This Week in Sanctions & Export Controls for the week ending 7 January 2024

Here are the five most important things that happened during the preceding week in sanctions and export controls.

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1. United States beneficial ownership reporting requirements went live on 1 January 2024. The requirements were enacted in 2021 in the Corporate Transparency Act (CTA) (H.R. 6395). Reporting companies created or registered to do business in the United States before 1 January 2024 must file by 1 January 2025. Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective. Companies must only report once or if their ownership changes. The CTA and regulations enacted to enforce the statute provide for U.S. intra-agency sharing of reported information and sharing of such information with U.S.-registered banks. In addition to other purposes, reported information will be used to enforce sanctions.
2. On the heels of the European Union’s 2023 diamond sanctions in new Article 3p of Council Regulation (EU) 833/2014 (as amended by Council Regulation (EU) 2023/2878), the European Council designated Russian diamond giant PJSC Alrosa and its CEO Pavel Alekseevich Marinychev. While Article 3p contains numerous wind-down exemptions, the designations indirectly cut against these exemptions by making it illegal to deal with PJSC Alrosa.
3. A U.S. federal court sentenced U.S.-based charity NuDay, a/k/a NuDay Syria to five years criminal probation and a $25,000 fine for intentionally failing to file proper export information relating to its shipments of humanitarian aid to Syria by claiming the end destination of the shipments was Turkey and under-valuing the items to avoid threshold reporting requirements. Oddly, had the company simply reported the shipments, they’d have been lawful.
4. The U.S. Department of Commerce’s Bureau of Industry & Security published interim final rules on frequently asked questions relating to recent updates to the Export Administration Regulations controlling export of semiconductor manufacturing equipment, advanced computing items, and supercomputers (mostly at 15 C.F.R. Section 744.23). On a related note, the U.S. Department of State’s Directorate of Defense Trade Controls also updated its penalty matrix for civil violations of the International Trafficking in Arms Regulations (ITAR). Additional, mostly technical, tweaks to ITAR are expected early this year.
5. The 2024 U.S. National Defense Authorization Act — enacted every year in December to authorize U.S. defense and related foreign policy activities — contained notably fewer sanctions-related provisions relative to prior years. It’s only notable sanctions provision, though, is worth highlighting. Section 5405 provides that a classified list of corruption-prone countries is to be provided by the President to Congress and that regular reports are to be submitted to Congress detailing sanctions imposed against persons and entities in those countries. The statute does not require specific action, but rather is intended to put pressure on the Executive to use sanctions as punishment for international corruption.

Comments

I’m often asked at the end of each year what I think the next year will bring in sanctions and export controls. While I avoid making crystal ball predictions in this field given the fickle and unpredictable nature of international affairs, here are a few developments I anticipate will materialize in some form in 2024.

Sanctions and export controls enforcement will (finally) begin to take shape in European Union capitals, though will remain far behind the United States in assertiveness and maturity. However, with the European Union’s directive on harmonization of criminal penalties for sanctions violations coming in to force before the spring thaw, (most) EU member state prosecution agencies will be buzzing with initiative. While the directive is a clear step in the right direction, as was the case with data privacy sanctions enforcement, the EU will continue to stagnate across member states until a regulation is enacted — and, perhaps, a centralised (or semi-centralized) enforcement mechanism is created. I have for some time advocated a construct similar to EU competition law enforcement.

Notwithstanding enforcement initiative in the EU, dissent among member states on Russia sanctions will continue to play out, perhaps with more bellicosity. It is no secret that some member states lack the will to untether their economies from Russia and others are governed by Russia allies. EU sanctions on Russia are or are about to reach their consensus apex. Expect future packages to be increasingly lacking.

That said, the U.S. and European Union (along with Great Britain and others) will continue to align further on Iran. Soon — if not already — gone are the days of European Union distaste with the U.S.’s JCPOA withdraw and the blocking regulation. The former is no longer feasible as a policy and the latter is contradictory to the EU’s own emerging approach to sanctions against Iran.

Related to Iran, both the U.S. and EU (again, along with Great Britain and others) will aggressively target the finance networks of Hamas, Hezbollah, the Houthis and other Iran proxies and allies.

Last, high-tech export controls on China will not grow much. 2023 saw extensive updates to dual use laws in response to evidence that the Chinese government was leveraging Western technology to buttress its military capacities. Focus will now turn to ensuring new regulations enacted in 2023 are enforced. The Chinese government, however, may want to focus on fundamentals in its military. Corruption and incompetence appear to be rampant.

Did I miss something? Have suggestions? Feel free to comment below.