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  • Biden E.O. labels China as a country of concern; Treasury issues ANPR

    Federal Issues

    On August 9, the White House announced that President Biden signed an Executive Order on Addressing United States Investments In Certain National Security Technologies and Products In Countries of Concern (E.O.). The President explained his view that some countries create national security risks by using particular technologies to advance their “military and defense industrial sectors” rather than civilian and commercial sectors. Biden stated that although open global capital flows substantially benefit the U.S., the E.O. stated that certain investments may “accelerate and increase the success of the development of sensitive technologies and products in countries that develop them to counter United States and allied capabilities.” The E.O. directs the Secretary of the Treasury to issue regulations that (i) prohibit U.S. persons from participating in specific transactions associated with particular technologies and products that present a significant and urgent risk to national security; and (ii) mandate U.S. persons to notify the Treasury about different transactions related to specific technologies and products that may contribute to the national security threat. The annex to the E.O. identifies China, including Hong Kong and Macau, as the sole nation warranting concern. The E.O. also requires the Secretary to communicate with Congress and the public regarding the E.O., consult with other agency leaders, assess whether to amend the regulations within one year, and provide reports to the President and Congress.

    The Treasury simultaneously issued an Advance Notice of Proposed Rulemaking, requesting public comment on the implementation of the E.O., along with proposed definitions of key terms, before the program goes into effect. Written comments may be submitted within 45 days here.

    Federal Issues Department of Treasury Biden Of Interest to Non-US Persons China Hong Kong Artificial Intelligence Executive Order

  • OFAC sanctions DPRK missile development procurers

    Financial Crimes

    On June 15, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Orders (E.O.) 13382 and 13810, against two individuals involved in the procurement of equipment and materials that support the Democratic People’s Republic of Korea’s (DPRK) ballistic missile program. According to OFAC, the missile program relies on foreign-sourced ballistic missile-related components that it cannot produce domestically. One of the sanctioned persons has collaborated with a number of individuals to purchase and procure items including those known to be used in the production of DPRK ballistic missiles. The individual’s wife is the second sanctioned individual listed as “being a North Korean person, including a North Korean person that has engaged in commercial activity that generates revenue for the Government of North Korea or the Workers’ Party of Korea.”

    As a result of the sanctions, all property and interests in property of the designated persons that are in the U.S., or in the possession or control of U.S. persons, are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. OFAC further mentioned, “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.”

    Financial Crimes Of Interest to Non-US Persons OFAC OFAC Sanctions OFAC Designations Department of Treasury China North Korea SDN List

  • OFAC sanctions network supporting Iran’s missile and military programs

    Financial Crimes

    On June 6, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions, pursuant to Executive Order 13382, against seven individuals and six entities in Iran, China, and Hong Kong for supporting Iran’s ballistic missile program. These sanctions build on OFAC’s March 30, 2022, designations against other supporters of the Iran-based missile program (covered by InfoBytes here) in an effort to target weapons of mass destruction proliferators and their supporters. OFAC explained that the designated individuals and entities have done business with and supported the procurement of critical parts and technology for Iran’s ballistic missile development.

    As a result of the sanctions, all property and interests in property belonging to the sanctioned individuals and entities that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. Persons that engage in certain transactions with the designated individuals or entities may themselves be exposed to sanctions, and “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today pursuant to E.O. 13382 could be subject to U.S. sanctions.”

    Financial Crimes OFAC OFAC Designations OFAC Sanctions Department of Treasury SDN List Iran China Hong Kong

  • OFAC sanctions entities in China and Mexico tied to illicit drugs

    Financial Crimes

    On May 30, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14059, against 17 individuals and entities for their involvement in the rapid increase of equipment used to make illicit drugs. OFAC detailed the impact of the drugs the equipment produces and explained that the counterfeit pills are often laced with fentanyl and ultimately end up in U.S. markets. Targeting every stage of the pill production process, OFAC designated seven entities and six individuals based in China and three individuals based in Mexico for perpetuating the trafficking of illicit drugs through the sale, manufacturing, and/or shipment of pill press equipment.

    As a result of these sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by a general or specific license or exempt. Further, financial institutions and persons that engage in certain transactions with the designated persons may themselves be exposed to sanctions or subject to enforcement.

    Financial Crimes OFAC OFAC Designations OFAC Sanctions SDN List China Mexico Of Interest to Non-US Persons Department of Treasury

  • OFAC sanctions chemical suppliers tied to Mexican drug cartel

    Financial Crimes

    On April 14, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions, pursuant to Executive Order 14059, against two Chinese entities and five individuals based in China and Guatemala for their roles in supplying precursor chemicals to Mexican drug cartels for the production of illicit fentanyl intended for U.S. markets. OFAC coordinated with the DEA and the DOJ to take this action. “Treasury, as part of the whole-of-government effort to respond to [the fentanyl] crisis, will continue to vigorously apply our tools to prevent the transfer of precursor chemicals and machinery necessary to produce this drug,” Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson said in the announcement. The sanctions block all property and interests in property subject to U.S. jurisdiction belonging to the sanctioned persons and require such property, as well as “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons,” to be reported to OFAC. U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons. OFAC warned that “persons that engage in certain transactions with the individuals and entities designated today may themselves be exposed to sanctions or subject to an enforcement action.” 

    Financial Crimes Of Interest to Non-US Persons OFAC Department of Treasury OFAC Sanctions OFAC Designations SDN List China Guatemala Mexico Drug Enforcement Administration DOJ

  • OFAC designates over 150 vessels

    Financial Crimes

    On December 9, the U.S. Treasury Department’s Office of Foreign Assets Control announced sanctions pursuant to Executive Order 13818 against two individuals and the networks of entities they control, along with eight other affiliated entities. Additionally, this action identifies 157 People’s Republic of China flagged fishing vessels in which these entities have an interest. According to OFAC, the designations “demonstrates the U.S. government’s ongoing effort to impose tangible and significant consequences on those engaged in serious human rights abuse, including on those vessels engaged in illegal, unreported, and unregulated (IUU) fishing.” OFAC also noted that this is the first time Treasury has designated an entity listed on the NASDAQ stock exchange. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Further, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless exempt or authorized by a general or specific OFAC license.

    Financial Crimes Department of Treasury OFAC SDN List OFAC Sanctions OFAC Designations China

  • Republicans say social media company made misleading statements on China data-sharing practices

    Privacy, Cyber Risk & Data Security

    On November 22, Ranking Member James Comer (R-KY), Committee on Oversight and Reform, and Ranking Member Cathy McMorris Rodgers (R-WA), Committee on Energy and Commerce, sent a follow-up letter to a global social media company claiming it may have provided misleading or false information about its data sharing and privacy practices related to China. According to the lawmakers, the company claimed in a briefing to the committee that it does not track users’ internet data if they are not using the app, and that China-based employees cannot access U.S. users’ location-specific data—both of which appear to be “misleading at best, and at worst, false.” The lawmakers referenced reports alleging the company “clandestinely” gathers U.S. users’ sensitive internet history, and expressed concerns about statements made by employees responsible for company data that “‘it is impossible to keep data that should not be stored in [China] from being retained in [China]-based servers.’” Claiming the company has withheld information, the lawmakers are seeking additional information, including documents and communications related to the monitoring of U.S. users’ browsing data and location tracking.

    Privacy, Cyber Risk & Data Security China Consumer Protection U.S. House Of Interest to Non-US Persons

  • SEC orders global accounting firm’s Chinese affiliate to pay $20 million for auditing failures

    Securities

    On September 29, the SEC issued a cease and desist order against the Chinese affiliate of a global accounting firm for allegedly failing to comply with U.S. professional auditing requirements when conducting component audits of U.S. issuers and auditing foreign companies listed on U.S. exchanges. According to the SEC, during the course of numerous audits, personnel at the Chinese affiliate allegedly, among other things, asked clients to choose their own samples for testing and complete required audit documentation purportedly showing that the Chinese affiliate had obtained and assessed supporting evidence for certain clients’ accounting entries. This was allegedly done in order to create the illusion that the required testing of clients’ financial statements and internal controls had been conducted when there was allegedly no evidence that it had in fact happened. The SEC noted that the alleged misconduct involved both junior and senior audit team members and demonstrated a lack of supervision by audit partners. Moreover, the Chinese affiliate’s alleged failure to follow required Public Company Accounting Oversight Board (PCAOB) auditing standards created a significant threat to U.S. investors.

    “While the SEC’s action today does not implicate a violation of the Holding Foreign Companies Accountable Act, the action does underscore the need for the [PCAOB] to be able to inspect Chinese audit firms,” SEC Chair Gary Gensler said in the announcement. “A fundamental goal of the PCAOB’s inspection regime is to identify weaknesses in the firms’ quality control processes—the very weaknesses at issue in this case.”

    Without admitting or denying the allegations, the Chinese affiliate agreed to settle the charges by paying a $20 million civil money penalty and implementing extensive remedial measures, including completing a review and assessment of its policies and procedures by an independent consultant and implementing a course of action to address identified deficiencies. Audit professionals at the Chinese affiliate who serve U.S. public company audit clients are also required to undertake additional training.

    Securities SEC China Audit Enforcement Of Interest to Non-US Persons PCAOB

  • OFAC sanctions Iranian entities for petrochemicals and petroleum sales

    Financial Crimes

    On September 26, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions pursuant to Executive Order 13846 against an international network of companies involved in the sale of Iranian petrochemicals and petroleum products in South and East Asia. According to OFAC, the designations target Iranian brokers and several front companies in the UAE, Hong Kong, and India that have facilitated financial transfers and shipping of Iranian petroleum and petrochemical products. OFAC also noted that the sanctioned entities have played a critical role in concealing the origin of the Iranian shipments and enabling two sanctioned Iranian brokers to transfer funds and ship Iranian petroleum and petrochemicals to buyers in Asia. In addition to OFAC’s designations, the State Department is designating two entities based in the People’s Republic of China for their involvement in Iran’s petrochemical trade. As a result of the sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons unless authorized by an OFAC general or specific license. Persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation. Additionally, OFAC warned that “any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.”

    Financial Crimes Of Interest to Non-US Persons Department of Treasury OFAC Iran OFAC Sanctions OFAC Designations SDN List China United Arab Emirates Hong Kong India

  • SEC warns Chinese companies against switching auditors to avoid compliance

    Securities

    On September 6, SEC acting Chief Accountant Paul Munter issued a warning to Chinese companies that they may face enforcement actions if they switch auditing firms to remain listed in the U.S. that do not follow applicable standards. Munter pointed to instances of foreign issuers, especially those located in China or Hong Kong, “changing their lead auditor from a local registered public accounting firm to a registered public accounting firm located either in the U.S. or elsewhere, generally within the same network.” According to Munter, these types of arrangements create “special challenges that raise questions about whether the newly engaged registered public accounting firms—whether located in the U.S. or elsewhere—will be able to satisfy their responsibilities to serve as the lead auditor.” Munter noted that the U.S. Public Company Accounting Oversight Board (PCAOB), the China Securities Regulatory Commission, and the Ministry of Finance of the People’s Republic of China, recently signed a Statement of Protocol governing inspections and investigations of audit firms based in China or Hong Kong. He said, however, that certain issuers based in China and Hong Kong have started structuring audits with registered public accounting firms located either in the U.S. or elsewhere “to avoid the potential of consecutive PCAOB [Holding Foreign Companies Accountable Act] determinations and a potential resultant trading prohibition.” Issuers and firms looking to avoid compliance could result in investigations and enforcement actions by the PCAOB, the SEC, or both.

    Securities Agency Rule-Making & Guidance Financial Crimes China Audit

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