On February 21, 2022, the Biden Administration issued Executive Order (EO) 14065 prohibiting new investment, trade in goods and services, and financing by U.S. persons with respect to the DNR and LNR regions of Ukraine. The EO also allows the United States to impose sanctions on anyone determined to be operating in the DNR or LNR regions. The full text of the EO is available here.
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has issued several general licenses (GLs) authorizing certain activity in the DNR and LNR regions. These GLs authorize:
- Transactions ordinarily incident to the winding down of transactions involving the DNR and LNR regions, through March 23, 2022;
- Exports of agricultural commodities, medicine, and medical devices, as well as their components, replacement parts, and software, to the DNR and LNR regions;
- Transactions for the conduct of the official business of certain international aid organizations;
- Transactions ordinarily incident to the transfer of non-commercial, personal remittances to or from the DNR and LNR regions;
- Transactions ordinarily incident and necessary to telecommunications and mail;
- Transactions ordinarily incident and necessary to the provision of internet services;
- Certain transactions by non-governmental organizations, including those that support:
- Humanitarian projects for basic human needs, democracy building, and education;
- Non-commercial development directly benefiting the people of such regions; and
- Environmental and natural resources protection.
- Transactions related to the provision or receipt of civil maritime services, provided services are performed outside of the designated regions and not on behalf of any entity in these regions; and
- Certain transactions by U.S. news reporting organizations and certain employees (including journalists) ordinarily incident and necessary to journalistic activities in these regions.
Sanctions on Russian Entities and Individuals
EO 14024, issued April 15, 2021, authorizes sanctions against individuals and entities within the financial services, technology, defense, and other related material sectors of the Russian economy, as well as any other sectors as may be determined by the Secretary of Treasury in consultation with the Secretary of State. On March 31, 2022, the Secretary of Treasury expanded Russian sanctions authority under EO 14024 to include the aerospace, marine, and electronics sectors of the Russian economy. This expansion seeks to enable the United States to impose additional costs against Russia in sectors “strategically important to Russia’s economic ambitions, long-term technological development, and defense industrial base.”
Sanctions on Russian Banks and State-Owned Enterprises
Banks– OFAC has imposed full blocking sanctions on many of the largest banks in Russia pursuant to EO 14024, including by not limited to the State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), Promsvyazbank Public Joint Stock Company (PSB), VTB Bank, Otkritie, Novikom, Sovcombank, Sberbank, Alfa Bank, Transkapitalbank (TKB), and Investtradebank, among others, as well as subsidiaries owned 50% or more by these entities.
State-Owned Enterprises – On April 7, 2022, OFAC imposed full blocking sanctions on Russian state-owned enterprises Alrosa and United Shipbuilding Corporation. Alrosa is the world’s largest diamond mining company, accounting for 90% of Russia’s diamond mining capacity, and was previously targeted by Directive 3, discussed above. OFAC redesignated United Shipbuilding Corporation, the company responsible for constructing most of Russia’s warships, along with its subsidiaries and board members. On June 28, 2022, OFAC sanctioned Rostec, a Russian state-owned defense conglomerate.
Winddowns – In some but not all cases, OFAC has issued wind-down licenses with respect to dealings with the sanctioned entities noted above. OFAC has also issued separate wind-down licenses for some but not all of a given bank’s subsidiaries. It is therefore important to closely review the banking entities with which one is dealing to determine whether a wind-down license applies, and if so, the relevant dates by which transactions must be wound down.
Correspondent Account-related Sanctions: Sberbank is subject to not only blocking sanctions, but also correspondent and payable-through account sanctions. That is, Directive 2 pursuant to EO 14024, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions” (the Russia-related CAPTA Directive), imposes correspondent and payable-through account sanctions on Sberbank (and subsidiaries owned or controlled by Sberbank). As a result of these sanctions, as of March 26, 2022, U.S. financial institutions are prohibited from (1) the opening or maintaining of a correspondent account or payable-through account for or on behalf of Sberbank; and (2) the processing of a transaction involving Sberbank. Many wind-down and other licenses authorizing activity in violation of the blocking sanctions do not authorize transactions otherwise in violation of Directive 2.
Debt and Equity Restrictions: Directive 3 under EO 14024, “Prohibitions Related to New Debt and Equity of Certain Russia-related Entities” (the Russia-related Entities Directive), further prohibits transactions and dealings by U.S. persons in new debt of longer than 14 days’ maturity and new equity of certain Russian state-owned enterprises and entities that operate in the financial services sector of the Russian Federation economy. Entities subject to these additional restrictions include Alfa Bank, Sberbank, and Gazprom.
Certain GLs Related to Sanctions on Russian Banks and State-Owned Enterprises
On February 24, 2022, OFAC also issued a number of GLs authorizing certain transactions that might otherwise be prohibited under these designations, the Russia-related CAPTA Directive, or the Russia-related Entities Directive, discussed above:
- Russia-related GL 8, and subsequent versions thereof, authorizes certain transactions involving VEB, Otkritie, Sberbank, VTB Bank, Sovcombank, the Central Bank of Russia, and Alfa Bank (or their sanctioned subsidiaries) that are “related to energy” until December 5, 2022.
- Russia-related GL 9, and subsequent versions thereof, previously authorized certain transactions ordinarily incident and necessary to dealings in debt or equity of certain sanctioned entities, provided that any divestment or transfer of, or facilitation of divestment or transfer of, covered debt or equity was to a non-U.S. person. This license has since expired.
- Russia-related GL 10, and subsequent versions thereof, previously authorized certain transactions ordinarily incident and necessary to the winding down of derivative contracts involving certain sanctioned entities, provided that any payments to a blocked person were made into a blocked account. This license has since expired.
Sanctions on Russian Individuals and Other Entities
Individuals: OFAC has sanctioned a number of Russian elites, oligarchs, and their family members “enabling Putin’s war of choice,” including oligarchs “known to direct, authorize, fund, significantly support, or carry out malignant activities in support of Russia’s destabilizing foreign policy,” as well as individuals accused of spreading Russian disinformation regarding the invasion of Ukraine. Sanctioned individuals include executives of newly sanctioned Russian banks, members of the Russian Duma, and executives of Russian defense state-owned enterprises.
The United States has also directly sanctioned Russian President Vladimir Putin and Russian Minister of Foreign Affairs Sergei Lavrov, as well as other members of Russia’s Security Council. As OFAC reported at the time of such designations, “[i]t is exceedingly rare for Treasury to designate a head of state; President Putin joins a very small group that includes despots such as Kim Jong Un, Alyaksandr Lukashenka, and Bashar al-Assad.”
One of the individuals sanctioned by OFAC was Alisher Burhanovich Usmanov, “one of Russia’s wealthiest individuals and a close ally of Putin.” However, OFAC simultaneously issued Russia-related GL 15, which authorizes transactions involving any entity owned 50% or more, directly or indirectly, by Alisher Usmanov that is not listed on OFAC’s SDN List. Russia-related GL 15 also unblocks property and interests in property of blocked Usmanov entities, and authorizes debits to accounts of such blocked entities at U.S. financial institutions.
Entities: The State Department has designated for sanctions a number of Russian defense-related entities, including those producing fighter aircraft and vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military.
OFAC has also sanctioned a number of entities for reasons of their involvement in sanctions evasion networks and malicious cyber activities. One such designated entity is Russia’s largest chipmaker, responsible for over half of Russian exports of microelectronics.
Additional Sectoral Sanctions
On May 8, 2022, OFAC issued a determination pursuant to EO 14024 authorizing the imposition of sectoral sanctions against individuals or entities in the accounting, trust and corporate formation services, and management consulting sectors of the Russian economy. Through its FAQs, OFAC defined these sectors as follows:
- “Accounting sector” includes the measurement, processing, and transfer of financial data about economic entities.
- “Trust and corporate formation services sector” includes assisting persons in forming or structuring legal persons; acting or arranging for another person to act as a certain representative or agent of legal persons; and providing certain administrative services for legal persons and trusts.
- “Management consulting sector” includes strategic advice; organizational and systems planning, evaluation, and selection; development or evaluation of marketing programs or implementation; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.
- On September 15, 2022, OFAC issued an additional determination pursuant to EO 14024 authorizing the imposition of sectoral sanctions against individuals or entities in the quantum computing sector of the Russian economy. Through an FAQ, OFAC stated that the term “quantum computing sector of the Russian Federation economy” includes activities related to products and services in or involving the Russian Federation in the research, development, manufacturing, assembling, maintenance, repair, sale, or supply of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing.
Persons operating in these sectors in Russia are not automatically sanctioned; rather the determination pursuant to EO 14024 creates the authority to designate such persons in the future.
Sovereign Debt Restrictions
Directive 1 under EO 14024, enacted April 15, 2021, prohibited participation by U.S. entities in the primary 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, as well as the lending of funds to such institutions. On February 22, 2022, OFAC increased restrictions on dealings in Russia’s sovereign debt. The new measure, Directive 1A, extends the sovereign debt restrictions to cover participation in the secondary market for ruble- and non-ruble-denominated bonds issued after March 1, 2022 by these three institutions.
Russia is also prohibited from using funds subject to U.S. jurisdiction to make payments on Russian sovereign debt.
Nord Stream 2 Sanctions
On February 23, 2022, the Biden Administration announced sanctions on the Nord Stream 2 pipeline.
Shortly thereafter, OFAC imposed blocking sanctions on the Nord Stream 2 pipeline, as well as on Matthias Warnig, CEO of the Nord Stream AG.
Restrictions on Dealings With the Russian Central Bank Assets and Sovereign Wealth Funds
On February 28, 2022, OFAC issued Directive 4 under EO 14024, “Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation.” Pursuant to this Directive, U.S. persons are prohibited 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 (“Directive 4 entities”). OFAC stated that this Directive “will disrupt Russia’s attempts to prop up its rapidly depreciating currency by restricting global supplies of the ruble and access to reserves that Russia may try to exchange to support the ruble.” On March 2, 2022, OFAC issued several GLs to authorize certain transactions otherwise prohibited under Directive 4:
- Russia-related GL 9A, and subsequent versions thereof, previously authorized transactions ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with the debt or equity of any of the Directive 4 entities issued before March 1, 2022, until May 25, 2022. This GL has since expired.
- Russia-related GL 10A, and subsequent versions thereof, previously authorized transactions ordinarily incident and necessary to the wind-down of derivative contracts, repurchase agreements, or reverse repurchase agreements in which any of the Directive 4 entities is a counterparty and entered into prior to March 1, 2022, until May 25, 2022. This GL has since expired.
- Russia-related GL 13, as amended, authorizes U.S. persons to pay taxes, fees, or import duties and purchase or receive permits, licenses, registrations, or certifications for transactions otherwise prohibited by Directive 4 that are ordinarily incident and necessary to such persons’ day-to-day operations in Russia, At this time, Russia-related GL 13B authorizes such transactions until December 7, 2022.
- Russia-related GL 14 authorizes transactions involving the Directive 4 entities in which the relevant entity acts solely as an operator of a clearing and settlement system, provided (i) there is no transfer of assets to or from such entity (unless separately authorized), and (ii) no such entity is a counterparty or beneficiary to the transaction (unless separately authorized).
General Russia-related GLs
OFAC has issued the following generally applicable GLs:
- Russia-related GL 5 authorizes certain transactions related to the official business of certain international organizations and entities.
- Russia-related GL 6, as revised, authorizes certain transactions related to: (1) the production, manufacturing, sale, or transport of agricultural commodities, agricultural equipment, medicine, medical devices, replacement parts and components from medical devices, or software updates for medical devices; (2) the prevention, diagnosis, or treatment of COVID-19; and (3) ongoing clinical trials and other medical research activities.
- Russia-related GL 7, as revised, authorizes certain transactions ordinarily incident and necessary to payments and services rendered in connection with overflights of, or emergency landings in, Russia.
- Russia-related GL 25, as revised, authorizes all transactions ordinarily incident and necessary to the receipt or transmission of telecommunications and certain internet-based telecommunications involving Russia.
- GL 25 does not authorize transactions prohibited under Directive 2 or transactions prohibited by EO 14066 or EO 14068.
- As revised, the GL excludes transactions involving SDNs Joint Stock Company Channel One Russia, Joint Stock Company NTV Broadcasting Company, Television Station Russia-1, and Limited Liability Company Algoritm, as well as New Eastern Outlook, and Oriental Review from the scope of the license.
- Russia-related GL 27 authorizes transactions by non-governmental organizations ordinarily incident and necessary to certain activities in Ukraine and Russia, including activities to support:
- Humanitarian projects for basic human needs, democracy building, and education;
- Non-commercial development directly benefiting the people of such regions; and
- Environmental and natural resources protection.
GL 27 does not authorize transactions prohibited under Directive 2 or transactions prohibited by EO 14066 or EO 14068.
- Russia-related GL 31 authorizes transactions in connection with intellectual property (IP) protection in Russia, including the filing and prosecution of applications for patents, trademarks, copyrights, or other forms of IP protection, as well as the receipt of protection, renewal or maintenance of protection, and participation in opposition or infringement proceedings with respect to such IP protection. GL 31 does not authorize transactions prohibited under Directive 2 or transactions prohibited by EO 14066 or EO 14068.
- Russia-related GL 38 authorizes transactions ordinarily incident and necessary to the processing of pension payments to U.S. persons prohibited under EO 14024, provided the only involvement of blocked persons is the processing of funds by financial institutions blocked pursuant to EO 14024.
- Russia-related GL 40, as revised, authorizes transactions involving certain blocked entities identified under the license that are ordinarily incident and necessary to the provision, exportation, or re-exportation of goods, technology, or services to ensure the safety of civil aviation, provided that the aircraft is registered solely outside of Russia and the goods, services, or technology are used on aircrafts operated solely for civil aviation purposes.
- Russia-related GL 41 authorizes all transactions ordinarily incident and necessary to the manufacture, sale, and maintenance of agricultural equipment, components, and spare parts produced by Nefaz or Tutaev Motor Plant, or entities owned 50% or more by these entities, through December 22, 2022.
- Russia-related GL 42 authorizes all transactions involving the Federal Security Service of Russia, known as the FSB, that are ordinarily incident and necessary to:
- Requesting, receiving, utilizing, paying for, or dealing in licenses, permits, certifications, or notifications issued or registered by the FSB for the importation, distribution, or use of information technology products in Russia, subject to the licensing requirements of the EAR and provided that payment of fees to the FSB does not exceed $5,000 in any calendar year; complying with law enforcement or administrative actions or investigations involving the FSB; and
- Complying with rules and regulations administered by the FSB.
- Russia-related GL 50 authorizes individuals, wherever located, to engage in all transactions ordinarily incident and necessary to close their individual accounts held at a financial institution blocked pursuant to EO 14024 and transfer funds out of those accounts.
- Russia-related GL 52 authorizes U.S. journalists and news bureaus to engage in certain transactions related to their journalistic activities or to the establishment or operation of a news bureau, where such transactions are otherwise prohibited by EO 14024.
On March 2, 2022, the EU issued a regulation prohibiting, as of March 12, 2022, the provision of specialized financial messaging services (i.e., SWIFT), which are used to exchange financial data, to the following banks (and entities in Russia directly or indirectly owned 50% or more by these banks): Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, VEB, and VTB Bank. All of these banks were already sanctioned by the United States, but the loss of access to SWIFT means that now even banks outside the U.S., EU, and UK have difficulty engaging in any transactions with these banks.
Restrictions on U.S. Airspace
On March 2, 2022, the U.S. closed American airspace to all Russian flights, including aircraft certified, operated, registered, or controlled by any person connected with Russia.
Prohibition on New Investment in Russia
On March 8, 2022, the Biden Administration issued EO 14066, prohibiting, inter alia, new investment in the Russian energy sector by a U.S. person. Russia-related GL 8C, discussed above, authorizes certain transactions “related to energy” involving Russian financial institutions. This GL remains in effect until December 5, 2022, but it does not authorize any transactions prohibited by EO 14066.
On March 11, 2022, the Biden Administration issued EO 14068, authorizing, inter alia, prohibitions against new investment in any sector of the Russian economy.
On June 6, 2022, OFAC issued guidance defining “new investment” as the “commitment of capital or other assets for the purpose of generating returns or appreciation.” Investment is “new” if it is “made on or after the effective date” of the respective prohibitions under EOs 14066, 14068, and 14071, including investments resulting from the exercise of rights under a pre-existing agreement occurring on or after the effective date of the respective prohibitions. For example, OFAC explained that “new investment” includes:
- Purchase or acquisition of real estate in Russia for non-personal use;
- Commitment of capital or other assets for the establishment or expansion of projects or operations in Russia, including the formation of joint ventures or other corporate entities in Russia;
- Entry into an agreement providing for participation in royalties or ongoing profits in Russia;
- Lending of funds for commercial purposes to persons located in Russia;
- Purchase of an equity interest in an entity located in Russia;
- Purchase or acquisition of rights to natural resources or exploitation thereof in Russia; and
- Purchase of new and existing debt and equity securities issued by an entity in Russia.
OFAC also explained that “new investment” does not include:
- Purchase of shares in a U.S. fund containing debt or equity securities issued by entities in Russia, provided such holdings represent less than a predominant share by value of the fund;
- Entry into, performance of, or financing of a contract to sell or purchase goods, services, or technology to or from an entity located in Russia pursuant to ordinary commercial sales terms;
- “Maintenance” of a pre-existing investment in Russia, meaning “all transactions ordinarily incident to performing under an agreement in effect prior to the effective date of the respective EO prohibitions,” including:
- Transactions to ensure the continuity of pre-existing projects or operations in Russia (e.g., payments to employees, suppliers, landlords, lenders, and partners);
- Preservation and upkeep of pre-existing tangible property in Russia; and
- Activities associated with maintaining pre-existing capital investments and equity investments;
- Wind-down or divestment of a pre-existing investment in Russia (including facilitation of divestment, provided that such facilitation is on behalf of the seller in the divestment transaction); and
- Lending funds to, or purchasing an equity interest in, entities located outside of the Russian Federation provided that (i) such funds are not specifically intended for new projects or operations in the Russian Federation, and (ii) the revenues of the entity located outside the Russian Federation are not predominantly derived from its investments in the Russian Federation.
Such lists are not exhaustive.
Application of Sanctions to Virtual Currency
On March 11, 2022, OFAC clarified that expansive sanctions against Russian entities and individuals apply to all transactions, whether in traditional currency or virtual currency.
On April 5, 2022, OFAC sanctioned Garantex Europe OU under EO 14024. Garantex is a cryptocurrency financial services provider known for its close ties to Russia.
On April 20, 2022, OFAC sanctioned Bitriver AG and its 10 Russia-based subsidiaries for involvement in Russia’s virtual currency mining industry.
Terminating Privileges at International Institutions for Trade and Finance
On March 11, 2022, the Biden Administration announced it would coordinate with leading global economies to deny Russia the benefits of its membership at the World Trade Organization (“WTO”), including most-favored-nation treatment, and to ensure that Russia does not receive funding from international financial institutions, such as the International Monetary Fund and World Bank.
U.S. Congressional Action
On April 8, 2022, President Biden enacted new legislation related to Russia’s aggression against Ukraine. First, President Biden signed into law the “Suspending Normal Trade Relations with Russia and Belarus Act,” suspending nondiscriminatory tariff treatment for Russia and Belarus, known as most-favored-nation treatment at the WTO. Accordingly, duty rates set forth in Column 2 of the Harmonized Tariff Schedule of the United States apply to Russia and Belarus as of April 9, 2022, and the President may increase duty rates applicable to Russia and Belarus until January 1, 2024. Restoration of normal trade relations with either country requires a written certification from the U.S. President that the President of such country has agreed to withdraw forces and cease military hostilities, poses no threat to any member of the North Atlantic Treaty Organization (“NATO”), and recognizes Ukraine’s right to independence. This law also instructs the U.S. Trade Representative to condemn aggression in Ukraine at the WTO, encourage other WTO members to suspend trade concessions with Russia and Belarus, seek to suspend Russia’s participation in the WTO, and seek to halt Belarus’ accession to the WTO.
Additionally, this law permanently authorizes the Global Magnitsky Human Rights Accountability Act (“Magnitsky Act”), which provides for the imposition of sanctions against persons engaging in gross violations of human rights and corruption. The Magnitsky Act was set to expire in December 2022.
Second, President Biden signed into law the “Ending Importation of Russian Oil Act,” which adds to the existing ban on the import of Russian oil imposed by OFAC on March 8, 2022. Consistent with any implementation actions under EO 14066, all products from the Russian Federation under Chapter 27 of the HTSUS are banned. The President can waive this prohibition for certain products upon certification to Congress that the President of Russia has agreed to withdraw forces and cease military hostilities, poses no threat to any member of NATO, and recognizes Ukraine’s right to independence.
Restrictions on Imports and Exports of Goods Involving Russia
On March 8, 2022, the Biden Administration issued EO 14066, imposing restrictions on the Russian energy sector. The order prohibits, inter alia, the importation into the United States of crude oil, petroleum, liquefied natural gas, coal, and related products of Russian origin.
OFAC simultaneously issued Russia-related GL 16, which authorized transactions ordinarily incident and necessary to the importation into the United States of prohibited products pursuant to contracts entered into prior to March 8 through April 22, 2022. That license has since expired.
On March 11, 2022, the Biden Administration issued EO 14068, prohibiting the following additional activities related to Russia:
- The importation of fish, seafood, alcoholic beverages, and non-industrial diamonds of Russian origin;
- The exportation, re-exportation, sale, or supply of luxury goods from the United States or by a U.S. person to any person located in Russia; and
- The exportation, re-exportation, sale, or supply of U.S. dollar-denominated banknotes from the United States or by a U.S. person to the Russian government or any person located in Russia.
On June 28, 2022, OFAC issued a determination pursuant to EO 14068, effective immediately, prohibiting importation into the U.S. of gold of Russian origin, except to the extent provided by law or otherwise authorized by OFAC. The prohibition excludes gold of Russian origin that was located outside of Russia prior to June 28, 2022.
OFAC simultaneously issued several GLs related to these new restrictions:
- Russia-related GL 17 authorized transactions ordinarily incident and necessary to the importation into the United States of Russian-origin fish, seafood, alcoholic beverages, and non-industrial diamonds pursuant to contracts entered into prior to March 11, through March 25, 2022. On March 24, 2022, OFAC replaced GL 17 with GL 17A, which extended the authorization related to fish and seafood to June 23, 2022. That license has since expired.
- Russia-related GL 18 authorizes all transactions ordinarily incident and necessary to the transfer of U.S. dollar-denominated personal remittances from (i) the United States or a U.S. person to an individual in Russia, or (ii) a U.S. person in Russia. GL 18 does not authorize charitable donations to entities nor funds transfers for businesses.
- Russia-related GL 19 authorizes all transactions by U.S. persons in Russia otherwise prohibited by the prohibition on the export of banknotes ordinarily incident and necessary to their personal maintenance in Russia, including payments for housing, goods and services for personal use, taxes or fees, and permits, licenses, or public utilities.
On March 24, 2022, OFAC issued Russia-related GL 20 authorizing transactions ordinarily incident and necessary to the official business of third-country diplomatic or consular missions in Russia that are otherwise prohibited by EO 14024 or EO 14068, Section 1(a)(iv).
Restrictions on Exports of Services Involving Russia
On April 6, 2022, the Biden Administration issued EO 14071, “Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression.” This EO prohibits, inter alia, (i) the export, sale, or supply from the U.S. or by a U.S. person, wherever located, of certain categories of services (to be later determined), and (ii) any approval, financing, facilitation, or guarantee by a U.S. person of such prohibited activities.
On May 8, 2022, OFAC defined certain service categories subject to the prohibitions of EO 14071, described above. That is, as of June 7, 2022, the United States prohibits the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation.
On September 15, 2022, OFAC added services related to quantum computing to the list of service categories subject to the prohibitions of EO 14071. That is, as of October 15, 2022, the United States prohibits the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person, wherever located, of quantum computing services to any person located in the Russian Federation.
These prohibitions exclude:
- Any service to an entity located in Russia that is owned, directly or indirectly, by a U.S. person; and
- Any service in connection with the wind-down or divestiture of an entity located in Russia not owned or controlled, directly or indirectly, by a Russian person.
OFAC defines accounting, trust and corporate formation, and management consulting services consistently with their meaning under the authorization for sectoral sanctions involving these service categories pursuant to EO 14024 (see “Additional Sectoral Sanctions” above). OFAC defines “Russian person” to mean a citizen or national of Russia, or an entity organized under the laws of Russia. OFAC defines quantum computing services to include any of the following services when related to quantum computing: infrastructure, web hosting or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services, and related services; repairing computer, computer peripherals, and communication equipment; and other computer-related services; as well as the exportation, re-exportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing to or from the Russian Federation.
OFAC issued the following GLs authorizing certain services-related transactions prohibited under EO 14071:
- GL 34 authorized transactions ordinarily incident and necessary to the wind-down of the export, sale, or supply from the U.S. or by a U.S. person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in Russia, until July 7, 2022. That license has since expired.
- GL 35 authorized transactions ordinarily incident and necessary to the export, sale, or supply from the U.S. or by a U.S. person, wherever located, of credit rating or auditing services to any person located in Russia, until August 20, 2022. That license has since expired.
- GL 44 authorizes all transactions ordinarily incident and necessary to the exportation, re-exportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person, wherever located, of tax preparation or filing services to any individual who is a U.S. person located in Russia.
On February 24, 2022, the United States also sanctioned 24 Belarusian individuals and entities due to Belarus’ support for, and facilitation of, the invasion. The designations focus on Belarus’s defense sector and financial institutions, “two areas in which Belarus has especially close ties to Russia.”
OFAC simultaneously issued two GLs related to the Belarus designations:
- Belarus-related GL 6 authorizes certain transactions related to the official business of the U.S. government.
- Belarus-related GL 7 authorizes certain transactions related to the official business of certain international organizations and entities.
New Russia/Belarus Export Controls
On February 24, 2022, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) imposed a series of new export controls on Russia under the Export Administration Regulations (EAR), which cover commercial and “dual use” items (i.e., items with both commercial and military applications). While the new controls were originally intended to target Russia’s defense, aerospace, and maritime sectors, the scope is far broader. On March 2, 2022, BIS revised these controls to restrict exports to Belarus and to expand the range of products covered. On April 8, 2022, BIS further expanded the range of products covered.
In particular, the export controls on Russia and Belarus include:
- New license requirements under 15 C.F.R. § 746.8 for all Export Control Classification Numbers (ECCNs) in Categories 0-9 of the Commerce Control List (CCL) to Russia and Belarus and, in some cases, Russian or Belarusian nationals located outside of Russia. These categories broadly cover commercial electronics, computers, telecommunications, information security, sensors and lasers, navigation and avionics, marine, aerospace, and propulsion;
- An expansion of U.S. jurisdiction over items produced outside the United States using certain products derived from U.S.-origin items. The new foreign direct product (FDP) rules include a Russia- and Belarus-wide FDP rule under 15 C.F.R. § 734.9, and a more stringent Russian and Belarusian military end-user FDP rule applicable to certain entities on the BIS Entity List. The rule applies to all items on the CCL such that all foreign-produced items derived from items on the CCL are subject to the new Russia/Belarus FDP rule;
- A policy of denial with respect to the review of most license applications involving Russia and significantly restricts the use of EAR license exceptions for Russian exports;
- Expanded restrictions on Russian and Belarusian “military end-users” and “military end-uses” to cover all items subject to the EAR (even EAR99 food and medicine);
- The addition of a significant number of Russian and Belarusian entities to the BIS Entity List. Such designations target entities “that have been involved in, contributed to, or otherwise supported the Russian and Belarusian security services, military and defense sectors, and/or military and defense research and development efforts,” and are intended to prevent Russia from obtaining U.S. technology that supports its technical maintenance and innovation. Most of these entities will be subject to the new expanded Russian/Belarusian military end-user FDP;
- Comprehensive restrictions on exports of any item subject to EAR jurisdiction to the “so-called” DNR and LNR regions; and
- Restrictions on the availability of a license exception for Russia-related aircraft;
- Adds two Belarusian entities to the BIS Entity List, and subjects these entities to the new Russia/Belarus military end-user FDP rule.
In addition, BIS expanded existing sanctions against the Russian energy sector. Existing sanctions prohibited the export of certain items where a person had “knowledge” that the item would be used by persons operating in Russia’s energy sector. Pursuant to new controls, a license is now required to export to and within Russia certain oil refining technologies, identified in the new Supplement No. 4 to Part 746, whether or not a person has “knowledge” the items will be used by persons operating in Russia’s energy sector. Licenses are generally reviewed under a policy of denial, except for items necessary for health and safety, for which applications will be reviewed on a case-by-case basis.
In addition, BIS expanded the restriction of the availability of a license exception for certain aircraft to Belarus in light of Belarus’ support for Russia’s aggression against Ukraine. Accordingly, the license exception for aircraft, vessels, and spacecraft under 15 C.F.R. § 740.15 is not available for aircraft registered in, owned or controlled by, or under charter or lease by Belarus or Russia or a Belarusian or Russian national. Since the imposition of this restriction, BIS has maintained a list of Russian- and Belarusian-owned/operated aircrafts in violation of U.S. export controls. As of April 14, 2022, the list included 153 aircraft.
On May 9, 2022, BIS further revised the Russia/Belarus export controls to align more closely with EU export controls. Specifically, BIS expanded the license requirements for export to Russia to include items supporting commercial and industrial operations, such as wood products and construction machinery. The new license requirement applies to 205 six-digit HTS codes and 478 Schedule B numbers otherwise classified as EAR99, now added to Supplement No. 4 to Part 746. The HTS Code and Schedule B numbers provided are intended only to assist exporters with their responsibilities and do not indicate that all items classified under those HTS Codes or Schedule B numbers are subject to the restrictions.
On September 15, 2022, BIS issued a new list of items controlled for export to Russia and Belarus (Supplement No. 6 to Part 746 of the EAR), specifically relating to chemicals, equipment, and other items for advanced manufacturing capabilities across a number of industries. BIS also added new items to Supplement No. 4 to Part 746, including parts and components specially designed for items listed in Supplement No. 4 to Part 746, and added Belarus to the list of destinations to which items listed on Supplement No. 4 are controlled (the Supplement No. 4 controls previously applied only to Russia). BIS also expanded the military end user controls to not only military end users located in Russia, Belarus, Cambodia, Burma, China, Venezuela, but also to specifically listed military end users located outside of Russia, Belarus, Cambodia, Burma, China, Venezuela.