Sanctions, Export Controls Actions Offer Road Map to Enforcement Trends

The third quarter of 2020 saw significant economic sanctions and export controls developments out of the Departments of Commerce and Treasury. In this article for Bloomberg Law, Kirkland & Ellis attorneys Mario Mancuso, Sanjay Mullick, Anthony Rapa and Abigail Cotterill discuss these actions and how they may be impacted by the election, or instead may represent more durable policy trends.

Several key developments regarding economic sanctions and export controls involving China, Cuba, Nicaragua, and Venezuela occurred during the third quarter.

Below we highlight key actions and the potential impact of the presidential election:

• Further sanctions directed at China’s activities in Hong Kong and the Xinjiang region, along with additional rounds of export controls on Huawei, demonstrate the sustained focus on restricting trade with China, which may continue irrespective of presidential administration.
• The identification of six additional “emerging technologies” subject to U.S. export controls represents a sustained bipartisan focus on protecting advanced technologies based on national security concerns, which is likely to continue under either a Democratic or a Republican administration.
• Further restrictions on travel to and imports from Cuba under the longstanding U.S. embargo, while consistent with the Trump administration’s stricter stance on Cuba, may be subject to easing or other change should a Democratic administration come into office in January 2021.
• Corruption-related sanctions focused on members of the Ortega and Maduro regimes in Nicaragua and Venezuela signal the continued interconnectivity between U.S. sanctions policy and global anti-corruption efforts, though a Democratic administration otherwise may revisit policy in this area.

Hong Kong-Related Sanctions

On July 14, President Trump signed an executive order (EO 13936) on “Hong Kong Normalization” in response to China’s implementation of the Hong Kong National Security Law, which the U.S. viewed as curtailing Hong Kong’s autonomy.

In addition to eliminating Hong Kong’s preferential status under U.S. export controls, EO 13936 authorizes sanctions against individuals or entities involved in implementing the new national security law or undermining democratic processes in Hong Kong, as well as secondary sanctions on those who materially assist, sponsor, or provide financial or other support to designated parties.

On Aug. 7, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated 11 Hong Kong senior government officials, including Hong Kong Chief Executive Carrie Lam and Hong Kong Police Commissioner Chris Tang. On Sept. 25, OFAC published guidance confirming that designations of individual government officials do not subject the designated official’s government ministry to sanctions, although direct engagement with the designated official is restricted.

Xinjiang-Related Sanctions

On July 9, OFAC sanctioned the Xinjiang Public Security Bureau and four current or former Chinese Communist Party members connected to human rights abuses of the Uyghur and Muslim populations in the Xinjiang region. On July 20, the Department of Commerce, Bureau of Industry and Security (BIS) added 11 Xinjiang-related Chinese entities to its Entity List.

The designations followed a July 1 U.S. government advisory, which recommended that companies with supply chain connections to business or labor from Xinjiang perform human rights-related due diligence to avoid providing goods and services to entities there engaged in surveillance, and importation of products made using forced labor.

Further Restrictions on Huawei Technologies

On Aug. 17, BIS expanded restrictions with respect to Huawei and its affiliates on the Entity List (Huawei Entities) by amending the “foreign direct product” rule to apply to a broad range of transactions involving non-U.S. items based on U.S. technology. BIS also expanded the Entity List prohibitions to apply where Huawei is involved as a party in the transaction, even if not specifically its recipient or end user.

The final rule is a further step in shutting down the Huawei Entities’ access to U.S. technology, particularly related to semiconductors.

‘Emerging Technologies’ Controls

On Oct. 5, BIS finalized new export controls over six “emerging technologies,” consistent with the Export Control Reform Act of 2018 and in multilateral coordination with Wassenaar Arrangement members.

The emerging technologies now subject to controls include certain forensic hacking tools, surveillance software, machine tools that feature additive manufacturing (i.e., 3D printing) capabilities, software for extreme ultraviolet lithography used in microprocessor chip production, silicon wafer production technology for 5-nanometer chips, and suborbital craft.

These items are now subject to national security-based licensing requirements, including for exports to China and Russia, and are considered “critical technologies” for purposes of review by the Committee on Foreign Investment in the U.S.

Removal of Travel-Related General Licenses for Cuba

On Sept. 23, OFAC further amended the Cuban Assets Control Regulations (CACR), reflecting the Trump administration’s focus on prohibiting many dealings with Cuba that were previously authorized. OFAC removed prior authorization for persons subject to U.S. jurisdiction to attend or organize professional meetings in Cuba, or participate in events such as public performances and athletic events in Cuba.

OFAC also imposed new restrictions on the import of Cuban-origin alcohol or tobacco products for personal use. In addition, the State Department issued a Cuba Prohibited Accommodations List, and OFAC prohibited persons subject to U.S. jurisdiction from lodging, paying for lodging, or making reservations at places on that list.

Corruption-Related Sanctions: Venezuela and Nicaragua
On July 17 and July 23, OFAC designated individuals with close ties to President Daniel Ortega in Nicaragua and President Nicolas Maduro in Venezuela, based on their involvement in corrupt activities in those respective countries.

Such designations further demonstrate OFAC’s intent to use economic sanctions to isolate these targets from the U.S. financial system and to penalize corrupt actors who contravene international norms.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information
Mario Mancuso is a partner at Kirkland & Ellis and leads the firm’s International Trade and National Security practice. A former member of the president’s national security team, he specializes in guiding private equity sponsors and companies through the CFIUS process and resolving crises involving economic sanctions and export control-related investigations by the U.S. government.

Sanjay Mullick, a partner in Kirkland’s Washington, D.C., office, regularly represents clients on investigative, regulatory and transactional matters related to economic sanctions, export and import controls, anti-money laundering, and anticorruption.

Anthony Rapa, a partner in Kirkland’s Washington, D.C., office, counsels companies, financial institutions, and private equity sponsors worldwide regarding U.S., U.K., and EU economic sanctions and export control issues.

Abigail Cotterill, of counsel in Kirkland’s Washington, D.C., office, regularly provides legal advice to companies, financial institutions, and private equity sponsors on the regulatory and other risks of operating or investing across international borders, with a focus on economic sanctions, export controls, and anticorruption.