In today’s dynamic global marketplace, businesses worldwide are capitalizing on cross-border trade to drive economic growth. However, certain entities exploit commercial and financial channels, posing threats to national security and global stability.
The United States has increased enforcement with robust sanctions and export control measures to safeguard its financial and commercial systems, extending to foreign-based companies and exposing them to legal ramifications for violations.
Applicability of U.S. Sanctions and Export Control Laws
The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions, primarily targeting foreign jurisdictions, regimes, and individuals involved in nefarious activities. These sanctions can take various forms, including blocking assets and prohibiting transactions with sanctioned entities.
Importantly, non-U.S. persons are also subject to certain OFAC prohibitions, including engaging in conduct that evades U.S. sanctions. Violations of OFAC regulations can result in civil or criminal penalties, highlighting the broad reach and stringent enforcement of U.S. export laws.
U.S. Export Control Laws
While many companies around the world are familiar with the far reach of the International Traffic in Arms Regulations (ITAR), they also need to be aware that the Bureau of Industry and Security (BIS) administers export controls on dual-use and certain munitions items through the Export Administration Regulations (EAR). Unlike in many other countries, U.S. export control laws extend jurisdiction globally, applying to items subject to the EAR or ITAR anywhere in the world and to foreign persons dealing with them.
For example, the BIS actively enforces U.S. export control laws, prohibiting attempts to bypass regulations through third-country shipments or changes in end use or end user. Foreign companies manufacturing items containing U.S.-origin components or software are also subject to EAR regulations, emphasizing the extraterritorial reach of U.S. export laws.
Compliance
In a recent statement, the Biden Administration underscored the critical importance of compliance with U.S. export laws and regulations for global companies. Non-U.S. entities must be vigilant in understanding how their activities may implicate U.S. sanctions and export control laws to mitigate the risk of legal exposure.
Foreign-based companies and U.S. companies alike must prioritize compliance with U.S. sanctions and export control laws by:
- Developing, updating, and implementing a risk-based sanctions compliance program.
- Establishing robust internal controls to monitor payments and goods movement involving affiliates, subsidiaries, agents, or counterparties.
- Integrating know-your-customer information and geolocation data into compliance screening protocols and updating them regularly.
- Providing comprehensive training on U.S. sanctions and export controls to subsidiaries and affiliates.
- Taking immediate action to address compliance issues and implementing compensating controls as needed.
- Mitigating sanctions and export control risks before merging with or acquiring other enterprises, especially when integrating disparate IT systems.
- Voluntarily self-disclosing potential violations to the relevant agency if compliance issues arise.
At S Massie Consulting, we specialize in helping companies navigate the complexities of global trade regulations and ensure compliance with U.S. export laws. Contact us today for personalized assistance in understanding and adhering to these crucial regulations.
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Examples of Recent Enforcement Actions Against Foreign Persons
OFAC actively pursues enforcement actions against foreign entities and individuals involved in sanctions violations, such as:
- Toll Holdings Limited agreed to pay $6,131,855 for 2,958 apparent violations involving shipments to sanctioned jurisdictions like North Korea, Iran, and Syria, causing U.S. financial institutions to transact with blocked persons.
- Alfa Laval Middle East Ltd. settled for $415,695 due to violations involving false documentation to export goods to Iran, causing indirect exports from the U.S. to Iran.
- Swedbank Latvia AS agreed to pay $3,430,900 for 386 apparent violations of OFAC sanctions on Crimea, involving transactions from a sanctioned jurisdiction through U.S. correspondent banks.
- On February 23rd, 2025, OFAC sanctioned almost 300 individuals and entities under the Russian Harmful Foreign Activities Sanctions program. They were largely concentrated in Russia’s military-industrial and financial sectors, and 26 persons were in third countries that OFAC determined to be “facilitators” to sanctions evasion.
BIS enforcement actions involving foreign companies or foreign-produced items include:
- Aratos Group and its president, Nikolaos Bogonikolos, faced a Temporary Denial Order (TDO) for acting as a procurement network for Russian intelligence services. The TDO not only cuts off their export privileges from the U.S. but also the right to receive or participate in exports from the United States or reexports of items subject to the EAR.
- BIS imposed expansive controls on aviation-related items to Russia in response to the invasion of Ukraine. Several foreign airlines, including Nordwind Airlines, Siberian Airlines, and Ural Airlines, violated these controls, resulting in TDOs.
- Seagate Technology LLC and Seagate Singapore International Headquarters Pte. Ltd. settled for a record $300 million penalty for shipping millions of hard disk drives to Huawei without a license, violating the Huawei Foreign Direct Product Rule (FDPR). Additionally, a suspended five-year denial order was issued against Seagate.
Criminal Enforcement Against Foreign Persons
The Department of Justice (DOJ) is authorized to bring criminal prosecutions against foreign-based actors for willful violations of U.S. sanctions and export control laws. Violations of either statute are punishable by imprisonment of up to 20 years and significant fines.
In recent months, the DOJ has brought charges against multiple foreign-based actors for allegedly seeking to unlawfully transfer U.S.-manufactured technology to prohibited destinations:
- In October 2022, three Latvian nationals and others were indicted for attempting to smuggle a dual-use grinding machine from the U.S. to Russia without proper licensing. The scheme involved false representations to officials. Two defendants pleaded guilty, and approximately $826,000 was forfeited. In February 2024, around $500,000 of the forfeited funds were transferred to the Estonian government.
- In December 2023, an Iran-based person and an individual from China and Hong Kong were indicted for illegally purchasing and exporting dual-use microelectronics from the U.S. to Iran via Canada, France, and Hong Kong. False information was provided about the end use and end users.
- In November 2023, Binance Holdings Limited pleaded guilty to violations of U.S. sanctions laws. Binance failed to implement controls to prevent trades between U.S. users and users in sanctioned jurisdictions, resulting in nearly $900 million in trades. Binance agreed to a $4.3 billion financial penalty and a settlement of $968,618,825 for 1,667,153 apparent violations of multiple sanctions programs.
Sources:
“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,” 6 March 2024.
“OFAC Announces Hundreds of Russia-related Sanctions to Mark the Second Anniversary of the Invasion of Ukraine,” Miller & Chevalier, Trade Compliance Flash, 12 March 2024.
