On May 19, 2023, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the US Department of Commerce’s Bureau of Industry and Security (“BIS”) implemented further economic sanctions and export controls targeting Russia and Belarus. The OFAC press release and BIS press release both underscore the US Government’s close coordination with international partners and allies to align new restrictions on Russia and Belarus. In addition, the Leaders of the G7 released a statement, which pledged continued financial, humanitarian, and diplomatic support to Ukraine and further sanctions and measures to increase the costs to Russia and those who continue to support the war effort.
OFAC Updates to Russia Sanctions
OFAC designated 46 individuals, 194 entities, 7 vessels, and 76 aircraft as Specially Designated Nationals (“SDNs”) for evading or circumventing Russia sanctions. In addition, OFAC issued (a) four General Licenses (“GLs”), (b) one amended directive, and (c) two determinations, alongside several related Frequently Asked Questions (“FAQs”). We discuss each below.
Russia-Related General Licenses
OFAC extended one existing GL and issued three new GLs to authorize certain wind-down activities with Public Joint Stock Company Polyus (“Polyus”) and five educational institutions that were designated as SDNs on May 19, 2023:
Russia-Related Directive 4
OFAC also amended Russia-related Directive 4 under Executive Order 14024 (“Directive 4”) and updated FAQs 998-1002, 1004-1005, and 1118. Directive 4 as amended imposes a reporting requirement on US persons who are in possession or control of property in which the CBR, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation (“Directive 4 Entities”) has an interest. FAQ 998 explains that the reporting requirement is intended to identify assets of Directive 4 Entities held by US persons as of May 31, 2023, and annually thereafter. This reporting requirement is separate from OFAC’s reporting requirement for rejected transactions involving any Directive 4 Entity pursuant to 31 C.F.R. § 501.604. US persons must submit a report to [email protected] on or before June 18, 2023, and annually thereafter by June 30.
Russia-Related Determinations and FAQs
Finally, OFAC published a Determination Pursuant to Section 1(a)(i) of EO 14024 (“EO 14024 Determination”) and a Determination Pursuant to Section 1(a)(ii) of EO 14071 (“EO 14071 Determination”), alongside related new FAQs 1126-1128, and amended FAQs 1059 and 1061-1062.
The EO 14024 Determination expands authorities for the imposition of blocking sanctions against any person identified by the Secretary of the Treasury, in consultation with the Secretary of State, as operating in the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy. Any person determined to operate or have operated in these sectors therefore risks being designated as an SDN. FAQ 1126 defines the relevant terms as follows:
Similar Determinations have been issued for the technology and defense related materials sectors (as of April 15, 2021); the financial services sector (as of February 22, 2022); the aerospace, electronics, and marine sectors (as of March 31, 2022); the accounting, trust and corporate formation services and management consulting sectors (as of May 8, 2022); the quantum computing sector (as of September 15, 2022); and the metals and mining sectors (as of February 24, 2023) (collectively, “EO 14024 Determinations”). Our blog posts on earlier EO 14024 Determinations are available here, here, here, here, and here. The Department of State has designated or identified as blocked property almost 200 individuals, entities, vessels, and aircraft pursuant to the above EO 14024 Determinations, including the technology, marine, and defense sectors.
The EO 14071 Determination expands restrictions of Section 1(a)(i) of EO 14071 to Russia’s architecture and engineering sectors. With this addition, the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US person, wherever located, of architecture services and engineering services to any person located in the Russian Federation is now prohibited. This prohibition will take effect beginning at 12:01 a.m. eastern daylight time on June 18, 2023. FAQ 1128 defines relevant terms as follows:
Similar Determinations have been issued for accounting, trust and corporate formation services and management consulting services (as of May 8, 2022); quantum computing services (as of September 15, 2022); and services related to the maritime transport of Russian petroleum products (as of December 5, 2022 and February 5, 2023) (collectively, “EO 14071 Determinations”). Our blog posts on earlier EO 14071 Determinations are available here, here, here, and here.
BIS Updates to Export Controls for Russia, Belarus, and Iran
BIS announced (a) expansive changes to the Export Administration Regulations (“EAR”) related to Russia and Belarus, (b) 71 designations to the Entity List, and (c) its second joint alert (the “Second Joint Alert”) with Treasury’s Financial Crimes Enforcement Network (“FinCEN”) related to Russian export control evasion.
Changes to the EAR
BIS issued a new rule (the “Rule”) expanding controls relating to Russia and Belarus to continue efforts to impose powerful restrictions on Russia and Belarus for Russia’s invasion of Ukraine and diversion of items through Belarus. These efforts were achieved in close cooperation and coordination with international partners and allies. Specifically, the Rule:
The Rule provides a standard savings clause that applies to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination en route on May 19, 2023, provided the export, reexport, or transfer (in-country) is completed no later than on June 20, 2023.
Entity List Designations
BIS added 71 entities to the Entity List, primarily for supporting Russia’s military and defense sectors, which included 69 Russian entities, 1 Armenian entity, and 1 Kyrgyz entity.
BIS and FinCEN Joint Alert
Lastly, BIS released a Second Joint Alert with FinCEN, which urges continued vigilance by US financial institutions against potential Russian export control evasion. The Second Joint Alert provides financial institutions additional information with respect to new BIS export control restrictions related to Russia and details evasion typologies and transactional and behavioral red flags to assist financial institutions. Our blog post related to BIS and FinCEN’s first joint alert is available here.
Mr. McMillan’s practice involves compliance counseling; compliance programs; licensing; compliance reviews; internal investigations; voluntary disclosures; administrative enforcement actions; criminal investigations; customs inquiries, audits, detentions, and seizures; and trade-compliance due diligence and post-acquisition integration in mergers and acquisitions. His practice includes matters that implicate the US International Traffic in Arms Regulations (ITAR), US Export Administration Regulations (EAR), US National Industrial Security Program (NISP), the US Committee on Foreign Investment in the United States (CFIUS), and equivalent non-US laws. Mr. McMillan regularly advises on and represents clients in matters involving technology, including its control, protection, accidental disclosure, diversion, or unauthorized collection. Mr. McMillan has extensive experience working with companies in the aerospace and defense industry, as well as companies in the Middle East and other parts of Asia.
Ms. Test advices clients on issues relating to licensing, regulatory interpretations, enforcement actions, internal investigations and compliance audits, as well as the design, implementation and administration of compliance programs. She also advises clients on the extra-territorial application of trade compliance-related regulations in cross-border transactions.
Alex is an associate in the Washington, DC office where she is a member of the International Commercial Practice Group. Her practice is focused on international trade, particularly compliance with US export controls, trade and economic sanctions, and antiboycott controls. Admitted in New York and Washington, DC.
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