On February 24, 2023, the one-year anniversary of Russia's invasion of Ukraine, G7 leaders committed "to strengthening the unprecedented and coordinated sanctions and other economic measures the G7 and partner countries have taken to date to further counter Russia's capacity to wage its illegal aggression," including establishment of a joint Enforcement Coordination Mechanism.1 To implement these commitments, the United States ("US"), European Union ("EU"), and United Kingdom ("UK") announced a series of new economic sanctions and export controls targeting Russia and Belarus.
We provide below an update on these new measures adopted by the US, EU, and UK. The new measures include significant expansions on the range of goods subject to export controls and restrictions, further designations of entities and individuals, as well as a number of additional areas of prohibited activities.
I. UNITED STATES
On February 24, 2023, several US government agencies announced a series of wide-ranging sanctions and export control measures to further counter Russian government aggression and provide additional aid and security assistance to Ukraine.2
These measures include:
- The US Department of State and the US Department of Treasury's Office of Foreign Assets Control ("OFAC") imposed sanctions designations on numerous additional individuals, entities, and vessels, including Russian and non-Russian parties that the US has determined are engaged in sanctions evasion.
- Additionally, OFAC issued a determination pursuant to section 1(a)(i) of Executive Order 14024, Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation, ("E.O. 14024"), identifying the metals and mining sector of the Russian Federation economy, which allows OFAC to impose sanctions on any individual or entity determined to operate or have operated in that sector.
- The US Department of Commerce's Bureau of Industry and Security ("BIS") also announced several export control-related actions, effective immediately. This includes updates to the already-sweeping export control restrictions imposed on Russia and Belarus, the addition of nearly 90 Russian and third country entities to the Entity List for supporting Russian war efforts, and new restrictions on Iranian Unmanned Aerial Vehicles ("UAVs").
- President Biden imposed additional tariffs on more than 100 Russian metals, minerals, and chemical products, including increasing tariffs on imports of Russian aluminium pursuant to Section 232 of the Trade Expansion Act of 1962, as amended (19 U.S.C. 1862).
- The State Department also announced visa restrictions on 1,219 members of Russia's military.
Designations of Parties and Other Actions by OFAC and the State Department
In conjunction with the State Department, OFAC designated
22 individuals and 83 entities pursuant to
Russia and Belarus-related sanctions
authorities3, including Russian banks and other
financial institutions, as well as parties the US government has
determined to be engaged in illicit financial activity, military
supply chains (including carbon fiber and advanced materials
production), aerospace, technology and electronics, or otherwise
supporting Russia's war in Ukraine, as Specially Designated
Nationals – barring US Persons (US citizens and permanent
residents, entities in the United States, and anyone otherwise in
the United States) from virtually all dealings with these
parties.
These designations included several Russian and non-Russian parties
designated under E.O. 14024, including parties the US government
has determined to be supporting Russia's efforts to evade
sanctions and export controls, as well as a Belarussian arms dealer
and an associated entity designated pursuant to Executive Order
14038 of August 9, 2021, "Blocking Property of Additional
Persons Contributing to the Situation in Belarus."
OFAC also issued a new determination targeting the metals and mining sector of the Russian economy pursuant to section 1(a)(i) of E.O.14024.4 This determination allows the US government to impose sanctions on any individual or entity determined to operate or have operated in the metals and mining sector of the Russian economy. This determination follows prior determinations issued for the following sectors of the Russian economy: quantum computing, accounting, trust and corporate formation, management consulting, aerospace, marine, electronics, financial services, technology, and defense and related materiel sectors of the Russian Federation economy.
Additionally, OFAC also issued a number of General Licenses, which offer narrow, fact-specific exemptions from broader sanctions restrictions. The new General Licenses announced included:
- General License 8F, authorizing certain transactions related to energy involving certain sanctioned Russian banks and the Central Bank of Russia, through 12:01 a.m. ET on May 16, 2023. For purposes of this general license, the term "related to energy" is defined by OFAC as "the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources."
- General License 13D, authorizing certain administrative transactions, including taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications, that would otherwise be prohibited by Directive 4 under E.O. 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, through 12:01 a.m. on June 6, 2023.
- General License 60, authorizing transactions "ordinarily incident and necessary" to the wind down transactions involving a number of Russian banks that were designated on February 24, 2023, through 12:01 a.m. ET on May 25, 2023.
- General License 61, authorizing certain transactions related to debt or equity of, or derivative contracts involving a number of Russian banks that were designated on February 24, 2023, blocked on February 24, 2023 through 12:01 a.m. ET on May 25, 2023.
OFAC also issued five Frequently Asked Questions (1114-1118) in relation to the February 24 actions.
Finally, the State Department also announced visa restrictions on 1,219 members of Russia's military, pursuant to Section 212(a)(3)(C) of the Immigration and Nationality Act.
Expansion of Export Controls on Russia and Belarus, New Entity List Additions, and New Restrictions on Iranian UAVs announced by BIS
On February 24, 2023, BIS also issued four new final rules effective immediately5, enhancing existing US export controls against Russia and Belarus to better align them with the partner country controls6, adding Russian and various third country entities to the Entity List for activities in support of Russia's defense sector7, and imposing new restrictions on Iranian Unmanned Aerial Vehicles ("UAVs") for supporting Russian war efforts.8
BIS's updates include the following:
- Expanding the scope of items subject to US export licensing requirements on Russia and Belarus-specific control lists of covered items at Supplements No. 4 (covering a broad range of EAR99 items) and No. 6 (covering a range of chemicals, biologics, and related equipment, software and technology) to Part 746, as well as Supplement No.5 to Part 746 (covering a broad range of luxury and other consumer goods). Further to expanding these supplements, BIS also added important clarifying language in the descriptions of covered items on these lists that may be relevant to exporters of such items.
- Adding Harmonized Tariff Schedule ("HTS")
codes to clarify descriptions of the covered items at
Supplement No. 2 to Part 746 (covering items destined for
oil and gas projects). Previously, these items were
defined by Schedule B numbers.
- Adding 86 new entities and revising others in Russia
and other countries around the world to the Entity List for
supporting Russia's defense-industrial sector and war
efforts. These new listings include entities listed under
country headings of Russia, China, Canada, France, Luxembourg, and
the Netherlands. As a result of these listings, BIS has restricted
the export, reexport, or in-country transfer of almost all items
subject to the EAR to these parties.
- Making additional clarifications and smaller changes, such as adding Taiwan to Supplement No. 3 to Part 746 (Countries Excluded from Certain License Requirements of §§ 746.7 and 746.8). This supplement contains a list of countries that are exempted from certain Foreign Direct Product rule restrictions because these countries have been determined to impose export controls on Russia and Belarus that are "substantially similar to those imposed by BIS."
- In line with heightened enforcement initiatives over the past year, BIS and the U.S. Department of Justice also announced parallel, relating enforcement actions targeting a Russian entity and a Russian individual determined to have been involved in smuggling of controlled counterintelligence items in support of Russian intelligence and security efforts.
- Consistent with the measures imposed on Belarus for cooperation with and the provision of assistance to Russian war efforts, BIS also imposed a range of heightened export control restrictions targeting Iran's supply of UAVs to Russia (which in some cases appear to contain US-origin components). Notably, the Iran-related measures include but are not limited to a new, expansive Foreign Direct Product rule that would expand BIS's jurisdiction over Iranian-made UAVs supplied to Russia and Belarus that are derived from US technology – as a result, this rule has the effect of expanding BIS's jurisdiction to cover persons of any nationality that are determined to have assisted in the supply of these UAVs to Russia and Belarus.
In addition to the key changes described above, BIS made a number of other changes to export controls on Russia and Belarus, including clarifications and technical changes to restructure and align existing controls.
Import Duty Increases on Russian Origin Goods
On February 24, 2023, President Biden also issued two proclamations imposing additional tariffs on more than 100 Russian metals, minerals, and chemical products pursuant to section 3 of the Suspending Normal Trade Relations with Russia and Belarus Act and other presidential trade authorities; and increasing tariffs on imports of Russian aluminum pursuant to Section 232 of the Trade Expansion Act of 1962, as amended, and other trade authorities.9
A Proclamation on Increasing Duties on Certain Articles from the Russian Federation10 , will increase duties on imports of goods into the United States entered for consumption, or withdrawn from warehouse for consumption, on or after 12:01 a.m. eastern daylight time on April 1, 2023. This action is President's second action in the last year pursuant to authorities under the Suspending Normal Trade Relations with Russia and Belarus Act and applies to approximately $2.8 billion worth of Russian goods. This action targets Russian products that have not already been prohibited for import into the United States – including doubling duties from 35% ad valorem to 70% ad valorem on most Russian metals and metal products and increase tariffs to 35% on additional Russian goods, including chemicals and minerals. The covered items are listed in the Annex to the Proclamation, and include metal, mineral, and chemical products.11
The second action, A Proclamation on Adjusting Imports of Aluminum Into the United States12 , taken pursuant to Section 232 of the Trade Expansion Act of 1962, as amended, will increase tariffs on Russian aluminum imported into the United States in two steps (i) beginning on March 10, 2023, the United States will impose a 200% ad valorem tariff on aluminum articles that are the product of Russia and derivative aluminum articles that are the product of Russia; and (ii) beginning on April 10, 2023, the United States will impose a 200% ad valorem tariff on "aluminum articles where any amount of primary aluminum used in the manufacture of the aluminum articles is smelted in Russia, or the aluminum articles are cast in Russia, and derivative aluminum articles where any amount of primary aluminum used in the manufacture of the derivative aluminum articles is smelted in Russia, or the derivative aluminum articles are cast in Russia." This proclamation defines primary aluminum as "new aluminum metal that is produced from alumina (or aluminum oxide) by the electrolytic Hall-Heroult process." Notably, the Proclamation states that, "[a]ny country that imposes a tariff of 200 percent or more on its imports of aluminum articles that are products of Russia may be exempt from the tariff imposed by this proclamation," which suggests that the US government intends these tariffs to apply broadly to Russian-melted aluminum, but if sent to a third country with its own 200% tariff on imported Russian aluminum, finished third country goods incorporating the Russian aluminum will not be subject to an additional 200% tariff when eventually imported into the United States.
The sanctions, export controls, visa restrictions, and import duty increases described above reflect the US government's continued whole-of-government approach to countering Russian efforts in the war in Ukraine, including evasion and facilitation efforts and third country participants. Companies should expected a continued focus on expanding such restrictions and the continued commitment of resources by the US government to enforcing violations of these restrictions.
II. EUROPEAN UNION
EU Adopts 10th Sanctions Package on First Anniversary of Russia-Ukraine conflict
On February 25, 2023, the EU adopted its 10thSanctions Package against Russia, thereby further expanding the scope of the existing sanctions and restrictive measures, as well as adding to the list of sanctioned individuals and entities.13 The new package notably extends the list of goods subject to export control and imposed new prohibitions, such as a prohibition for Russian nationals or resident to hold posts in certain strategic entities, and a prohibition to provide storage capacities.
Asset Freeze Measures and Grounds for Authorization
The EU's 10th Sanctions Package results in the addition of 86 individuals and 33 entities to the list of individuals and entities subject to the EU's Asset Freeze measures. Notably, the list of entities now includes Alfa-Bank JSC (entry 198), PJSC Rosbank (entry 199), Tinkoff Bank JSC (entry 200), as well as – for the first time – an entity registered in the United Arab Emirates, i.e. SUN Ship Management (D) Ltd., which is indicated as being part of PAO Sovcomflot (SCF Group).
In addition, several additional exemptions in respect of the EU's Asset Freeze measures have been added. These exemptions cover:
- Entry 101 (National Settlement Depository), notably for "the disposal or the transfer of securities by an entity established in the Union, currently or previously controlled by [VTB Bank]";
- Entry 190 (Limited Liability Company "Commercial Vehicles – GAZ Group"), notably for "the termination by 26 August 2023 of operations, contracts or other agreements concluded with, or otherwise involving, [GAZ Group] before 25 February 2023"; and
- Entry 198 (Alfa-Bank JSC), notably for "the disbursement of funds by the Jewish Claims Conference to beneficiaries in the Russian Federation by 26 November 2023".
The 10th Sanctions Package further more results in a broadening of the reporting obligation in respect of individuals and entities subject to the EU's Asset Freeze measures. Natural and legal persons are now required to "supply immediately any information [...], such as information held on funds and economic resources within Union territory belonging to, owned, held or controlled "Designated Persons" and which have been subject to any move, transfer, alteration, use of, access to, or dealing in the two weeks preceding the listing of those Designated Persons" within two weeks of acquiring this information.
Trade Restrictions:
The EU's 10th Sanctions Package also contains various components that extend or enhance the various, already existing, export and import restrictions.
- Export Restrictions:
— the EU prohibited the transit through the territory of Russia of dual-use goods and technology, exported from the Union. A similar prohibition is imposed for firearms, their parts and essential components, and ammunition;
— the list of goods and technology suited for use in aviation or the space industry ("Annex XI items") was extended through the inclusion of items such as turbojets and turbopropellers. For these goods, a grandfathering clause allows for the temporary execution of contracts concluded before the entry into force of the new measures;
— the list of coal and other solid fossil fuels ("Annex XXI items") was extended through the inclusion of items such as carbon and synthetic rubber. For these goods, a grandfathering clause allows for the temporary execution until 27 May 2023 of contracts concluded before the entry into force of the new measures. Carbon and rubber are not concerned by the grandfathering clause and are instead subject to an import quota of 752 475 and 562 973 tonnes respectively until 30 June 2024;
— the list of goods which could contribute to the enhancement of Russian industrial capacities ("Annex XXIII items") was extended through the inclusion of items such as flat-rolled iron, alloy or non-alloy steel products, steam and vapour turbines, certain pumps, oil or petrol-filters for internal combustion engines, and various other equipment. For these goods, a grandfathering clause allows for the temporary execution of contracts concluded before the entry into force of the new measures was adopted;
- New ground for authorization: the sale,
supply, transfer or export of some goods listed in Part C of Annex
XXIII, or related technical assistance, brokering services,
financing or financial assistance, can be authorized for the
production of titanium goods required in the aeronautic industry,
for which no alternative supply is available.
- Restriction of an existing ground for
authorization: Member States can only grant authorizations
for the sale, supply, transfer or export of goods or the provision
of related technical or financial assistance necessary for personal
household use of natural persons for items falling under CN code
8417 20 (bakery ovens). Until the adoption of the 10th package
authorizations could also be granted for items falling under CN
code 8419 81 80 (certain machinery for making hot drinks or for
cooking or heating food) and 8438 10 10 (bakery machinery).
- New ground for authorization: the sale,
supply, transfer or export of some goods listed in Part C of Annex
XXIII, or related technical assistance, brokering services,
financing or financial assistance, can be authorized for the
production of titanium goods required in the aeronautic industry,
for which no alternative supply is available.
- Import control:
— New customs rules: The EU allows national customs authorities to release goods which are physically in the Union and which had already been presented to customs authorities when they became subject to such restrictions. It also authorizes Member States to release goods already brought into the Union in the past and which were stopped because of the imposition of sanctions.
Flight ban:
The EU introduced an obligation for aircraft operators of non-scheduled flights between Russia and the Union to notify to their competent authorities and an obligation for Member States to inform other Member States, the Network Manager and the Commission where they do not clear such a flight.
Russian Central Bank:
The EU has announced the introduction of a reporting obligation to individuals and entities holding or controlling reserves as well as of assets of the Central Bank of Russia. However, the application of the new reporting requirements has been deferred.
State-owned enterprises ("SOE"):
Concerning the prohibition of transactions with certain SOE (Article 5aa):
— The wind down period relating to the prohibition of transactions with state-owned enterprises for divestments of a joint venture or similar legal arrangement is extended from 30 June 2022 to 31 December 2023.
— Extension of a ground for authorization: Authorizations for transactions with SOE can be granted by national competent authorities for divestments of SOEs and their subsidiaries in the Union from a legal person, entity or body established in the Union. Such authorizations can be granted until 31 December 2023 (30 June 2022 previously).
— New exemption: The prohibition does not apply to the provision of pilot services to vessels in innocent passage as defined by international law which are necessary for reasons of maritime safety.
Prohibitions to hold posts:
The EU added a new prohibition for Russian nationals or natural persons residing in Russia to hold any posts in the governing bodies of the owners or operators of critical infrastructures, European critical infrastructures, and critical entities as of 27 March 2023.
Prohibition to provide storage capacities:
The EU added a new prohibition to provide storage capacity to Russian nationals, natural persons residing in Russia, or legal persons, entities or bodies established in Russia. This prohibition does not apply to liquefied natural gas facilities used for storage. For these goods, a grandfathering clause allows for the temporary execution of contracts concluded before the entry into force of the new measures was adopted.
— Ground for authorization: National competent authorities can grant an authorization to provide storage capacity if necessary for ensuring the critical energy supply within the Union.
Prohibition on the provision of services:
— New ground for authorization: National competent authorities can authorize the continuation of the provision of services prohibited under Article 5n until 31 December 2023 where such provision of services is strictly necessary for the divestment from Russia or the wind-down of business activities in Russia. Such services must be provided for the exclusive benefit of the legal persons, entities or bodies resulting from the divestment. In addition, the national competent authority must have no reasonable grounds to believe that the services might be provided, directly or indirectly, to the Government of Russia or a military end-user or have a military end-use in Russia.
Prohibitions to provide technical assistance:
— The EU created a general exemption to the prohibition to provide technical assistance for the provision of pilot services to vessels in innocent passage as defined by international law which are necessary for reasons of maritime safety.
III. UNITED KINGDOM
On February 24, 2023, the UK announced a range of additional sanctions and export control measures targeting Russian war efforts.14 The key components of the new UK sanctions package are described below; other than the new assets freeze designations, these new measures require implementing regulations to be laid in Parliament before they come into effect.
- Export bans on what the UK government has stated to be "every item Ukraine has found Russia using on the battlefield to date," including "aircraft parts, radio equipment, and electronic components that can be used by the Russian military industrial complex, including in the production of UAVs."
- Extension of existing restrictions on Crimea and non-government controlled territory in Donetsk and Luhansk oblasts to target Russian controlled areas of Kherson and Zaporizhzhia oblasts as well.
- Asset freeze designations of an additional 92 entities and individuals, including senior executives of Russian state-owned nuclear company Rosatom, executives of Russia's two largest defense companies, four Russian banks, a number of other Russian executives and government officials, and other entities supporting the Russian military. The UK also designated 5 senior Iranian executives in Qods Aviation Industry, the company manufacturing the drones used in Ukraine. 15
- Planned import bans on 140 goods, including iron and steel products processed in third countries.
Additionally, the UK's Office of Financial Sanctions Implementation ("OFSI") also announced updated General licenses INT/2022/1280976 Regulatory Authorities (related to regulation of financial services of UK-incorporated VTB Capital plc by UK authorities, including the Financial Conduct Authority, the Financial Services Compensation Scheme, the Prudential Regulation Authority, or the Bank of England); INT/2022/1280876 Russian Banks (allowing certain, limited payments through banks subject to asset freezes); and INT/2022/2300292 (allowing UK designated parties to make utility payments for gas and electricity supplies to UK properties owned or rented by such persons).16
Mayer Brown provides an integrated Sanctions & Export Control practice covering the three key jurisdictions (US, EU, and UK) and capable of providing rapid consolidated and practical advice on how to comply with sometimes conflicting and diverging sanctions regimes. For further information on sanctions developments from the EU, US, UK, and other jurisdictions, please visit our Sanctions & Export Controls page.
Footnotes
3 https://home.treasury.gov/news/press-releases/jy1296; https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20230224; https://www.state.gov/the-united-states-takes-sweeping-actions-on-the-one-year-anniversary-of-russias-war-against-ukraine/
4 https://home.treasury.gov/system/files/126/determination_02242023_eo14024.pdf
13 Council Regulation (EU) 2023/426 of 25 February 2023amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L 59 I, 25.2.2023; Council Implementing Regulation (EU) 2023/429 of 25 February 2023 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L 59 I, 25.2.2023.; and Council Regulation (EU) 2023/427 of 25 February 2023amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine, OJ L 59 I, 25.2.2023.
14 https://www.gov.uk/government/news/new-sanctions-ban-every-item-russia-is-using-on-the-battlefield
16 https://www.gov.uk/government/collections/ofsi-general-licences#full-publication-update-history
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