There has been a discernible shift from a focus on Russia sanctions to a focus on China-related sanctions, particularly as they pertain to fentanyl production and trafficking.
The Biden Administration has been particularly active on China within the last few weeks, with export control restrictions imposed against multiple Hong Kong-registered entities to include Allparts Trading Co., Ltd.; Avtex Semiconductor Limited; ETC Electronics Ltd.; Maxtronic International Co., Ltd.; and STK Electronics Co., Ltd. China harshly criticized the Administration’s action. Reports continue to circulate of an impending Executive Order imposing outbound investment restrictions for U.S. companies aimed at China. Additionally, the Department of Commerce issued a proposed rule providing national security guardrails for the CHIPS program to include establishing a prohibition on significant transactions that materially expand “semiconductor manufacturing capacity for leading-edge and advanced facilities in foreign countries of concern,” which are defined as China, Russia, Iran, and North Korea for 10 years from the date of award to stop recipients from constructing new or expanding existing leading-edge and advanced technology facilities in those countries. The proposed rule defines significant transactions at the level of $100,000 and defines material expansion as increasing a facility’s production capacity by five percent. While these measures do not include sanctions at this point, they include the expanded use of export controls. During this reporting period, G-7 trade ministers pledged to strengthen their export control regimes and multilateral coordination; it was particularly poignant given the recent moves by Japan and the Netherlands to curtail their exports of semiconductors to China as a response to pressure from the U.S.
The Chinese government imposed sanctions against the Hudson Institute and the Ronald Reagan Presidential Library following the visit of Taiwan’s President to the U.S. where she met with House Speaker Kevin McCarthy, among others.
Even with the increased focus on China, the Administration continued to focus on targeting sanctions evasion networks. In addition to the Chinese entities noted above that were placed on the Commerce Department’s entity list, the State and Treasury departments sanctioned dozens of individuals and entities associated with Russian oligarchs Alisher Usmanov and Roman Abramovich, in close coordination with the U.K. Other entities were sanctioned for undermining Ukrainian peace and security and supporting Russia’s defense sector. Interestingly, five entities and one individual linked to Russian atomic energy company Rosatom were also sanctioned, which may be a first step towards placing greater restrictions and possibly sanctions on Rosatom itself (see February 22 – March 22, 2023 Roundup). The Administration is also targeting individuals and entities facilitating weapons sales to Russia, such as Ashot Mkrtychev for attempting to facilitate arms deals between Russia and North Korea.
The Biden Administration took concerted efforts to highlight and impose sanctions on fentanyl and captagon, an amphetamine-like substance produced and trafficked by the Assad regime narcotics networks. The White House released a plan to combat illicit fentanyl supply chains, including the application of sanctions to disrupt cartel operations. While the strategy itself did not include any explicit references to China, the individuals and entities designated for fentanyl precursor facilitation in the immediate aftermath of the report’s issuance did include Chinese individuals and entities. The Administration also took coordinated action with the U.K. to designate individuals and entities in and related to Syria for the trafficking of captagon. Expect more sanctions under these headings as international coordination efforts are built in both instances.
The new representative of Venezuela’s opposition in the U.S. is urging the Biden Administration to further relax oil sanctions on Nicolas Maduro’s government in a sharp break from the opposition’s “maximum pressure campaign” of the past four years when it was relying on the U.S. to muscle Maduro out of power. The Biden Administration eased oil sanctions against Venezuela in November through the issuance of an expanded general license, which must be renewed next month. During the reporting period, a Delaware court permitted creditors of Venezuela to target shares in Citgo’s parent company held by the country’s national oil company.
While the Treasury Department issued new sanctions against entities in Iran and Turkey for their involvement supporting Iran’s unmanned aerial systems programs, there were no energy-sector related designations. Reports have emerged that the Biden Administration is floating a deal that would provide some sanctions relief to Iran in return for freezing nuclear activities.
Other developments during the reporting period include the following:
There have been a number of fines levied on major U.S. companies during the reporting period. OFAC and BIS have imposed $3.3 million in civil penalties against Microsoft Corporation for alleged and apparent violations of U.S. export controls and sanctions and a combined $97.8 million levied against Wells Fargo ($67.8 million from the Federal Reserve Board for unsound sanctions compliance of a subsidiary and $30 million civil penalty from OFAC).
During the reporting period, Treasury released its 2023 DeFi Illicit Finance Risk Assessment, noting that illicit actors can exploit the non-compliance of virtual asset service providers to engaged in money laundering and the financing of terrorism. The risk assessment includes recommendations for the U.S. government to mitigate these risks through the strengthening U.S. AML/CFT regulatory supervision, providing additional guidance to the private sector on decentralized finance (DeFi) services AML/CTF obligations, and assessing enhancements to address regulatory gaps.
Congress remains focused on hearings related to the Administration’s budget request. Interestingly, the first hearing of the House Foreign Affairs Committee Oversight Subcommittee focused on the Biden Administration’s sanctions policy, with a considerable discussion of the fentanyl trade.
Congressional focus on China has not abated, particularly with the visit of Taiwan’s President to the U.S. and her meeting with Speaker McCarthy, which received bipartisan support. The House passed legislation imposing export controls on foreign adversaries of the U.S., particularly China, that could be used to develop and deploy undersea cables; and impose sanctions against those involved in organ harvesting, particularly in the People’s Republic of China. This week, the House will consider legislation imposing sanctions and export control restrictions in response to China’s surveillance balloons and legislation imposing additional reporting and other measures targeting Huawei. Other areas of focus remain the disposition of legislation relating to TikTok (see February 22 – March 22, 2023 Roundup), Chinese farmland purchases and citrus imports, and U.S. support for Taiwan.
However, legislative initiatives targeting China are not limited to legislation specifically targeting China. For example, a bipartisan group of Senators introduced legislation countering transnational repression, particularly aimed at China and Russia. Chinese involvement in the fentanyl trade has been a particular focus of legislative initiatives, with some criticizing the Administration on its response as it pertains to China. Expect more legislation to focus on this issue, particularly leading up to the House and Senate consideration of the National Defense Authorization Act.
Both the House and the Senate focused on Iran’s Islamic Revolutionary Guard Corps (IRGC) in the reporting period, through the introduction of a resolution, issuance of a report, and letters, calling for the E.U. to designate the IRGC as a terrorist organization, in particular. There was an additional focus on Iranian unmanned aerial vehicles (UAVs), in terms of legislation requiring a strategy from the Administration to address their export to malign actors such as Russia.
Central and South America
The Senate has been particularly active on measures involving South and Central America. During the reporting period, Senate Republicans introduced legislation expanding sanctions against Venezuela; House and Senate Republicans introduced legislation targeting allegedly corrupt Argentine officials. The House passed legislation prohibiting the removal of Cuba from the list of state sponsors of terrorism until Cuba satisfies certain conditions. Expect legislative efforts to continue and possibly expand, particularly with respect to corruption and narcotics.
TikTok legislation is likely to be further considered in the House or Senate in the coming months. As the House and Senate near consideration of the NDAA and respective appropriations legislation, expect a number of measures to be introduced in advance of those major bills.