Statute of limitations extended for violations of U.S. sanctions

What has happened

H.R. 815, which, in part, appropriated military funding to Israel, Taiwan, and Ukraine, and required the divestment of Chinese interests in TikTok, also would double the statute of limitations for certain violations of U.S. sanctions and other programs. Specifically, the 21st Century Peace Through Strength Act includes a provision that would set a 10-year statute of limitations for violations of the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA).¹

Unlike certain other provisions of H.R. 815, the section extending the statute of limitations under IEEPA and TWEA went into effect immediately upon enactment, on April 24, 2024.

What it means

The previous statute of limitations for sanctions violations under IEEPA and TWEA, as governed by the general provisions of 28 U.S.C. § 2462, was five years. In practical terms, by setting a 10-year statute of limitations for violations of IEEPA and TWEA, Congress has doubled the statute of limitations for violations of most of the sanctions programs administered and enforced by the US Treasury’s Office of Foreign Assets Control (OFAC) other programs administered and enforced by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of Justice (DOJ) pursuant to IEEPA.

As noted above, this provision went into effect on April 24, 2024. It is unlikely that an agency would attempt to resurrect a civil enforcement action or criminal charge if the five-year period has already lapsed. However, the statute does not address how the extension of the statute of limitations will be applied for investigations initiated prior to its enactment.

The 21st Century Peace through Strength Act appears to leave undisturbed the five-year limitation period for other, more limited sanctions statutes enforced by OFAC, including the Foreign Narcotics Kingpin Designation Act (FNKDA), Antiterrorism and Effective Death Penalty Act (AEDPA), and the Clean Diamond Trade Act (CDTA).

It also does not affect the statutes of limitations related to the Export Control Reform Act (ECRA) or Arms Export Control Act—the primary authorities for the Export Administration Regulations (EAR) administered by BIS and the International Traffic in Arms Regulations (ITAR) administered by the U.S. State Department’s Directorate of Defense Trade Controls (DDTC).  However, because BIS administers the Securing the Information and Communications Technology and Services Supply Chain Regulations (15 C.F.R. Part 7), parts of the Chemical Weapons Convention Regulations (CWCR; 15 C.F.R. Parts 710­729), and parts of the EAR under IEEPA’s statutory authority, pursuant to IEEPA, the statute of limitations for certain export controls violations will also potentially be extended.  We anticipate that BIS will issue guidance on this topic in the coming months.

It is worth noting that while the statute of limitation for civil sanctions violations was generally five years prior to this change, criminal investigations conducted by DOJ often involve charges—including conspiracy—that implicate conduct dating back more than five years.

OFAC Implementation of the 21st Century Peace Through Strength Act

OFAC has not yet issued any amendments to its regulations.  OFAC’s Economic Sanctions Enforcement Guidelines generally consider a party’s prior conduct over a five-year period, which is coterminous with the previous statute of limitations. 19 C.F.R. Part 501, Appendix A. It is unclear whether OFAC (and potentially other agencies) will actively pursue violations dating back 10 years, or how, if at all, OFAC will adjust for the timing of violations and/or past conduct in its Enforcement Guidelines.  OFAC may also update its records and recordkeeping requirements (e.g., 31 C.F.R. § 501.601), to reflect the extended ten-year statutes of limitations.

This development creates additional incentives for companies to voluntarily disclose to OFAC apparent sanctions violations arising from long-standing patterns of conduct, because the expanded statute of limitations period significantly increases their potential sanctions exposure. In practical terms, however, once a party decides to disclose, the change’s impact is more limited; OFAC often insists that parties enter into tolling agreements during any settlement process that often significantly extend the time in which companies may be held liable for such violations.

Impact on Due Diligence and Successor Liability

This development will have a significant impact on the level and nature of due diligence conducted during in mergers and acquisitions (M&A) and other such transactions, including but not limited to financing arrangements.  Acquirors, financial institutions, and investors may begin to request information covering the full ten-year statute of limitations to account for increased sanctions exposure.  In addition, parties may begin to request representations and warranties for a ten year period rather than a five year period, depending on the nature of the transactions. Relevant factors will continue to be whether a business is primarily in the United States, the countries where the parties do business and the risk provide of the parties involved.

Next steps

Businesses should continue to maintain robust sanctions compliance procedures and retain records for an appropriate period of time. As noted above, OFAC may amend its recordkeeping requirements to correspond to the ten-year statute of limitations, so companies should consider updating recordkeeping practices in anticipation of such changes.  Companies and financial institutions should prepare to respond to diligence requests covering an expanded period in the M&A context and should themselves expand the scope of their own due diligence and request broader sanctions-related representations and warranties to account for the longer statute of limitations.  Given that the change to the statute of limitations does not apply to the ITAR or EAR, companies should also continue to monitor developments in this area for any future changes that might also extend the statute of limitations for U.S. export controls.

For assistance with establishing and maintaining robust sanctions compliance programs, compliance investigations, and transaction due diligence, please reach out to any of the listed contacts.