U.S. government agencies announced this week that they have suspended issuing export licenses to companies sending or releasing sensitive goods, services and technology to Russia. This development will prevent companies from sending or releasing certain export-controlled items from the United States, or third countries, to Russia and may prevent certain companies from hiring Russian nationals. In addition, the U.S. Congress acted this week to codify and expand sanctions against Russia that were already implemented by the Obama Administration. This update details developments in addition to those reported last week.
The United States Implements a Policy of Denial for Export Licenses of Items to Russia
Earlier this week, the Department of Commerce’s Bureau of Industry and Security (BIS) publicly stated that it had suspended issuing licenses to companies sending or releasing certain dual-use items to Russia, effective March 1, 2014. On March 27, the Department of State’s Directorate of Defense Trade Controls (DDTC) also publicly confirmed that it would not authorize the export of defense articles or services to Russia. Both agencies stated that this policy of export license denial will remain in effect until further notice. No rationale or guidance has been provided regarding the suspension of export licenses for items to Russia; thus, it is unclear how long this policy will remain in effect or what events might cause its reversal.
Under U.S. export controls, BIS and DDTC issue export licenses that permit companies to send or release certain items to foreign locations or foreign nationals. BIS issues export licenses for dual-use items under the Export Administration Regulations (EAR), and DDTC issues export licenses for defense articles or services under the International Traffic in Arms Regulations (ITAR).
Under the EAR, in addition to sanctions on prohibited end uses and end users, items controlled for purposes of Crime Control (CC), Chemical and Biological Weapons (CB), Missile Technology (MT), National Security (NS) and Short Supply (SS) require an export license for export to Russia. Items are considered dual-use items if they have both legitimate commercial uses as well as uses that may further the development, production or use of, for example, weapons. Companies must know the Export Classification Control Number (ECCN) of an item to determine whether an export license is required to export the item to Russia.
Under the ITAR, companies must know whether they are providing defense articles or services to Russia to determine whether an export license is required.
It is important to note that the new policy of denial for export licenses to Russia does not expand the scope of items subject to export license requirements under the EAR or ITAR.
U.S. regulations may also apply to non-U.S. companies, who must obtain licenses for reexport of certain items to Russia, depending on the item involved and, under the EAR, the level of U.S.-controlled content in the item, among other things.
Additionally, U.S. companies that hire Russian nationals must obtain export licenses (known as deemed export licenses) if the Russian national will have access to certain technology, technical data or software that is controlled under the EAR or ITAR. BIS and DDTC have not stated whether the license denial policy will extend to deemed export licenses requested for Russian nationals. Companies should assume, however, that their ability to hire Russian nationals, or to include Russian nationals in the development of new technologies, may be blocked by the inability to obtain the necessary deemed export licenses.
Congress Proposes to Codify and Expand U.S. Sanctions Against Ukraine and Russia
Both the U.S. House of Representatives and the Senate passed bills on Thursday, March 27, that would codify the sanctions framework already implemented by the Obama Administration and would expand the list of individuals targeted by U.S. sanctions. Although minor differences between the bills must be resolved, a final bill is expected to be sent to the President for signing shortly.
Both bills are consistent with sanctions imposed by the Obama Administration, although they expand the list of activities for which individuals may be penalized under U.S. sanctions. For example, both bills call for sanctions against individuals responsible for human rights abuses and acts of corruption in Ukraine. The bills also target individuals found to be engaging in acts of corruption in Russia. Under both bills, after individuals are determined to have been involved in targeted activities, those individuals will be designated as Specially Designated Nationals (SDNs), which would result in their assets being frozen and any visa applications for entry into the United States being denied. U.S. persons transacting with SDNs will face the imposition of severe penalties.
Members of Congress have stated that the sanctions contained in the bills are only first steps and that both chambers of Congress will be considering further sanctions against Russia.
Non-U.S. Sanctions Against Russia
Other jurisdictions have adopted important sanctions against Russia for its actions against Ukraine, and are threatening to expand their sanctions regimes.
The United Kingdom suspended export licenses for the sale of defense and dual-use items to Russia’s military and other Russian government agencies.
The European Union imposed sanctions targeting certain Russian individuals, and is reportedly considering additional sanctions.
Canada imposed sanctions against Russian officials and recalled its ambassador from Russia.
Australia imposed sanctions against Russian officials and the Russian financial sector.
Companies doing business in any of these, and other, jurisdictions will have to consider the impact of multiple sanctions regimes on their business transactions with Russia.
Steps U.S. Companies Can Take Now
Immediately reconsider transactions with Russia that require an export license from BIS or DDTC.
Inform non-U.S. parties that send or release the company’s product to Russia that BIS and DDTC export licenses will not be approved for items going to Russia.
Companies with technology, software or technical data that is controlled under the ITAR or EAR, should consider whether they can hire Russian nationals without obtaining a deemed export license, and should implement policies and procedures to prevent the release of technology, software or technical data to Russian nationals whose access has not already been authorized by a deemed export license.
Consider whether non-U.S. sanctions apply to a company’s operations in addition to U.S. sanctions and, if so, whether the sanctions regimes may impose different, and potentially inconsistent, obligations.
Review compliance policies to ensure that they correctly identify when an export license is required for items being exported to Russia. As noted above, the new policy of denial for export licenses to Russia does not expand the scope of items subject to export license requirements under the EAR or ITAR.