Law 360: How Importers Can Minimize FCA Risks Of Tariff Mitigation

Analysis by: Samuel D. Finkelstein, Associate

With the rapid expansion of U.S. tariff policies under the Trump Administration, many businesses are exploring strategies to limit their exposure to tariffs. While tariff mitigation – whether through reassessment of HTSUS classifications, shifting of supply chains to alternate countries, or utilizing the first sale rule – can be lawful if executed correctly, improper tariff mitigation can expose importers to significant liability under the False Claims Act (“FCA”).

The FCA’s qui tam provisions authorize private parties to bring cases on behalf the Federal government against persons make a false claim for payment from, or in the customs duty context, improperly withhold funds owed to, the Federal government. Although the FCA is more commonly associated with false claims for payment from the U.S. government under Federal programs such as Medicare, the FCA has historically been used to prosecute cases of customs duty evasion as well. The FCA is particularly well-suited for customs-related cases, as each inaccurate entry summary filed with CBP can constitute one or more actionable false claims.

Additionally, due the publicly available nature of import data, inside knowledge of a company’s operations is not necessary to identify potential false claims relating to imports. Qui tam FCA cases relating to customs duty evasion may be brought by competitors, current or former employees, or a growing cottage industry of professional whistleblowers who utilize data analytics to identify possible false claims.

In the Expert Analysis published by Law360, Samuel Finkelstein, an Associate at LMD Trade Law PLLC, details the FCA risks that importers face when undertaking tariff mitigation efforts and best practices to minimize these risks.

This analysis can be found in its entirety here.

A PDF of the analysis can be found here.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with LMD Trade Law PLLC or its affiliates.

Client Alert: March 19, 2025

U.S. Export Control Policy: The Bureau of Industry and Security (BIS), U.S. Department of Commerce, is holding its annual BIS Update Conference, March 18-20, 2025, in Washington, DC. Representatives of LMD Trade Law are currently present at the conference, including Samuel Finkelstein.

Given the new Trump Administration and the newly confirmed U.S. Secretary of Commerce, keynote speeches by political appointees were notable for where the Trump Administration’s priorities will be with respect to export controls and foreign policy. Unlike past years where Russia was one of the primary subjects at the Update Conference, remarks at this year’s conference have barely mentioned Russia.

• Addressing the BIS Update Conference, U.S. Secretary of Commerce Howard Lutnick stated that the Trump Administration plans to “dramatically increase” enforcement and penalties for export control violations, emphasizing that the Administration is particularly focused on unlawful exports of advanced technology to the P.R. of China. Secretary Lutnick cited the DeepSeek AI software as an example of gaps in U.S. export enforcement, as he claimed that DeepSeek was developed using unlawfully exported U.S. semiconductors. Casting the U.S.-China relationship as an existential struggle between freedom and communism, Secretary Lutnick warned that companies and individuals engaged in the unlawful export of advanced U.S. technologies to the P.R. of China will face severe enforcement under the Trump Administration.

• Secretary Lutnick also explained that the Trump Administration will seek to incorporate export controls into future trade agreements with U.S. trading partners, in a further attempt to limit China’s access to advanced technologies. In this regard, Secretary Lutnick stated that the U.S. plans to leverage trade agreements as a means of forcing third countries to choose a side between the U.S. and the P.R. of China.

• Echoing Secretary Lutnick’s remarks, Deputy Assistant Secretary for Export Enforcement Kevin Kurland alleged that the P.R. of China abuses commercially available technology in furtherance of its Military-Civil Fusion Strategy, which underscores the need for multi- and plurilateral export controls. Mr. Kurland described technology security as critical to President Trump’s America First Trade Policy and stated the Trump Administration views “technology leakage” as one of the greatest threats to U.S. national security.

• During a panel discussion with representatives from the European Commission and the governments of Japan and South Korea, Mr. Kurland asked pointed questions about the respective panelists’ plans to strengthen export controls on advanced technology in order to counter the P.R. of China. Mr. Kurland also asked the panelists to describe their governments’ export control efforts with respect to Iran. However, absent from this discussion was the question of export controls on Russia.

While the emphasis of U.S. export controls on China is not new, the comments from Secretary Lutnick and Deputy Assistant Secretary Kurland confirmed that the Trump Administration is focused on using export controls as a means of competing with China and will be punishing violators harshly. Companies involved in advanced technology and semiconductors should expect strict enforcement of existing export controls, stiff penalties, as well as further restrictions, which could be issued unilaterally or in the context of trade agreements between the U.S. and its trading partners. After the completion of the regulatory review of the Outbound Investment Security Program (OISP) by the Trump Administration, expected after April 2, 2025, many expect that investment restrictions will also be further tightened.

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. LMD Trade Law PLLC (and its attorneys and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Paying Somali Pirates: How Ransom Payments Can Trigger U.S. Sanctions Compliance Issues

Written by: Chelsea Ellis, Counsel

March 13, 2025

At times serving as a plotline in books and movies, Somali pirate hijackings are nevertheless a real and rising threat to global maritime operators. While international efforts previously curbed piracy in the region, recent reports indicate a resurgence, with hijackings becoming more sophisticated and ransom payment demands increasing.

When a skiff carrying AK-47-toting pirates approaches a vessel, U.S. sanctions implications may not be the first thing that comes to mind. However, as negotiations unfold, it is crucial to consider the legal ramifications of paying a ransom, including potential U.S. sanctions exposure.

This article examines the complexities of Somali piracy, the mechanics of ransom payments, and the legal and regulatory risks that shipowners, insurers, financial institutions and other involved parties must navigate to ensure compliance while safeguarding the lives of the crew onboard.

Origins of Somali Piracy

Piracy in Somalia began following the collapse of the Somali government in the early 1990s and amid an ongoing brutal civil war. After the Somali government collapsed, it became impossible to control what happened on land in Somalia, let alone the sea.

In the early years, Somali pirate operations — generally comprising fishermen, former militiamen and Somali soldiers — were not as sophisticated or lucrative as they can be today.

Pirates would commonly prey on vessels no further than 100 nautical miles off the Somali coast. Therefore, the vessels that were hijacked belonged mostly to Somali fishermen. The pirates would simply board a vessel, steal the valuables on board and be on their way.

Over time, however, pirates began venturing further into international shipping lanes, which made operations more risky but also increased their profits.

Piracy has become normalized in Somalia, and has evolved into an integral multimillion dollar part of the country's shadow economy. The rise of Somali piracy can be attributed to the absence of a centralized government, a widespread economic depression and the lack of legitimate employment opportunities. In many coastal communities, piracy is viewed not as a crime, but as a form of economic survival.

A striking example of the commercialization of Somali piracy operations is the Hobyo- Harardhere piracy network, founded in 2005 by the notorious pirate leader Mohamed Abdi Hassan, also known as Afweyne.

Afweyne transformed Somali piracy operations into a commercial enterprise, drawing in former fishermen and militia, as well as ordinary Somali citizens looking for financial stability. In 2009, Harardhere even created a formal pirate stock exchange, which allowed locals to invest in piracy operations — contributing money, supplies or weapons in exchange for a share of future ransom payments.[1]

A Resurgence

After the 2009 hijacking of the Maersk Alabama, there was a marked increase in the use of armed guards on commercial vessels operating in high-risk areas such as the Horn of Africa. It was the first time since the early 19th century that pirates had hijacked a U.S.-flagged vessel.

The highjacking led to a high-stakes hostage situation that ended when U.S. Navy SEAL snipers killed three of the four pirates and rescued the ship's crew, including its captain, Richard Phillips.

The dramatic events were later depicted in the 2013 film "Captain Phillips", starring Tom Hanks, increasing awareness of the incident. The use of armed guards aboard vessels, rare before the Maersk Alabama hijacking, became a standard practice for shipping companies.

The incident also influenced changes in international maritime law and safety practices. Shipping companies became more accountable for the safety of their crews, which led to increased protective measures. The incident also spurred international efforts, such as the deployment of multinational naval forces to patrol piracy hotspots, that further contributed to the decline in successful hijackings in the region.

After a period of relative dormancy, there has been an uptick in piracy off the Horn of Africa. The International Chamber of Commerce International Maritime Bureau's "Piracy and Armed Robbery Against Ships Report" for 2024 recorded a total of 116 piracy and armed robbery incidents globally, a slight decline from 120 incidents in 2023.[2]

Although there was a global decline, piracy incidents off the coast of Somalia and in the Gulf of Aden saw a resurgence in 2024, with seven reported incidents, including three vessel hijackings, two boardings, one fired-upon case and one attempted attack.

Most recently, on Feb. 19, suspected Somali pirates reportedly seized a Yemeni dhow, a traditional fishing boat, off the town of Eyl, Somalia,[3] just days after another attempted attack on a Yemeni vessel.

Other notable incidents include the hijacking of the Bulgarian-owned MV Ruen in December 2023, rescued after three months by the Indian navy, and the Bangladesh-flagged MV Abdullah in March 2024, which was released a month later, reportedly after a $5 million ransom payment was made.

Another incident occurred in November 2024, when Chinese-owned fishing vessel, LIAO DONG YU 578, owned by Liaoning Daping Fishery Group, was hijacked off Somalia's northeastern coast with a crew of 18 onboard.

The pirates reportedly demanded $10 million in ransom. The vessel was rescued in January, however, it is unclear whether the ransom was paid.[4]

Mechanics of Piracy Ransom Payment

The payment of ransom in Somali piracy hijackings follows a structured and clandestine process, often involving multiple intermediaries, insurance companies and financial institutions. The negotiation and settlement process can take months. In most cases, shipowners, insurers or the employers of the kidnapped crew members ultimately pay the ransom.

Most Somali pirate ransom payments are made in U.S. dollars due to Somalia's partially dollarized economy and widespread mistrust of the Somali shilling, which has been in prolonged collapse with no new banknotes printed since 1991.

Pirate ransom is generally paid in physical cash, delivered via airdrops, boat handovers, or through hawala networks, the informal money transfer systems used to distribute payments across different regions.

Once the ransom is secured, the money is distributed among various stakeholders involved in the operation, e.g., pirate crews, investors, local clan leaders, etc.

U.S. Somalia Sanctions

The U.S. imposed sanctions on Somalia primarily due to its instability, ongoing armed conflict, terrorist activity and maritime piracy, all of which have been deemed threats to U.S. national security and foreign policy interests.

To address these concerns, on April 12, 2010, President Barack Obama issued Executive Order No. 13536 blocking certain property of persons contributing to the Somali conflict. The order was issued under the International Emergency Economic Powers Act, and specifically targets individuals and entities that threaten Somalia's peace, security or stability. Among the threats identified in the order are acts of piracy and armed robbery at sea.

The Somali conflict order prohibits U.S. persons from engaging in transactions with the specially designated nationals named in the order. These SDNs include individuals and entities involved in activities that support piracy, terrorism or broader destabilization efforts.

While the order does not explicitly prohibit ransom payments to Somali pirates who are not SDNs, it does expose entities to potential sanctions risks if a ransom payment is found to have materially assisted, sponsored or provided financial support to a designated person.

Currently, the U.S. Office of Foreign Assets Control has designated 11 individuals and one entity, al-Shabaab, under the order for activities that threaten Somalia's stability, including acts of piracy.

Although Executive Order No. 13536 does not explicitly prohibit ransom payments to all Somali pirates, i.e., those who have not been sanctioned, any payment that directly or indirectly benefits an SDN or a terrorist organization on the SDN list could create U.S. sanctions exposure. The order prohibits the provision of "financial, material, logistical, or technical support" to individuals or groups sanctioned under the order.

• Specifically, the sanctions risk associated with ransom payments hinges on whether the recipients of the payment are:

• SDNs under Executive Order No. 13536 or related U.S. sanctions programs;

• Affiliated with a sanctioned entity, such as al-Shabaab, which is a U.S.-designated terrorist organization; or

• Part of a financial network that benefits sanctioned individuals or entities, even indirectly.

Due to the opaque nature of piracy networks and their financial flows, it is often difficult to ascertain whether a ransom ultimately benefits an SDN or a terrorist group. While many Somali pirates operate independently of al-Shabaab, there have been cases where ransom proceeds were funneled into broader criminal or terrorist networks.[5]

Payment of piracy ransom in U.S. dollars exposes those involved to U.S. sanctions risks, as any payment in U.S. dollars may pass through the U.S. financial system, even if it is routed through foreign intermediaries. This creates a U.S. nexus that places the transaction within OFAC's jurisdiction — subjecting those involved to potential enforcement actions.

U.S. Secondary Sanctions Exposure

While Executive Order No. 13536 does not explicitly impose secondary sanctions, there are certain circumstances where exposure to secondary sanctions could arise, particularly when transactions involve specially designated global terrorists, or SDGTs, such as al-Shabaab.

Under U.S. sanctions programs that include secondary sanctions authorities, OFAC may impose sanctions on foreign persons not subject to U.S. jurisdiction for transacting with sanctioned persons, even if no U.S. nexus is involved — i.e., payment in U.S. dollars, or U.S. persons involved in the transaction.

Al-Shabaab is designated under Executive Order No. 13536, and is an SDGT under Executive Order No. 13224, an executive order issued by President George W. Bush in response to the attacks on Sept. 11 that contains elements of secondary sanctions.

Accordingly, if a non-U.S. person provides material support, financial services or other assistance to al-Shabaab, they could be subject to secondary sanctions under the Bush executive order. If a Somali pirate group involved in the ransom payment has ties to al- Shabaab or shares ransom proceeds with an SDGT, OFAC may impose secondary sanctions on foreign financial institutions determined to have conducted or facilitated any significant transaction with the SDGTs.

Essentially, even if a pirate or group is not explicitly designated in Obama's order, there is still the risk that a ransom payment could indirectly benefit an SDGT.

As a practical matter, parties involved in making a ransom payment should take certain reasonable measures to reduce the risk of violating U.S. sanctions or triggering secondary sanctions risks. These include:

• Conducting open source due diligence on the ransom-payment requester;

• Conducting open source due diligence on the payee's connections to any SDN, financial network, or individuals or entity that may be linked to a terrorist organization or criminal enterprise;

• Procuring the cash from a financial institution that maintain robust anti-money laundering and counterterrorism financing controls;

• Tracking the movement of funds after payment where possible to enable corrective action and mitigate risk if funds are diverted to sanctioned or illicit actors; and

• Notifying OFAC of the proposed transaction and seeking its guidance where appropriate.

Conclusion

The resurgence of Somali piracy in recent years raises complex U.S. sanctions and geopolitical considerations. From a legal perspective, the payment of a ransom to Somali pirates operates in a U.S.-sanctions gray area.

While Executive Order No. 13536 does not explicitly prohibit ransom payments, it does bar transactions with SDNs and SDGTs such as al-Shabaab, creating secondary-sanctions implications for foreign financial institutions. If a ransom payment directly or indirectly benefits a sanctioned entity, companies, shipowners or insurers involved in such transactions could face sanctions enforcement actions from OFAC.

Additionally, given that Somalia's economy is partially dollarized and most ransom payments are made in U.S. dollars, payments potentially implicate U.S. financial institutions and increase compliance risks.

Due to these risks, maritime operators, insurers and financial institutions must exercise extreme caution when navigating ransom payments related to Somali piracy. Enhanced due diligence, strict compliance protocols, and, in certain cases, voluntary notifications to OFAC may serve as risk mitigation strategies.

Law360 have covered this alert. Read the Law360 article here.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with LMD Trade Law PLLC or its affiliates.

[1]   Mathew Laborde, Alternative Investments III: The Pirate Stock Exchange, Georgetown Collegiate Investors (Feb. 7, 2022), https://www.georgetowninvest.com/blog/alternative-investments-iii-the-pirate-stock-exchange.

[2]   International Maritime Bureau, Piracy and Armed Robbery Against Ships: Report for the Period 1 January – 31 December 2024, ICC Commercial Crime Services (Jan. 2025), https://icc-ccs.org/wp-content/uploads/2025/01/2024-Jan-Dec-IMB-Piracy-and- Armed-Robbery-Report-2.pdf.

[3]   Associated Press, Yemeni fishing boat in second recent attack (Feb. 19, 2025), https://apnews.com/article/somalia-piracy-ship-seized-yemen- 85d96bb0f0f2942050d87addbe08e3c0.

[4]   Omar Faruk, China says a fishing vessel hijacked off Somalia with 18 crew aboard has been freed, AP News (Jan. 13, 2025) https://apnews.com/article/somalia-piracy-chinese- fishing-vessel-bd3f39cc51d2fc0b34382885dd37d5d3.

[5]   Reuters, Piracy ransom cash ends up with Somali militants (July 6, 2011),https://www.reuters.com/article/somalia-piracy-idUSLDE7650U320110706/

LMD to Present for AmCham Russia Special Webinar on Sanctions

While the recent diplomatic developments between the U.S. and Russia are positive and have created excitement, the prospect of lifting or relaxing U.S. sanctions on Russia is still unclear and will presumably be complex. Russia is the largest economy that the U.S. has recently sanctioned and it is doubtful that those sanctions will be lifted overnight. What are the mechanisms and methods the U.S. has used in the past to lift or relax sanctions? Will any of those be applicable to Russia sanctions? In particular, LMD Trade Law PLLC, a member of the American Chamber of Commerce in Russia, has experience advising U.S. and western companies and investors in entering or reentering markets when U.S. sanctions were lifted or relaxed in Libya, Myanmar, Iran, Cuba, and North Korea. What can we learn from the past for the potential future? Join us in this timely webinar to learn more from James Min and Chelsea Ellis.

Register here: https://lnkd.in/gM_r_rur

Client Alert: February 25, 2025

America First Investment Policy:  In a February 21, 2025, memorandum, President Trump announced the America First Investment Policy. The Policy calls for reforms to both inbound and outbound investment reviews conducted by CFIUS, with the dual intentions of: (1) preventing U.S. companies and investors from “investing in industries that advance the P.R. of China’s national Military-Civil Fusion strategy;” and (2) restricting “PRC-affiliated persons” from investing in certain critical U.S. industries, including technology, critical infrastructure, healthcare, agriculture, energy, raw materials, and other strategic sectors. According to the America First Investment Policy, the Trump Administration will seek to expand the definition of “emerging and foundational” technologies addressable by CFIUS to include additional technologies deemed to be a risk to U.S. national security.

The Policy seeks to facilitate foreign investment in the U.S. from “key partner countries,” while discouraging investment in U.S. adversaries, by easing restrictions on foreign investment in U.S. companies “in proportion to [the foreign investor’s] verifiable distance and independence from” countries deemed to be U.S. adversaries, specifically (but not limited to) the P.R. of China. The Policy does not define “key partner countries” or “verifiable distance and independence.” It remains to be seen how the America First Investment Policy will be implemented in practice. However, what is clear based on the Policy is that the Trump Administration appears focused on further restricting the flow of investment capital to China as well as the influence of Chinese investment in the U.S., particularly in sensitive industries and emerging technologies.

U.S. Expands Sanctions on Iran: On February 24, 2025, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced additional sanctions targeting Iran’s “shadow fleet,” imposing sanctions on more than 30 persons and vessels alleged to be involved in the sale or transportation of Iranian petroleum products. Included in the sanctions are oil brokers in the UAE and Hong Kong, as well as tanker operators in India and the P.R. of China, and the Iran-based Iranian Oil Terminals Company, among others.

The timing of the Feb. 24 sanctions against Iran’s shadow fleet is noteworthy, as these sanctions were announced on the same day that the EU and UK adopted their own sanctions packages targeting Russia’s shadow fleet. As reported by many in the media, the U.S. and Russia are engaged in diplomatic discussions seeking a resolution to the conflict in Ukraine. Since at least 2022, U.S. sanctions policies towards Russia have largely aligned with those of the EU and UK.  While we can only speculate, the absence of a U.S. response to this week’s EU/UK sanctions against Russia, coupled with OFAC’s instead focus on Iran’s shadow fleet, may be an early indicator of a shift in U.S. sanctions policy aimed at easing tensions with Russia.

U.S. Port Fees on Chinese Vessels: On February 21, 2025, the Office of the U.S. Trade Representative unveiled a Proposal that would impose substantial new “service fees” on Chinese maritime transport operators and Chinese-built vessels entering U.S. ports, as well as vessel operators with prospective orders for Chinese-built vessels.  Under the Proposal, P.R. of China-based maritime transport operators would be assessed a service fee up to $1,000,000 per entrance of any of their vessels into a U.S. port. The Proposal would also impose a service fee of up to $500,000 to $1,500,000 on all maritime transport operators, wherever located, upon entrance of the operator’s Chinese-built vessel to a U.S. port, depending on the percentage of Chinese-built vessels in the operator’s fleet.

Further, the Proposal would impose an additional service fee of up to $1,000,000 on maritime transport operators per port call, based on the percentage of vessels that the operator has ordered from Chinese shipyards relative to non-Chinese shipyards.  The Proposal seeks to bolster American shipbuilding by offering refunds on a calendar year basis for the above fees of up to $1,000,000 per entry into a U.S. port of a U.S.-built vessel. Likewise, the Proposal seeks to promote the maritime export of U.S.-origin goods through U.S. operators, by requiring that a minimum percentage of U.S. goods be exported on U.S.-flagged vessels by U.S. operators. This requirement will be implemented in stages over the next 7 years.

EU Adopts New Russia Sanctions: On February 24, 2025, the European Commission adopted its 16th package of sanctions against Russia, targeting the Russian energy, trade, transport, infrastructure, and financial services sectors. This sanctions package includes 74 vessels alleged to be part of the Russian shadow fleet, as well as additional listings of companies and persons allegedly involved with the Russian military, Russian sanctions circumvention efforts, Russian cryptocurrency exchanges, and the Russian maritime sector.

This EU sanctions package imposes new restrictions on exports of certain dual-use and industrial goods and bans EU imports of Russian primary aluminum. The new EU sanctions prohibit temporary storage of Russian crude oil and petroleum products at EU ports, and prohibit the provision of goods, technology, and services to crude oil projects in Russia. Additionally, under the new EU sanctions, third-country carriers conducting domestic flights within Russia or supplying aviation goods to Russian airlines will not be allowed to fly to the EU. EU construction operators are also banned from providing construction services in Russia. The financial services/banking sector is also included in the new EU sanctions; 13 financial institutions were added to the EU’s list of entities subject to the prohibition on providing specialized financial messaging services to Russian entities, and 3 banks were added to the EU transaction ban due to their use of the Financial Messaging System of the Central Bank of Russia (SPFS).

UK Announces Largest Russia Sanctions Package:  On February 24, 2025, the UK announced its largest package of sanctions against Russia since the conflict in Ukraine began in 2022. The new UK sanctions target the Russian military supply chain, financial institutions, and vessels alleged to be part of Russia’s shadow fleet.  The UK sanctions package largely aligns with the spirit and substance of the EU’s sanctions against Russia announced on the same day. Like the EU sanctions package, the UK sanctions target persons in third countries based on their provision of dual-use technologies and restricted machinery to Russia, as well as ships involved in the transportation of Russian oil, and individuals and entities involved in other critical sectors of the Russian economy. Notably, the new UK sanctions mark the first instance of the UK targeting a foreign financial institution; Kyrgyzstan-based OJSC Keremet Bank, based on the Bank’s involvement “in carrying on business in the Russian financial sector.

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. LMD Trade Law PLLC (and its attorneys and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

5th Circuit Overturns OFAC’s Tornado Cash Sanctions

Insights by T. James Min II and Samuel Finkelstein

December 23, 2024

On November 26, 2024, the U.S. Court of Appeals for the Fifth Circuit struck down the U.S. Department of the Treasury’s August 8, 2022, designation of Tornado Cash on the U.S. sanctions list (“SDN List”).  Tornado Cash is a cryptocurrency mixing service allegedly used to launder illicit funds – $7 billion worth – including $455 million allegedly stolen by the Lazarus Group, a North Korean hacking group.   This court ruling, which limits what can be designated or sanctioned by the U.S. Government, has been hailed as a victory for the crypto industry, and it could also carry implications for the future of OFAC enforcement in a post-Loper Bright reality.

Courts have been notoriously reluctant to question the authority of the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) on matters relating to designations and blocked property. OFAC operates at the intersection of foreign policy and national security; two domains where courts grant much deference to executive agencies. With the demise of Chevron deference, many practitioners have questioned whether even OFAC will face heightened scrutiny in the courts.

James Min and Samuel Finkelstein discuss the ruling and it’s implications in an alert published by Law.com, read the full article here.

LawFuel: New U.S. Government Regulation on Restricted Outbound Investments

Written by: Chelsea Ellis

December 20, 2024

The U.S. Government recently issued final regulations on restricted outbound investments (a.k.a. “Reverse CFIUS”), 31 CFR Part 850, which will go into effect January 2, 2025.   On December 9, 2024, we attended the 2024 Outbound Investment Security Conference in Washington, D.C., where representatives from the U.S. Department of the Treasury, Department of Commerce, and State Department discussed the new CFIUS outbound investment regulations. The discussions focused on jurisdictional elements, covered transactions and excepted transactions,  technical thresholds, the impact on covered technologies, and international collaboration.

…

This article was published by LawFuel and can be found in its entirety here.

CFIUS 2024 Conference Highlights

Written by: Samuel Finkelstein

December 2, 2024

On November 18, 2024, James Min and Samuel Finkelstein attended the CFIUS annual conference in Washington, D.C., where officials from the CFIUS member agencies offered insights into the Committee’s deliberations, suggestions for CFIUS practitioners, and perspectives on the Committee’s direction after the Trump Administration assumes office in 2025.

I. Effective Engagement with CFIUS

CFIUS officials noted that the role of Limited Partners (LPs) in investment funds will continue to be a major focus in its transaction reviews. Generally, CFIUS wants to know who is involved with a fund, and what the fund will gain from the covered transaction. Reluctance to disclose the identities of LPs even if subject to an investors’ confidentiality agreement will complicate transaction reviews and could result in longer processing times or outright rejection.

For shorter review timelines, CFIUS practitioners should provide pertinent information about LPs up front, including: (1) the total number of a fund’s LPs; (2) LP background information; (3) the identities of any LPs who own 5% of more of a fund; and (4) additional information regarding LPs with ties to any countries of concern.

In addition to their identities, officials explained that CFIUS needs to understand the nature of the benefits that could be conferred to investors in a covered transaction, including through side letters. The Committee must assess whether investors could gain access to information that could be used to harm U.S. national security interests, or understanding of a critical emerging technology.

Also emphasized was the importance of technical details in responses to CFIUS. Practitioners should ensure that their responses offer sufficient technical detail to clarify exactly what technology will be made available in a covered transaction and its potential uses. This enables the Committee to consider all of the risks associated with the transaction.

II. Compliance & Enforcement Updates

CFIUS expanded its use of site visits as a means of assessing compliance with National Security Agreements (NSAs) in 2024, and found this to be an effective tool. Moving forward, site visits should be expected at a greater frequency than in the past. During site visits, company staffing levels must appear adequate to support NSA implementation and compliance.

Injunctive relief was also cited as an important tool for enforcing the Committee’s mandate. CFIUS will continue looking to the courts in order to seek specific performance of NSAs in the future.

Officials stressed that monetary penalties are neither inevitable, nor the only tool at CFIUS’s disposal when addressing violations. Violations that are effectively remediated may result in a Determination of Noncompliance Transmittal (DONT) Letter, issued in lieu of other penalties. This is more likely in the case of negligent violations (as opposed to willful), for entities with no history of violations, and where a violation is promptly disclosed and remediated. Violations that warrant monetary penalties were described as those that are not self-disclosed, if the discovery of a violation was mishandled, or where there is a failure to address the violation’s underlying cause.

In disclosing potential violations, the Committee emphasized that speed is of the utmost importance. Rather than waiting until an internal investigation is completed, and instead of drafting the ‘perfect’ disclosure, the Committee prefers to be notified at the earliest discovery of a potential violation and be kept apprised of new developments as an investigation progresses.

III. Proximity & National Security Considerations

With the passage of the Foreign Investment Risk Review Modernization Act of 2018 (FIRMMA), Congress expanded CFIUS’s jurisdiction over real estate transactions. On July 8, 2024, CFIUS issued a Notice of Proposed Rulemaking to further expand its reach over covered real estate. The rules located at 31 CFR Parts 800 and 802 are relevant to real estate transactions, with Part 802 focused exclusively on covered real estate.

Officials discussed how proximity fits into CFIUS’s real estate transaction review process, which focuses on nearby military installations as well as critical non-military infrastructure, such as ports. The Committee considers whether a real estate transaction could pose a threat to such sites, the likelihood of that threat being realized, and what the consequences could be. This review contemplates the intent of the foreign acquirer, whether a foreign government has previously attempted to gather intelligence on nearby military installations or critical infrastructure, and whether the transaction could provide a capability gain to any governments or parties of concern.

With respect to the U.S. Department of Agriculture’s (USDA) role in CFIUS reviews of covered real estate transactions, officials explained that USDA considers the commercial rationale for a transaction’s proximity to sensitive bio-infrastructure, such as farmland, as well as its proximity to transportation networks (i.e., rail lines, etc.) that are used to move food or food products.

IV. Critical Technologies, Infrastructure, and Data (TID)

The 2024 Annual CFIUS Conference also included discussions on the Committee’s work with so-called TID businesses. FIRMMA established mandatory CFIUS filing requirements for controlling and certain non-controlling investments in TID businesses. With the rapid scaling of Artificial Intelligence technology, TID businesses are a major focus for CFIUS.

Officials outlined CFIUS’s reasoning in this area, and stated that some technologies such as biotech or power cells may fall outside the scope of TID but still present concerns to CFIUS. Similarly, novel uses of legacy technologies could result in CFIUS taking issue with a transaction, so practitioners should take care to consider new ways in which old technologies might be used.

For covered transactions involving data centers, officials from the Department of Energy (DOE) explained that DOE is focused on the source of energy that will be used to power the data center. Given recent developments in data center power supply—which have leaned towards developing power stations used exclusively for a given data center—CFIUS is increasingly concerned with the components and vendors used to develop data center power stations. This focus is particularly acute where the data center handles sensitive personal data, including health data, biometrics, genetic or genomic data, non-public electronic communications, geolocation data, and more.

Lastly, officials from the Bureau of Industry and Security (BIS) stated that commodity classifications (ECCNs) are reviewed in relation to covered transactions. This could result in ECCN modification, or the imposition of a BIS licensing requirement in parallel with a CFIUS mitigation action, not necessarily based on the export control regulations. Lastly, it was commented that if an item is considered EAR99, it could still pose national security concerns based on other factors beyond its export classification.

What was evident from the 2024 conference was that CFIUS will continue to be proactive in exercising its authority as well as continuing to issue additional guidance and regulations to further clarify and codify its authority. It was also clear that CFIUS will be increasingly focused on enforcement.

Right to an Attorney: Understanding U.S., EU and UK Sanctions on Legal Services to Russian Persons

Event participation: T. James Min II

July 31, 2024

On July 31, 2024 James Min and others shared insights on U.S. sanctions and restrictions affecting legal services for Russian persons, grounds for special licenses, and practical advice for providing legal services. The webinar was conducted in English with Russian translation.

Webinar Overview

Join an exclusive webinar titled “Right to an Attorney: Understanding U.S., EU and UK Sanctions on Legal Services to Russian Persons”, hosted in collaboration with colleagues from Rimon (USA), RK Partners (Austria), Radcliffe Chambers (UK).

The webinar will address current issues of the right to defense in respect to obtaining legal services in U.S., EU and UK jurisdictions, including:

• sanctions on legal services for Russian persons

• additional restrictions on legal services for designated persons

• grounds for special licenses for legal services

• practical advice for engaging and paying foreign counsel

The webinar will be conducted in English with Russian translation.

2024 Sanctions Risk Management Conference

Event: On June 27, 2024 James Min and Chelsea Ellis spoke at the 2024 Sanctions Risk Management Conference in Almaty, Kazakhstan. The event which was hosted by the Association of Independent Directors of the Republic of Kazakhstan and co-organized with the Kazakh Compliance and Business Ethics Association, Delcredere Law Firm, and Rimon, P.C. addressed sanctions compliance risks for international companies operating in Kazakhstan.

James and Chelsea spoke on the first panel addressing the extraterritorial impact of U.S. sanctions and export control laws on companies operating in Kazakhstan and compliance best practices to address the risks. In addition to James and Chelsea, the conference also featured experts from Kazakhstan, Russia, the EU, and elsewhere to discuss the timely topic surrounding Kazakhstan’s unique role in the sanctions landscape.

For more information or to register, click here: УПРАВЛЕНИЕ САНКЦИОННЫМИ РИСКАМИ В 2024 ГОДУ (timepad.ru)

A Loophole for E-commerce?

A Loophole for E-commerce? De Minimis Customs Entries Are Getting a Bad Rap Despite Compliance Requirements. Let Us Explain.

Written by T. James Min II and Chelsea Ellis

March 20, 2024

I. Introduction

The growth of e-commerce has been undeniable over the past decade, steadily increasing from $1.3 trillion in retail sales in 2013 to $5.8 trillion in 2023 – a 346% increase. This growth is not only attributed to the ubiquitous platforms, e.g., Amazon’s and Alibaba’s of the world, but also to the emergence of new innovative players who are reshaping the e-commerce industry. Predominantly originating from China, new companies such as Shein, Temu, and TikTok (through its TikTok Shop feature) are tapping into the American penchant for fast fashion and more, while navigating anti-China sentiments. Yet, they share a common regulatory approach: utilizing the U.S. de minimis rule, Section 321(a)(2)(C) of the Tariff Act of 1930, 19 U.S.C. § 1321, (the “De Minimis Rule” or “Section 321”) to benefit from the streamlined customs clearance processes exempt from customs duties.

a. De Minimis Entries
Recent data reported by the Wall Street Journal indicates a significant surge in the use of the De Minimis Rule, particularly by e-commerce platforms such as Temu and Shein. The De Minimis Rule allows for the duty-free and less scrutinized entry of packages valued under $800. So far, in fiscal year 2024, at least 485 million shipments entered the U.S. under this provision, marking a notable increase from years prior – 685 million shipments in all fiscal year 2022. The De Minimis Rule has helped facilitate the rapid growth of e-commerce platforms by allowing them to benefit from duty free treatment and less stringent import procedures for lower value goods.

Companies like Temu and Shein have recently drawn attention from lawmakers and regulators for strategically utilizing Section 321. Critics center on the potential to undermine U.S. economic interests, evade tariffs, and possibly circumvent bans on goods allegedly produced with forced labor. However, criticism of the use of the De Minimis Rule is not limited to these recent Chinese targets of political scrutiny nor was the rule established recently just to accommodate cross border e-commerce.

b. Shein And Temu
Shein, which began as a small online apparel company, has evolved into a major global fast fashion enterprise in just a few short years by leveraging aggressive social media campaigning and an innovative supply chain model to offer a massive clothing inventory at competitive prices. Similarly, Temu, owned by PDD Holdings, has recently entered the e-commerce market and has quickly become a formidable competitor for other platforms – boasting over $16 billion in revenue in 2022. Compared with Shein, Temu, which is more akin to Amazon and AliExpress, focuses not only on fast fashion products but also on an array of affordable home goods, amongst many other items.

c. TikTok: Integrating E-Commerce And Social Media
TikTok has integrated e-commerce into its social media platform by creating a digital marketplace that leverages its vast user base (currently over one billion and counting) and engagement metrics. In September 2023, TikTok opened its TikTok Shop feature in the U.S., which allows TikTok users to click and shop as they consume content. Using its new feature, TikTok aims to bring in $17.5 billion in merchandise volume in 2024.

d. The Anti-China Undercurrent
While Shein, Temu, and TikTok have all taken the e-commerce industry by storm, they have not gone unnoticed by U.S. politicians and regulators. An undercurrent of anti-China sentiments which has gripped U.S. history periodically, has seemingly re-emerged, stirring debates over data privacy, intellectual property rights, and broader geopolitical tensions. This sentiment, reflected in the public discourse and legislative actions, highlights the complex interplay between global e-commerce growth and the geopolitical landscape, underscoring the need to understand the challenges and opportunities presented by the rise of Chinese and other e-commerce platforms in the global market.

II. History Of De Minimis Entries

While the growth of e-commerce has highlighted the De Minimis Rule, it is not a new phenomenon. In fact, it has a long history that is part of the era of encouraging free trade and trade facilitation at the global, regional, and bilateral levels.

a. Statutory
The current De Minimis Rule sets the threshold at $800 per day per person, however, the rule originated long ago in 1938 when the de minimis threshold was set at $5. It was raised to $200 by the Customs Modernization Act in 1994 coinciding with the completion of the WTO Uruguay Round. In 2016, Congress raised the de minimis threshold to $800 through the Trade Facilitation and Trade Enforcement Act. The logic behind the De Minimis Rule is that for low-value goods, the customs procedures are overly burdensome for both the importer and Customs, which outweighs potential benefits to the government of revenue collection. It was also meant to streamline the importation process so that Customs can focus on other higher-risk imports.

b. FTAs
In many of the Free Trade Agreements that the U.S. entered into, a de minimis provision was integral to the Customs Chapters of these bilateral trade agreements. For instance, the U.S-Korea Free Trade Agreement, adopted in 2007, contains a de minimis provision under the Customs Chapter at Article 7.7(g) to provide for duty-free clearance for express shipments valued at $200 or less. Other FTAs include similar provisions.

c. WTO Trade Facilitation
More globally, the World Trade Organization (“WTO”), after failing to muster support for the Doha Round, pivoted to completing a Trade Facilitation Agreement (“TFA”), which entered into force in 2017. The WTO supporters of the TFA argued that the implementation of the TFA, which includes de minimis customs clearance, could reduce trade costs by an average of 14.3% and boost global trade by up to $1 trillion per year, with the most significant gains in the poorest countries. The TFA, in Article 8.2(d), provides global rules for customs clearance, including the provision, where possible by WTO members, of a de minimis rule for expedited shipments.

d. Trade Facilitation And Trade Enforcement Act (Increase To $800)
In 2016, with years of lobbying by business interest groups and with momentum building in support of the WTO TFA, Congress passed the Trade Facilitation and Trade Enforcement Act which included a provision to increase the de minimis threshold to $800. Soon after the passage of the law, however, many interest groups with the political wind beginning to turn against e-commerce giants pressured Customs and Border Protection (“CBP”) and others to question the benefits of the De Minimis Rule. However, because Congress had raised the limit by statute, only Congress could reverse the increase of the threshold. Instead, what resulted from this momentum was greater enforcement of the De Minimis Rule’s conditions by CBP. And now, with the headwind growing against Chinese imports into the U.S., compliance with the conditions of the De Minimis Rule is more important than ever for e-commerce companies, logistics companies, and importers.

III. Compliance Requirements For E-Commerce Companies

With the burgeoning growth of e-commerce, CBP also implemented certain pilot projects to receive more data on Section 321 entries while at the same time making it possible to accommodate the e-commerce flow.

a. Test Pilots
In July 2019, CBP announced a voluntary pilot program to collect certain advanced data related to shipments under Section 321. Under the program, participants transmit certain data elements pertaining to these shipments to CBP prior to arrival. Such data can then be used by CBP to better enforce its regulations as well as study what types of data generally not collected previously may be effective in enforcing customs laws. Separately, CBP rolled out a test entry type called Entry Type 86, which allows for Section 321 entries to be filed via the Automated Broker Interface (“ABI”) that customs brokers normally used for formal entries. Type 86 entries also allow for the filing of imports regulated also by other agencies, such as the FDA or Fish & Wildlife Service (“FWS”), that normally could not be done with a manifest clearance.

b. Privileges
Section 321 affords several privileges that benefit e-commerce platforms, logistics companies, and others. These privileges streamline the import process and provide competitive advantages and duty-free treatment to entities utilizing this rule.

1. Manifest Clearance
   The De Minimis Rule allows for manifest clearance, a streamlined customs procedure that permits the clearance of shipments based on the information provided in the shipping manifest, without the need for submitting customs entry documents for each package. This expedited process reduces administrative burdens and accelerates the delivery of goods to consumers, enhancing the efficiency of e-commerce platforms, customs brokers, and logistics service providers that manage high volumes of international shipments.

2. No Duties
   One of the most direct benefits of the De Minimis Rule is the exemption from customs duties for eligible shipments. This exemption reduces the cost for both cross border e-commerce platforms and consumers, enabling competitive pricing and broader market access for a wide range of products. This privilege plays a crucial role in fostering a diverse and dynamic e-commerce ecosystem by lowering the financial barriers to entry for small and medium-sized enterprises.

3. Nominal Consignees/IOR
   The De Minimis Rule permits shipments to be addressed to nominal consignees (e.g., carriers, freight forwarders, and express consignment operators), thus allowing them to be the importer of record (“IOR”). Nominal consignees can make customs entries (declarations) on their behalf. In contrast, for formal entries (declarations), U.S. customs law generally allows only a party with a financial interest or legal title to the goods to qualify as an IOR. This flexibility is particularly advantageous for B2C platforms that facilitate direct-to-consumer shipping from international suppliers, simplifying the import process and reducing compliance complexities for individual buyers. Under the test Type 86 Entries, a license customs broker can also serve as the IOR if authorized with a power of attorney by the owner, importer or consignee.

IV. Compliance Requirements/Needs

Section 321 entries offer significant advantages for e-commerce and other imports valued under $800, but they come with specific compliance requirements and considerations. These rules are essential for entities looking to benefit from Section 321 treatment while ensuring adherence to U.S. customs regulations.

a. Discretion Of The CBP Port Director
The application of the De Minimis Rule is subject to the discretion of the CBP Port Director at the point of entry. This means that the Port Director has the authority to deny de minimis status to shipments if there are concerns about compliance with U.S. laws and regulations or if the shipments are suspected of evading duties and taxes. Entities must be prepared for the possibility that their shipments could be subject to additional scrutiny or denied the benefits of the de minimis provision based on the judgment of the CBP officials or if the rules are not followed.

b. One Person/One Day
Currently, Section 321 treatment is available for aggregate shipments collectively valued at or below $800. Under the De Minimis Rule, one person may import multiple shipments on one day so long as the aggregate fair market value of the shipments does not exceed $800. If any single shipment imported that day exceeds the $800 ceiling, then none of the shipments imported that day may be entered under Section 321. This rule applies regardless of the port of arrival. Compliance with this rule requires careful planning and coordination of shipments to ensure that the total value of goods imported by one person does not surpass the set limit within a single day. It is also important that importers do not undervalue shipments to qualify for the De Minimis Rule as it is not only a violation of Section 321, but can also incur penalties for violating customs valuation regulations.

c. IPR Still Enforceable
Intellectual Property Rights (“IPR”) enforcement remains a critical aspect of customs regulation, regardless of if the goods entered the U.S. using the De Minimis Rule. Shipments that violate IPR laws, such as counterfeit goods, are subject to seizure and penalties, even if they fall below the $800 threshold. In Fiscal Year 2023, CBP and Homeland Security Investigations (“HSI”) seized 19,522 shipments containing counterfeit goods, totaling nearly 23 million items, with an estimated genuine value of over $2.41 billion. Additionally, in 2023, ICE-HSI made 434 arrests, secured 327 indictments, and received 206 convictions for IPR-related crimes. CBP alleged that goods from China remained the primary source economy for counterfeit and pirated goods seized, accounting for a total estimated MSRP value of over $1.48 billion. Accordingly, Chinese companies may need to anticipate increased scrutiny of their entries, potentially more so than those from other countries.

A recent seizure by CBP at the Port of Louisville exemplifies the risks associated with the misuse of the De Minimis Rule to introduce illicit goods into the United States. In March 2024, CBP intercepted a shipment valued under the de minimis threshold, ostensibly to benefit from duty-free treatment. The shipments, originating from Hong Kong, contained 35 Richard Mille counterfeit designer watches and was destined for a residence in Puerto Rico. Despite its low declared value, the items were inauthentic and would have had a combined MSRP of over $11.7 million had they been genuine. This incident serves as a stark reminder that the De Minimis Rule does not exempt shipments from compliance with IPR.

d. Other Government Agencies’ Rules Still Enforceable
The De Minimis Rule does not exempt certain imported goods from other agencies’ regulatory authority and requirements, such as for tobacco products, alcohol, and goods subject to import quotas. Enforcement against goods subject to Withhold Release Orders (“WRO”) for forced labor or those subject to the Uyghur Forced Labor Prevention Action (“UFLPA”) would not be exempt just because of the value of the goods. Data transmission requirements for other government agencies, such as FDA or FWS, are still required.

e. Section 301, But Not AD/CVD
While Section 321 entries can be utilized for goods subject to Section 301 tariffs (also known as China tariffs), they cannot be used for goods subject to anti-dumping/countervailing duties. This is an important point because the IOR is legally responsible for AD/CVD duties, but due to the significant financial exposure, it can often lead to litigation by IORs seeking to recoup the AD/CVD duties from other parties involved in the importation, including e-commerce platforms.

f. Ultimate Consignees
An additional compliance requirement for Section 301 imports is the issue of who qualifies as and is listed as the ultimate consignee, which is not always the same as the IOR. This requirement has been a cause of enforcement actions by CBP against e-commerce companies. Customs provided guidance on who can qualify as the ultimate consignee in a Customs Directive that can be complex and fact-based. Generally, the ultimate consignee is the party in the U.S. that the goods were sold to by the overseas shipper. However, if the imported goods have not been sold at the time of importation, the consignee in the U.S. where the goods will be delivered can be listed as the ultimate consignee. In any case, it is important to review the guidance and ensure compliance with it.

V. Conclusion

In the post-Covid world, where online orders and e-commerce have become almost a daily necessity for many, the business opportunities for B2C and B2B sellers and service providers will likely not decrease. The convergence of technological advancements and enhanced logistics capabilities are providing great opportunities for businesses and consumers alike. With the increase of the U.S. de minimis threshold to $800 (which is higher than allowed by most countries) and given Americans’ voracious consumerism, the business opportunities for cross border e-commerce will likely continue to increase. However, given political and regulatory pressures, it is important for e-commerce and logistics service providers to know the rules surrounding Section 321 entries and to implement strong regulatory compliance measures to reduce their business and operational risks.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with LMD Trade Law, PLLC. or its affiliates.

The U.S. Government Publishes An Updated List of Critical and Emerging Technologies (CETs): Impact on CFIUS and Export Controls?

Insight by: T. James Min II

March 5, 2024

In February 2024, the U.S. National Science and Technology Council (“NSTC”) and its Fast Track Action Subcommittee on Critical Emerging Technologies updated the previous 2022 Critical and Emerging Technologies (CETs) List.  The first update in two years is instructive in identifying the CETs that the U.S. Government is focused on for national security concerns.

The NSTC established the Fast Track Action Subcommittee in 2020 to identify critical and emerging technologies to inform national security-related activities across the U.S. Government. This updated list expands upon the original CET list and the February 2022 update by identifying subfields for each CET.

The updated list identifies 18 CET areas listed below. Though not a strategy document, this updated CET list informs government-wide and agency-specific efforts concerning U.S. technological competitiveness and national security. While the list does not have direct regulatory impact on the Committee on Foreign Investment in the United States (CFIUS) or the Export Administration Regulations (“EAR”), the list is still instructive in what areas of technology CFIUS or BIS may focus on in the future or in current enforcement efforts.  For example, we may see more activity by CFIUS in terms of non-notification investigations in these CET areas.  We may also see more placement of certain technologies on the below list in future updates to the Commerce Control List.

Regardless, as one contemplates receiving foreign investments in U.S. businesses, the list may serve as a useful reference. The updated 2024 CET List includes these 18 areas:

• Advanced Computing

  1. Advanced Engineering Materials

  2. Advanced Gas Turbine Engine Technologies

  3. Advanced and Networked Sensing and Signature Management

  4. Advanced Manufacturing

  5. Artificial Intelligence

  6. Biotechnologies

  7. Clean Energy Generation and Storage

  8. Data Privacy, Data Security, and Cybersecurity Technologies

  9. Directed Energy

  10. Highly Automated, Autonomous, and Uncrewed Systems (UxS), and Robotics

  11. Human-Machine Interfaces

  12. Hypersonics

  13. Integrated Communication and Networking Technologies

  14. Positioning, Navigation, and Timing (PNT) Technologies

  15. Quantum Information and Enabling Technologies

  16. Semiconductors and Microelectronics

  17. Space Technologies and Systems

To generate this updated CET list, it was stated that the Office of Science and Technology Policy (OSTP) facilitated an extensive interagency deliberative process through the National Science and Technology Council (NSTC) and in coordination with the National Security Council (NSC). The responsible NSTC subcommittee included subject matter experts from 18 departments, agencies, and offices in the Executive Office of the President, who identified CET subfields that their organizations determined may be critical to U.S. national security. As such, this updated CET list reflects an interagency consensus.

Each identified CET area includes a set of key subfields that describe its scope in more detail:

• Advanced Computing

  • Advanced supercomputing, including for AI applications

  • Edge computing and devices

  • Advanced cloud services

  • High-performance data storage and data centers

  • Advanced computing architectures

  • Advanced modeling and simulation

  • Data processing and analysis techniques

  • Spatial computing

• Advanced Engineering Materials

  • Materials by design and material genomics

  • Materials with novel properties to include substantial improvements to existing properties

  • Novel and emerging techniques for material property characterization and lifecycle assessment

• Advanced Gas Turbine Engine Technologies

  • Aerospace, maritime, and industrial development and production technologies

  • Full-authority digital engine control, hot-section manufacturing, and associated technologies

• Advanced and Networked Sending and Signature Managment

  ItePayloads, sensors, and instruments

  • Sensor processing and data fusion

  • Adaptive optics

  • Remote sensing of the Earth

  • Geophysical sensing

  • Signature management

  • Detection and characterization of pathogens and of chemical, biological, radiological and nuclear weapons and materials

  • Transportation-sector sensing

  • Security-sector sensing

  • Health-sector sensing

  • Energy-sector sensing

  • Manufacturing-sector sensing

  • Building-sector sensing

  • Environmental-sector sensing

• Advanced Manufacturing

  • Advanced additive manufacturing

  • Advanced manufacturing technologies and techniques including those supporting clean, sustainable, and smart manufacturing, nanomanufacturing, lightweight metal manufacturing, and product and material recovery

• Artificial Intelligence (AI)

  • Machine learning

  • Deep learning

  • Reinforcement learning

  • Sensory perception and recognition

  • AI assurance and assessment techniques

  • Foundation models

  • Generative AI systems, multimodal and large language models

  • Synthetic data approaches for training, tuning, and testing

  • Planning, reasoning, and decision making

  • Technologies for improving AI safety, trust, security, and responsible use

• Biotechnologies

  • Novel synthetic biology including nucleic acid, genome, epigenome, and protein synthesis and engineering, including design tools

  • Multi-omics and other biometrology, bioinformatics, computational biology, predictive modeling, and analytical tools for functional phenotypes

  • Engineering of sub-cellular, multicellular, and multi-scale systems

  • Cell-free systems and technologies

  • Engineering of viral and viral delivery systems

  • Biotic/abiotic interfaces

  • Biomanufacturing and bioprocessing technologies

• Clean Energy Generation and Storage

  • Renewable generation

  • Renewable and sustainable chemistries, fuels, and feedstocks

  • Nuclear energy systems

  • Fusion energy

  • Energy storage

  • Electric and hybrid engines

  • Batteries

  • Grid integration technologies

  • Energy-efficiency technologies

  • Carbon management technologies

• Data Privacy, Data Security, and Cybersecurity Technologies

  • Distributed ledger technologies

  • Digital assets

  • Digital payment technologies

  • Digital identity technologies, biometrics, and associated infrastructure

  • Communications and network security

  • Privacy-enhancing technologies

  • Technologies for data fusion and improving data interoperability, privacy, and security

  • Distributed confidential computing

  • Computing supply chain security

  • Security and privacy technologies in augmented reality/virtual reality

• Directed Energy

  • Lasers

  • High-power microwaves

  • Particle beams

• Highly Automated, Autonomous, and Uncrewed Systems (UxS), and Robotics

  • Surface

  • Air

  • Maritime

  • Space

  • Supporting digital infrastructure, including High Definition (HD) maps

  • Autonomous command and control

• Human-Machine Interfaces

  • Augmented reality

  • Virtual reality

  • Human-machine teaming

  • Neurotechnologies

• Hypersonics

  • Propulsion

  • Aerodynamics and control

  • Materials, structures, and manufacturing

  • Detection, tracking, characterization, and defense

  • Testing

• Integrated Communication and Networking Technologies

  • Radio-frequency (RF) and mixed-signal circuits, antennas, filters, and components

  • Spectrum management and sensing technologies

  • Future generation wireless networks

  • Optical links and fiber technologies

  • Terrestrial/undersea cables

  • Satellite-based and stratospheric communications

  • Delay-tolerant networking

  • Mesh networks/infrastructure independent communication technologies

  • Software-defined networking and radios

  • Modern data exchange techniques

  • Adaptive network controls

  • Resilient and adaptive waveforms

• Positioning, Navigation, and Timing (PNT) Technologies

  • Diversified PNT-enabling technologies for users and systems in airborne, space-based, terrestrial, subterranean, and underwater settings

  • Interference, jamming, and spoofing detection technologies, algorithms, analytics, and networked monitoring systems

  • Disruption/denial-resisting and hardening technologies

• Quantum Information and Enabling Technologies

  • Quantum computing

  • Materials, isotopes, and fabrication techniques for quantum devices

  • Quantum sensing

  • Quantum communications and networking

  • Supporting systems

• Semiconductors and Microelectronics

  • Design and electronic design automation tools

  • Manufacturing process technologies and manufacturing equipment

  • Beyond complementary metal-oxide-semiconductor (CMOS) technology

  • Heterogeneous integration and advanced packaging

  • Specialized/tailored hardware components for artificial intelligence, natural and hostile radiation environments, RF and optical components, high-power devices, and other critical applications

  • Novel materials for advanced microelectronics

  • Microelectromechanical systems (MEMS) and Nanoelectromechanical systems (NEMS)

  • Novel architectures for non-Von Neumann computing

• Space Technologies and Systems

  • In-space servicing, assembly, and manufacturing as well as enabling technologies

  • Technology enablers for cost-effective on-demand, and reusable space launch systems

  • Technologies that enable access to and use of cislunar space and/or novel orbits

  • Sensors and data analysis tools for space-based observations

  • Space propulsion

  • Advanced space vehicle power generation

  • Novel space vehicle thermal management

  • Crewed spaceflight enablers

  • Resilient and path-diverse space communication systems, networks, and ground stations

  • Space launch, range, and safety technologies

The sensitivities of foreign investment in the U.S. technology and other sectors do not appear to be dissipating. It will be important for investors, businesses, and legal counsels to continue to be diligent in considering national security concerns in their transactions that deal with critical and emerging technologies.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with LMD Trade Law PLLC or its affiliates.

The U.S. Announces New Sanctions and Export Controls on Russia

Following Alexei Navalny’s Death and on the Second Anniversary of the Russia-Ukraine Conflict

Insight by: T. James Min II and Chelsea Ellis

February 23, 2024

On February 23, 2024, the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury, imposed new sanctions on Russia targeting nearly 300 individuals and entities on the SDN list (now totaling over 2,000) and the Bureau of Industry and Security, U.S. Department of Commerce, designated additional 93 entities to the Entity List (which now include over 900 Russia related entities). While sanctions on Russia have been ongoing in some form since 2014, these new designations are symbolically significant in terms of its timing: second anniversary of the Ukraine-Russia military conflict and the recent death of Alexey Navalny.  These new U.S. measures also coincide with the U.K. and the EU who also announced new measures this week.

Given that sanctions on Russia are already quite expansive, what is the significance of these new designations of entities and persons who include many non-Russian companies and persons from China, Germany, Serbia, UAE, and elsewhere?

• Focus on cutting off Russia’s military industrial complex from funds, technology services, and goods. Many of the new designations to target the Russian military industrial complex include companies in Russia and elsewhere involved with the UAV industry, electronics, software, metals manufacturing, power supply, IT, and logistics. The BIS Entity List designations also include designation of over 50 entities as Military End Users, which has very strict U.S. export control restrictions.

• Focus on Russia’s manufacturing base. Many of the new designations include Russian and other companies in the additive manufacturing (3D printing); machine tools, lubricants and industrial chemicals, semiconductor and electronics, industrial automation, optics, navigational instruments, aerospace, etc.

• Focus on limiting the Russian financial infrastructure. New measures include many regional banks that are not top banks in Russia as well as venture capital and investment funds. However, OFAC did issue several new General Licenses (General Licenses 88, 89, 90, and 91) authorizing transactions related to the divestment and winding-down of transactions involving certain blocked entities, including new Russian banks that were newly designated.

• Focus on third country companies and persons who are working with targeted Russia sectors or entities. New OFAC sanctions designations include companies in China, Serbia, UAE, Kyrgyzstan, Iran, Germany, and Liechtenstein. New Entity List additions include eight companies in the People’s Republic of China, sixteen in Turkiye, four in the United Arab Emirates (UAE), two in the Kyrgyz Republic, and one each in India and South Korea who will now be cut off from U.S. origin goods, software and technologies.

• Designation of additional vessels and their owners alleged to have violated the Russian oil price cap policy, although General Licenses related to these blocked parties were also issued.

What do all these new measures mean from a practical standpoint?

• The new measures of adding hundreds of new SDNs and over 90 on the Entity List widens the preexisting restrictions on Russia but it did not create any new material change to the Russia sanctions or export controls regime. In fact, so many companies have de-risked from Russia that in many cases, these designations are symbolic in nature.

• However, it does mean that U.S. persons and now more than ever, non-US companies, need to continue to conduct effective due diligence to ensure that they are not transacting with entities outside of Russia that may be owned at least 50% or more by sanctioned persons or entities (which by operation of law means they are also sanctioned).

• Persons exporting goods and technology to third countries other than Russia need to have strong and robust export control compliance programs and measures to ensure that their goods and technologies will not be diverted to Russia for use in sanctioned sectors or by sanctioned entities.

  • Robust due diligence, KYC, end use statements, etc. will continue to be important but there is no one single solution that will be fail safe.

• Even if you are not a U.S. person or business, now it is clear that non-US persons and entities are exposed to secondary sanctions if transacting with targeted Russian sectors and entities.

  • The highest risk area appears to those related to Russia’s military-industrial base.

  • OFAC has also published in the new SDN designations that many of the new SDNs are explicitly subject to U.S. secondary sanctions.

  • Non-U.S. companies need to adopt compliance measures that will protect it from U.S. secondary sanctions risks as well as not violating U.S. export control laws. This means that non-US companies need to incorporate U.S. standard compliance measures when it comes to Russia sanctions, export controls, and the oil price cap policy.

While these new designations do not materially or substantively alter the preexisting Russia sanctions and export controls regimes it does widen the net of persons and entities that are restricted for U.S. persons and now even for non-US persons. Companies will need to continue to strengthen their due diligence, KYC and compliance measures to mitigate their risks in international business so that their products and services do not unintentionally end up in the sanctions targeted sectors of the Russian economy as well.

Law360 have covered this alert. Read the Law360 article here.

The U.S. Broadens and Clarifies Sanctions Regulations for Humanitarian Work in North Korea

Insight by: T. James Min II

February 16, 2024

On February 15, 2024, the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury published revisions to the North Korea Sanctions Regulations (“NKSR”, 31 CFR Part 510), which were long overdue to assist humanitarian organizations, non-governmental organizations (“NGOs”) and news media to utilize the appropriate sanctions exemptions. Before North Korea closed its borders in response to the Covid-19 pandemic, many NGO’s expressed frustration at the regulatory ambiguity as well as the administrative cost of complying with the NKSR.

The new revisions, in particular, to 31 CFR §. 510.512, provide greater clarity and maneuverability for humanitarian groups and other NGOs. So, what are the major changes to NKSR from the previous version? Below are the major highlights:

• Unlike the previous 31 CFR 510.512 which only authorized the export of services by the NGOs, the new section authorizes “all transactions…that are ordinarily incident and necessary to the activities” listed in the NGO section of the NKSR.

  1. The NGO activities authorized under the NKSR were enlarged to now include educational activities at the primary and secondary schools as long as they do not involve math, science, technology, engineering, and computer programming. Thus, arguably, certain medical, business or English training may be authorized.

  2. The NGO activities authorized under the NKSR now includes “activities to support disarmament, demobilization, and reintegration (DDR) programs and peacebuilding, conflict prevention, and conflict resolution programs.” These are what many know as Track 2 engagement between North Koreans and U.S. scholars and policy analysts. One no longer needs to get a license from OFAC for such programs as long as the reporting requirements discussed later and any other legal requirements are fulfilled.

  3. Previously, any partnership or partnership agreement with the Government of North Korea, the Korean Workers Party or instrumentalities thereof required NGOs to obtain a specific license from OFAC. After years of complaints by the NGO community, it appears OFAC has narrowed this requirement by only prohibiting partnerships with any military, intelligence or law enforcement entities, although partnership with such entities is also authorized to the extent necessary to export or import items to or from North Korea that are licensed or authorized under the NKSR or EAR.  So now, partnership with, for example, the Ministry of Public Health would not require an OFAC license to dispense medical aid.

  4. Another significant change is that unlike the previous NKSR, U.S. NGOs can procure beyond just food and medicine in third countries to export to North Korea. It now permits NGOs to procure agricultural commodities, medicine, medical devices and spare parts that would be classifiable as EAR99 (in other words, not dual-use goods) and not a luxury good.  In the past only food and medicine could be purchased in third countries and sent to North Korea without an OFAC license, but now the categories are broader. Unlike the past NKSR, OFAC also defined agricultural commodities, medicine, medical devices and spare parts in the NKSR.

  5. While NKSR is broader and clearer in its authorizations, it does add a new reporting mechanism that shifts some regulatory oversight to the U.S. State Department. Any NGO relying on the NGO regulatory authorizations must submit a report to the State Department at least 30 days prior to the activity by emailing a copy of the UN Security Council (“UNSC”) 1718 Committee exemption or why the activity does not fall under the UNSC sanctions restrictions. If the UN exemption is pending or is not needed, additional information must be provided to the State Department. The State Department will have 2 weeks to notify a NGO that 31 CFR 510.512(a) authorization for NGOs does not apply and thus cannot proceed with the activity.

  6. Lastly, the new NKSR adds a general license for journalistic activities which exist in other U.S. sanctions programs such as for Cuba, Syria, or Russia.

With these welcomed changes, what are the key takeaways for NGOs and others active with North Korea?

• NGOs can now procure from a broader list of non-US origin commodities in third countries that fall within the definition of agricultural commodities, medicine, medical devices and spare parts to be shipped to North Korea without needing an OFAC license. However, NGOs will need to ensure that the items fall within those definitions and would be classifiable as EAR99 if U.S. origin.  Beyond those commodities, an OFAC license would still be required.  Furthermore, just because OFAC exempts them does not mean that you do not have to obtain the UNSC 1718 Committee Humanitarian Exemption for items such as machinery that may also be a medical device subject to UNSC sanctions or a water drilling machine made of steel.

  1. NGOs no longer need an OFAC license to partner with the Government of North Korea or the Korean Workers Party to conduct humanitarian activities unless they are part of the military, intelligence or law enforcement entities. Even with those entities, partnering with them only for exporting or importing items that are authorized by the regulations or licenses do not require an OFAC license. This still avoids OFAC providing a regulatory definition of a “partnership” in the context of NKSR, but practically reduces the need for such a definition by the NGOs.

  2. Generally, NGOs also no longer need an OFAC license to hold Track 2 meetings with North Koreans on authorized topics such as DDR as long as other conditions are met, such as reporting to the State Department at least 30 days prior.

  3. NKSR exemption for NGOs now authorizes more than just the export of services, but includes all transactions ordinarily incident and necessary to the authorized NGO activities. This presumably could include transacting with Air Koryo which is a SDN to get to Pyongyang, which was not clear in the past.

  4. Luxury goods ban and the need to obtain BIS licenses for U.S. origin goods (other than for food and medicine) still apply.

  5. While the new regulatory revisions appear to lock in development projects as authorized (and not just for basic human needs), it is unclear what statutory authority the State Department has in interpreting OFAC regulations as it relates to whether an NGO’s activity qualifies for the 31 CFR 510.512(b) list of activities in the reporting process. Hopefully, objections will occur only in blatant cases and it will confer with OFAC. Regardless, it raises interesting legal questions and gives the State Department a more prominent role in the sanctions compliance process.

  6. The restriction on the use of U.S. passports to travel to North Korea and the need to obtain a Special Validated Passport (SVP) for humanitarian assistance activities still remain.

  7. De-risking by financial institutions, logistics providers, and other service providers will probably not be impacted by these changes because commercial realities often override regulatory authorizations.

In conclusion, these changes to the NKSR are helpful for NGOs to be able to carry out their activities in or with North Korea. It provides more flexibility, greater clarity, and a broader scope of authorized activities. However, there is now more reporting requirements and submission of information to the U.S. Government for NGO activities. News agencies also will not need to obtain specific licenses from OFAC.  Better late than never, but we will have to see the practical impact or benefits of these changes given North Korea’s pivot away from the U.S. humanitarian community in recent years and with its continued border restrictions.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with LMD Trade Law PLLC or its affiliates.