The “S” in “ESG” (environmental, social, and governance) includes an extensive list of factors like workplace culture; environmental justice; health and safety; policies on diversity, equity, and inclusion; labor standards; data privacy; human rights; racial justice; and product safety. In the past several years, consumers and shareholders have become increasingly focused on company performance in these areas and any perceived disconnects between a company’s stated commitments to social action and its actions. The failure to follow through on stated social commitments, even if negligent, can create valuation risk for a company and mislead investors who prioritize this non-financial factor in investment decisions. These perceived disconnects can also capture the attention of plaintiffs and regulators who seek legal remedies to align company practices with stated goals.

Social washing, like its older sibling greenwashing, also relates to the lack of substantiation and veracity in an entity’s ESG credentials. Greenwashing, however, resolves solely around misleading environmental benefit claims about a product, policy, or activity, whereas social washing strictly relates to the misalignment between a company’s perceived commitment to social issues and its actions.

In this article published in The Global Trade Law Journal, Thompson Hine partner Tanya C. Nesbitt and associate Kerem Bilge examine “social washing” and offer some steps that companies should consider using to avoid accusations of social washing and mitigate potential violations of existing human rights laws.

View/download full article.

Key Notes:

  • The policy memorandum builds upon two previous updates to the VSD process announced in June 2022 and April 2023. It gives direction to companies wishing to take advantage of certain faster processing options for VSDs.
  • Cuts some requirements for submissions of minor or technical infractions of U.S. export controls to reduce the administrative burden associated with submitting such disclosures.
  • Clarifies how BIS will handle requests from parties seeking to employ “corrective action” to mitigate the repercussions of an illegal export.

On January 16, 2024, the Bureau of Industry and Security within the Department of Commerce (BIS) issued a major policy memorandum of “further enhancements to our voluntary self-disclosure process” prescribed in the Export Administration Regulations (EAR).

Specifically, the memorandum details four improvements to the voluntary self-disclosure (VSD) process, which the Assistant Secretary for Export Enforcement, Matthew Axelrod, described in a subsequent speech detailing the improvements as a win-win for government and industry. He noted that the changes will not only help both the public and private sectors conserve finite compliance and enforcement resources but also “further drive prioritization … of your time—and ours—so that it’s spent on the most significant threats to our national security.”

View the entire bulletin in HTML format.

View the entire bulletin in PDF format.

On January 26, 2024, the Office of the U.S. Trade Representative (USTR) released a Supplemental Business Advisory highlighting continued risks and exposure of doing business in Burma. In January 2022, the U.S. Departments of State, the Treasury, Commerce, Homeland Security, Labor and the USTR first published a business advisory on heightened risk of doing business in Burma after the 2021 military coup (see Thompson Hine Update of February 14, 2022). This supplemental advisory builds on the previous advisory, and “is intended to inform individuals, businesses, financial institutions, and other persons, including investors, consultants, non-governmental organizations, and due diligence service providers … of the continued risks and considerations for businesses and individuals with exposure to entities responsible for undermining democratic processes, facilitating corruption, and committing human rights and labor rights abuses in Burma.”

The Supplemental Business Advisory notes the following additional sectors and activities are of concern within Burma:

Sectors of concern:

  • Rare earth elements;
  • Base metals and gold;
  • Timber; and
  • Aviation services, components, and fuel.

The Supplemental Business Advisory indicates that these economic sectors “generate revenue for the military, often operating under state monopolies or monopoly-like concessions, and/or are linked with corruption and human rights or labor rights abuses.” The advisory provides brief overviews of these economic sectors and cautions U.S. businesses “to be on the lookout for direct and indirect linkages to Burma’s military regime and to sanctioned Burma individuals and entities” when sourcing materials and products from Burma. It notes that businesses and individuals “should be wary of reputational, economic, and legal risks associated with conducting business and utilizing supply chains involving these sectors and activities because of their links to Burma’s military.”

Activities of concern:

  • Potential diversion to military end uses and end users;
  • Financial and related services to state-owned banks; and
  • Ongoing abuses of Burmese workers’ internationally recognized labor rights.

The Supplemental Business Advisory also reiterates concerns over various deceptive activities when conducting business in Burma. It notes that continuing diligence for potential diversion is necessary since Burma’s military operates “an extensive network of corporate affiliates that are often registered in Thailand, Singapore, India, and the UAE,” in addition to Burma. It also indicates that Burma’s state-owned banks and other enterprises can “offer access to foreign markets for revenue generation,” and can enable Burma’s Ministry of Defense and other sanctioned military entities to purchase arms and other materials from foreign sources. The advisory also serves as a reminder that since the 2021 coup, Burma’s military regime “has repeatedly denied citizens the human rights of peaceful assembly and freedom of association, exacerbating the longstanding and growing need for better labor rights protections in Burma.”

Finally, the advisory also notes continuing concern with money laundering due to “ongoing deficiencies in Burma’s anti-money laundering and counter financing of terrorism (AML/CFT) framework” and that U.S. businesses and individuals should remain vigilant in their “risk analysis, including evaluating their potential exposure to economic and legal risks that may include violations of U.S. AML laws and sanctions.”

For additional background and recent Thompson Hine updates on U.S. restrictions on Burma, please see our other Burma updates here.

Effective January 25, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) again expanded export controls and sanctions against Russia for its continuing aggression against Ukraine and Belarus for its complicity in such activities. In a Final Rule, BIS is expanding the scope of the Export Administration Regulations’ (EAR) Russian and Belarusian Industry Sector Sanctions and making certain changes to the licensing requirements that apply to the occupied Crimea region of Ukraine. Additionally, the rule revises recent restrictions targeting Iran’s supply of Unmanned Aerial Vehicles to Russia.

  • Expansion of Russia and Belarus Industry Sector Sanctions – The Final Rule adds 95 six-digit Harmonized Tariff Schedule of the United States (HTSUS) codes to the list of items requiring a license for export, reexport, or transfer (in-country) to Russia or Belarus. This expanded list includes certain acids, chemicals, oil and petroleum products, lubricants, metals and metallic minerals, and covers the entirety of Chapter 88 of the HTSUS (aircraft, spacecraft, and parts thereof), thus further restricting Russia’s access to inputs for its defense industrial base. These additions have been added to Supplement No. 4 to part 746 of the EAR and are intended to align with controls imposed by U.S. allies.
  • Expansion of Controls on Items Destined to Iran – The rule also expands controls on certain antennas, antenna reflectors, and parts thereof under six-digit HTSUS 852910 to further restrict such items, which are often used to build unmanned aerial vehicles (UAVs), from going to Iran and Russia when produced abroad with U.S. technology or software. This addition has been added to Supplement No. 7 to part 746 of the EAR and is intended to undermine Iran’s ability to support Russia.
  • Prohibiting the Use of De Minimis U.S. Content for Certain Foreign-Made Items – The Final Rule also removes the lowest-level military and spacecraft-related items from being eligible for de minimis treatment when incorporated into foreign-made items for export from abroad or reexport to Russia or Belarus. Specifically, with implementation of this Final Rule there is no de minimis level for U.S.-origin 9×515 or “600 series” .y items destined for Belarus or Russia. BIS notes that adding Belarus and Russia to this restriction on the use of de minimis “will bring additional foreign-made military and spacecraft items within the scope of the EAR and put additional pressure on Russia’s military and defense industrial base, as well as make it more difficult for foreign suppliers to provide even low-level military and spacecraft items to Belarus and Russia.”
  • Exclusion from Certain License Requirements Related to Deployments by the Armed Forces of Ukraine – Finally, the rule makes several clarifying changes, including by adding under the current special controls on “temporarily occupied Crimea region of Ukraine” (15 C.F.R. § 746.6) an exclusion from BIS license requirements in situations involving exports, reexports, and transfers (in-country) that are related to deployments made by the Armed Forces of Ukraine to or within the temporarily occupied Crimea region of Ukraine and covered regions of Ukraine.

In announcing these additional export restrictions, BIS noted that the action was undertaken in part “to better align U.S. controls with the stringent measures implemented by partners and allies,” and to “enhance the effectiveness of the multilateral sanctions on Russia by further limiting Russia’s access to items that enable its military capabilities and to sources of revenue that could support those capabilities.”

For related details on Russia and Belarus Industry Sector Sanctions and controls on items destined to Iran, see Thompson Hine Update of May 22, 2023.

Savings Clause

This Final Rule is effective as of January 25, 2024. However, for the changes being implemented by the rule, shipments of items removed from eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR) as a result of this regulatory action and that were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on January 23, 2024, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under the previous eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR), provided the export, reexport, or transfer (in-country) is completed no later than on February 22, 2024.

On January 17, 2024, the Department of State announced that it was re-designating Yemen-based Ansarallah, commonly referred to as the Houthis, as a Specially Designated Global Terrorist (SDGT) group. This designation will be effective as of February 16, 2024, when Ansarallah will be placed on the Department of the Treasury’s Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List.

The designation as a terrorist organization is intended to impede the flow of funding to the Houthi militants and restrict their access to financial markets. National Security Advisor Jake Sullivan stated that, “If the Houthis cease their attacks in the Red Sea and Gulf of Aden, the United States will reevaluate this designation.”

This action was taken pursuant to Executive Order 13224 that targets terrorists, terrorist organizations, leaders of terrorist groups, and those providing support to terrorists or acts of terrorism. The State Department indicated that designating Ansarallah as a global terrorist group is the result of recent attacks against international maritime vessels in the Red Sea and Gulf of Aden that “have endangered mariners, disrupted the free flow of commerce, and interfered with navigational rights and freedoms.” Noting that the Houthis are operating such attacks out of Yemen, the State Department stated that it was taking “significant steps to mitigate any adverse impacts this designation may have on the people of Yemen.” As such, the 30-day implementation delay of the designation will allow for outreach to stakeholders, aid providers, and others “who are crucial to facilitating humanitarian assistance and the commercial import of critical commodities in Yemen.”

Once implemented on February 16, 2024, all property and interests in property of Ansarallah 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.

OFAC has issued several related Counter Terrorism-related General Licenses (GL) that will authorize certain transactions related to the provision of food, medicine, and fuel, as well as personal remittances, telecommunications and mail, and port and airport operations in Yemen:

  • General License 22 – “Transactions Related to the Provision of Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates Involving Ansarallah”;
  • General License 23 – “Authorizing Transactions Related to Telecommunications Mail, and Certain Internet-Based Communications Involving Ansarallah”;
  • General License 24 – “Authorizing Noncommercial, Personal Remittances Involving Ansarallah”;
  • General License 25 – “Authorizing Transactions Related to Refined Petroleum Products in Yemen Involving Ansarallah”; and
  • General License 26 – “Authorizing Certain Transactions Necessary to Port and Airport Operations Involving Ansarallah.”

These GLs will also be effective as of February 16, 2024. Certain transactions remain unauthorized under these general licenses and therefore require close analysis. OFAC also issued FAQ 1158 to address the impact of the designation noting, among other issues, that as a result of the designation, “transactions by U.S. persons or within (or transiting) the United States involving Ansarallah will be blocked, unless they are otherwise authorized.” OFAC also notes in this FAQ that Yemen “is not subject to jurisdiction-based sanctions, nor will it become subject to jurisdiction-based sanctions on February 16, 2024.” 

On January 18, 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 13H, “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, or certifications, to the extent such transactions are prohibited by Directive 4, provided such transactions 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 13G was set to expire on January 31, 2024; the revised GL 13H is set to expire on April 17, 2024.

As a reminder to our readers, the annual encryption self-classification report and semi-annual sales report for certain encryption items are due to be filed by February 1, 2024. 

Annual Self-Classification Report

The self-classification report covers less sensitive items described under the Department of Commerce’s Bureau of Industry and Security (BIS) License Exception ENC (b)(1) (i.e., 15 C.F.R. § 740.17(b)(1)). Depending on the level of encryption, this may include wireless local area network (WLAN) software and equipment, certain disk/drive encryption devices, and many mass market consumer and mobile app items. Exporters may export items described under this License Exception without a license, but are required to take either of two additional steps:

  1. They may self-classify their items as eligible and submit an annual self-classification report, which must be submitted to BIS by February 1 of each year. It must provide details on encryption commodities, software and components exported or reexported during the prior calendar year (i.e., January 1, 2023 through December 31, 2023).
  2. They may choose to obtain a CCATS for their items and are then no longer required to submit the annual report.

Annual reports must include the information outlined in Supplement No. 8 to 15 C.F.R. Part 742. BIS requires that each identified product be reported as it is typically distinguished in inventory, catalogs, marketing brochures and other promotional materials. Volume and details of actual exports are not required to be included in the report. If no information has changed since the previous annual report, exporters must still send an email stating that nothing has changed since the previous report; or submit a copy of the previous report. No self-classification report is required if no exports or reexports of covered encryption items occurred during the prior calendar year. 

Semi-Annual Sales Report

BIS also requires semi-annual reports for exports to all destinations other than Canada, and for reexports from Canada, for items described under 15 C.F.R. § 740.17 paragraphs (b)(2) and (b)(3)(iii). For exports occurring between January 1 and June 30, a report is due no later than August 1 of each year. For exports occurring between July 1 and December 31, a report is due no later than February 1 the following year. 

For these semi-annual reports, BIS requires the reporting of the Commodity Classification Automated Tracking System (CCATS) number and the name of the item(s) exported (or reexported from Canada), and the following information: (i) for sales to distributors or resellers, the identity of the distributor or reseller, the item and the quantity exported or reexported and, if collected, the end user’s name and address; (ii) if a direct sale, the name and address of the recipient, the item, and the quantity exported; or (iii) for export to a foreign developer or manufacturer headquartered in specified countries, the names and addresses of the manufacturers using these encryption items and, if known, when the product is made available for commercial sale, a non-proprietary technical description of the foreign products for which these encryption items are being used.

How to Report

These reports are filed with both BIS and the ENC Encryption Request Coordinator. 

Submissions of the annual self-classification report via email should be sent to BIS at crypt-supp8@bis.doc.gov and to the ENC Encryption Request Coordinator at enc@nsa.gov, as an attachment to an email. Submissions of the semi-annual sales report via email should be sent to BIS at crypt@bis.doc.gov and to the ENC Encryption Request Coordinator at enc@nsa.gov.

Submissions by email are preferred, but submissions may be made by disk or CD and sent to the following addresses:

Attn: Encryption Reports
Department of Commerce, Bureau of Industry and Security
Office of National Security and Technology Transfer Controls
14th Street and Pennsylvania Ave. NW., Room 2099B
Washington, D.C. 20230

and

Attn: ENC Encryption Request Coordinator
9800 Savage Road, Suite 6940
Ft. Meade, MD 20755-6000

If you have questions as to whether you are subject to the self-classification reporting requirements or need assistance in preparing and filing your annual self-classification report, please contact a member of our team.

On January 16, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 5N, “Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After April 16, 2024,” 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 April 16, 2024.  The previous deadline had been January 18, 2024.  Effective January 16, 2024, this General License replaces GL 5M.

With this revised General License, U.S. persons remain prohibited 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 FAQ 595, OFAC continues to note 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.” 

On January 5, 2024, U.S. Customs and Border Protection (CBP) issued guidance via its Cargo Systems Messaging Service announcing new thresholds for deactivating Section 232 steel and aluminum product exclusions prior to reaching 100% of the allocated quantity under any granted exclusion. CBP has announced that effective February 15, 2024, for certain types of Section 232 exclusions, it will deactivate Section 232 exclusions on a weekly basis “when the imported quantity for each exclusion is greater than or equal to 95 percent of the allocated quantity.”

This is a change from the current practice of deactivating Section 232 exclusions when the imported quantity of each exclusion reaches or exceeds 100% of the allocated quantity and is due, in part, to a recent Government Accountability Office (GAO) report indicating that an estimated $32 million in unpaid duties resulted from invalid exclusion use as of November 2021. The GAO report notes that CBP has to manually deactivate exclusions in the Automated Commercial Environment (ACE) system and that the lag time in doing so “allows importers to overclaim exclusions and not pay duties on the overage.” CBP announced that the following Section 232 exclusions will be deactivated at the 95% threshold:

  • Exclusions for non-quota countries (i.e., those subject to Section 232 duties);
  • Exclusions for European Union (EU) countries that are subject to Section 232 steel tariff rate quotas (TRQs); and
  • Exclusions valid for multiple countries subject to both Section 232 duties and any quotas.

When such Section 232 exclusions are deactivated at the 95% threshold in ACE, importers will no longer be able to use the Section 232 exclusions on new entry summaries and will have to deposit the appropriate Section 232 duties on any new entry summaries. However, these importers will be able to file Post Summary Corrections (PSC) to claim the remaining exclusion amounts up to 100% and request a refund of any Section 232 duties paid.

Section 232 tariffs on steel and aluminum were imposed in 2018 by former President Donald Trump under the Trade Expansion Act of 1962 after investigations into the impact of steel and aluminum imports on U.S. national security. Since then, the Department of Commerce’s Bureau of Industry and Security (BIS) has been responsible for administering the product exclusion process that allows U.S. businesses to request exemptions for specific steel and aluminum imports from the 25% tariff. CBP is the agency that monitors imports, the Section 232 exclusions, and the collection of tariffs.

The U.S. International Trade Commission released the 2024 Basic Edition of the Harmonized Tariff Schedule of the United States (HTSUS) on January 1, 2024.

The HTSUS sets out the tariff rates and statistical categories for all merchandise imported into the United States and is based on the international Harmonized System, which is the global system of nomenclature applied to most world trade in goods. Proper classification of a commodity being imported into the United States is critical for proper duty assessment, additional tariffs, and reporting other data to CBP and other government agencies.

For the 2024 Basic Edition, the interagency committee authorized under section 484(f) of the Tariff Act of 1930 (19 U.S.C. 1484(f)) and chaired by the Commission made various changes to the HTSUS. The list of 484(f) Committee changes and the full Change Record for 2024, reflecting all changes to the HTSUS since the 2023 Basic Edition, are available as well.

Updates and modifications are made throughout the year to the HTSUS; thus, U.S. importers should periodically review the tariff codes that are used for their goods to ensure that they remain accurate.