USA - NATIONWIDE: An Introduction to International Trade: Export Controls & Economic Sanctions: Highly Regarded

Introduction

Throughout the past year, global conflicts and international negotiations have placed a spotlight on the role of export controls and sanctions in international transactions. Companies of all sizes must consider making procedural adjustments whenever government policy shifts – even if those shifts are frequent or unexpected.

The Russia-Ukraine war, conflicts in the Middle East, swings in diplomatic relationships among nations, and other geopolitical developments have directly impacted the free flow of trade in goods, services, and technologies worldwide. From day to day, maintaining export and sanctions compliance can be a herculean task for in-house export compliance teams, as enforcement is increasing and violations are taking new shapes. Accordingly, skilled in-house export compliance professionals are finding new ways to align business transactions with ever-changing export restrictions in a new world.  

Export Licensing and Other Hurdles

Whenever foreign policy shifts, US export licensing processes and timelines also shift. The fluid nature of geopolitics therefore has a direct impact on international business. To cite one example, under the Export Administration Regulations (EAR), licensing officers must now maintain a general policy of denial for semiconductor exports to China. Export license applicants have reported denials, delays, or follow-up questions depending on which policy changes are affecting the destination country and product category.

Under the EAR, the International Traffic in Arms Regulations (ITAR), the Foreign Trade Regulations (FTR), and the US Department of Treasury Office of Foreign Assets Control (OFAC) Regulations, US government agencies have continued to process license applications, ITAR registrations and agreements, advisory opinions, disclosures, investigations, and classifications among other submissions. The US Departments of State, Commerce, Census, and Treasury are fielding complicated questions case by case, with heightened attention to policy changes. In this active environment, companies are under pressure to file a complete, accurate, and convincing application every time.

The Growing Relevance of Extraterritorial Jurisdiction

The broad reach of export controls and sanctions has expanded both geographically and substantively.

US persons have long been required to comply with OFAC sanctions in all their activities, regardless of where they are in the world. The term “US persons” typically refers to any US citizen, permanent resident alien, entity organized under the laws of the US or any jurisdiction within the USA, or any person in the USA. OFAC prohibits any direct or indirect involvement, such as approving, guaranteeing, or otherwise facilitating a prohibited transaction by others.

At the same time, OFAC can also assert jurisdiction over a non-US entity if it identifies a nexus, or connection, to the United States. OFAC has not defined the level of US ties required to render a foreign party subject to its jurisdiction. Therefore, any US connection may be sufficient for OFAC to gain extraterritorial jurisdiction. For example, OFAC can reach:

• US persons, including all US citizens and legal permanent residents wherever located;
• all persons and entities within the United States;
• all US-incorporated entities and their foreign branches;
• foreign subsidiaries owned or controlled by US companies; and
• non-US entities that have US-origin goods manufactured in the United States or that contain controlled US content.  

Other common examples include the use of US servers, US currency, and US financial institutions.

In addition to OFAC’s jurisdiction, US-origin goods fall under the jurisdiction of the US Department of Commerce Bureau of Industry and Security (BIS), which administers the EAR. The EAR follows US content, so the EAR can reach re-exports and re-transfers abroad. We saw this phenomenon emphasized with the well-known Huawei export enforcement case in 2022.

As part of a compliance program, counsel may want to update contractual terms to shift more responsibility to vendors, agents, customers, and other business partners to lower risk. Flowing down export requirements is only one example of ways companies can limit export liability exposure.

The Expansion of Secondary Sanctions

Non-US corporations are now actively assessing risks associated with secondary sanctions. If a person or entity abroad deals with a listed person or entity, secondary sanctions allow OFAC to name that foreign company itself as sanctioned. Under the Iran sanctions regulations, for example, secondary sanctions apply to transactions involving Iranian persons on OFAC’s Specially Designated National (SDN) List, the Iranian energy, shipping, and automotive sectors, and the Central Bank of Iran (CBI). OFAC has imposed secondary sanctions on foreign companies without the need to establish a connection to the United States.

Export and Sanctions Penalties

Under the Federal Civil Penalties Inflation Adjustment Act of 1990, federal agencies may adjust their standard penalty amounts annually for inflation. Annual adjustments help the government ensure penalties maintain their deterrent effect through periodic cost-of-living-based adjustments.

Monetary penalties for US export controls and sanctions violations can be civil or criminal, and they can extend to non-US persons. The International Emergency Economic Powers Act of 1977 (IEEPA) pertains to multiple export agencies.

Under the IEEPA, BIS and OFAC can each assess a maximum civil penalty of up to about USD377,700 per violation in 2025. Record-keeping penalties, which agencies can pile onto regular export penalties, have reached USD29,150 per violation. 

Criminal penalties for willful violations can be up to USD1,000,000 per violation or imprisonment up to 20 years, or both. In recent months we have seen agencies offering more incentives to report violations online through user-friendly reporting forms and tools. Trade attorneys expect annual adjustments will continue the steady upward trend.

Penalties Beyond US Borders

The US government has enforced such penalties not only within the United States, but also outside the USA. The following are just a few examples:

• In February 2020, the Swiss telecom company Société Internationale de Télécommunications Aéronautiques SCRL (SITA)settled with OFAC for over USD7.8 million. The charges included prohibited dealings with airlines on the SDN list. A key issue was unauthorized access software and services provided from, transited through, or originating in the United States. SDNs were permitted to send messages, use US-origin software, and use a global baggage tracing and matching system hosted on a server located in the United States. The monetary penalty far exceeded the value of the software and services themselves, which totaled around USD2.4 million.
• Balli Group PLC, a UK-based entity, paid a USD2 million criminal fine back in 2010. This company served a five-year corporate probation period and settled with a civil penalty of USD15 million and a five-year denial of export privileges. The charges included exporting US-origin Boeing aircraft to Iran and conspiring with an Iranian airline to export or re-export US-origin aircraft to Iran without a license.
• BIS also penalized a Lebanese entity in 2010, Ghaddar Machinery Co. SAL. The parties agreed to a settlement for USD368,000 for alleged exports of engines to Syria between 2014 and 2016.
• In September of 2025, OFAC settled with Swiss-registered digital assets company ShapeShift for USD750,000. OFAC noted that ShapeShift had no sanctions compliance program in place, which was part of the root cause of over 17,000 sanctions violations. This was a relatively low penalty amount because it ultimately was negotiated down from USD39,515,000.

These are only a few examples of the “long arm” of US export and sanctions laws. OFAC will undoubtedly continue enforcing sanctions laws both in the United States and abroad.

Export Controls and Sanctions in Mergers and Acquisitions

Export compliance has gained recognition recently as a critical element of due diligence in corporate mergers and acquisitions because export liability impacts the value of international deals.

Successor liability in export controls and sanctions means the acquiring company acquires the export and sanctions liability of the target company. The statute of limitations is five years, so the government can investigate past activities by the target company.

As investors become more aware of successor liability and the cost of non-compliance, legal teams are adding export controls and sanctions to their due diligence reviews.

Increased Complexity in the Supply Chain

Due diligence in the context of an international deal has become especially challenging in recent years. More often, due diligence reviews uncover complex networks of shell companies, investors, and entities with ties to unknown parties. It can be difficult to find verifiable ownership information to screen parties to a transaction.

Export and sanctions counsel use research tools to help vet transactions thoroughly, and ideally the screening occurs before a merger or acquisition takes place. Some legal departments outsource their screening. When there is a high volume of data, batch screenings may be appropriate.

Training as a Compliance Measure

The demand for cross-training across various business units is trending. In-house compliance groups face time-consuming audits, reporting, and corrections. For US and non-US entities, employees are navigating complex, overlapping trade regulations under multiple agencies and geographical jurisdictions.

Companies provide training not only in trade compliance groups, but also in departments such as procurement, sales, HR, and information technology. Hypothetically, a procurement group might reassess existing sourcing strategies with an emphasis on screening for denied and debarred parties, forced labor, or other red flags identified. Sales agents might make a deal only to realize later it is prohibited. Human resources and IT departments may have to decide which US technology to release to which employees to prevent unauthorized exports of controlled data. These business units and others can add more value when they have more compliance knowledge.

The Future of Export Controls and Sanctions

Every exporter faces unique regulatory challenges, with each transaction depending on the product, destination country, end use, end user, ownership, and other factors. The reach of these laws and regulations has been widening. As technology and international policy concerns further evolve, the reach of US export controls and sanctions will most likely expand to match the geopolitical environment.