OFAC Issues Two Determinations Prohibiting Dealings In Certain Metals Of Russian Origin; Extends General License Allowing Payment Of Taxes And Fees To Russian Government

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On April 12, 2024, in coordination with the United Kingdom, the Department of the Treasury's Office of Foreign Assets Control ("OFAC") issued two new Determinations...
Worldwide International Law
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Key Takeaways:

  • OFAC announced two new Determinations. One bans the import into the U.S. of aluminum, copper, and nickel originating in Russia, while the other outlaws the provision of certain services related to the acquisition of such metals.
  • Additionally, OFAC issued General License ("GL") 13I, which further extends the time period for U.S. persons to make payments of taxes and fees to the Russian government.

On April 12, 2024, in coordination with the United Kingdom, the Department of the Treasury's Office of Foreign Assets Control ("OFAC") issued two new Determinations (collectively, the "Determinations") that together prohibit imports into the U.S. of aluminum, copper, and nickel of Russian origin and ban the provision of certain services in connection with the acquisition of aluminum, copper, or nickel of Russian origin. OFAC also issued new and revised FAQs providing additional guidance regarding these Determinations.

Russia is a significant producer of such metals for the global market, although imports into the U.S. were already limited. These new Determinations are intended to decrease Russia's significant revenue from the export of these metals, constraining its ability to fund its war machine.

Separately, OFAC issued GL 13I—replacing and superseding GL 13H—temporarily authorizing specified administrative transactions, including paying taxes and fees owed to the Russian government that would otherwise be barred by Directive 4 under E.O. 14024.

Determinations Prohibiting Specified Dealings in Aluminum, Copper, or Nickel of Russian Origin

In its Determination Pursuant to Section 1(a)(i)(A) of Executive Order ("E.O.") 14068 ("14068 Determination"), OFAC prohibited the importation (or entry) of aluminum, copper, or nickel of Russian origin ("Russian Metals") into the U.S. by adding these items to section 1(a)(i) of E.O. 14068.

On the other hand, OFAC's Determination Pursuant to Section 1(a)(ii) of E.O. 14071 ("14071 Determination") expands the prohibitions in Section 1(a)(ii) of E.O. 14071 to two categories of services ("Covered Services"):

  • Warranting services for Russian Metals on an international metal exchange.
  • Services to acquire Russian Metals as part of physical settlement of a derivative contract.

The 14071 Determination bans "[t]he exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any of the [Covered Services] to any person located in" Russia.

Notably, Russian Metals that were produced prior to April 13, 2024 are not covered by the either of the Determinations.

New and Revised FAQs Provide Guidance Regarding the Determinations

OFAC released five new FAQs (1168-1172) and modified two existing FAQs (1019 and 1128), to provide guidance with respect to the Determinations. An outline of the critical points from each new FAQ can be found below:

  • FAQ 1168: summarizes the actions the U.S. Department of the Treasury took on April 12, 2024, including the Determinations.
  • FAQ 1169: describes what is prohibited by the 14071 Determination and provides additional guidance with respect to compliance, such as:
    • U.S. global metal exchanges are expected to comply with the 14071 Determination by "halting the warranting of covered Russian metals on the exchange; removing brands that produce covered Russian metals from their list of accepted brands; abstaining from adding additional brands of covered Russian metals to their list of accepted brands; ceasing providing clearing services for covered Russian metals; and halting acting as a central counterparty to the trade of covered Russian metals."
    • A U.S. trader acting as a counterparty to a derivative contract is prohibited from taking physical delivery of the Russian Metals, pursuant to settlement of that contract, regardless of whether or not the metal is being imported into the U.S.
    • To determine the date of production for a particular Russian metal, market participants are allowed to depend on the "Certificate of Analysis and Certificate of Origin of the relevant Russian metal, or other documentation available to them in the ordinary course of business."
  • FAQ 1170: explains that OFAC, for purposes of the Determinations, expects to issue regulations that define "aluminum," "copper," and "nickel" to include items defined in the Harmonized Tariff Schedule of the United States ("HTSUS") chapter headings as follows:
    • "Aluminum": defined at HTSUS Chapter 76.
    • "Nickel": defined at HTSUS Chapter 75.
    • "Copper": defined at HTSUS Chapter 74.
  • FAQ 1171: confirms the Determinations do not "apply to aluminum, copper, or nickel that has been incorporated or substantially transformed into other products outside of" Russia.
  • FAQ 1172: clarifies that the 14071 Determination does not "impose new prohibitions on banks acting as intermediaries for payments related to" the Russian Metals, if the bank is:
    • acting strictly as an intermediary; and
    • has no direct relationship with the individual or entity providing a service covered by the 14071 Determination, in connection with the relevant transaction.

GL 13I Temporarily Authorizes Certain Administrative Transactions Barred Under Directive 4

According to GL 13I, U.S. persons, or entities owned or controlled—directly or indirectly—by such persons, are allowed to "pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, certifications, or tax refunds," even when such transactions are barred by Directive 4 of E.O. 14024. GL 13I replaces and supersedes GL 13H, permitting these transactions until July 11, 2024, at 12:01 AM (EST), as opposed to April 17, 2024 at 12:01 AM (EST).

Recommendations for Those Dealing in Russian Metals

Participants in the markets for aluminum, nickel, and copper must take concrete steps to implement due diligence procedures designed to identify the presence of Russian Metals in their supply chains and proposed transactions. Generally, persons operating in this space should consider tailoring their compliance programs to account for the Determinations and the related guidance described above.

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.

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