On March 6, 2024, the US Department of Commerce, Department of the Treasury, and Department of Justice jointly published a Tri-Seal Compliance Note regarding “Obligations of Foreign-Based Persons to Comply with U.S. Sanctions and Export Control Laws.”

The Compliance Note highlights the applicability of US sanctions and export controls to individuals and entities outside the United States who are not citizens, permanent residents, or entities organized under the laws of the United States or their foreign branches (“non-US persons”), and the civil and criminal enforcement mechanisms available to the US government to hold non-US persons accountable for violations. It also provides compliance process recommendations, focusing on a risk-based approach, consistent with prior agency guidance from the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and from the Department of Commerce’s Bureau of Industry and Security (BIS).

The Compliance Note does not impose any new legal obligations. Nor does it modify the jurisdictional scope or reach of any US sanctions or export controls. It does, however, underscore the wide range of situations in which non-US persons may be required to comply with US sanctions or export controls.  The Compliance Note makes clear that the US authorities expect non-US persons to identify when US sanctions or export controls are applicable to them and to comply with applicable prohibitions. The Compliance Note also makes clear that the US authorities are prepared to utilize their civil, administrative, and criminal enforcement powers.

Sanctions

OFAC, which enforces and administers most US sanctions programs, can impose sanctions on non-US persons for engaging in specified conduct, deceptive transactions, dealings that circumvent OFAC sanctions programs, or other transactions and activities that support designated persons or sanctionable activities. The emphasis of the Compliance Note, however, is on OFAC’s enforcement powers against non-U.S. persons, as distinct from its sanctions designation powers.  While most OFAC sanctions prohibitions apply to US persons and, under certain conditions, non-US persons owned or controlled by US persons, the Compliance Note provides some examples of situations in which non-US persons may violate US sanctions prohibitions. These include when a non-US person obscures or omits references to sanctioned parties in financial transactions that involve a US person, misleads a US person into exporting items ultimately destined for a sanctioned jurisdiction, or routes a prohibited transaction through the US financial system. The Compliance Note provides several recent examples of such enforcement actions against non-US persons for “causing” sanctions violations.  

Export Controls

The Compliance Note discusses the wide scope and reach of the Export Administration Regulations (EAR). In contrast to what the Compliance Note describes as the more limited export controls of other countries, most prohibitions under the EAR apply to transactions or activities that involve an item “subject to the EAR” – which includes not only US-origin items, but also certain foreign-made items – irrespective of whether the transaction involves a US person.  Accordingly, the Compliance Note emphasizes that any person “involved in the movement of items subject to the EAR must adhere to US export control laws”: the EAR, unlike many other countries’ export controls, applies to not only “direct” exports (i.e., from the US to another country), but also to re-exports (from one foreign country to another) and transfers (from one end user or end use to another within the same country) of such items.  Non-US persons can be subject not only to monetary penalties or criminal enforcement for violations of the EAR, but can also be made subject to denial orders prohibiting them from receiving any items subject to the EAR, or services relating to such items, without authorization from BIS. As it does with sanctions enforcement cases against non-US persons, the Compliance Note also summarizes export controls enforcement cases against non-US persons.  

Lastly, the Compliance Note presents several key compliance considerations for non-US persons engaged in global trade. While the Compliance Note does not, itself, have the force of law, it stresses that non-US persons “must ensure that they have robust compliance measures in place to avoid violating US sanctions or export control laws.”  This includes taking a risk-based approach to designing, implementing and updating a sanctions and export controls compliance program; establishing strong internal controls and procedures; integrating know-your-customer and geolocation data into compliance screening; training subsidiaries and affiliates to understand relevant regulations and identify red flags; and taking immediate and effective action when issues are identified.  The Compliance Note also recommends considering sanctions and export controls as part of mergers and acquisitions and reiterates the US authorities’ longstanding push for voluntary self-disclosures of apparent violations.