On May 19, 2023, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the US Department of Commerce’s Bureau of Industry and Security (“BIS”) implemented further economic sanctions and export controls targeting Russia and Belarus. The OFAC press release and BIS press release both underscore the US Government’s close coordination with international partners and allies to align new restrictions on Russia and Belarus. In addition, the Leaders of the G7 released a statement, which pledged continued financial, humanitarian, and diplomatic support to Ukraine and further sanctions and measures to increase the costs to Russia and those who continue to support the war effort.
OFAC Updates to Russia Sanctions
OFAC designated 46 individuals, 194 entities, 7 vessels, and 76 aircraft as Specially Designated Nationals (“SDNs”) for evading or circumventing Russia sanctions. In addition, OFAC issued (a) four General Licenses (“GLs”), (b) one amended directive, and (c) two determinations, alongside several related Frequently Asked Questions (“FAQs”). We discuss each below.
Russia-Related General Licenses
OFAC extended one existing GL and issued three new GLs to authorize certain wind-down activities with Public Joint Stock Company Polyus (“Polyus”) and five educational institutions that were designated as SDNs on May 19, 2023:
- GL 13E replaces GL 13D and extends for a further three months, until 12:01 a.m. eastern daylight time, August 17, 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 of the Russian Federation, or the Ministry of Finance of the Russian Federation, provided such transactions are ordinary incident and necessary to their day-to-day operations in Russia.
- GL 66 authorizes US persons to engage in activities that are ordinarily incident and necessary to the maintenance or wind down of transactions involving Polyusor entities 50% or more owned by Polyus (collectively, “Polyus Entities”) through 12:01 a.m. eastern daylight time, August 17, 2023.
- GL 67 authorizes certain transactions related to the divestment or transfer, or the facilitation thereof, of debt or equity of Polyus Entities purchased prior to May 19, 2023 to a non-US person through 12:01 a.m. eastern daylight time, August 17, 2023.
- GL 68 authorizes the wind down of transactions involving the following five universities and educational institutes and entities 50% or more owned by the five universities and institutes, through 12:01 a.m. eastern daylight time, July 18, 2023:
- Federal State Budgetary Educational Institution of Higher Education Grozny State Oil Technical University Named After Academician M.D. Millionshchikov;
- Federal State Budget Educational Institution of Higher Education Saint Petersburg Mining University;
- Federal State Budgetary Educational Institution of Higher Education Sergo Ordzhonikidze Russian State University for Geological Prospecting;
- Federal State Budgetary Educational Institution of Higher Vocational Education Gubkin Russian State University of Oil and Gas; and
- State Budgetary Educational Institution of Higher Education Almetyevsk State Oil Institute.
Russia-Related Directive 4
OFAC also amended Russia-related Directive 4 under Executive Order 14024 (“Directive 4”) and updated FAQs 998-1002, 1004-1005, and 1118. Directive 4 as amended imposes a reporting requirement on US persons who are in possession or control of property in which the CBR, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation (“Directive 4 Entities”) has an interest. FAQ 998 explains that the reporting requirement is intended to identify assets of Directive 4 Entities held by US persons as of May 31, 2023, and annually thereafter. This reporting requirement is separate from OFAC’s reporting requirement for rejected transactions involving any Directive 4 Entity pursuant to 31 C.F.R. § 501.604. US persons must submit a report to [email protected] on or before June 18, 2023, and annually thereafter by June 30.
Russia-Related Determinations and FAQs
Finally, OFAC published a Determination Pursuant to Section 1(a)(i) of EO 14024 (“EO 14024 Determination”) and a Determination Pursuant to Section 1(a)(ii) of EO 14071 (“EO 14071 Determination”), alongside related new FAQs 1126-1128, and amended FAQs 1059 and 1061-1062.
The EO 14024 Determination expands authorities for the imposition of blocking sanctions against any person identified by the Secretary of the Treasury, in consultation with the Secretary of State, as operating in the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy. Any person determined to operate or have operated in these sectors therefore risks being designated as an SDN. FAQ 1126 defines the relevant terms as follows:
- “Architecture sector of the Russian Federation economy” includes activities such as advising; pre-designing; designing; preparing sketches, reports, studies, assessments, site plans, working drawings, specifications, cost estimates, as-built drawings, or other materials; contract administration; site selection; and inspections concerning architectural and related matters involving the Russian Federation. Such activities may be related to the following types of projects, e.g.: residential, institutional, leisure, commercial, and industrial buildings and structures; recreational areas; transportation infrastructure; land subdivisions; urban planning; landscape architecture; and not necessarily relate to a new construction project. The term additionally includes any related activities, including the provision or receipt of goods, services, or technology to, from, or involving the architecture sector of the Russian Federation economy.
- “Engineering sector of the Russian Federation economy” includes activities such as advising; designing; recommending; consulting; constructing; installing, surveying; preparing studies, specifications, cost estimates, working drawings, process flow diagrams, arrangement drawings, or other materials; map making; planning; testing; analysis; and inspecting for engineering and related matters involving the Russian Federation. Such activities may be undertaken during any phase of an engineering project of any type and may not necessarily relate to a new construction or development project. The term additionally includes any related activities, including the provision or receipt of goods, services, or technology to, from, or involving the engineering sector of the Russian Federation economy.
- “Construction sector of the Russian Federation economy” includes activities such as the production, procurement, devising, framing, design, testing, financing, distribution, or transport involving the Russian Federation, of goods, services, or technology to fabricate, shape, alter, maintain, or form any buildings or structures, including the on-site development, assembly, or construction of residential, commercial, or institutional buildings, or of transportation infrastructure, in the Russian Federation; and any related activities, including the provision or receipt of goods, services, or technology to, from, or involving the construction sector of the Russian Federation economy.
- “Manufacturing sector of the Russian Federation economy” includes activities such as the creation, modification, repair, testing, or financing, of goods by manual labor or machinery involving the Russian Federation and any related activities, including the provision or receipt of goods, services, or technology to, from, or involving the manufacturing sector of the Russian Federation economy. Note that persons conducting or facilitating transactions that are exempt or authorized by OFAC—such as those related to the provision of agricultural commodities, food, medicine, or medical devices, or related to energy—will not be subject to sanctions under EO 14024.
- “Transportation sector of the Russian Federation economy” includes activities such as the production, manufacturing, testing, financing, distribution or transport to, from, or involving the Russian Federation of any mode of transport or any goods, services, or technology for the movement or conveyance of persons or property and the loading, unloading, or storage incidental to the movement of such persons or property; and any related activities, including the provision or receipt of goods, services, or technology to, from, or involving the transportation sector of the Russian Federation economy.
Similar Determinations have been issued for the technology and defense related materials sectors (as of April 15, 2021); the financial services sector (as of February 22, 2022); the aerospace, electronics, and marine sectors (as of March 31, 2022); the accounting, trust and corporate formation services and management consulting sectors (as of May 8, 2022); the quantum computing sector (as of September 15, 2022); and the metals and mining sectors (as of February 24, 2023) (collectively, “EO 14024 Determinations”). Our blog posts on earlier EO 14024 Determinations are available here, here, here, here, and here. The Department of State has designated or identified as blocked property almost 200 individuals, entities, vessels, and aircraft pursuant to the above EO 14024 Determinations, including the technology, marine, and defense sectors.
The EO 14071 Determination expands restrictions of Section 1(a)(i) of EO 14071 to Russia’s architecture and engineering sectors. With this addition, the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US person, wherever located, of architecture services and engineering services to any person located in the Russian Federation is now prohibited. This prohibition will take effect beginning at 12:01 a.m. eastern daylight time on June 18, 2023. FAQ 1128 defines relevant terms as follows:
- “Architecture services” include advisory services; pre-design services; design services, including schematic design, design development, and final design; contract administration services; combined architectural design and contract administration services; including post construction services; and all other services requiring the expertise of architects. The prohibition applies to such services as they relate to residential, institutional, leisure, commercial, and industrial buildings and structures; recreational areas; transportation infrastructure; land subdivisions; and not necessarily related to a new construction project. The term also includes urban planning services (i.e., land use, site selection, and servicing of land for systemic, coordinated urban development) and landscape architectural services. OFAC intends to interpret this term consistent with UN Central Product Classification (CPC) Codes 86711-86704, 86719, and 86741-86742.
- “Engineering services” include assistance, advisory, consultative, design, and recommendation services concerning engineering matters or during any phase of an engineering project. Engineering design services may be for: the construction of foundations and building structures (i.e., structural engineering); mechanical and electrical installations for buildings; the construction of civil engineering works; industrial processes and production; or other engineering designs, such as those for acoustics, vibration, traffic control systems, or prototype development for new products. The term additionally includes geotechnical, groundwater, and corrosion engineering services; integrated engineering services, such as those for transportation infrastructure or other projects; engineering-related scientific and technical consulting services, including geological, geophysical, geochemical, surface or subsurface surveying, and map making services; testing and analysis services of chemical, biological, and physical properties of materials or of integrated mechanical and electrical systems; and technical inspection services. OFAC intends to interpret this term consistent with UN CPC Codes 86721-86727, 86729, 86731-86733, 86739, 86751-86754, 86761-86764, and 86769. Additionally, OFAC does not consider maritime classification services to be subject to the prohibition, as is consistent with the OFAC Guidance on Implementation of the Price Cap Policy for Crude Oil and Petroleum Products of Russian Federation Origin.
Similar Determinations have been issued for accounting, trust and corporate formation services and management consulting services (as of May 8, 2022); quantum computing services (as of September 15, 2022); and services related to the maritime transport of Russian petroleum products (as of December 5, 2022 and February 5, 2023) (collectively, “EO 14071 Determinations”). Our blog posts on earlier EO 14071 Determinations are available here, here, here, and here.
BIS Updates to Export Controls for Russia, Belarus, and Iran
BIS announced (a) expansive changes to the Export Administration Regulations (“EAR”) related to Russia and Belarus, (b) 71 designations to the Entity List, and (c) its second joint alert (the “Second Joint Alert”) with Treasury’s Financial Crimes Enforcement Network (“FinCEN”) related to Russian export control evasion.
Changes to the EAR
BIS issued a new rule (the “Rule”) expanding controls relating to Russia and Belarus to continue efforts to impose powerful restrictions on Russia and Belarus for Russia’s invasion of Ukraine and diversion of items through Belarus. These efforts were achieved in close cooperation and coordination with international partners and allies. Specifically, the Rule:
- Adds additional items to Supplement No. 4 to Part 746 of the EAR, including a variety of electronics, instruments, and advanced fibers for the reinforcement of composite materials (such as carbon fibers), as well as medical devices classified under HTS Code 9018. In total, BIS added 1,224 HTS-6 Codes and three entire harmonized tariff system chapters (Chapters 84, 85, and 90) are now included in Supplement No. 4. Items listed in Supplement No. 4 require a license for export, reexport, and transfer to Russia and BIS are generally reviewed under a licensing policy of denial.
- Adds certain additional chemicals to Supplement No. 6 to Part 746 of the EAR, which consists of discrete chemicals, biologics, fentanyl and its precursors, and related equipment designated EAR99. Items listed in Supplement No. 6 require a license for export, reexport, and transfer to Russia and BIS will review such license applications under a policy of denial.
- Expands the list of foreign-produced items in Supplement No. 7 to Part 746 of the EAR to add items with HTS Code 854800 that require a license when destined to Russia, Belarus, and Iran, to further limit Iran’s ability to support Russia’s military aggression against Ukraine by providing unmanned aerial vehicles. This was an inadvertent omission from the previous BIS rule, which created Supplement No. 7 as of February 24, 2023. Our blog post on the previous BIS rule is available here.
- Applications for export, reexport, or transfer (in-country) to Russia or Belarus if items requiring a license under § 746.5 (the Russian and Belarusian Industry Sector Sanctions) will continue to be reviewed under a policy of denial with certain exceptions. The Rule added exceptions for items that are predominantly agricultural or medical in nature and for replacement licenses of items described in HTS-6 Codes or items described in Supplement No. 6 to Part 746 that were added to the EAR after the validation date of the BIS license.
- Expands the destination scope of the Russia/Belarus Foreign-Direct Product Rule to include Crimea.
- Adds ECCN 5A991 to the carve-out that applies to items controlled under ECCNs 5A992 or 5D992 under §§ 746.8 and 746.10(a)(1).
- Replaces Schedule B and Schedule B Descriptions in Supplement No. 5 with HTS-6 Codes for consistency with other supplements related to the EAR’s Russian and Belarusian Industry Sector Sanctions.
- Clarifies various conforming changes, including that US-origin controlled content that meets the criteria in revised § 746.5(a)(3) is also excluded from de minimis calculations when identifying controlled US-origin content, that deemed export and reexports are excluded from the license requirements in § 746.5(a)(1)(i) through (iii), and that License Exception AVS eligibility is added to § 746.5(c)(3), among others.
The Rule provides a standard savings clause that applies to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination en route on May 19, 2023, provided the export, reexport, or transfer (in-country) is completed no later than on June 20, 2023.
Entity List Designations
BIS added 71 entities to the Entity List, primarily for supporting Russia’s military and defense sectors, which included 69 Russian entities, 1 Armenian entity, and 1 Kyrgyz entity.
BIS and FinCEN Joint Alert
Lastly, BIS released a Second Joint Alert with FinCEN, which urges continued vigilance by US financial institutions against potential Russian export control evasion. The Second Joint Alert provides financial institutions additional information with respect to new BIS export control restrictions related to Russia and details evasion typologies and transactional and behavioral red flags to assist financial institutions. Our blog post related to BIS and FinCEN’s first joint alert is available here.