On August 1, 2023, the Department of Homeland Security (DHS) announced new actions to eliminate the use of forced labor practices in the U.S. supply chain by adding two China (PRC)-based companies to the Uyghur Forced Labor Prevention Act (UFLPA) Entity List due to their participation in business practices involving Uyghur minorities in the Xinjiang region of China. For additional details on the companies, see DHS’ Federal Register Notice. This brings the total number of entities designated on the UFLPA Entity List to 24 companies. Since enforcement of the UFLPA began in June 2022, Customs and Border Protections (CBP) has reviewed more than 4,600 shipments valued at more than $1.64 billion under the UFLPA.

DHS has also released its mandated report to Congress, titled “2023 Updates to the Strategy to Prevent the Importation of Goods Mined, Produced, or Manufactured with Forced Labor in the People’s Republic of China.” The updated UFLPA Strategy highlights enforcement of the UFLPA’s rebuttable presumption, which prohibits goods from being imported into the United States that are either produced in Xinjiang, or by entities identified on the UFLPA Entity List, unless the importer can prove, by clear and convincing evidence, the goods were not produced with forced labor. It also highlights certain additional resources needed for UFLPA strategy implementation and ongoing activities in coordination and collaboration appropriate nongovernmental organizations (NGOs) and private-sector entities.

On July 31, 2023, the Treasury Department, as the lead agency of the Committee on Foreign Investment in the United States (CFIUS), released a public version of its annual report to Congress regarding foreign direct investment in the United States. The report highlights key indicators of the CFIUS process and provides statistics on transactions that were filed in 2022; it also reflects that a record number of filing were submitted in calendar year 2022. Assistant Secretary for Investment Security Paul Rosen stated, “In 2022, the Committee continued to review record numbers of filings. We sharpened due diligence on investors, tackled sophisticated technologies and national security risks, and launched a number of reviews to assess potential non-compliance with CFIUS regulations.”

Key highlights from the 2022 report include the following:

  • CFIUS reviewed a record number of covered transactions with a total of 440 notices and declarations of covered transactions or covered real estate transactions.
    • Parties filed using the short-form declaration process in 154 instances. Of those, 90 were concluded with no action by CFIUS; 50 resulted in a request that the parties file a full written notice; and, CFIUS informed the parties to 14 declarations that it was unable to conclude action.
    • Parties filed using written notices in 286 instances. Of those, CFIUS conducted first-stage “reviews” in all 286 submissions, with 162 notifications moving on to second-stage “investigations.” One notice was rejected by CFIUS; 88 notices were withdrawn by the parties (with some later refiled and in 12 filings the parties abandoning the transaction); no notices were forwarded to the president for review in 2022. Of the remaining that underwent reviews/investigations, CFIUS concluded action on 41 notices after adopting mitigation agreements to resolve national security concerns.
  • The average number of days for CFIUS to complete a review was 46 days, and the average number of days to conclude an investigation was 80 days.
  • In 2022, the notices covered the following industry sectors: Finance, Information and Services (52%), Manufacturing (29%), Mining, Utilities and Construction (13%), and Wholesale/Retail Trade and Transportation (6%).
  • In 2022, the highest number of filings involved Singapore (37), China (36), United Kingdom (18), Canada (17), and Japan (15).

The report also notes that CFIUS is currently monitoring 214 mitigation agreements and any resulting compliance plans, with 44 site visits in 2022. CFIUS notes that it will continue engaging with parties subject to mitigation agreements or conditions and independent monitors to improve compliance, engaging more broadly with industry, advisors, and practitioners to encourage a culture of compliance, and increasing staff resources dedicated to monitoring and enforcement activities. CFIUS will also continue to assess noncompliance on a case-by[1]case basis as it evaluates whether civil penalties or other measures should be implemented.

Finally, CFIUS continues to enhance its focus on non-notified transactions to detect and assess national security risks posed by foreign investment. In 2022, 84 non-notified transactions were identified, with 11 of those resulting in a formal request to the parties for a CFIUS filing.

If desired for comparison purposes, Thompson Hine’s Update on the CFIUS 2021 Report is available here.

On July 21, 2023, PrimeSource Building Products, Inc. filed a Petition for a Writ of Certiorari with the U.S. Supreme Court, after unsuccessfully seeking an en banc hearing before all of the judges at the U.S. Court of Appeals for the Federal Circuit. In that decision, a three-judge panel reversed a lower court decision and upheld the imposition of additional Section 232 national security tariffs on derivatives of certain imported steel articles implemented by former President Donald Trump under Section 232 of the Trade Expansion Act of 1962. The lower court, the Court of International Trade (CIT), ruled in favor of PrimeSource, a U.S. importer, which argued that President Trump’s proclamation on steel derivatives was issued after a key statutory deadline had passed that required presidential action. The Federal Circuit, however, reversed the CIT’s ruling that the government waited too long to act, stating that “the President was making a ‘contingency-dependent choice[] that [is] a commonplace feature of plans of action’” and that there was no “textual basis for a specific time limit.” 

In its petition to the Supreme Court, PrimeSource argues that former President Trump imposed Section 232 steel tariffs on steel derivatives “without complying with the statute’s procedural prerequisites.” It wants the Supreme Court to address whether the “separation of powers principles require courts to resolve ambiguity in statutory limits on delegations of vast legislative power to the Executive in a way that constrains the delegation or, as the Federal Circuit holds, courts must uphold the President’s actions absent ‘a clear misconstruction of the governing statute.’”

Our Updates of April 27, 2023 and February 8, 2023 provide details on PrimeSource’s Petition for a Rehearing En Banc at the U.S. Court of Appeals for the Federal Circuit and on the three-judge panel’s opinion that reversed the CIT decision. See also Updates of April 6, 2021 and January 28, 2021 for additional background on the case and the CIT’s dismissal of other claims.

On July 26, 2023, the Department of Commerce’s Bureau of Industry and Security published an internal policy memorandum announcing two new measures the Office of Antiboycott Compliance will implement to enhance enforcement efforts and diminish participation by U.S. companies in boycott-related activities. The two announced enhancements are:

  1. The Boycott Reporting Form has been amended to require that U.S. persons reporting the receipt of a boycott-related request must now identify the specific party from whom the request was received. Previously, U.S. persons were only required to report the type of boycott request made and the country from which it came. Revising the form to require the identity of the party from which the boycott request was received is intended to assist in enforcement and also allow for “diplomatic engagement” to hold those foreign persons accountable.
  2. BIS will place an antiboycott policy statement on OAM and SAM.gov websites, in cooperation with the Department of Commerce’s Office of Acquisition Management, detailing the requirements of the antiboycott regulation and their applicability to U.S. government acquisition contracts.

The memorandum follows an October 6, 2022 policy memorandum in which the Office of Antiboycott Compliance made other changes to enhance compliance, increase transparency, incentivize deterrence and increase accountability. These actions included requiring companies entering into settlement agreements resulting from a violation to admit to their misconduct in a statement of facts. In also included the implementation of increased penalties, as well as announcing an increased focus on compliance by controlled foreign subsidiaries of U.S. parent companies.

The BIS is charged with administering and enforcing the antiboycott laws under the Export Administration Act. These antiboycott laws were adopted to encourage and, in some circumstances, require U.S. companies to refuse to participate in foreign boycotts that the United States government does not sanction. According to BIS, the laws “have the effect of preventing U.S. firms from being used to implement foreign policies of other nations which run counter to U.S. policy.”

On July 20, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) implemented further sanctions against Russia to restrict “access to products that support its military and war efforts; reduce Russia’s revenue from the metals and mining sector; undermine its future energy capabilities; degrade Russia’s access to the international financial system; and starve Russia of G7-produced technology needed for its technology, aerospace, and defense sectors.” An OFAC press release summarizes this latest round of sanctions and those persons and entities that have been designated and placed on the Specially Designated Nationals (SDN) List.   

In this round of sanctions toward Russia, OFAC targeted Russia’s use of third-party intermediaries and transshipment points outside of Russia to evade sanctions, as well as additional Russia companies involved in key industry/economic sectors. The targeted entities that have been placed on the SDN List include:

  • numerous entities based in the Kyrgyz Republic that have been frequent exporters of controlled electronics components and other technology to Russia;
  • various Russia-based companies who received shipments from the identified Kyrgyz entities;
  • additional Russia and non-Russia evasion facilitators and Russia-based companies that import dual-use electronic components and technology from abroad;
  • numerous additional entities involved in Russia’s munitions factories and high-technology industries that support Russia’s defense sector;
  • several additional Russian banks;
  • various entities involved in Russia’s revenue from its metals and mining industries and manufacturers of equipment and chemicals for Russia’s energy industry; and
  • 14 Russia flagged container, cargo and passenger vessels.

For additional identifying details on these newly designated individuals, entities, and vessels, the SDN List is available here.

As a result of these actions, all property and interests in property of the persons placed on OFAC’s SDN List above 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 also issued two Russia-related General Licenses (GL) to allow for the wind down of activities with certain newly designated entities:

  • GL 70 – Authorizing transactions that are ordinarily incident and necessary to the wind down of transactions involving Joint Stock Company Ural Mining and Metallurgical Company through 12:01 a.m. EST, October 18, 2023.
  • GL 71 – Authorizing transactions that are ordinarily incident and necessary to the wind down of transactions involving several Russian banks through 12:01 a.m. EST, October 18, 2023.

On April 19, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 5L, “Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After October 20, 2023,” 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 October 20, 2023. The previous deadline had been July , 2023.  Effective July 19, 2023, this GL replaces GL 5K.

With this revised General License, U.S. persons remain prohibited until October 20, 2023 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.” 

On July 10, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 40B, “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 10, 2024.

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 40B 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 8, 2022).

On June 28, 2023, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that the United States was joining its “Five Eye” partners – Australia, Canada, New Zealand, and the United Kingdom – in committing to formally coordinate on export control enforcement.  While these allied countries have shared intelligence and other national security information for years, this announcement confirms a formal commitment to coordination on export control enforcement and enhancing each country’s export control regimes.   The joint effort will attempt to minimize gaps in enforcement and foster joint investigations and coordinated enforcement actions. The countries will also continue efforts to strengthen enforcement partnerships with various industry sectors to inform and counter diversion efforts.  The announcement specifically notes that the partners “will leverage enforcement resources to expand each country’s capacity to take action to prevent and deter evasion of export controls, including by restricting Russia’s access to technologies that fuel its unlawful invasion of Ukraine.”

Key Notes:

  • The May 2023 FinCEN/BIS Joint Alert supplements the Joint Alert published by FinCEN and BIS in June 2022.
  • The Supplemental Joint Alert offers financial institutions new and updated information on export control restrictions imposed by BIS related to Russia.
  • Included is a list of certain “high priority” items organized according to their Harmonized System (HS) Codes, which should prompt enhanced, risk-based customer and transactional due diligence.
  • Nine new transactional and behavioral “red flags” are highlighted which should be considered in addition to the 22 “red flag” indicators of illicit or suspicious activity that were enumerated in the June 2022 Joint Alert.
  • The Joint Alert requests that financial institutions continue using the existing SAR code—FIN-2022-RUSSIABIS—when submitting SARs specifically related to Russian export control evasion.
  • Financial institutions are reminded of their Bank Secrecy Act (BSA) reporting obligations as well.

On May 19, 2023, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a Supplemental Joint Alert reminding financial institutions to remain vigilant against individuals and entities attempting to skirt export controls related to Russia—a tool of economic statecraft maintained by BIS to advance U.S. national security and foreign policy interests—and to provide additional and updated information on “ongoing U.S. Government engagements and initiatives designed to further constrain and prevent Russia from accessing needed technology and goods to supply and replenish its military and defense industrial base.” The joint alert serves as an auxiliary to an earlier FinCEN/BIS Joint Alert published in June 2022.

View this full client update in HTML or PDF format.

On June 1, 2023, the Office of Foreign Assets Control (OFAC) issued four new Sudan-related General Licenses authorizing certain transactions that would otherwise be prohibited by Executive Order (EO) 14098 dated May 4, 2023 (See Update of May 4, 2023):

  • General License No. 1 authorizes transactions for the conduct of the official business of certain international organizations and entities, including but not limited to the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA); the Intergovernmental Authority on Development (IGAD); and the International Federation of Red Cross and Red Crescent Societies.
  • General License No. 2 authorizes certain transactions that are ordinarily incident and necessary to the certain described activities by nongovernmental organizations (NGOs), provided that the nongovernmental organization is not a person whose property or interests in property are blocked pursuant to EO 14098.  Covered activities must be non-commercial in nature and designed to directly benefit the civilian population, including:  (i) humanitarian projects, (ii) democracy building, and (iii) educational support.
  • General License No. 3 authorizes transactions related to the provision of agricultural commodities, medicine, medical devices, replacement parts and components, or software updates, and the extraction, processing, transport, sale, or distribution of water in Sudan; and
  • General License No. 4 authorizes the wind down of transactions through July 31, 2023 involving Defense Industries System or Al Junaid Multi Activities Co. Ltd., or any entity owned or controlled by these by a 50 percent or greater interest.  Note:  these two Sudanese entities were separately placed on OFAC’s Specially Designated Nationals (SDN) List on June 1, 2023. 

Certain transactions remain unauthorized under these general licenses and therefore require close analysis.