Sanctions and export controls were the top items of interest in June. On the compliance side, OFAC and the BIS announced new sanctions and export controls on Russia and Belarus. The new measures target individuals and entities both in Russia and outside its borders whose products and services enable Russia to sustain its war effort and evade sanctions. On the enforcement side, BIS issued a rare denial order to a forwarding company and resolved multiple other export violations. OFAC also entered into a half a million dollar settlement over violations of sanctions regulations.
June was a strong reminder of the importance for companies to have a robust compliance program tailored to their types of products and business risks. This should include thorough audits of the company’s supply chain, as well as periodic review of existing and potential transactions, contracts, and relationships with persons or entities that may be subject to the new measures. Both OFAC and BIS have signaled increased enforcement efforts to tackle evasions of sanctions and other trade restrictions.
Compliance Updates
DHS Expands UFLPA Entity List
On June 12, the Department of Homeland Security added three China-based companies to its forced labor blacklist, including the seafood, aluminum, and footwear industries. The added entities include Dongguan Oasis Shoes Co., Ltd. (also known as Dongguan Oasis Shoe Industry Co., Ltd.; Dongguan Luzhou Shoes Co., Ltd.; and Dongguan Lvzhou Shoes Co., Ltd.), Shandong Meijia Group Co., Ltd. (also known as Rizhao Meijia Group), and Xinjiang Shenhuo Coal and Electricity Co., Ltd. DHS signaled that it is increasing its focus on seafood, aluminum, and shoes – sectors that play an important role in Xinjiang’s economy – and ensuring goods made with forced labor are kept out of the U.S. market.
OFAC Vastly Expands Russian Sanctions
On June 12, 2024, the US Department of Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions that target more than 300 individuals and entities both in Russia and outside its borders — including in Asia, the Middle East, Europe, Africa, Central Asia, and the Caribbean. These Specially Designated Nationals (SDN) touch a variety of industries including oil and gas, financial services, semiconductor manufacturing, military equipment production (including unmanned aerial vehicles), and others.
With these actions, foreign financial institutions also face greater risk of secondary sanctions for conducting or facilitating significant transactions, or providing any service, involving any person blocked pursuant to E.O. 14024. OFAC has published an updated Compliance Advisory to Foreign Banks on Russia Sanctions Risks in order to provide additional guidance for Foreign Financial Institutions.
OFAC also issued a new determination prohibiting the supply to any person in the Russian Federation of “(1) IT consultancy and design services; and (2) IT support services and cloud-based services for enterprise management software and design and manufacturing software (referred to as “Covered Software”).” The determination takes effect September 12, 2024.
Finally, as part of the actions, the Office of Foreign Assets Control (OFAC) released six new General Licenses (GL) covering a range of transactions and entities.
BIS Imposes New Export Controls Against Russia and Belarus
In concert with OFAC, the Commerce Department’s Bureau of Industry and Security (BIS) announced several additional export control restrictions and related actions against Russia to further degrade its ability to continue waging war against Ukraine. The actions include:
- Cracking down on diversion through shell companies;
- Further cutting off exports of business software that enable Russian and Belarusian defense industries;
- Restricting trade in more items destined to Russia and Belarus;
- Tightening the availability of license exceptions for Russia and Belarus;
- Cutting off trade to foreign companies through the Entity List;
- Issuing Temporary Denial Orders (TDO), which cut off not only the right to export items subject to the Export Administration Regulations (EAR) from the U.S., but also to receive or participate in exports from the U.S. or reexports of items subject to the EAR; and
- Restricting distributors and transhippers.
Treasury Seeks to Restrict Investment in China
On June 21, 2024, the Treasury Department issued a Notice of Proposed Rulemaking (NPRM) to restrict American companies’ outbound investment in China in three high-tech areas: semiconductors and microelectronics; quantum information technologies; and artificial intelligence. This implements Executive Order 14105 of August 9, 2023, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” (the Outbound Order). The NPRM builds on the Advance Notice of Proposed Rulemaking (ANPRM) issued by Treasury last August and provides the full draft regulations and explanatory discussion regarding the intent of the proposal, and solicits comment from the public.
BIS Updates Boycott Requester List
On June 27, BIS published its first quarterly update of the boycott Requester List. This list notifies companies, financial institutions, freight forwarders, individuals, and other U.S. persons of potential sources of certain boycott-related requests they may receive during the regular course of business.
The updated public list of entities who have been identified as having made a boycott-related request in reports received by BIS includes 57 additions. BIS has also removed 127 entities. The list is posted on the Office of Antiboycott Compliance (OAC) website to help U.S. persons comply with the reporting requirements of the antiboycott regulations set forth in Part 760 of the Export Administration Regulations (EAR), 15 CFR Parts 730-774.
Enforcement Actions
OFAC Violations
OFAC entered into a $538,000 settlement with Mondo TV, S.p.a. (Mondo), an Italy-based animation company, to settle its potential civil liability for 18 apparent violations of the North Korea Sanctions Regulations. Between May 2019 and November 2021, Mondo caused U.S. financial institutions to process approximately $537,939 in payments for animation work Mondo outsourced to a Government of North Korea-owned animation studio. This settlement amount reflects OFAC's determination that Mondo's conduct was non-egregious and not voluntarily disclosed.
Export Violations
BIS imposed a civil penalty of $285,000 against Sapphire Havacilik San Ltd. STI (Sapphire), an aviation company headquartered in Ankara, Türkiye, to resolve violations of the Export Control Reform Act of 2018 (ECRA) alleged in BIS’s Proposed Charging Letter. As described in the Settlement Agreement and Proposed Charging Letter, in October 2023 and in January 2024, Sapphire flew private charter flights involving a U.S.-origin Gulfstream aircraft into Russia without a required BIS license.
BIS imposed a civil penalty of $44,750 against Airbus DS Government Solutions Inc. (ADSGS), a satellite communications and networking systems company located in Plano, Texas, to resolve three violations of the antiboycott provisions of the Export Administration Regulations (EAR), as alleged in BIS’s Proposed Charging Letter. ADSGS voluntarily self-disclosed the conduct to BIS, cooperated with the investigation by BIS’s Office of Antiboycott Compliance (OAC), and took remedial measures after discovering the conduct at issue, all of which resulted in a significant reduction in penalty.
BIS imposed a three-year denial order against USGoBuy LLC, a packaging forwarding company, prohibiting the company from participating in all exports under BIS jurisdiction from the U.S. BIS activated this denial order—originally included as a suspended penalty pursuant to a 2021 settlement agreement with USGoBuy that resolved previous alleged violations of the Export Administration Regulations (EAR)—due to USGoBuy’s continued violations of the EAR and failure to address its past compliance failures.
BIS issued an order imposing an administrative penalty on Indiana University (IU) related to exports by IU’s Bloomington Drosophila Stock Center (BDSC). The settlement resolves the allegations set forth in a Proposed Charging Letter (PCL) regarding 42 violations related to the export of fruit flies genetically modified to produce a subunit of a controlled toxin. These exports went to numerous research institutions and universities worldwide without the required export licenses. IU voluntarily disclosed the conduct to BIS, cooperated with the investigation by BIS’s Office of Export Enforcement (OEE), and took remedial measures after discovering the conduct at issue, which resulted in a significant reduction in the penalty.
