On April 24, 2024, President Biden signed into law a national security package (H.R. 815) that includes the 21st Century Peace through Strength Act, the fourth pillar of a broader foreign aid package to assist Israel, Ukraine, and the Indo-Pacific. The law contains numerous sanctions and trade-related provisions. In this blog post, we are summarizing the provisions that are most relevant to multinational companies seeking to comply with applicable trade rules and mitigate risks, which includes provisions (i) doubling the statute of limitations for US sanctions violations; (ii) authorizing the President to seize frozen Russian state-owned assets and use them to support Ukraine, (iii) imposing additional sanctions on Russia, Iran, and Hamas; and (iv) prohibiting data brokers from transferring personally identifiable sensitive data of US individuals to foreign adversaries.
Below we discuss the key highlights of the newly enacted national security package policy provisions.
Doubling Period of Statute of Limitations for US Sanctions Violations
The legislation includes a provision that amends the key laws underpinning US sanctions (i.e., the International Emergency Economic Powers Act and the Trading With the Enemy Act) to change the statute of limitations from 5 years to 10 years. This will permit the US Department of Justice and the US Treasury Department’s Office of Foreign Assets Controls to reach further back into historical transactions to identify and penalize violations of US sanctions. This provision does not affect the statute of limitations for US export controls, under the Export Reform Act of 2018 and Arms Export Control Act, which remains at 5 years.
Sanctions Targeting Russia
The law requires the President, within 90 days of enactment, to submit to Congress a report identifying parties currently subject to EU and UK sanctions targeting Russia. The report must identify if such parties also meet the criteria for US sanctions under specified statutes and Executive Orders for actions related to human rights violations, specified harmful foreign activities (i.e., undermining free and fair democratic elections), and trade and other investments with Russia. The President must impose sanctions against those parties that are subject to EU or UK sanctions that are not designated under US sanctions.
Authorizing President to Seize Russian Sovereign Assets to Rebuild Ukraine
This section of the legislation is referred to as the “Rebuilding Economic Prosperity and Opportunity for Ukrainians Act” or the “REPO for Ukrainians Act” and reflects some of the legislative proposals that were previously put forward relating to the confiscation and disposition of Russian sovereign assets.
The core of these provisions is an authorization for the President to seize Russian sovereign assets that have been frozen (i.e., blocked) by US financial institutions and give them to Ukraine to use for its reconstruction. It is estimated that there are $3 billion to $4 billion in frozen Russian sovereign assets in US institutions. The law does not result in the immediate seizure of any assets, nor does it require the President to seize such assets; rather, it provides the President with the authority to do so following procedures and timelines set out in the law.
- Scope of Russian Sovereign Assets
Russian sovereign assets are defined as the funds and other property of the Central Bank of the Russian Federation, the Russian National Wealth Fund, or the Ministry of Finance of the Russian Federation, as well as any other funds or property owned by the Government of the Russian Federation (including any subdivision, agency or instrumentality of that government).
The President can also bring the sovereign assets of Belarus within the scope of the seizure authority if the President determines that Belarus has engaged in an act of war against Ukraine related to Russia’s February 24, 2022 invasion of Ukraine.
The law prohibits the release of frozen Russian sovereign assets in US financial institutions until the war between Russia and Ukraine is over and full compensation has been made to Ukraine for harms resulting from the invasion.
- Process to Identify Russian Sovereign Assets
As a first step to the potential seizure of Russian sovereign assets, the assets must be identified. Specifically, the law requires the President to instruct US financial institutions at which Russian sovereign assets are located to provide notice of such assets to the Treasury Department. The President must issue the instructions (which might be done via regulations) within 90 days of the enactment of the law. The financial institutions are then required to submit the notice to the Treasury Department within 10 days after detecting such assets.
- Authorization for the President to Seize Russian Sovereign Assets
The law authorizes the President to seize any Russian sovereign assets that have been identified through the process described above. If the President decides to seize the assets, the President must first submit a certification to the appropriate congressional committee. The President may seize the assets 30 days after submitting the certification. While these assets are currently blocked/frozen in accounts at US financial institutions, they have not been “seized” in the sense that ownership and title remain with the Russian government. If the President exercises the seizure authority, that would change and all rights, titles, or other interest in the assets would be confiscated and vested in the United States.
The law prohibits judicial review of the seizure or transfer of frozen Russian assets.
- Process to Distribute Funds to Ukraine via Ukraine Support Fund
The law grants the State Department the authority to distribute the seized assets as funds to Ukraine via a “Ukraine Support Fund” that is required to be established under the legislation. The funds would be for use in Ukraine for reconstruction, rebuilding and recovery efforts, as well as for economic and humanitarian assistance. The State Department must notify Congress at least 15 days before distributing any funds in order to give Congress an opportunity to review the proposal and reject it (through a joint resolution of disapproval).
- Requirement to Establish International Mechanism to Compensate Ukraine
The law requires the President to establish an international mechanism to compensate Ukraine for the harm caused by Russia. The mechanism must include creation of an international fund (to be known as the “Ukraine Compensation Fund”), which could receive seized assets from foreign partners (including the US and its Ukraine Support Fund).
Sanctions Targeting Iran
- Sanctions on Iranian Petroleum Exports
The law requires the President to impose sanctions on foreign persons involved in petroleum trade operations with Iran — including blocking of property and ineligibility for visas into the United States (with certain exemptions and waivers). It requires the Energy Information Administration to report to Congress on Iran’s growing exports of petroleum and petroleum products.
In addition, the law requires the Secretary of State to submit a written strategy to Congress on the role of China’s evasion of US imposed sanctions on Iranian-origin petroleum products. It expands existing US sanctions against foreign financial institutions that engage in significant transactions involving Iran’s financial sector to cover any Chinese financial institution that facilitates the purchase of Iranian oil — regardless of the size, frequency or number of transactions.
- Other Sanctions Measures
The law generally expands and strengthens existing US sanctions against Iran related to its ballistic-missile program, authorizing the denial or revocation of US visas and blocking financial and property transactions (with limited exceptions) on any foreign individuals involved in the Iranian missile industry. The law also requires the Administration to determine whether to sanction specified Iranian officials under existing authorities (including denying visas and blocking some asset and property transactions for certain people who have materially supported terrorism or committed human rights abuses).
- Expansion of Foreign Direct Product Rule’s Application
The law codifies and expands US export control targeting Iran with respect to “foreign direct product rule” under the Export Administration Regulations, which is currently found in 15 CFR Section 734.9(j). The scope of covered products will be expanded and will now also apply to supplies to the Government of Iran outside of that country. The measure allows a waiver for transfers and exports that are in US national interests, and it includes an exemption from licensing for certain transfers to Iran involving food, medicine, and certain medical devices.
Hamas & Other Terrorist Groups
- Terrorist Sanctions
The law directs the White House to impose sanctions on foreign states, entities, and individuals that are determined to have knowingly sponsored or provided certain significant assistance to Hamas, Palestinian Islamic Jihad, Al-Aqsa Martyrs Brigade, the Lion’s Den, or any affiliate organization or otherwise in support of terrorism. It establishes both criminal and civil penalties for violations, and authorizes the President to issue regulations to implement and waive (under certain conditions) the covered sanctions. It also directs the White House to analyze and report to Congress on the assets and activities of the specified terrorist organizations and a list of foreign states knowingly supporting them. These measures generally expire seven years after enactment.
- Deter the Use of Human Shields
The law reinstates and extends through the end of 2030 the government’s authority to sanction people who use civilians as human shields in conflict zones, and it adds to the list of those who are subject to sanctions for such actions the following: members and supporters of the Palestine Islamic Jihad militant group; foreign persons who commit specified malicious cyber activities; and foreign persons who commit, order, or threaten to commit violence against current or former US government officials. It requires the Defense Department to report to Congress on countering the use of human shields, including a description of lessons learned and actions taken by the department to incorporate them into operating guidance.
- Captagon Trafficking
The law requires the Administration to impose sanctions on foreign persons who facilitate or profit from the production or proliferation of the illicit synthetic amphetamine-type stimulant, Captagon. It states that elements of the Government of Syria are key drivers of illicit trafficking in Captagon and that it is US policy to target individuals, entities and networks associated with the Government of Syria to dismantle and degrade the transnational criminal organizations (including narcotics trafficking networks) associated with Hezbollah and the regime of President Bashar al Assad in Syria. It requires the Administration to review and report to Congress on whether the sanctions should apply to eight specified Syrian-related individuals.
- Disrupt Hamas Financing
Within 180 days of enactment of the law, the Treasury Department is required to submit to Congress a report analyzing the major sources of financing to Hamas. The report must include a description of both US and multilateral efforts to disrupt illicit financial flows to Hamas, an evaluation of US efforts to undermine Hamas’s ability to fund attacks on Israel, and a plan to implement a strategy in coordination with US allies to disrupt Hamas’ financing mechanisms.
Fentanyl
The law imposes new sanctions against foreign persons involved in fentanyl trafficking. Relevant provisions authorize the President to impose sanctions on individuals and entities determined to be knowingly involved in the significant trafficking of fentanyl, precursor chemicals, or related opioids, or otherwise knowingly involved with the activities of a transnational criminal organization (“TCO”) involved in illicit narcotics trafficking. These measures build on existing US sanctions targeting TCOs as well as narcotics trafficking.
The law authorizes the Financial Crimes Enforcement Network (“FinCEN”) to require US financial institutions to implement special measures, including increased due diligence and restrictions, on certain transactions or financial accounts if FinCEN determines that they pose a primary money laundering concern in connection with illicit opium trafficking. In addition, FinCEN must issue guidance to financial institutions on how to file suspicious activity reports when they suspect money laundering by TCOs related to fentanyl trafficking.
Data Security
The section of the legislation dealing with personal data, called the “Protecting Americans’ Data from Foreign Adversaries Act of 2024,” prohibits “data brokers” from transferring, providing access or “otherwise mak[ing] available personally identifiable sensitive data of a United States individual” to any “foreign adversary country” (China, Iran, North Korea, and Russia) or any entity “controlled by a foreign adversary.” This prohibition, to be enforced by the Federal Trade Commission (“FTC”), appears narrower than the data security rules contemplated in the Justice Department’s advance notice of proposed rulemaking published March 5, 2024, which would, in addition to banning data broker transactions, regulate other transactions that may afford access to sensitive personal data to foreign adversaries.
Under the legislation, “data broker” is defined to encompass any entity that, for consideration, makes available data of US persons to another entity where the data provider did not collect the data directly from the underlying individuals. The data broker definition excludes situations where the dat a provider or recipient is acting as a “service provider,” i.e., an entity that collects, processes, transfers, or receives data on behalf of another person, such as a cloud storage provider or file sharing service.
Identifiable personal data covered by the prohibition include types of data also covered by the Justice Department’s advance notice, such as government-issued identifiers, health information, financial information, precise geolocation data, genetic information and biometric identifiers. The legislation also covers categories not captured by the Justice Department advance notice, including private communications, calendar and address book information, phone or text logs, photos, audio recordings, videos, information about an individual under the age of 17, and information identifying an individual’s online activities over time.
Restricted recipients include entities that are organized under the laws of or have their principal place of business in China, Iran, North Korea, or Russia, and entities 20% or more owned by entities organized under the laws of or headquartered in the listed countries. Natural persons domiciled in a listed country are also listed restricted recipients.
