On February 24, 2023, the US Government alongside G7 leaders announced via a White House statement a new set of trade and economic measures targeting Russia and Belarus and support for Ukraine. These measures were announced to mark the one-year anniversary of the Russian invasion of Ukraine and include the following:
- The US Treasury Department’s Office of Foreign Assets Control (“OFAC“) (i) issued a new determination authorizing the imposition of sanctions targeting the Russian metals and mining sector, (ii) added 22 individuals and 83 entities to the Specially Designated Nationals and Blocked Persons List (“SDN List“) for engaging in a variety of sanctionable activities, as further described below, (iii) issued two new and updated two existing general licenses (“GLs“) and (iv) issued five new Frequently Asked Questions (“FAQs“) related to these developments, including an important clarification regarding “exit taxes” relevant to companies divesting from Russia. A press release summarizing these developments along with a host of statistics on the impact of sanctions on Russia is available here and here.
- The US Commerce Department’s Bureau of Industry and Security (“BIS“) issued four final rules imposing further export control measures under the Export Administration Regulations (“EAR“), including licensing requirements on a number of household and other items, and added 76 individuals and entities to the Entity List for engaging in sanctions evasion and “backfill” activities in support of Russia’s defense sector. A press release summarizing these developments is available here.
- The White House announced that the President would sign proclamations raising the tariff rate of certain Russian products imported to the United States, primarily targeting metals, minerals, and chemical products.
- The G7 countries will also establish an Enforcement Coordination Mechanism, to be chaired initially by the United States, to counter sanctions evasion.
Additional information on new sanctions measures adopted in parallel by the United Kingdom and Ukraine, along with a statement from the Dutch Government on the “tenth package” of EU sanctions can be found in our blog posts here, here, and here.
OFAC Sanctions Measures
Metals and Mining Determination: OFAC issued another determination pursuant to Executive Order 14024 (“EO 14024“) expanding its authority to designate parties engaged in the metals and mining sector of the Russian economy (“Metals and Mining Determination“). Any person determined to operate or have operated in the metals and mining sector risks being therefore designated as an SDN.
Additions to the SDN List: OFAC added 22 individuals and 83 parties, both Russian, Belarussian, and in various third countries across Europe, Asia and the Middle East, to the SDN List for engaging in a range of sanctionable activities, including a dozen Russian financial institutions (see below), various Russian wealth management-related entities, parties engaging in sanctions evasion activities or backfilling Russian stocks of sanctioned items, parties facilitating Russia’s military supply chain (including suppliers of carbon fiber and aerospace materiel), IT, electronics and software companies and, under the new Metals and Mining Determination, parties acting in the metals and mining sector of Russia. A full list of the parties added to the SDN List is available here. OFAC reports that there are now over 2,500 Russia-related SDNs added since February 2022, including over 80% of the Russian banking sector.
OFAC General Licenses (“GLs”) – New and Updated: OFAC updated two existing GLs and issued two new GLs to authorize certain otherwise prohibited limited activities, as follows:
- GL 8F replaces GL 8E and authorizes US Persons to engage in certain energy-related transactions with two additional Russian financial institutions, Bank Zenit Public Stock Company and Bank Saint-Petersburg PJSC, following the designation of both institutions. The GL8F validity period has not been extended, but remains valid through 12:01 a.m. eastern daylight time, May 16, 2023.
- GL 13D replaces GL 13C and extends for a further three months, until 12:01 a.m. eastern daylight time, June 6, 2023, the authorization for US persons and entities owned or controlled by US persons to continue to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications, involving the Central Bank of the Russian Federation (“CBR”), the National Wealth Fund, and the Ministry of Finance, provided such transactions are ordinary incident and necessary to their day-to-day operations in Russia. (See below regarding a clarification on payment of “exit taxes” involving the CBR.)
- GL 60 authorizes, subject to certain conditions, the wind down and rejection of transactions involving nine newly-designated Russian financial institutions. Through 12:01 a.m. eastern daylight time, May 25, 2023, US persons are authorized to engage in transactions ordinarily incident and necessary to the wind down of transactions with the following entities:
- Bank Saint-Petersburg Public Joint Stock Company;
- Bank Zenit Public Joint Stock Company;
- Joint Stock Commercial Bank Primorye;
- Public Joint Stock Company Bank Uralsib;
- Joint Stock Company Commercial Bank Lanta Bank;
- SDM-Bank Public Joint Stock Company;
- Public Joint Stock Company Stock Commercial Bank Metallurgical Investment Bank;
- Public Joint Stock Company Ural Bank for Reconstruction And Development;
- Credit Bank of Moscow Public Joint Stock Company; or
- Any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest (collectively, “Authorized Wind-Down Entities“).
GL 60 also authorizes US Persons to reject, rather than block, all transactions otherwise prohibited by EO 14024 that are ordinarily incident and necessary to the processing of funds involving one or more of the Authorized Wind-Down Entities as an originating, intermediary, or beneficiary financial institution.
- GL 61 authorizes all transactions ordinarily incident and necessary to the divestment or transfer, or the facilitation thereof, or debt or equity of the following newly-designated Russian financial institutions through 12:01 a.m. eastern daylight time, May 25, 2023:
- Bank Saint-Petersburg Public Joint Stock Company;
- Bank Zenit Public Joint Stock Company;
- Public Joint Stock Company Bank Uralsib;
- Joint Stock Company Commercial Bank Lanta Bank;
- SDM-Bank Public Joint Stock Company;
- Public Joint Stock Company Stock Commercial Bank Metallurgical Investment Bank; or
- Any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest (collectively, “Authorized Divestment/Transfer Entities“).
GL 61 also authorizes all transactions ordinarily incident and necessary to:
- facilitating, clearing, and settling trades of covered debt or equity that were placed prior to 4:00 p.m. eastern standard time, February 24, 2023, through 12:01 a.m. eastern daylight time, May 25, 2023; and
- the wind down of derivative contracts entered into prior to 4:00 p.m. eastern standard time, February 24, 2023, that (i) include an Authorized Divestment/Transfer Entity as a counterparty or (ii) are linked to covered debt or equity, through 12:01 a.m. eastern daylight time, May 25, 2023, provided that any payments to a blocked person are made into a blocked account.
Amongst other conditions, GL 61 does not authorize US persons to sell, or to facilitate the sale of, covered debt or equity to, directly or indirectly, any person whose property and interests in property are blocked, nor to purchase or invest in, or to facilitate the purchase of or investment in, directly or indirectly, covered debt or equity, other than purchases of or investments in covered debt or equity ordinarily incident and necessary to the divestment or transfer of covered debt or equity.
FAQ Guidance on “Exit Taxes”: In response to requests for guidance regarding a recent development regarding new transaction tax imposed on Russian buyers as an apparent condition for obtaining Russian Government approval of corporate exits from Russia and payable to the Federal Treasury account at the CBR, OFAC issued a new FAQ 1118 clarifying that GL 13D (as described above) does not authorize such transactions. FAQ 1118 states OFAC’s view that the “exit tax” is not ordinarily incident and necessary to day-to-day operations in Russia and that “US persons whose divestment will involve an “exit tax” payment may require a license from OFAC.” This language indicates that US sellers must seek a license, even if the buyer is responsible for, and bears the cost of, the payment.
Newly Issued FAQS related to the Metals and Mining Determination: In addition to FAQ 1118 related to GL 13D (described above), OFAC issued four FAQs related to the Metals and Mining Determination, as follows:
- FAQ 1114 describes the measures taken by OFAC related to the Metals and Mining Determination, i.e., that parties operating in that sector of the Russian economy can now be designated.
- FAQ 1115 defines the metals and mining sector as including “any act, process, or industry of extracting, at the surface or underground, ores, coal, precious stones, or any other minerals or geological materials in the Russian Federation, or any act of procuring, processing, manufacturing, or refining such geological materials, or transporting them to, from, or within the Russian Federation.”
- FAQ 1116 clarifies that while EO 14024 and the Metals and Mining Determination exposes all parties that have operated or do operate in the Russian metals and mining sector to potential sanctions, parties operating in that sector are not automatically sanctioned; a determination must first be made. FAQ 1116 includes a reminder that additional sanctions may be imposed on persons operating in the metal and mining sector through new investment bans under EO 14071 and through the prohibition on importing certain Russian goods produced by the metals and mining sector under EO 14068.
- FAQ 1117 clarifies that non-US parties may be exposed to sanctions for engaging in activities related to the Russia metals and mining sector, but OFAC does not intend to target persons operating in the metals and mining sector where goods and services are solely for the safety and care of personnel, protection of human life, prevention of accidents or injuries, or for the maintenance or repair necessary to avoid environmental or other significant damage, or for activities related to environmental mitigation or remediation. Examples of goods that OFAC does not intend to target include personal protective equipment, safety devices, ventilation systems, and alarm systems; examples of such services include rescue and accident response services, cleaning, safety inspections, and services necessary for use of the goods described above. FAQ 1117 also clarifies that non-US persons are not at risk of designation for engaging in activities that would not require a specific license if engaged in by a US Person.
BIS Updates to Export Controls for Russia, Belarus and Iran
EAR Amendment, Expansions, and Clarifications: BIS expanded and strengthened the scope of the EAR’s Russian and Belarusian industry sector sanctions and “luxury goods” export controls contained in EAR Part 746 described in a final rule issued and effective February 24, 2023, as well as new export restrictions for Iran to prevent US components found in Iranian drones from being used in the ongoing armed conflict in Ukraine. These changes were made in an effort to more closely align with the restrictions imposed by US allies and partners.
A summary of the amendments to the Supplements to EAR Part 746 as follows:
- Supplement No. 2 (Russian Industry Sector Sanctions List) was amended to revise the heading to refer also to Belarus, as well as align the content of Supplement No. 2 more closely with US allies. Specifically, the HTS-6 Code and HTS Description are now used to identify the items on Supplement No. 2, eliminating the Schedule B number and Schedule B description previously used. The HTS-6 Code now controls for determining licensing requirements under EAR Section 746.5(a)(1)(i). Revisions were also made to Supplement No. 2 to cover “components,” “parts,” “accessories,” and “attachments” of items even if not themselves specifically identified by HTS Code or HTS Description.
- Supplement No. 3 was amended to include Taiwan on the list of countries that are not subject to certain licensing requirements pertaining to foreign-produced items under Section 746.8 of the EAR (Sanctions against Russia and Belarus). Taiwan was added to the list as an excluded country as Taiwan has implemented sanctions measures targeting Russia as a result of the invasion of Ukraine.
- Supplement No. 4 was also amended to include 322 additional HTS-6 Code entries corresponding to 322 industrial items, as listed in the final rule released also on February 24, that will require licenses for export or reexport to or transfer within Russia or Belarus under EAR Section 746.5(a)(1)(ii) (Russian and Belarusian industry sector sanctions). Similar to Supplement No. 2, Schedule B number and Schedule B Descriptions will be removed from the supplement; the HTS-6 Code will now determine licensing requirements.
- Supplement No. 5 (Luxury Goods) was amended to include 276 additional “luxury goods” items subject to the licensing requirement for export or reexport to or transfer within Russia, Belarus and to Russian/Belarusian oligarchs and malign actors under EAR Section 746.10. The additional luxury goods include even household items such as electrical fans, air conditioners, refrigerator-freezers, cooking appliances, restaurant equipment, dishwashers, toasters and various other kitchen appliances, vacuum cleaners, hair dryers, smartphones and other types of telephones, modems, turntables and record players, radio/TV and related items, smoke detectors, alarms, personal weighing machines, lifting equipment, office and other types of printers, photocopiers, typewriters, washing machines, dryers, sewing machines, electronic calculators, ADP machines, keyboards, scanners, card key and magnetic media entry devices, magnetic disk drives/floppy disks, storage units, ATMs, as well as certain types of spark ignition and compression ignition piston engines, various turbojet and other aircraft parts and turbines, household bearings, gears and pulleys, amongst others.
- Supplement No. 6 (Russian and Belarusian Russian industry sector sanctions) was also revised to expand the list of chemical and biological weapons-related EAR99 items that require a license under EAR Section 746.5(a)(1)(iii) with US allies’ and partners’ controls and made a number of detailed clarifying changes.
- Supplement No. 7 has been added to EAR Part 746 to address the use of Iranian UAVs by Russia by identifying certain EAR99 items subject to US jurisdiction and used in Iranian drones that are now subject to license requirements for export by anyone to Iran. The new controls also add a new “Iran Foreign Direct Product Rule” and revises the existing Russia/Belarus Foreign Direct Product Rule to capture foreign-produced items identified on Supplement No. 7 and classified either EAR99 or under certain ECCNs in categories 3, 5, 6, and 7 of the Commerce Control List so that they are subject to the EAR when destined for Iran, Russia or Belarus. These new controls exempt otherwise covered exports from countries identified in Supplement No. 3 of Part 746 of the EAR.
Finally, various other corrections and clarifications to existing controls on Russia and Belarus were made, including a clarification that the licensing carve-out for items controlled under ECCN 5A992 or 5D992 under EAR Section 746.8 does also apply to items classified under such ECCNs and described under the “Luxury Goods Sanctions” license requirements under EAR Section 746.10(a)(1). BIS has also implemented a case-by-case review policy for license applications for the disposition of items by companies curtailing or closing all operations in Russia and Belarus.
Additions to Entity List: BIS added eighty-six entities to the BIS Entity List, including entities located in Canada, China, France, Luxembourg, the Netherlands, and Russia, for acting contrary to the national security or foreign policy of the United States, including participation in sanctions evasion and for providing backfilling assistance to Russia’s defense sector and continued invasion of Ukraine. The lists of entities added to the BIS Entity List can be found in two final rules (available here and here) issued by BIS also on February 24. Some of these are also designated as Russian/Belarussian Military End Users.
Increase in Tariff Rates
President Biden signed proclamations to raise tariffs on certain Russian products imported into the United States in an effort to curb revenues for the Kremlin while reducing US reliance on Russia. The increase in tariffs will affect more than 100 Russian metals, minerals, and chemical products worth approximately $2.8 billion. Section 232 tariff on aluminium and derivative articles produced in Russia will be increased to a 200 percent ad valorem rate of duty beginning on or after 12:01 a.m. eastern standard time on March 10, 2023. Additionally a 200% tariff will be imposed on aluminium and derivative articles where any amount of primary aluminium is used to manufacture articles smelted or cast in Russia beginning on or after 12:01 a.m. eastern standard time on April 10, 2023.
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For more information on recent developments, please join us for our webinar to discuss “Key Lessons from the Russia/Ukraine Crisis: Preparing for the Next Geopolitical Event” on February 28, 2023, more information for which may be found here.
