Today, the United States announced another round of significant sanctions and export control restrictions on Russia and Belarus in response to the deteriorating situation in Ukraine. Today’s actions subject Belarus to the same harsh export control restrictions that were imposed on Russia last week and effectively close U.S. airspace to Russian aircraft. The White House also announced that United States would impose new restrictions on exports of oil and gas equipment to Russia and blocking sanctions on Russian defense companies. We expect the Commerce and Treasury Departments to implement those restrictions in the coming days.

U.S. Belarus Export Controls

In coordination with the European Union, the U.S. Commerce Department announced amendments to the Export Administration Regulations today that subject Belarus to the same sweeping export control restrictions as those imposed on Russia last week.

The new rules effectively prohibit the export, re-export, or transfer of a broad range of dual-use items to Belarus, including all items listed in Categories 3 through 9 of the Commerce Control List, the U.S. dual use control list. With limited exception, the U.S. government will review license applications related to these exports subject to a presumption of denial, which means that licenses will rarely be granted. The rules also impose broad restrictions on exports of items to Military End Users and Uses in Belarus and added add two Belarusian entities to the Entity List as “military end users,” broadly prohibiting the transfer of items subject to the EAR to the listed parties.

Today’s amendments also extend the “Foreign Direct Product Rule” (FDPR) to apply exports to Belarus and Belarusian Military End Users, expanding the scope of items manufactured outside the United States that are now subject to U.S. export control and licensing requirements.

Additional information on the nature of these expanded controls is available in our prior post on Russia, available here.

Oil & Gas Equipment Restrictions

The White House announced that the United States would adopt new export controls on oil and gas extraction equipment shipped to Russia. The new controls are designed to limit the ability of Russia to support its refining capacity over the long term. Additional information about the oil and gas export controls is available here. The EU also recently imposed similar restrictions on an array of items used for oil refining.

Defense Sanctions

The White House also announced that 22 Russian defense-related entities would be added the List of Specially Designated Nationals (SDN List), including companies that manufacture “combat aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military.” As of this writing, the SDN List had not yet been updated with these entities.

On March 4, 2022, BIS added 91 entries to its Entity List, effectively prohibiting exports of items “subject to the EAR” to the listed parties. The entities, which are located in Belize, Russia, Singapore, and the United Kingdom, were sanctioned for their involvement or support of Russian security, military, and defense efforts.

Airspace Restrictions

In coordination with U.S. allies, the United States also announced the closure of U.S. airspace to Russian aircraft. The new measures ban aircraft certified, operated, registered or controlled by any person connected with Russia from the United States. Accordingly, the Department of Transportation issued a notice today revoking Russian passenger and cargo airlines’ ability to operate to and from U.S. destinations and refusing entry of Russian-operated aircraft into U.S. airspace.

In part, the report reflects concerns that the United States has become over-reliant on sanctions in recent years, encouraging adversaries and others to build alternative payment systems using digital currencies and other mechanisms that do not involve U.S. dollars or the U.S. financial system. Such developments threaten to reduce the effectiveness of U.S. sanctions in the long run, as more payments occur outside of U.S. regulatory jurisdiction.

Below are the key recommendations from the report, which may reduce the number of sanctions actions by the United States, but will also likely increase complexity for the companies and financial institutions that must comply with these rules:

• Crypto, digital currencies, and digital payments: The report makes clear that Treasury will continue to focus on digital currencies and alternative payment platforms, which adversaries and others can use to avoid the U.S. financial system and blunt the impact of U.S. sanctions policy. The report follows the recent designation of a cryptocurrency exchange for facilitating ransomware payments and the issuance of guidance for the virtual currency industry on sanctions compliance.
• Multilateral approach: Reflecting a marked shift in strategy from the last administration, the report indicates that the Biden Administration should seek to continue to coordinate with allies and other international partners to impose multilateral sanctions to increase the effectiveness of sanctions as a policy tool and retain the “credibility of U.S. international leadership.” Recent U.S. sanctions actions targeting Belarus and others are examples of a renewed U.S. focus on collaboration with allies on the deployment of multilateral sanctions.
• Avoiding unintended harm: Treasury intends to further tailor sanctions to limit unintended economic, humanitarian, and political impacts on U.S. businesses, allies, and non-sanctioned populations abroad. One potential outcome of this approach may be the continued development of bespoke sanctions restrictions, such as Russia-related sectoral sanctions and Chinese Military-Industrial Complex Company securities sanctions, and a reduced reliance on traditional blocking sanctions. While these more tailored measures are intended to limit unintended harm, they also increase complexity for companies and compliance programs. The report also highlights a renewed focus on expanding sanctions exceptions related to the flow of legitimate humanitarian goods and services that support basic human needs, which are often restricted due to sanctions compliance concerns.
• Investment in Treasury resources: As anyone who interacts with U.S. sanctions officials know, the agencies responsible for implementing and enforcing U.S. sanctions face resource constraints, including staffing and technology limitations. The report calls for investing in the modernization of Treasury’s workforce and operational capabilities, particularly in the digital assets and services space, and updating OFAC’s website and guidance documents to make them easier to navigate and understand.
• Increased industry coordination: Treasury intends to increase coordination and reach out to industry, including companies operating in the digital currency and payments space, to encourage effective implementation of sanctions restrictions.
• Structured framework for new sanctions: The report indicates that Treasury should adopt a more structured framework to assess the potential impact of new sanctions, akin to the vetting process used to authorize military force. The new five-point framework should be designed to ensure that sanctions support a clear policy objective within a broader foreign policy objective and consider the factors noted above when crafting new sanctions restrictions.