March 21, 2022
Over the last month we have seen a marked expansion of sanctions against Russia and Belarus in reaction to the unprovoked invasion of Ukraine. It began on February 21, 2022, when Russia recognized the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of eastern Ukraine. In response, the president issued executive order 14065 announcing sanctions on the two regions. Three days later, Russia invaded Ukraine, which set in motion a rapid series of sanctions and stringent export controls to restrict Russia’s access to technologies and other items needed to sustain its aggressive military actions.
The United States has not acted alone. As the European Union (EU) and the United Kingdom (UK) imposed similar sanctions, making this in fact a multilateral response to the Russian aggression, the international trade community has been turned on its head. Just last week we saw the U.S., EU, and UK announce bans on the export of luxury goods to increase pressure on Russian oligarchs. The corresponding executive order also prohibited importation into the United States of fish, seafood, alcoholic beverages, non-industrial diamonds, and “and any other products of Russian Federation origin” as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Commerce.
It’s not over. Just yesterday, the U.S. House of Representatives passed legislation to end normal trade ties with Russia and Belarus. The bill will now head to the Senate, and Majority Leader Chuck Schumer (D, NY) has already promised to move it quickly. Supported by President Biden, this legislation would authorize the president to increase tariffs on Russia and Belarus until January 1, 2024. This would put Russia and Belarus in the same trade class as Cuba and North Korea, the only other two countries that do not have normal trade relations with the U.S. and would significantly increase the price of imported goods from Russia and Belarus (those that still can be imported, that is).
To assist with understanding the current situation, we provide the following high-level overview of what restrictions are in place, at least as of the date of this alert. We include a timeline of events followed by an agency-by-agency review. We also include links for additional information on current restrictions.
Timeline of Recent Events
- February 21: Executive Order (EO) 14065 issued, blocking property of certain persons and prohibiting certain transactions with respect to Russian efforts to undermine the sovereignty and territorial integrity of Ukraine.
- February 24: Commerce Department’s Bureau of Industry and Security (BIS) implements new regulations (87 FR 12226) restricting exports to Russia in response to invasion of Ukraine. The effective date for the new rules is 2-24-22.
- February 24: Treasury Department’s Office of Foreign Assets Control (OFAC) adds most of Russia’s largest banks, plus subsidiaries, on Specially Designated Nationals (SDN) List. Includes VEB Bank PSB Bank, VTB Bank, Otkritie Bank Sovcombank, Novikombank (owned by Rostec and finances much of Russian defense sector).
- February 25: State Department’s Directorate of Defense Trade Controls (DDTC) announces policy of denial for exports, temporary imports, reexports, retransfers, or brokering of defense articles or defense services to destined for or originating in the so-called DNR or LNR regions of Ukraine.
- February 28: OFAC prohibits U.S. persons from engaging in transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation.
- March 8: President Biden issues EO 14066 prohibiting importations of Russian oil and petroleum into the United States and prohibiting U.S. persons from engaging in new investment in the Russian energy sector.
- March 9: U.S. House of Representatives pass legislation (H.R. 6968) to suspend energy imports from Russia (vote: 220-194). Bill still needs to be passed in the Senate and then sent to the President to be signed into law.
- March 11: President Biden issues EO 14068 prohibiting certain imports, exports, and new investment with respect to continued Russian aggression. Notably, the EO targets imports of Russian-origin fish, seafood, alcoholic beverages, and diamonds, and exports of luxury goods to Russia.
- March 17: U.S. House of Representatives pass legislation (H.R. 7108) to suspend trade relations with Russia (vote: 424-8). Bill still needs to be passed in the Senate and then sent to the President to be signed into law.
DDTC (Directorate of Defense Trade Controls)
DDTC’s current policy towards exports, reexports, retransfers, temporary imports of, and brokering activities related to Russia and Belarus remains a policy of denial. It is important to note that this policy includes any transactions destined for or originating in the so-called DNR or LNR regions of Ukraine. DDTC posts its updates on its home page, as well as the country policy page of its website.
BIS (Bureau of Industry and Security)
The major shift in export control licensing has occurred under the Export Administration Regulations (EAR). While items that have a license requirement for Russia and Belarus continue to do so, BIS has imposed additional comprehensive export restrictions for goods in Categories 3-9 of the Commodity Control List (CCL). These actions include new license requirements for such goods and a license review policy of denial for license applications for exports, reexports to, or transfers within Russia and Belarus. The practical effect of these restrictions is to require a license for just about all things subject to the EAR (there are some exceptions for activities like safety of flight, humanitarian aid, or space-related cooperation). The EAR section implementing these sanctions is 15 C.F.R. § 746.8.
BIS has also significantly restricted the ability to use of EAR license exceptions for exports, reexports and transfers to Russia or Belarus. While some exceptions may still be available, it is important to carefully review the parameters for the delineated exceptions in 15 C.F.R. § 746.8(c), as each exception is extremely limited.
In addition to these actions, BIS has expanded the ‘military end use’ and ‘military end user’ restrictions in 15 C.F.R. § 744.21 to require a license to export, reexport, or transfer all items subject to the EAR to Russia and Belarus if you have ‘knowledge’ that the item is intended (entirely or in part) for a ‘military end use’ or ‘military end user.’ Remember that ‘military end use’ and ‘military end user’ are both terms of art defined in the EAR (defined in EAR § 744.21) and are broader than common usage. In addition, because the restriction applies to all items subject to the EAR, this includes items classified as EAR99 (except EAR99 food & medicine, unless for Russian government end users and state-owned enterprises).
BIS added two new Foreign Direct Product (FDP) rules specific to Russia and Belarus. One applies to the entire country of Russia or Belarus (see § 734.9(f)). The second FDP rule targets Russian or Belarusian ‘military end users” (see § 734.9(g)).
BIS has created a resource page on its website to summarize the current status of its licensing and review policy. You can also sign up for BIS regulatory updates to stay current with the rapidly changing restrictions.
OFAC (Office of Foreign Assets Control)
Since 2006, OFAC has maintained a targeted sanction against certain parties and entities in Belarus, which are listed on the Specially Designated Nationals (SDN) List. The sanctions block all property and interests in property for those persons identified on the SDN List under the Belarus sanctions. As a result of Belarus’s apparent support for Russia’s invasion, persons and entities have been added to the SDN List, and the U.S. government continues to add to the list on a near daily basis. OFAC provides a detailed resource page with links to general licenses that have been issued as well as related Executive Orders and regulations issued under the sanctions.
Russian sanctions are being promulgated under two different regimes, the Russian Harmful Foreign Activities Sanctions and Ukraine-/Russia-related Sanctions. The Russian Harmful Foreign Activities Sanctions came into effect April 15, 2021, and are targeted sanctions directed at certain parties that are identified on the SDN list, the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA List), and the Non-SDN Menu-Based Sanctions List (NS-MBS List). These sanctions address “national security threats posed by specified harmful foreign activities of the Russian Federation, including its efforts to undermine the conduct of free and fair democratic elections and democratic institutions in the United States and its allies and partners; engaging in and facilitating malicious cyber-enabled activities against the United States and its allies and partners; fostering and using transnational corruption to influence foreign governments; pursuing extraterritorial activities targeting dissidents or journalists; undermining security in countries and regions important to United States national security; and violating well-established principles of international law, including respect for the territorial integrity of states.” The sanctions were expanded on March 8, 2022, to prohibit importation of Russian origin oil and coal products, new investment in the Russian energy sector, and financing or facilitating transactions related to those activities.
The Ukraine-/Russia-related Sanctions have been in effect and have been expanding since March 6, 2014. These sanctions are also targeted blocking sanctions against individuals and entities on SDN List, as well as Sectorial Sanctions against certain entities in specific industries that are identified on the (SSI List) and includes an investment ban and prohibition on the export or import of goods, technology, or services to or from Crimea. Under these sanctions, there is a prohibition on new investment in the so-called DNR or LNR regions of the Ukraine (collectively, the ‘‘Covered Regions’’); the importation of any goods, services, or technology from the Covered Regions; the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any goods, services, or technology to the Covered Regions; and any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States. The restriction blocking property and interest in property for persons operating in sectors of the Russian Federation economy such as financial services, energy, metals and mining, engineering, and defense and related materiel also falls under this set of sanctions.
You can screen the parties to your transaction against the Russian and Belarus sanctions, as well as any other sanctions program using OFAC’s Sanctions List Search, as well as the Consolidated Screening List. While these two lists overlap, considering how quickly persons and entities are being added to the lists, it is important to check both before proceeding with a transaction. If a party is identified a subject to one or more of these sanctions, the transaction must stop, and a license must be obtained from the appropriate government agency - which will likely be met with a policy of denial. We also recommend signing up for OFAC’s email updates to get real-time information on changes to sanctions.
Bottom line, the ability to export to and import from Russia and Belarus is extremely limited. However, the economic sanctions against Russia are in fact targeted and are not a comprehensive embargo. Consequently, the regulations and policies implementing the sanctions are very complex. If you are continuing to engage with Russia, whether exporting or importing, it is imperative you keep apprised of the sanctions to avoid costly violations. This will mean scrubbing your internal policies and procedures and playing close attention to due diligence. Skipped steps, especially under the false sense of security from working with a company for 20 years, will substantially increase risk, and the benefits will not likely outweigh the negative fallout that could ensue.
The above alert is for informational purposes only and is not intended to be construed or used as legal advice. Receipt of this alert does not establish an attorney-client relationship.
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