Commerce, Treasury, and State Announce Measures Targeted at Further Restricting Russia and Belarus

This blog post was drafted with assistance from Sean C. Church, Paralegal

On August 23, 2024, the U.S. Departments of Commerce, Treasury, and State published new restrictions on Russia aimed at further limiting its access to U.S. materials and international procurement networks for its military.

The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the State Department targeted nearly 400 individuals and entities both in Russia and outside its borders—including in Asia, Europe, and the Middle East. These designations cover a broad swath of Russian procurement activity, including numerous transnational networks, companies facilitating sanctions evasion for Russian oligarchs through offshore trust and corporate formation services, those evading sanctions imposed on Russia’s cyber actors, companies laundering gold for a sanctioned Russian gold company, and entities supporting Russia’s military-industrial base by procuring sensitive and critical items such as advanced machine tools and electronic components. Many of OFAC’s designations targeted companies and individuals supplying items listed on the U.S. ​“Common High Priority List,” which contains items that Russia seeks to procure for its weapons programs. Companies should make sure to conduct restricted party screening on counterparties to ensure they are not on a sanctions watchlist. A number of the designated entities are not based in Russia or Belarus, and therefore any screening procedures that only focus on those countries will not fully cover the risks.

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) issued final rules which will:

1. Expand the scope of the Russia/Belarus Military End User (“MEU”) Foreign Direct Product (“FDP”) rule to cover a new category of entities: Procurement Entities. Commerce will designate Russian and Belarus Procurement Entities, e.g., those procuring products for Russia’s war effort, on the Entity List with a footnote, and subject them to controls under the FDP rule.
2. Impose new license requirements on operation software for computer numerically controlled (“CNC”) machine tools. This will have a delayed effective date of September 16, 2024;
3. Add more than 100 entities to the Entity List, including companies located in Russia, the Crimea Region of Ukraine, China (including Hong Kong), Turkey, Iran, and Cyprus, for shipping U.S.-origin and U.S.-branded items to Russia contrary to U.S. export controls or for engaging in other activities contrary to U.S. national security and foreign policy interests. Many of these entities are designated as MEUs or Procurement Entities and are subject to the FDP rule;
4. Issue guidance to exporters on identifying suspicious transactions related to foreign corporate service providers and listed foreign addresses; and
5. Provide guidance and recommendations on contractual language that can be used to assist in export compliance.

It is important for companies to conduct enhanced due diligence for any sales to Russia or Belarus, or to customers in countries that may be acting as a procurement agent for Russia or Belarus (e.g., Turkey, the United Arab Emirates, China, Hong Kong, etc.). The above BIS guidance on contractual language will be beneficial for companies to ensure their standard contract language or terms and conditions account for export controls as well.

Please contact our sanctions and export controls compliance team if you have any questions regarding these latest developments.