On October 15, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued “Sanctions Compliance Guidance for the Virtual Currency Industry” (the “Guidance”). The Guidance follows recent guidance and advisory letters directed to the virtual currency industry relating to the risk of facilitating ransomware payments[1] and is OFAC’s most comprehensive virtual currency-specific advisory to date. In particular, the Guidance directly addresses some simpler interpretive questions, discusses sanctions compliance programs and “best practices,” and provides hints about OFAC’s enforcement priorities going forward.
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A Look Behind the CFIUS Non-Notified Process Curtain; How it Works and How to Handle Outreach From CFIUS
The Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) is a U.S. government interagency committee that has the authority to review investments that provide a foreign person with control or, in some cases, certain non-controlling rights over a U.S. business and evaluate the extent to which such transactions raise national security concerns. For decades following the establishment of CFIUS, the Committee largely only reviewed transactions that parties proactively submitted to CFIUS. This primarily was due to CFIUS’s limited resources and dedication of such resources to reviewing transactions notified to CFIUS. In 2018, Congress passed the Foreign Investment Risk Review Modernization Act (“FIRRMA”), which, among other things, provided CFIUS with additional resources to identify transactions that: (1) could be within the jurisdiction of CFIUS, (2) potentially raise national security concerns, and (3) were not notified to CFIUS (often referred to as “non-notified transactions”).
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New Biotech Export Controls Expand CFIUS Mandatory Notification Requirements
Earlier this week, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) published a final rule (the “Final Rule”) imposing export controls on additional emerging technologies pursuant to the Export Control Reform Act of 2018 (“ECRA”).[1] We previously wrote about the process to identify and impose export controls on emerging and foundational technologies under the ECRA, as well as the steps taken in furtherance of that process, here and here.
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Is Your U.S. Sponsored Private Equity Fund a Foreign Person for CFIUS Purposes?
Maybe.
Let’s use a typical U.S. sponsored private equity fund as an example. In this example, the limited partnership (“Fund”) is registered in the Cayman Islands and managed by a U.S.-based investment firm through a U.S.-based general partner (“GP”) entity and U.S. citizens in New York making investment decisions.
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OFAC Updates Ransomware Advisory and Sanctions Virtual Currency Exchange
On September 21, 2021, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC): (i) issued an updated advisory on potential sanctions risks for facilitating ransomware payments; and (ii) designated SUEX OTC, S.R.O. (SUEX), a virtual currency exchange, on the list of Specially Designated Nationals and Blocked Persons (SDN List) for its role in facilitating financial transactions for ransomware actors.[1] These actions demonstrate the U.S. government’s increasing focus on virtual currencies as a key means of facilitating ransomware payments and related money laundering, as well as OFAC’s commitment to combating ransomware attacks and other malicious cyber activities.
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CFIUS Threatens to Block Magnachip Deal; Shows Willingness to Interpret its Jurisdiction Broadly
Updated on December 15, 2021
Magnachip Semiconductor Corporation (“Magnachip”), a South Korea-based semiconductor company, recently disclosed that the Committee on Foreign Investment in the United States (“CFIUS” or the “Committee”) threatened to recommend that President Biden exercise his authority to block a Chinese private equity firm’s acquisition of Magnachip due to unresolvable national security concerns. Given Magnachip’s very limited nexus to the United States, this case demonstrates the willingness of CFIUS to stretch its jurisdictional arms, especially when it comes to transactions implicating sensitive sectors.
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CFIUS Releases 2020 Annual Report
The Committee on Foreign Investment in the United States (CFIUS) recently released its 2020 annual report, which provides information and statistics regarding transactions reviewed by CFIUS in 2020.[1] For the first time, the 2020 annual report also includes information regarding so-called non-notified transactions identified and reviewed by CFIUS.
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Cryptocurrency and Other New Forms of Financial Technology: Potential Terrorist Financing Concerns and Liability
While large financial institutions have traditionally been hesitant to enter new areas of financial products, particularly virtual assets, many more banks and companies have expressed interest in virtual currencies as cryptocurrency has become increasingly mainstream. Given the use of such services by terrorist groups, it is important for banks and other financial institutions to consider evolving dynamics in this area. On the one hand, one of the widely described benefits of virtual currency is the transparency and public nature of transactions since they are typically recorded in a publicly accessible blockchain, which could facilitate policing and enforcement against illicit activity. At the same time, the relevant legal framework for combating terrorist funding creates potential areas of liability, including, in particular under the Anti-Terrorism Act (“ATA”) and the Justice Against Sponsors of Terrorism Act (“JASTA”). These considerations are important for companies and banks that provide services related to virtual currency, but also are relevant to any company that could be the target of ransomware attacks since attackers may be sanctioned entities or have ties to terrorism and as a matter of practice demand that the ransom payment be made in virtual currency.
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China Passes “Anti-Foreign Sanctions Law”
On June 10, 2021, the Standing Committee of the National People’s Congress of China adopted the “Anti-Foreign Sanctions Law,” which represents the Chinese government’s most recent and direct response to U.S. and EU sanctions that have been imposed on China during the last year. The law, which took immediate effect, authorizes the Chinese government to take certain actions when foreign countries are deemed to breach international laws or basic norms of international relations, seek to contain or suppress China’s interest under pretext or using their domestic laws, adopt restrictive measures against Chinese citizens or organizations on a discriminatory basis, or interfere with China’s domestic affairs. Given how broadly a number of the provisions are worded, it remains to be seen how the Chinese government will implement and enforce the law.
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Biden Administration Overhauls Chinese Securities Investment Restrictions
President Biden recently issued a highly anticipated executive order that effectively replaces an existing ban on U.S. persons trading in securities of companies determined to be linked to the Chinese military. Effective August 2, 2021, U.S. persons are prohibited from purchasing (and, as of June 3, 2022, selling) certain publicly traded securities of companies listed