Secondary Sanctions

The Treasury Department’s Office of Foreign Assets Control (“OFAC”) expanded its definition of “Russia’s military-industrial base” to include all persons blocked pursuant to Executive Order (“EO”) 14024. To that end, foreign financial institutions that are not currently subject to U.S. sanctions may run the risk of being sanctioned by OFAC for conducting or facilitating transactions, or providing any service, to any person blocked pursuant to EO 14024. OFAC has updated its guidance to foreign financial institutions on how to identify and mitigate sanctions risks. Such transactions would not need a U.S. nexus to be targeted by OFAC for secondary sanctions.

Software and Information Technology (“IT”)-Related Services Prohibitions

OFAC issued a Determination pursuant to EO 14071 prohibiting certain IT and software services to Russia. The Determination applies to IT consultancy and design services, and IT support services and cloud-based services for enterprise management software and design and manufacturing software. Certain services are excluded from the Determination, including:

• any service to an entity located in Russia that is owned or controlled, directly or indirectly, by a U.S. person;
• any service in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled, directly or indirectly, by a Russian person; and
• any export, reexport, or transfer (in-country) of a service for software subject to the U.S. Export Administration Regulations (“EAR”) that has been authorized by the Commerce Department; or any export, reexport, or transfer (in-country) of a service for software not subject to the EAR that is eligible for a license exception or otherwise authorized by the Commerce Department.

OFAC issued General Licenses 6D and 25D to maintain authorizations for certain telecommunication and internet-related transactions, as well as humanitarian transactions. OFAC also issued FAQs 1181 - 1188 related to this Determination, which help explain what is and is not covered.

In conjunction with OFAC’s Determination, the Commerce Department’s Bureau of Industry and Security (“BIS”) issued a Final Rule imposing a license requirement on the export, reexport, or transfer (in country) of the following EAR99-designated software to Russia and Belarus:

• enterprise resource planning;
• customer relationship management;
• business intelligence;
• supply chain management;
• enterprise data warehouse;
• computerized maintenance management system;
• project management software, product lifecycle management;
• building information modelling;
• computer aided design;
• computer-aided manufacturing; and
• engineering to order.

These new BIS software restrictions are effective September 12, 2024. Importantly, this license requirement will also encompass any updates to the above software. There are limited exceptions to the above EAR99-designated software licensing requirement for certain civil end users, such as entities that operate exclusively in the medical or agricultural sectors. This new export controls ultimately expand the scope of prohibited services under the OFAC Determination above.

Restrictions on the use of License Exception Consumer Communications Devices (“CCD”)

In the Final Rule, BIS also narrowed the scope of commodities and software that may be authorized for export, reexport, or transfer (in-country) to Russia or Belarus under License Exception CCD. Specifically, BIS reorganized paragraphs (b)(1)-(17) and added new paragraph (18) of the license exception to make clear that the items under paragraphs (b)(1)-(8) are eligible for Cuba, Belarus, and Russia, and that the items under paragraphs (b)(9)-(b)(18) are only eligible for Cuba. These items include certain mobile phones, batteries and chargers, memory devices, and accessories thereof, among others, under certain Export Control Classification Numbers.

Further Restrictions Based on the U.S. Harmonized Tariff Schedule (“HTS”)

BIS added controls on 522 additional 6-digit HTS codes to the list of items requiring a license for export, reexport, or transfer (in-country) to Russia or Belarus in Supplement No. 4 to Part 746. The additional controls cover certain items in HTS Chapters:

• 25 (Salt; sulfur; earths and stone; plastering materials, lime and cement);
• 26 (Ores, slag and ash);
• 27 (Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes);
• 72 (Iron and steel);
• 73 (Articles of iron or steel);
• 74 (Copper and articles thereof);
• 75 (Nickel and articles thereof);
• 76 (Aluminum and articles thereof);
• 78 (Lead and articles thereof);
• 79 (Zinc and articles thereof);
• 80 (Tin and articles thereof);
• 81 (Other base metals; cermets; articles thereof);
• 82 (Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal);
• 83 (Miscellaneous articles of base metal);
• 86 (Railway or tramway locomotives, rolling stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signaling equipment of all kinds);
• 87 (Vehicles other than railway or tramway rolling stock, and parts and accessories thereof);
• 89 (Ships, boats and floating structures);
• 93 (Arms and ammunition; parts and accessories thereof); and
• 96 (Miscellaneous manufactured articles).

A comprehensive spreadsheet of all HTS codes subject to BIS export controls can be found here under “Downloadable Compliance Resources.” Exporters should carefully review the items enumerated under the above chapters given the broad scope of these new restrictions.

Evasion, Circumvention, and Facilitation Related to U.S. Sanctions and Export Controls

In today’s announcement, both OFAC and BIS also continued to crack down on third-party procurement networks that aid Russia’s war effort in Ukraine. BIS added 5 entities in China and Russia to the Entity List for acquiring and attempting to acquire U.S.-origin items contributing to Russia’s military-industrial base.

Importantly, in an effort to target shell companies, BIS also introduced a new regulatory framework for listing addresses on the Entity List that present a high risk of unlawful diversion. Under the new framework, any company that uses an address previously identified via the Entity List (as a Purchaser, Intermediate Consignee, Ultimate Consignee, or End-User), will trigger a license requirement for transactions subject to the EAR, and BIS would not need to identify an associated entity name in order to list the address. To that end, BIS added eight addresses in Hong Kong to the Entity List under this new framework.

Additionally, OFAC targeted more than a dozen procurement networks, designating more than 90 individuals and entities across Russia, Belarus, the British Virgin Islands, Bulgaria, Kazakhstan, the Kyrgyz Republic, China, Serbia, South Africa, Türkiye, and the United Arab Emirates. The products produced by these entities cover machine tools, industrial materials, Russian-origin gold, microelectronics, chemicals, and unmanned aerial vehicle proliferation. All told, OFAC targeted more than 300 individuals and entities both in Russia and outside its borders.

If you have any questions regarding these developments, please contact our export and sanctions team for help analyzing the new restrictions and how to navigate them.

Companies should carefully review the lists of newly restricted parties to ensure that they do not engage in transactions with these parties without a license. Any ongoing dealings with Russia should be reviewed anew to see if the additional sanctions apply. The sanctioned entities cross many different sectors and countries, and include:

• Russian companies making machine tools and other manufacturing and metalworking equipment
• Russian entities supporting electronics manufacturing and the information technology sector
• Russia’s aerospace sector
• Third-country manufacturers of metalworking equipment, aircraft and truck parts, and dual-use electronics, including in China, the UAE, Serbia, and Liechtenstein
• Logistics and cargo transportation entities

Of note, entities owned 50% or more by the entities and individuals added to the SDN List are also subject to the sanctions. While OFAC issued a handful of general licenses to allow winddown of transactions with some of the newly sanctioned entities, these general licenses are limited in time and scope. Additional restrictions may be forthcoming as the U.S. and its allies seek to put further pressure on Russia and any third-country entities that are diverting products to Russia or otherwise circumventing sanctions.

Please contact our export and sanctions team for help analyzing the new sanctions and how to navigate them.

BIS added 95 new HTS codes at the 6-digit level to the list of items requiring a license for export, reexport, or transfer (in-country) to Russia or Belarus. The expanded list of items includes certain chemicals, lubricants, and metals, and it covers the entirety of Chapter 88 of the HTS (aircraft, spacecraft, and parts thereof), further restricting Russia’s access to inputs for its defense industrial base. Other new HTS codes include 281830 (aluminum hydroxide), 283324 (nickel sulfate), and 284330 (gold compounds). The goal of the new HTS controls is to prevent additional related items not enumerated on the Commerce Control List from being exported to Russia and Belarus.

Additionally, BIS removed the lowest-level military and spacecraft-related items from being eligible for de minimis treatment when incorporated into foreign-made items for export from abroad or reexport to Russia or Belarus. This action brings additional foreign-made military and spacecraft items within the scope of the EAR if they include certain U.S. components, putting more pressure on Russia’s defense industrial base and making it more challenging for foreign suppliers to provide low-level military and spacecraft items to Russia and Belarus.

Finally, BIS made several clarifying and harmonizing changes, including by adding an exclusion from BIS license requirements in situations involving transactions that are related to deployments by the Armed Forces of Ukraine to or within the temporarily occupied Crimea region of Ukraine and covered regions of Ukraine.

Please contact our export controls and sanctions team if you need assistance navigating these latest developments.

EO 14114 authorizes OFAC to impose U.S. sanctions on FFI’s that are either (1) facilitating significant transactions on behalf of persons designated for operating in certain key sectors of the Russian economy that support the country’s military-industrial base; or (2) facilitating significant transactions or providing services involving Russia’s military-industrial base, including those relating to specific manufacturing inputs and technological materials that Russia is seeking to obtain from foreign sources. If OFAC determines that an FFI is engaging in these restricted activities, then OFAC may prohibit the FFI from maintaining correspondent accounts or payable-through accounts in the United States. OFAC could also subject the FFI to full blocking sanctions through addition to the List of Specially Designated Nationals and Blocked Persons.

Separately, OFAC issued a Determination pursuant to EO 14024 listing certain items contributing to Russia’s military-industrial base that may trigger U.S. sanctions on FFIs who facilitate significant transactions involving such items. 29 items were identified across eight categories, which include:

1. Certain machine tools and manufacturing equipment;
2. Certain manufacturing materials for semiconductors and related electronics;
3. Certain electronic test equipment;
4. Certain propellants, chemical precursors for propellants, and explosives;
5. Certain lubricants and lubricant additives;
6. Certain bearings;
7. Certain advanced optical systems; and
8. Certain navigation instruments.

OFAC issued FAQs 1148 – 1153 addressing the FFI sanctions developments.

Additionally, EO 14114 amends EO 14068 of March 11, 2022 (“Prohibiting Certain Imports, Exports, and New Investment With Respect to Continued Russian Federation Aggression”) by expanding the U.S. import ban on Russian-origin fish, seafood (and preparations thereof), alcoholic beverages, and non-industrial diamonds. Of note, the EO covers products, as determined by OFAC, that include any of the above Russian-origin products that were (1) mined, extracted, produced, or manufactured wholly or in part in the Russian Federation, or harvested in waters under the jurisdiction of Russia or by Russia-flagged vessels, even if such products have been incorporated or substantially transformed into other products outside of the Russian Federation; (2) products containing any of the products subject to the prohibitions; and (3) products subject to the prohibition that transited through or were exported from or by Russia. As a result, products coming from third countries must be scrutinized to see if they contain Russian-origin seafood, alcohol or diamonds, in order to determine if the import ban may apply. Separately, OFAC issued a Determination pursuant to EO 14068 specifying the type of seafood subject to the expanded import prohibition: salmon, cod, pollock, and crab.

OFAC issued FAQs 1154 – 1157 addressing the expanded import ban.

Finally, OFAC published a Sanctions Advisory to provide guidance to importers and financial institutions on how to identify and mitigate sanctions risks. The advisory contains examples of activities that could expose an FFI to sanctions risk, such as facilitating the sale, supply, or transfer of certain items to Russian importers or companies shipping the items to Russia. The advisory also outlines best practices that FFI’s can incorporate into their compliance programs to mitigate exposure to sanctions, and contains helpful links to previous guidance issued by OFAC on Russia sanctions. Companies that bank with FFIs who have high Russia exposure should be prepared for the possibility that the FFI itself is sanctioned.

Please contact our sanctions and export controls team if you require any assistance navigating these developments.

The entities located within these countries of concern show just how expansive Russia’s wartime procurement and sanctions evasion efforts can go. The UAE makes up the bulk of the newly-designated entities located outside of Russia with 21 individuals and firms singled out. These UAE-based entities were found to provide Russia with logistical services for the delivery of satellite technology, industrial equipment, aircraft parts, and other technology and equipment critical to Russia’s ability to wage war. Turkey-based entities that were designated assisted Russia in procuring microelectronics, batteries, and metal processing instruments, among other things. One Turkish firm was also designated for working with Russian intelligence services to arrange payment and shipping details to overcome sanctions barriers to move goods from Turkey to Russia. In China, three firms were designated for supplying optical, telecommunications, and radar equipment to Russia.

Importantly, many of these newly-sanctioned entities operate in technology-adjacent sectors that supply parts and components for finished items such as vehicles or communication devices. Because of this, it may not be obvious to U.S. companies that their components’ end use could be for the benefit of an SDN that is supplying Russia’s war effort via circumvention of U.S. sanctions. U.S. companies that manufacture or supply the items linked above should look for warning signs that indicate potential circumvention when approving purchase and shipping orders, including complex corporate structures, entities in multiple different countries, and entities increasing their orders from countries of concern.

Please contact our sanctions and export team with any questions regarding these latest developments, or if you require assistance with preparing end user certifications and related risk reduction strategies for your supply chains.

The EU added 87 new entities to its export controls covering dual-use goods and technology, as well as goods and technology which might contribute to the technological enhancement of Russia’s defense and security sector. For the first time, the EU is covering entities that are not just registered Russia or Iran, but also other jurisdictions, i.e., Armenia, Hong Kong, Syria, the United Arab Emirates, and Uzbekistan.

The EU also intends to deploy a new anti-circumvention tool to restrict the sale, supply, transfer, or export of specified sanctioned goods and technology to third countries that pose a high risk of circumvention. This tool would be employed as a “last resort” where other measures and outreach have proven insufficient. Moreover, the EU enhanced its anti-circumvention measures related to transportation, including denying access to vessels which manipulate or turn off their tracking system when transporting Russian oil subject to the oil import ban or G7 price cap.

This package contains a number of other new and notable measures, including:

• A requirement that all EU importers prove that their imports of iron and steel from third countries do not have any Russian inputs;
• An expansion of the luxury goods ban to include yachts and exports of all new and second-hand luxury cars above a certain engine size; and
• A full ban on certain types of machinery components.

Finally, the EU identified a list of economically critical goods (chemicals, machinery, electronics, maritime, and optics/related instruments) that businesses and third countries should be especially vigilant about in transactions.

New Blocking Sanctions: Financial Services, Wealth Management, Sanctions Evasion, Metals and Mining

In total, OFAC added 22 individuals and 83 entities to its list of Specially Designated Nationals (“SDN”) for their connections to Russia’s economy and war efforts. U.S. persons are broadly prohibited from conducting business with SDNs or entities owned 50 percent or more by SDNs, and U.S. persons must formally “block” (freeze and report) any property or interests in property that are in an SDN’s possession or control. Moreover, non-U.S. dealings with SDNs may risk exposure to sanctions in the future.

OFAC sanctioned Russian banks and key parties involved in wealth management within Russia’s financial services sector. Notably, OFAC designated the Credit Bank of Moscow and prominent Russian national and Rosbank executive Ulan Vladimirovich Ilishkin. (Rosbank itself was designated an SDN late last year.) OFAC also designated members of cross-border networks that support Russia’s evasion of U.S. sanctions, such as by procuring sensitive Western technologies, arms, and securing illicit financing for Russian intelligence and defense. OFAC’s action additionally targets military supply chains, including several parties operating in Russia’s aerospace sector, and individuals and Russia’s technology and electronics sector, and more.

OFAC issued a new determination to E.O. 14024 that identifies and authorizes OFAC to impose sanctions on actors operating within the metals and mining sector of the Russian economy. As a result, any person determined to operate within that sector may risk blocking sanctions.

In connection with the above, OFAC issued Russia-related General Licenses Nos. 60 and 61. General License No. 60 authorizes the wind down and rejection of transactions involving designated financial institutions through 12:01 a.m. eastern daylight time, May 25, 2023. General License No. 61 authorizes the wind down of certain securities and derivatives transactions involving designated financial institutions through 12:01 a.m. eastern daylight time, May 25, 2023. OFAC also updated existing general licenses: General License No. 8F expands the authorization relating to the processing of certain energy-related transactions to include certain newly designated financial institutions. And General License No. 13D extends, through 12:01 a.m. eastern daylight time, June 6, 2023, the authorization to conduct certain administrative transactions prohibited by Directive 4, such as taxes, fees, or import duties.

Enhanced Export Control Restrictions on Russia and Belarus, New Entity List Designations, and New Restrictions Targeting Iranian Drones

BIS added nearly 90 entities to the Entity List for their activities contributing to the Russian defense sector and the war in Ukraine. As a result, most exports of U.S. items, including technical know-how, to these entities require a license from BIS. The listings prevent these entities from procuring key U.S. components, like semiconductors, that can be used for military applications.

BIS also expanded existing export control restrictions to align with U.S. allies’ measures. In particular, BIS added new industrial and commercial items used in Russian and Belarusian industry that now require an export license. Many of the items are so-called EAR99 items, like electric coffee or tea makers, that would not have previously required an authorization for export, reexport, or transfer to Russia or Belarus. BIS also extended “luxury goods” controls by requiring a license to export, reexport, or transfer an additional 276 luxury items, ranging from hair dryers to keyboards, destined for Russian and Belarusian oligarchs and malign actors. The new export restrictions aim to impose additional costs on Russian and Belarusian industry and persons supporting the war in Ukraine.

Finally, BIS imposed a new license requirement on certain EAR99 items destined for Iran, regardless of U.S. person involvement, that may be used in Iranian Unmanned Aerial Vehicles (“UAVs”). BIS also added a new foreign direct product rule that brings within the scope of the EAR certain foreign-produced items. Consequently, items made outside of the United States may require a license to export, reexport, or transfer to Iran. The measures are intended to address Russia’s use of UAVs in Ukraine.

According to OFAC’s press release, Mr. Potanin is a close associate of President Vladimir Potanin, and Rosbank has served as an important credit institution for the Government of Russia, helping to fuel the war in Ukraine. Mr. Potanin is also a major shareholder of Norilsk Nickel, one of the world’s largest producers of palladium and refined nickel. OFAC confirmed in an FAQ that Norilsk Nickel is not blocked as a result of Mr. Potanin’s designation, which is consistent with publicly available information that Mr. Potanin owns less than the 50 percent required to trigger the extension of blocking sanctions on Norilsk Nickel.

Concurrent with Rosbank’s designation, OFAC issued General Licenses (“GLs”) 58 and 59 that authorize certain wind-down activities until 12:01 AM eastern daylight time, March 15, 2023. GL 58 authorizes transactions ordinarily incident and necessary to exit operations, contracts, or other agreements involving Rosbank or entities owned 50 percent or more, directly or indirectly, by Rosbank (collectively, “Rosbank entities”). GL 58 also authorizes U.S. financial institutions to reject, rather than block, all transactions ordinarily incident and necessary to the processing of funds involving Rosbank entities, as well as for individuals to close their accounts. GL 59 authorizes U.S. persons to divest or transfer securities in Rosbank entities during the wind-down period.

OFAC also added 17 subsidiaries of VTB Bank Public Joint Stock Company, Russia’s second largest bank, to the SDN List as part of this action, among other individuals and entities.

Export Restrictions

The EU measures seek to further degrade Russian military and defense capabilities by expanding the category of items subject to export restrictions, including additional less sensitive industrial and technology items. The following categories of items were added to Annex XXIII, subjecting them to EU restrictions:

• Items supporting Russian industry, including coke and semi-coke of coal;
• Electrical components used in the manufacture of Russian weaponry;
• Technical items used in Russia’s aviation sector;
• Certain chemical items; and
• Certain small arms and their essential components, and other goods that could be used for torture or capital punishment, as set out under the EU Anti-Torture regulation.

Import Restrictions

The EU expanded import bans on Russian goods to include a number of new items, subject to certain wind-down exceptions and other carve outs:

• Finished and semi-finished steel products (subject to a transition period for certain products);
• Machinery and appliances;
• Plastics;
• Vehicles;
• Textiles;
• Footwear
• Leather;
• Ceramics;
• Certain chemical products; and
• Non-gold jewelry

The ban extends to goods that originate in Russia or have been exported from Russia, as well as to certain steel products that have been further processed in third countries.

Price Cap on Russian Oil

In addition to the EU ban on Russian oil imports, today’s measure seeks to further curtail Russian energy revenues by introducing the beginning stages of a price cap on Russian oil to third countries. The price cap mechanism will function as an exemption to the prohibition on the provision of maritime transport services to third countries of crude oil and certain petroleum products that are purchased at or below a pre-established price agreed upon by a coalition of States.

The effective date for the price cap with respect to Russian crude oil is December 5, 2022, while the effective date with respect to refined petroleum products is February 5, 2023, after further decision from the Council.

Kherson, and Zaporizhzhia Oblasts

Yesterday’s measure expands the geographical scope of the EU restrictions on dealings with non-government controlled areas of Ukraine to include the non-government controlled areas of Ukraine in the oblasts of Kherson and Zaporizhzhia. These restrictions include a wide range of activities, including a ban on imports from the covered regions into the European Union, a ban on investment and acquisitions of real property, and a ban on the provision of tourism services, among other measures.

Service Ban

The European Union imposed restrictions on the direct and indirect provision of several types of services to the Government of Russia or legal persons, entities, and bodies established in Russia:

• Non-contentious legal advisory services;
• Information technology services; and
• Architectural and engineering services.

The Regulations contain carve-outs for the provision of services provided for the exclusive use of companies owned or controlled by EU Member States, country members of the European Union Economic Area, Switzerland, or listed partner countries, including the United States. For contracts concluded before the effective date, the prohibition will not apply to the provision of services strictly necessary for the termination of non-compliant contracts by January 8, 2023. The EU also expanded the ban on crypto-wallet services, irrespective of the amount of the wallet, eliminating the previous €10,000 limit.

Asset Freeze & SOE Restrictions

Also included in yesterday’s package are restrictions targeting Russian officials and elites. Targets include:

• Those involved in the illegal annexation of Ukraine territory;
• Parties operating in, and companies supporting, Russia’s defense and security sector;
• High ranking military officials; and
• Those involved in disseminating misinformation.

All funds and economic resources belonging to designated individuals and entities shall be frozen under EU law, and those subject to EU jurisdiction are forbidden from making funds directly or indirectly available to designated targets.

The EU also expanded the ban on dealings with Russian state owned enterprises (SOEs) to include the Russian Maritime Register, subject to wind down and other exceptions. The expanded rules also prohibit EU nationals from holding posts in the governing bodies of sanctioned SOEs in Annex XIX.

Other Measures & Exceptions

Other restrictions imposed yesterday included a broadening of criteria to allow for the imposition of sanctions on those facilitating the circumvention of EU sanctions. This latest package also includes several exceptions, including those designed to facilitate the provision of humanitarian assistance, transactions necessary to promote nuclear safety and security, and certain wind down activities.

The Treasury Department’s Office of Foreign Assets Control (OFAC) and the Commerce Department’s Bureau of Industry and Security (BIS) also issued guidance today warning of the U.S. government’s intention to aggressively use existing authorities to impose sanctions against third country supporters of Russia’s military and defense sectors.

Blocking Sanctions

OFAC imposed blocking sanctions on companies in Russia, Belarus, China, and Armenia involved in supporting Russia’s military and related illicit procurement networks, including:

• Scientific-Technical Center for Electronic Warfare, engaged in research and development for Russia’s Ministry of Defense;
• Rotek Elpom, engaged in creation of certain stationary and vehicular-mounted security systems;
• ZAO NTTs Modul, engaged in production of computer and equipment and software used in Russia’s aviation and space sectors;
• OOO Valtex-ST, engaged in procurement of high technology scientific and industrial equipment;
• OAO Radioavionika (Radioavionika), engaged in production of technological products for Russia’s military defense; and
• Open Joint Stock Company Svetlogorsk Khimvolokno, Belarusian supplier to Russia’s defense-industrial base.

• Vladimir Aleksandrovich Ivanov, Sergey Vyacheslavovich Byzov, and Dmitrii Vladimirovich Galin, of Radioavionika’s leadership team;
• Novastream Limited and its General Director, Andrei Vladimirovich Khokhlov, operating in close coordination with Radioavionika; and
• Third Country Parties Sinno Electronics Co., Limited, of the People’s Republic of China, and Taco LLC, of Armenia, suppliers working with and supporting Radioavionika.

OFAC has also added hundreds of Russian government officials and their family members to the Specially Designated Nationals (SDN) List.

Business with—and any dealings in the property or property interests of—an SDN is broadly prohibited absent prior authorization from OFAC. This includes entities owned 50 percent or more, individually or in the aggregate, by one or more SDNs. U.S. persons must report any property or interests in property of the blocked parties in their possession or control to OFAC within 10 business days.

Entity List Designations

BIS also added 57 entities located in Russia and the Crimea region of Ukraine to its Entity List today, generally barring the export, re-export, or transfer of items subject to the Export Administration Regulations to the listed parties without a license. Companies added to the list include those involved in acquiring U.S. technology in support of Russia and firms that develop quantum technologies that may enable Russia to engage in malicious cyber activities or otherwise enhance Russia’s advanced production and development capabilities. Fifty of the 57 entries are subject to a “footnote 3” designation, subjecting those entities to the expansive Russia/Belarus-Military End User (MEU) Foreign Direct Product (FDP) rule.

Inclusion on BIS’s Entity List broadly prohibits the export, re-export, or transfer of items subject to the Export Administration Regulations to the listed parties without a license from BIS. For those subject to a “footnote 3” MEU FDP designation, complex licensing requirements may apply to export transactions with the listed entity involving foreign items that are the direct product of U.S. knowhow.

Warning of Additional Sanctions

Both OFAC and BIS issued guidance warning of a more aggressive sanctions response against third country supporters of Russian aggression.

OFAC indicated that the United States is prepared to use existing authorities to sanction targets that, among other things, engage in the following activities:

• Provide material support for the organization of Russia’s sham referenda or annexation;
• Provide material support to Russia’s military and defense industrial base;
• Attempt to circumvent or evade U.S. sanctions on Russia and Belarus; or
• Provide material support to blocked Russian parties.

OFAC reiterated that U.S. sanctions are not intended to target Ukraine or hinder the provision of food or medicine or humanitarian services.

BIS similarly advised that it is prepared to place export restrictions on companies and government entities in third countries that support Russia’s aggression. According to BIS, the agency will target those inside and outside of Russia that provide material support to Russia and Belarus’s military and industrial sectors, including those who replenish or backfill technologies subject to export control restrictions imposed by the United States and its allies.

G-7 and European Union Response

G-7 countries have also announced and implemented additional restrictions against Russia. Earlier this week, the United Kingdom imposed asset freeze restrictions targeting collaborators of Russia’s illegal sham referenda. The European Union is expected to follow suit, with reports indicating additional restrictions on Russia’s technology sector, trade in steel and steel products, and more.

Please contact our sanctions and export team with any questions regarding these latest developments.

Today, the U.S. Treasury, State, and Commerce Departments announced new sanctions and export control restrictions on Russia and Belarus, targeting parties in and activities related to the technology, quantum computing, finance, and advanced manufacturing sectors. The Commerce Department’s Bureau of Industry and Security (BIS), in particular, expanded and updated a number of Russia- and Belarus-related sanctions measures under the Export Administration Regulations (EAR), including new controls on a number of common EAR99 items related to the chemicals, fluid handling, quantum computing, advanced manufacturing, and other industries.

Technology & Quantum Computing Sanctions

The Treasury Department’s Office of Foreign Assets Control (OFAC) added a number of Russian technology, space, and electronics companies and technical institutes to its List of Specially Designated Nationals (SDNs), including Limited Liability Company Group of Companies Akvarius (Akvarius), a large Russian electronics manufacturer. Transactions ordinarily incident and necessary to the wind down of pre-existing dealings with Akvarius are authorized pursuant to a new General License No. 51 until October 15, 2022, but transactions involving the other new SDNs are now prohibited absent a specific license from OFAC.

In addition to the new designations, OFAC issued a ban on the export, reexport, sale, or supply of quantum computing services to any person in Russia pursuant to a new Determination under E.O. 14071. OFAC considers prohibited quantum computing services to be any of the following when related to quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing:

“[I]nfrastructure, web hosting, or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services, and related services; repairing computer, computer peripherals, or communication equipment; other computer-related services; as well as services related to the exportation, reexportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing[.]”

The ban excludes services provided to certain U.S.-owned or controlled entities located in Russia, as well as services provided in connection with the wind down or divestiture of entities located in Russia that are not owned or controlled by a Russian person.

The quantum computing services ban becomes effective on October 15, 2022. In addition to the ban on quantum-related services, OFAC issued a separate Determination under E.O. 14024 allowing the agency to designate as an SDN any party it identifies as operating or having operated in Russia’s quantum computing sector, effectively immediately.

Banks That Join Russia’s MIR National Payment System Risk U.S. Sanctions

OFAC issued guidance today warning that non-U.S. banks could be added to the U.S. SDN List if they enter into new or expanded agreements involving the use of the MIR National Payment System outside of Russia. Recent media reports have suggested that banks in Turkey may be particularly at risk of U.S. sanctions for their involvement in expanding the use of the payment system in Turkey, but financial institutions in central Asia and other regions also face risks if they are involved in expanding the use of MIR outside of Russia.

Expanded Export Controls

BIS made a number of important updates to its Russia- and Belarus-related export controls. These include, among other things, the following changes:

• Expansion to Belarus: The amendment expands the EAR’s “Russian Industry Sector Sanctions” to also generally apply to exports, reexports, and transfers to Belarus.
• EAR99 fluid handling equipment, chemicals, and biologics: The new rules prohibit the export, report, and transfer of a number of common EAR99 items that could be used for chemical or biological weapons production to Russia or Belarus without a license from BIS. The newly controlled items, which are described in a new Supp. No. 6 to Part 746, include very common fluid handling equipment used in a range of industrial applications, such as reaction vessels, fermenters, agitators, heat exchangers, condensers, pumps (including single seal pumps), valves, storage tanks, containers, receivers, and distillation or absorption columns regardless of materials of construction. Other controlled EAR99 items include certain biologics, chemicals, laboratory equipment.
• Quantum computing & advanced manufacturing: The amendment imposes a license requirement on the provision of certain EAR99 quantum computers and associated assemblies, components, and additive manufacturing equipment and related items to Russia and Belarus without a license from the Commerce Department. EAR99 technology related to the production, development, and use of these items is also now controlled.
• Expansion of Supp. No. 4 controls on EAR99 industrial items: Today’s amendment adds 57 EAR99 industrial items to Supp. No. 4, including certain heat pumps, fork-lift trucks, sawing and cutting machines, and locomotives, among others, barring their sale to Russia without prior approval. In addition, Supp. No. 4 is being expanded to apply to all items modified or designed as components, parts, accessories, or attachments of items listed in the supplement, even if those constituent items are not specifically included in the supplement, subject to certain exceptions.
• Military and military-intelligence end users: The Commerce Department amended the EAR to allow the agency to designate end-users outside of Russia, Belarus, or other countries listed in sections 744.21 and 744.22 of the EAR as military end users (MEU) or military-intelligence end users. While the MEU List is normally not exhaustive, the new rule limits application of military and military-intelligence related licensing requirements with respect to users outside of Russia and Belarus to those specifically identified on BIS’s Entity List. The limitation reflects BIS’s understanding of the substantial compliance burden that would be imposed on exporters, reexporters, and transferors of having to independently identify the presence of Russian or Belarusian MEU or military-intelligence end users on a worldwide basis.
• Dollar-value thresholds for luxury goods: To better align U.S. controls with those implemented by allies, the new rule implements dollar value thresholds for controls related to exports, reexports, or transfers of certain luxury goods to Russia. Previously, the restrictions generally applied regardless of the value of the goods at issue.

In addition to these updates, the amendment makes a number of corrections and clarifications to the EAR, including to license exceptions related to consumer communications devices and the news media, exceptions related to certain transfers of 5A992 and 5D992 items involving U.S.- or allied country-based companies, recordkeeping requirements, certain licensing policies, the General Prohibitions, the Commerce Country Groups, and the application of the Foreign Direct Product Rule.

Please contact our sanctions and export team with any questions regarding these developments.

A previous version of the general license was set to expire on September 30, 2022. As with prior versions of the general license, General License 13B does not authorize debits from accounts of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. Nor does GL 13B authorize any transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR), including transactions involving any person blocked pursuant to the RuHSR, unless separately authorized.

Blocking Sanctions

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added the following notable Russian elites to the List of Specially Designated Nationals (SDN), subjecting them to full U.S. blocking sanctions:

• Andrey Grigoryevich Guryev, Russian billionaire oligarch and son, Andrey Andreevich Guryev, of PhosAgro PJSC, a leading fertilizer company;
• Viktor Filippovich Rashnikov, a Russian billionaire oligarch of Russia’s iron and steel industry;
• Alina Maratovna Kabaeva, former member of the State Duma; and
• Natalya Valeryevna Popova, a prominent official of Russia’s technology sector.

• Skolkovo Foundation;
• Skolkovo Institute of Science and Technology;
• Technopark Skolkovo Limited Liability Company;
• Joint Stock Company Promising Industrial and Infrastructure Technologies;
• Joint Stock Company Penzensky Nauchno Issledovatelsky Elektrotekhnichesky Higher Education Institution;
• JSC Zelenograd Nanotechnology Center;
• Federal State Budgetary Scientific Institution Research and Production Complex Technology Center;
• JSC Scientific Research Institute Submicron; and
• Academician A.L. Mints Radiotechnical Institute Joint Stock Company.

Guidance and General Licenses

With today’s designations, OFAC also issued general licenses and published new guidance on the intended scope of the sanctions. The general licenses authorize, among other things, certain transactions related to civil aviation safety, the winding down or pre-existing transactions with certain newly listed parties, and the divestment of holdings in recently blocked entities.

Importantly, OFAC indicates in new FAQs that the agency currently does not view PhosAgro PJSC as subject to blocking sanctions via application of the 50 percent rule, and stresses that agricultural and medical trade are not the focus of the U.S. sanctions on Russia.

Please contact our sanctions and export team with any questions regarding these latest developments.

Ban on Russia-Origin Gold & Gold Jewelry

The EU’s “maintenance and alignment” sanctions package imposes a ban on Russia-origin gold that broadly prohibits the direct or indirect import, transfer, or purchase of listed Russian-origin gold products (including jewelry) after July 22, 2022. The ban covers gold and jewelry that are processed in third countries and incorporate listed Russian-origin gold products.

Other “Maintenance and Alignment” Sanctions

The European Union took a number of other steps to strengthen existing sanctions against Russia, including the following:

• Expansion of items that are controlled for export to Russia as potentially contributing to Russia’s military capabilities and defense sector;
• Extension of port access ban to lock access;
• Permissions relating to the standard setting activities of the International Civil Aviation Organization;
• Exemption from prohibitions against transactions with Russian public entities that are necessary to ensure access to judicial, administrative or arbitral proceedings;
• Expansion on prohibition against acceptance of deposits to include entities established in third countries and majority owned by Russians, requirement that acceptance of deposits for non-prohibited cross-border trade be subject to prior authorization by competent authorities;
• Extension of exemption to prohibitions against transactions with certain Russian state-owned entities that are necessary for the transport of agricultural and oil products to third countries; and
• Clarification that third countries and their nationals may purchase pharmaceutical and medical products from Russia.

The EU’s latest package of sanctions expanded its list of designations to include additional 48 individuals and 9 entities. The latest expansion notably includes asset freeze restrictions on Sberbank.

As a reminder, all funds and economic resources belonging to designated individuals and entities shall be frozen under EU law, and those subject to EU jurisdiction are forbidden from making funds directly or indirectly available to designated targets.

New Sanctions

Various U.S. agencies imposed sanctions on transactions involving individuals and entities connected to Russian aggression in Ukraine.

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and U.S. State Department imposed blocking sanctions on dozens of individuals and entities supporting Russia’s defense sector. The designations target major state-owned defense companies, defense research organizations, and military operations in Ukraine implicated in international human rights violations.

OFAC designated 29 individuals and 70 entities, including the Russian defense-conglomerate, State Corporation Rostec (Rostec). The State Department sanctioned 29 individuals and 45 entities, including re-designation of Russia’s Federal Security Service (a.k.a. the FSB).

U.S. persons are prohibited from engaging in any direct or indirect dealings with SDNs without prior authorization from OFAC. All property or property interests of an SDN are also “blocked,” which means that any SDN property or property interest within the possession or control of a U.S. person must be formally frozen and reported to OFAC.

Today, OFAC also issued several general licenses authorizing transactions with certain newly designated SDNs, including:

• General License No. 39 authorizing transactions to wind-down activities with Rostec, as well as any entity in which Rostec owns, directly or indirectly, a 50 percent or greater interest, by August 11, 2022;
• General License No. 40 authorizing transactions involving specified SDNs related to the provision, export, or reexport of goods, technology, and services to ensure civil aviation safety;
• General License No. 41 authorizing transactions for the manufacture, sale, and maintenance of agricultural equipment produced by SDNs Nefaz Publicly Traded Company (Nefaz) or Public Joint Stock Company, Tutaev Motor Plant (Tutaev Motor Plant), or any entity in which Nefaz or Tutaev Motor Plant owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest; and
• General License No. 42 authorizing limited transactions related to requesting, receiving, utilizing, paying for, or dealing in licenses, permits, certifications, or notifications from the FSB.

Tariffs and Import Restrictions

Pursuant to the United States’ suspension of permanent normal trade relations with Russia and Belarus, the Biden Administration issued a proclamation yesterday increasing tariffs on more than 570 groups of Russian products. The 35 percent ad valorem duties are effective 12:01 a.m. eastern daylight time on July 27, 2022, and apply to a wide variety of products, including steel and aluminum, minerals, chemicals, wood and paper products, aircraft and parts, and automotive parts, among many others. The heightened duties will apply irrespective of antidumping and countervailing duties, or other fees or extractions applicable to the Russian products.

Ban on Gold Imports

Finally, OFAC imposed an import ban on Russian-origin gold, effective immediately. Russian-origin gold includes gold produced, manufactured, extracted, or processed in Russia but not gold that has been incorporated or substantially transformed into a foreign-made product. See OFAC FAQ 1019. There is a narrow exception related to imports of Russian-origin gold located outside of Russia prior to imposition of the import ban. As with OFAC’s prior restrictions on the gold market, a newly amended FAQ reiterates that gold market participants, including persons that process or facilitate gold-related transactions, could face sanctions for circumventing or engaging in prohibited gold-related transactions. See OFAC FAQ 1029.

The European Union’s latest package also expands its ban on the provision of SWIFT interbank messaging network services, expands the EU dual-use export ban, prohibits the broadcasting or advertising of content from certain Russian media outlets to the European Union, prohibits the provision of various consulting services to Russia, and expands EU asset freeze restrictions.

EU Energy Ban

The latest EU sanctions package prohibits those subject to EU jurisdiction from directly or indirectly purchasing, importing, or transferring listed crude oil or petroleum products originating in, or exported from, Russia, subject to the exceptions below. Notably, the EU ban currently does not apply to imports by pipeline of CN 2709 00 crude oil into Member States. The direct or indirect provision by EU persons of related services, such as insurance, technical assistance, brokering services, or financing or financial assistance, is also prohibited.

The list of products subject to the EU Energy Ban are set out in Annex XXV to Regulation (EU) No 833/2014, as amended. Specifically, the Annex describes the following two categories of energy products subject to the EU embargo, which are further defined by reference to the EU’s Combined Nomenclature (CN):

• CN Code 2709 00, Petroleum oils and oils obtained from bituminous minerals, crude; and
• CN Code 2710 00, Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70 % or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils.

The EU Energy Ban takes immediate effect, but features transitory periods for preexisting contracts and other exceptions. For contracts concluded before June 4, 2022, EU persons may continue conducting the following transactions, provided that the relevant Member State satisfies EU notification requirements:

• EU persons may continue conducting limited transactions for near-term delivery of energy products falling under CN 2709 00 until December 5, 2022; and
• EU persons may continue conducting limited transactions for near-term delivery of energy products falling under CN 2710 00 until February 5, 2023.

Nor does the ban apply to listed seaborne crude oil and energy products originating from third countries that are only being loaded in, departing from, or transiting through Russia, provided that the origin and owner of the products are non-Russian.

The EU measure contains specific derogations for the Czech Republic, Bulgaria, and Croatia.

Further Restrictions

The latest measures imposed a number of further restrictions.

First, the EU also imposed SWIFT-related restrictions on Sberbank, Credit Bank of Moscow, JSC Russian Agricultural Bank, and Belinvestbank (Belarusian Bank for Development and Reconstruction). Persons subject to EU jurisdiction shall be prohibited from providing specialized financial messaging services to Sberbank, Credit Bank of Moscow, and JSC Russian Agricultural Bank, and Belinvestbank, including to entities whose proprietary rights are directly or indirectly owned, 50 % or more, by the same.

Second, the EU expanded its dual-use ban to capture additional exports that may enhance Russia and Belarus’s military and technological capabilities. The measures include the addition of 80 chemicals to its list of goods subject to export requirements. Alongside the expanded list of goods and technology are significant additions to the list of Russia and Belarus entities subject to EU dual-use restrictions.

Third, the measure prohibits those subject to EU jurisdiction from advertising products or services in any content produced or broadcast by designated individuals or entities, including the following:

• Rossiya RTR / RTR Planeta;
• Rossiya 24 / Russia 24; and
• TV Centre International.

Fifth, the EU is now requiring that Member States impose appropriate criminal penalties for sanctions violations. Member States are also required to provide appropriate measures of confiscation of proceeds derived from EU regulation infringements.

Finally, the EU added 65 individuals and 18 entities to its asset-freeze. The designations focus on Russian military and defense targets, and proliferators of disinformation. As a reminder, all funds and economic resources belonging to, owned, held, or controlled by designated individuals or entities shall be frozen, and no funds or economic resources shall be made available, directly or indirectly, for the benefit of such individuals or entities.

Targeting Russian Elites and Their Companies

OFAC issued two temporary general licenses to authorize U.S. persons to engage in certain activities necessary to wind down preexisting dealings with PSJC Severstal and Nord Gold PLC that expire on August 31, 2022 and July, 11, 2022, respectively.

Other designated elites include Mariya Zakharova, spokesperson for Russia’s foreign ministry; Sergei Roldugin, a close associate ofRussian President Vladmir Putin; God Nisanov, Russian billionaire and real estate tycoon; and Evgeny Novitsky, a Russian entrepreneur.

Luxury asset management and service companies

Military procurement networks

* * * * *

Please contact our sanctions and export team with any questions regarding these latest developments.

Services Ban

OFAC defines the sanctioned services as the following:

• “‘Accounting service’ – includes services related to the measurement, processing, and transfer of financial data about economic entities.
• ‘Trust and corporate formation services’ – includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts. Please note that all of these activities are common activities of trust and corporate service providers (TCSPs), although they may be provided by other persons.
• ‘Management consulting services’ – includes services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.”

Concurrent with the new sanctions, OFAC issued two general licenses temporarily authorizing the continued provision of certain services to Russia. General License No. 34 authorizes transactions ordinarily incident and necessary to wind down the provision of sanctioned services to Russia until 12:01 am EDT on July 7, 2022. General License No. 35 authorizes the export of credit rating and auditing services to Russia until 12:01 am EDT on August 20, 2022. Neither general license authorizes dealings with SDNs or other blocked parties.

OFAC also issued a determination pursuant to E.O. 14024 that allows the agency to designate persons that operate or have operated in the accounting, trust and corporate formation services, or management consulting sectors of the Russian economy as SDNs in the future. A new FAQ provides definitions for each sector.

New Industrial Export Controls

The U.S. Nuclear Regulatory Commission (NRC), which administers export controls on more sensitive nuclear items, will also suspend general licenses that previously permitted export of source material, special nuclear material, byproduct material, and deuterium to Russia.

Sanctions on Russian Media Outlets

Additional SDNs

• Establishment of an interagency process for forfeiture of Russian oligarch property connected to unlawful conduct, with forfeiture decisions appealable to a Federal Court on an expedited basis;
• Criminalization of the knowing or intentional possession of proceeds derived from corrupt dealings with the Russian Government;
• Direction of forfeited funds derived from corrupt practices and violations of U.S. export laws violations to Ukraine;
• Authorized forfeiture of seized property used to facilitate violation of sanctions rules;
• Designation of sanctions evasion as a “racketeering activity” under the Racketeering Influenced and Corrupt Organization Act, which would subject perpetrators to intensive Department of Justice investigation and prosecution;
• Increase of the statute of limitations for money laundering prohibitions and post-conviction forfeitures from 5 to 10 years;
• Enhancement of cooperation between the United States and allies by improving authorities to enforce foreign restraint and forfeiture orders.

A similar bill, authorizing seizure of Russian oligarch property, recently passed in the U.S. House of Representatives, a development that bodes well for the Biden Administration’s proposal.

Russian vessels that are carrying certain nuclear materials or that need to dock in a U.S. port on the grounds of “conducting crew changes, emergency medical care, or for other humanitarian need” are exempted from the ban.

The move by the United States follows similar actions by the European Union and Canada.