Recently, President Biden signed a foreign military support bill (H.R. 815) into law, which also encompassed the 21st Century Peace Through Strength Act (the Act), a legislative proposal introduced in the House containing various U.S. sanctions-related measures. These sanctions measures extended the statute of limitations ("SOL") from five to ten years for civil and criminal violations of sanctions programs administered by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"). This change affects sanctions authorized under the International Emergency Economic Powers Act ("IEEPA") and the Trading with the Enemy Act ("TWEA"), doubling the time period during which companies can be held accountable for sanctions violations. This extension is expected to have notable effects on best practices for U.S. economic sanctions compliance across different areas, such as internal policies and procedures, civil and criminal probes, M&A deals, and other corporate transactions.
Background
In the past year, U.S. authorities have been emphasizing the importance of sanctions enforcement and disclosure of violations. Multiple statements from officials, including Deputy Attorney General Lisa Monaco, highlighted the need for compliance with sanctions laws. Additionally, a joint compliance note from the DOJ, OFAC, and the U.S. Commerce Department's Bureau of Industry and Security ("BIS") stressed the significance of complying with sanctions, export controls, and other national security laws.
Extension of Statute of Limitations
The Act included in H.R. 815 extends the SOL from five to ten years for civil and criminal violations of IEEPA and TWEA. These statutes form the basis for most OFAC sanctions programs. As a result, OFAC and the DOJ now have a longer period to investigate and enforce sanctions violations, increasing the likelihood of identifying potential infractions.
The increased SOL will impact how companies address sanctions risk and compliance. Key implications include:
- Reviewing information retention policies and procedures to comply with the extended SOL requirements. Currently, OFAC mandates that all transactions "subject to" its regulations must be documented with a comprehensive and precise record, maintained for a minimum of five years. It is likely this regulation will be revised to require the retention of records for at least 10 years. In the interim, the new statute of limitations may prompt OFAC to issue administrative subpoenas requesting records dating back 10 years, even if there is no current obligation to retain records for that duration. Thus, businesses operating in this realm should remain diligent regarding changes to the recordkeeping period and will need to assess their record management protocols to ensure the necessary documents are preserved.
- Expanding the scope and methodology of internal investigations to cover transactions dating back ten years.
- Transactional due diligence will be significantly affected, particularly for companies seeking to engage in acquisitions, investments, or lending to entities with U.S. sanctions and export control compliance issues. These companies may now need to request documentation that covers the full 10-year retrospective period. Additionally, representations and warranties in relevant agreements will need to consider this extended duration of potential liabilities, leading to increased costs and logistical challenges for all involved parties.
- Assessing whether to file a voluntary self-disclosure of apparent violations becomes more critical because of the added costs and resources required for a comprehensive ten-year internal investigation.
Impact on National Security Laws
The Act does not affect SOLs related to violations of the Export Control Reform Act or Arms Export Control Act. However, implications may arise for national security controls related to technology and services, outbound investment, and transfers of sensitive data based on executive orders issued under IEEPA.
Future Outlook
OFAC is expected to provide guidance on how the extended SOL will impact enforcement cases, internal investigations, and voluntary disclosures. The agency may utilize the new authority to enforce sanctions violations more rigorously, potentially leading to increased enforcement actions and penalties.
In conclusion, the extension of the statute of limitations for sanctions violations underscores the importance of compliance with sanctions laws and the need for companies to review and enhance their sanctions risk profiles and compliance programs. The implications of this change will require businesses to adapt their policies and procedures to ensure alignment with the new ten-year SOL.
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