President Biden signed an Executive Order prohibiting the importation into the United States of Russian origin crude oil, petroleum, petroleum fuels, oils, and products of their distillation; liquefied natural gas (LNG); coal; and coal products (the Banned Products). Pursuant to an OFAC general license, discussed below, the ban on imports takes effect on April 22. The Executive Order also bans, with immediate effect, new investment in the energy sector of the Russian Federation by U.S. persons and prohibits U.S. persons from approving, financing, facilitating or guaranteeing transactions by foreign persons that the U.S. persons cannot lawfully perform directly.
The new OFAC general license, General License No. 16, authorizes, through April 21, 2022, all transactions that are ordinarily incident and necessary to the importation into the United States of the Banned Products pursuant to written contracts or written agreements entered into prior to March 8, 2022.
Issuance of General License No. 16 was accompanied by the release of guidance in the form of Frequently Asked Questions (FAQs). Among other things, the FAQs clarify that the Executive Order does not prohibit imports “that are not of Russian Federation origin, even if such items transit through or depart from the Russian Federation” or prevent “U.S. persons from engaging in transactions to sell or re-direct shipments that were previously destined for the United States” if they are unable to avail themselves of General License No. 16.
The guidance also signals that OFAC plans to issue regulations that define, for the purposes of the Executive Order, “Russian Federation origin” to include “goods produced, manufactured, extracted, or processed in the Russian Federation, excluding any Russian Federation origin good that has been incorporated or substantially transformed into a foreign-made product” and “new investment in the energy sector in the Russian Federation” to include “a transaction that constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities (not including maintenance or repair) located or occurring in the Russian Federation beginning on or after March 8, 2022.” The guidance also provides interpretations of “a loan or extension of credit” and the “energy sector” for the purposes of these definitions.
Whether the Executive Order will sideline S. 3757, a bipartisan sponsored bill introduced in the Senate on March 3 and titled “A bill to prohibit the importation of crude oil, petroleum, petroleum products, liquefied natural gas and coal from the Russian Federation” remains to be seen, but it is not without precedent for Congress to proceed with enactment of sanctions legislation notwithstanding action taken by the President via Executive Order. The current draft of the bill proposes new legislation known as the “Ban Russian Energy Imports Act” which would ban “importation by any person subject to the jurisdiction of the United States of crude oil, petroleum, petroleum products, liquefied natural gas, and coal in which the Russian Federation or a national of the Russian Federation has any interest.” Arguably, the new Act would prohibit a broader range of transactions involving U.S. persons and interests of the Russian Federation and Russian nationals, compared to the Executive Order which is focused on a slightly longer list of Russian origin products and bans importation into the United States only. The bill also contains a savings clause that would apply to shipments in transit on the day of enactment.
The House also intends to consider legislation that would ban importation of Russian oil and other energy products, “take steps to review Russia’s access to the World Trade Organization,” and “authorize and strengthen the Global Magnitsky Human Rights Accountability Act so that the United States can impose further sanctions on Russia.”
The new Executive Order and pending legislation ramps up the pressure on the energy industry following last week’s implementation of export controls on items for use in the Russian oil refinery sector effective March 3. Also last week, OFAC issued additional guidance for the oil industry in the form of three FAQs.
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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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