USA - NATIONWIDE: An introduction to International Trade: Export Controls & Economic Sanctions

International Trade: Export Controls and Economic Sanctions

Export controls and economic sanctions have risen to prominence as instruments to advance US national security and foreign policy, and policy makers in successive Administrations have expanded traditional tools and developed new ways to implement economic statecraft.  

Export Controls

Historically, US export controls have been implemented within the framework of various multilateral regimes such as the Wassenaar Arrangement but during the first Trump Administration, the focus shifted to China. This focus intensified during the Biden Administration and is expected to continue during the second Trump Administration.

The Entity List is a traditional tool used in a new way. It was established in the George W. Bush Administration to provide a flexible means to restrict exports to entities acting contrary to US foreign policy or national security interests. The concern then was the proliferation of weapons of mass destruction, but the list was crafted to be used in different contexts as US foreign policy and national security interests evolved. Hundreds of Chinese entities have been placed on the list, and although only imposing license requirement, it has essentially been used as an enforcement measure.  

The Foreign Direct Product (FDP) rule is another example. In May 2019 Huawei was placed on the Entity List restricting export, reexports, and in-country transfers of certain items without a license. In August 2020, BIS expanded the FDP rule making items shipped to Huawei subject to the EAR if they are the direct product of certain US equipment or technology, including most semiconductors and their designs. The rule applies to any party involved in a transaction with Huawei. The FDP rule has since been broadened to encompass more US technologies and many new entities have been added to the list.

In April 2020, BIS expanded the Military End Use (MEU) rule to a impose licence requirement on exports of items to China and certain other countries if there is knowledge that the item is intended for a ‘military end user’ or ‘military end use.’ BIS also expanded these definitions to include not only traditional foreign military and related organisations but also any other end user ‘whose activities or functions are intended to support military end uses.’ Determining whether a proposed recipient is covered by these expanded definitions presents a compliance challenge.

Beginning in October 2022, BIS issued several export controls targeting advanced computing technologies, including the creation of new ECCNs to control certain high-performance integrated circuits (ICs), supercomputers containing high-performance ICs, and semiconductor manufacturing equipment, with end-use restrictions on supercomputers and semiconductor manufacturing, as well as new FDP rules. In October 2023, BIS established new control parameters for advanced ICs based on total processing performance (TPP) and performance density and expanded license requirements beyond China to target diversion and circumvention risks.

In January 2025, BIS further supplemented its advanced computing controls. Changes included imposing a presumption, applicable to front-end fabricators and outsourced semiconductor assembly and test (OSAT) companies, that logic ICs using the “16/14 nanometer node” or below, or using a non-planar transistor architecture, are classified as 3A090.a and designed or marketed for data centers. This imposes a worldwide licensing requirement on these items unless the presumption is overcome. In addition, BIS established new export controls targeting model weights for advanced AI models, along with new license exceptions based on a tiered framework that provides targeted exceptions to support trade with low-risk countries and FDP restrictions on AI models.

Although BIS has streamlined procedures for Voluntary Self-Disclosures, larger penalties for violations can be expected, as well as criminal prosecutions with an emphasis on China and Iran. The range of Entity List targets may be broadened to include subsidiaries and affiliates beyond the entity that has been specifically designated, and the FDP rule may be expanded further. The role of the traditional multilateral export control regimes will diminish in place of targeted arrangements with allies that have certain chokehold technologies. Finally, export controls are now at the center of M&A and other foreign investment transactions as mandatory CFIUS filings are required for acquisitions and certain investments in companies with technology that would require a license if exported to the home country of the acquiring company.

Economic Sanctions

Sanctions are a more flexible tool than export controls. Imposed by Executive Order declaring an economic emergency, they can have immediate economic impact. OFAC currently administers nearly 40 current sanctions programs with over 17,000 names on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDN List).

Some sanctions target entire countries such as Iran, Russia, Venezuela or Cuba, while others target only certain named officials within a country or individuals under narcotics or terrorist-related programs. Most sanctions programs have exemptions for certain types of transactions such as exports and imports of information, and OFAC has issued general licenses authorizing certain transactions with specific parties or types of parties. OFAC is working on clearing its backlog of approximately 13,000 specific license applications but the process will take time.

Like BIS, OFAC has also deployed new sanctions tools. Sectoral sanctions, for example, restrict equity that can be purchased from, or the type and duration of credit that can be extended to, certain entities. 

Secondary sanctions apply to non-US persons engaged in activities outside the United States, unlike primary sanctions that apply to US persons. Used in the first Trump Administration’s maximum pressure campaign against Iran, the Russia and Venezuela sanctions programs also include secondary sanctions authority, and recent legislation mandates the imposition of sanctions on foreign persons that harbor, ship or refine Iranian oil. The threat of secondary sanctions has motivated foreign companies to obtain comfort letters from the State Department or OFAC. Recently, the concept was expanded to secondary tariffs, authorizing the imposition of tariffs on countries that import Venezuelan oil.   

Working with G7 allies, the Biden Administration announced another new type of sanction, the price cap, which prohibits US, UK and EU parties from providing insurance and other services related to shipments of Russian oil purchased for more than the current price cap of USD 60/barrel. This multilateral sanctions effort underscores the cooperation among allies on Russia sanctions. Companies operating in multiple jurisdictions must now consider EU and UK sanctions that align with, but are not identical to, US sanctions. 

The proliferation of SDNs requires financial institutions to develop sophisticated screening software with fuzzy logic to address new areas such as crypto and fintech. Training is a must so that employees are aware of sanctions risks beyond simply screening for hits. OFAC’s 50% rule, which imposes sanctions on companies that are owned 50% or more by a designated entity, is challenging as it requires analysis of ownership structures, which may be opaque. And sanctions compliance must be addressed in M&A transactions as authorities ramp up enforcement efforts against acquiring companies under successor liability and other theories.

Over the next year, developments are likely to be most active with Russia as the Administration seeks to broker a peace deal in Ukraine, Venezuela as the Administration seeks to secure the repatriation of Venezuelan immigrants and pressure the Maduro regime, and Iran where sanctions could either go back to maximum pressure or be relaxed depending on progress in reaching a nuclear deal.