US Urges Foreign Companies to Take American Export Control, Sanctions Rules ‘Seriously’

U.S. sanctions and export control agencies this week warned foreign companies about the risks they may face for poor compliance with U.S. trade rules, saying the government can pursue civil and criminal penalties against businesses for a range of transactions that take place outside U.S. borders. The new “tri-seal compliance note” published by DOJ, the Commerce Department and the Treasury Department includes a list of activities that most commonly place foreign firms at risk, outlines how U.S. export licensing requirements can apply to shipments through third countries, and summarizes recent enforcement actions taken by all three agencies to punish violators.

The compliance note, which follows similar guidance released by the agencies last year (see 2303020054 and 2307260022), asks non-U.S. companies “to take seriously the impacts of U.S. sanctions and export control laws on their business and operations.” The agencies said businesses with global operations “should take appropriate steps to understand how these laws may apply to them, what risks are posed by their business operations, and how they can mitigate these risks.”

The note also lists several sanctions and export control compliance steps companies should employ, including:

• Routinely updating their sanctions compliance program
• Strong internal controls to govern payments and shipments involving affiliates, subsidiaries, counterparties, which can help shed light on "linkages" to sanctioned parties that are otherwise hidden by “complex payment and invoicing arrangements”
• Integrating know-your-customer information -- including passports, phone numbers, nationalities, countries of residence, incorporation and operations -- into compliance screening
• Making sure subsidiaries and affiliates are trained on U.S. sanctions and export controls requirements and can pinpoint red flags
• Taking “immediate and effective action when compliance issues are identified” to put in place “compensating controls until the root cause of the weakness can be determined and remediated”
• Mitigating compliance risks before merging with another business
• Voluntarily self-disclosing possible violations to the U.S. government.

One section of the compliance note focuses on enforcement efforts by Treasury's Office of Foreign Assets Control, which has “actively employed its enforcement authorities against foreign financial institutions” and other foreign parties who have “caused U.S. persons to violate OFAC sanctions.” That has included foreign companies that hide or omit reference to the involvement of a sanctioned party or region in a financial transaction; mislead a U.S. person into exporting goods to a sanctioned region; or route a blocked transaction through the U.S. or the U.S. financial system, causing a U.S. bank to process the payment in violation of OFAC sanctions.

The document said OFAC “will aggressively investigate and pursue such activity in support of high-priority foreign policy objectives.”

The compliance note also outlines how the Bureau of Industry and Security’s export controls apply to goods moving outside the U.S., including through restrictions on reexports, in-country transfers, shipments of goods that contain a certain amount of export-controlled U.S. content, and exports subject to the foreign direct product rule. “BIS actively enforces U.S. export control laws, regardless of where the offending party is located,” the document said.

It stressed that a foreign company, for example, “cannot bypass” the U.S. embargo against Iran by first shipping an item to a distributor in the United Arab Emirates and then asking that distributor to send the item to Iran. The note also said foreign parties to an export cannot bypass U.S. export licensing requirements simply because the item is “located outside the United States and was not shipped directly to the foreign party recipient.” A foreign party that places an export controlled item “into inventory that otherwise requires a license to a third country destination if directly exported” from the U.S. must “generally” still obtain a BIS license before shipping to that third country.

Another section touches on items made outside the U.S. that may be subject to the foreign direct product rule, which places license requirements on certain foreign technology, software or equipment if it's made with certain U.S. technology. “That is, foreign-produced items -- even if they never enter the U.S. stream of commerce and no U.S. person is involved in the transaction -- may still be subject to U.S. export control jurisdiction if they meet certain conditions,” the document said.

The compliance note also details various export control and sanctions cases recently brought by DOJ, including against Binance, the world’s largest virtual currency exchange, which agreed to pay billions of dollars to the U.S. government last year to settle alleged violations of multiple sanctions programs (see 2311210076). The document said Binance “knew” its system allowed U.S. users to transact with users in sanctioned jurisdictions, and it “failed to implement controls to prevent trades between U.S. users and users in Iran.”