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On March 6, 2024, the U.S. Departments of Commerce, Treasury,
and Justice issued a Tri-Seal Compliance Note (“Note”)
warning non-U.S. persons of the risks of violating U.S. sanctions
and export control laws.1
The Note follows previous tri-seal compliance notes focused on
voluntary self-disclosure policy and the use of third-party
intermediaries for sanctions evasion and reflects enhanced
interagency cooperation on enforcement of sanctions and export
controls.2
The Note does not impose any new legal obligations or amend
existing laws.
Application of U.S. Sanction Laws to Non-U.S. Persons
All “U.S. persons” must comply with U.S. sanction laws
wherever located. “U.S. persons” are United States
citizens, permanent resident aliens, entities organized under the
laws of the United States including their foreign branches and
subsidiaries and all persons located in the United States. In
certain sanctions programs, including Iran, Cuba and North Korea,
foreign entities owned or controlled by U.S. persons also must
comply with U.S. sanction laws.
However, the Note warns that non-U.S. persons are also subject
to sanctions prohibitions.3 “Non-U.S. persons are
prohibited from causing or conspiring to cause U.S. persons to
wittingly or unwittingly violate U.S. sanctions, as well as from
engaging in conduct that evades U.S.
sanctions.”4
The Note provides examples of activities by non-U.S. persons
that constitute violation of U.S. sanctions, including where a
non-U.S. person:
- “Obscures or omits reference to the involvement of a
sanctioned party or jurisdiction to a financial transaction
involving a U.S. person in transaction documentation; - Misleads a U.S. person into exporting goods ultimately destined
for a sanctioned jurisdiction; or - Routes a prohibited 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.”5
OFAC may use its enforcement authorities against U.S. and
non-U.S. persons who violate applicable sanctions prohibitions.
OFAC’s authority to enforce prohibitions against non-U.S.
persons is distinct from its authority to impose sanctions on
non-U.S. persons.
Application of U.S. Export Controls to Non-U.S. Persons
The U.S. Department of Commerce’s Bureau of Industry and
Security (“BIS”) administers and enforces U.S. export
controls contained in the Export Administration Regulations
(“EAR”). All items of U.S. origin, items physically
located in the United States as well as items produced outside the
United States that incorporate a certain percentage of U.S.-origin
components or produced using U.S. technology or software are
subject to the EAR wherever located in the world. Such items are
“subject to the EAR.”6
The Note stresses the extraterritorial application of the EAR
and the types of transactions that the regulations cover, which are
exports, reexports (transfer from one foreign country to another
foreign country) and transfer within a foreign country of all items
subject to the EAR.7
Criminal Penalties
For willful violation of U.S. sanctions and export control laws,
the Department of Justice (“DOJ”) can impose significant
criminal penalties including imprisonment of up to 20 years and a
fine of $1 million.8
How Non-U.S. Persons Can Comply with U.S. Sanctions and Export
Controls
The Note recommends measures for non-U.S. persons to remain
compliant with U.S. sanctions and export control laws,
including:
- “Employ a risk-based approach to sanctions compliance by
developing, implementing, and routinely updating a sanctions
compliance program. - Establish strong internal controls and procedures to govern
payments and the movement of goods involving affiliates,
subsidiaries, agents, or other counterparties to detect linkages to
sanctioned persons or jurisdictions that may otherwise be obscured
by complex payment and invoicing arrangements. - Ensure that know-your-customer information and geolocation data
are appropriately integrated into compliance screening protocols
and information is updated on an ongoing basis based on its overall
risk assessment and specific customer risk rating. - Ensure that subsidiaries and affiliates are trained on U.S.
sanctions and export controls requirements, can effectively
identify red flags, and are empowered to escalate and report
prohibited conduct to management. - Take immediate and effective action when compliance issues are
identified, to the extent possible, to identify and implement
compensating controls until the root cause of the weakness can be
determined and remediated. - Identify and implement measures to mitigate sanctions and
export control risks prior to merging with or acquiring other
enterprises, especially where a company is expanding rapidly and/or
disparate information technology systems and databases are being
integrated across multiple entities. - Parties who believe that they may have violated sanctions or
export control laws should voluntarily self-disclose the conduct to
the relevant agency.”9
Conclusion
The Note’s emphasis on extraterritorial application of U.S.
sanctions and export controls highlights risks for non-U.S. persons
operating in global commerce. Non-U.S. persons are strongly advised
to establish extensive internal screening and due-diligence systems
and employ a risk-based approach to remain compliant with U.S.
sanctions and export control laws.
Footnotes
1. Department of Commerce, Department of
the Treasury, and Department of Justice Tri-Seal Compliance Note,
“Obligations of foreign-based persons to comply with U.S.
sanctions and export control laws” (March 6, 2024), available
at: https://ofac.treasury.gov/media/932746/download?inline.
2. Department of Commerce, Department of
the Treasury, and Department of Justice Tri-Seal Compliance Note,
“Cracking Down on Third-Party Intermediaries Used to Evade
Russia-Related Sanctions and Export Controls” (March 2, 2023),
available at: https://ofac.treasury.gov/media/931471/download?inline;
Department of Commerce, Department of the Treasury, and Department
of Justice Tri-Seal Compliance Note, “Voluntary
Self-Disclosure of Potential Violations” (July 26, 2023),
available at: https://ofac.treasury.gov/media/932036/download?inline.
3. Tri-Seal Compliance Note,
supra note 1, at 2.
4. Id.
5. Tri-Seal Compliance Note,
supra note 1, at 3.
6. 15 C.F.R. 734.3.
7. Tri-Seal Compliance Note,
supra note 1, at 4-5.
8. 50 U.S.C. 1705(c); 50 U.S.C.
4819(b).
9. Tri-Seal Compliance Note,
supra note 1, at 10.
Originally published March 20, 2024
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