The United States and the European Union imposed additional sanctions this week in response to the Russian Federation’s invasion of Ukraine and the United States announced its intention to make sanctions enforcement a priority. This week’s key developments included:
- the imposition of broad controls and licensing requirements on exports, reexports and transfers to Belarus in light of its support of Russia’s invasion of Ukraine;
- expanded license requirements for exports, reexports and transfers to or within Russia of items relating to the oil refinery sector;
- the addition of over 90 companies to the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) Entity List;
- the establishment of a Department of Justice task force to enforce sanctions imposed against Russia; and
- an announcement by the President of a ban prohibiting Russian aircraft from entering and using domestic U.S. airspace.
In addition, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed sanctions, including visa restrictions, on numerous Russian elites and oligarchs and their family members, as well as several Russian intelligence-directed disinformation outlets. OFAC also issued several general licenses authorizing the wind-down of transactions with sanctioned Russian financial institutions and certain administrative transactions with the Central Bank of the Russian Federation and other state-owned financial entities. Finally, as expected, following talks with U.S. representatives, the European Union named the Russian financial institutions to be removed from the SWIFT financial messaging system.
A. Imposition of Export Controls and Licensing Requirements on Belarus
On March 2, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a rule that imposes as of March 2 expansive export controls on Belarus in response to that country’s “substantial enabling” of Russia’s invasion of Ukraine. The new export controls on Belarus mirror those imposed against Russia last week but include some additional controls as well. Thus, as a result of amendments to the Export Administration Regulations (EAR), any technology, commodity or software classified under Categories 3-9 of the Commerce Control List (CCL) will likely require a license for export, reexport or transfer to Belarus as will a number of foreign produced goods that are either the direct product of certain U.S. technology, software, plant or equipment, or include more than de minimis amounts of controlled U.S.-origin parts, materials or components.
Further, the controls include the same near total ban on exports, reexports and transfers of items to Belarusian military end-users and make Belarus subject to the Military-Intelligence End-Uses and End-Users rule. JSC Integral and the Ministry of Defence of the Republic of Belarus, including the Armed Forces of Belarus and all operating units wherever located, were added to the BIS Entity List with a “footnote 3” designation to ensure application of the new, more restrictive, military end-use foreign direct product rule now applicable to Belarus.
In a press release, BIS said the rule, which went into effect on March 2 and is expected to be published in the March 8 issue of the Federal Register, will help to prevent the “diversion of items, including technology and software, in the defense, aerospace, and maritime sectors to Russia through Belarus, and degrade both nations’ ability to sustain their military aggression.”
Like Russia, Belarus also will now be subject to a policy of denial for applications to export or reexport most items, with a case-by-case review of exports and reexports of items related to safety of flight, maritime safety, humanitarian needs, government space operation, civil telecommunications infrastructure, and government-to-government activities.
B. Expanded Export Controls Targeting Russian Oil Refinery Sector
Effective March 3, 2022, the Russian Industry Sector controls in the EAR were expanded to include a license requirement for the export, reexport or transfer (in-country) of any item subject to the EAR that is covered by one of the Harmonized Tariff Schedule (HTS)-6 codes and Schedule B numbers set forth in Supplement 4 to Part 746 of the EAR. See Appendix A for the covered HTS Codes and Schedule B numbers. The current HTS Codes and Schedule B numbers focus on items that can be used in or for the Russian oil refinery sector. These are strict liability license requirements; thus, the license requirement does not depend on a knowledge requirement. Accordingly, it is important for companies to verify the export classification control numbers (ECCNs), HTS Codes, and Schedule B numbers of items that are destined for Russia to ensure that they are not captured by the expanded controls.
C. BIS Adds Over 90 New Companies to the Entity List
Also effective March 3, BIS added 91 additional entities to the Entity List due to their support of Russian and Belarusian security services, military and defense sectors, and research and development efforts. As a result, a license is now required for the export, reexport or transfer (in-country) of any item subject to the EAR, including EAR99 items, to the listed entities. The additions, 91 entities under 96 entries, include one entry in Belize, three entries in Estonia, one entry in Kazakhstan, one entry in Latvia, two entries in Malta, 81 entries in Russia, one entry in Singapore, one entry in Slovakia, two entries in Spain, and three entries in the United Kingdom.
D. Department of Justice Task Force to Enforce Russian Sanctions
On March 2, the U.S. Department of Justice (DOJ) announced the establishment of Task Force KleptoCapture, an interagency law enforcement task force to enforce the broad economic and trade sanctions imposed against Russia and, specifically, target violators and seize assets held by sanctioned Russian oligarchs. The establishment of the task force appears to strongly signal that the United States is committed to enforcing the sweeping sanctions against Russia and intends to focus on assets held by Russian oligarchs and take action against any efforts to evade the sanctions.
In a press release, DOJ said the task force will be operated by the Office of the Deputy Attorney General and will be staffed with prosecutors, agents, analysts, and professional staff who are experts in sanctions and export control enforcement, anticorruption, asset forfeiture, anti-money laundering, tax enforcement, national security investigations, and foreign evidence collection. The task force is charged with, among other things, investigating and prosecuting violations of the new and any future sanctions imposed against Russia; combating unlawful efforts to undermine restrictions imposed against Russian financial institutions; targeting efforts to use cryptocurrency to evade U.S. sanctions; and using civil and criminal asset forfeiture authorities to seize assets held by sanctioned individuals or assets identified as the proceeds of unlawful conduct.
E. EU Announcement Regarding Russian Banks Banned from SWIFT
On March 2, the Council of the European Union (EU) named seven Russian financial institutions that will be barred from use of the SWIFT financial messaging system, effective as of March 12, 2022. The Russian banks are: Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, Vnesheconombank (VEB), and VTB Bank. In a press release, the EU said the ban, which was coordinated with the United States, will also apply to any person or entity in Russia whose propriety rights are directly or indirectly owned more than 50% by these seven Russian banks. The EU announcement also included announcement of additional EU sanctions, further bolstering the EU Russia sanctions response to the invasion of Ukraine.
F. OFAC Sanctions and U.S. Visa Restrictions Against Russian Oligarchs
On March 3, OFAC made more than 80 new designations of Specially Designated Nationals and Blocked Persons (SDNs). Designations included 46 Russian elites and key allies of Russian President Putin and certain family members and identified six companies and certain property owned by these persons as blocked. In addition, 26 Russia- and Ukraine-based individuals and seven Russian entities were designated as SDNs for their involvement with the Russian government’s efforts to promulgate disinformation and attempt to destabilize the Ukrainian government.
Among the individuals designated on March 3 were Kremlin spokesman Dimitry Peskov and Alisher Usmanov, a Russian billionaire and key Putin ally. OFAC also designated a “superyacht” and business jet owned by Usmanov as blocked property on the SDN List and issued General License 15, which authorizes all transactions and unblocks all property of any entity owned 50 percent or more, directly or indirectly, by Usmanov, that does not appear on the SDN List. In its press release, OFAC noted that Usmanov is one of Russia’s wealthiest billionaires and has vast holdings in multiple sectors of the Russian economy as well as internationally.
Further, on March 3, the U.S. Department of State announced that will impose visa restrictions on 19 Russian oligarchs and 47 of their family members and close associates, thus preventing these persons from traveling to the United States.
G. Designations of Companies Operating in the Russian Defense and Technology Sectors
The SDN List designations announced by OFAC on March 3 included 22 Russian defense-related firms designated by the U.S. Department of State under E.O. 14024 as operating in the defense and related material sector of the Russian Federation’s economy, as well as one company designated as operating in the technology sector. The U.S. Department of State, in a press release, noted that the designations would impose “substantial costs on Russia’s defense enterprises” by sanctioning “a wide range of Russian defense enterprises, including entities that develop and produce fighter aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military.”
H. Issuance of OFAC General Licenses Regarding Russian Sanctions
On March 2, OFAC issued several general licenses related to the recently imposed sanctions against various Russian financial institutions and the Central Bank of the Russian Federation. In a press release, OFAC said the licenses make clear that “there should be no loopholes for Russia to evade the unprecedented prohibitions by the U.S. to lock up Russia’s war chest.” The general licenses issued on March 2 authorize certain transactions with certain sanctioned Russian financial institutions (VEB, Bank Otkriti, Sovcombank, Sberbank, and VTB Bank), including the authorization of transactions involving certain debt or equity, provided that any divestment or transfer of covered debt or equity is to a non-U.S. person, through May 24, 2022 (General License 9A); the winding down of transactions involving derivative contracts through the above-mentioned Russian banks (General License 10A); certain administration transactions, such as payment of taxes, fees, or import duties, and purchase or receipt of permits, licenses, registrations or certifications, provided such transactions are necessary to a person’s day-to-day operations in Russia (General License 13); and certain clearing and settlement transactions (General License 14).
OFAC issued additional guidance regarding the Russian sanctions, reiterating that energy-related payments can and should continue. Among other guidance, OFAC confirmed that General License 8A, issued last week, permits what are known as “U-turn transactions” involving energy-related payments processed through non-sanctioned, third-country financial institutions. Such payments are aimed at enabling the continuation of transactions that support the flow of energy to the market. OFAC said that the United States will continue to work with its allies to ensure the world energy market is well supplied.
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This Alert is a tool to help businesses, both U.S. and foreign, identify whether their business with Russia, Belarus or Ukraine may now be subject to U.S. export license requirements or involve newly sanctioned or blocked persons. The Alert cannot be relied upon as legal advice; the sanctions and export controls are complex, detailed, and continuing to develop and legal counsel should be sought for guidance on specific transactions.
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Appendix A: HTS Code/Schedule B Numbers Subject to Licensing Requirements
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