On November 16, the U.S. signed a major multilateral supply chain agreement with its 13 Indo-Pacific Economic Framework for Prosperity (IPEF) partners – Australia, Brunei, Fiji, India, Indonesia, Japan, Republic of Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand, and Vietnam. As highlighted in the IPEF joint statement, the 14 countries announced the signature of the IPEF Supply Chain Agreement. In addition, IPEF member-states announced the “substantial conclusion of negotiations” for the IPEF Clean Economy Agreement, IPEF Fair Economy Agreement, and the Agreement on the Indo-Pacific Economic Framework for Prosperity. Together, these agreements aim to enhance U.S. economic engagement and address emerging challenges in a region representing 40% of global GDP and 28% of global goods and services trade.

The Indo-Pacific Economic Framework for Prosperity (IPEF) is a multilateral economic initiative launched by U.S. President Joe Biden on May 23, 2022. Since its inception, IPEF member countries have emphasized that this initiative will differ from traditional multilateral trade negotiations, focusing on key areas such as supply chains, climate change, and anti-corruption. In addition, none of the IPEF agreements include tariff reductions, which eliminates zero-sum negotiations on market access. IPEF negotiations revolve around four separate agreements referred to as “pillars”: trade, supply chains, the clean economy, and the fair economy. This flexibility permits negotiations on each pillar to advance at different speeds, reaching agreements independently and on different timelines.

The IPEF Supply Chain Agreement, negotiated on the U.S. side by the Department of Commerce, creates a baseline of policy coordination among IPEF member-states to draw upon lessons learned from the COVID-19 pandemic and subsequent global supply chain shortages. The IPEF Supply Chain Agreement is not a traditional trade pact, as U.S. commitments will not be enshrined into U.S. law by Congress and foreign commitments will not be fully enforceable. The agreement calls for member-states to take concrete steps to enhance logistics infrastructure, collaborate on attracting investment for critical sectors, assist companies in diversifying their sourcing, share effective practices on cargo risk assessment, improve supply chain monitoring capabilities, and remove restrictions on warehousing near ports of entry. In addition, each IPEF member country has committed to establishing a reporting mechanism “to receive, including through electronic means, allegations of labor rights inconsistencies at production facilities located in the territory of another party” and to work with that party to resolve any issues once identified.

The IPEF Supply Chain Agreement establishes three new multilateral bodies designed to enhance cooperation among IPEF partners on supply chain issues moving forward:

  • The IPEF Supply Chain Council, which will develop sector-specific “action plans” designed to address workforce challenges, promote supply chain diversification, and improve supply chain resilience among IPEF partners;
  • The IPEF Supply Chain Crisis Response Network, which will provide an emergency communication channel in the event of a supply chain disruption and enable a more effective response to minimize negative effects on the economies of IPEF partners;
  • The IPEF Labor Rights Advisory Board, which will support IPEF partners in promoting labor rights in their supply chains, promote sustainable trade and investment, and facilitate opportunities for investment in businesses that respect labor rights.

IPEF member-states now have 120 days from the date of signing the Supply Chain Agreement (Nov. 16) to identify critical sectors and goods key to their national security, public health and safety, and economic stability, and share this information with IPEF partners. The governments of each of the IPEF countries must also decide how to staff each of the newly created IPEF supply chain bodies. For the U.S., this will involves determining the appropriate roles for the Departments of Commerce, State, and Labor, as well as other interagency partners well-versed in various aspects of supply chain policy.

Crowell & Moring, LLP continue to monitor this development and the potential impact to businesses and consumers moving forward.

Confirming the Federal Circuit’s 2011 decision in TianRui, the International Trade Commission has statutory authority over the importation of goods into the US incorporating misappropriated trade secrets, even if the acts of misappropriation occurred wholly outside the US.

Click here to continue reading the full version of this alert.

In an October 24 press release, the U.S. Department of Commerce (“Commerce”) announced that it will initiate a review of  Vietnam’s current status as a “nonmarket economy”. Commerce’s decision follows an official request submitted by the Government of Vietnam on September 8, 2023, to recognize the country as a market economy, and a recent meeting between U.S. Secretary of Commerce Gina Raimondo and Vietnamese Prime Minister Phạm Minh Chính on September 19, 2023. Commerce will undertake this review using a so-called “Changed Circumstances Review”, as stated in the U.S. government’s most recent Federal Register Notice published on Oct. 30.

Commerce will review information presented by the Vietnamese government regarding the country’s market reforms. The investigation will be conducted as expeditiously as possible, in accordance with U.S. law. Commerce’s review process, which will include a public comment period, must be completed within 270 days before a final determination is made. Interested parties can submit comments and access public records related to this investigation on access.trade.gov.  Interested parties now have 30 days to file comments and then 14 days thereafter to file rebuttal comments. 

Vietnam’s Nonmarket Economy Status

Commerce currently considers 12 countries to be non-market economy countries for the purposes of U.S. anti-dumping duty law, including Russia (which became the first country to be re-added to the list last year), China, Vietnam, and nine former Soviet republics. Non-market economy status generally results in significantly higher duty rates through the use of surrogate costs from comparable market economy producers. An August 24, 2023 memorandum published by Commerce identifies Indonesia, Egypt, Jordan, Morocco, Philippines, and Sri Lanka as countries that are economically comparable to Vietnam based on their relative gross national income (GNI) per capita in 2022.

Section 771(18) of the Tariff Act of 1930, as amended (the “Tariff Act”), outlines six specific factors that Commerce must consider to determine whether it should be classified as a non-market economy. These factors include currency convertibility, wage determination, access for foreign investment, government ownership or control of the means of production, government control over resource allocation, and any “other factors as the administering authority considers appropriate.”

While Vietnam has made significant strides toward market-oriented policies since Commerce’s last assessment in 2002, an “improvement” alone does not meet the statutory criteria for market economy designation. Independent assessments have also revealed that significant government intervention still persists in Vietnam’s economy, including the following issues:

  • Foreign ownership limits enforced by the government in Vietnam’s banking sector.
  • The State Bank of Vietnam, the country’s central bank, operates under strict government oversight.
  • State-owned enterprises continue to represent a substantial percentage of Vietnam’s GDP, particularly in its energy, transport, telecommunications, and finance sectors.
  • Foreign direct investment remains subject to strict regulations.

If Vietnam’s non-market economy status is revoked following Commerce’s review, the agency will then analyze Vietnamese dumping by comparing U.S. sales prices against Vietnamese sales prices and costs, in accordance with Section 773(a) of the Tariff Act.

Crowell & Moring, LLP continue to monitor this development and the potential impact to businesses and consumers moving forward.

What You Need to Know

  • Key takeaway #1 The CBAM is an important element of the EU’s green agenda efforts, and the current transitional period should serve the purpose of learning and improving the CBAM scheme.
  • Key takeaway #2 The CBAM provides for a complex set of calculation methodologies with the possibility to use under certain conditions default values or existing emission reporting and monitoring programs.
  • Key takeaway #3 Operators of installations are advised to immediately commence working on collecting data for the first CBAM report, due no later than January 31, 2024. Similarly, importers need to learn how to report emissions data, and use the transitional period to check plausibility of the information obtained from operators.

CBAM transitional period started on October 1, 2023

On October 1, 2023, the transitional period of the Carbon Border Adjustment Mechanism (the “CBAM”) began. The mechanism is part of the EU’s efforts to achieve objectives outlined in its green agenda, in particular to tackle the issue of the relocation of emission-heavy production to countries with less stringent environmental policies. In practical terms, it means that starting from October 1, 2023 until December 31, 2025, emissions on goods in certain sectors should be reported when they are imported into the customs territory of the EU. Subsequently, during the definitive period, the trading in CBAM certificates will be added to the reporting obligations, and, gradually, the existing EU Emission Trading System (“ETS”) will be replaced with the CBAM in 2034. In this alert, we discuss certain basic elements of the CBAM as well as certain complex technical aspects of the reporting requirements.

CBAM basics

As a first step, it is necessary to determine whether the goods to be imported fall under the scope of the CBAM. Currently, only six sectors are covered: cement, iron and steel, aluminum, fertilizers, electricity and hydrogen. For a more precise customs classification of the goods, one needs to check the EU combined nomenclature (“CN” code) of the goods listed in Annex I to Regulation 2023/956 (the “CBAM Regulation”). If the CN code is included in Annex I, the reporting declarant will need to report emissions of the imported goods. The European Commission (the “Commission”) intends to include all products under the CBAM in the future but, at present, it is unclear how and when further inclusions will take place.

The CBAM Regulation 2023/956 uses the definition of authorized CBAM declarants – EU importers or their indirect customs representatives – or indirect customs representatives if the importer is not established in the EU, while Implementing Regulation (EU) 2023/1773 (the “CBAM Transitional Regulation”), which sets the rules of the transitional period, provides for the term “reporting declarant.” The reporting declarant is either an importer who lodges a customs declaration for release for free circulation; a person, holding an authorisation to lodge a customs declaration referred to in Article 182(1) of UCC, who declares the importation of goods; or indirect customs representatives in cases of non-EU importers.

During the transitional period, the reporting should be carried out on a quarterly basis, whereas the definitive period imposes annual reporting obligations. The first transitional CBAM report should be submitted no later than January 31, 2024 for the fourth quarter of 2023. Each subsequent quarterly report is to be filed no later than one month after the reporting quarter. The last report for the fourth quarter of 2025 is therefore due by January 31, 2026.

As the complex CBAM enters into its initial period of implementation, the Commission provided for a certain leeway in fulfilling the reporting obligations. As a general rule, the submitted report may be modified up to two months after the end of the relevant reporting quarter. By way of derogation, it will be possible to modify the first two reports until the deadline for the third CBAM report, on July 31, 2024.

Secondly, the competent authorities may, if a justified request is submitted, authorize the correction or resubmission of the report after that deadline but no later than one year after the end of the relevant reporting quarter. If the request is granted, the reporting declarant will have one month to remedy the report.

The CBAM reports are to be submitted via the newly created Transitional CBAM Registry, which may be accessed upon approval by the competent national authorities of the EU Member State of the declarant’s establishment. The provisional list of competent authorities, as of October 6, 2023, is available here. According to the Commission’s plans, the Transitional Registry is expected to be fully operational by early November 2023.

As the CBAM reporting is an obligation, a penalty may be levied in cases of failure to fulfil the relevant reporting requirements. The imposition of penalties, solely in the form of a fine ranging from 10 to 50 EUR per unreported tonne of emissions, is a prerogative of the EU Member States. To assist the EU Member States with the imposition of penalties, the Commission is empowered to check the reports on the Transitional Registry with regard to compliance requirements during the transitional period and three months after the last transitional report is submitted. The Commission will communicate to the EU Member States of the declarants’ establishment, an indicative list of reporting declarants who failed to submit any report, and an “indicative” assessment of reports that are incomplete or incorrect.

The report is considered to be incomplete if not all of the compulsory elements are reported, and incorrect if the submitted data does not meet the reporting requirements under the Transitional Regulation, or the data is wrong, or no sufficient reasons were provided to justify the use of other reporting methodologies not stipulated in the Transitional Regulation.

In circumstances when the report is not submitted or it is incomplete/incorrect, the national competent authorities must initiate a review and assess the indicative information submitted by the Commission within three months from the time of the Commission communication. With regard to incorrect or incomplete reports, a correction procedure may be initiated to obtain additional information from the reporting declarants.

Overall, the level of penalties remains largely to be seen and it will depend on the extent of unreported information, readiness to remedy any shortcomings, previous reporting behavior, the level of cooperation and appreciating voluntary measures to prevent further irregularities.

Methods of reporting

It becomes evident from the outset that close cooperation is required between the reporting declarant and the supplier for collecting and reporting CBAM information. The supplier operator monitors and collects emissions data at its installation, transmits the information to the related or unrelated EU importer, who then completes and submits the CBAM report. It is of paramount importance that the operator employs a renowned, reliable, engineering firm to calculate emissions from the start of the production cycle.

Compliance seems to be more complex for unrelated importers, as they are responsible for the accuracy of information but their capabilities to verify information provided by operators are limited. What if their suppliers refuse to provide CBAM data or are unable to do so in a reliable fashion? In order to relieve such insurmountable burdens upon reporting declarants, the Commission envisaged a temporary use of alternate methods for calculating emissions.

First, for a limited period until December 31, 2024, reporting declarants are allowed to use certain monitoring and reporting methodologies if they have a similar coverage and accuracy compared to the standard methodologies offered by the Commission in the Transitional Regulation, the so called ‘EU method.’ In particular, the following methodologies:

  1. a carbon pricing scheme where the installation is located;
  2. a compulsory emission monitoring scheme where the installation is located; or
  3. an emission monitoring scheme at the installation which may include verification by an accredited verifier.

Secondly, if reporting declarants do not possess all the required information to complete the CBAM reports, they may use alternative methods to determine emissions, including default values (not yet) published by the Commission, or other default values, until July 31, 2024. It is compulsory to specify the calculation method used.

In addition, it will be possible that calculations of up to 20% of total emissions of complex goods are based on estimates provided by the installations’ operators. Complex goods are goods other than simple goods, which are in its turn defined as goods produced only from inputs (precursors) and fuels having zero embedded emissions.

The EU method of calculating direct emissions, which will become a default way of determining emissions in the definitive period, is therefore comprised of the calculation-based and measurement-based approaches. The choice between the two, or a combination of both, should favor a methodology that gives the most accurate and reliable results, except where sector-specific requirements require the use of a particular methodology. 

Under the calculation-based approach, emissions may be determined by the standard or mass-balance method. Firstly, emissions are calculated on the basis of quantities of all consumed fuels and inputs multiplied by corresponding factors, notably the emission factor, the conversion factor and the oxidation factor. Under this scenario, it is necessary to measure emissions from fuel combustion as well as emissions from the production process. If biomass is used, it may be zero-rated if certain criteria of the EU’s Renewable Energy Directive 2018/2001 are met, or deducted from fuel emissions when mixing biomass with fossil fuels. Under the mass balance approach, considering the difficulty of calculating emissions of individual inputs, no differentiation between fuel and process materials is made. Emissions are calculated on the basis of carbon content of each material entering the installation as an input and leaving it as an output. It is possible to use a combination of the mass balance method and the standard method for different parts of the installation.

The measurement-based approach requires the use of the so-called Continuous Emission Measurement System (“CEMS”) installed at a suitable measurement point. It is obligatory to use this methodology for the determination of N2O emissions. It is necessary to use measuring instruments with the lowest uncertainty, without incurring unreasonable costs, which are fit for the applicable environment. Annual emissions are determined as the sum of all hourly values of the measured greenhouse gas concentration multiplied by the hourly values of the flue gas flow, where the hourly values shall be averages of all individual measurement results of the respective operating hour. CEMS requires the measurement of greenhouse gas concentration and volumetric flow of the gas stream where the measurement takes place. CO2emissions from biomass that meet the EU Renewable Energy Directive 2018/2001 standards may be subtracted under certain conditions. The measurement-based approach necessitates the corroboration of emissions against annual emission calculations.

In addition to direct emissions, operators need to report net measurable heat, waste gas energy and emissions and indirect emissions.

Indirect emissions are emissions resulting from the production of electricity that was consumed during the production process multiplied by the emission factor. It concerns not only indirect emissions resulting from the production process but also from any relevant precursors. The Commission envisaged the use of default values but it is also possible to use actual data under certain circumstances, i.e. when operators produce electricity at their installation, or where electricity is received from a source with a direct technical link and all the relevant data is available, or where the electricity is received from an electricity producer under a power purchase agreement. If the electricity is obtained from the electricity grid, it is possible to use either the default emission factor provided by the Commission, or any other emission factor of the country of origin’s electricity grid based on publicly available data representing either the average emission factor or the CO2emission factor.

Both direct and indirect emissions from consumed precursors should be determined to calculate the total emissions of complex goods, in cases where precursors are indicated in the production processes of Section 3 of Annex II to the CBAM Transitional Regulation. However, if the production and use of a precursor are covered by the same production process, only the quantity of additional precursors used and obtained from other installations or from other production processes need to be considered.

Attribution of emissions to goods

In order to determine the specific embedded emissions of goods, it is necessary to determine total emissions at the installation, which are then attributed to emissions of the production process(es). Then, embedded emissions of precursors should be added, and the overall result divided by the quantity of goods produced per each production process. The CBAM defines this as the “activity level”.

It should also be noted that the CBAM is narrower than the total carbon footprint of products as the CBAM excludes emissions relating to mining of raw materials, transportation and other upstream processes, as well as the distribution of products and end-of-life, including recycling, re-use and waste disposal.

Documenting emissions

As CBAM compliance requires monitoring and subsequently providing large volumes of data, operators of installations need to establish proper monitoring methodology documentation. This includes information on the monitoring methods and production data for their installation and the overall production processes. Gathering such data consistently and solidly is necessary to implement the basic CBAM monitoring principles: completeness, consistency and comparability, transparency, accuracy, integrity, cost-effectiveness and continuous improvement.

As mentioned herein, it is possible to use, until the end of 2024, other eligible monitoring and reporting methodologies, such as the carbon pricing scheme, the compulsory emission monitoring scheme, or the emission monitoring scheme. These may include verification by an accredited verifier. Operators should verify these methodologies prior to use.

Further, the CBAM Transitional Regulation requires not only to need to outline the method of determination of emissions under the CBAM methodologies, but also to justify why it is not technically feasible to use a specific determination methodology, or why following a specific determination methodology would result in unreasonable costs for an operator. The CBAM Transitional Regulation provides for a requirement to conduct regular checks at least yearly, during which such claims may be re-assessed.

By introducing the principles of technical feasibility and reasonableness of costs, the Commission attempts to relieve the burden in determining emissions, based on the principle of the best available data source. Where a cost/benefit analysis shows that the improvement cost exceeds the benefit of data accuracy, it is possible to choose a less costly monitoring approach or equipment. Costs under 2,000 EUR per year will not be accepted as unreasonable.

Reporting carbon price

During the transitional phase, reporting declarants may provide information about any carbon price that was paid in a country of origin of goods for the embedded emissions. Currently, it is only a reporting requirement, while in the definitive phase it will be necessary to indicate any paid carbon price to obtain a rebate for the CBAM financial burden. The carbon price, including for precursors, is attributed to CBAM goods under the same methodology for determining specific embedded emissions.

Conclusions

Over the next two transitional period years, the Commission plans to closely monitor the CBAM implementation. At the end of the transitional period, a report must be presented to the European Parliament and the Council of the EU on the various aspects of the CBAM implementation, including the awaited extension of the CBAM scope to additional products and adjustments to calculation methodologies. Any scope extension to other products in the value chain must be presented in a separate report at least one year before the end of the transitional period. This is, therefore, a space to be closely monitored.

Even though the transitional period may be regarded as a “learning period”, importers should not underestimate the real risk of penalties from 10 to 50 EUR per unreported tonne of emissions for failures to fulfil reporting obligations. It is unknown at this stage how actively EU Member States will enforce the CBAM implementation, at least during the transitional period. Moreover, enforcement levels may vary among the 27 EU Member States. Under any perspective, it is clear that the transitional period obligations should be taken seriously by both operators and importers from the outset. Beyond compliance needs, acting professionally on CBAM is also necessary in order to embed the Commission’s methodological requirements in daily operations, adjust them where warranted, and build in-house institutional and operational knowledge.

Defendants facing parallel civil regulatory and criminal proceedings brought by the same government raises important Fifth and Sixth Amendment questions for defendants.

We would like to thank Anna Kufta, Senior Law Clerk, for her contribution to this alert.

Click here to continue reading the full version of this alert.

On October 4, 2023, Deputy Attorney General (DAG) Lisa O. Monaco announced the Department of Justice’s (DOJ) new safe harbor policy for voluntary self-disclosures made in connection with mergers and acquisitions (Safe Harbor Policy).

Click here to continue reading the full version of this alert.

On September 28, 2023, the Cyberspace Administration of China published the draft Provisions on Regulating and Promoting Cross-Border Data Flows (“Draft Provisions”) for public consultation, demonstrating that China is trying to strike a balance between enhancing data security and promoting data-driven economic growth. Multinational companies with cross-border data transfers involving China are recommended to revisit their previous analysis based on the changes introduced in the Draft Provisions.


Click here to continue reading the full version of this alert.

On October 4, 2023, a new ADCVD petition (“the Petition”) covering an estimated $1.5 billion in imports of aluminum exclusions was submitted before the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“USITC.”)  The Petition alleges that certain aluminum extrusion from Colombia, the Dominican Republic, Ecuador, India, Indonesia, Italy, Malaysia, Mexico, China, South Korea, Taiwan, Thailand, Turkey, the United Arab Emirates, and Vietnam are being or are more than likely being sold at less than normal value.  Furthermore, of these 15 countries, the Petition further alleges that imports from China, Indonesia, Mexico, and Turkey are being subsidized by their home countries.  Given the above, the Petition identified the below estimated dumping margins and requested an investigation into the imposition of antidumping and countervailing duties.

CountryMargin
China256.58%
Colombia179.53%
Ecuador66.46%
India43.41%
Indonesia112.21%
Italy37.52%
Malaysia53.91%
Mexico111.38%
South Korea71.03%
Taiwan116.19%
Thailand72.20%
Turkey33.79%
United Arab Emirates39.80%
Vietnam53.75%

As provided within the scope of the Petition, the covered products are aluminum extrusions, regardless of form, finishing, or fabrication, whether assembled with other parts or unassembled, whether coated, painted, anodized, or thermally improved.  While similar to ADCVD orders A-570-967 and C-570-968, which cover aluminum extrusion products from China, the Petition does contain significant variations in scope.  First, the Petition focuses on imports from 15 different countries, compared to just one.  Additionally, the Petition’s scope language also specifically notes that aluminum extrusions that have been further processed in a third country – which includes, but is not limited to, finishing and fabrication processes, assembly processes whether with other aluminum extrusion components or with non-aluminum extrusion components, or other processes that wouldn’t remove the product from the scope – are captured by the Petition.  

The Petition’s scope language is also more inclusive with regards to the aluminum alloy components.  The Petition specifically notes that it covers aluminum extrusions made from aluminum alloys having metallic elements corresponding to an Aluminum Associations series designation commencing with the numbers 1, 3, 5, and 6.  This is a distinction from orders A-570-967 and C-570-968, which only cover products with series designations commencing with the number 1, 3, and 6.  Also unlike orders A-570-967 and C-570-968, finished heat sinks (which are products made from aluminum extrusions designed to meet specific thermal performance requirement) are included in the scope.  As provided in the Petition’s scope, the types of subject products include, but are not limited to, vehicle roof rails and sun/moon roof framing, solar panel racking rails and framing, tradeshow display fixtures and framing, parts for tents or clear span structures, fence posts, drapery rails or rods, electrical conduits, door thresholds, flooring trim, electric vehicle battery trays, heat sinks, signage or advertising poles, picture frames, telescoping poles, or cleaning system components.

Establishing the above scope, the Petition requested an investigation of imports of the subject merchandise going as far back as 2019.  For reference, in 2022, the U.S. import value of the identified subject merchandise was estimated by the Petition to be at $3.2 billion.  From January 2022 – June 2022 and January 2023 – June 2023, the estimated import values were $1.5 billion and $1.4 billion, respectively.  Given the Petition’s breadth, hundreds of different entities were identified as known exporters and importers and may be directly or indirectly impacted by the Petition.

Per 19 CFR § 351.203, Commerce has 20 days after the Petition’s date of filing to determine whether to initiate an investigation.  Importers will need to closely monitor developments related to the Petition, given the potential impact it may have on numerous covered products.  Crowell & Moring will continue to monitor developments related to the Petition and its impact. For additional inquiries, contact the team below.

On September 28, 2023, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS), alongside the UK, Australia, Canada, New Zealand (termed the “Export Enforcement Five” or “E5,”), as well as the EU, issued new guidance with recommended best practices to help prevent a list of “high-priority items” from being diverted to Russia. 

These “high-priority items” include forty-five Harmonized System (HS) codes identified by BIS and partner countries, organized into tiers, with tiers one and two containing nine “particularly sensitive” HS codes determined to be “the most significant to Russian weaponry requirements.” The nine prioritized HS codes all fall under parent code 85: “electrical machinery and equipment and parts thereof; sound recorders and reproducers, television recorders and reproducers, parts and accessories.”

The new BIS guidance recommends that, at least for transactions involving these nine highest priority items with parties in countries outside the Global Export Controls Coalition (GECC), exporters seek assurances of compliance with U.S. export controls in writing through a signed certification statement. A list of GECC countries can be found in Supplement No. 3 to Part 746 of the U.S. Export Administration Regulations, and currently includes Australia, Canada, the EU, Iceland, Japan, Liechtenstein, New Zealand, Norway, Singapore, South Korea, Switzerland, Taiwan, and the United Kingdom. 

The BIS guidance, unlike that issued by the E5 or the EU, includes a sample certification statement. For exporters that already are using customer certification or end-user statements, BIS recommends that the new guidance still be reviewed to consider adding any of the suggested questions to the existing documentation to help prevent diversion through third countries to Russia.

The new guidance also highlights how exporters who incorporate such signed certification statements into their export compliance programs will increase the likelihood of identifying errors, omissions, or red flags in the necessary customs documents. The new BIS guidance further notes how such signed certification statements can, when used in conjunction with the actions identified in Supplemental Alert: FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Continued Vigilance for Potential Russian Export Control Evasion Attempts and BIS’s Guidance to Prevent Evasion of Prioritized Harmonized System Codes to Russia, help exporters more effectively harden their supply chains to prevent Russian evasion efforts.

The joint guidance issued by the E5 “requests” that exporters conduct enhanced due diligence when opening accounts for new customers engaged in trade or located in non-GECC countries, to include, among other standard Red Flag indicators, an evaluation of the new customer’s date of incorporation, with enhanced scrutiny for any incorporated post Russia’s invasion of Ukraine on February 24, 2022.

In summary, exporters should:

  • Be mindful of any exports of items classified within the 45 HS codes, with particular emphasis on the nine prioritized items, as they pose a heightened risk of unlawful diversion to Russia (or Belarus).
  • Ensure that customer certifications or end-user statements are incorporated as a part of their trade compliance programs, particularly for customers in countries outside of the GECC that purchase such “high-priority items.”
  • Determine whether updates to pre-existing customer certification or end-user statements are warranted based on this new guidance.

In advance of the impending January 1, 2024 effective date for the U.S. Treasury Department, Financial Crimes Enforcement Network’s (“FinCEN’s”) beneficial ownership information (“BOI”) reporting requirements, FinCEN has proposed an extension of the reporting deadline for some reporting companies, and issued additional guidance regarding BOI reporting requirements, including a Small Entity Compliance Guide, a BOI Brochure, and supplementary Frequently Asked Questions (“FAQs”).

The NPRM’s Proposed Extension of Filing Deadlines

Under the current rule, reporting companies created or registered on or after January 1, 2024 will have 30 days from the date they are formed or registered to do business in the United States to file their BOI reports, and companies formed or registered to do business in the United States before January 1, 2024 will have until January 1, 2025 to file.  However, FinCEN issued a Notice of Proposed Rulemaking (“NPRM”) on September 28, 2023, which proposes to extend the filing deadline to 90 days after formation or registration for those reporting companies created or registered on or after January 1, 2024, but before January 1, 2025.  Companies formed or registered after January 1, 2025 would retain the existing obligation to file 30 days after formation or registration.  FinCEN has said that the proposed extension for companies formed or registered during the first year of implementation of the rule is intended provide companies additional time to digest new reporting obligations and gather the requisite information for their BOI submissions.  The comment period on the NPRM closes October 30, 2023.  If adopted, the deadlines would change as follows:

FinCEN’s Additional Guidance

On September 18, 2023, FinCEN issued a Small Entity Compliance Guide designed to assist small businesses with their reporting requirements.  Included in the Small Entity Compliance Guide are charts to aid a company’s determination of whether it qualifies as a “reporting company,” checklists regarding the applicability of any of the 23 exemptions to the definition of reporting companies, and suggested steps for determining beneficial owners.

The BOI Brochure provides a short primer of who must report BOI, and when and how these reports must be made.

The most important document for many potential reporting companies will be the three-dozen new FAQs that FinCEN has issued, which address a variety of topics.  Some of the key FAQs include (1) D.7, which explains that where an entity’s beneficial owner holds their ownership interests exclusively through multiple exempt entities, they may report the name of each of the exempt entities instead of the individual beneficial owner’s information; (2) D.9, explaining that a member of the board of directors is not automatically a person exercising “substantial control” and must be assessed on a case-by-case basis to determine if that person qualifies as a “beneficial owner”; (3) E.3, which addresses when lawyers and accountants, including third-party providers, may qualify as “company applicants” that must be reported on;  (4) G.2, which notes that parent companies cannot file a single BOI report for all of their non-exempt subsidiaries, and that each company that meets the definition of a “reporting company” must file its own report; (5) H.2, explaining events that would trigger the need to file an updated report; (6) J.1, which explains what reporting companies must do if they become exempt after filing a report; (7) K.1, providing some forbearance against enforcement for companies that correct inaccurate information within 90 days of filing a report; and (8) N.1, explaining that reporting companies may use third-party vendors to assist them in preparing their reports.

Current Status of BOI Reporting Procedure

FinCEN will start accepting BOI reports on January 1, 2024.  The Beneficial Ownership Secure System (“BOSS”), which will house the reports, will not accept submissions before that date.

In the interim, FinCEN continues to work on the structure and procedure of BOI reporting.  On September 29, 2023, FinCEN issued a Notice of Information Collection (“NOIC”), which outlines the proposed format for BOI submissions.  FinCEN proposes in that notice to consider BOI reports that do not contain all required information as “incomplete and non-compliant filings.”  Per the NOIC, reporting forms “will only be considered complete and compliant once the missing information is subsequently added.”

FinCEN is accepting comments on the NOIC until October 30, 2023.

Key Takeaways

Given the broad scope of FinCEN’s proposed rules, entities incorporated in the United States and foreign companies registered there should review FinCEN’s current BOI rules and guidance to understand if the rules apply to them, considering any possible exemptions.  To the extent the rules do apply, the subject entities should begin the process of understanding how to collect BOI, and from whom.  Although the deadline, especially for companies already incorporated or registered in the United States, may seem a ways off, companies will need to plan for time to figure out which entities in their structure must report, what information must be collected, how the company will get the information, and whether it needs legal advice on interpreting specific exemptions or requirements.  This can quickly become a substantial exercise in project management for companies with many affiliates.  Multinational corporations, private equity firms, and joint ventures in particular should consider consulting with counsel to determine whether any exemptions apply.

Companies formed or registered in New York should also be separately aware of the LLC Transparency Act, which was recently passed by New York legislators.  The LLC Transparency Act – applicable to limited liability companies formed or registered under New York laws – largely mirrors the BOI reporting requirements laid out by FinCEN with one major difference: the reported information will be publicly accessible.

Crowell & Moring will continue to monitor developments with both FinCEN’s BOI reporting requirements and the LLC Transparency Act, and will provide further updates as appropriate.