New Tri-Seal Compliance Note highlights sanctions and export control compliance expectations for non-U.S. persons.

TAKEAWAYS

• Three agencies overseeing U.S. trade law compliance provided an overview of where U.S. sanctions and export control laws can apply to non-U.S. persons.
• The note emphasizes that U.S. agencies tasked with overseeing compliance with sanctions and export controls are proactive in targeting offenders anywhere in the world.
• The note offers compliance recommendations for non-U.S. persons.

On March 6, 2024, the U.S. Department of Justice (DOJ), U.S. Department of Commerce, and U.S. Department of the Treasury issued a Tri-Seal Compliance Note (the “Tri-Seal Note”) emphasizing the obligations of non-U.S. persons to comply with U.S. sanctions and export control laws. The Tri-Seal Note does not issue any new rules or regulations, but rather reiterates existing U.S. trade compliance obligations for non-U.S. persons, highlights recent enforcement actions, and provides recommendations to help mitigate risks.

This is another in a series of communications and guidance documents from combinations of U.S. agencies with responsibility for national security, trade, and anti-money laundering laws and bearing their respective “seals.” This most recent note reflects a coordinated effort from the three agencies to remind non-U.S. companies of their compliance obligations under U.S. sanctions and export control laws. The Tri-Seal Note also signals the U.S. government’s readiness to continue to take enforcement action against non-U.S. persons for non-compliance.

U.S. Sanctions
The Tri-Seal Note provides an overview of the application of U.S. sanctions laws to non-U.S. persons. Office of Foreign Assets Sanctions (OFAC) primary sanctions regulations apply to “U.S. persons,” which include U.S. citizens, permanent residents and certain categories of refugees and asylees wherever located, all persons or property within the United States, and all U.S.-incorporated entities and their foreign branches. Under the OFAC sanctions programs for Cuba and Iran, primary sanctions jurisdiction also applies to foreign subsidiaries of U.S. companies.

Non-U.S. persons can be in direct violation of U.S. primary sanctions by evading, conspiring to violate, or causing U.S. persons to violate sanctions rules. This includes, for example, when a non-U.S. person:

• Obscures or omits reference to the involvement of a sanctioned party or jurisdiction in the documentation of a financial transaction involving a U.S. person or clearing through a U.S. bank;
• Misleads a U.S. person into exporting goods ultimately destined for a sanctioned jurisdiction; or
• Routes a forbidden transaction through the United States or the U.S. financial system, thereby causing a U.S. financial institution to process the payment in violation of OFAC sanctions.

The Tri-Seal Note highlights recent enforcement actions by OFAC against non-U.S. persons for the conduct described above.

In contrast to primary sanctions, secondary sanctions refer to transactions that take place outside of U.S. primary sanctions jurisdiction. Secondary sanctions are not automatic and require a policy decision by U.S. officials to affirmatively apply a sanctions designation or other secondary sanctions penalty. The potential for non-U.S. persons to be impacted by both primary and secondary sanctions underlines the importance of maintaining well-equipped compliance programs.

Violations of OFAC primary sanctions may lead to civil or criminal penalties. Civil penalties are subject to strict liability, meaning that a person may be held civilly liable even if such person did not know or have reason to know that it was engaging in a transaction that was prohibited under OFAC sanctions. Criminal penalties can apply and are pursued by the DOJ, as discussed below.

U.S. Export Controls
The Tri-Seal Note highlights how, in contrast to other nations’ export regulations that typically apply only to direct exports from that jurisdiction, U.S. export control jurisdiction follows the goods themselves, regardless of their location (and potentially through multiple subsequent reexports or transfers).

Of relevance to non-U.S. persons, the U.S. Export Administration Regulations (EAR) apply to:

• Reexports (the shipment or transmission of an item subject to the EAR from one foreign country to another foreign country); and
• In-country transfers (the transfer of an item subject to the EAR within the same foreign country).

In addition to U.S.-origin items, the EAR apply to non-U.S. made goods that:

• Incorporate a certain percentage of controlled U.S. content (also known as the de minimis rule); or
• Are produced from certain U.S. software, technology or production equipment (pursuant to a foreign direct product rule (FDPR)).

The Tri-Seal Note emphasizes that U.S. export control laws apply globally to anyone involved in transactions concerning items subject to the EAR. Attempts to circumvent these regulations by routing items through third countries or changing the end user or end use of an item are prohibited.

Criminal Enforcement against Foreign Persons and Entities
The DOJ has the authority to prosecute criminal offenses for willful breaches of U.S. sanctions and export control laws, which can result in a maximum penalty of imprisonment of up to 20 years and a fine of up to $1 million. The Tri-Seal Note provides various examples, including the 2023 guilty plea of Binance Holdings Limited for violations of U.S. sanctions laws among other offenses, resulting in a $4.3 billion penalty.

Enforcement Impact
The Tri-Seal Note emphasizes that U.S. agencies tasked with overseeing compliance with sanctions and export controls are proactive in targeting offenders. The reach of U.S. sanctions and export control laws to non-U.S. persons can be based on various jurisdictional touchpoints. Companies operating internationally are encouraged to actively review and update their compliance measures to mitigate their exposure to risk.

In particular, the Tri-Seal Note provides the following compliance recommendations for non-U.S. persons:

• Develop, implement and regularly update a risk-based sanctions compliance program.
• Establish robust internal controls and procedures for payments and the movement of goods involving affiliates, subsidiaries, agents or other parties to detect linkages with sanctioned entities.
• Integrate know-your-customer information and geolocation data into compliance screening protocols, updating them regularly based on risk assessment and customer ratings.
• Ensure subsidiaries and affiliates are trained on U.S. sanctions and export controls and can identify red flags, with mechanisms in place for reporting prohibited conduct to management.
• Act promptly and effectively upon identifying compliance issues, implementing compensating controls until root causes are determined and remediated.
• Mitigate sanctions and export control risks before merging with or acquiring other enterprises, particularly in cases of rapid expansion or integration of disparate IT systems.
• Encourage self-disclosure of potential violations to relevant agencies, following guidelines outlined in a previous Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations.

[View source.]