[co-author: Isabella Peek ]

On Friday, March 11, 2022, the White House issued Executive Order (“EO”) 14068 announcing more sanctions and export controls against the Russian Federation (“Russia”). Concurrent with that announcement, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) released new export controls restricting the flow of “luxury goods” to Russia, Belarus, and Russian/Belarusian “oligarchs and malign actors” while the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued dozens of Specially Designated Nationals and Blocked Persons List (“SDN List”) designations and published four (4) new general licenses.

Executive Order 14068 on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression

EO 14068 immediately prohibited the following transactions and activities as of March 11, 2022:

• The importation into the United States of fish, seafood, and preparations thereof, alcoholic beverages, and non-industrial diamonds of “Russian Federation origin”;
• The exportation, reexportation, sale, or supply, directly or indirectly, from the U.S. or by a U.S. persons, wherever located, of luxury goods to any person located in Russia (this prohibition ban is covered in more depth below);
• The exportation, reexportation, sale, or supply, directly or indirectly from the U.S. or by a U.S. person of S. dollar-denominated banknotes to the “Government of the Russian Federation” or any person located in Russia;
• Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction made by a foreign person that would be prohibited under EO 14068 if performed by a U.S. person; and
• Any transaction by any person (whether a U.S. person or non-U.S. person) that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions above, as well as any conspiracies engaged in by any persons to violate those prohibitions.

EO 14068 also provides the U.S. Secretary of the Treasury, in consultation with the U.S. Secretary of State, with authority to prohibit new investment into certain sectors of the Russian economy as they may determine on a going-forward basis. Currently, the Secretary of the Treasury and Secretary of State have not prohibited new investment into any sectors of the Russian economy pursuant to EO 14068, however readers should be aware that another recent Executive Order (EO 14066) prohibits new investment into the energy sector of the Russian economy as of March 8, 2022 (as previously reported here).

OFAC Issues New General Licenses, SDN List Designations and FAQs

On March 11, 2022, concurrently with EO 14068’s issuance, OFAC issued three (3) new Russia-related General Licenses for transactions otherwise prohibited by EO 14068 and one (1) new Ukraine-related general license for transactions otherwise prohibited by EO 14065 of February 21, 2022:

• Russia-Related General License No. 17, which authorizes transactions that are ordinarily incident and necessary to the importation into the U.S. of fish, seafood, and preparations thereof; alcoholic beverages; or non-industrial diamonds of “Russian Federation origin”, if such transactions are pursuant to a written agreement entered into prior to March 11, 2022. Such imports are authorized until 12:01 a.m. eastern daylight time on March 25, 2022;
• Russia-Related General License No. 18, which authorizes transactions ordinarily incident and necessary to the transfer of U.S. dollar-denominated banknotes for noncommercial, personal remittances from (i) the U.S. or a U.S. person to an individual in Russia, or (ii) to a U.S. person who is an individual located in Russia. The license also provides that transferring institutions will comply if they rely on the originator of a funds transfer so long as the transferring institution does not know or have reason to know that the funds transfer is not compliant with this General License No. 18. However, General License No. 18 specifies that it does not authorize “charitable donations to or for the benefit of an entity or funds transfers for use in supporting or operating a business, including a family-owned business”;
• Russia-Related General License No. 19, which authorizes U.S. persons located in Russia to engage in all transactions in U.S. banknotes otherwise prohibited under EO 14068 that are ordinarily incident and necessary to their personal maintenance within Russia. Such payments include housing expenses, acquisition of goods or services for personal use, payment of taxes or fees, and purchase or receipt of permits, licenses, or public utility services; and
• Ukraine-Related General License No. 23, which authorizes all transactions otherwise prohibited by EO 14065 of February 21, 2022 (comprehensively sanctioning the Donetsk and Luhansk People’s Republics regions of Ukraine) that are ordinarily incident and necessary to certain enumerated activities by nongovernmental organizations.

OFAC also added more than thirty (30) individuals, one (1) vessel, and one (1) aircraft to the Specially Designated Nationals & Blocked Persons List (“SDN List”), including the entire Management Board of VTB Bank (VTB was previously designated on the SDN List on February 24, 2022), eleven (11) members of the Duma (one of Russia’s two national legislative chambers), and other elites close to President Vladimir Putin. Citing support for North Korean weapons of mass destruction and ballistic missiles program, OFAC also added two (2) individuals and three (3) entities to the SDN List under separate North Korea-related sanctions authorities.

Additionally, OFAC issued new Frequently Asked Questions (FAQ) guidance and updated one FAQ in order to address changes in U.S. sanctions policy resulting from EO 14068. Among other things, these new FAQs provide definitions for the terms “fish, seafood, and preparations thereof”, “alcoholic beverages” and “non-industrial diamonds”.

Although OFAC has issued several General Licenses which authorize certain specified transactions with recently sanctioned Russian financial institutions, OFAC did not amend any of those pre-existing General Licenses in connection with EO 14068 or issue any FAQ guidance to address potential inconsistencies between EO 14068 and those pre-existing General Licenses. Therefore, in the absence of further authorization from OFAC, persons seeking to transact with any Russian financial institutions sanctioned under EOs other than EO 14068 under any pre-existing General Licenses should not perform any transactions that would supply U.S. dollar-denominated banknotes to the Russian government or to persons in Russia.

BIS Prohibits Exports, Reexports, and Transfers of Luxury Goods “Subject to the EAR” to or within Russia and Belarus and to Certain Sanctioned Persons Worldwide

Effective March 11, 2022, a new Final Rule amended the U.S. Export Administration Regulations (“EAR”) to prohibit exports, reexports, and in-country transfers (collectively, “export activities”) of specifically listed “luxury goods” which are “subject to the EAR” to the entire countries of Russia and Belarus and to specific “oligarchs or malign actors” wherever they may be located in the world.

The Final Rule establishes a new Supplement No. 5 to Part 746 of the EAR which identifies the specific “luxury goods” that are subject to export activity restrictions. Supplement No. 5 contains hundreds of different types of goods which it identifies by 10-digit Schedule B Numbers and Commodity Descriptions, 2-digit Chapter Headings and (in some cases) Per Unit Wholesale Price thresholds. The “luxury goods” identified in Supplement No. 5 include (but are not limited to):

• Beverages, spirits, and vinegar
• Tobacco and manufactured tobacco substitutes
• Essential oils and resinoids, perfumery, and cosmetic or toilet preparations
• Plastics such as racquet strings, sports gloves, and yacht parts
• Leather goods such as suitcases, handbags, and golf bags
• Furskins, artificial fur, and items made thereof
• Wood statuettes and ornaments
• Unused postage, banknotes, check forms, etc.
• Silk
• Carpets and other textile floor coverings
• Special woven fabrics, tufted textile fabrics, lace, tapestries, trimmings, and embroidery
• Apparel and clothing accessories, whether or not knitted or crocheted
• Tents and certain camping goods made from cotton or other textile materials
• Other textile articles such as blankets, tents, sails, and lifejackets
• Footwear
• Headgear
• Ceramic products
• Glass and glassware
• Natural or cultural pearls, precious or semi-precious stones, precious metals, metal clad with precious metal and articles thereof, imitation jewelry, and coin
• Metal statuettes
• Marine engines
• Vehicles (including motorcycles and mopeds)
• Underwater breathing devices
• Clocks, watches, and parts thereof
• Grand pianos
• Ivory products
• Molded or carved wax products
• Artists brushes and similar brushes for cosmetics
• Fountain pens, stylograph pens, and other pens
• Powder puffs and pads to apply cosmetics
• Works of art, collectors’ pieces, and antiques

The majority of the listed luxury goods, if not all, would typically be classified with the catch-all “EAR99” designation and previously would not have required BIS licensing for export activities involving Russia or Belarus (except when destined for military end-users (“MEUs”)). Now, such export activities to Russia and Belarus are generally prohibited, subject to limited authorizations provided under License Exceptions BAG (excluding firearms and ammunition) and AVS (for saloon stores and supplies except for such saloon stores and supplies for aircraft registered in, owned or controlled by, or under charter or lease by Russia or Belarus, or nationals of either country). The Final Rule defines an “oligarch or malign actor” as any natural person who is listed on the SDN List with a designation of [RUSSIA-EO14024], [UKRAINE-EO13660], [UKRAINE-EO13661], [UKRAINE-EO13662], [UKRAINE-EO13685], [BELARUS], and [BELARUS-EO14038]. The Final Rule requires BIS to apply a policy of denial when reviewing applications to undertake export activities now prohibited by the Final Rule. However, the Final Rule did provide a savings clause which allows certain shipments that became prohibited as a result of the Final Rule to proceed if those shipments were en route aboard a carrier to a port of export, reexport, or in-country transfer pursuant to actual orders as of March 11, 2022.

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