Law Firms Urge Readiness as New Bill Extends Statute of Limitations for Sanctions Violations to 10 Years

Trade lawyers said that recent legislation expanding the statute of limitations on sanctions violations from five to 10 years comes with clear expectations: costlier and longer sanctions investigations.

Paul Weiss attorneys said in a client alert that companies that engage in merger and acquisition activity or in "other types of transactions" may wish to "expand the scope of their due diligence to account for the longer limitations period," as well as extend the "lookback period for sanctions representations and warranties." The firm suggested that banks and "other lenders may also consider taking a similar approach."

Willkie Farr attorneys offered similar advice. The firm suggested that companies should reevaluate their sanctions policies to "ensure that records and documentation are kept for an appropriate period of time" and boost their due diligence efforts "during M&A, international lending, and capital markets transactions."

As the market responds to this development, "we expect that acquirors, investors, and lenders will demand that due diligence cover significantly longer periods of time and that lookback periods in transaction documents will take into account the lengthy statutes of limitations with respect to U.S. sanctions," the firm said.

While the impact "may not be felt immediately, we recommend that businesses begin evaluating their internal controls and diligence practices now to take this change into account," the firm suggested.

President Joe Biden on April 24 signed the new bill into law. The legislation amended Section 206 of the International Emergency Economic Powers Act and Section 16 of the Trading with the Enemy Act by extending the statute of limitations for an "action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise" to 10 years "after the latest date of the violation upon which the civil fine, penalty, or forfeiture is based" (see 2404240043).

The change represents a "structural reform in general sanctions" that OFAC and DOJ have been asking for "at least since the Trump administration," because it's "often difficult for Treasury to detect sanctions violations," a House Foreign Affairs Committee majority aide said.

Willkie Farr attorneys noted that the legislation didn't say that the extension applies retroactively, nor does it exempt violations that happen before the bill became law. "As such, we believe that the extended statute of limitations likely will be applied both prospectively and to claims that were not expired as of April 24, 2024 (i.e., the date of the act of congress extending the statute of limitations)," the alert said.

"We also expect OFAC to amend its records and recordkeeping requirements, codified at 31 C.F.R Part 501.601, to correspond to the ten-year statute of limitations."

Baker McKenzie said the extension will allow DOJ and OFAC to "reach further back into historical transactions to identify and penalize violations of US sanctions," though it doesn't "affect the statute of limitations for US export controls, under the Export Reform Act of 2018, which remains at 5 years."

Paul Weiss attorneys echoed these findings, saying that under "well-settled principles, the new statute of limitations would not apply to revive sanctions violations that were already time-barred." The firm said that doubling the time in which enforcement action can be brought "could increase the scope of liability and therefore the extent of penalties for companies that face criminal or civil sanctions enforcement."

The bill, which also banned TikTok in the U.S. unless ByteDance sells it, established a 165-day statute of limitations for legal challenges to be brought against the legislation in the U.S. Court of Appeals for the D.C. Circuit. "As they have done with respect to past US government actions aiming to restrict TikTok’s operations in the United States, TikTok and ByteDance are expected to challenge the law in court on constitutional grounds," Baker McKenzie said.