Authors
In today’s global economy, supply chains often span multiple countries, making compliance with international sanctions and export controls a complex but crucial task. Of late, the task has become more crucial still, as the U.S. Department of Justice (DOJ) has become increasingly active in this space. Criminal investigations and prosecutions have proliferated, revealing lessons for lawyers and clients. We highlight three lessons here.
Regulatory and compliance challenges
First, sanctions and export-control compliance should include anticorruption compliance tailored to your supply-chain risk areas. When, as here, an issue like sanctions becomes a DOJ priority, one might be inclined to focus surgically on that one issue. But it is not uncommon for some issues to go hand-in-hand with others. Consider the Foreign Corrupt Practices Act (FCPA), for example: An FCPA investigation often includes a money-laundering component. In a similar vein, a sanctions or export-control matter may – and in one recently publicized case did – include a foreign bribery piece. See recently publicized case.
Second, sanctions and export controls generally implicate weighty national-security interests; accordingly, companies under DOJ scrutiny may find themselves with little leeway in law and litigation – a strong reason to prioritize compliance ex ante. Consider the case of United States v. Shih, No. 23-3718 (9th Cir. Oct. 25, 2024). There, a university professor was convicted of violating a federal statute by exporting certain technology to China without the necessary license. The technology was used in connection with a Chinese enterprise that developed military weapons. The issue, in simplified terms, was whether Shih’s offense involved “national security controls.” Shih argued that the pertinent controls were “foreign policy controls,” not “national security controls,” thus counseling in favor of a lower sentence.
The Ninth Circuit rejected this argument, observing that the pertinent controls could be both. Reviewing the law and regulatory framework, the court observed that the reasons for subjecting these items to regulation included promoting “responsibility and transparency in the global arms trade” and preventing “destabilizing accumulations of conventional weapons.” Additionally, the U.S. Department of Commerce, Bureau of Industry and Security’s listed reasons for control included (among others) “national security.” An area like sanctions and export controls may not easily lend itself to fine distinctions. Much better to focus ex ante on compliance.
Third, and relatedly, mitigation arguments in litigation may prove challenging in the context of sanctions and export controls. In Shih, the defendant sought a lower sentence by casting his conduct as a mere recordkeeping or reporting offense. The Ninth Circuit called this argument “plainly unavailing,” emphasizing the significant national-security implications of his actions.
With sanctions and export-control investigations expected to increase, endeavoring to ensure compliance in supply chains is critical. In so doing, consider sanctions-adjacent risks, and recognize that fastidious compliance – as a reflection of the national-security concerns at issue – may serve you well with DOJ and other government enforcers should an issue ever arise.