Non-U.S.- Based Parties Aren't Exempt From U.S Sanctions and Export Controls

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Mar. 8, 2024
By: Marvin E. McPherson

The Department of Commerce, Treasury, and Justice published another Tri-Seal Compliance Note. This note underscores that foreign-based entities must adhere to applicable U.S. sanctions and export control laws. While not introducing new regulations or altering existing ones, the note stresses the application of these laws to non-U.S.-based parties and highlights recent enforcement actions.

Regarding sanction regulations, the note emphasizes that all U.S. citizens and permanent resident aliens regardless of where they are located, all persons within the United States, and all U.S. incorporated entities and their foreign branches, are subject to sanction laws and enforcement. The note also reminds foreign entities owned or controlled by U.S. persons in certain cases must also comply with sanctions regulations.

After a review of the Export Administration Regulations (EAR), the three agencies used the Compliance Note to warn non-U.S. based parties, that anyone involved in the movement of controlled items are subject to the EAR. The note emphasized the basic principle of the EAR, that anyone involved in the movement of controlled items is subject to the EAR.

U.S. businesses and non-U.S. businesses alike are encouraged to have robust compliance measures in place to avoid violating U.S. sanctions or export control laws. In particular, the note suggest that companies should:

1.      Employ a risk-based approach to sanctions compliance by developing, implementing, and routinely updating a sanctions compliance program. 

2.      Establish strong internal controls and procedures to govern payments and the movement of goods involving affiliates, subsidiaries, agents, or other counterparties. 

3.      Ensure that know-your-customer information (such as passports; phone numbers; nationalities; and countries of residence; incorporation; and operations) 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.  

4.      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.

5.      When compliance issues are identified, take immediate and effective actions to identify and implement, to the extent possible, compensating controls until the root cause of the weakness can be determined and remediated.

6.      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.

7.       Parties who believe that they may have violated sanctions or export control laws should voluntarily self-disclose the conduct to the relevant agency. 

This Compliance Note is a warning to non-U.S.-based parties as well as to U.S. companies structing transactions to avoid or evade U.S. sanctions and export controls. As the Tri -Seal Note suggest, companies should review whether they are subject to U.S. sanctions and export control regulations, and establish a compliance program in order effectively assess future transactions. If you have any questions surrounding the applicability of sanctions or export controls on your company or a particular transaction, please contact any attorney at Barnes Richardson and Colburn.