On June 27, 2022, President Biden and the other G7 leaders issued a statement on support for Ukraine (“G7 Statement”), in which they vowed to sustain and intensify their coordinated sanctions measures in response to Russia’s war of aggression. The corresponding White House Announcement outlines the actions the Biden Administration planned to take in coordination with the G7, including additional sanctions measures.
The following day, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) implemented additional sanctions against Russia in accordance with the commitments in the G7 Statement and White House Announcement. OFAC (i) added nearly 100 parties to the Specially Designated Nationals and Blocked Persons List, (ii) published five Russia-related general licenses, and (iii) issued a determination prohibiting the import of certain Russian gold into the United States. Additionally, the US Commerce Department’s Bureau of Industry and Security (“BIS”) issued: (i) a final rule (“BIS Final Rule”) adding 36 new entities to the BIS Entity List, many of which relate to Russia, that took effect on June 28 and (ii) a joint alert (“Joint Alert”) in collaboration with the Financial Crimes Enforcement Network (“FinCEN”) urging financial institutions to remain vigilant against entities attempting to evade US export controls targeting Russia.
OFAC Russia-Related SDN Designations and General Licenses
The White House Announcement states “the United States Departments of State and the Treasury will aggressively target Russian defense supply chains by imposing blocking sanctions on . . . defense-related entities” to limit Russia’s access to new military equipment. In connection with this commitment, OFAC designated a number of Russian entities in the defense sector as blocked persons under Executive Order (“EO”) 14024 “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation” (our previous blog regarding EO 14024 can be found here). The Treasury Department’s press release about this action is available here. Below is a summary of the general licenses (“GLs”) that OFAC issued along with these SDN designations.
Rostec was designated pursuant to EO 14024 for operating or having operated in the defense and related materiel sector of the Russian Federation economy. As a result, Rostec and entities 50% owned or more by Rostec are blocked as SDNs. Through 12:01 am ET on August 11, 2022, GL 39 authorizes all transactions ordinarily incident and necessary to wind down transactions involving (1) Rostec or (2) an entity in which Rostec owns a 50% or greater interest that has not been specifically named as an SDN prior to June 28, 2022.
GL 40 authorizes certain transactions involving certain SDNs that are ordinarily incident and necessary to the provision, exportation, or reexportation of goods, technology, or services to ensure the safety of civil aviation, as long as: (1) the aircraft is registered in a jurisdiction solely outside of the Russian Federation; and (2) the goods, technology, or services that are provided, exported, or reexported are for use on aircraft operated solely for civil aviation purposes.
Notwithstanding GL 40, parties servicing such aircraft should ensure compliance with US export controls. See our latest blog post here about certain BIS actions targeting the Russian aviation sector.
KAMAZ was designated pursuant to EO 14024 for operating or having operated in the defense and related materiel sector of the Russian Federation economy. Likewise, the Russia-based subsidiaries of KAMAZ, including Nefaz Publicly Traded Company (“Nefaz”) and Public Joint Stock Company Tutaev Motor Plant (“Tutaev Motor Plant”), were designated pursuant to EO 14024.
GL 41 authorizes all transactions ordinarily incident and necessary to the manufacture, sale, and maintenance, including the provision and receipt of warranty and maintenance services, of agricultural equipment, components, and spare parts produced by Nefaz or Tutaev Motor Plant, or any entity in which Nefaz or Tutaev Motor Plant owns, individually or in the aggregate, a 50% or greater interest, through December 22, 2022. This authorization does not extend to other entities 50% or more owned by KAMAZ.
The Federal Security Service (a.k.a. Federalnaya Sluzhba Bezopasnosti) (“FSB“) was re-designated pursuant to EO 14024 by the US State Department. In conjunction with the re-designation of FSB, OFAC issued GL 42 authorizing certain transactions with the FSB that are necessary and ordinarily incident to requesting certain licenses and authorizations for the importation, distribution, or use of certain information technology products in the Russian Federation, as well as transactions necessary and ordinarily incident to comply with rules and regulations administered by, and certain actions or investigations involving, the FSB. GL 42 authorizes the same dealings with FSB as Cyber GL 2B in connection with the FSB’s designation under other US sanctions programs.
- GL 43: Divestment or Transfer of Debt or Equity of, and Wind Down of Derivative Contracts Involving, Public Joint Stock Company Severstal or Nord Gold PLC
Through 12:01 am ET on August 31, 2022, GL 43 authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to the divestment or transfer of debt or equity purchased prior to June 2, 2022 of Public Joint Stock Company Severstal (“Severstal”), Nord Gold PLC (“Nord Gold”), or any entity in which Severstal or Nord Gold owns, individually or in the aggregate, a 50% or greater interest (“covered debt or equity”). However, any divestment or transfer, or facilitation of divestment or transfer, of covered debt or equity must be to a non-US person.
GL 43 also authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of derivative contracts entered into prior to June 2, 2022 that (1) include Severstal, Nord Gold, or any entity in which Severstal or Nord Gold owns, individually or in the aggregate, a 50% or greater interest or (2) are linked to covered debt or equity.
GL 43 identifies some limitations to the US-Person activities that are authorized under the general license.
OFAC Determination Prohibiting the Importation of Russian Gold
G7 leaders asserted in the G7 Statement that they are determined to limit Russia’s revenues, including from gold, Russia’s second largest export after energy. The White House Announcement indicates that OFAC would issue a determination prohibiting the importation of new gold, which will prevent Russian participation in the formal US gold market.
The Determination Pursuant to Section 1(a)(i) of Executive Order 14068 (“OFAC Gold Ban”) applies the prohibitions of EO 14068 “Prohibiting Certain Imports, Exports, and New Investment With Respect to Continued Russian Federation Aggression” (our previous blog regarding EO 14068 can be found here) to gold of Russian origin. As a result, the importation into the United States of Russian origin gold is prohibited, effective immediately. However, the OFAC Gold Ban does not apply to gold of Russian origin that was located outside of Russia prior to June 28, 2022.
Changes to the BIS Entity List
In the BIS Final Rule, BIS added 36 entities under 41 entries to the BIS Entity List for acting contrary to the national security or foreign policy interests of the United States. The newly entities are listed under the destinations of China, Lithuania, Pakistan, Russia, Singapore, the United Arab Emirates, the United Kingdom, Uzbekistan, and Vietnam. These newly designated parties are subject to different levels of additional, party-specific licensing requirements under the EAR.
With respect to Russia, six entities were designated for having “previously supplied items to Russian entities of concern before February 24, 2022 and continu[ing] to contract to supply Russian entity listed and sanctioned parties after Russia’s further invasion of Ukraine.” Another two were designated for “acting as agents, fronts or shell companies for” another Russian company added to the BIS Entity List on March 4, 2022.
Separate from the Russia-related additions, other entities were added to the BIS Entity List for, among other things, “us[ing] deceptive practices to supply or attempt to supply Iran with U.S-origin electronics that would ultimately provide support to Iran’s military” and “acquiring and attempting to acquire U.S.-origin items in support of military applications, contrary to the national security or foreign policy interests of the United States.”
BIS also revised entries for 11 parties designated on the BIS Entity List. Entries for nine entities in Belarus, Russia, and Slovakia were revised to authorize certain exports/reexports related to support for the International Space Station. Separate from the Russia-related developments, the Entity List entry for China National Offshore Oil Company (“CNOOC”) was revised to clarify the Entity List restrictions on this entity with respect to the South China Sea. BIS also revised the CNOOC entry to clarify that it applies to CNOOC Limited and not its parent company CNOOC Group. These CNOOC-related revisions were prompted by numerous inquiries that BIS received about these restrictions.
BIS and FinCEN Joint Alert on US Export Control Evasion Attempts
In a new Joint Alert, BIS and FinCEN warned financial intuitions of US export control evasion attempts by entities targeted under Russia-related programs. The Joint Alert provides an overview of current US export controls targeting Russia, commodities at high risk of export control evasion attempts, transactional and behavioral red flags connected to possible evasion attempts, and reporting requirements related to suspected export control evasion attempts. This may provide a sense of where BIS may focus its enforcement efforts in the near future.
BIS identified 16 items under various Export Control Classification Numbers (“ECCN”) controlled under the Export Administration Regulations (“EAR”) with a higher risk of evasion attempts:
- Aircraft Parts/ Equipment (ECCN 9A991),
- Antennas (ECCN 7A994),
- Breathing Systems (ECCN 8A992),
- Cameras (ECCN 6A993),
- GPS Systems (ECCN 7A994),
- Inertial Measurement Units (ECCN 7A994),
- Integrated Circuits (ECCNs 3A001, 3A991, and 5A991),
- Oil Field Equipment (EAR99 and presumably identified in Supplements Nos. 2 or 4 of EAR Part 746),
- Sonar Systems (ECCN 6A991),
- Spectrophotometers (ECCN 3A999),
- Test Equipment (ECCN 3B992),
- Thrusters (ECCN 8A992),
- Underwater Communications (ECCN 5A991),
- Vacuum Pumps (ECCN 2B999),
- Wafer Fabrication Equipment (ECCNs 3B001 and 3B991), and
- Wafer Substrates (ECCN 3C00x).
The authors acknowledge the assistance of Vanessa Keverenge in the preparation of this post.