Sanctions

New Legislation Extends Statute of Limitations for Sanctions Violations

By: Adrienne Braumiller, Founding Partner, Braumiller Law Group

Quick Answer

The 21st Century Peace Through Strength Act, signed into law by President Biden as part of H.R. 815, has doubled the statute of limitations for civil and criminal violations of U.S. sanctions programs. This legislation extends the accountability period from five to ten years for infractions under the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA), which form the basis for most OFAC sanctions. Consequently, companies now face a significantly longer period during which they can be investigated and held liable for sanctions violations, necessitating a review of compliance and record retention policies.

By Adrienne Braumiller, Managing Partner

Recently, President Biden signed a foreign military support bill (H.R. 815) into law, which also encompassed the 21st Century Peace Through Strength Act (the Act), a legislative proposal introduced in the House containing various U.S. sanctions-related measures. These sanctions measures extended the statute of limitations (“SOL”) from five to ten years for civil and criminal violations of sanctions programs administered by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”). This change affects sanctions authorized under the International Emergency Economic Powers Act (“IEEPA”) and the Trading with the Enemy Act (“TWEA”), doubling the time period during which companies can be held accountable for sanctions violations. This extension is expected to have notable effects on best practices for U.S. economic sanctions compliance across different areas, such as internal policies and procedures, civil and criminal probes, M&A deals, and other corporate transactions.

Background

In the past year, U.S. authorities have been emphasizing the importance of sanctions enforcement and disclosure of violations. Multiple statements from officials, including Deputy Attorney General Lisa Monaco, highlighted the need for compliance with sanctions laws. Additionally, a joint compliance note from the DOJ, OFAC, and the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) stressed the significance of complying with sanctions, export controls, and other national security laws.

Extension of Statute of Limitations

The Act included in H.R. 815 extends the SOL from five to ten years for civil and criminal violations of IEEPA and TWEA. These statutes form the basis for most OFAC sanctions programs. As a result, OFAC and the DOJ now have a longer period to investigate and enforce sanctions violations, increasing the likelihood of identifying potential infractions.

The increased SOL will impact how companies address sanctions risk and compliance. Key implications include:

  • Reviewing information retention policies and procedures to comply with the extended SOL requirements.  Currently, OFAC mandates that all transactions “subject to” its regulations must be documented with a comprehensive and precise record, maintained for a minimum of five years. It is likely this regulation will be revised to require the retention of records for at least 10 years. In the interim, the new statute of limitations may prompt OFAC to issue administrative subpoenas requesting records dating back 10 years, even if there is no current obligation to retain records for that duration.  Thus, businesses operating in this realm should remain diligent regarding changes to the recordkeeping period and will need to assess their record management protocols to ensure the necessary documents are preserved.
  • Expanding the scope and methodology of internal investigations to cover transactions dating back ten years.
  • Transactional due diligence will be significantly affected, particularly for companies seeking to engage in acquisitions, investments, or lending to entities with U.S. sanctions and export control compliance issues. These companies may now need to request documentation that covers the full 10-year retrospective period. Additionally, representations and warranties in relevant agreements will need to consider this extended duration of potential liabilities, leading to increased costs and logistical challenges for all involved parties.
  • Assessing whether to file a voluntary self-disclosure of apparent violations becomes more critical because of the added costs and resources required for a comprehensive ten-year internal investigation.

Impact on National Security Laws

The Act does not affect SOLs related to violations of the Export Control Reform Act or Arms Export Control Act. However, implications may arise for national security controls related to technology and services, outbound investment, and transfers of sensitive data based on executive orders issued under IEEPA.

Future Outlook

OFAC is expected to provide guidance on how the extended SOL will impact enforcement cases, internal investigations, and voluntary disclosures. The agency may utilize the new authority to enforce sanctions violations more rigorously, potentially leading to increased enforcement actions and penalties.

In conclusion, the extension of the statute of limitations for sanctions violations underscores the importance of compliance with sanctions laws and the need for companies to review and enhance their sanctions risk profiles and compliance programs. The implications of this change will require businesses to adapt their policies and procedures to ensure alignment with the new ten-year SOL.

Read more articles by these authors: https://www.braumillerlaw.com/author/adriennebraumiller/

Frequently Asked Questions

1 What does the new legislation extending the statute of limitations mean for my company's sanctions compliance?

The 21st Century Peace Through Strength Act doubles the statute of limitations for civil and criminal sanctions violations from five to ten years. This means OFAC and the DOJ now have a significantly longer period to investigate and enforce violations, increasing the importance of robust compliance programs and internal controls for your company.

2 Which specific U.S. sanctions programs are affected by this extension of the statute of limitations?

The extension applies to civil and criminal violations of sanctions programs administered by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC). Specifically, it impacts sanctions authorized under the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA), which form the basis for most OFAC sanctions programs.

3 How does the extended statute of limitations impact corporate transactions, such as M&A deals?

The extended statute of limitations means that companies face a longer period of potential liability for sanctions violations, which is critical for M&A deals and other corporate transactions. It necessitates more thorough due diligence and risk assessment to identify and mitigate potential sanctions exposure during these processes, as liabilities can now be pursued for up to ten years.

4 What immediate steps should our company consider to adapt to this change in sanctions enforcement?

Companies should immediately review and update their internal policies and procedures for U.S. economic sanctions compliance. This includes strengthening due diligence processes, especially in the context of M&A, and ensuring robust internal controls to address the increased period of accountability and mitigate potential civil and criminal liabilities.