USA: An Introduction to USA

Export Controls and Economic Sanctions: Safeguarding U.S. National Security and Trade 

International trade is shaped by export controls and sanctions, which are regulatory measures implemented by governments to safeguard and promote national security, foreign policy, and economic objectives. These regulations impact how businesses operate internationally, shaping the flow of capital, goods, technology, and services. Some of the current economic, legal, and political trends and developments affecting international trade include the following:

China and Technology Exports 

The US-China trade relationship remains strained, with ongoing disputes over technology transfers, intellectual property, and market access. The US continues to tighten export controls on technology destined for China, particularly those related to semiconductors, artificial intelligence, and quantum computing (eg, the Implementation of Additional Export Controls: Certain Advanced Computing and Semiconductor Manufacturing Items; Supercomputer and Semiconductor End Use; Entity List Modification). These measures aim to prevent Chinese firms from gaining access to technologies that could enhance military capabilities. Additionally, numerous Chinese companies remain on the U.S. Bureau of Industry and Security’s (BIS) Entity List, restricting their access to US technology and other goods.

Russia and Ukraine Conflict 

In response to the conflict in Ukraine, the US imposed extensive sanctions on Russia. Sanctions may take various forms, including blocking assets; restricting trade and investment, including the provision of certain services, with certain individuals, entities, sectors, and regions; denying visas; and imposing export controls on dual-use and non-dual-use products destined for Russia and Belarus. Since 2022, these sanctions have included:

(a) barring new US investment in Russia and transactions related to Russian sovereign debt;

(b) restricting the import of energy, gold, certain diamonds and metals, and certain other goods from Russia;

(c) prohibiting the export of luxury goods and certain services to Russia; and

(d) imposing export controls affecting Russia’s access to sensitive or desired US-origin goods and technology.

These sanctions target a wide range of sectors and include measures against Russian oligarchs and government officials. Sanctions against Russia continue to affect businesses with interests in or ties to Russian entities.

International Coordination 

The US is working more closely with allies, including the Five Eyes (E5) Countries and the Global Export Controls Coalition, to impose and enforce sanctions. Although these countries’ sanctions and export controls have overlapping components, the regimes are not identical across all jurisdictions. The US is also meeting monthly with its E5 and G7 partners to exchange information about Russian diversion tactics to identify end-use check targets and enforcement leads. Such multilateral efforts enhance the effectiveness of sanctions and export controls but also require businesses to navigate a more complex regulatory landscape.

Expansion of Extraterritorial Application 

US authorities are expanding the extraterritorial application of U.S. sanctions and export control regulations. For example, BIS has expanded its extraterritorial jurisdiction through foreign direct product rules (eg, Russia FDP Rule) and new licensing requirements on exports, reexports, or transfers (in-country) of all items “subject to the EAR” when certain categories of blocked persons are parties to the transaction. BIS, the Department of Justice (DOJ), and the Office of Foreign Assets Control (OFAC) released a Tri-Seal Compliance Note on March 6, 2024, highlighting that non-US persons may have export controls and sanctions licensing obligations under US law, even if operating wholly offshore. Moreover, OFAC has taken a more expansive view of the types of conduct that create a US nexus requiring even foreign affiliates to comply with US sanctions. Infrastructure in the U.S. used to support a transaction (eg, servers, systems) or the use of US dollars can be sufficient, even if no US persons are involved. Foreign-based companies and individuals should consider whether US sanctions and export control laws may apply to their business.

Stricter Enforcement 

Enforcement actions by US authorities are increasing, emphasising the need for strict compliance by businesses. US authorities, including BIS, DOJ, and OFAC, are actively pursuing violations, with penalties for non-compliance. For example, OFAC’s enforcement actions in 2023 generated civil monetary penalties and settlement amounts totaling over USD1.5 billion. In 2023, BIS had its highest number of convictions, temporary denial orders, and post-conviction denial orders ever and the largest standalone penalty in BIS history: USD300 million. BIS has also increased enforcement of antiboycott regulations. This trend underscores the importance of robust compliance programs that can adapt to evolving regulations and enforcement priorities.

Longer Statute of Limitation for Certain Sanctions Programs 

Two key national security laws—the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) —now have ten-year civil and criminal statutes of limitations, rather than five. As a result, the statute of limitations under most of OFAC’s sanctions programs is now ten years. This includes the Belarus, Cuba, Iran, North Korea, Russia, and Syria sanctions. Companies should consider addressing the extended statute of limitations in their recordkeeping, internal audit policies and procedures, acquisition-related due diligence, and pending disclosures or enforcement actions.

Screening Expectations Continue to Evolve 

Geolocation tools (ie, IP blocking software) have become an essential element of a sanctions compliance program. Companies should also consider all known information about a customer or counterparty (eg, information entered in free text boxes), not just standard screening fields like name and address.

Navigating the complex regulatory environment of export controls and economic sanctions presents challenges for businesses:

Complex Compliance Requirements: The intricate web of regulations can be daunting, particularly for businesses without dedicated compliance teams. To overcome this, businesses should invest in comprehensive compliance programs that include a commitment to compliance beginning with senior management, regular training, internal audits, and real-time monitoring of regulatory changes. Utilising legal and compliance experts can provide valuable guidance and ensure adherence to the latest regulations.

Supply Chain Disruptions: Sanctions and export controls can lead to significant disruptions in global supply chains, affecting the availability of critical components and raw materials. Businesses can mitigate these risks by diversifying their supplier base and maintaining flexible supply chain strategies. Developing contingency plans and fostering strong relationships with alternative suppliers can help manage these disruptions.

Technological Controls: Increased scrutiny on technology exports requires businesses to stay ahead of regulatory changes. Regularly updating compliance programs and conducting thorough risk assessments can ensure that businesses remain compliant.

Enforcement Actions: The rise in enforcement actions means higher risks of penalties for non-compliance. Businesses should adopt a proactive approach to compliance, including regular internal reviews and external audits. Transparent communication with regulatory authorities and prompt resolution of any compliance issues can mitigate the risk of enforcement actions.

The landscape of export controls and economic sanctions in the United States is continually evolving, influenced by economic, legal, and political changes. Businesses engaged in international trade must navigate a complex regulatory framework shaped by technological advancements, geopolitical shifts, and new legislation. By staying informed and adopting proactive compliance measures, businesses can effectively manage these challenges and continue to thrive in the global marketplace.