New export controls, new section 301 duties, new OFAC requirements, new de minimis rule, new DOJ corporate compliance guidance, new international guidance on Russian sanctions. September had it all.
On the enforcement side, the U.S. Securities and Exchange Commission (SEC) was active in September, with a $10 million settlement over anti-bribery and corruption violations, and over $3 million for violating rules that preclude agreements and other actions that impede whistleblowers from reporting potential misconduct.
The U.S. Department of Justice (DOJ) held its own, obtaining a conviction against an oil trader involving a $1 million bribery scheme. This follows a related $98 million settlement from December 2023. More on all this below in the International Compliance Digest September 2024 newsletter.
Compliance Updates
Commerce Implements New Export Controls
On Sept. 5, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) published an interim final rule implementing controls on critical and emerging technologies, including Quantum Computing Items; Advanced Semiconductor Manufacturing Equipment; Gate All-Around Field-Effect Transistor (GAAFET) Technology; and Additive Manufacturing Items. Comments are due 60 days from publication. Click here for a more detailed summary.
Commerce Proposes New Reporting for AI
On Sept. 9, BIS released a Notice of Proposed Rulemaking outlining a new mandatory reporting requirement for the world’s leading AI developers and cloud providers.
The proposed rule requires developers of the most powerful AI models and computing clusters to provide detailed reporting to the federal government. This includes reporting about developmental activities, cybersecurity measures, and outcomes from red-teaming efforts, which involve testing for dangerous capabilities like the ability to assist in cyberattacks or lower the barriers to entry for non-experts to develop chemical, biological, radiological, or nuclear weapons.
OFAC Extends Recordkeeping Requirement
On Sept. 11, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) used its interim final rule to amend the Reporting, Procedures, and Penalties Regulations. The IFR extends recordkeeping requirements for certain transactions from five to 10 years, consistent with the statute of limitations for violations of certain sanctions administered by OFAC. This IFR is effective March 12, 2025. Written comments may be submitted on or before Oct. 15.
Changes to Voluntary Disclosures and Penalties for Export Violations
On Sept. 12, BIS issued a final rule making changes to the provisions in the Export Administration Regulations (EAR) related to BIS’s policies and practices regarding voluntary self-disclosures (VSDs) and to the Guidance on Charging and Penalty Determinations in Settlement of Administrative Enforcement Cases (BIS Penalty Guidelines).
This rule provides BIS with increased flexibility to determine fair and appropriate penalty amounts while also making it less burdensome for companies to submit certain VSDs. The rule revises the BIS Penalty Guidelines to change how the Office of Export Enforcement (OEE) calculates the base penalty in administrative cases and how OEE applies various factors to the base penalty to determine the final penalty. Click here for a summary of changes by BIS.
Final Modifications Announced on Section 301 Duties
On Sept. 13, the Office of the United States Trade Representative (USTR) announced final modifications concerning the statutory review of the Section 301 tariffs. The modifications include new timing and rates for tariffs on facemasks, medical gloves, needles, and syringes; an exclusion for enteral syringes; a proposal regarding coverage of additional tungsten, wafers, and polysilicon tariff lines; an exclusion for ship-to-shore cranes ordered prior to May 14, 2024; an expansion of the scope of the machinery exclusions process to include five additional tariff lines; and modification of the coverage of proposed exclusions for solar manufacturing equipment. Click here for the full federal register notice with detailed timing and duties.
Administration Takes Action on De Minimis
On Sept. 13, the Biden administration said it will take executive action on the de minimis exemption, which allows shipments valued at under $800 or less to enter the U.S. without duty and with little scrutiny. Many shipments entering the U.S. claiming the exemption originate from several China-founded e-commerce platforms. Under the new rule, the de minimis exemption will not be available to parcels containing merchandise that would be subject to tariffs under other sections of trade law (i.e., sections 232 and 301). This is a substantial change, as Section 301 tariffs currently cover approximately 40% of U.S. imports, including 70% of textile and apparel imports from China.
DOJ Announces Changes to Compliance Program Guidance
On Sept. 23, the DOJ announced changes to guidance that prosecutors use to assess a company’s compliance program when it comes under investigation for bribery, fraud or other offenses.
The guidance is part of the DOJ’s Evaluation of Corporate Compliance Programs (ECCP) – the roadmap prosecutors use to evaluate a company’s compliance program, including the questions prosecutors will ask as they assess a compliance program in determining how to resolve a criminal investigation.
The updated ECCP includes additions in three critical areas:
- The risk of misusing AI – prosecutors will consider the technology that a company and its employees use to conduct business, whether the company has conducted a risk assessment of the use of that technology, and whether the company has taken appropriate steps to mitigate any risk associated with the use of that technology.
- Whistleblower awards program – prosecutors will evaluate whether companies are encouraging employees to speak up and report misconduct or whether companies employ practices that chill reporting.
- Corporate compliance resources – prosecutors will assess whether a compliance program has appropriate access to data, including to assess its own effectiveness, and whether companies are putting the same resources and technology into gathering and leveraging data for compliance purposes that they are using in their business.
BIS Issues New Restrictions on Chinese Vehicles
On Sept. 23, BIS published a Notice of Proposed Rulemaking (NPRM) that would prohibit the sale or import of connected vehicles integrating specific pieces of hardware and software, or those components sold separately, with a sufficient nexus to the People’s Republic of China (PRC) or Russia.
The proposed rule would ban Chinese and Russian software and hardware from internet-connected cars, trucks and buses (excluding those not used on public roads such as for agriculture or mining).
Comments to this proposed rule must be received on or before Oct. 28.
G7 Issues Joint Guidance on Russian Sanctions
On Sept. 24, the United States, Canada, France, Germany, Italy, Japan, the United Kingdom, and the European Union (the G7) published, for the first time ever, joint guidance for industry on preventing evasion of the export controls and sanctions imposed on Russia.
The joint guidance outlines the following priority areas:
- Items that pose a heightened risk of being diverted to Russia;
- Red flag indicators of potential export control and/or sanctions evasion; and
- Best practices for industry to use to address these red flags and conduct enhanced due diligence.
The guidance aims to assist industry in identifying evolving Russian evasion practices and complying with multilateral export controls and sanctions. The goal is to protect common high priority list items from misappropriation, prevent reputational harm, and mitigate liability risk, all while supporting the continued success of coordinated export controls and sanctions.
Enforcement Actions
FCPA Violations
John Deere agreed to settle with the SEC for nearly $10 million to resolve SEC charges that it violated the Foreign Corrupt Practices Act (FCPA) arising out of bribes paid by its wholly owned subsidiary, Wirtgen Thailand. The SEC’s order found that Deere violated the recordkeeping and internal accounting controls provisions of the FCPA.
From at least late 2017 through 2020, Wirtgen Thailand employees bribed Thai government officials with the Royal Thai Air Force, the Department of Highways, and the Department of Rural Roads to win multiple government contracts, as well as bribing employees of a private company to win sales to that company. The order finds that the bribes included cash payments, massage parlor visits, and international travel for the government officials and private company employees.
In other news, a federal jury in Connecticut convicted a former oil and gas trader for Freepoint Commodities for his role in a nearly eight-year long scheme to bribe Brazilian government officials and to launder money to secure business for two Connecticut-based commodities trading companies. According to evidence, the trader paid more than $1 million in bribes to officials of Petrobras, the Brazilian state-owned oil and gas company, to obtain lucrative contracts for Arcadia Fuels Ltd. (Arcadia) and Freepoint Commodities LLC (Freepoint).
For its part, back in December 2023, Freepoint agreed to pay more than $98 million in a settlement with the DOJ.
Whistleblower Violations
The SEC settled charges against seven public companies for using employment, separation, and other agreements that violated rules prohibiting actions to impede whistleblowers from reporting potential misconduct to the SEC. To settle the SEC’s charges, the companies agreed to pay more than $3 million combined in civil penalties.
According to the SEC’s orders, the companies required employees to waive their right to possible whistleblower monetary awards - in violation of whistleblower protection Rule 21F-17(a), which prohibits any action to impede an individual from communicating directly with the SEC staff about a possible securities law violation. Each of the companies has agreed not to violate this rule in the future and has taken steps to remediate the violations, including making changes to the relevant agreements.
Export Control Violations
An Israeli freight forwarder pleaded guilty to conspiracy to commit export control and smuggling violations for his role in a scheme to illegally ship aircraft parts and avionics from U.S. manufacturers and suppliers to Russia, including for the benefit of sanctioned Russian airline companies. As part of his plea agreement, the defendant admitted to deceiving U.S. companies about the true destination of the goods at issue, and that the defendant and others attempted to conceal the scheme by submitting false information in export documents filed with the U.S. government.
