U.S. Russia sanctions and export controls update
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Since Russia’s invasion of Ukraine in February 2022, the United States has, in response, imposed unprecedented sanctions and export controls targeting Russia: President Biden has signed numerous new Executive Orders, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has imposed significant sanctions pursuant to the full suite of available authorities, and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has substantially tightened U.S. export controls.
The initial rounds of sanctions primarily targeted Russian financial institutions and state-owned enterprises, as well as individual oligarchs and government officials, with the scope steadily increasing over the intervening months to now include sanctions targeting a range of individuals, entities, sectors, goods, and services both in and outside of Russia. OFAC has also issued over 50 General Licenses and provided much-needed guidance through the issuance of dozens of FAQs.
BIS, for its part, has imposed sweeping export restrictions intended to cut off Russia’s access to a myriad of items subject to the Export Administration Regulations (the EAR), which significantly curtail exports, reexports, and transfers (in-country) of technology, commodities, and software (together, Items) destined for or transiting Russia or Belarus or destined for certain persons affiliated with Russia or Belarus.
In this alert, we highlight several of the most significant actions that the U.S. government has announced to date.
As noted above, the United States has dramatically expanded the scope of sanctions targeting Russia. Although Russia is not yet a so-called “comprehensively” sanctioned country, both U.S. and non-U.S. individuals and entities must exercise caution when engaging in activities involving Russia. Although primary U.S. sanctions generally only apply to the activities of U.S. persons,1 non-U.S. persons may nonetheless breach U.S. sanctions by engaging in prohibited transactions or dealings involving a nexus with the United States, such as the involvement of any U.S. persons or payments denominated in U.S. dollars. We have prepared below a list of the key U.S. sanctions that have been announced.
1. Comprehensive sanctions targeting the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR)
On February 21, 2022, President Biden issued Executive Order 14065 (EO 14065), which imposed territory-wide sanctions on the DNR and LNR regions of Ukraine.
Similar in nature to the comprehensive sanctions targeting Iran, North Korea, Syria, Cuba, and the Crimea region of Ukraine, EO 14065 prohibits the vast majority of transactions by U.S. persons involving the DNR and LNR regions of Ukraine. This includes:
- all new investment in the DNR or LNR regions of Ukraine;
- the importation into the United States of any goods, services, or technology from the DNR or LNR regions of Ukraine; and
- the exportation, reexportation, sale, or supply of any goods, services, or technology to the DNR or LNR regions of Ukraine.
2. Full blocking sanctions on hundreds of Russian individuals and entities
OFAC has added hundreds of Russian individuals and entities to the List of Specially Designated Nationals and Blocked Persons (SDN List, and persons thereon, SDNs), including many of the largest financial institutions and state-owned enterprises in Russia.
As a result of these designations, all property and interests in property of these individuals and entities that are in, or later come within, the United States or the possession or control of a U.S. person are blocked and cannot be transferred, paid, exported, withdrawn, or otherwise dealt in without a general or specific license from OFAC. All transactions or dealings by U.S. persons or within (or transiting) the United States that involve these individuals or entities, or their property or interests in property, are prohibited. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any designated individual or entity and the receipt of any contribution or provision of funds, goods, or services from any such persons. In addition, these prohibitions apply to any entities that are owned, directly or indirectly, 50 percent or more in the aggregate by one or more individuals or entities whose property and interests in property are blocked.
3. Sanctions targeting the Central Bank of Russia
On February 22, 2022, OFAC issued Directive 1A under Executive Order 14024 (EO 14024), which prohibits U.S. financial institutions from participating in the primary and secondary market for ruble or non-ruble denominated bonds issued by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. Directive 1A replaced and superseded a prior version of the directive (Directive 1) that was issued on April 15, 2021.
On February 28, 2022, OFAC issued Directive 4, which expanded the scope of prohibitions targeting the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation under EO 14024. Directive 4 prohibits U.S. persons from engaging in any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.
4. Correspondent and payable-through account sanctions targeting Sberbank and its subsidiaries
On February 24, 2022, OFAC issued Directive 2 under EO 14024, which prohibits U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for or on behalf of, and processing transactions involving, non-U.S. financial institutions determined to be subject to the prohibitions of Directive 2, or their property or interests in property. Directive 2 targets Sberbank, 25 listed subsidiaries of Sberbank, and any non-U.S. financial institution owned 50 percent or more, directly or indirectly, by Sberbank. These entities are now targeted by full blocking sanctions, in addition to the Directive 2 prohibitions.
5. Debt and equity restrictions
On February 24, 2022, OFAC also issued Directive 3 under EO 14024, which prohibits all transactions in, provision of financing for, and other dealings by U.S. persons in new debt of longer than 14 days’ maturity or new equity of entities subject to the prohibitions of Directive 3. Directive 3 targets certain Russian state-owned enterprises and Russian financial institutions, including Alfa-Bank, Gazprombank, and Sberbank. Many of these entities have since been added to the SDN List.
6. Restrictions on certain Russian-origin imports into the United States
In early March, President Biden signed Executive Order 14066 (EO 14066) and Executive Order 14068 (EO 14068), which, among other things, prohibit certain Russian-origin imports into the United States. Prohibited imports include the following Russian-origin products:
- oil and petroleum products;
- liquefied natural gas;
- coal products;
- fish, seafood, and preparations thereof;
- alcoholic beverages;
- non-industrial diamonds; and
- any other Russian-origin products that the Secretaries of Treasury and Commerce later determine to be subject to the import prohibition.
On June 28, 2022, OFAC issued a determination adding Russian-origin gold to the list of prohibited imports into the United States.
7. Restrictions on certain exports to Russia
In addition to prohibiting certain imports into the United States, EO 14068 prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person of:
- luxury goods, or other items that the Secretaries of Commerce, State, and Treasury later determine to be subject to the export prohibition, to any person located in Russia; and
- U.S. dollar-denominated banknotes to the Government of the Russian Federation or any person located in Russia.
8. Prohibition on the provision of certain categories of services to Russia
On April 6, 2022, President Biden signed Executive Order 14071 (EO 14071) prohibiting the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person of any category of services determined to be subject to the export prohibition. OFAC subsequently issued determinations (see here and here) prohibiting the export of the following categories of services to any person located in Russia:
- accounting services;
- trust and corporate formation services;
- management consulting services; and
- quantum computing services.
9. Prohibition on new investment in Russia
EO 14071 also prohibits all new investment in the Russian Federation by a U.S. person, wherever located. OFAC has issued guidance clarifying that OFAC views new investment as the commitment of capital or other assets made on or after April 6, 2022 for the purpose of generating returns or appreciation. Importantly, this prohibition does not apply to maintenance of an investment made prior to April 6, 2022.
10. Heightened risk of sanctions designations for non-U.S. persons
On September 30, 2022, OFAC issued guidance stating that the United States is “prepared to more aggressively use its authorities under existing U.S. sanctions programs to target such persons whose activities may constitute material assistance, sponsorship, financial, material, or technological support for, or goods or services to, or in support of (together ‘material support’), sanctioned persons or sanctionable activity.” This serves as a strong reminder from OFAC that non-U.S. persons need to be conscious of U.S. sanctions targeting Russia when engaging in transactions involving Russia, Ukraine, or nationals of the foregoing, even for transactions that have no nexus with the United States.
11. Price cap policy
In addition to the measures that have already been implemented, the United States, along with the rest of the Group of Seven (the G7), the European Union, and Australia, has announced that it will implement a policy with regard to a broad range of services as they relate to the maritime transport of crude oil and petroleum products of Russian Federation origin. This policy will involve a comprehensive prohibition on services that enable the maritime transport of Russian-origin crude oil and petroleum products globally, unless the oil and petroleum products are purchased at or below a price determined by the coalition of countries implementing the policy (the so-called “price cap”).
On November 22, 2022, the Secretary of the Treasury issued a determination pursuant to EO 14071 prohibiting the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of the following categories of “covered services” as they relate to the maritime transport of crude oil of Russian Federation origin:
- trading/commodities brokering;
- insurance, including reinsurance and protection and indemnity;
- flagging; and
- customs brokering.
However, notwithstanding this prohibition, the provision of covered services is authorized when the price of the crude oil of Russian Federation origin does not exceed the relevant price cap. In other words, U.S. persons are authorized to provide covered services if the Russian oil is purchased at or below the price cap.
For crude oil of Russian Federation origin, the price cap policy will take effect beginning at 12:01 a.m. eastern standard time on December 5, 2022. For Russian-origin petroleum products, the price cap policy is expected to be implemented on February 5, 2023.
In addition to the measures described above, OFAC has issued over 50 General Licenses authorizing certain types of transactions and activities that would otherwise be prohibited under the various Russia‑related Executive Orders. Many of these General Licenses were time-limited and have since expired, but there are a number of General Licenses that remain in effect. Before taking advantage of any General Licenses, parties must carefully assess the specific scope of each authorization. A full list of the Russia-related General Licenses can be found on the OFAC website here.
Alongside U.S. sanctions, which generally apply to activities by U.S. persons or within the United States, U.S. export controls apply to all U.S.-origin Items, Items in the United States (including in a U.S. Foreign Trade Zone or moving in transit through the United States from one non-U.S. country to another), and certain Items that are produced outside of the United States that incorporate controlled, U.S.-origin content or are manufactured using U.S.-origin technology.2 Since Russia’s invasion of Ukraine in February 2022, BIS has issued a number of final rules that have significantly expanded the scope of export controls targeting Russia, which we summarize below.
1. New license requirements and licensing policies for exports and reexports to Russia
On February 24, 2022, BIS issued a final rule implementing new license requirements for Russia on Items subject to the EAR and classified under any Export Control Classification Number (ECCN) in Categories 3 through 9 of the Commerce Control List (CCL). On April 8, 2022, BIS issued another final rule expanding the license requirements on Russia to all Items on the CCL. Accordingly, a license is now required to export, reexport, or transfer to or within Russia any Item subject to the EAR and specified in any ECCN on the CCL. BIS has also imposed a review policy of denial for all such Items, meaning that any specific license application is unlikely to be approved.
As a result of these new licensing requirements, the export of nearly all sensitive, U.S.-origin, dual-use Items to Russia is now prohibited without a license.
2. Aviation-related restrictions
BIS has also imposed controls specifically targeting the Russian civil aviation industry. As part of the February 24 final rule, BIS announced new license requirements for specified aircraft and aviation-related Items destined for Russia. As a result, any aircraft manufactured in the United States, or any aircraft manufactured in a non-U.S. country and including more than 25 percent U.S.-origin controlled content, is subject to a license requirement if destined for Russia. In a subsequent rule issued on March 2, 2022, BIS also removed license exception availability for any aircraft registered in, owned or controlled by, or under charter or lease by, Russia or a national of Russia.
In addition to these restrictions, BIS has publicly identified over 180 aircraft subject to the EAR flying from third countries to Russia in apparent violation of the EAR. Any subsequent actions taken with regard to any of these aircraft, including, but not limited to, refueling, maintenance, repair, or the provision of spare parts or services, are subject to the EAR’s General Prohibition Ten, which prohibits proceeding with transactions with knowledge that a violation has occurred or is about to occur.
BIS has also issued orders for the denial of export privileges to several airlines and aircraft for violating U.S. export controls targeting Russia and has issued an Administrative Charging Letter against Russian oligarch Roman Abramovich, alleging violations of the EAR involving flights of two U.S.-origin aircrafts to Russia.
3. Expanded Russian industry sector sanctions
Russian industry sector sanctions impose a license requirement for certain Items intended for end-use in certain targeted industry sectors (e.g. energy). BIS has significantly expanded the scope of Items subject to these license requirements to include a wide range of commercial and industrial Items, from wood products and construction machinery to Items potentially useful to Russia’s chemical and biological weapons production capabilities.
4. Additions to the Entity List
Since Russia’s invasion of Ukraine in February 2022, BIS has added nearly 400 entities to the Entity List for their support of Russia’s war efforts in Ukraine. The Entity List identifies non-U.S. persons “reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States.” Companies, both U.S. and non-U.S., may not, without prior authorization from BIS, export, reexport, or transfer (in‑country) specified Items to listed persons. BIS also considers transactions of any nature with listed persons to carry a “red flag” and recommends that companies proceed with caution when engaging in such transactions.
5. Luxury goods prohibition
On March 11, 2022, BIS issued a final rule imposing new license requirements on luxury goods subject to the EAR that are destined for Russia or destined for Russian oligarchs and other malign actors, regardless of their geographical location. Such goods are identified in Supplement No. 5 to Part 746 of the EAR and include a variety of different types of products ranging from alcohol and tobacco to clothes and vehicles. Many of, but not all, the Items identified in Supplement No. 5 are subject to a value threshold and will only constitute luxury goods where the per unit wholesale price of the good in the United States is valued at USD 300 or more.
6. New Foreign Direct Product (FDP) rules
On March 3, 2022, BIS implemented two FDP rules restricting Russia’s ability to acquire certain non‑U.S.-produced Items containing U.S.-origin software or technology: (i) the Russia FDP Rule; and (ii) the Russia MEU-FDP Rule.
Under the Russia FDP Rule, a license is required to export, reexport, or transfer to or within Russia non‑U.S.-produced Items if:
- the Items are: (i) the direct product(s) of any U.S.-origin software or technology identified on the CCL; or (ii) produced by certain plants (or components thereof) which are the direct product of such U.S.-origin software or technology identified on the CCL; and
- there is knowledge that the non-U.S.-produced Item is destined for Russia, or will be incorporated or used in the “production” or “development” of any “part”, “component”, or “equipment” produced in or destined for Russia.
More extensive than the Russia FDP Rule, the Russia MEU-FDP Rule is designed to specifically target Russian military end-users and military-intelligence end-users, which comprise entities identified on the Entity List that also have a “Footnote 3” designation under their licensing requirements (collectively, Russian MEUs). Pursuant to the Russia MEU-FDP Rule, a license is required for the export, reexport, or transfer to or within Russia of non-U.S.-produced Items if:
- the Items are: (i) the direct product(s) of any U.S.-origin software or technology subject to the EAR (with very limited exceptions); or (ii) produced by plants (or components thereof) which are the direct product of such software or technology; and
- there is knowledge that: (i) a Russian MEU is a party to any transaction involving the non-U.S.‑produced Item; or (ii) the non-U.S.-produced Item will be incorporated or used in the “production” or “development” of any “part”, “component”, or “equipment” produced, purchased, or ordered by any Russian MEU.
License applications for exports, reexports, and in-country transfers subject to the Russia FDP Rule are subject to a general policy of denial (with limited review on a case-by-case basis). License applications for exports, reexports, and in-country transfers subject to the Russia MEU-FDP Rule are subject to a strict policy of denial.
In connection with these actions, BIS has significantly restricted the availability of EAR license exceptions for exports to Russia. Although certain exceptions remain available depending on the classification of the Item and the end-user/end-use, parties must carefully consider the scope of each exception to determine whether it may be available.
A&O’s Global Sanctions Group has been tracking these developments closely. We will continue to provide further updates on related actions involving the EU, the UK, the Russian Federation, and other key players, as the situation evolves.
For more information, please contact the authors (related people) or your usual contact within our Global Sanctions Group.
1. A “U.S. person” means: (i) any U.S. citizen or lawful permanent resident of the United States (wherever located); (ii) any entity organized under the laws of the United States or any U.S. jurisdiction (including non-U.S. branches); or (iii) any person physically located in the United States.
2. Export controls generally “follow the part”. However, the EAR do separately prohibit certain activities undertaken by U.S. persons.