US aid package increases US sanctions statute of limitations, directs additional sanctions regulations
On April 24, 2024, President Joe Biden signed into law H.R. 815, the National Security Supplemental. In addition to providing defense funding to Ukraine, Israel, and Taiwan, the National Security Supplemental contains several key changes and additions to US sanctions authorities.
The new law is one of the most significant sanctions packages ever passed by Congress, and is part of an ongoing trend to implement and enforce national security and foreign policy objectives through sanctions laws and regulations.
Notably, the National Security Supplemental:
- Increases the statute of limitations applicable to US sanctions penalties for both civil and criminal matters from five to ten years, doubling the enforcement window and recordkeeping and compliance requirements for companies
- Authorizes the President to impose sanctions on Chinese financial institutions involved in the purchase of Iranian oil, as well as other third parties involved in the sale and transport of Iranian energy products
- Authorizes the President to impose sanctions on foreign financial institutions involved in the purchase of Iranian unmanned aerial vehicles
- Provides new authority to impose sanctions on persons who support the Iranian missile program, on Iranian government officials involved in human rights abuses, and on foreign persons and foreign states that provide material support to Hamas
- Authorizes the President to expropriate all Russian sovereign assets subject to US jurisdiction and transfer the assets to funds established for the benefit of Ukraine
- Expands export controls applicable to foreign-produced products intended for Iran by further extending the foreign direct product rule to a broader list of technologies, and
- Requires the President to impose sanctions on non-US persons who engage in certain specified types of criminal behavior, including fentanyl and captagon trafficking, cyberattacks, and acts of terror.
Context
US lawmakers have turned to sanctions as a critical and powerful tool to influence the behavior of foreign persons and countries. For example, since the Russian invasion of Ukraine in February 2022, the US government (via the US Treasury Department Office of Foreign Assets Control, or OFAC) has imposed sanctions on over 2,000 entities connected to or based in Russia pursuant to Executive Order 14024, Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation, and has imposed restrictions on several sectors of Russia’s economy (see more here).
Concurrently, the US government has signaled its willingness to increase enforcement of sanctions violations. For example, in early March, the US Departments of Commerce, Treasury, and Justice published a Tri-Seal Note highlighting the applicability of US sanctions and export controls to non-US entities and the risks of non-compliance (see more here). In 2022, Deputy Attorney General Lisa Monaco called sanctions the “new FCPA” when talking about the level of intensity of US sanctions enforcement. It is within this context that Congress passed, and President Biden signed into law, H.R. 815 on a bipartisan basis.
Change to statute of limitations and report to Congress
A notable change to sanctions enforcement contained in H.R. 815 is the extension of the time period the government has to initiate civil or criminal enforcement action for alleged violations from five years to ten years.
Previously, the statute of limitations ran out five years after the latest date of a violation, which also corresponded to the normal five-year required recordkeeping period. H.R. 815 amends the primary authorizing statutes for economic sanctions regulations, the International Emergency Economic Powers Act and the Trading with the Enemy Act, to create a statutory ten-year statute of limitations.
Accordingly, companies are encouraged to update their record retention policies and procedures to reflect the change to ten years. The change in the statute of limitations will not revive enforcement authority for violations that are already time-barred under the previously existing five-year statute of limitations period, but any violations during the last five years that are not time-barred as of April 24, 2024 will have the extended ten-year period for the initiation of a government enforcement action.
The extended statute of limitations will have numerous significant impacts, including:
- Requiring parties involved in an enforcement matter, through self-reporting or otherwise, to have a longer “look back” period to evaluate past conduct and transactions
- The resulting potential for larger fines and penalties imposed by the government
- Greater due diligence efforts to evaluate risk in mergers or acquisitions, and
- The need to modify existing compliance processes and procedures to items such as record keeping and internal audits.
As a signal of Congress’s focus on the need for additional sanctions enforcement, H.R. 815 instructs OFAC to provide a classified briefing to “appropriate congressional committees” on the agency’s staffing levels, which may be used to inform future decisions about funding OFAC.
New sanctions on Iran and China
H.R. 815 contains several new Iran-related sanctions that specifically target entities in China. Iran is already subject to comprehensive sanctions – meaning US persons (including foreign subsidiaries) are generally prohibited from transacting in or with Iran or Iranian entities. Therefore, the new sanctions primarily target non-US and non-Iranian third parties that facilitate Iran-related transactions, with a particular focus on deterring the financing and shipment of Iranian-origin energy products.
H.R. 815:
- Authorizes the imposition of financial sanctions (including a prohibition of opening or maintaining correspondent accounts or payable-through accounts) on Chinese financial institutions involved in the purchase of Iranian oil
- Instructs the Secretary of State to submit to “appropriate congressional committees” a written strategy on the role of China in Iranian energy-related sanctions evasion, and how to strengthen sanctions enforcement against Chinese entities engaged in sanctions evasion
- Mandates the imposition of sanctions on owners or operators of vessels that conduct a ship-to-ship transfer of Iranian oil, refineries that process Iranian oil, and owners of ports that allow the docking of vessels or ships on OFAC’s Specially Designated Nationals and Blocked Persons List that have been designated for carrying Iranian oil, or ships that knowingly engage in significant transactions involving Iranian oil. The law creates a few exceptions, notably for humanitarian assistance
- Mandates the identification of foreign persons who knowingly engage in any effort to acquire or transfer missile technology to or from Iran, or any person who knowingly provides support to individuals knowingly engaged in such activities, and to impose sanctions on those persons, and
- Mandates a review of existing sanctions on the Supreme Leader of Iran and/or officials in his office, as well as Iranian officials in the Office of the President of Iran, and the imposition of sanctions on them (if such an action has not yet been taken).
New sanctions on persons engaged in certain criminal activities
H.R. 815 contains a number of new authorities delegated to the President to impose sanctions on non-US persons who engage in certain types of criminal behavior, including fentanyl and captagon trafficking, cyberattacks, and acts of terror.
Specifically, the President is authorized to impose sanctions on any:
- Foreign person responsible for significant cyber-enabled activities from outside that US that are reasonably likely to result in or materially contribute to a significant threat to national security or the economic health of the US
- Foreign person who is knowingly involved in significant fentanyl trafficking, or is knowingly involved in a transnational criminal organization that relates to the trafficking of fentanyl
- Foreign person who engages in activities that contribute to the illicit production or proliferation of captagon, or knowingly receives proceeds from illicit production or proliferation of captagon
- Foreign person who knowingly assists in sponsoring acts of terrorism or engages in significant transactions with Hamas or other specifically named Palestinian terror groups (with exceptions for the provision of humanitarian aid), and
- Foreign person that enacts, orders, or takes material steps to carry out any violence against US officials.
Harmonizing US sanctions with EU and UK measures
H.R. 815 also encourages harmonization of US sanctions on Russia with certain EU and UK sanctions (Council Regulation No. 269/2014 of March 17, 2014, as amended, and Russia (Sanctions) (EU Exit) Regulations 2019, as amended). The President must submit to relevant Congressional committees a list identifying foreign persons sanctioned under the aforementioned EU and UK sanctions regimes who are not sanctioned by the US. H.R. 815 gives the President the authority to impose sanctions on those persons that are not already subject to US sanctions.
Analysis
With several new sanctions programs that the President will implement as a result of H.R. 815, US and non-US companies may expect the US government to take a more aggressive posture against potential and actual violations of US laws and regulations. The potential number of new sanctions emphasizes the importance of companies maintaining a thorough sanctions and export control compliance program, including counterparty screening, auditing, and a strong and up-to-date training and compliance structure.
With the government’s jurisdiction to investigate actual or possible violations, as well as impose greater penalties, now broadened under the extended ten-year statute of limitations, companies are encouraged to immediately begin retaining data for the increased ten-year statute of limitations.
DLA Piper has a robust sanctions and export controls practice providing global coverage and deep experience in complex compliance, licensing, and enforcement matters. Find out more about the implications of H.R. 815 for your business and compliance with sanctions and export controls by contacting any of the authors, or any of the partners in the National Security and Global Trade practice:
