Sanctions Violations: New 10-Year Statute of Limitations

By: Robert Slack , Melissa Duffy , Christopher J. Steskal , Julia Kuelzow , Sofia Chalat , Trevor Coval

What You Need To Know

  • The statute of limitations for U.S. sanctions violations increased from five to ten years, substantially expanding companies’ exposure to penalties for past conduct.
  • Companies will need to ensure that adequate diligence is collected on target companies in the context of investments, mergers, and acquisitions.
  • Companies should consider how an extended statute of limitations affects their risk profile, and whether to adjust internal investigation procedures and voluntary-self disclosure practices to address that risk.
  • Other measures in the bill mandate the expansion of U.S. sanctions, including those related to narcotics trafficking, Iran, and China.

On April 24, 2024, President Biden signed into law an emergency supplemental appropriations law, H.R. 815 (Public Law 118-50), that provides substantial military aid to Ukraine, Israel, and Taiwan and could force the sale of TikTok. The bill includes an expansion of the statute of limitations applicable to civil and criminal violations of U.S. sanctions laws, allowing the U.S. government to impose civil and criminal penalties for up to ten years following a violation of sanctions programs administered by the Office of Foreign Assets Control (OFAC). This is a substantial change from the prior five-year statute of limitations, resulting in increased sanctions liability exposure for companies.

The bill also mandates new sanctions programs and an expansion of certain sanctions authorities, with a particular focus on China.

Extended OFAC Statute of Limitations

H.R. 815 expands the statute of limitations for violations of the International Emergency Economic Powers Act (IEEPA), the statutory basis for most U.S. sanctions programs administered by OFAC, and the Trading With the Enemy Act (TWEA), the basis for the Cuba sanctions program, from five to ten years. Under this expanded authority, the U.S. government will be able to investigate and pursue enforcement actions against potential violations of U.S. sanctions laws for an additional five years, expanding the risk for companies that violate U.S. sanctions. It is likely that OFAC will expand its recordkeeping requirements to match the ten-year period specified in the new statute from its current five-year retention period. We also expect that OFAC will issue guidance on the regulatory impact of the statute of limitations change, including with respect to voluntary self-disclosure reviews.

Barring a successful legal challenge, the new statute of limitations will substantially expand companies’ potential liability for past violations. Companies will need to update due diligence procedures for investments, mergers, and acquisitions to examine the target’s past conduct for an extended period. In addition, under the current statute of limitations, companies are expected to conduct a five-year lookback when investigating transactions for potential violations of U.S. sanctions laws following a voluntary self-disclosure. Now, with the new ten-year statute of limitations, OFAC may expect companies to adjust internal investigation procedures to consider longer lookback periods.

More broadly, the expanded statute of limitations is another indication of the more aggressive U.S. enforcement posture with respect to violations of U.S. sanctions laws. A year ago, Deputy Attorney General for the U.S. Department of Justice (DOJ) Lisa Monaco stated that “sanctions are the new FCPA” (Foreign Corrupt Practices Act)—signaling an increase in enforcement resources and penalties to come. Paired with that policy shift, the new rules may encourage companies to voluntarily self-disclose violations of OFAC’s regulations to avoid the long wait for the statute of limitations to lapse as inflation-adjusted base penalties continue to climb.

Expanded Sanctions Authorities and U.S. Export Controls

In addition to the expansion of the statute of limitations, H.R. 815 significantly expands U.S. authorities to impose sanctions for a variety of conduct that is inimical to U.S. national security and foreign policy interests, including the following:

  • Foreign actors involved in fentanyl trafficking;
  • Transportation and purchase of Iranian petroleum products;
  • Proliferation of Iranian missiles;
  • Acts or support of terrorism (Hamas, Palestinian Islamic Jihad, and other Palestinian terrorist organizations), including terrorism financing;
  • Threats to or use of violence against current or former U.S. officials;
  • Activities related to the illicit production or proliferation of captagon (an amphetamine-type stimulant distributed by the Syrian regime); and
  • Iran’s Supreme Leader and officials in the Supreme Leader’s Office of the of Iran.

The law also seeks to harmonize U.S. sanctions on Russia with those imposed by the European Union and the United Kingdom, including through alignment of list-based asset freeze and blocking sanctions. Additionally, it authorizes the President to seize Russian sovereign assets blocked by U.S. financial institutions and provide them to Ukraine for reconstruction. This latter development may add complexity to OFAC license applications involving requests to unblock and deal in such assets.

Finally, H.R. 815 amends the Iranian Foreign-Direct Product Rule (FDPR) to expand the scope of export-controlled items to Iran. The Iranian FDPR is a mechanism under the U.S. Export Administration Regulations, the U.S. dual use export control regulations, to subject a broader array of foreign produced goods, software, and technical information to U.S. export controls jurisdiction. The expansion seeks to further limit Iran’s access to a growing list of items and technologies used to produce missiles that support Russia’s war against Ukraine and the conflict in the Middle East.

Many of these new authorities require the President to act within the next 90 to 180 days, so it is likely OFAC will exercise these new designation authorities and take steps to implement H.R. 815’s requirements in the near future.

China-Focused Provisions

H.R. 815 includes several provisions that focus on China, particularly related to Chinese evasion of U.S. sanctions, the development of emerging technologies, and activities that are contrary to U.S. national security interests. These include:

  • Iran-China Energy Sanctions. H.R. 815 revises the Comprehensive Iran Sanctions Accountability and Divestment Act of 2010 (CISADA), which provides authority for secondary sanctions consequences on non-U.S. entities operating outside U.S. jurisdiction, to expand the scope of “significant” transactions for secondary sanctions purposes to include:
    • Chinese financial institutions involving the purchase of petroleum or petroleum products from Iran, or
    • Foreign financial institution involving the purchase of Iranian unmanned aerial vehicles (UAVs), UAV parts, or related systems.

  • China’s Role in Iran Sanctions Evasion. The law requires the Secretary of State to provide an assessment of options and written strategy for expanding sanctions related to China’s role in the evasion of U.S. sanctions on Iran.
  • Chinese Emerging Technological Developments Report. H.R. 815 requires a component on emerging technological developments involving China identification to be included in the “China Military Power report,” an annual report submitted under 1202 of the National Defense Authorization Act for Fiscal Year 2000 (Public Law 106–65; 10 U.S.C. 113 note). This component of the report will assess at least five fields of critical or emerging technologies in which China has invested, or those that are Military-Civil Fusion Development Strategy programs. The report will identify at least 10 Chinese entities involved in each field, the national security implications of Chinese leadership or dominance in each field and associated supply chains, and relevant U.S. touchpoints, including whether:
    • The entity has procured components from any known United States suppliers;
    • Any United States technology imported by the entity is controlled under United States regulations; or
    • United States capital is invested in the entity, either through known direct investment or passive investment flows.

Key Takeaways

  • Ensure that adequate diligence is collected on target companies and other third parties within a ten-year lookback period, particularly in the context of investments and mergers and acquisitions.
  • Expect to align recordkeeping and compliance measures to conform to the new extended OFAC statute of limitations period.
  • Companies will need to consider how an extended statute of limitations affects their risk profile, and whether to adjust internal investigation procedures and voluntary-self disclosure practices to address that risk.
  • Expect to see new sanctions designations and measures in the near term, given the new designation authorities and as Congress continues to push for harmonization of U.S, EU, and UK blocking sanctions.
  • Congress has signaled that China and its role in sanctions evasion of technological developments continues to be a key policy priority.