Fresh Looks at U.S. Sanctions & Export Controls

How to audit export controls compliance programs, and those of your distributors, more effectively and less costly?

Trust, But Verify…Therein Lies the Rub: A Fresh Look at Audits of Export Controls Compliance Programs (Nov. 19, 2024)

Carlson and Huneke explain the pitfalls of relying on traditional (often self-reported) inputs in conducting audits of companies’ or their distributors’ export control compliance programs. Although there is substantial political pressure from the U.S. Congress to conduct such audits across as many counterparties and as frequently as possible, trying to do such audits rapidly and at scale runs the risk of having to rely on inputs of limited value or veracity, creating costly potential liability landmines in the process. Instead, following recent U.S. cross-agency guidance emphasizing the “high probability” standard, U.S. companies should assess their greatest risks of export controls violations and direct their finite audit—and compliance—resources on those priority areas. Doing otherwise not only wastes time and money with increasingly material enterprise risk, but also will fail to bring to bear the right focus and critical thinking necessary to have a fighting chance of detecting and preventing the sophisticated diversion schemes that adversarial foreign powers support. The world has changed, and compliance tactics need to change with it.

If my company can’t avoid a BIS administrative subpoena, how should we respond?

Avoid Kicking the Hornet’s Nest: A Fresh Look at How to Anticipate, Avoid, and Respond to BIS Administrative Subpoenas (Part 2) (Sept. 26, 2024)

Huneke and Carlson conclude Part 1’s discussion of practical tips for avoiding administrative subpoenas, then conclude Part 2 with a discussion of how best to respond to a BIS administrative subpoena if one can’t be avoided.

How do I anticipate and hopefully avoid BIS administrative subpoenas?

Avoid Kicking the Hornet’s Nest: A Fresh Look at How to Anticipate, Avoid, and Respond to BIS Administrative Subpoenas (Part 1) (Sept. 19, 2024)

Huneke and Carlson explain why administrative subpoenas are likely the next step in the Bureau of Industry & Security’s enforcement “playbook,” discuss how to recognize and anticipate the circumstances in which they might arise, and begin their discussion of how best to avoid them entirely—to be continued in Part 2 (forthcoming).

How can I help my company avoid the pitfalls of legacy responses to distributor or reseller export controls diversion risks?

It May Not Be Worth the Paper (or Pixel) It’s Written On (Part 2): A Fresh Look at Common Responses to Bolster Export Controls Compliance Programs as BIS Primes the Corporate Enforcement Engine (Sept. 9, 2024)

Huneke and Carlson follow Part 1’s focus on letters of assurance and their limitations with a look at other legacy responses. They explain why ignoring “red flag” letters or similar warnings, responding only selectively to such outreach, continuing to rely on traditional Know-Your-Customer (“KYC”) screening tools alone, and accepting representations at face value from new counterparties for the same items all present compliance and enforcement risks. They then explain why designing and implementing a methodology based on the “high probability” standard emphasized by BIS to conduct enhanced screening before proceeding with transactions otherwise appearing to present a high probability of diversion risk—per BIS guidance published on July 10, 2024—is the best way to protect the company and its management, directors, and employees.

How do I identify—and then mitigate—the greatest diversion risks posed by our distributors and resellers, and is a letter of assurance enough?

It May Not Be Worth the Paper (or Pixel) It’s Written On (Part 1): A Fresh Look at Letters of Assurance Used to Bolster Sanctions and Export Controls Compliance (Aug. 2, 2024)

Huneke and Carlson explore the necessity of seeking letters of assurance from distributors and resellers, such letters’ limitations, and how to leverage the “high probability” standard emphasized by the July 10, 2024, BIS enforcement guidance to help identify and mitigate the greatest diversion risks in U.S. manufacturing or design companies’ sales channels.

What will drive BIS enforcement going forward, and how should I prepare my company?

BIS Primes the Corporate Enforcement Engine: A Fresh Look at What Recent BIS Actions & Statements Mean and a Proposed Framework for How U.S. Companies Can Best Prepare (May 30, 2024)

Huneke and Carlson provide updates regarding BIS officials’ statements about export control enforcement, their comparison of emerging export control enforcement to past FCPA enforcement, and identify five core principles to guide the creation of risk-mitigation framework in the new enforcement environment driven by the “high probability” standard found in both the FCPA and the Export Administration Regulations.

My company received a list from BIS. What does it mean?

A Whole New National Security Ballgame: Key Practical Takeaways for Export Control Compliance from the 2024 BIS Update Conference (April 5, 2024)

Huneke and Carlson explain the significance of the so-called “red flag” letters sent by BIS to more than 20 American companies, both in terms of due diligence on the listed third parties and potential exposure under the “high probability” standard.

How to improve pre- and post-resolution monitoring?

Monitoring What Matters: A Fresh Look Proposal to Government and Industry for How Post-Resolution Oversight Can Best Deny Hostile Actors the Means to Cause Deadly Harm (March 28, 2024)

Huneke and Carlson explain why traditional monitoring might not achieve national security objectives, be too costly, and take too long. They propose an alternative framework for companies under investigation to consider pre-resolution or to negotiate for post-resolution with U.S. agencies.

How to respond to U.S. congressional inquiries?

“Expect Some Illumination”: A Fresh Look at U.S. Congressional Hearings in the Era of Sanctions and Export Controls as the New FCPA (March 14, 2024)

Huneke and Carlson provide observations and practical guidance for companies expecting to go before Congress. This was a timely subject given the Feb. 27 hearing in the U.S. Senate where senators called data of sales by four U.S. manufacturers to Kazakhstan and other diversion points “troubling" and previewing further hearings.

What is the “high probability” standard under the EAR?

How Not to Stand Out Like a Sore Thumb (Part 2): A Fresh Look at the “High Probability” Definition of Knowledge Applied to Export Controls and Sanctions Enforcement (February 21, 2024)

Huneke and Carlson delve into the “high probability" definition of knowledge in the U.S. Export Administration Regulations, which is also the same standard that applies to indirect payments under the U.S. Foreign Corrupt Practices Act (FCPA). This standard has in many ways been a key driver of FCPA enforcement for the past two decades but has not (yet) been applied by the Departments of Commerce or Justice in the context of export controls evasion.

What is the “willfulness” standard for criminal liability?

How Not to Stand Out Like a Sore Thumb (Part 1): A Fresh Look at the “Willful” Intent Standard for Criminal Liability in Export Controls and Sanctions Corporate Enforcement (February 13, 2024)

Huneke and Carlson explored how the “willfulness" trigger for criminal liability works in practice, and provided practical tips for manufacturers and exporters seeking to ensure their compliance programs are calibrated to the risk of criminal enforcement.

How can boards of directors manage their risk?

Boards of Directors Lovin' It after McDonald's? A Fresh Look at Directors' Duty of Oversight in the New Era of Sanctions & Export Control Corporate Enforcement (January 12, 2024)

Huneke and Carlson examine the increasing liability risk for boards of directors given heightened geopolitical tensions and a renewed focus on U.S. national security. Huneke and Carlson discuss how the Delaware Chancery Court summarized directors' duty of oversight in the McDonald's shareholder litigation, and how the duty of oversight could apply to sanctions- and export controls-evasion—both in terms of compliance programs and responding to alleged or reported evasion.

How do DOJ corporate enforcement policies apply?

An Ounce of Prevention is Worth a Pound of Cure . . . or an Imposed Compliance Monitorship: A Fresh Look at the DOJ's Corporate Enforcement Toolkit Applied to Sanctions and Export Controls Enforcement (December 4, 2023)

Huneke and Carlson examine the U.S. Department of Justice (DOJ)'s corporate enforcement tools to increase the cost of non-compliance. These tools include the DOJ's new policies requiring companies to claw back or withhold executive compensation, requiring CEOs and chief compliance officers to make pre-release compliance certifications, and expanding the grounds for appointing independent compliance monitors.

What are the penalties, and how might those evolve?

From Peanuts to Prison Time – A Fresh Look at the Evolution of Export Controls Penalties (November 14, 2023)

Huneke and Carlson discuss how export control penalties have historically fallen behind FCPA penalties and how that might change given new U.S. national security priorities.

• Cited by Richard Vanderford, “U.S. Likely to Levy Higher Penalties for Export-Control Violations,” Wall Street Journal (Jan. 17, 2024)
• Cited by Amy Mackinnon, “Russia’s War Machine Runs on Western Parts,” Foreign Policy (Feb. 22, 2024))

How to respond to allegations or reports of evasion?

Slow is Smooth, Smooth is Fast: A Fresh Look at Planning and Executing Internal Investigations into Allegations of Sanctions or Export Controls Evasion (October 30, 2023)

Huneke and Carlson discuss how the U.S. Navy SEAL's and aikido martial arts masters' principle of “Slow is Smooth, Smooth is Fast" helps to respond to allegations of sanctions or export controls evasion.

How to identify and assess my risks?

Know Your Customer, But Also Yourself: A Fresh Look at Sanctions & Export Controls Risk Assessments in the Era of the 'New FCPA' (September 28, 2023)

Huneke and Carlson explain that sanctions and export controls risk must be assessed in an updated and more effective manner that reflects the current heightened economic sanctions and export controls enforcement environment.

What loopholes actually expose my company to liability?

When Loopholes Create Liability Pitfalls: A Fresh Look at Export Controls (August 25, 2023)

Carlson launches the “Fresh Look” series with a cautionary tale of how (mis)perceived loopholes or technicalities may instead expose companies and individuals to liability.

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