On June 12, 2024, the US Departments of Treasury and Commerce issued new sanctions and export controls in response to Russia’s continued war in Ukraine. Below we outline key categories of these new and expanded trade measures designed to restrict the flow of support to the Russian military-industrial base.
- New Sanctions Restrictions
The new sanctions issued by the US Department of Treasury’s Office of Foreign Assets Control (“OFAC”) are directed at Russia’s foundational financial infrastructure and access to support from third countries and include:
- A new prohibition on the provision of certain IT services to Russia;
- Expansion of secondary sanctions targeting foreign financial institutions’ support of Russia’s war economy; and
- Over 300 designations of individuals and entities to the List of Specially Designated Nationals and Blocked Persons (“SDN”) List.
OFAC also issued three new general licenses (“GLs”) (GLs 98, 99, and 100), amended three existing GLs (GLs 6D, 8J, and 25D), issued eight new Frequently Asked Questions (“FAQs”) (FAQs 1181-1188), and amended ten existing FAQs (FAQs 976, 1040, 1068, 1122, 1128, 1146, 1147, 1148, 1151, 1152).
OFAC’s press release on the new sanctions is available here.
- IT and Software-Related Services Prohibitions
OFAC issued a new Determination under Executive Order (“EO”) 14071, which prohibits the export, reexport, sale, or supply, directly or indirectly, from the United States or by a US person of the following categories of information technology (“IT”) services to any person located in Russia:
- IT consultancy and design services; and
- IT support services and cloud-based services for enterprise management software and design and manufacturing software.
The Determination expressly excludes the following transactions from the IT and software services prohibitions:
- any service to an entity located in Russia that is owned or controlled, directly or indirectly, by a US 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 service for software that is:
- subject to the Export Administration Regulations (“EAR”) and for which the transfer of such software to Russia is licensed or otherwise authorized by the Department of Commerce; or
- not subject to the EAR and for which the transfer of such software to Russia would be eligible for a license exception or otherwise authorized by the Department of Commerce if the software were subject to the EAR.
The IT and software-related services prohibitions take effect on September 12, 2024.
OFAC released five new FAQs related to these new prohibitions:
- FAQ 1184 which describes the scope and purpose of the new IT and software-related services prohibitions.
- FAQ 1185 which clarifies what activities are considered prohibited “IT consultancy and design services” under the new services prohibitions.
- FAQ 1186 which clarifies what activities are considered prohibited “IT support services” and “cloud-based services” under the new prohibitions and what services US Persons are generally prohibited from providing to persons in Russia.
- FAQ 1187 which defines the following terms of the new prohibitions: “enterprise management software,” “design and manufacturing software,” cloud-based services,” “information technology support services,” and “information technology consultancy and design services.”
- FAQ 1188 which confirms that that the IT and software-related services prohibitions do not extend to the provision of such services to entities located outside of Russia that are owned or controlled by persons located in Russia.
OFAC also amended FAQs 976, 1128, 1147, 1148, 1151, and 1152.
- Secondary Sanctions
On December 22, 2023, President Biden issued EO 14114, which added a new Section 11 to EO 14024 authorizing OFAC to impose sanctions on foreign financial institutions determined to have “conducted or facilitated any significant transaction or transactions, or provided any service, involving Russia’s military-industrial base, including the sale, supply, or transfer, directly or indirectly, to the Russian Federation[.]” For more information, please see our blog post on EO 14114. On June 12, 2024, OFAC expanded the reach of Russian secondary sanctions to target Russia’s war economy by broadening the definition of Russia’s military-industrial base to include all individuals and persons designated under EO 14024. As a result, non-US foreign financial institutions are now at risk of secondary sanctions if they conduct or facilitate significant transactions, or provide any services, involving any individual or entity sanctioned under EO 14024. OFAC issued a Sanctions Advisory to provide additional guidance on these measures.
OFAC released two new FAQs related to this expansion of secondary sanctions:
- FAQ 1181 which clarifies how OFAC interprets Russia’s military-industrial base under section 11 of EO 14024, including the focus on targeting the Russian economy and its reorientation of financial and government resources to support the ongoing invasion of Ukraine.
- FAQ 1182 which confirms that foreign persons, including foreign financial institutions, do not risk secondary sanctions for engaging in activities that are authorized for US Persons pursuant to GLs issued under the Russian Harmful Foreign Activities Sanctions Program such as GL 6D, GL 8J, GL 20, or GL 27.
- Additional SDN Designations
Over 300 individuals and entities have been added to the SDN List under EO 14024 for their actions and efforts to support Russia’s war efforts and assist Russia in evading US sanctions. These designations include parties in and outside Russia y, targeting industries such as oil and gas, financial services, semiconductor manufacturing, military equipment production (including unmanned aerial vehicles), and others. In particular, the designations include the following:
- Five Russian financial institutions, i.e., the Moscow Exchange (“MOEX”), the National Clearing Center (“NCC”), the Non-Bank Credit Institution JSC National Settlement Depository (“NSD”), the Gas Industry Insurance Company Sogaz (“Sogaz”), and the JSC Russian National Reinsurance Company (“RNRC”);
- More than 90 parties across Russia, Belarus, the British Virgin Islands, Bulgaria, Kazakhstan, the Kyrgyz Republic, the PRC, Serbia, South Africa, Türkiye, and the United Arab Emirates for sanctions evasion attempts;
- More than 100 entities supporting Russia’s domestic war economy; and
- Various entities involved in certain liquefied natural gas projects.
A full list of these newly designated parties can be found here. OFAC also amended FAQ 1068.
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 in the possession or control of US Persons to be blocked and reported to OFAC.
- General Licenses Issued
OFAC also issued three new GLs authorizing certain transactions related to the new sanctions measures:
- GL 98 – “Authorizing the Wind Down of Transactions Involving Certain Entities Blocked on June 12, 2024.” This GL authorizes transactions that are ordinarily incident and necessary to wind down transactions involving sixteen sanctioned entities, including entities in which these sanctioned entities have a 50% or more interest. The GL authorizes wind down activities through July 27, 2024.
- GL 99 – “Authorizing the Wind Down of Transactions and Certain Transactions Related to Debt or Equity of, or Derivative Contracts Involving, MOEX, NCC, or NSD.” This GL authorizes transactions that are ordinarily incident and necessary to wind down transactions involving MOEX, NCC, NSD, and entities in which these sanctioned entities have a 50% or more interest. The GL also authorizes transactions that are ordinarily incident and necessary to the divestment or transfer, or the facilitation of the divestment or transfer, of debt or equity issued or guaranteed to MOEX, NCC, or NSD (“Covered Debt or Equity”), the facilitation, clearing, settling, or trades, as well as the wind down of derivative accounts of Covered Debt or Equity placed before 4 PM eastern daylight time on June 12, 2024. The authorizations of GL 99 are effective through August 13, 2024.
- GL 100 – “Authorizing Certain Transactions Related to Debt or Equity or the Conversion of Currencies Involving MOEX, NCC, or NSD.” This GL authorizes transactions that are ordinarily incident and necessary to the divestment of debt or equity to a non-US person, who is not a person whose property or interests in property are blocked, or the conversion of currencies, involving MOEX, NCC, or NSD.
OFAC also amended three previously issued GLs:
- GL 6D – “Transactions Related to Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates, the Coronavirus Disease 2019 (COVID-19) Pandemic, or Clinical Trials.” The amendment to this GL specifies that transactions prohibited by the IT and software services prohibitions are authorized by the GL.
- GL 8J – “Authorizing Transactions Related to Energy.” The GL was amended to authorize transactions related to energy that involve NCC.
- GL 25D – “Authorizing Transactions Related to Telecommunications and Certain Internet-Based Communications.” These amendments add authorizations related to certain software services because of the new software-related sanctions measures.
OFAC released one new FAQ 1183 that provides supporting information on the authorizations found in GLs 98, 99, and 100. OFAC also amended FAQs 1040 and 1122.
- New Export Controls
In a new final rule, the Department of Commerce’s Bureau of Industry and Security (“BIS”) made a number of changes to the export controls targeting Russia and Belarus. These measures include:
- New license requirements for the transfer of certain EAR99 software;
- Expansion of Russian and Belarusian industry section sanctions by adding items to supplement nos. 4 and 6 of Part 746;
- Narrowing the scope of License Exception Consumer Communications Devices (“CCD”);
- Consolidating the EAR’s Russian and Belarus sanctions into a single section; and
- Additions to the BIS Entity List.
The new restrictions took effect June 12, 2024, except for the license requirements referenced in # 1 above, which take effect September 12, 2024 (in alignment with the new OFAC IT and software-related services prohibitions).
- EAR99 Software Controls
BIS imposes new controls effective September 12, 2024, on certain EAR99 software, including software updates, which will now generally require a BIS license to export, reexport, and/or transfer (in-country) to Russia or Belarus. The following categories of EAR99 software (“Targeted Software”) will be controlled in new paragraph (a)(8) of § 746.8:
- enterprise resource planning (ERP);
- customer relationship management (CRM);
- business intelligence (BI);
- supply chain management (SCM);
- enterprise data warehouse (EDW);
- computerized maintenance management system (CMMS);
- project management software, product lifecycle management (PLM);
- building information modelling (BIM);
- computer aided design (CAD);
- computer-aided manufacturing (CAM); and
- engineering to order (ETO).
Notably, the existing carve-out for certain eligible civil end users that are affiliated with US companies or companies headquartered in countries from Country Groups A:5 and A:6, which applies to items controlled under ECCNs 5A991, 5A992.c and 5D992.c, is expanded to also cover Targeted Software. In addition, licenses are not required for Targeted Software when destined for entities “engaged exclusively in the agriculture or medical industries.”
- Expansion of Russian and Belarusian Industry Sector Sanctions
BIS has expanded the Russian and Belarusian industry sector sanctions by adding over 522 additional Harmonized Tariff Schedule (HTS)-6 code entries to supplement no. 4, thus imposing a license requirement on these items for export, reexport, or transfer (in-country) to Russia or Belarus. The final rule also expands supplement no. 6 by adding a new paragraph (h) to control certain riot control agents.
- Scope of License Exception CCD Narrowed
BIS has narrowed the scope of items eligible for export, reexport, and transfer (in-country) to Russia and Belarus under License Exception CCD. Further, items eligible for supply to or within Russia, Belarus, or Cuba are listed in paragraphs (b)(1) through (b)(8) and items eligible only for Cuba are listed in paragraphs (b)(9) through (b)(18) of EAR § 740.19.
- Consolidation of Russia and Belarus Sanctions
For sake of clarity, the final rule also consolidates the Russia and Belarus sanctions of the EAR into one section. Specifically:
- license requirements from former § 746.8 (Commerce Control List and foreign direct product rule controls) are now found in paragraphs (a)(1) through (3) of § 746.8;
- license requirements from former § 746.5 (industry sector sanctions) are now found in paragraphs (a)(4) through (6) of § 746.8; and
- license requirements from former § 746.10 (luxury goods sanctions) are now found in paragraph (a)(7) of § 746.8
The newly consolidated § 746.8 of the EAR can be found here.
- Additions to Entity List
The final rule added five entities and made eight amendments to the BIS Entity List for actions determined to be contrary to US national security and foreign policy. The entities added to the Entity List are:
- Advantage Trading Co. Limited;
- Duling Technology (HK) Limited;
- FY International Trading;
- Shenzhen Daotong Intelligent Aviation Technology Co., Ltd; and
- LLC Volgogradpromproyekt.
These designations limit the ability of these five entities to export, reexport, or transfer (in-country) items subject to the EAR. Further, the final rule adds eight addresses to the Entity List under the destination of China that, as indicated by BIS, are associated with transshipments of sensitive items to Russia. Restrictions applicable to each Entity List entry can be found here.
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For more information on these rules, please contact a member of our Trade team.
