The Department of Commerce’s Bureau of Industry and Security (BIS) has issued a Final Rule that redesignates regulations governing the procedures for the review of certain transactions involving information and communications technology and services (ICTS) designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary and which pose or may pose undue or unacceptable risks to the United States or U.S. persons. The regulations being redesignated were originally administered by the Office of the Secretary, but were formally transferred to BIS when the Office of ICTS (OICTS) was established on March 15, 2022. This final rule simply redesignates the regulations that were promulgated as 15 C.F.R. part 7 of Subtitle A – “Office of the Secretary of Commerce” – to Subtitle B – “Regulations Relating to Commerce and Foreign Trade.” Within Subtitle B, chapter VII includes other regulations that implement BIS authorities. This final rule also establishes Subchapter E and creates a new part 791 for ICTS’s regulations.

These overall regulations are the result of a May 2019 Executive Order on the topic of ICTS and resulting regulations for review and potential blocking of such transactions. For additional background see Thompson Hine Updates of December 2, 2019 and May 16, 2019. BIS states this final rule seeks only to clarify that BIS is responsible for implementation of the ICTS regulations, and that “[t]his shift in no way impacts the content or text of current and proposed regulations. Because of this, publication of this final rule is merely procedural.”

On July 10, 2024, the United States and Mexico jointly announced measures to protect the North American steel and aluminum markets from unfair trade. Both countries will implement policies to prevent tariff evasion on steel and aluminum and undertake efforts to strengthen North American steel and aluminum supply chains. These efforts are intended to prevent transshipment of steel and aluminum articles to the United States that may not be of Mexican origin but have instead been shipped through Mexico to evade additional duties that are in place for such articles under Section 232 of the Trade Expansion Act of 1962.

The United States will implement both melt and pour requirements for certain steel imports from Mexico and smelt and cast requirements for certain aluminum imports from Mexico in order for those steel and aluminum imports to enter the United States tariff-free under Section 232. Under a Presidential Proclamation on Adjusting Imports of Steel Into the United States, President Joe Biden indicated that imports of steel articles from Mexico have increased significantly as compared to their levels in 2019 when Mexico and the United States last addressed such imports. See Thompson Hine Update of May 20, 2019. Accordingly, “the United States will implement a melt and pour requirement for imports of steel articles that are products of Mexico and will increase the section 232 duty rate for imports of steel articles and derivative steel articles that are products of Mexico that are melted and poured in a country other than Mexico, Canada, or the United States.” In order to be exempt from the Section 232 tariff rate of 25%, steel articles and derivative steel articles that are products of Mexico must be melted and poured in Mexico, Canada, or the United States. Importers of steel and steel derivative articles will be required to provide Customs and Border Protection (CBP) the information necessary to identify the countries where the steel used in the manufacture of steel articles imports and derivative steel articles are melted and poured.

Similarly, under a Presidential Proclamation on Adjusting Imports of Aluminum Into the United States, President Biden indicated that imports of aluminum articles from Mexico have increased significantly as compared to their levels in 2019, and found that “Mexico lacks primary aluminum smelting capabilities, and the country of smelt or country of most recent cast is unknown for a significant volume of aluminum imports from Mexico.” Accordingly, “the United States will implement a country of smelt and country of most recent cast requirement for imports of aluminum articles that are products of Mexico, and will increase the section 232 duty rate for imports of aluminum articles and derivative aluminum articles that are products of Mexico containing aluminum for which the reported primary country of smelt, secondary country of smelt, or country of most recent cast is China, Russia, … Belarus, or Iran.” In order to be exempt from the Section 232 tariff rate of 10%, aluminum articles and derivative aluminum articles that are products of Mexico must be accompanied by a certificate of analysis and must not contain primary aluminum for which the reported primary country of smelt, secondary country of smelt, or country of most recent cast is from these countries. Importers will be required to provide to CBP the information necessary to identify the countries where the primary aluminum used in the manufacture of aluminum articles imports from Mexico are smelted and information necessary to identify the countries where such aluminum imports are cast. 

To assist in this effort, Mexico announced that it will enhance transparency into the origin of its steel imports by requiring importers to provide more information about the country of origin of steel products by providing the country of melt and pour on mill test certificates. This adds to Mexico’s recent tariff increases on steel and aluminum from non-free trade agreement countries.

President Biden and the President of Mexico Andrés Manuel López Obrador stated that they will continue to work together to protect the North American steel and aluminum markets from unfair trade practices and further enhance the integration of North American industrial supply chains.

On July 10, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) published guidance summarizing the actions it takes to identify and inform industry about parties that present diversion risks to countries or entities of concern. This guidance is offered in an effort “to address the evolving tactics of our adversaries to circumvent U.S. export controls” and offer further details on the tools BIS relies upon to alert companies about parties of diversion concern.

While BIS generally administers controls on end users by designating them on one of its public screening lists (e.g., the Unverified List, Entity List, etc.), the agency also uses additional measures to notify companies about other parties of concern, such as those that present a risk of diverting export-controlled items to restricted end uses or end users in Russia. The newly published guidance outlines the different actions that BIS takes – through “supplier list” letters, Project Guardian requests, “red flag” letters and “is informed” letters – to inform companies about parties that present diversion risks.

The guidance also offers a new recommended best practice asking that exporters, reexporters, and transferors of Common High Priority List (CHPL) items (50 items identified by their six-digit Harmonized System code) screen transaction parties using an online resource made available by the Trade Integrity Project (TIP). TIP, a non-government entity, relies on recent trade data to list all companies that have supplied firms located in Russia. The website does note that its data is derived from public sources and may contain errors or inconsistencies, and that any reliance on the data is “strictly at your own risk.” Nevertheless, BIS “strongly encourages” companies to screen against this list and conduct any further diligence to determine if there are any red flags before proceeding with a transaction.

On July 10, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) again extended previous Russia-related General License (GL) 13 by issuing a revised GL 13J, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024,” which states that U.S. persons are authorized to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, certifications, or tax refunds to the extent such transactions are prohibited by Directive 4. Such transactions are allowable provided they are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation. Directive 4 prohibits any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.

Previous GL 13I was set to expire on July 11, 2024; the revised GL 13J is set to expire on October 9, 2024. For additional background, please see our prior blog posts on this general license: January 18, 2024November 7, 2023, May 21, 2023, and April 15, 2024.

On July 8, 2024, the Department of the Treasury’s Office of Investment Security issued a Notice of Proposed Rulemaking seeking to add 59 military installations, across 30 states, to the list of installations around which the Committee on Foreign Investment in the United States (CFIUS) has jurisdiction regarding certain real estate transactions involving foreign persons. This proposed rule is the result of a recent Department of Defense (DoD) assessment of its military installations. The proposed rule would:

  • Expand CFIUS’s jurisdiction over real estate transactions to include those within a 1-mile radius around 40 additional military installations;
  • Expand CFIUS’s jurisdiction over real estate transactions to include those within a 100-mile radius around 19 additional military installations;
  • Expand CFIUS’s jurisdiction over real estate transactions between 1 mile and 100 miles around eight military installations already listed in the CFIUS regulations;
  • Update the names of 14 military installations already listed in the CFIUS regulations to reflect official installation name changes by the DoD; and
  • Update the location of seven military installations already listed in the current CFIUS regulations to more directly identify the installations’ approximate location.

In addition to this expanded listing of covered installations, the proposed rule seeks to amend the definition of the term “military installation.” Consistent with name changes of certain listed installations, this term would be amended to add Space Force bases, stations, and major annexes thereof, containing satellite, telemetry, tracking, or commanding systems. The revised definition would also clearly cover major Army depots, arsenals, and military terminals, as well as Marine Corps installations, logistics battalions, and support facilities.

CFIUS’s jurisdiction over real estate transactions, pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), allows CFIUS to review the purchase or lease by, or concession to, a foreign person of real estate in the United States that is in close proximity to a military installation or another facility or property of the U.S. government that: (i) is sensitive for reasons relating to national security; (ii) could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property; or (iii) could otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance. For additional background see Thompson Hine Update of January 22, 2020.

Comments on the proposed rule must be received by 30 days after publication in the Federal Register (not available at this time). Comments may be submitted electronically via the Federal government eRulemaking portal at https://www.regulations.gov. Electronic submission of comments citing “Amendments to the Definition of Military Installation and the List of Military Installations in Regulations Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States” should be posted on Docket ID: TREAS-DO-2024-0010. Comments may also be submitted via regular mail to U.S. Department of the Treasury, Attention: Meena Sharma, Director, Office of Investment Security Policy and International Relations, 1500 Pennsylvania Avenue, N.W., Washington, D.C. 20220.

One week after China’s largest state-run food and agriculture company announced its acquisition of a grain terminal in Cahokia, Illinois, a bipartisan pair of U.S. House members from Illinois urged Treasury Secretary Janet Yellin to conduct “an immediate review of the acquisition to weigh the consequences for America’s national security and the region’s agricultural economy.”  As Treasury Secretary, Yellin also serves as the Chair of the Committee on Foreign Investment in the United States (CFIUS), which reviews the national security implications of certain foreign investments in the United States.

According to the June 27, 2024 letter sent by U.S. Representatives Mike Bost (R-IL) and Nikki Budzinski (D-IL), the transaction fully divests U.S. ownership of the Cahokia facility, which is a grain and byproduct transloading terminal “[s]trategically located on the Mississippi River near St. Louis” on the Illinois-Missouri border.  The Cahokia facility also operates as a high-speed rail and truck-to-barge loading terminal.

As noted by the letter, the Cahokia facility is the latest instance of a Chinese entity purchasing U.S. agricultural assets.  In fact, the concern of foreign entities, especially those from China, was the major impetus behind a recent law codified in March 2024 adding the Secretary of Agriculture as a member of CFIUS, albeit only when CFIUS is tasked with reviewing foreign investment in U.S. agricultural land, agriculture biotechnology, or the agriculture industry (including agricultural transportation, agricultural storage, and agricultural processing).  See Update of March 14, 2024.

On July 8, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 40C, “Authorizing Certain Transactions Involving the Exportation or Reexportation of Liquefied Petroleum Gas to Venezuela.” This revised general license continues authorization of all transactions and activities related to the exportation or reexportation, directly or indirectly, of liquefied petroleum (LP) gas to Venezuela, involving: (i) the Government of Venezuela, (ii) Petróleos de Venezuela, S.A. (PdVSA), or (iii) any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest, that are prohibited by E.O. 13850, as amended by E.O. 13857, or E.O. 13884. The general license is effective through July 8, 2025.

OFAC has made clear that for its purposes, the term LP gas means – “a group of hydrocarbon gases, primarily propane, normal butane, and isobutane, derived from crude oil refining or natural gas processing. These gases may be marketed individually or mixed. They can be liquefied through pressurization (without requiring cryogenic refrigeration) for convenience of transportation or storage. The definition excludes ethane and olefins.”

General License 40C does not authorize any payment-in-kind of petroleum or petroleum products, and continues to prohibit any other activities otherwise prohibited by OFAC’s Venezuela Sanctions Regulations. This license replaces and supersedes General License 40B (see Update of July 13, 2023).

Key Notes:

  • The rule would implement Executive Order 14105 of August 9, 2023, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.”
  • Treasury has reiterated that any final rule will not prohibit all investment in a country of concern, and that the intent of this process is not to create a case-by-case review of transactions.
  • Treasury’s Office of Investment Security is seeking public comment by August 4, 2024, on the proposed rule. Treasury will consider this further input before issuing the final implementing regulations.

On June 21, 2024, the Department of the Treasury’s (Treasury) Office of Investment Security issued a proposed rule to implement President Joseph Biden’s Executive Order (EO) 14105 of August 9, 2023, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” The proposed rule builds on the Advance Notice of Proposed Rulemaking, also issued in August 2023, that initially set forth proposed regulations prohibiting U.S. investments in certain industry sectors of countries of concern and imposing certain notification requirements. The president’s EO currently identifies only China (and the special administrative regions of Hong Kong and Macau) as a “country of concern.”

View the entire client update in HTML or PDF format.

On June 21, 2024, the Department of the Treasury issued a Notice of Proposed Rulemaking (NPRM), “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.” The NPRM builds on the Advance Notice of Proposed Rulemaking (ANPRM) issued in August 2023 in response to President Joseph Biden’s Executive Order 14105 prohibiting U.S. investments in certain industry sectors of countries of concern and imposing certain notification requirements. The NPRM currently identifies only China (and the administrative regions of Hong Kong and Macau) as a “country of concern.” For additional details on these earlier actions, see Thompson Hine’s International Trade Update of August 11, 2023. The NPRM sets forth a full draft of the proposed regulations and seeks public comments.

A Treasury Department press release highlights that the United States remains “committed to fostering an open investment environment, and this new program will not change that.” The NPRM “will be a narrow and targeted national security program focused on certain U.S. outbound investments that contribute capital as well as intangible benefits to persons of a country of concern engaged in activities involving certain sensitive technologies and products that could pose risks to U.S. national security.” Specifically, the NPRM provides detail on key concepts and aspects of the program’s implementation, including:

  • Obligations of a U.S. person regarding a covered transaction;
  • Categories of covered transactions and excepted transactions;
  • Technical specifications to inform the scope of covered transactions based on certain technologies and products in the areas of semiconductors and microelectronics, quantum information technologies, and artificial intelligence;
  • Information that a U.S. person is required to provide to Treasury as part of a notification;
  • The knowledge standard and expectations for a U.S. person to conduct a reasonable and diligent inquiry prior to undertaking a transaction; and
  • Conduct that would be treated as a violation of the proposed rule and applicable penalties for such conduct.

Treasury has again stated that the intent of this process is not to create a case-by-case review of transactions. The relevant U.S. person engaged in an outbound transaction covered by the scope of the NPRM would have the obligation to determine whether the given transaction is prohibited, permissible but subject to notification, or not covered by the rule because either it is an excepted transaction or it is not within the jurisdiction set forth under the NPRM. The NPRM also provides for a “national interest exemption” from the notification requirement or prohibition set forth in the NPRM. Written comments on the NPRM may be submitted by August 4, 2024. The NPRM will be followed at a later date by final implementing regulations which will set an effective date for the program.

BIS Prohibition on Kaspersky Products

On June 20, 2024, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Determination that bans a range of transactions involving Kaspersky Lab, Inc. and its related entities’ (Kaspersky) cybersecurity and anti-virus products and services. The Final Determination prohibits Kaspersky from engaging in certain Information and Communications Technology and Services (ICTS) transactions in the United States or with U.S. persons. A non-exhaustive list of products and services covered by the Final Determination is available here. It outlines specific prohibitions that take effect at different times. Here is what U.S. businesses need to know:

  • From July 20, 2024: Kaspersky is prohibited from entering into any new agreement with U.S. persons involving one or more ICTS transactions identified in the Final Determination.
  • From September 29, 2024: Kaspersky is barred from providing any updates associated with the ICTS transactions; and operating the Kaspersky Security Network (KSN) in the U.S. or for U.S. persons. The following activities are prohibited:
    • Reselling Kaspersky cybersecurity or anti-virus software;
    • Integrating Kaspersky cybersecurity or anti-virus software into other products and services; and
    • Licensing Kaspersky cybersecurity or anti-virus software for purposes of resale or integration into other products or services.

The implications of this Final Determination are far-reaching for U.S. persons and businesses that currently rely on Kaspersky’s products and services for cybersecurity protection. The prohibition requires the cessation of use and disengagement from Kaspersky’s products and the search for alternative solutions to ensure continued protection against cyber threats. BIS provides a window for transition, but it is imperative for those affected to act promptly to comply with the new regulations.

See more details on BIS website here.

BIS Adds Kaspersky Companies to Entity List

On June 20, 2024, BIS announced new export restrictions on three entities linked to Russian cybersecurity company Kaspersky, the final rule for which goes into effect on June 24, 2024. The entities are:

  • AO Kaspersky Lab, located in Russia;
  • OOO Kaspersky Group, located in Russia; and
  • Kaspersky Labs Limited, located in the United Kingdom.

The Entity List identifies entities that are subject to additional license requirements and limits the availability of most license exceptions for exports, reexports, and transfers (in-country) of items subject to the Export Administration Regulations (EAR). For the three entities added by this rule, a license is required for all items subject to the EAR, and the license applications will be reviewed under a presumption of denial.

The addition of the three Kaspersky entities to the Entity List is a significant development for U.S. exporters and other parties that deal with items subject to the EAR. Businesses will need to ensure that they comply with the new license requirements and review their transactions and relationships with these entities.

OFAC Designations

On June 21, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 12 individuals in executive and senior leadership roles at AO Kaspersky Lab. All the individuals were designated pursuant to E.O. 14024 for operating in the technology sector of the Russian Federation economy.

As a result, all property and interests in property of the designated persons 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, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, OFAC’s regulations generally prohibit all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons. 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.