In addition to traditional blocking sanctions, the E.O. authorizes U.S. government agencies to impose menu-based sanctions on non-U.S. persons that:

• Have materially contributed to the “international proliferation of illicit drugs” or their means of production;
• Have knowingly received property that constitutes or is derived from the proceeds of the international proliferation of drugs or that was used or is intended to materially facilitate the international proliferation of drugs;
• Have provided financial, material, or technological support for, or goods or services in support of the global drug trade or a sanctioned person;
• Are or were a leader or official of any sanctioned person or any foreign person that has engaged in the foregoing; or
• Are owned, controlled, or directed by, directly or indirectly, any sanctioned person.

The E.O. defines the “international proliferation of illicit drugs” to be any illicit activity to produce, manufacture, distribute, sell, or knowingly finance or transport narcotic drugs, controlled substances, listed chemicals, or controlled substance analogues, as defined in section 102 of the Controlled Substances Act. Parties designated pursuant to the E.O. face a menu of sanctions possibilities, including at least one of the following:

• Blocking sanctions that freeze the sanctioned actor’s U.S. property or interests in property;
• Prohibition on U.S. transfers of credit or payments involving any interest of the sanctioned actor;
• Prohibition on U.S. transactions in foreign exchange in which the sanctioned actor has any interest;
• Prohibition on any U.S. person from investing in or purchasing significant amounts of the sanctioned actor’s equity or debt; and/or
• Imposition of any of the foregoing sanctions on principle executive officers, officers, or the functional equivalent of such officers, of the sanctioned actor.

Pursuant to the new E.O., the Treasury Department’s Office of Foreign Assets Control (OFAC) announced the imposition or updating of sanctions on 25 foreign actors involved in the international trade of illicit drugs. OFAC updated its list of Specially Designated Nationals to designate 10 individuals and 15 drug trafficking organizations (DTOs) from Brazil, China, Mexico, and Colombia, as having materially contributed to the international proliferation of illicit drugs or their means of production. Of particular note is OFAC’s designation of Chinese national Chuen Fat Yip, a trafficker of fentanyl, anabolic steroids, and other synthetic drugs to the United States. According to OFAC, Chuen Fat Yip relies on virtual currency and fund transfers through money-service business and banks to finance his operations. OFAC has recently signaled that it would ramp up efforts to counter illicit activities in which cryptocurrencies and digital payment services play a role.

Please contact our sanctions and export control team with any questions about ensuring compliance with these new sanctions.

The new E.O. resets the U.S. government’s approach to ICTS by ordering a review of the national security threats posed by software applications that collect Americans’ sensitive personal and business data and by foreign adversaries’ access to large repositories of U.S. person data. New restrictions are likely following that review, and companies that rely on software applications owned or managed by companies linked to China or other potential foreign adversaries, should closely watch developments in this space.

New reports on “unacceptable or undue risks” posed by foreign adversary-connected applications

The E.O. directs the Directors of National Intelligence and Homeland Security to provide threat and vulnerability assessments to the Secretary of Commerce. In turn, the Commerce Department will draft two reports on foreign adversary-connected software, defined as software that has the ability to collect, process, or transmit data over the internet. The reports will recommend actions to protect against harm from the sale of, transfer of, or access to U.S. persons’ sensitive data, including personally identifiable information, personal health information, and genetic information. In addition, the Commerce Department will recommend additional actions to address risks associated with software applications that are designed, developed, manufactured, or supplied by persons owned or controlled by, or subject to the jurisdiction or direction of, a foreign adversary.

Several criteria indicate national security risk of ICTS applications

Building on the criteria to assess national security threats listed in E.O. 13873, the new E.O. lists several factors that will be considered when evaluating the risks posed by foreign adversary-connected software, including:

• ownership, control, or management by persons that support a foreign adversary’s military, intelligence, or proliferation activities;
• use of the connected software applications to conduct surveillance that enables espionage, including through a foreign adversary’s access to sensitive or confidential government or business information, or sensitive personal data;
• ownership, control, or management of connected software applications by persons subject to coercion or cooption by a foreign adversary;
• ownership, control, or management of connected software applications by persons involved in malicious cyber activities;
• a lack of thorough and reliable third-party auditing of connected software applications;
• the scope and sensitivity of the data collected; the number and sensitivity of the users of the connected software application; and
• the extent to which identified risks have been or can be addressed by independently verifiable measures.

These criteria will inform the U.S. government’s decision-making framework to adopt a “rigorous, evidence-based” analysis to address risks posed by ICTS transactions involving foreign adversary-connected software.

Further action on ICTS applications likely

Although yesterday’s E.O. rescinds the previous E.O.s dealing with Chinese mobile applications, new restrictions on Chinese and other software that collect large amounts of sensitive U.S. person data are likely to flow from the Commerce Department’s forthcoming report and recommendations, which are expected within 180 days. Furthermore, the E.O. provides the Commerce Department with authority to restrict transactions and business activities that may:

• Pose a risk of sabotage or subversion of the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of ICTS in the United States;
• Pose a risk of catastrophic effects on the security or resiliency of the critical infrastructure or digital economy of the United States; or
• Otherwise pose an unacceptable risk to the national security of the United States or the security and safety of United States persons.

The report stems from President Biden’s Executive Order 14017 (“EO 14017”), which established a wide-ranging whole-government evaluation of America’s supply chains. The report and recommendation released today concerns 100-day reviews involving four specific supply chains:

• semiconductors and advanced packaging;
• high-capacity batteries;
• critical minerals and other identified strategic materials; and
• active pharmaceutical ingredients.

Trade Enforcement: A recurring theme throughout the document relates to the use of the trade enforcement toolkit, including the establishment of a U.S. Trade Representative-led trade strike force, to identify unfair foreign trade practices that have eroded U.S. critical supply chains and to recommend trade actions to address such practices. The report also specifically recommends a potential Section 232 investigation of neodymium permanent magnets, suggesting that the Biden Administration may use Section 232 as a vehicle to address critical supply chain issues, albeit in a more traditional national security context.

Global Nature of Supply Chains: While many of the reports’ recommendations focus on expanding domestic production and labor, the report also acknowledges the need for global supply chains, and the need to work with partners and allies to achieve resilient supply chains.

Leveraging the Government’s Purchasing Power: The report proposes a number of ways the government can leverage its position as a buyer of critical materials to address supply chain concerns. This includes purchasing materials from domestic sources but also developing standards that foreign materials must meet. The report also suggests a strengthening of the National Defense Stockpile and the use of the Defense Production Act program as additional ways of addressing supply chain deficiencies.

Financing/Investment: A systemic lack of financing and a long-term shortfall in investments are identified as a key themes throughout the report. The report makes several financing recommendations that may present domestic and foreign producers with opportunities to expand production capabilities domestically and also abroad.

Sustainability: Sustainability is a key theme throughout the report, both from developing sustainable production in the U.S., sourcing materials produced sustainably abroad, and encouraging allies and partners and partners to develop sustainable supply chains.

Labor: The report identifies a shortage of skilled labor as a significant supply chain issue and recommends investing in training and development programs to ensure the U.S. labor market can meet manufacturing needs.

The administration is also conducting year-long based supply chain reviews of the following six sectors:

• defense industrial base;
• public health and biological preparedness industrial base;
• information and communications technology (ICT) industrial base;
• energy sector industrial base;
• transportation industrial base; and
• agricultural commodities and food products.

The first is a 100-day review involving four specific supply chains:

• semiconductors and advanced packaging;
• high-capacity batteries;
• critical minerals and other identified strategic materials; and
• active pharmaceutical ingredients.

• defense industrial base;
• public health and biological preparedness industrial base;
• information and communications technology (ICT) industrial base;
• energy sector industrial base;
• transportation industrial base;
• agricultural commodities and food products.

Industry participants will have a role in shaping these reports, though the order does not specify whether communications will be on the record through notice and comment or through informal contacts. On March 15, 2021, however, the Commerce Department’s Bureau of Industry and Security published a federal register notice establishing a formal notice and comment period for industry participants to provide information on semiconductor manufacturing and advanced packaging supply chains. The deadline to file comments is April 5, 2021, so industry participants will need to mobilize quickly. Regardless of the process used for each industry and sector, these reviews provide an opportunity for industry participants to shape policy with respect to their respective supply chains in a variety of ways.

President Biden’s order is a continuation of the prior administration’s focus on supply chains, including an evaluation of the United States’ reliance on imports of critical minerals. A summary analysis of President Trump’s executive order is available here. EO 14017, however, provides some hints at differences in the approach the new administration might take. For example, while President’s Trump’ order focused on alleviating the threat to national security posed by imports of critical minerals from adversaries, President Biden’s order appears to take a broader approach to supply chains. In particular, as part of its statement on policy, EO 14017 states that “close cooperation on resilient supply chains with allies and partners who share our values will foster collective economic and national security and strengthen the capacity to respond to international disasters and emergencies.” The focus on strengthening supply chains with allies and partners is somewhat a departure from the prior administration.

In a press briefing last Friday, White House National Security Adviser Jake Sullivan, in discussing an upcoming meeting with representatives of China, noted that before the administration undertakes a point by point discussion on tariffs and export controls, the U.S. has “more work to do with our allies and partners to come up with a common approach, a joint approach.” This comment again demonstrates the Biden administration’s departure from the Trump administrations go-it-alone approach.

In the coming days, the Kelly Drye team will continue to monitor the federal register and provide updates for industry participants on how they can engage in shaping policy concerning their supply chains.

As a first step, OFAC added ten individuals associated with the coup and three ruby and jade companies to its List of Specially Designated Nationals (SDN List), effectively barring U.S. persons from doing business with those parties and any companies majority owned by those parties. OFAC indicated in a press release that further sanctions under the E.O. are possible if the military regime does not change course or if there is further violence in the country. The U.S. Commerce Department also made initial moves to tighten U.S. export controls on Burma.

New sanctions authority

Among other measures, the new E.O. authorizes OFAC to impose additional blocking sanctions on the following parties:

• Parties that operate in the Burmese defense sector;
• Parties that were involved in the undermining of democratic processes in Burma, the threatening of the peace, security, or stability of Burma, the limiting of freedom of speech in Burma, or related human rights abuses;
• Leaders or officials of the Burmese military or security forces;
• Leaders or officials of the Burmese government on or after February 2, 2021
• Government of Burma political subdivisions, agencies, or instrumentalities (including the Central Bank of Myanmar); [1]
• Spouses or adult children of any person that is sanctioned pursuant to the E.O.;
• Parties owned or controlled by the military or security forces of Burma or by parties that become subject to sanctions under the E.O.; and
• Parties that materially assist or provide material support persons sanctioned under the E.O.

The U.S. Bureau of Industry and Security (BIS) also announced a change to its licensing policy to deny export control licenses related to Burma’s Ministry of Defense, the Ministry of Home Affairs, armed forces, and security services and to revoke previously issued licenses involving those parties that remain open.

BIS indicated that it will suspend the availability of export control license exceptions for certain shipments to Burma, including Shipments to Country Group B countries (GBS), Technology and Software under restriction (TSR), Computers (APP), and Shipments of Limited Value (LVS).

BIS is considering adding Burma-related entities to its Entity List and/or the Military Intelligence End Use and End User List. BIS may also downgrade Burma’s Country Group in the EAR, which would trigger further U.S. export restrictions.

Companies doing business in Burma should carefully examine their exposure under these new rules and watch this space for further developments.

[1] The “Government of Burma” includes any persons/entities owned or controlled by, or acting for or on behalf of, the Government of Burma.