Trade Enforcement Could Focus on Individuals Over Companies, Lawyers Say

"U.S. companies may find a more friendly enforcement environment than in the past," said Luciano Racco, trade attorney at Foley Hoag and co-chair of the firm's international trade and national security practice.

Racco pointed to the DOJ memo listing 10 areas where it will beef up enforcement, and one of those areas is trade and customs fraud (see 2505130020), "which we think will be broadly interpreted and will certainly include export controls and sanctions violations," as well as dealings with cartels and transnational criminal organizations, Racco said.

That memo indicated that "prosecution of individuals will often be enough to vindicate U.S. interest, meaning that the Trump administration appears to be taking the view that if you find a few bad actor employees, for example, prosecuting them may be enough and the company itself may not be subject to an enforcement action," Racco said. "So, lots of interesting implications, especially for voluntary disclosures."

Companies could be more willing to name individual employees who have allegedly engaged in wrongdoing so that the company might benefit from government incentives, Racco said.

While the Trump administration hasn't yet announced many public trade enforcement actions, Racco noted that the Bureau of Industry and Security had added parties to its Entity List.

"Most strikingly, there have been zero additions from persons in Russia, [which is] very different from the Biden administration. The main target of the Trump administration so far has been Chinese entities. Again, not surprising, but also a focus on Iran," Racco said.

Companies need to assess how the many recent changes in U.S. trade policy could affect them, including even those that might not appear to have an immediate impact, according to Racco. He specifically pointed to the U.S. recently relaxing some financial sanctions against Syria and its various updates to China tariffs.

"You may not be doing business in Syria, so you don't care. You may not be importing anything from China, so changes to the China tariffs don't matter to you, but [you still] need to assess. Does that change have an impact on your organization? Is it going to increase your costs? If yes, are there mitigation measures you can take? Is the change time-limited or indefinite?" Racco said. He added that this assessment could also include finding business opportunities in the midst of policy changes.

Following that assessment, companies should consider whether they need to make any changes to written compliance policies and procedures, Racco continued.

Should companies wish to challenge the trade agenda, they need to consider the extent to which a forthcoming law might have on the business.

"For example, if you fear that you may be" added to a sanctions list or "face tariffs that will be so crippling to your business that you [would] either go out of business, or know that your bottom line would be so severely impacted ... you should consider whether there are steps that you should take early on to prepare for litigation," Racco said. "In instances where a change in the law will have a crippling impact on your business, the best legal action to take is to seek a temporary restraining order, a TRO, in court."

Racco noted that TROs have become increasingly difficult to obtain, and he has been working with clients to prepare drafts and outlines of TRO papers, which could be finalized fairly quickly.

Companies can also consider engaging with government agencies and filing amicus briefs for cases expected to make their way through the appellate process to the Supreme Court.

"It's important that courts get to hear from a wide range of industry stakeholders while they're considering the legal implications of whatever case is in front of them," Racco said.

Racco's tips come at a time when, even though Trump has indicated that he "doesn't love sanctions," sanctions "have actually turned out to be a fairly important tool for his administration," according to Racco's colleague Shrutih Tewarie at Foley Hoag.

Trump "has actually already started using sanctions as a carrot and stick to carry out his foreign policy and national security-related objectives, similar to what we saw unfold during his first administration," said Tewarie, who co-chairs Foley Hoag's international trade and national security practice with Racco.

Both Tewarie and Racco touched on the Treasury Department’s recent lifting of some financial sanctions on Syria. Although some restrictions have been relaxed, companies should be careful about any longer-term business investments involving the country, especially because sanctions could be put back in place, they said.

“The devil is in the details,” Tewarie said. “There is this relief that's being provided, but it’s important to understand what restrictions that they come with.”

Treasury issued a new general license in May that authorized a range of transactions with the Syrian government and other people and entities still listed on the agency’s Specially Designated Nationals List (see 2505230073). The State Department also issued a waiver under the Caesar Syria Civilian Protection Act to lift other sanctions against Syria, and the Financial Crimes Enforcement Network announced it would be allowing financial institutions to maintain correspondent accounts for the Commercial Bank of Syria.

Tewarie noted that FinCEN imposed conditions on its measures loosening certain banking restrictions, including that banks still need to have procedures in place to detect money laundering. She also said the Office of Foreign Assets Control still hasn’t removed any Syria-related entries from its SDN List -- it has only authorized certain transactions with them. OFAC can revoke its general license “at any time,” she added, and Syria is still subject to a comprehensive embargo against U.S. export control laws.

“Parties that are interested in doing business with Syria need to take a step back and understand carefully what has actually happened,” Tewarie said. “It’s important to know that those risks do remain.”

She said anyone interested in doing business in or with Syria “has to navigate those risks and think very carefully about who they're interacting with” -- for example, whether any potential customers are connected to the Syrian government or someone who remains blocked under OFAC’s sanctions, including through the agency’s 50% rule.

Along with evaluating risks, companies should ask themselves whether there’s a “business opportunity" with Syria, Racco said.

“How often does a comprehensively sanctioned jurisdiction move to a less restrictive category? Very rarely,” he said. “There are risks, and you want to evaluate those. But it could be something where you are raising an opportunity and explaining to your management the contours of what the opportunity could look like.”

Those opportunities may need to be more “short term,” Racco said, such as fulfilling a single order to a customer connected to Syria as opposed to “developing plans to build a factory there.”

Tewarie added that sanctions on China so far "have actually been fairly narrow,” although it's possible that additional sanctions to China may be forthcoming.”

"We expect that those sanctions will be gradual and initially impact certain sectors of the Chinese economy, including the military sector, and even individuals that may have ties to the Chinese government and the Communist Party. They may impact certain specific banks that are facilitating China's military trade and military activities," Tewarie said. "And so we expect those sanctions to be fairly gradual, just given the U.S.'s dependence on China and the Chinese economy. But we do think that additional sanctions on China are likely."

She also said companies could face challenges complying with recent U.S. designations of cartels as foreign terrorist organizations (FTOs). That's because cartels, such as those operating in Mexico, Venezuela and Haiti, are "very sophisticated enterprises. They often operate through various agents and front companies that have their networks in many countries across the world," Tewarie said.

"For example, we've spoken to organizations operating in Haiti, who've come to us and said, 'we don't know how to operate going forward because the specific regions of Haiti that we're in are effectively controlled by these cartels,' and so it's almost impossible to engage in any activities, whether directly or even indirectly ... [including] working with or engaging in a transaction that ultimately flows to one of these cartels," Tewarie said.

She continued, "Really, any dealing with an FTO can expose U.S. persons to criminal liability. So, while there was always risk in terms of dealings with cartels because of their new designations, there's even enhanced risk now to U.S. persons for dealing with these entities. ... So, again, another reason for why U.S. companies really need to be careful and engage in enhanced diligence, especially when they're operating in countries or areas of the world where these cartels are known to be active."