- The U.S. Department of Commerce imposes additional export controls on Russia and Belarus, including on new categories of EAR99 items that did not previously require an export license to either country
- OFAC extends expiration dates for general license related to taxes, fees and other administrative transactions
- OFAC adds to the SDN List Russian government officials, oligarchs, and companies who have acted as "Facilitators of Russia's Aggression in Ukraine"
- G7 agreed to impose price cap on Russian oil
I. Additional Export Controls on Russia and Belarus
(a) Export restrictions on a wide range of EAR99 items
Effective September 15, 2022, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) announced the expansion of export controls on Russia and Belarus, including on the export of additional categories of EAR99 items, as well as stricter controls on exports to military end-users and/or for military end-uses in these two countries.
Some of the restrictions on EAR99 items are found in newly-created Supplement Number 6 to Part 746 of the Export Administration Regulations (EAR), and include certain quantum computing and advanced manufacturing items (such as those related to additive manufacturing), as well as certain discrete chemicals (identified by Chemical Abstract Numbers or "CAS"), biologics, fentanyl and its precursors, and related equipment. Also included is common equipment used in various industrial applications, such as reaction vessels, fermenters, agitators, heat exchangers, condensers, pumps, valves, storage tanks, containers, receivers, distillation or absorption columns regardless of materials of construction, and nucleic acid synthesizers and assemblers (see Supplement Number 6 to Part 746 of the EAR for the complete list of these items). BIS also revised the Russia/Belarus Foreign Direct Product Rule (FDPR), which previously did not apply to foreign-produced items that would be classified as EAR99 if manufactured in the U.S., to apply to all items listed in new Supplement No. 6. The exclusion from the FDPR for countries listed in Supplement No. 3 to Part 746, as well as the de minimis exemption, will apply with respect to items described in Supplement No. 6.
BIS also expanded the scope of industrial EAR99 items that now require licenses for export to Russia and Belarus to include 57 new entries of industrial machinery, equipment, and related parts and accessories that could be used by these countries' defense-industrial complex, including certain fork lifts, sawing and cutting machines, electric storage heating radiators, and electric rail locomotives (see Supplement Number No. 4 to Part 746 of the EAR for the full list). In addition, BIS expanded Supplement No. 4 to include any components, parts, accessories, and attachments modified or designed for items listed in Supplement No. 4, regardless of whether those items are themselves described in the Supplement, with the exception of fasteners, washers, spacers, insulators, grommets, bushings, springs, wires, or solders. In addition, BIS expanded the restrictions applicable to items identified in Part 746.5(a)(1) of the EAR to include covered oil or gas projects in Belarus.
(b) Expansion of military end-user controls
BIS also expanded military and military-intelligence end users controls in 15 CFR § 744.11 and 15 CFR §§ 744.21-22 to cover Russian and Belarusian (as well as Burmese, Cambodian, Chinese, and Venezuelan) "military end users" and/or "military-intelligence end users," wherever they are located in the world, not simply users located within those countries, as was the case with the previous rule. However, in order to assist exporters with the complex task of identifying such users that are located outside of those countries, BIS has limited the application of the new rule to those Russian or Belarusian entities specifically identified on BIS's Entity List with a footnote 3 designation or on the Military End User List (for military end users located outside of Burma, Cambodia, China, or Venezuela) or, in the case of the military-intelligence end users controls, those entities listed in Section 744.22 of the EAR. BIS cautioned that exporters are still required to conduct their own due diligence to identify military and military-intelligence end users located within Belarus, Burma, Cambodia, China, Russia, and Venezuela.
(c) Additional export controls expansion and clarification
In order to better align U.S. controls with those of its allies, BIS also added dollar value exclusions to existing restrictions prohibiting unlicensed exports, reexports, and transfers of certain luxury goods (identified in Supplement No. 5 to Part 746) to Russia and Belarus, as well as to certain sanctioned Russian and Belarusian oligarchs and other individuals (wherever located). Specifically, BIS lowered the existing $1,000 dollar-value threshold exclusion for clothing and shoes to $300. BIS also implemented new dollar-value exclusions for a variety of other products.
BIS also clarified that in-country transfers are within the scope of unauthorized activities described in General Prohibitions 5 and 6 (covering exports, reexports, and transfers to prohibited end users and to embargoed destinations or for prohibited end uses) and that reexports and in-country transfers are within the scope of activities covered by General Prohibition 10.
BIS also took steps to expand and clarify the scope of permissible exports to Russia and Belarus. BIS clarified that the favorable export treatment for certain entities (i.e. companies headquartered in the United States or a Country Group A:5 or A:6 country) set forth in § 746.8(a) of the EAR also applies to branch and sales offices (even if they are not separate legal entities) of companies headquartered in the United States or a Country Group A:5 or A:6 country. The previous rule only mentioned separately incorporated subsidiaries and joint ventures. The clarification means that exports of mass market encryption items, and other items exported under certain license exceptions, including License Exception ENC (used to export many encryption items) to branch and sales offices in Russia and Belarus, can proceed without first obtaining an export license from BIS.
In order to promote the free flow of information into Russia and Belarus, BIS also updated the list of items eligible for export under License Exception Consumer Communications Devices (CCD) described in Section 740.19 of the EAR, which authorizes exports of certain communications devices to individuals and non-governmental organizations in Russia, Belarus, and Cuba. Items added to the list include tablets, microphones, speakers, and commercial headphones classified as EAR99 or under Export Control Classification Numbers (ECCN) 5A992.c or 4A994.b. Even if those items are subject to the Russian and Belarusian industry sector and luxury goods controls, they are still eligible for export under License Exception CCD. BIS also fixed an inadvertent error in the scope of License Exception TMP by adding Russia and Belarus to the list of countries eligible for the news media authorization.
Finally, BIS added an exclusion to the licensing requirements under § 746.8(a)(1) and (2) to allow for the movement of an item subject to the EAR within Russia or Belarus for the purposes of returning it to the United States or to a Country Group A:5 or A:6 country, so long as the owner retains title to and control of the item while it remains in Russia or Belarus.
II. OFAC Extends General License Authorizing Payment of Taxes, Fees, and Other Administrative Taxes
On September 8, 2022, OFAC issued General License 13B, which extends the authorizations of General License 13A of May 25, 2022. Consistent with the prior license, General License 13B authorizes U.S. persons, or entities owned or controlled, directly or indirectly, by a U.S. person, to pay taxes, fees, or import duties to, and purchase or receive permits, licenses, registrations, or certifications from, the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation, provided such transactions are ordinarily incident and necessary to the day-to-day operations in the Russian Federation of such U.S. persons or entities. The revised general license extends this authorization through 12:01 a.m. eastern daylight time on December 7, 2022. Previously, the license expired on September 30, 2022.
III. New General Licenses for Agriculture, Civil Aviation, and Journalism
OFAC has issued several widely-applicable general licenses, exempting certain transactions from the escalating sanctions on Russia.
- General License 6B, issued on July 14, 2022, extends General License 6A permitting certain transactions related to agricultural commodities, medicine, and medical devices. This license was accompanied by an OFAC Food Security Fact Sheet, clarifying that U.S. sanctions do not extend to agricultural commodities or agricultural equipment, consistent with the policy objective of minimizing the impact of Russia's war against Ukraine on global food supplies and prices. In addition to agricultural goods, the fact sheet provides express confirmation that the sanctions do not extend to fertilizers, insurance related to food shipments, or the exportation of agricultural equipment and spare parts. However, the fact sheet does clarify that goods targeted by Executive Order 14068, including seafood and alcoholic beverages originating in Russia, still may not be imported.
- General License 40A, issued on August 2, 2022, replaces General License 40 and authorizes transactions ordinarily incident and necessary to the safety of civil aviation involving certain sanctioned entities. Aircraft registered in the Russian Federation are not covered by the General License, nor are Russian military aircraft.
- General License 52, issued on September 15, 2022, grants journalists and associated broadcast or technical personnel a license to engage in transactions necessary to their journalistic activities. This includes a license to compensate support staff, lease office space, or pay other expenses incident to journalistic activities. The license stops short of permitting the maintenance of a correspondent account on behalf of Russian financial institutions targeted by E.O. 14024, or of making a payment to the Central Bank of the Russian Federation, or transacting with certain designated Russian media companies.
IV. Additions to the SDN List and Associated General Licenses
On September 15, 2022, OFAC also announced the addition of 22 entities and 2 individuals to the Specially Designated Nationals and Blocked Persons List ("SDN List"). The new additions target those directly involved in Russia's invasion of Ukraine, as well as individuals and entities that OFAC has identified as supporting alternative payment systems that facilitate sanctions evasion. Notable additions include Ramzan Akhmatovich Kadyrov, the leader of Russia's Republic of Chechnya, and his immediate family members. Also designated is "Task Force Rusich," described by OFAC as a neo-Nazi paramilitary group that has participated in the invasion of Ukraine.
Alongside this latest round of designations, OFAC also issued Russia-related General License 51, authorizing the wind down of transactions involving the just-designated LLC Group of Companies Akvarius (Aquarius), a Russian electronics manufacturer. Pursuant to this license, any payment to a blocked person must be made into a blocked account, and the license does not authorize payments that are otherwise banned under E.O. 14024. This license will be valid through 12:01 a.m. eastern daylight time on October 15, 2022.
This latest round of designations comes after the designation of 13 individuals and 36 entities on August 2, 2022, targeting Russian elites with connections to the Kremlin and organizations playing a role in evading sanctions. Simultaneously with these designations, OFAC issued General Licenses 43A, 47, 48, and 49 permitting a short wind down period for transactions or contracts related to these newly designated entities.
As a result of the SDN List designations, almost all transactions by U.S. persons with the SDNs are prohibited, and all U.S. assets of the SDNs are "blocked" and must be reported to OFAC. Designated natural persons are also subject to a travel ban, and all entities owned 50 percent or more by an SDN are generally treated as if they were also on the SDN List (known as the "50 Percent Rule") even if they are not expressly listed. In addition, any person, including a non-U.S. person, may themselves be designated as an SDN for materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, these SDNs.
V. Prohibition on Providing Quantum Computing Services to Persons in Russia
On September 15, 2022, pursuant to Executive Order 14071, OFAC prohibited the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person (wherever located), of quantum computing services to any person located in the Russian Federation. Limited exceptions are provided for (a) quantum computing services to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a United States person; and (b) quantum computing services in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled, directly or indirectly, by a Russian person.
OFAC issued guidance alongside this prohibition indicating that "quantum computing services" includes "any of the following services when related to quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems 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, or communication equipment;  other computer-related services; [and]  services related to the exportation, reexportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing to any person located in the Russia Federation." The term "any person located in the Russia Federation" is defined as an individual who is a citizen or national of the Russian Federation, or an entity organized under the laws of the Russian Federation.
VI. OFAC Cautions Non-U.S. Financial Institutions on Supporting Russia's MIR National Payment System
In an FAQ issued on September 15, 2022, OFAC cautioned non-U.S. financial institutions that they could be sanctioned for materially assisting sanctions targets or sanctioned activities, including for entering certain agreements with the National Payment Card System (NSPK), an entity owned by the Central Bank of Russia that operates Russia's MIR National Payment System, which clears and settles payments primarily in Russia. OFAC noted that any such agreements that expand the use of the MIR National Payment System could support evasion of U.S. sanctions and result in an SDN designation.
VII. G7 Cap on the Price of Russian Oil
On September 2, 2022, Treasury Secretary Janet Yellen announced that the G7 had reached an agreement on a plan to place a price cap on Russian oil. The move was positioned as a response both to spiking energy prices and to the use of oil revenues by Russia to finance its war effort in Ukraine.
The U.S., which has already banned the importation of Russian oil and petroleum products, will be participating in the price cap policy by restricting services related to seaborne Russian oil and petroleum products. Maritime transportation of these products will be banned, but a broad-based exemption will be provided for Russian oil that is purchased at or below the price cap. The policy does not yet specify the price cap, instead promising that it will be set based on "technical inputs" and may vary across different jurisdictions. The G7 pledged to communicate the eventual cap in a "clear and transparent manner."
On September 9, 2022, the U.S. Treasury Department released preliminary guidance on the policy, announcing that it anticipates that OFAC will issue a determination pursuant to E.O. 14071, which will (i) permit the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of services related to the maritime transportation of seaborne Russian oil, if the seaborne Russian oil is purchased at or below the price cap, and (ii) prohibit such services if the seaborne Russian oil is purchased above the price cap.
This policy will be implemented as a ban, from which there will be an exception for the purchase of Russian seaborne oil at or below the cap. Further, maritime service providers will not face an OFAC enforcement action as long as the service providers obtain certain documentation or attestations from customers that the purchase price of the oil is at or below the price cap. The precise records or attestation required will depend on the degree of access by the service provider to price information, as set forth in the below framework:
- "Tier 1" actors, which are defined as service providers that regularly have direct access to price information in the ordinary course of business are required to retain and share, as necessary, documents that show that seaborne Russian oil was purchased at or below the price cap. Such documentation may include invoices, contracts, or receipts/proof of accounts payable. Service providers falling in this category include refiners, importers, commodities brokers, traders, and customs brokers.
- "Tier 2" actors, which are defined as service providers that are only sometimes able to request and receive price information, should request, retain, and share, as needed, such documentation when "practicable." When it is not "practicable" to receive such information, Tier 2 service providers should request customer attestations in which the customer commits to not purchase seaborne Russian oil above the price cap. Service providers falling in this category include financial institutions providing trade finance, as well as shippers.
- "Tier 3" actors who do not regularly have direct access to price information in the ordinary course of business should obtain and retain customer attestations in which the customer commits to not purchase seaborne Russian oil above the price cap. Service providers falling in this category include insurance brokers, cargo/Hull and Machinery (H&M) insurers, reinsurers, and protection and indemnity (P&I ) clubs.
The recordkeeping and attestation process is intended to create
a "safe harbor" from liability. As a result, service
providers without direct access to price information that
reasonably rely on a customer attestation will not be held liable
for potential sanctions breaches even if it turns out the
information provided to them is incorrect.
The guidance also indicates that OFAC will actively monitor transactions seeking to evade compliance. To that end, OFAC has already identified a set of red flags that suggest efforts to evade the price cap, including:
- Evidence of deceptive shipping practices;
- Refusal or reluctance to provide requested price information;
- Unusually favorable payment terms, inflated costs, or insistence on using circuitous or opaque payment mechanisms;
- Indications of manipulated shipping documentation, such as discrepancies of cargo type, voyage numbers, weights or quantities, serial numbers, shipment dates, etc.;
- Newly formed companies or intermediaries, especially if registered in high-risk jurisdictions; and/or
- Abnormal shipping routes.
The ban will go into effect on December 5, 2022 for maritime transportation of crude oil, and February 5, 2023 for maritime transportation of petroleum products.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.