Key Points
- On April 24, 2024, President Biden signed into law H.R. 815, a significant foreign aid legislative package that also included the 21st Century Peace Through Strength Act (the Act), a bill introduced in the House that includes multiple U.S. sanctions-related provisions.
- Significantly, the Act, which is effective immediately, extends from five to 10 years the statute of limitations (SoL) for civil and criminal violations of economic sanctions programs administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and enforced by OFAC and the U.S. Department of Justice (DOJ) by amending two key statutory authorities underlying OFAC’s sanctions regulations, the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). This amendment will have a significant impact on U.S. sanctions compliance best practices, internal investigations and voluntary self-disclosures, due diligence, and negotiation of U.S. sanctions-related representations principally in the context of mergers and acquisitions, including in private equity transactions.
- Importantly, this change to the SoL will also apply to all other IEEPA-based legal authorities and programs, including certain national security programs administered and enforced by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), the U.S. Department of Justice’s National Security Division (DOJ-NSD) and the U.S. Department of the Treasury’s Office of Investment Security (Treasury OIS).
- Separately, among other provisions, the legislation authorizes President Biden to seize “frozen” Russian sovereign assets, under certain circumstances, and transfer funds into the Ukraine Support Fund, and calls for the mandatory imposition by the executive branch of certain sanctions against potential sanctions targets with respect to China, Iran, Hamas, persons involved in fentanyl trafficking and other malign conduct.
Congress Extends SoL from 5 to 10 Years
While media reporting has predominantly focused on the provisions in the emergency foreign aid package that President Biden signed into law on April 24, 2024 that provides funding for Ukraine, Israel and Taiwan, House Foreign Affairs Committee Chairman Michael McCaul’s introduction of the 21st Century Peace Through Strength Act included a number of sanctions provisions pulled from multiple pieces of pending legislation, which ultimately made it into the final, signed bill. The Act’s extension of IEEPA and TWEA’s SoL, which initially arose in the context of the Biden Administration providing a series of legislative proposals to Congress after Russia’s 2022 invasion of Ukraine and first appeared in a Senate bill sponsored by Sen. Tim Scott earlier this year, is a significant change that will have far-reaching consequences.
More specifically, effective immediately, the Act:
- Extends IEEPA’s and TWEA’s SoL for civil enforcement actions from five years to 10 years, stating that “[a]n action, suit, or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, under this section shall 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 Act also clarifies that “the commencement of an action, suit, or proceeding includes the issuance of a pre-penalty notice or finding of violation”
- Extends IEEPA’s and TWEA’s SoL for criminal prosecutions of willful violations from five to 10 years, stating that “[n]o person shall be prosecuted, tried, or punished for any offense under [the applicable subsection] unless the indictment is found or information is instituted within 10 years after the latest date of the violation upon which the indictment or information is based.”
Given that this amendment is to IEEPA’s SoL, it will apply to all IEEPA-based legal authorities and programs and not just economic sanctions administered by OFAC. Importantly, this means that the SoL for multiple existing or forthcoming national security programs administered and enforced by BIS, DOJ-NSD and Treasury OIS has also now been extended to 10 years. The SoL for civil and criminal offenses arising under the Export Control Reform Act and Arms Export Control Act remain unchanged by this legislation.
SoL Extension Implications
The Act’s extension of IEEPA’s SoL to 10 years is likely to have significant implications for U.S. economic sanctions compliance best practices in a variety of contexts, including internal compliance policies and procedures, civil and criminal investigations, M&A transactions and other corporate transactions. There are, however, also multiple open questions regarding how OFAC, DOJ and other administrative agencies with relevant legal authority will implement this new SoL. We outline a few initial considerations below:
- OFAC and DOJ may seek to apply the new SoL retroactively so long as the existing SoL of five years has not already expired, which may otherwise create constitutional issues under the ex post facto clause.
- In the context of certain corporate transactions, we anticipate that the new 10-year SoL will impact provisions of representations and warranties, including in the context of mergers and acquisitions. The 10-year SoL may also broaden the scope of related diligence and, as a result, we expect that market practice from both a negotiation and diligence standpoint may adjust.
From an administrative perspective, the new 10-year SoL will alleviate OFAC’s burden of tracking and administering tolling agreements in investigations initiated by the agency and provides OFAC with a default 10-year timeframe to investigate potential violations, which has been a priority for OFAC and other national security-focused agencies since Russia’s invasion of Ukraine in 2022. Importantly, companies across a wide array of industries subject to economic sanctions may need to consider amending their record retention policies.
Finally, and as referenced above, because IEEPA is the underlying authority for a wide range of administrative regulations, the effects of the 10-year SoL will be felt beyond OFAC-administered U.S. sanctions programs. In particular, the 10-year SoL may impact other IEEPA-based national security programs, including BIS’s Information and Communications Technology and Services (ICTS) Program, DOJ-NSD’s forthcoming program pursuant to the Executive Order of February 28, 2024 on Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern, and Treasury OIS’s Outbound Investment Program pursuant to the August 9, 2023 Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern.
Additional Sanctions-Related Legislation
In addition to extending IEEPA’s SoL, the Act also introduces a number of other sanctions-related provisions. Many of these provisions augment and/or overlap with existing sanctions authorities, but we expect the Biden Administration to issue guidance and regulations implementing these provisions in the coming months, similar to what was done after the 2017 passage of the Countering America’s Adversaries Through Sanctions Act (CAATSA).
China/Iran
- Iran-China Energy Sanctions Act of 2023 – The Iran-China Energy Sanctions Act of 2023 amends existing Iran sanctions law to expand the definition of “significant financial transaction” for the purposes of sanctions on foreign financial institutions dealing with the Central Bank of Iran or another sanctioned Iranian financial institution to include transactions by:
- (i) a Chinese financial institution (without regard to the size, number, frequency or nature of the transaction) involving the purchase of petroleum or petroleum products from Iran
- (ii) by a foreign financial institution (without regard to size, number, frequency or nature of the transaction) involving the purchase of Iranian unmanned aerial vehicles (UAVs), UAV parts or related systems.
Russia
- Rebuilding Economic Prosperity and Opportunity for Ukrainians Act (the REPO Act) – The REPO Act authorizes, following the submission of certain certifications, the President to “seize, confiscate, transfer, or vest Russian aggressor state sovereign assets, in whole or in part, and including any interest or interests in such assets, subject to the jurisdiction of the United States, for the purpose of transferring those funds to the Ukraine Support Fund.” In other words, the REPO Act provides the Biden Administration with legal authority to seize certain Russia state assets (e.g., funds or property of the Central Bank of Russia, the Russian National Wealth Fund, the Russian Ministry of Finance or any other funds or property owned by the Russian Government) to help Ukraine.
Iran
- Stop Harboring Iranian Petroleum Act (the SHIP Act) – The SHIP Act mandates, on or after 180 days after the date of enactment, and with certain exceptions, that the President impose blocking sanctions as well as certain other restrictions on foreign persons that own or operate a foreign port, a vessel or a refinery, and who engage in certain transactions or dealings involving Iranian crude oil or petroleum products, or Iranian-origin petroleum or petrochemical products.
- Fight and Combat Rampant Iranian Missile Exports Act (the Fight CRIME Act) – The Fight CRIME Act mandates that blocking and visa sanctions shall apply to any foreign person the President determines knowingly takes certain actions to participate in, or support, Iran’s missile and drone development programs, as well as the adult family members of persons that have engaged in certain conduct described in the legislation.
- Mahsa Amini Human Rights and Security Accountability Act (the MAHSA Act) – The MAHSA Act mandates that the President impose blocking and visa sanctions under existing OFAC Iranian sanctions authorities against certain enumerated Government of Iran officials.
Terrorism-related
- Hamas and Other Palestinian Terrorist Groups International Financing Prevention Act (the Hamas Act) – The Hamas Act mandates that the President impose blocking sanctions, not later than 180 days after the date of enactment of the Act, on certain foreign persons the President determines assist in sponsoring or providing significant financial, material or technological support for, or goods or other services to enable, acts of terrorism, or engage directly or indirectly, in certain transactions with enumerated terrorist groups, including Hamas, Palestine Islamic Jihad, Al-Aqsa Martyrs Brigade, the Lion’s Den or senior members of designated “foreign terrorist organizations.”
- Strengthening Tools to Counter the Use of Human Shields Act (the Shields Act) – The Shields Act modifies the already codified Sanctioning the Use of Civilians as Defenseless Shields Act (Pub. L. 115-348; 50 U.S.C. 1701) to mandate that the President, on or after enactment of the Shields Act and annually thereafter, submit a list to the appropriate congressional committees of each foreign person the President determines is a member of Palestine Islamic Jihad and “knowingly orders, controls, or otherwise directs the use of civilians protected as such by the law of war to shield military objectives from attack.” Pursuant to the Sanctioning the Use of Civilians as Defenseless Shields Act, the President is also mandated to impose blocking and visa sanctions on such foreign persons.
Moreover, the Shields Act also permits the President to impose blocking and visa sanctions, on or after 180 days from the date of enactment of the Act, on foreign persons that are responsible for, complicit in, or have knowingly engaged in cyber activities that pose a threat to U.S. national security, foreign policy and economic stability, as well as foreign persons that have provided certain material assistance for any such activity or persons targeted with blocking sanctions such activity, or those who are owned, controlled or have acted or purported to act on or behalf of a person targeted with blocking sanctions for engaging in such activity. Lastly, the Shields Act also mandates that the President impose blocking and visa sanctions on any foreign person that has enacted, ordered, directed or taken material steps to carry out, attempt or threaten violence against any current or former U.S. government official.
Drug Trafficking
- FEND Off Fentanyl Act (the Fentanyl Act) and Sanctions In Response To National Emergency Relating to Fentanyl Trafficking – In the Fentanyl Act, Congress finds that the proliferation, and trafficking into the United States, of fentanyl “is a national security threat that has killed hundreds of thousands of United States citizens” and that “transnational criminal organizations, including cartels primarily based in Mexico, are the main purveyors of fentanyl into the United States and must be held accountable.” Moreover, Congress notes that precursor chemicals sourced from China contribute to Congress’s finding of a national security threat with respect to fentanyl trafficking.
The Sanctions In Response To National Emergency Relating to Fentanyl Trafficking title of the Fentanyl Act mandates that the President impose blocking sanctions on certain foreign persons knowingly involved in the significant trafficking of fentanyl, fentanyl precursors or other related opioids, including such trafficking by a transnational criminal organization or is otherwise knowingly involved in significant fentanyl and fentanyl precursor-related activities of such transnational criminal organizations
- Illicit Captagon Trafficking Suppression Act of 2023 (the Captagon Trafficking Act) – The Captagon Trafficking Act mandates that the President impose blocking and visa sanctions against any foreign person the President determines, on or after the Captagon Trafficking Act’s enactment, have engaged in certain activities related to the illicit trafficking of captagon, which is a synthetic amphetamine-type stimulant.
Protecting Americans From Foreign Adversary Controlled Applications Act
While not sanctions related, we also note that the Protecting Americans from Foreign Adversary Controlled Application Act, which prohibits entities from distributing, maintaining or updating (or enabling such activities) a “foreign adversary controlled application” by either making such an application available on an app store or similar marketplace or providing internet hosting services to enable the applications distribution, maintenance or updating. The text of this legislation currently only specifies that applications of ByteDance Ltd. and TikTok are subject to these restrictions, but, importantly, these restrictions could be applied to any other application that meets the definition of a “foreign adversary controlled application” based upon a determination by the President that the application at issue presents a significant threat to U.S. national security.
Protecting Americans’ Data from Foreign Adversaries Act of 2024
Similarly, we also note the Protecting Americans’ from Foreign Adversaries Act of 2024, which makes it “unlawful for a data broker to sell, license, rent, trade, transfer, release, disclose, provide access to, or otherwise make available personally identifiable sensitive data of a United States individual to” a “foreign adversary country” or any entity that is controlled by a foreign adversary country and designates the Federal Trade Commission as the overseeing regulatory agency. The legislation broadly defines “personally identifiable sensitive data” and does not include a volume threshold for covered transactions involving such data. Notably, the Act comes on the heels of President Biden’s Executive Order of February 28, 2024, Preventing Access to Americans’ Bulk Sensitive Personal Data and United States Government-Related Data by Countries of Concern, and DOJ’s related advance notice of proposed rulemaking, which are aimed at regulating similar types of data transactions. It is not clear how this legislation and the program authorized under EO 14117 will interact, as many of the authorities and requirements of those two programs – to be overseen by two different agencies – appear to overlap. For more information on the bulk sensitive personal data EO and ANPRM, please see our previous client alert.
Reporting Requirements
Lastly, the Act also mandates that the President prepare and submit to Congress reports related to a number of the provisions above, as well as additional sanctions-related priorities and objectives, in order to inform and fulfill Congress’s oversight and legislative roles and priorities. This includes, of relevant note, a provision that requires the President to submit a report to Congress identifying foreign persons subject to EU and UK sanctions and whether such persons also meet the criteria for sanctions by the United States under the Global Magnitsky sanctions program or certain Russia-related authorities. The provision gives discretionary (not mandatory) authority for the President to impose sanctions on persons subject to EU and UK sanctions who are not already subject to U.S. sanctions.
Conclusion
In sum, the Act introduces significant changes to the investigation and enforcement landscape for programs based on IEEPA’s statutory authority, as well as additional sanctions provisions across multiple areas of concern. In the coming months, we will be closely monitoring how OFAC and other agencies, such as BIS and DOJ-NSD, implement the 10-year SoL into their administrative and enforcement actions, as well as the inevitable questions and market trends this change will initiate. We encourage clients to examine the implications of this change for internal investigations, compliance programs, record retention, due diligence and sanctions-related terms in transactional agreements.
