Just before the holidays, President Biden signed two bills passed in the final days of the last Congress that contain a number of provisions with implications for sanctions, export controls, and supply chain restrictions:
- On December 23, 2022, President Biden signed into law the National Defense Authorization Act (“NDAA“) for Fiscal Year 2023 (P.L. 117-263). The measure includes a number of provisions relating to US export controls, sanctions, and related subjects, including additional sanctions targeting Burma, prohibitions on the use of Chinese semiconductors by US government agencies, and provisions relating to Russia’s invasion of Ukraine.
- On December 29, 2022, President Biden signed into law the Consolidated Appropriations Act, 2023 (P.L. 117-328). The measure includes provisions relating to sanctions and related subjects, including authorization for the transfer of forfeited assets to aid Ukraine, and funding for initiatives to combat forced labor and sanctions implementation.
Below we discuss the key highlights of the newly enacted legislation.
- Interagency Strategy to Disrupt Narcotics Production and Trafficking in Syria
Section 1238 of the NDAA would require the Secretary of State, not later than 180 days after enactment, to develop an interagency strategy for disrupting and dismantling narcotics production and trafficking and affiliated networks linked to the regime of Bashar al-Assad in Syria, including a detailed plan to dismantle the narcotic networks and to use sanctions authorized under the Caesar Syria Civilian Protection Act of 2019.
- Modification to Annual Report on Military and Security Developments Involving Russia
Section 1243 of the NDAA would modify the requirements for the Secretary of Defense to prepare a new section as part of the “Annual Report on Military and Security Developments Involving the Russian Federation” on the impact of US sanctions on improvements to the Russian military and its proxies, including a description of how sanctions have impacted Russian private military companies’ behavior and an assessment of the impacts of the maintenance or revocation of such sanctions.
- The BURMA Act of 2022
Sections 5567-5579 of the NDAA incorporate a modified version of the Burma Unified through Rigorous Military Accountability Act of 2022 (the “BURMA Act”). The BURMA Act imposes two categories of sanctions on Burmese government officials and state-owned enterprises, subject to certain waiver authority and exceptions.
First, not later than 180 days after enactment, Section 5571(a) directs the President, subject to certain exceptions and waiver authority, to impose mandatory blocking, foreign exchange, and visa sanctions on any non-US person who the Administration determines is a senior official in the Burmese military or political government, the defense sector, or state-owned enterprises in the industrial or executive sector that financially benefit the Burmese military. Section 5571(b) also authorizes corresponding account or payable-through account sanctions against any non-US financial institution that conducts a significant transaction on behalf of any such sanctioned person.
Second, Section 5571(c) also authorizes the President to impose discretionary sanctions on the Myanma Oil and Gas Enterprise, any Burmese state-owned enterprise that benefits the Burmese military, any person involved in activities related to the February 2021 coup d’etat in Burma, or any entity that provides material support to the Burmese military.
Section 5572 also calls for the development of a comprehensive strategy with respect to sanctions on Burma to coordinate sanctions across the US government (including with respect to requiring new reports to Congress), promote multilateral sanctions on the Burmese military and its allies, and exert additional pressure on China and Russia to enlist their support for a greater multilateral effort in Burma.
- Sanctions Against Trade in Russian Gold
Section 5590(a) of the NDAA would require the President, not later than 90 days after enactment, to submit a periodic report to Congress identifying non-US persons that knowingly participated in a significant transaction for the sale, supply, or transfer (including transportation) of gold from Russia or in which the Government of Russia has an interest, including from reserves of the Central Bank of the Russian Federation held outside the Russian Federation. Section 5590(b) would then require the President, subject to certain waiver authority and exceptions, to impose blocking and visa sanctions against those persons identified in the reports.
- Accountability for Human Rights Abuses in Iran
Section 5592 of the NDAA states that it is US policy to hold to account any official of the government of the Islamic Republic of Iran who is responsible for human rights abuses in the form of politically motivated imprisonment, including through the imposition of sanctions pursuant to the Global Magnitsky Human Rights Accountability Act and other available authorities.
- Banking Transparency for Sanctioned Persons Act of 2022
Section 5706 of the NDAA incorporates the Banking Transparency for Sanctioned Persons Act, which would require the Secretary of the Treasury, not later than one year after enactment, to issue an annual report detailing specific licenses issued by Treasury in the preceding year that authorize US financial institutions to provide financial services to the government of a state sponsor of terrorism, or persons sanctioned by the Office of Foreign Assets Control’s under Global Magnitsky Sanctions. These licenses typically allow for the facilitation of certain kinds of trade in humanitarian (e.g., medicines and medical devices) and agricultural (e.g., food and farming supplies) goods.
- Assessments of the Effects of Imposed Sanctions Relating to Russia’s Invasion of Ukraine
Section 6807 of the NDAA would require a semiannual assessment of the effects of sanctions imposed with respect to Russia’s invasion of Ukraine, not later than 180 days after enactment. The Director of National Intelligence (“DNI”) would be required to submit a report outlining Russia’s efforts to circumvent sanctions through direct or indirect engagement from the regimes of Cuba, Nicaragua, Venezuela, China, Iran, and any other country the Director deems appropriate. The report must also contain a description of the material effects of US and allied sanctions on individual sectors of the Russian economy, senior leadership, senior military officers, and state-sponsored and state-affiliated actors targeted by such sanctions, including a discussion of those sanctions that had significant effects, as well as those that had no observed effects. The report must also describe evasion techniques used by Russia, entities and persons covered by the sanctions, and by other governments, entities, and persons who have assisted in the use of such techniques. This includes, e.g., the use of digital assets for sanctions evasion.
- Greater Coordination on Sanctions Strategy
Section 9107 of the NDAA would obligate the Secretary of the Treasury, not later than 90 days after enactment, to submit a report to Congress on the steps that the Department of State’s s Office of Sanctions Coordination has taken to coordinate its activities with the Department of the Treasury and humanitarian aid programs, in an effort to help ensure appropriate flows of humanitarian assistance and goods to countries subject to US sanctions.
- Establishment of the Financial Integrity Fund
The Consolidated Appropriations Act would establish a funding mechanism within the Treasury Department, called the Financial Integrity Fund, from which whistleblowers who report incidents of sanctions evasion or money laundering that in turn lead to successful US enforcement actions are to be paid. It would also set a minimum percentage of 10 percent of the total amount of financial punishments levied against entities for their illegal actions that is to be awarded to the whistleblower. Similar to the Securities Exchange Commission whistleblower program, the anti-money laundering and sanctions evasion whistleblower program will have a revolving fund that is to be paid into and regularly replenished with monies from fines imposed on violators.
- Authorization of the Transfer of Forfeited Property to Help Ukraine
The Consolidated Appropriations Act would allow the Attorney General to transfer to the State Department proceeds from the sale of forfeited assets from persons subject to sanctions for Russia’s invasion of Ukraine and related crimes in order to provide foreign assistance to Ukraine, with oversight and reporting requirements to Congress.
- Implementation of the Global Magnitsky Human Rights Accountability Act
The Consolidated Appropriations Act explanatory statements indicate that the law includes funding to continue to strengthen implementation of the Global Magnitsky Human Rights Accountability Act (22 U.S.C. 10101 et seq), including for the State Department’s Bureaus of Economic and Business Affairs, International Narcotics and Law Enforcement Affairs, and Democracy, Human Rights, and Labor. In addition, the Secretary of State would be required, within 90 days after enactment, to consult with the House and Senate Appropriations Committees on the implementation of these directives.
Export Control Provisions
- Extension of Certain Export Controls
Section 5589 of the NDAA would extend the sunset date for the prohibition on the commercial export of covered munitions items to the Hong Kong Police Force under Public Law 116-77 through the year 2024.
- Enhanced Intelligence Support for Export Controls and Foreign Investment Screening
Section 6311 of the NDAA would require the DNI to designate an element of the intelligence community to carry out a pilot program to assess the feasibility and advisability of providing enhanced intelligence support, including intelligence derived from open source, publicly and commercially available information in aid of export controls and foreign investment screening. The pilot program would share information with the Department of Commerce and the Department of Homeland Security to support their respective export control and investment screening functions.
Provisions on Supply Chain Restrictions
- Prohibition on Certain Semiconductor Products and Services
Section 5949 of the NDAA would prohibit the US government from procuring or contracting with entities to obtain any electronic parts, products, or services that include covered semiconductor products or services from certain Chinese companies, including Semiconductor Manufacturing International Corporation, ChangXin Memory Technologies, Yangtze Memory Technologies Corp, or any subsidiary or affiliate of such entities. Government contractors would be responsible for certifying the non-use of covered semiconductor products or services in such parts or products. The prohibitions may be waived by the Secretaries of Defense, Commerce, Homeland Security, and Energy, as well as the DNI, for “critical national security interests.”
The semiconductor prohibitions will take effect five years after the date of enactment. Within three years after the enactment date, the Federal Acquisition Regulatory Council must issue regulations implementing the prohibitions. Not later than two years after enactment, the Federal Acquisition Security Council must issue recommendations to mitigate supply chain risks relevant to federal government acquisition of semiconductor products and services, and recommendations for regulations implementing the prohibitions.
For further details on these semiconductor prohibitions, we will soon be publishing a more detailed blog post on this piece of legislation on our Supply Chain Compliance Blog.
- Implementation of the Uyghur Forced Labor Prevention Act
The Consolidated Appropriations Act explanatory statements indicate that the law fully funds implementation of the Uyghur Forced Labor Prevention Act (“UFLPA”), adjusted for funding provided above the request in fiscal year 2022. In addition, Customs and Border Protection would be required, within 60 days of enactment, to provide a briefing to the House and Senate Appropriations Committees on implementation of the UFLPA.