US Government Imposes Additional Sanctions on Belarus and Russia Coinciding with Ukraine’s Independence Day

On August 23, 2024, the eve of Ukraine’s Independence Day (August 24, 2024), the US Departments of Commerce and Treasury issued new export controls and sanctions in response to Russia’s invasion of Ukraine.  The new controls target the procurement networks who support Russia’s war on Ukraine and its military industrial complex and payment channels.  

The Commerce Department’s Bureau of Industry and Security (“BIS”) made the following changes to the Export Administration Regulations (“EAR”) and other related measures:

1. Added 123 entities to the Entity List;
2. Expanded the Russia/Belarus-Military End User (“MEU”) Foreign Direct Product (“FDP”) Rule to capture parties designated under the Entity List for posing a risk of involvement in illicit procurement networks in support of Russia’s war on Ukraine and re-named it the Russia/Belarus MEU and Procurement FDP rule;
3. Imposed controls on the export, reexport, or transfer (in-country) to Belarus or Russia of software for the operation of computer numerical control (“CNC”) machine tools; and
4. Issued an FAQ relating to the use of contractual clauses to prohibit reexports to Russia (so-called “no Russia” clauses) and two FAQs providing guidance for non-US corporate service providers offering use of their address for billing or shipping by third parties engaged in export and reexport transactions.

The US Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued the following measures:

1. Added nearly 400 persons to the Specially Designated Nationals and Blocked Persons List (“SDN List”);
2. Issued several general licenses relating to Russian-origin diamonds and diamond jewelry, blocked vessels, and the wind-down of transactions involving 17 specific SDNs blocked on August 23, 2024; and
3. Published one new FAQ and two amended FAQs.

The BIS press releases is available here and the OFAC press release is available here.

I. BIS Measures

1. Additional Entity List Designations

BIS has added 123 entities to the Entity List for involvement in the unlawful diversion of US-origin and US branded items to Russia, most of which have been added with a footnote 3 designation for being Russian or Belarusian Procurement Entities (i.e., entities that pose a significant risk of involvement in the supply or diversion of items subject to the EAR to procurement networks for Russia’s or Belarus’s defense industry or intelligence services).  The designated entities are located in 11 countries although the majority are in China (42) and Russia (63).  Many of these parties were reportedly previously named in so-called “red flag” letters that BIS issued to a number of companies.

2. Renaming and Expanding Russia/Belarus MEU FDP Rule

BIS has renamed the Russia/Belarus MEU FDP rule to the Russia/Belarus MEU and Procurement FDP rule to signal that its scope has been expanded to cover entities that are designated under the Entity List with a footnote 3 designation for being Russian or Belarusian Procurement Entities.  In other words the “end-user scope” of the rule was expanded; the “product scope” was not expanded.

3. New Controls on Certain CNC Machine Tool Software

Effective September 16, 2024, BIS will add controls at EAR § 746.8(a)(8) on the export, reexport, or  transfer (in-country) to or within Russia or Belarus of EAR99 software for the operation of CNC machine tools.  This type of software is generally embedded within the machine tool itself and updated periodically post-sale.  BIS clarified that the primary focus of this rule is aimed at preventing software updates being pushed to machine tools already located in Russia and Belarus.

4. New FAQs

BIS has issued the following new guidance relating to Russia:

• Guidance on Contractual Provisions: BIS has issued an FAQ clarifying there is no requirement in the EAR for sellers to include a “No reexport to Russia” clause in sales contracts, similar to Article 12g and 13 of the Council Regulation (EU) No. 833/2014 of July 31, 2014, but including such a clause may protect sellers from liability should there be a failure to obtain required EAR authorization for subsequent transactions involving the previously sold products.  BIS added that including such clauses demonstrates the seller’s commitment to minimizing the risk of unlawful diversion, as do provisions requiring the buyer to (i) monitor for post-sale diversion and (ii) provide notice of diversion to the seller, as well as contractual penalties for breach of these terms.  BIS also cautioned that it would be considered a red flag for the buyer to reject the proposition of such clauses, and any such red flag should be resolved before proceeding with the transaction.
• Guidance to Non-US Corporate Service Providers: BIS has issued two FAQs providing guidance to non-US corporate service providers who provide accounting, mailbox, address, or office space services on their potential liability under the EAR for the actions of their customers.  Notably, if an address is used to unlawfully divert items subject to the EAR, that address may become subject to restrictions under the EAR, including designation as an Address with High Diversion Risk on the Entity List and subject to Entity List license requirements.  In terms of best practices to screen offshore or shell company customers, BIS advises implementation of know-your-customer best practices (e.g., those discussed in Supplement No. 3 to EAR Part 732), restricted party screening, and additional background due diligence of customers as appropriate.  BIS views customers who ship to US-embargoed or restricted destinations as presenting an elevated risk of diversion and thus requiring additional diligence to avoid unlawful diversion.

II. OFAC Measures

1. Additional SDN Designations

Nearly 400 parties have been added to the SDN List under Executive Order (“EO”) 14024 for their role in enabling Russia to continue its war efforts and evade sanctions.  These designations target transactional networks involved in the procurement of ammunition and military material, facilitating sanctions evasion, gold laundering, and procurement of sensitive and critical industrial items in support of Russia’s military-industrial base as well as companies that provide software and IT solutions for Russia’s financial sector. The new SDNs are primarily located in Russia and third countries at high risk for Russian trade diversion (e.g., Hong Kong, Türkiye, China, the United Arab Emirates).

As a result of these new designations, US Persons are generally prohibited from engaging in virtually all transactions involving such designated parties, including entities owned 50% or more by such designated parties.  These designations also require all property and interest in property of these designated parties within the United States or the possession or control of US Persons to be blocked and reported to OFAC.

The list of new SDNs is available here.

2. New General Licenses

OFAC issued five new general licenses (“GLs”) related to transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions, as follows:

• GL 103: “Authorizing Transactions Related to Imports of Certain Diamond Jewelry Prohibited by Executive Order 14068.”  GL 103 authorizes transactions ordinarily incident and necessary to the import and entry into the United States, including import for admission into a US-located foreign trade zone, of diamond jewelry physically located outside of Russia prior to March 1, 2024, and not exported or reexported from Russia thereafter.
• GL 104: “Authorizing Transactions Related to Imports of Certain Diamonds Prohibited by Executive Order 14068.”  Through 12:01 AM EDT on September 1, 2025, GL 104 authorizes transactions ordinarily incident and necessary to the import and entry into the United States, including importation for admission into a US-located foreign trade zone of certain categories of diamonds, provided the diamonds were physically located outside of Russia and were not exported or reexported from Russia thereafter.
• GL 105: “Authorizing Limited Safety and Environmental Transactions and the Unloading of Cargo Involving Certain Blocked Persons or Vessels.”  Through 12:01 AM EDT on October 23, 2024, GL 105 authorizes all transactions ordinarily incident and necessary to certain activities relating to vessels (i.e., safe docking and anchoring, preservation of health/safety of crew, emergency repairs, environmental mitigation or protection activities) in which certain blocked entities have a property interest (i.e., White Fox Ship Management FZCO or any entity owned, directly or indirectly, by 50% or more).  Additionally, for the same authorization period, all transactions otherwise prohibited by EO 14024 that are ordinarily incident and necessary to the delivery and offloading of cargo involving the foregoing blocked persons are authorized, provided that the cargo was loaded prior to August 23, 2024.
• GL 106: “Authorizing the Wind Down of Transactions Involving Certain Entities Blocked on August 23, 2024.”  Through 12:01 AM EDT on October 9, 2024, GL 106 authorizes all transactions otherwise prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of any transaction involving one or more of the 17 entities listed in the GL who were blocked on August 23, 2024 (plus any entity in which one or more of the 17 entities own, directly or indirectly, individually or in the aggregate, 50% or more). 
• GL 107: “Authorizing Limited Safety and Environmental Transactions Involving Certain Blocked Persons or Vessels.”  Through 12:01 AM EDT on October 23, 2024, GL 105 authorizes all transactions ordinarily incident and necessary for certain activities relating to vessels (i.e., safe docking and anchoring, preservation of health/safety of crew, emergency repairs, environmental mitigation or protection activities) in which Ocean Speedstar Solutions OPC Private Limited or Zara Shipholding Co, or any entity owned directly or indirectly, individually or in the aggregate by these entities, has a property interest. 

3. New and amended FAQs

OFAC issued a new Russia-related FAQ 1189, which summarizes the scope of GLs 103 and 104 relating to certain diamonds and diamond jewelry prohibited by EO 14068, and amended Russia-related FAQ 1165 and FAQ 1166 to account for GLs 103 and 104.

The authors acknowledge the assistance of William Logsdon with the preparation of this blog post.