New restrictions on international trade have become near-daily headlines. Sanctions, export controls, restrictions on foreign investment in the U.S., and actions prohibiting the importation of goods produced using forced labor affect all U.S. companies including those in the clean energy sector. Keeping up with these ever-evolving regulations is a difficult task, but getting smart about them now, or at least being able to spot potential issues, could save resources and heartache in the future.
Know the Relevant Laws
Sanctions. U.S. sanctions laws are designed to prevent U.S. persons (meaning a company or human being) from doing business with certain countries, sector(s) of a country’s economy, or specific individuals or companies in support of U.S. foreign policy and national security objectives. Various branches of the U.S. government, including the Treasury Department’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS), maintain lists with Orwellian sounding names (including OFAC’s List of Specially Designated Nationals and Blocked Persons, and BIS’s Entity List) of banned or suspect persons. The goal of sanctions compliance is to identify and avoid doing business with sanctioned parties and countries.
Export Controls. Export control laws govern the export of nearly every product and technology from wind turbines and solar panels to missiles and pencils. Tangible exports are covered by export control laws, but so are electronic exports of software and technical data. The export control laws are based on lists of physical goods, software, and technology (collectively referred to as “items”). The relevant list for clean energy companies is the Department of Commerce’s Commerce Control List, which is part of the Export Administration Regulations. Depending on whether your products are listed in the Commerce Control List, as well as the destination country, or end-use or user of the item you intend to export, you may need to obtain an export license from the U.S. government prior to exporting the controlled item. The U.S. government also takes the position that these laws govern not only exporting items outside the U.S., but also transferring or giving access to export-controlled items to non-U.S. persons even if they are physically located in the U.S.
Foreign Investment Restrictions. There are also restrictions on foreign investment in U.S. companies that make products included in the lists of export-controlled products (so-called “critical technologies”) as well as companies that collect sensitive personal data on Americans or are involved in “critical infrastructure.” Most relevant for clean energy companies are the following categories of critical infrastructure:
- Owning or operating any system, including facilities, for the generation, transmission, distribution, or storage of electric energy comprising the bulk-power system.
- Owning or operating any electric storage resource.
- Owning or operating any facility that provides electric power generation, transmission, distribution, or storage directly to or located on a military installation.
In addition, transactions that involve real estate that is close to sensitive locations (ports and military installations) could also be subject to foreign investment restrictions. The Committee on Foreign Investment in the United States (CFIUS) is charged with the review of foreign investments in the U.S. that involve critical technology or infrastructure, sensitive person data, or real estate in close proximity to sensitive locations in order to assess a wide range of national security risks. CFIUS has the power to block such transactions or impose conditions on the deal to mitigate those risks. CFIUS can also intervene in a transaction even if it has already closed. For this reason, it is important for companies to consider the CFIUS risks and implications of foreign investments early on in the financing process.
Human Rights-Related Import Restrictions. U.S. Customs and Border Protection (CBP) enforces the Tariff Act, which includes prohibitions on the importation into the U.S. of merchandise that is mined, produced, or manufactured by forced labor. CBP enforces this law in one of three ways: it can issue a Withhold Release Order (WRO), make a finding, or impose civil penalties. WROs target merchandise from a specific manufacturer or type of good from a…