On August 27, 2020, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) issued an advance notice of proposed rulemaking (the ANPRM) requesting public comment on the definition of, and criteria for identifying, “foundational” technologies that are essential to U.S. national security and should be subject to more stringent export controls. The ANPRM marks another step toward implementing the long-delayed “emerging and foundational technology” provisions of the Export Control Reform Act of 2018 (ECRA). Like the earlier ANPRM regarding emerging technologies, the rulemaking is still at a conceptual stage. Continue Reading BIS Issues Long-Awaited Request for Public Comment on Foundational Technologies
On August 21, the Financial Crimes Enforcement Network, together with the federal banking agencies, released a statement to clarify banks’ customer due diligence obligations for politically exposed persons. The Statement affirms that (i) there is no regulatory requirement, and no supervisory expectation, for banks’ Bank Secrecy Act / anti-money laundering programs to include “unique, additional due diligence steps” for customers who are PEPs and (ii) there is no regulatory requirement for banks to screen customers and their beneficial owners for PEPs. Instead, the Statement confirms that PEP customers should be subject to the same risk-based approach to CDD that applies to any other customer, but that PEP status (and screening for PEPs) may be a factor in developing a customer risk profile and assessing money laundering risk. It also reminds banks of the continued U.S. national security and law enforcement interest in detecting and combatting public corruption and other criminality involving PEPs.
Please click here to read the full alert memorandum.
On August 20, 2020, the U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) published a final rule that further tightens restrictions under the Export Administration Regulations (“EAR”) on Huawei Technologies Co., Ltd. and its affiliates designated on the Entity List administered by BIS (“Huawei”) (the “Final Rule”). The Final Rule: (i) expands the prohibition on providing items manufactured with controlled U.S. technology or software to Huawei to include all items transferred to Huawei or for a Huawei device, whether or not specifically designed by or for Huawei ; (ii) removes most of the Temporary General License (“TGL”) that permitted some transactions involving Huawei, including activities that support existing networks and equipment; and (iii) added 38 non-U.S. affiliates of Huawei to the Entity List. The Final Rule was published in the Federal Register on August 20, but became effective upon being made available for public inspection on August 17.
In a contemporaneous final rule, BIS clarified that license requirements for entities included on the Entity List apply regardless of the role that the listed entity has in the transaction (i.e., purchaser, intermediate consignee, ultimate consignee or end-user) (the “Entity List Final Rule”). This clarification applies to all entities on the Entity List, not just Huawei. Continue Reading BIS Further Tightens Export Restrictions on Huawei
Following completion of a review by the Committee on Foreign Investment in the United States (“CFIUS”), President Trump recently issued an Executive Order requiring ByteDance to, among other things, divest itself of assets and property that enable or support operation of the TikTok application in the United States within 90 days (the “CFIUS Order”). This was not an unexpected outcome. We previously reported on the unusual nature of CFIUS’s review here. The week before, President Trump issued a different Executive Order authorizing the Commerce Department to prohibit transactions involving a U.S. person or within the jurisdiction of the United States with ByteDance (the “Commerce Order”), with details of the restrictions to come in 45 days. We previously reported on the Commerce Order here. According to press reports, negotiations for a possible acquisition of TikTok continue, and it remains to be seen whether those restrictions will come to fruition and on what timetable. Continue Reading President Trump Orders TikTok Divestment; Sweeping Order Appears to Indicate a Broadening of CFIUS’s Jurisdiction
Following the enactment of the Hong Kong Autonomy Act (HKAA), the issuance of Executive Order 13936, which implemented sanctions authorities under the HKAA and other statutes, and other recent U.S. sanctions designations and enforcement actions, many multinational entities based or operating in Hong Kong are concerned with how to navigate the new landscape. Financial institutions subject to regulation by the Hong Kong Monetary Authority (HKMA) are in a particularly difficult position given the recent circular guidance from the HKMA reminding regulated institutions that “unilateral sanctions imposed by foreign governments are not part of the international targeted financial sanctions regime and have no legal status in Hong Kong” and that their policies should be “informed by a thorough assessment of any legal, business and commercial risks involved and based on a balanced approach. In assessing whether to continue to provide banking services to an individual or entity designated under a unilateral sanction which does not create an obligation under Hong Kong law, boards and senior management of [regulated institutions] should have particular regard to the treat customers fairly principles.”
Please click here to read the full alert memorandum.
The Committee on Foreign Investment in the United States (CFIUS) recently released its 2019 annual report, which provides information and statistics regarding transactions reviewed by CFIUS during 2019. CFIUS released its 2018 annual report (as well as summary data for transactions reviewed in 2019) last month, which we wrote about here. The 2019 annual report confirms and expands on the more limited 2019 data released last month.
Key takeaways include: (i) the number of CFIUS notices has remained relatively consistent over the past three years; (ii) the percentage of notices that proceeded to a second-stage investigation decreased significantly from 69% in 2018 to 48.9% in 2019; (iii) the percentage of notices withdrawn and refiled decreased from 18.6% and 18.3% in 2017 and 2018, respectively, to 7.8% in 2019; and (iv) only 4.3% of transactions reviewed by CFIUS during 2019 were abandoned as a result of CFIUS issues, compared to 10.5% and 8.7% in 2017 and 2018, respectively. Continue Reading CFIUS Releases 2019 Annual Report
On 6 July 2020, the UK Government announced the introduction of a “Global Human Rights” sanctions regime (the “GHR Sanctions”). The regime marks the first time the UK Government has imposed sanctions measures independently from the European Union and the first time it has exercised its ability to impose sanctions directly in response to human rights violations. However, the new measures do not necessarily indicate the UK’s future policy direction, and after Brexit the UK sanctions regime will look broadly similar to that of the EU. Continue Reading New UK Sanctions Regime Introduced
Last night, President Trump issued two Executive Orders establishing a framework for prohibiting transactions involving popular Chinese-owned communications apps WeChat and TikTok. Contrary to some press reports, the Executive Orders do not prohibit all transactions with their respective parent companies; they do not in fact set out the scope of the restrictions. Rather, they give the Commerce Department authority to prohibit any transaction involving a U.S. person or within the jurisdiction of the United States involving the two services; each of the Executive Orders clearly states “45 days after the date of this order, the Secretary shall identify the transactions subject to subsection (a) of this section [which contains the broad authority to prohibit].” Furthermore, the scope of Commerce’s authority is subtly (and no doubt intentionally) different in the two Executive Orders: with respect to TikTok, the authority covers any transaction with ByteDance, TikTok’s parent; with respect to WeChat, the authority covers any transaction relating to WeChat involving its parent, Tencent Holding. Commerce will, within 45 days, take further action specifying exactly which transactions will be prohibited; it is even possible, particularly with respect to TikTok if the mooted divestiture of U.S. operations occurs, that no restrictions will be imposed. Unless and until Commerce implements the Executive Orders, no restrictions are in place and their precise future scope is unknown. Continue Reading President Trump Authorizes Restrictions on WeChat and TikTok; Details to Come
On July 23, 2020, the Government published a Decree no. 2020-892 (the “Decree”) and a Ministerial Order (the “Ministerial Order”) both of July 22, 2020 on the temporary lowering of the threshold triggering control of foreign investments in French listed companies. The Decree aims to temporarily reduce the threshold triggering review of non-EU/EEA investments when targeting French listed companies in the context of the COVID-19 pandemic. As explained by the French Minister for the Economy, “[w]hile most foreign investment transactions are opportunities for French companies, the volatility of financial markets and the very sharp decline in the valuations of a large number of companies make them particularly vulnerable to potential unfriendly transactions, which calls for increased vigilance ». Continue Reading France Foreign Investment Control – New Rules Temporarily Applicable to non-EU/EEA Investments Enter Into Force Today
Initial press reports last November that the Committee on Foreign Investment in the United States (CFIUS) had commenced a review of ByteDance’s acquisition of Musical.ly, the service that was merged into ByteDance’s video-sharing site TikTok and helped fuel its expansion, were not particularly surprising to those familiar with CFIUS and its concerns. However, recent departures from established CFIUS processes in the TikTok matter are striking and concerning for persons engaging in cross-border transactions involving the United States, calling into question the scope, apolitical nature, confidentiality, and security focus of the CFIUS process. Continue Reading TikTok: Familiar Issues, Unfamiliar Responses