On August 2, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued two revised general licenses regarding conducting financial transactions involving: (i) the Moscow Exchange (MOEX), Russia’s largest public trading markets for equity, fixed income, derivative, foreign exchange, and money market products, as well as Russia’s central securities depository and the country’s largest clearing service provider; (ii) the National Clearing Center (NCC), the central counterparty and clearing agent for, and a subsidiary of MOEX, and supervised by the Central Bank of the Russian Federation (CBR); and, (iii) the Non-Bank Credit Institution Joint Stock Company National Settlement Depository (NSD), Russia’s central securities depository, and a subsidiary of MOEX, that provides bank account services, registration of over-the-counter trades, and liquidity management services.

These Russian financial infrastructure entities were sanctioned and placed on OFAC’s Specially Designated Nationals (SDN) List on June 12, 2024 (see Thompson Hine Update of June 12, 2024). At that time, OFAC issued the original General Licenses 99 and 100 authorizing the wind down of certain transactions with these entities. These license were set to expire on August 13, 2024. The newly revised General Licenses extend authorizations for such transactions that are ordinarily incident and necessary to wind down transactions and/or divest from these SDN entities:

Russia-related General License 99A continues to authorize until October 12, 2024, the wind down of certain transactions related to debt or equity of, or derivative contracts involving, MOEX, NCC, or NSD, or the facilitation or transfer of such divestment of such covered debt or equity. 

Russia-related General License 100A continues to authorize until October 12, 2024, certain transactions related to the divestment of debt or equity to a non-U.S. person, or the conversion of currencies involving MOEX, NCC, or NSD, when acting solely as a securities, trade, or settlement depository, central counterparty or clearing house, or public trading market.

Certain transactions with these entities remain unauthorized under these general licenses and therefore require close analysis. 

After closing the public docket on June 28, 2024, for comments on proposed tariff increases for certain products subject to the China section 301 investigation, the Office of the United States Trade Representative (USTR) issued a July 30, 2024 press release stating that it received more than 1,100 public comments requiring further review and that the tariff increases scheduled for 2024, which were set to go into effect on August 1, 2024, will still take effect in August but approximately two weeks after USTR makes the final determination public. In the initial May 28, 2024 Federal Register Request for Comments, USTR proposed additional section 301 tariffs on China to “encourag[e] China to take steps toward eliminating some of its technology transfer-related acts, policies, and practices” that adversely impacted U.S. persons and businesses. See Update of May 28, 2024. This notification followed President Joe Biden’s May 14, 2024 memorandum to USTR to “enhanc[e] the effectiveness of the tariff actions by adding or increasing section 301 tariffs on certain products in strategic sectors…[especially on] products targeted by China for dominance, or [that] are products in sectors where the United States has recently made significant investments.” See Bulletin of May 15, 2024. The public comments addressed additional or new modifications to 382 tariff lines with an approximate annual trade value of $18 billion (in 2023).

For additional background information on the China section 301 investigation, see Update of May 3, 2022 and Update of September 6, 2022.

On July 29, 2024, both the Departments of Commerce and State issued separate but complementary proposed rules seeking public comment on enhanced restrictions on exports, reexports, or support to military or intelligence end users and end uses in countries of concern, consistent with the Fiscal Year 2023 National Defense Authorization Act (NDAA). The Department of Commerce’s Bureau of Industry and Security (BIS) has proposed two rules seeking to provide BIS with the authority to impose controls on the activities of U.S. persons, wherever located, relating to foreign military services, foreign intelligence services, and foreign security services. The Department of State’s Directorate of Defense Trade Controls (DDTC) has proposed a rule that would amend the definition of “defense services” to clearly include the furnishing of intelligence-related assistance, and also proposes a new subcategory to U.S. Munitions List Category XI.

By publishing both rules simultaneously and seeking public comment on the proposed changes, BIS and DDTC have stated that they hope to ensure awareness as to the distinct areas of coverage of U.S. person activities under their respective legal and regulatory authorities. Both BIS and DDTC will accept public comment on the proposed rules until September 27, 2024. [Note: BIS and DDTC have extended the public comment period on their proposed rules until October 15, 2024. This extension is being made to allow for commenters to have additional time to review the proposed rules and to be informed by the public outreach that BIS and DDTC are conducting on the rule.]

Commerce Department Proposed Rules

The specific controls proposed by BIS in today’s rules include:

  • U.S. Persons’ Activity Controls: This proposed rule seeks to expand restrictions on U.S. persons’ support activities regarding end uses and end users of concern, including facilitating the acquisition of certain foreign-origin items by military, intelligence, and security services of concern, as well as performing maintenance, repair, and overhaul of such foreign-origin items. To do so, BIS proposes establishing certain Foreign-Security End User (FSEU) and “U.S. persons” activities controls and Commerce Control List-based controls. With this proposed rule, BIS would require a license for exports, reexports, and transfers (in-country) for items subject to the EAR that are specified on the Commerce Control List (CCL) when they are destined for identified “foreign-security end users.”

    In addition, BIS is proposing new restrictions on the export of certain facial recognition technologies that can enable mass surveillance to protect and promote human rights. The proposed rule would create new export controls for facial recognition systems specially designed for mass-surveillance and crowd scanning.

  • Military and Intelligence End-Use and End-User Controls: This proposed rule seeks to expand the scope of the definition of “military end user” by adding “any person or entity performing the functions of a ‘military end user,’ including mercenaries, paramilitary, or irregular forces.” The proposed rule would also expand export restrictions to “military-support end users” when destined to the armed forces or national guard of countries subjected to a U.S. arms embargo, as well as civilian or military intelligence agencies (i.e., intelligence end users) of over 40 countries of concern. Such controls are also proposed to apply to all items on the CCL when destined to foreign-security end users or military-support end users in countries subject to a U.S. arms embargo.

    This proposed rule would also revise the term “military-intelligence end user” by dropping the qualifier “military,” resulting in the term “intelligence end user.” This revision would expand the scope of controls to all intelligence end users of the covered countries, instead of only intelligence end users that are part of the armed services or national guard of the covered countries. As a result of this revision, an “intelligence end user” would encompass not only military, but also other governmental (e.g., civilian) intelligence and reconnaissance organizations.

State Department Proposed Rule

The DDTC undertook a review of the definition and controls related to “defense service” under the International Traffic in Arms Regulations (22 C.F.R. parts 12–130). According to DDTC, this review “focused on identifying activities of U.S. persons that (1) provide a critical military or intelligence advantage such that they warrant control under the ITAR and are activities that are not currently subject to the ITAR; or (2) are controlled under the ITAR, but the current control language would benefit from additional clarity.” Following the review, the DDTC proposed rule offers a revised definition of “defense service” to better describe existing controls and the scope of activities it would regulate through the revised definition, and also proposes certain additions to the ITAR’s United States Munitions List (USML).

Included in this proposed rule is specific language regarding the furnishing of intelligence-related assistance that is not directly related to a defense article to certain types of foreign persons (i.e., a foreign unit, force, or government) or their proxies or agents. DDTC assessed that these activities warrant and require control equivalent to those of intelligence-related defense articles since such assistance (including training or consulting) similarly furnishes a critical military or intelligence advantage to the foreign person.

In addition, the proposed rule details two new proposed USML entries under Category IX that would control defense services related to intelligence and military assistance. A new “Category IX(s)” would be added and would control “[a]ssistance, including training or consulting, to a foreign government, unit, or force, or their proxy or agent, that creates, supports, or improves intelligence activities, including through planning, conducting, leading, providing analysis for, participating in, evaluating, or otherwise consulting on such activities, for compensation.” It would also control providing various forms of assistance in intelligence activities. These new proposed categories have numerous exceptions for allowable assistance and should be reviewed carefully.

On July 23, 2024, the Treasury Department, as the lead agency of the Committee on Foreign Investment in the United States (CFIUS), released a public version of its 2023 Annual Report to Congress regarding foreign direct investment in the United States. The report highlights key indicators of the CFIUS process and provides statistics on transactions that were filed in 2023 and, notably, indicates an uptick in enforcement actions. Assistant Secretary for Investment Security Paul Rosen stated, “2023 was a busy year for CFIUS in reviewing transactions for national security risk, monitoring compliance with mitigation agreements, expanding the reach of its jurisdiction, and enforcing against violations of CFIUS legal authorities.”

Key highlights from the 2023 report include the following:

  • CFIUS’ caseload remains significant, despite a decrease in filings from 2022, with a total of 342 covered transactions or covered real estate transactions (109 declarations and 233 notices). For declarations, the leading foreign countries involved in such reviews were Canada, Japan, France and the UK. For full notices, the leading foreign countries involved were Canada, China, Germany, Japan, Singapore, South Korea, the UAE, and the UK.
  • CFIUS reviewed 153 covered transactions involving acquisitions of U.S. critical technology companies. Nearly half of these transactions involved either (i) computer and electronic product manufacturing, or (ii) professional, scientific, and technical services.
  • Covered notices fell into the following industry sectors: Finance, Information and Services (50%), Manufacturing (29%), Mining, Utilities, and Construction (11%), and Wholesale/Resale Trade and Transportation (10%).
  • CFIUS cleared 66% of distinct transactions that did not require mitigation measures in either the 30-day assessment period for a declaration or the initial 45-day review period for a notice.
  • CFIUS concluded action after adopting a mitigation agreement or order to resolve national security concerns with respect to 35 notices. Mitigation measures implemented included, but were not limited to: prohibiting or limiting the transfer or sharing of certain intellectual property, trade secrets, assets, or technical information; ensuring that only authorized persons have access to certain technology, systems, facilities, projects, or sensitive information; ensuring that computer networks are segregated; restricting the hiring of certain personnel; establishing a security committee and/or appointing a security officer to ensure compliance; and, requiring prior notification to and approval by relevant U.S. Government parties in connection with any increase in ownership or rights by the foreign acquirer.
  • CFIUS is currently monitoring 246 mitigation agreements, including 36 agreements entered into in 2023. To ensure compliance with these mitigation agreements, CFIUS conducted 43 site visits in 2023. In instances where non-compliance was discovered, the noncompliance was assessed and CFIUS pursued prompt remediation. In doing so, CFIUS imposed four civil monetary penalties for violations of material provisions of mitigation agreements, double the number of civil monetary penalties that CFIUS had previously issued during its nearly 50-year history.
  • CFIUS referred no transactions for Presidential review.
  • CFIUS improved its efficiency and case processing by decreasing withdrawn and refiled transactions, which restart the CFIUS review period, from 24% to 18% of notices (and from 63 to 43 notices as a total number), the first such reduction in five years. 

Concerning non-notified transactions, the report notes that in 2023 it “identified and considered thousands of potential non-notified transactions” and opened inquiries on 60 such transactions and formally requested filings for 13 transactions. With an increasing workload, CFIUS has increased its number of case officers dedicated to reviews and investigations of covered transactions, and has also worked to enhance its teams dedicated to other functions such as non-notified transactions, monitoring and enforcement, collaboration with international partners and allies, and investment security policy.

If desired for comparison purposes, Thompson Hine’s Update on the CFIUS 2022 Report is available here.

The Department of Commerce’s Bureau of Industry and Security (BIS) has issued a Final Rule that redesignates regulations governing the procedures for the review of certain transactions involving information and communications technology and services (ICTS) designed, developed, manufactured, or supplied by persons owned by, controlled by, or subject to the jurisdiction or direction of a foreign adversary and which pose or may pose undue or unacceptable risks to the United States or U.S. persons. The regulations being redesignated were originally administered by the Office of the Secretary, but were formally transferred to BIS when the Office of ICTS (OICTS) was established on March 15, 2022. This final rule simply redesignates the regulations that were promulgated as 15 C.F.R. part 7 of Subtitle A – “Office of the Secretary of Commerce” – to Subtitle B – “Regulations Relating to Commerce and Foreign Trade.” Within Subtitle B, chapter VII includes other regulations that implement BIS authorities. This final rule also establishes Subchapter E and creates a new part 791 for ICTS’s regulations.

These overall regulations are the result of a May 2019 Executive Order on the topic of ICTS and resulting regulations for review and potential blocking of such transactions. For additional background see Thompson Hine Updates of December 2, 2019 and May 16, 2019. BIS states this final rule seeks only to clarify that BIS is responsible for implementation of the ICTS regulations, and that “[t]his shift in no way impacts the content or text of current and proposed regulations. Because of this, publication of this final rule is merely procedural.”

On July 10, 2024, the United States and Mexico jointly announced measures to protect the North American steel and aluminum markets from unfair trade. Both countries will implement policies to prevent tariff evasion on steel and aluminum and undertake efforts to strengthen North American steel and aluminum supply chains. These efforts are intended to prevent transshipment of steel and aluminum articles to the United States that may not be of Mexican origin but have instead been shipped through Mexico to evade additional duties that are in place for such articles under Section 232 of the Trade Expansion Act of 1962.

The United States will implement both melt and pour requirements for certain steel imports from Mexico and smelt and cast requirements for certain aluminum imports from Mexico in order for those steel and aluminum imports to enter the United States tariff-free under Section 232. Under a Presidential Proclamation on Adjusting Imports of Steel Into the United States, President Joe Biden indicated that imports of steel articles from Mexico have increased significantly as compared to their levels in 2019 when Mexico and the United States last addressed such imports. See Thompson Hine Update of May 20, 2019. Accordingly, “the United States will implement a melt and pour requirement for imports of steel articles that are products of Mexico and will increase the section 232 duty rate for imports of steel articles and derivative steel articles that are products of Mexico that are melted and poured in a country other than Mexico, Canada, or the United States.” In order to be exempt from the Section 232 tariff rate of 25%, steel articles and derivative steel articles that are products of Mexico must be melted and poured in Mexico, Canada, or the United States. Importers of steel and steel derivative articles will be required to provide Customs and Border Protection (CBP) the information necessary to identify the countries where the steel used in the manufacture of steel articles imports and derivative steel articles are melted and poured.

Similarly, under a Presidential Proclamation on Adjusting Imports of Aluminum Into the United States, President Biden indicated that imports of aluminum articles from Mexico have increased significantly as compared to their levels in 2019, and found that “Mexico lacks primary aluminum smelting capabilities, and the country of smelt or country of most recent cast is unknown for a significant volume of aluminum imports from Mexico.” Accordingly, “the United States will implement a country of smelt and country of most recent cast requirement for imports of aluminum articles that are products of Mexico, and will increase the section 232 duty rate for imports of aluminum articles and derivative aluminum articles that are products of Mexico containing aluminum for which the reported primary country of smelt, secondary country of smelt, or country of most recent cast is China, Russia, … Belarus, or Iran.” In order to be exempt from the Section 232 tariff rate of 10%, aluminum articles and derivative aluminum articles that are products of Mexico must be accompanied by a certificate of analysis and must not contain primary aluminum for which the reported primary country of smelt, secondary country of smelt, or country of most recent cast is from these countries. Importers will be required to provide to CBP the information necessary to identify the countries where the primary aluminum used in the manufacture of aluminum articles imports from Mexico are smelted and information necessary to identify the countries where such aluminum imports are cast. 

To assist in this effort, Mexico announced that it will enhance transparency into the origin of its steel imports by requiring importers to provide more information about the country of origin of steel products by providing the country of melt and pour on mill test certificates. This adds to Mexico’s recent tariff increases on steel and aluminum from non-free trade agreement countries.

President Biden and the President of Mexico Andrés Manuel López Obrador stated that they will continue to work together to protect the North American steel and aluminum markets from unfair trade practices and further enhance the integration of North American industrial supply chains.

On July 10, 2024, the Department of Commerce’s Bureau of Industry and Security (BIS) published guidance summarizing the actions it takes to identify and inform industry about parties that present diversion risks to countries or entities of concern. This guidance is offered in an effort “to address the evolving tactics of our adversaries to circumvent U.S. export controls” and offer further details on the tools BIS relies upon to alert companies about parties of diversion concern.

While BIS generally administers controls on end users by designating them on one of its public screening lists (e.g., the Unverified List, Entity List, etc.), the agency also uses additional measures to notify companies about other parties of concern, such as those that present a risk of diverting export-controlled items to restricted end uses or end users in Russia. The newly published guidance outlines the different actions that BIS takes – through “supplier list” letters, Project Guardian requests, “red flag” letters and “is informed” letters – to inform companies about parties that present diversion risks.

The guidance also offers a new recommended best practice asking that exporters, reexporters, and transferors of Common High Priority List (CHPL) items (50 items identified by their six-digit Harmonized System code) screen transaction parties using an online resource made available by the Trade Integrity Project (TIP). TIP, a non-government entity, relies on recent trade data to list all companies that have supplied firms located in Russia. The website does note that its data is derived from public sources and may contain errors or inconsistencies, and that any reliance on the data is “strictly at your own risk.” Nevertheless, BIS “strongly encourages” companies to screen against this list and conduct any further diligence to determine if there are any red flags before proceeding with a transaction.

On July 10, 2024, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) again extended previous Russia-related General License (GL) 13 by issuing a revised GL 13J, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024,” which states that U.S. persons are authorized to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, certifications, or tax refunds to the extent such transactions are prohibited by Directive 4. Such transactions are allowable provided they are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation. Directive 4 prohibits any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.

Previous GL 13I was set to expire on July 11, 2024; the revised GL 13J is set to expire on October 9, 2024. For additional background, please see our prior blog posts on this general license: January 18, 2024, November 7, 2023, May 21, 2023, and April 15, 2024.

On July 8, 2024, the Department of the Treasury’s Office of Investment Security issued a Notice of Proposed Rulemaking seeking to add 59 military installations, across 30 states, to the list of installations around which the Committee on Foreign Investment in the United States (CFIUS) has jurisdiction regarding certain real estate transactions involving foreign persons. This proposed rule is the result of a recent Department of Defense (DoD) assessment of its military installations. The proposed rule would:

  • Expand CFIUS’s jurisdiction over real estate transactions to include those within a 1-mile radius around 40 additional military installations;
  • Expand CFIUS’s jurisdiction over real estate transactions to include those within a 100-mile radius around 19 additional military installations;
  • Expand CFIUS’s jurisdiction over real estate transactions between 1 mile and 100 miles around eight military installations already listed in the CFIUS regulations;
  • Update the names of 14 military installations already listed in the CFIUS regulations to reflect official installation name changes by the DoD; and
  • Update the location of seven military installations already listed in the current CFIUS regulations to more directly identify the installations’ approximate location.

In addition to this expanded listing of covered installations, the proposed rule seeks to amend the definition of the term “military installation.” Consistent with name changes of certain listed installations, this term would be amended to add Space Force bases, stations, and major annexes thereof, containing satellite, telemetry, tracking, or commanding systems. The revised definition would also clearly cover major Army depots, arsenals, and military terminals, as well as Marine Corps installations, logistics battalions, and support facilities.

CFIUS’s jurisdiction over real estate transactions, pursuant to the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), allows CFIUS to review the purchase or lease by, or concession to, a foreign person of real estate in the United States that is in close proximity to a military installation or another facility or property of the U.S. government that: (i) is sensitive for reasons relating to national security; (ii) could reasonably provide the foreign person the ability to collect intelligence on activities being conducted at such an installation, facility, or property; or (iii) could otherwise expose national security activities at such an installation, facility, or property to the risk of foreign surveillance. For additional background see Thompson Hine Update of January 22, 2020.

Comments on the proposed rule must be received by 30 days after publication in the Federal Register (not available at this time). Comments may be submitted electronically via the Federal government eRulemaking portal at https://www.regulations.gov. Electronic submission of comments citing “Amendments to the Definition of Military Installation and the List of Military Installations in Regulations Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States” should be posted on Docket ID: TREAS-DO-2024-0010. Comments may also be submitted via regular mail to U.S. Department of the Treasury, Attention: Meena Sharma, Director, Office of Investment Security Policy and International Relations, 1500 Pennsylvania Avenue, N.W., Washington, D.C. 20220.

One week after China’s largest state-run food and agriculture company announced its acquisition of a grain terminal in Cahokia, Illinois, a bipartisan pair of U.S. House members from Illinois urged Treasury Secretary Janet Yellin to conduct “an immediate review of the acquisition to weigh the consequences for America’s national security and the region’s agricultural economy.”  As Treasury Secretary, Yellin also serves as the Chair of the Committee on Foreign Investment in the United States (CFIUS), which reviews the national security implications of certain foreign investments in the United States.

According to the June 27, 2024 letter sent by U.S. Representatives Mike Bost (R-IL) and Nikki Budzinski (D-IL), the transaction fully divests U.S. ownership of the Cahokia facility, which is a grain and byproduct transloading terminal “[s]trategically located on the Mississippi River near St. Louis” on the Illinois-Missouri border.  The Cahokia facility also operates as a high-speed rail and truck-to-barge loading terminal.

As noted by the letter, the Cahokia facility is the latest instance of a Chinese entity purchasing U.S. agricultural assets.  In fact, the concern of foreign entities, especially those from China, was the major impetus behind a recent law codified in March 2024 adding the Secretary of Agriculture as a member of CFIUS, albeit only when CFIUS is tasked with reviewing foreign investment in U.S. agricultural land, agriculture biotechnology, or the agriculture industry (including agricultural transportation, agricultural storage, and agricultural processing).  See Update of March 14, 2024.