The U.S. Departments of State, Labor, and Commerce issued a business advisory on August 14, 2023, outlining key risks for U.S. companies operating in South Sudan. Concerns revolve around corruption, transparency, and human rights violations. Businesses are particularly cautioned against engaging with entities connected to South Sudanese government officials, especially in the oil and mining sectors. The main areas of concern noted in the advisory include:

  • Government Tenders: Firms engaging in South Sudanese government tenders may face significant reputational risks, mainly due to perceptions of corruption and resource diversion. The country ranks poorly in public sector corruption indices, with specific allegations of corrupt dealings in oil cargos and the misuse of oil revenue. Transparency International ranked South Sudan as the country with the world’s worst public sector corruption in its 2021 rankings of perception of corruption; South Sudan tied for second-worst in 2022.
  • Oil and Gold: South Sudan’s primary income sectors, oil (over 90%) and gold, are riddled with challenges, including corruption and lack of transparency. There is evidence of substantial leakage and diversion of oil revenue, and gold production is allegedly tied to illicit markets and high-level government officials. This has prompted U.S. regulatory actions and calls for enhanced due diligence.
  • Contracts for Assistance Delivery: South Sudan’s transitional government’s reliance on international aid has created opportunities for corruption and resource diversion. Examples include unnecessary fees, engagement with unqualified companies, and siphoning of funds intended for critical relief. U.S. entities are advised to exercise caution, particularly if engaging directly with government-tied entities.
  • Arms, Military Equipment, and Related Activity: The UN’s embargo on arms and related items in South Sudan is upheld by U.S. in the International Traffic in Arms Regulations (ITAR), which reflects the policy of denial on the export of defense articles and defense services to South Sudan with certain exceptions. Businesses are cautioned against dealings with South Sudanese armed forces due to widespread human rights abuses. Compliance with laws and sanctions is emphasized given the alarming degree of impunity in the region.

Additionally, the advisory includes two annexes:

Annex 1 offers an overview of U.S. Government reports and resources relevant to South Sudan, emphasizing legal measures, sanctions, and monitoring mechanisms concerning human rights, corruption, money laundering, and more. Specifically, U.S. Government Measures include:

  • Department of the Treasury has sanctioned individuals/entities in South Sudan under various sanctions authorities, including Executive Order 13664 and under Executive Order 13818.
  • Department of Commerce can impose licensing for security or policy reasons, adding entities to the Entity List (Supp. No. 4 to Part 744 of the EAR).  March 22, 2018 – 15 South Sudanese Entities Added to the Entity List.
  • Department of Labor maintains lists of goods and countries associated with child and forced labor, including cattle from South Sudan.  They provide tools and reports to help businesses assess risks and ensure compliance with labor standards, and they have assessed South Sudan as making no advancement in eliminating the worst forms of child labor.
  • Department of Homeland Security investigates allegations of forced labor, issuing orders to prevent relevant merchandise from entering U.S. ports, and conducts criminal inquiries into businesses and individuals connected to forced labor.
  • Department of State’s 2022 reports highlight South Sudan’s ongoing challenges with human trafficking, child soldier recruitment, forced labor, and sex trafficking, keeping the country in Tier 3 of the Trafficking in Persons Report and on the Child Soldier Prevention Act List.  Additionally, the Investment Climate Statement underline South Sudan’s dysfunctional legal system, plagued by corruption, unenforced laws, and challenges related to investment.

Annex 2 lists a number of resources for businesses conducting due diligence and establishing compliance programs.

For past SmarTrade Updates on Sudan, see:

Key Notes:

  • A new Executive Order prohibits U.S. investments in semiconductors and microelectronics, quantum information technologies, and artificial intelligence capabilities in China and other countries of concern and imposes certain notification requirements.
  • Certain passive and similar investments will be excepted from the restrictions.
  • An Advanced Notice of Public Rulemaking seeks public comment on the scope of restrictions, notification requirements, and exceptions by September 28.

On August 9 President Biden signed an “Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” (EO), which authorizes the Secretary of the Treasury to regulate certain U.S. investments into “countries of concern” in entities engaged in activities involving sensitive technologies that are critical to U.S. national security. Currently, the only identified country of concern is the People’s Republic of China (China), including the Special Administrative Regions of Hong Kong and Macau. Simultaneously, the Department of the Treasury (Treasury) released an Advanced Notice of Proposed Rulemaking (ANPRM) setting forth more proposed details on the scope of such investment restrictions and the manner of implementing this requirement and seeking public comment.

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On August 9, 2023, marking the three-year anniversary of the fraudulent August 2020 presidential election in Belarus, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions on eight individuals and five entities, focusing notably on the aviation sector.

Among the designated entities, OFAC has targeted the state-owned flagship carrier of Belarus, Belavia Belarusian Airlines (BELAVIA). Additionally, OFAC has designated Open Joint Stock Company Minsk Civil Aviation Plant 407, a state-owned aircraft component manufacturer. The facility has been highlighted as a key player in Belarusian production to meet Russia’s civil and military aircraft demand. The sanctions also include the designation of Joint Stock Company Byelorussian Steel Works (BSW) and BEL-KAP-STEEL LLC, a joint venture with BSW, which have been pivotal in generating substantial revenue for the Lukashenka regime.

OFAC also issued two Belarus-related General Licenses (GL) to allow for the wind down of activities with certain newly designated entities:

  • General License 8 authorizes all transaction ordinarily incident and necessary to the wind-down of transactions involving Joint Stock Company Byelorussian Steel Works Management Company of Holding Byelorussian Metallurgical Company through 12:01 a.m. EST, October 9, 2023. 
  • General License 9 authorizes all transaction ordinarily incident and necessary to the provision of exports, technology or services to ensure civil aviation safety, and transactions involving the wind-down of any transactions involving BELAVIA, through 12:01 a.m. EST, September 8, 2023.

In addition, sanctions were implemented on members of a Belarusian business and tobacco mogul and close associate of Alyaksandr Lukashenka.  Also, actions were taken against the Department of Financial Investigations of The State Control Committee of the Republic of Belarus and affiliated individuals for their involvement in cracking down on Belarus’s pro-democracy movement and free media.

For additional identifying details on these newly designated individuals and entities, 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.

On July 27, 2023, the U.S. Court of Appeals for the Federal Circuit issued a significant decision in a case involving the alleged evasion of antidumping duties assessed on pencils of Chinese origin by Royal Brush Manufacturing, Inc. (Royal Brush) under the Enforce and Protect Act of 2015 (EAPA). The EAPA is a statutory scheme for determining whether “covered merchandise was entered into the customs territory of the United States through evasion,” and in the underlying matter involving Royal Brush, Customs and Border Protection (CBP) found that the pencils had been transshipped from China through another country to the United States. This finding was based in part on evidence that was not supplied to Royal Brush because it was confidential business information provided by a competing U.S. importer of pencils. Royal Brush was also denied the opportunity to rebut this evidence. The Federal Circuit found that the failure to provide access to the redacted information was a violation of due process and that, under the applicable CBP regulation, Royal Brush must be given an opportunity to rebut this information with its own evidence.

The original 2018 EAPA case involved allegations of transshipped pencils from China through the Philippines to the United States, falsely claiming the pencils to be of Philippine origin and thus not subject to the antidumping duties assessed on certain pencils from China. CBP conducted an investigation, including onsite visits to the Philippine facility that resulted in the preparation of a Verification Report. However, Royal Brush was provided with only a redacted version of that report due to certain confidential business information. CBP ultimately issued an affirmative determination finding evasion.

In 2019, Royal Brush appealed the determination to the U.S. Court of International Trade (CIT) that led to a remand decision requiring CBP to issue a summary of the redacted information. Royal Brush again appealed the remand determination by CBP arguing that such summaries were insufficient and that the failure to provide the unredacted information violated the company of due process. The CIT continued to find that CBP had complied with the relevant regulation by providing the summaries.

In issuing its July 27, 2023 ruling, the Federal Circuit made clear that one “‘relatively immutable’ principle of due process is that ‘where governmental action seriously injures an individual, and the reasonableness of the action depends on fact findings, the evidence used to prove the [g]overnment’s case must be disclosed to the individual so that he has an opportunity to show that it is untrue.’” The three-judge Federal Circuit panel ruled that such a principle applies to administrative proceedings, stating that “the law is clear that, in adjudicative administrative proceedings, due process ‘includes the right to know what evidence is being used against one.’” The facts of the case indicate that CBP relied on information not provided to Royal Brush to determine that it had evaded duties, and that “[t]his in and of itself, is a clear violation of due process.” The judges found that all off CBP’s concerns over confidentiality could be addressed by issuing a protective order.

CBP argued before the Federal Circuit that confidential business information cannot not be disclosed absent a statute or regulation authorizing a protective order, and that the EAPA does not provide for such a protective order. CBP relied on both the general language of the Trade Secrets Act and case law supporting the proposition that agencies generally must be able to regulate the conduct of their own proceedings. The Federal Circuit judges, however, responded by stating, “We have no doubt that a release of information is ‘authorized by law’ within the meaning of the Trade Secrets Act if that release is required as a matter of constitutional due process, as is the case here.” The judges strongly emphasized the importance of due process:

… the government asserts, unless a protective order is authorized by law, disclosure is not authorized by law. In other words, the government can avoid compliance with due process requirements by the simple expedient of failing to provide for a protective order in a statute or regulation. We are aware of no case supporting any such extraordinary theory, and it is untenable on its face. The right to due process does not depend on whether statutes and regulations provide what is required by the constitution.

According to the ruling, CBP has the “inherent authority to utilize protective orders in appropriate circumstances” and that the EAPA and associated regulations do not bar protective orders. The judges noted that CBP offered no reason why the use of protective orders would impair the function of the EAPA process. 

The Federal Circuit remanded the case to the CIT with instructions for the CIT to order CBP to provide Royal Brush with the confidential information contained in the Verification Report and to allow it an opportunity for rebuttal.

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 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.”