On April 24, 2024, President Biden signed into law a long-debated $98 billion foreign aid and national security legislative package (the “Act”) providing funds for Israel, Taiwan, and Ukraine, and authorizing new sanctions and related actions with respect to Russia and Iran, among others. Along with headline-grabbing aid provisions (and provisions forcing the sale or divestment of social media application TikTok), the Act significantly alters the U.S. sanctions landscape, including by doubling the enforcement statute of limitations for sanctions violations from 5 to 10 years and further restricting Russian sovereign assets while providing authorization for seizure and transfer of certain assets to benefit Ukraine. The reach of the Act and the significance of its provisions send a clear message that the U.S. government intends to continue using sanctions as a critical tool to advance U.S. national security and foreign policy objectives on the world stage.
We highlight below the Act’s key U.S. sanctions provisions, including sections on:
I. Extended Statute of Limitations and OFAC Staffing Reporting
II. Authorizing Seizure of Russian Sovereign Assets to Benefit Ukraine
III. Harmonizing U.S. Sanctions with Allied Sanctions on Russia
IV. Expanded Sanctions Targeting Iran and Affiliated Groups
V. Expansion of Terrorism-Related Sanctions and Initiatives
VI. Combating Drug Trafficking
VII. Enhanced Cyber-Related Sanctions
VIII. New Sanctions for Committing or Threatening Violence Against U.S. Government Officials
Although some of these new sanctions authorities are “mandatory” – i.e., the Act directs the President to impose certain sanctions – we do not yet know how such provisions will be implemented by the Biden administration; notably, certain of the new provisions overlap with existing sanctions authorities already in place. Numerous provisions in the Act direct various U.S. government agencies to submit reports to Congress regarding parties who have engaged in specified activities involving sanctioned countries or persons and who may therefore meet the criteria for sanctions; in many cases, the President is then required by the Act to impose sanctions against such individuals and entities. Given that this exercise requires a determination to be made by the President (or the Secretary of the Treasury or other official) that a person has engaged in proscribed conduct, the Executive Branch maintains discretion to refrain from implementing some of these sanctions.
I. Extended Statute of Limitations and OFAC Staffing Reporting
In perhaps its most far-reaching sanctions-related provision, the Act doubles the statute of limitations for criminal and civil violations of the International Emergency Economic Powers Act (“IEEPA”) and the Trading with the Enemy Act – the authorities for most U.S. sanctions programs – from 5 to 10 years. See Act, Sec. 3111 of Division D. This significantly expands the authority of U.S. agencies enforcing sanctions, such as the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and U.S. Department of Justice (“DOJ”). The 10‑year statute of limitations will apply to all violations going forward as well as any violations not time-barred as of the date of the Act – April 24, 2024. Although the U.S. Constitution prohibits retroactive criminal enforcement against conduct time-barred under the shorter statute of limitations, retroactive civil enforcement may be permissible. OFAC has indicated that it understands its ability to bring civil enforcement against conduct time-barred under the former statute of limitations is an open question. We expect OFAC to issue guidance on the issue in the near future.
This expansion of the statute of limitations has implications for how companies approach compliance with U.S. sanctions, including sanctions-related policies and procedures, record‑keeping, internal investigations, and voluntary self-disclosures, as well as due-diligence and sanctions-related representations and warranties in the mergers and acquisitions and lending contexts. We also expect that OFAC will make corresponding changes to its regulations and licensing templates to expand its current 5-year recordkeeping requirement to 10 years.
The Act also directs OFAC to provide a classified report and briefing to Congress within 180 days on staffing for each sanctions program and each country or issue. This presumably gives the agency an opportunity to justify what it does with its current resources and demonstrate what it could do with additional resources, e.g., increase its volume of sanctions designations and enforcement cases and decrease its substantial licensing backlog.
Back to Top
II. Authorizing Seizure of Russian Sovereign Assets to Benefit Ukraine
The Act directs the United States to work with international allies and partners, including G7 countries and other countries in which Russian sovereign assets are located, to repurpose for the benefit of Ukraine the roughly $300 billion in Russian sovereign assets immobilized worldwide (of which only between $4 billion and $5 billion are within U.S. jurisdiction). “Russian sovereign assets” are defined as funds or other property of the Russian Central Bank, National Wealth Fund, or Ministry of Finance or otherwise owned by the Government of the Russian Federation, including by any subdivision, agency, or instrumentality of the Government of the Russian Federation (and thus would not include blocked assets of private individuals or entities where the Russian state has no interest those assets). See Act, Sec 2 of Division F.
While the Act represents a watershed moment in providing the U.S. government with the authority to seize frozen Russian sovereign assets to benefit Ukraine – action that has long been sought by the government of Ukraine – it remains unclear if and when such a seizure and transfer of assets will occur, given fundamental legal uncertainties in the United States and other countries regarding whether such actions comport with constitutional and international legal requirements.
Process. The Act sets out a process for seizing, confiscating, or transferring Russian sovereign assets for the benefit of Ukraine:
- Certification from the President to Congress that:
- it is in the interests of the United States;
- it follows meaningful coordination with G7 leaders to take multilateral action to do so; and
- (i) the President has received an “official and legitimate request” from an international mechanism with U.S. participation for compensating Ukraine or (ii) Russia continues aggression toward Ukraine or has stopped but has not compensated or begun a process to compensate Ukraine.
- Seizure, confiscation, or transfer of assets within U.S. jurisdiction 30 days after certification to Congress by any appropriate method;
- Vesting of all rights, title, and interest in seized funds and property in the U.S. government;
- Liquidation or sale of any seized, confiscated, or transferred property;
- Depositing seized and liquidated funds in the to-be-established Ukraine Support Fund; and
- Transfer and use of funds in the Ukraine Support Fund to provide assistance to Ukraine for damages from the Russian invasion.
See Act, Sec. 104(b)-(c) of Division F. The Act sets out a series of specific permissible uses for funds within the Ukraine Support Fund, including contributions to an international body administrating compensation for Ukraine, supporting rebuilding efforts, or providing economic and humanitarian assistance to Ukraine. The Act also imposes transparency requirements on use of funds and allows Congress to bar funds transfers through a joint resolution of disapproval. The authorities in the Act to seize and transfer Russian sovereign assets sunset in April 2029 or 120 days after the President certifies that Russia has withdrawn from Ukraine and made full compensation for the invasion.
Reporting. The Act also requires reporting on Russian sovereign assets. The Act directs the President to require any financial institution holding Russian sovereign assets to provide notice by July 23, 2024, of those assets and then for the President to report to Congress on the status of such assets by October 21, 2024, and annually afterward for three years. See Act, Sec. 104(a) of Division F.
If the President determines that Belarus has engaged in an act of war against Ukraine related to Russia’s ongoing invasion of Ukraine, the Act’s provisions will extend to Belarusian sovereign assets as well.
Additional restrictions on Russian sovereign assets. The Act prohibits any unblocking of blocked Russian sovereign assets until the President certifies that hostilities between Russia and Ukraine have ceased and Russia has fully compensated Ukraine for the harm caused by its invasion or Russia has committed to an international mechanism to compensate Ukraine for all amounts determined to be owed to Ukraine. See Act, Sec. 103 of Division F. If Treasury does intend to unblock currently blocked Russian sovereign assets, the Act requires notification to Congress and provides a mechanism for preventing the release of such assets by joint resolution of Congress.
Back to Top
III. Harmonizing U.S. Sanctions with Allied Sanctions on Russia
The Act requires the President to submit to Congress within 90 days of the Act’s enactment a list of every foreign person subject to Russia-related sanctions issued by the European Union and the United Kingdom, and a determination as to whether each such person meets the criteria for designation under the Global Magnitsky Human Rights Accountability Act of 2016 (22 U.S.C. § 10101 et seq.), or certain existing Russia-related sanctions authorities. See Act, Sec. 1 of Division G. The Act also authorizes – but does not mandate – the President to designate any EU- or UK-sanctioned person on the list referenced above who is not already subject to U.S. sanctions.
Back to Top
IV. Expanded Sanctions Targeting Iran and Affiliated Groups
Targeting Iranian Petroleum
The Act includes new primary designation authorities and additional secondary sanctions authorities targeting dealings in Iranian-origin petroleum and petroleum products, as well as secondary sanctions targeting dealings involving Iranian unmanned aerial vehicles (“UAVs”).
Primary sanctions authorities. The Act directs the President to impose blocking sanctions and visa restrictions (including cancellation) on foreign persons – and their adult family members and owned and controlled entities – that own or operate any:
- foreign port that knowingly docks any vessel sanctioned for transporting Iranian petroleum or petroleum products or is used to engage in “significant” transactions involving the same;
- refinery knowingly used for a “significant” transaction to process, refine, or otherwise deal in Iranian petroleum or petroleum products; or
- vessel knowingly used for a ship-to-ship transfer of a “significant” Iranian petroleum or petroleum product transaction.
See Act, Sec. 3 of Division J. The Act does not define “significant” for purposes of the above determinations. Clarifying the “knowingly” requirement, the Act permits foreign parties to rely on “a certificate of origin or other documentation” that the country of origin is not Iran unless those parties knew or had reason to know such documentation was false. The Act also authorizes the President to prohibit vessels that engaged in certain activities involving Iranian petroleum and related products from landing at any U.S. port for up to two years.
These authorities are effective October 21, 2024, for any conduct occurring after April 24, 2024. The Act also mandates provision of various reports to Congress on implementation of these sanctions.
Expanded secondary sanctions authorities. The Act amends existing law directing the President to impose secondary sanctions on certain foreign financial institutions dealing with Iran, set out in section 1245 of the National Defense Authorization Act for Fiscal Year 2012 (“2012 NDAA”). Per the 2012 NDAA and OFAC’s regulations, the President is directed to impose U.S. correspondent account sanctions on foreign financial institutions knowingly conducting or facilitating any “significant financial transaction” with certain Iranian financial institutions. The Act expands these secondary sanctions by determining that “a significant financial transaction” triggering sanctions includes:
- any transaction after April 24, 2024, of any size by a Chinese financial institution involving purchases of petroleum or related products from Iran; and
- any transaction after April 24, 2024, of any size by a foreign financial institution – not limited to Chinese institutions – involving purchase of Iranian UAVs or related parts or systems.
See Act, Sec. 2 of Division S. The requirement to impose sanctions applies to any determination of a “significant financial transaction” occurring on or after April 24, 2024.
The Act also requires the President to determine and inform relevant congressional committees by October 21, 2024, and afterward annually for five years, whether any Chinese financial institutions have been involved in purchases of Iranian petroleum or any foreign financial institutions have been involved in purchases of Iranian UAVs.
Targeting Iranian Missiles
The Act directs the President to designate foreign persons (and adult family members) determined to have been knowingly involved after April 24, 2024, in efforts to provide Iran with any goods, technology, software, or related material needed for missile production, development, or operation. See Act, Sec. 5 of Division K. Relevant goods are defined in the Missile Technology Control Regime Annex.
Targeting Iranian and Affiliated Group Officials’ Assets
The Act directs Treasury to submit to Congress by October 21, 2024, and every 2 years afterward, a report on the funds and assets owned by certain Iranian officials and leaders of Hizballah, Hamas, Palestine Islamic Jihad, and Kata’ib Hizballah and identifying any non‑Iranian financial institutions holding these assets or knowingly providing services to these officials and leaders. See Act, Sec. 3 of Division R. The Act directs Treasury – within 90 days of submitting this report – to in turn direct any U.S. financial institutions named in the report to close such accounts and to “actively seek the closure” of accounts at foreign financial institutions by “using any existing authorities.” See Act, Sec. 4 of Division R. Treasury can suspend acting on this report where necessary for national security. These requirements sunset in April 2029.
Targeting Iranian Human Rights Abusers
The Act requires the President to determine and report to Congress by July 23, 2024, whether Iran’s Supreme Leader, President, and other officials, individuals, and entities meet the criteria for imposition of sanctions under existing U.S. sanctions authorities related to terrorism and human rights abuses. See Act, Sec. 2 of Division L. The Act directs the President to impose such sanctions on any persons determined to meet the designation criteria. The President is also directed to submit to the appropriate congressional committees a report with specified details on the determinations.
Additionally, the Act gives Congress the power to submit names to the President to determine eligibility for certain sanctions. No later than 60 days after receiving a request as to whether a foreign person meets certain specified criteria pertaining to their relationship with Iran, the President must (i) determine whether the person meets such criteria and (ii) submit a report to the relevant committee chair and ranking member stating whether the President intends to impose sanctions.
Back to Top
V. Expansion of Terrorism-Related Sanctions and Initiatives
Strategy Initiative to Degrade Hamas’s Finances
The Act calls for Treasury, through participation in the G7 and other appropriate fora, to develop a strategy in coordination with U.S. allies and partners to ensure that Hamas is incapable of financing armed hostilities against Israel. See Act, Sec. 3 of Division Q. The Act directs Treasury to submit a report to relevant congressional committees on Hamas’s financing and this multilateral strategy.
Targeting Supporters of Hamas and Other Palestinian Terrorist Organizations
The Act directs the President to impose – by no later than October 21, 2024 – sanctions on persons determined to have knowingly (i) assisted in “sponsoring or providing significant financial, material, or technological support for, or goods or other services to enable, acts of terrorism” or (ii) engaged in, directly or indirectly, a significant transaction with a senior member of certain terrorist groups, including Al-Aqsa Martyrs Brigade, Hamas, and Palestinian Islamic Jihad. See Act, Sec. 3 of Division M.
The Act also expands designation criteria under the Sanctioning the Use of Civilians as Defenseless Shields Act to include membership in, or knowingly acting on behalf of, Palestine Islamic Jihad, and knowingly ordering, controlling, or otherwise directing “the use of civilians protected as such by the law of war to shield military objectives from attack.” The Act also extends the effective date of the underlying statute to December 31, 2030.
Back to Top
VI. Combating Drug Trafficking
Targeting fentanyl. The Act directs the President to impose blocking sanctions against any foreign person determined to be knowingly involved in the trafficking of fentanyl, fentanyl precursors, or other related opioids or knowingly involved in significant activities of a transnational criminal organization relating to the trafficking of fentanyl, fentanyl precursors, or other related opioids. See Act, Sec. 3103 of Division E.
Targeting captagon. The Act directs the President to impose blocking sanctions on any foreign person determined to engage in activities or transactions that have materially contributed to the illicit production and international illicit proliferation of captagon, a synthetic amphetamine-type stimulant (a.k.a., fenethylline). See Act, Sec. 4 of Division P. The Act states that the vast majority of captagon is produced in territories held by the regime of President Bashar al Assad in Syria, and elements of the government of Syria are key drivers of illicit trafficking in captagon throughout the Middle East. The Act also directs the imposition of blocking sanctions against any foreign person who knowingly receives property or an interest in property related to the production or use of captagon.
Back to Top
VII. Enhanced Cyber-Related Sanctions
The Act authorizes, from October 21, 2024, forward, cyber-related sanctions mirroring those existing under OFAC’s Cyber-Related Sanctions program authorizing blocking sanctions and visa restrictions on foreign nationals engaging or assisting in “significant cyber-enabled activities” that are likely to result in “a significant threat to the national security, foreign policy, or economic health or financial stability of the United States.” See Act, Sec. 5 of Division O. The Act also authorizes sanctions on foreign persons determined to be materially supporting or owned or controlled by parties sanctioned under these provisions. Congressional committees (e.g., Committee on Foreign Affairs, Committee on Financial Services, Committee on Foreign Relations) are permitted to submit requests to the President on whether a foreign person merits sanctions under these cyber-related authorities, triggering a 120-day timetable for a sanctions determination and related report to Congress.
Back to Top
VIII. New Sanctions for Committing or Threatening Violence Against U.S. Government Officials
The Act directs the President to impose blocking sanctions and visa restrictions on foreign persons determined to have “ordered, directed, or taken material steps” or “attempted or threatened” to use violence against any current or former official of the U.S. government after April 24, 2024. See Act, Sec. 6 of Division O. The President can waive or terminate these sanctions to support national security or by determining that the person credibly demonstrated changed behavior, paid an appropriate consequence, and committed to not engage in such activity again. This new authority is effective on October 21, 2024, and sunsets on April 24, 2028.
Back to Top
Conclusion
The Act contains the most significant changes in sanctions enacted by statute in many years. Given the broad scope of the statutory provisions, we anticipate potential new Presidential Executive Orders and OFAC regulatory changes over the course of 2024 to implement the Act and OFAC guidance regarding the agency’s interpretation of various statutory and regulatory requirements.
The passage of the Act and the magnitude of its provisions send a clear signal to the private sector that now is as important a time as ever to revisit a company’s sanctions compliance program, identify any gaps, and implement effective enhancements accordingly. Morrison Foerster’s National Security Group is ready to offer counsel on the scope and sufficiency of corporate sanctions compliance programs and, where compliance efforts may have failed, guidance on resolving potential enforcement matters, now under a new statute of limitations.
[View source.]
