On September 21, 2021, the Department of Commerce (Commerce) initiated an investigation to determine the effects on U.S. national security of imports of neodymium-iron-boron (NdFeB) permanent magnets (sometimes referred to as neodymium magnets, neo magnets, or rare earth magnets). According to a Commerce press release, “critical national security systems rely on NdFeB permanent magnets, including fighter aircraft and missile guidance systems. In addition, NdFeB permanent magnets are essential components of critical infrastructure, including electric vehicles and wind turbines. The magnets are also used in computer hard drives, audio equipment, and MRI devices.”

This is the first Section 232 investigation initiated by President Joseph Biden’s administration and Secretary of Commerce Gina Raimondo and is consistent with the president’s directive to strengthen U.S. supply chains and encourage investments to support domestic production. (See Update of June 11, 2021, regarding 100-Day Supply Chain Review of Critical Industries).

Secretary Raimondo must present Commerce’s findings and recommendations to President Biden within 270 days, or no later than June 18, 2022. On September 27, 2021, Commerce’s Bureau of Industry and Security (BIS) issued a notice requesting public comments on the investigation. While the BIS is interested in any information related to this investigation, the notice also seeks the following details from any interested parties:

  • Quantity of or other circumstances related to the importation of NdFeB permanent magnets;
  • Domestic production and productive capacity needed for NdFeB permanent magnets to meet projected national defense requirements;
  • Existing and anticipated availability of human resources, products, raw materials, production equipment, and facilities to produce NdFeB permanent magnets;
  • Growth requirements of the NdFeB permanent magnet industry to meet national defense requirements and/or requirements for supplies and services necessary to assure such growth, including investment, exploration, and development;
  • The impact of foreign competition on the economic welfare of the domestic NdFeB permanent magnet industry;
  • The displacement of any domestic NdFeB permanent magnet production causing substantial unemployment, decrease in the revenues of government, loss of investment or specialized skills and productive capacity, or other serious effects;
  • Relevant factors that are causing or will cause a weakening of our national economy; and
  • Any other relevant factors, including the use and importance of NdFeB permanent magnets in critical infrastructure sectors identified in Presidential Policy Directive 21 (Feb. 12, 2013) (for a listing of those 16 sectors, see dhs.gov/cisa/critical-infrastructure-sectors).

Comments must be submitted no later than November 12, 2021 via the federal government’s eRulemaking portal at www.regulations.gov. Any submissions must be identified by docket number BIS 2021–0035 or RIN 0694–XC083. Material submitted that is marked as  containing “business confidential information”, and accepted as such by the BIS, will be exempted from public disclosure.

On September 27, 2021, the Office of the U.S. Trade Representative (USTR) announced that it was again continuing exclusions from Section 301 duties for certain medical care imports from China needed to address the COVID-19 pandemic. These exclusions were set to expire on September 30, 2021 (see Update of March 8, 2021), but have now been extended until November 14, 2021. This extension will allow USTR sufficient time to review the comments it received in response to its August 27, 2021 notice requesting public comments on whether any of the 99 product exclusions should be further extended for up to six months (see  Update of August 27, 2021).

On September 24, 2021, Office of Foreign Assets Control (OFAC) issued two general licenses (GL) intending to alleviate the impact of U.S. sanctions on civilians in Afghanistan. Specifically, OFAC issued GL 14 “Authorizing Humanitarian Activities in Afghanistan” and GL 15 “Transactions Related to the Exportation or Reexportation of Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates in Afghanistan.” Both GLs authorize certain transactions involving the Taliban or the Haqqani network, which are blocked pursuant to Executive Order 13224, and listed on the Specially Designated Nationals and Blocked Persons List.

GL 14 authorizes all transactions involving the Taliban or the Haqqani network, or any entity in which these hold 50% or greater interest, that are ordinarily incident and necessary for the provision of humanitarian assistance to Afghanistan by the U.S. government, nongovernmental organizations, the United Nations, certain development banks, and Red Cross and persons acting on behalf of these entities, including their employees and contractors. GL 14, however, does not authorize financial transactions with persons involved in the Taliban or the Haqqani network.

GL 15 authorizes all transactions involving the Taliban or the Haqqani network, or any entity in which these hold 50% or greater interest, that are ordinarily incident and necessary to the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices to Afghanistan, or to persons in third countries purchasing specifically for resale to Afghanistan. Covered items under GL 15 include agricultural commodities, medicine and medical devices. GL 15 does not authorize financial transactions with persons involved in the Taliban or the Haqqani network.

OFAC also released four related FAQs – 928, 929, 930 and 931. FAQs 928-929 explain that U.S. sanctions on the Taliban and the Haqqani network do not prohibit the provision of humanitarian assistance to Afghanistan, and that the “humanitarian assistance” means, among other things, provision of relief services and non-commercial development projects that primarily benefit poor or at-risk populations or otherwise relieve human suffering. FAQ 930 explains that the U.S. sanctions do not prohibit the exportation or reexportation of agricultural commodities, medicine, and medical devices to Afghanistan, as set forth in GL 15. FAQ 931 explains that non-U.S. persons do not risk exposure to U.S. sanctions for engaging in transactions that U.S. persons would be authorized under GLs 14 and 15.

Ransomware attacks have been increasing, forcing many businesses to choose between paying a ransom and losing access to their confidential and proprietary data or information networks and systems.

On September 21, the Department of the Treasury issued an updated advisory that highlights potential sanctions risks for companies that directly make or otherwise facilitate ransomware payments and offers “proactive steps” companies can take to mitigate such risks.

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On September 20, 2021, the Department of Commerce (Commerce) published in the Federal Register amended regulations to improve its administration and enforcement of the antidumping (AD) and countervailing duty (CVD) laws. The AD/CVD laws are intended to provide relief to domestic industries, including businesses, workers, farmers and ranchers, from the injurious effects of unfairly traded imports through the imposition of AD/CVDs. The final rule significantly modifies the agency’s regulations concerning industry support, new shipper reviews, scope inquiries, circumvention inquiries, covered merchandise inquiries, certifications and certain procedures. Aimed at closing loopholes and addressing inefficiencies, these revisions are Commerce’s first overhaul of the AD/CVD regulations in more than 20 years.

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On September 17, 2021, President Biden issued an Executive Order (EO), “Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia,” targeting persons responsible for the conflict in Ethiopia, obstructing humanitarian access and preventing a ceasefire. The White House issued a statement in connection with the new sanctions indicating they are directed at “the individuals and entities perpetrating the violence and driving a humanitarian disaster.” Along with the EO, OFAC also issued Frequently Asked Questions (FAQs) 922-927 and General Licenses 1, 2 and 3.

The EO authorizes the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) to sanction persons determined to be:

  1. responsible for or engaged in (a) actions or policies that are adverse to democracy, peace and security; (b) corruption and human rights violations; (c) obstruction of humanitarian relief; (d) the targeting of civilians with acts of violence; or (e) attacks in northern Ethiopia;
  2. a military or security force operating in northern Ethiopia; or
  3. a political agent of the government of Ethiopia, government of Eritrea or its ruling People’s Front for Democracy and Justice, the Tigray People’s Liberation Front, the Amhara regional government, or the Amhara regional or irregular forces.

As noted in the EO and detailed in the FAQs, the EO authorizes blocking sanctions and other non-blocking menu-based sanctions. Persons engaging in sanctionable activity may be designated to the Specially Designated Nationals and Blocked Entities (SDN) List or to the Non-SDN Menu-Based Sanctions (Non-SDN MBS) List. All property and interests in property of SDNs and entities owned 50% or greater by SDNs are blocked and cannot be dealt in by U.S. persons. Persons designated to the Non-SDN MBS List would be subject to menu-based sanctions set forth in the EO at Section 2(a)(i)(B)-(E) on a case-by-case basis including, but not limited to, the prohibition on new investments in debt or equity. The 50% rule does not apply to persons on the Non-SDN MBS List.

General Licenses 1, 2 and 3 authorize limited transactions that would otherwise be prohibited. GLs 1 and 2 authorize certain transactions and activities otherwise prohibited that are related to the official business of the U.S. government and official activities of certain international organizations, respectively. GL 3 authorizes the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices and software updates for medical devices, to Ethiopia or Eritrea, or to persons in third countries purchasing specifically for resale to Ethiopia or Eritrea.

On September 10, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued General License (GL) 5H, “Authorizing Certain Transactions Related to the Petróleos de Venezuela, S.A. 2020 8.5 Percent Bond on or After January 21, 2022,” which continues to delay U.S. persons’ ability to enforce bondholder rights to the CITGO shares serving as collateral for the Petróleos de Venezuela, S.A. (PdVSA) 2020 8.5% bond until on or after January 21, 2022. The previous deadline had been October 21, 2021. Effective September 10, 2021, this GL 5H replaces GL 5G. Additionally, OFAC modified frequently asked question #595 to address the scope of GL 5H.

With this new General License, U.S. persons remain prohibited until January 21, 2022 from engaging in any transactions related to the sale or transfer of CITGO shares in connection with the PdVSA 2020 8.5% Bond, unless specifically authorized by OFAC. In the modified FAQ 595, OFAC notes a favorable licensing policy toward those seeking to apply for a specific license in an effort to reach an agreement on proposals to “restructure or refinance payments due to the holders of the PdVSA 2020 8.5% bond.” See Update of July 21, 2021 for prior OFAC activity on this issue.

On September 8, 2021, the Court of International Trade (CIT) issued an order that revised its July 6, 2021 order granting the plaintiff group’s motion for a preliminary injunction in the ongoing China Section 301 tariff refund litigation. That preliminary injunction suspended liquidation of unliquidated entries from China subject to List 3 and List 4A duties, which, the plaintiff group alleges, are not authorized under the original investigation of the U.S. Trade Representative (USTR) into China’s actions adversely affecting U.S. intellectual property rights, innovation and technology development. The July 6, 2021 order also established a U.S. government repository for collecting information on unliquidated entries and a process for the companies represented by the plaintiff group to request suspension of liquidation of entries during the remainder of the litigation. See Update of July 7, 2021.

After nearly two months of negotiations, status reports and conferences, the government defendants conceded that U.S. Customs and Border Protection (CBP) could not carry out this process. Instead, the government defendants informed the CIT that they would stipulate to any refunds of unliquidated entries before July 6, 2021, and entries on or after July 6, 2021, should the plaintiffs prevail on the merits – a position they had previously rejected. As a result, the CIT’s September 8, 2021 order acknowledges the stipulation, which the plaintiff group supports, and directs the following actions:

  • The government defendants may continue to liquidate List 3 and List 4A entries and collect those additional duties;
  • Should the CIT find that the List 3 and/or List 4A duties have been illegally collected, and should that decision become final and conclusive, including all appeals, the government defendants must reliquidate any subject entries without the assessment of List 3 and List 4A duties, or otherwise refund to the plaintiff group companies such duties, with interest; and
  • The requirement for the government defendants to establish a repository for the collection of suspended liquidation of entries has been removed.

With this stipulation and the removal of the repository requirement, the plaintiff group will no longer be required to submit List 3 and List 4 A entry data to CBP to request suspension of these duties. The CIT order, however, makes clear that its scope only applies to entries that were unliquidated at the time of the July 6, 2021 preliminary injunction, and to entries entered on or after July 6, 2021.

Key Notes:

  • U.S. sanctions regulations require persons subject to U.S. jurisdiction to file initial and annual reports on blocked property and rejected transactions with OFAC.
  • Annual reports of property blocked from July 1, 2020 to June 30, 2021 must be submitted by September 30, 2021.
  • There is no annual reporting requirement for rejected transactions.

On June 21, 2019, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) amended the Reporting, Procedures and Penalties Regulations, 31 C.F.R. Part 501 (RPPR), to require all U.S. persons and persons otherwise subject to U.S. jurisdiction, not only U.S. financial institutions as previously required, to file certain reports on blocked property and rejected transactions pursuant to RPPR §§ 501.603 and 604.

Any such person holding property that became blocked between July 1, 2020 and June 30, 2021 must file an annual report with OFAC in compliance with 31 C.F.R. § 501.603(b)(2)(i)–(iii) by September 30, 2021.

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Recent additions to the Specially Designated Nationals (SDN) List highlight an increasing enforcement focus on corruption and money laundering. On August 24, 2021, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated three Paraguayan individuals and five associated entities to the SDN List in response to a corruption and money-laundering scheme involving local and federal bureaucracies. OFAC noted that the Tri-Border Area (TBA) where Argentina, Brazil, and Paraguay converge “is marked by a large number of unregistered money exchange houses, trade based money laundering through export-import and retail businesses in the electronics and automotive sectors, the lack of awareness of money laundering and terrorist financing typologies and risk in the private sector, the intensive use of cash by businesses and individuals, and a large volume of transfers to high risk jurisdictions.” OFAC’s Director, Andrea Gacki, stated that this action “demonstrates the U.S. government’s ongoing effort to impose tangible and significant consequences on corrupt actors in order to protect the U.S. financial system from abuse.”

In this instance, three Paraguayan individuals, Kassem Mohamad Hijazi, Khalil Ahmad Hijazi, and Liz Paola Doldan Gonzalez, and five related entities connected to them were acting as “despachantes” (or dispatchers) in using their network of local and federal government officials to launder money. Through a network of front companies and business relationships, these individuals are able to move illicit proceeds “all around the world with ease,” including to the United States, South America, Europe, the Middle East, and China. For additional details on the overall scheme and role that each individual and front company played in the corruption and money laundering scheme, see OFAC’s press release.

As a result of these designations to the SDN List, all property and interests in property of these individuals and entities that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. U.S. persons are generally prohibited from engaging in transactions with these sanctioned individuals and entities. In addition, any entities that are owned, directly or indirectly, 50 percent or more by the designated persons and entities are also blocked.