Impose sanctions on those involved in significant trafficking of fentanyl and related substances.

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Key Notes

  • On April 16, 2024, the National Institute of Standards and Technology (NIST), part of the Department of Commerce, announced the launch of a new funding opportunity called the Small Business Innovation Research (SBIR) Program for CHIPS for America – CHIPS Metrology.
  • The Notice of Funding Opportunity (NOFO) is aimed at enhancing small businesses’ capabilities in semiconductor metrology, the science of measurement crucial to semiconductor manufacturing.
  • NIST plans to allocate approximately $54 million across various projects that support the development of critically needed measurement services, tools, and innovative manufacturing metrologies.
  • The Department of Commerce will accept applications through 11:59 p.m. Eastern Time, June 14, 2024. Applications received after this deadline will not be reviewed or considered.

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On May 1, 2024, the State Department published a proposed rule to amend the International Traffic in Arms Regulations (ITAR) and establish an exemption to the licensing requirement for exports, reexports, transfers, or temporary import of defense articles to or within Australia and the United Kingdom. This proposed rule is intended to promote the goals of greater defense trading, innovation, and information and technology sharing between the members of the trilateral security partnership known as AUKUS that was established on September 15, 2021. Importantly, the proposed rule also exempts the performance of defense services from ITAR’s licensing regimen, as well as the engagement in brokering activities of defense articles and/or defense services. 

This AUKUS ITAR exemption is prospective in nature, with the State Department noting its proposal is “in the interest of preparing for a future exemption” as prescribed by the AUKUS-related provisions contained in the National Defense Authorization Act (“NDAA”) for Fiscal Year 2024 (Public Law No. 118-31) (see Thompson Hine Bulletin of February 26, 2024). The AUKUS-related provisions of the NDAA assert that once the president reports to Congress that Australia, the United Kingdom, or both, have successfully “implemented a system of export controls comparable to those of the United States” including comparable exemptions for U.S. defense articles, defense services, or technical data, then “the [State] Department would immediately implement an ITAR exemption…for the partner nation(s)[.]” 

Scope of Proposed Exemption

Creating a new ITAR provision at 22 C.F.R. § 126.7, the proposed rule would establish the license exemption for AUKUS members, while also instituting notable conditions and restrictions. For example, one limitation would be that the AUKUS ITAR exemption can only be used for transfers within the physical territories of Australia, the United Kingdom, and the United States. Additionally, the exporter/transferor and recipient must be “authorized users,” meaning a U.S. person registered with the State Department’s Directorate of Defense Trade Controls (DDTC) and not debarred, or an Australian or United Kingdom person who has “undergo[ne] an authorized user enrollment process, in coordination with DDTC, and [who] will be listed [on] the DDTC website.” 

Consistent with certain statutory limitations found in the Arms Export Control Act, the proposed rule designates certain defense articles and defense services as excluded from and ineligible for the AUKUS ITAR exemption. These defense articles and defense services would be found on the Excluded Technology List proposed as Supplement No. 2 to Part 126. However, the proposed rule provides that in instances where a license application remains necessary for AUKUS-related exports that DDTC will expedite the application processing timeframe for a review within 30 days if the license application is for a government-to-government shipment, and within 45 days for all other license applications.

This proposed rule follows an interim final rule issued by the Department of Commerce’s Bureau of Industry and Security that took effect April 19, 2024, and eases various licensing requirements prescribed by the Export Administration Regulations for exports, reexports, and transfers (in-country) of dual-use items to Australia and the United Kingdom (see Update of April 18, 2024).

Public Comment

The State Department is seeking public comments addressing the clarity and utility of the AUKUS ITAR exemption, including the proposed list of excluded defense articles and defense services. Comments must be received by DDTC no later than May 31, 2024, and should be filed using the federal rulemaking portal (www.regulations.gov) under Docket No. DOS-2024-0013. Alternatively, comments can be sent to the State Department via email to DDTCPublicComments@state.gov with the subject line: “Australia, the United Kingdom, and the United States ITAR Exemption.”

On May 1, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of State announced further sanctions targeting Russia’s military-industrial base and chemical and biological weapons programs as well as companies and individuals in third countries that continue to help Russia acquire key inputs for weapons or defense-related production. Almost 300 targets have been added to the Specially Designated Nationals (SDN) List. These sanctions include entities located in Azerbaijan, Belgium, China, Russia, Slovakia, Türkiye, and the United Arab Emirates (UAE), and cover the following sectors:

  • Russian Unmanned Aerial Vehicle Procurement Network
  • Russian Defense Procurement Network
  • China and Hong Kong-based Technology Suppliers
  • Chinese Companies Providing Support to Russian Defense Entities
  • Belgium- and Türkiye-based Machine Tool Procurement Networks
  • Hong Kong-, Slovakia-, and UAE-based Electronics Procurement Networks
  • Transportation Sector Supply Chain
  • Türkiye-based Electronics Suppliers
  • Chemical and Biological Weapons Procurement Networks.

The sanctions also target numerous Russian companies engaged in the support of Russia’s military-industrial base and include not only military hardware and technology developers and producers, but also manufacturers of chemicals, industrial machinery, semiconductor devices, and electronic components. OFAC has also sanctioned multiple producers, suppliers and importers of nitrocellulose and other cotton cellulose/pulp manufactures who have supplied Russia’s military factories with this key ingredient for explosives and propellants. Finally, several Russia-based so-called “Sanctioned Goods” procurement agents (e.g., companies that “openly boast of their services to help Russia-based end-users acquire so-called sanctioned goods”) have also been sanctioned. Additional detail and identifying information on these individuals and entities is available here. A Treasury Department press release providing additional background on these entities and persons is available here.

In addition to OFAC’s sanctions, the State Department concurrently added more than 80 entities and individuals to the SDN List, including those engaged in: development of Russia’s future energy, metals, and mining production and export capacity; sanctions evasion and circumvention; and furthering Russia’s ability to wage its war against Ukraine. The State Department’s sanctions also include Chinese entities responsible for developing, and supplying dual-use aerospace, manufacturing, and technology equipment to entities based in Russia, as well as other third-country entities supporting Russia’s war against Ukraine. Additional detail and identifying information on the individuals and entities sanctioned by the Department of State is available here.

As a result of these OFAC and State Department actions, all property and interests in property of the persons and entities placed on OFAC’s SDN List 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, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

With these latest additions to the SDN List, OFAC has issued related General Licenses to allow certain limited activities. Certain transactions remain unauthorized under these general licenses and therefore require close analysis.

  • Russia-related General License 95 – Authorizes certain activities to ensure civil aviation safety while winding down transactions by July 30,2024, involving Limited Liability Company Aviakompaniya Pobeda.
  • Russia-related General License 96 – Authorizes limited safety and environmental transactions for safe docking and anchorage, the health or safety of crew, and emergency repairs for certain blocked vessels until July 30, 2024.
  • Russia-related General License 97 – Authorizes the wind down of transactions by June 17, 2024, involving certain entities blocked on May 1, 2024

The State Department press release emphasized that the “ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior” and included links to the location at which petitions for removal from the SDN List may be sent: OFAC.Reconsideration@treasury.gov and Department of State’s Delisting Guidance page.

On April 24, 2024, President Biden signed into law a significant amendment to the statute of limitations for violations under U.S. sanctions laws, as part of the national security package (H.R. 815). This change extends the period for enforcement actions from five to ten years, reflecting a more robust approach to national security and foreign policy enforcement. Key details of the statute of limitations amendment include:

  • IEEPA and TWEA. The statute of limitations has been extended under the International Emergency Economic Powers Act (IEEPA; 50 U.S.C. 1705); and the Trading With the Enemy Act (TWEA; 50 U.S.C. 4315).
  • Commencing Proceedings: Under both acts, an action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, must 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. The commencement of such actions includes the issuance of a pre-penalty notice or finding of violation.
  • Indictments: For both acts, no person shall be prosecuted, tried, or punished for any offense 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.

This amendment not only significantly extends the period during which U.S. authorities can address and penalize sanctions violations, allowing for retrospective action on transactions up to a decade old, but also emphasizes the necessity for businesses to adopt or amend compliance strategies.

In practice, this amendment means that businesses should enhance their recordkeeping and compliance practices to prepare for potential audits that could review up to ten years of transactions and interactions under these laws. Such requirements are poised to notably impact how businesses, especially those involved in international trade and operating in high-risk jurisdictions like Russia and Iran, manage their compliance programs.