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.

On April 29, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued amended Russia-related General License No. 8I, once again extending the authorization to conduct transactions involving Vnesheconombank, Bank Financial Corporation Otkritie, Sovcombank, Sberbank, VTB Bank, Alfa-Bank, Rosbank, Bank Zenit, Bank Saint-Petersburg, and the Central Bank of Russia that are related to energy until November 1, 2024.

The original General License No. 8, issued on February 24, 2022, had previously been amended to expand the list of Russian financial institutions and was scheduled to expire on May 1, 2024. The term “related to energy” means the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources.

General License No. 8I authorizes energy-related transactions through 12:01 a.m. EST, November 1, 2024. Certain dealings remain unauthorized under this general license and therefore require close analysis. For prior updates on this topic, see Updates dated October 25, 2023December 15, 2022,  June 14, 2022April 7, 2022, and February 28, 2022.

On April 30, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule (IFR) updating the Export Administration Regulations (EAR) to enhance the control structure for firearms and related items under BIS’s jurisdiction. This IFR will be effective on May 30, 2024, and public comment will be accepted until July 1, 2024. 

Background

In 2020, jurisdiction over the control of certain firearms and related items was transferred from the U.S. Department of State’s United States Munitions List (USML) to BIS. See Thompson Hine Update of July 10, 2020. On October 27, 2023, BIS announced an immediate pause on the issuance of new export licenses for certain firearms, related components and ammunition in order to conduct a review to reassess current firearm export control policies with a focus on U.S. national security and foreign policy interests. See Thompson Hine Update of November 1, 2023. The purpose of this review was to mitigate the risk of these firearms being misused in ways that could destabilize regions, violate human rights or fuel criminal activities. During this pause, BIS requested an assessment from the State Department as to whether there are specific destinations in which there is substantial risk of diversion or misuse adverse to U.S. national security and foreign policy interests. On April 8, 2024, the State Department provided BIS with such foreign policy guidance

This guidance focused on the risks associated with firearm exports to commercial distributors, civilians, and other non‐governmental end users. The State Department identified a set of risk factors, including such concerns as diversion risks, terrorism risks, corruption risks, human rights and political violence risks, state fragility risks, organized crime/gang risks, and drug trafficking risks. The State Department determined there are currently 36 countries where there is a substantial risk that lawful firearms exports to non‐governmental end users will be diverted or misused in a manner adverse to U.S. national security and foreign policy. These countries are: Bahamas, Bangladesh, Belize, Bolivia, Burkina Faso, Burundi, Chad, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Honduras, Indonesia, Jamaica, Kazakhstan, Kyrgyzstan, Laos, Malaysia, Mali, Mozambique, Nepal, Niger, Nigeria, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Suriname, Tajikistan, Trinidad and Tobago, Uganda, Vietnam, and Yemen.

Interim Final Rule

In this IFR, BIS has revised the license requirements and review policies, as well as other aspects of the control structure (e.g., license exceptions eligibility and export clearance requirements) for firearms, shotguns and related items (e.g., discharge type arms, optical devices, ammunition, and related technology and software) controlled under certain Export Control Classification Numbers (ECCNs). Further, the IFR adds new ECCNs to the Commerce Control List controlling certain semi-automatic firearm products and parts. The IFR also makes revisions to BIS’ license review policies under the Regional Stability (RS) and Crime Control (CC) “reasons for control” under the EAR that will require that applications for exports for certain ECCNs be reviewed on a case-by-case basis to determine whether the transaction is contrary to the national security or foreign policy interests of the United States. Such applications will also be reviewed consistent with U.S. arms embargoes and whether the export or reexport could contribute directly or indirectly to any country’s military capabilities in a manner that would alter or destabilize a region’s military balance contrary to the foreign policy interests of the United States. Further, the IFR identifies the 36 destinations noted above (High-Risk Destinations for Firearms and Related Items) and notes that license applications to these countries will be reviewed under a “presumption of denial.” A policy of denial will also apply when BIS has reason to believe the transaction involves criminal organizations, rebel groups, street gangs, or other similar groups or individuals. The IFR also makes several changes to license requirements, exceptions and the validity period for firearm licenses issued by BIS.

Revocation and Modification of Existing Licenses

Based on the policy changes implemented by this IFR, BIS has announced that it will revoke or modify certain valid licenses for the export and reexport of firearms and related items to non-government end users in destinations identified as High-Risk Destinations for Firearms and Related Items as of July 1, 2024. In addition, on May 30, 2024, BIS will modify certain other valid licenses with validity periods that end more than one year from the effective date of this IFR by rendering them invalid one year from the effective date of this IFR.

For exporters or reexporters of firearms, this 130 page IFR contains detailed revisions and additions that will require a robust analysis in order to remain compliant with the EAR. Ultimately, BIS believes that these regulatory changes “will facilitate more robust data tracking capabilities for exports and re-exports of firearms and related items … [and] enhance the ability of BIS and its interagency partners to review and process license applications consistent with U.S. national security and foreign policy interests.” BIS is accepting public comment on this interim final rule until July 1, 2024. 

On April 24, 2024, President Joseph Biden signed into law emergency supplemental appropriations (Pub. Law No. 118-50) that, among numerous measures, included the Protecting Americans from Foreign Adversary Controlled Applications Act. This now enacted law is most widely known for its efforts to ban Chinese-owned TikTok and comes after prior attempts to address any potential national security concerns failed. For more details on these past actions see Thompson Hine Updates of August 7, 2020, August 17, 2020October 5, 2020 and August 12, 2021.

The law makes it unlawful for an entity to distribute, maintain, or update (or enable the distribution, maintenance, or updating of) a foreign adversary controlled application by carrying out, within the land or maritime borders of the United States, any of the following:

  • Providing services to distribute, maintain, or update such foreign adversary controlled application (including any source code of such application) by means of a marketplace (including an online mobile application store) through which users may access, maintain, or update such application.
  • Providing internet hosting services to enable the distribution, maintenance, or updating of such foreign adversary controlled application for users.

The law defines a “foreign adversary” to included China, Iran, North Korea and Russia. The term “foreign adversary controlled application” means a website, desktop application, mobile application, or augmented or immersive technology application that is operated, directly or indirectly (including through a parent company, subsidiary, or affiliate), by: (i) ByteDance, Ltd., TikTok, and any of their subsidiaries or successors; and, (ii) any other covered company that is controlled by a foreign adversary and is determined by the president to present a significant threat to the United States. For any other “covered company,” the law establishes a process by the president in which any company that operates a website, desktop application, mobile application, or augmented or immersive technology application that permits a user to create an account or profile to generate, share, and view text, images, videos, real-time communications, or similar content, and has more than 1,000,000 monthly active users, can – after a public notice and public report to Congress – be determined to pose a national security threat. 

The law becomes effective in January 2025 for ByteDance and TikTok, and 270 days after any determination by the president on any other covered company. Failing any order by the foreign company to divest, it would be banned from web hosting sites and app stores. Further, any violations could subject an entity to investigation by the Department of Justice and potential enforcement of a civil penalty in an amount not to exceed the amount that results from multiplying $5,000 by the number of users within the United States determined to have accessed, maintained, or updated the foreign adversary controlled application.