The US and UK introduced new prohibitions last month related to Russian-origin aluminum, copper, and nickel produced on or after April 13, 2024.
The US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued two determinations imposing new restrictions on the importation of Russian-origin aluminum, copper, and nickel produced on or after to April 13, 2024 (the “Covered Russian Metals”) into the United States, and on the provision by US persons or within the United States of certain services related to the acquisition of such metals. OFAC also issued several new FAQs in connection with these two determinations.
As discussed below, these actions were taken in coordination with the United Kingdom and in accordance with statements made by the G7 Leaders in recent months regarding efforts to reduce Russia’s revenues from metals.
The UK Government introduced certain changes to its framework of metal import-related restrictions through updating the General Trade Licence (the “UK Metals Licence“) and accompanying guidance. The UK Government’s press release in respect of these updates to the UK framework is available here. In summary, the UK’s updates are aimed at prohibiting the trading of in-scope Russian metal on global metals exchanges (including the London Metal Exchange and the Chicago Mercantile Exchange) where the relevant metal is produced on or after 13 April 2024. The updated UK Metals Licence also sets out specific notification and record-keeping requirements for certain actions taken pursuant to these updates. Separately, OFAC issued General License (“GL”) 13I, which extends a preexisting version of GL 13 authorizing the payment of certain taxes and fees to the Russian Government that are ordinarily incident and necessary to day-to-day operations in Russia of US persons or entities until July 11, 2024.
We describe the sanctions imposed on Covered Russian Metals from a US and a UK sanctions perspective in more detail below.
The US Metals Import Ban
OFAC issued a determination pursuant to Executive Order (“EO”) 14068 prohibiting the importation into the United States (including importation for admission into a foreign trade zone located in the United States) of Covered Russian Metals (the “Metals Import Determination”). The Metals Import Determination does not apply to Russian-origin aluminum, copper, or nickel produced prior to April 13, 2024.
For the purposes of both the Metals Import Determination and the Metals Services Determination (discussed below), OFAC FAQ 1170 indicates that it anticipates defining “aluminum,” “copper,” and “nickel” (i.e., Covered Russian Metals) to include articles or products defined at the following US Harmonized Tariff Schedule chapter headings:
- “Aluminum”: HTSUS Chapter 76;
- “Copper”: HTS Chapter 74; and
- “Nickel”: HTS Chapter 75.
In addition, OFAC FAQ 1171 confirms that covered “Russian-origin” metals includes metals produced, manufactured, extracted, or processed in Russia but excludes Russian-origin metals that have been incorporated or substantially transformed into non-US-made products.
The US Metals Services Ban
OFAC also issued a determination pursuant to EO 14071 prohibiting the exportation, reexportation, sale, or supply, directly or indirectly, by a US person or from the United States to any person located in Russia of “Covered Metals Acquisition Services” related to Covered Russian Metals (the “Metals Services Determination”). Covered Metals Acquisition Services include warranting services for Covered Russian Metals on a global metals exchange and services to acquire Covered Russian Metals as part of the physical settlement of a derivative contract (i.e., one in which the expiration of the contract results in transfer of ownership of physical metals rather than a cash payment).
The Metals Services Determination does not apply to service related to Russian-origin aluminum, copper, or nickel produced prior to April 13, 2024, which means that such metals warranted as of April 13, 2024 can continue to be traded, and new warranting and trading can continue for Russian-origin aluminum, copper, and nickel produced before April 13, 2024, including through new derivatives contracts.
US global metals exchanges are otherwise prohibited from accepting Covered Russian Metals produced on or after April 13, 2024. OFAC FAQ 1169 elaborates on the specific measures that US exchanges should implement in order to ensure compliance with the Metals Services Determination, including:
- halting the warranting of Covered Russian Metals on the exchange;
- removing brands that produce Covered Russian Metals from their list of accepted brands;
- abstaining from adding additional brands of Covered Russian Metals to their list of accepted brands;
- ceasing providing clearing services for Covered Russian Metals; and
- halting acting as a central counterparty to the trade of Covered Russian Metals.
In addition, OFAC FAQ 1172 indicates that the Metals Services Determination does not prohibit US banks from processing, clearing, or sending payments related to Russian metals on behalf of non-US persons provided that the bank is operating solely as an intermediary and does not have any direct relationship with the person providing Covered Metals Acquisition Services as it relates to the relevant transaction (i.e., that the service provider does not have an account with the US bank in question.) However, US banks are not themselves authorized to provide any of the Covered Metals Acquisition Services directly or indirectly to a person located in Russia.
In terms of the level of documentation or proof of origin required to determine the origin and date of production of the covered metals, OFAC FAQ 1169 provides that market participants and traders can reasonably rely on the Certificate of Analysis and Certificate of Origin of the relevant covered metal or other documentation available to them in the ordinary course of business with respect to the date of production unless they have reason to believe that such documentation has been falsified or is otherwise erroneous.
UK amendments to the General Trade Licence concerning Russian metals
The UK Government previously introduced restrictions on the import, acquisition and supply and delivery of certain metals defined in Schedule 3BA (including, but not limited to, copper, nickel, aluminum and zinc) pursuant to The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023Â amending The Russia (Sanctions) (EU Exit) Regulations 2019 (the “Russia Regulations”) (please see our previous blog post for further details). Alongside these restrictions, the UK also introduced the UK Metals Licence which authorized specified persons to acquire a warrant, directly or indirectly, relating to Russian metals located in a third country on a global metal exchange (subject to certain conditions).
On April 12, 2024, the UK Government updated the UK Metals Licence in order to:
- prevent UK persons (and non-UK persons in the UK) from acquiring, on a global metal exchange, a warrant relating to Russian metal that was produced after 23:59 on 12 April 2024 (the “Cut-off Date”);
- allow UK persons (and non-UK persons in the UK) to take physical delivery, outside the UK, of metals that were under warrant on a global metal exchange prior to the Cut-off Date.
This means that UK persons (and non-UK persons in the UK) will no longer be able to acquire, on a global metal exchange, a warrant relating to Russian Metal produced after the Cut-off Date.
Metal will be deemed to have been produced prior to the Cut-off Date, where one of the following conditions is met:
- The warrant being acquired was issued before the Cut-off Date.
- The production date of the metal can be demonstrated through a Certificate of Analysis aligning with the physical metal (save where the person knows or has reasonable cause to suspect that the metal was produced after the Cut-off Date), for example:
- The date of production is specified on the Certificate of Analysis;
- The Certificate of Analysis was issued before the Cut-off Date; or
- The date of inspection of the metal for the purposes of issuing the Certificate of Analysis was prior to the Cut-off Date.
- The production date of the metal can be demonstrated through other equivalent evidence (save where the person knows or has reasonable cause to suspect that the metal was produced after the Cut-off Date).
The relevant enforcement body may take enforcement action in relation to a breach of regulation 46IH of the Russia Regulations in the event they are satisfied that the person who acquired the warrant knew, or had reasonable cause to suspect, that the metal was produced after the Cut-off Date.
The UK Government has also amended the UK Metals Licence to allow UK persons (and non-UK persons in the UK) to cancel or withdraw a warrant in order to take physical delivery, outside of the UK, of metals that were already under warrant on a global metal exchange prior to the Cut-off Date. These metals remain banned for import or delivery into the UK unless subject to an applicable exception or license. For metals not on warrant prior to the Cut-off Date. warrants may still be acquired after the Cut-off Date (provided the metal was produced prior to the Cut-off Date), UK persons (and non-UK persons in the UK) are not authorized to cancel or withdraw such warrants, nor can they take physical delivery of the metal (even outside the UK) or change the location of the metal.
Updates to Record-keeping and Notification Requirements
The updated UK Metals Licence requires that a person who cancels or withdraws (or requests or orders the cancellation or withdrawal of) a warrant acquired under the UK Metals Licence must retain certain records, including, but not limited to:
- A full description of the metal to which the warrant relates;
- The date on which the cancellation or withdrawal was requested or ordered and the date the warrant was cancelled or withdrawn; and
- A copy of the Certificate of Analysis for the metal to which the warrant relates or equivalent evidence of production prior to the Cut-off Date.
Further to the requirements above, a person who cancels or withdraws (or requests or orders the cancellation or withdrawal of) a warrant under the UK Metals Licence for the first time after the Cut-off Date should, within 30 days of such activity, notify the Secretary of State for the Department of Business and Trade in writing.
If you have questions related to the US or UK developments described above, please contact a member of our Trade team.
