In coordination with other G7 countries, the United States announced another significant round of sanctions and export control restrictions on Russia on Sunday, May 8.  These include a new ban on the provision of certain services to Russia, new export controls, and sanctions on Russia’s media and financial sectors, and further additions to the Office of Foreign Assets Control (OFAC) Specially Designated National (SDN) List.

Services Ban

The United States announced new sanctions on Russia that will prohibit the direct or indirect export, reexport, sale, or supply of accounting, trust and corporate formation, and management consulting services to any person in Russia.  The new sanctions will not apply to services provided to entities in Russia that are owned or controlled by a U.S. person or to services provided in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled by a Russian person.  In a new FAQ, OFAC indicates that it intends to issue regulations defining a “Russian person” to be individuals who are Russian citizens or nationals and entities organized under Russian law.

OFAC defines the sanctioned services as the following:

  • “‘Accounting service’ – includes services related to the measurement, processing, and transfer of financial data about economic entities.
  • ‘Trust and corporate formation services’ – includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts.  Please note that all of these activities are common activities of trust and corporate service providers (TCSPs), although they may be provided by other persons.
  • ‘Management consulting services’ – includes services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.”

The new sanctions are imposed pursuant to E.O. 14071 and will take effect on June 7, 2022.

Concurrent with the new sanctions, OFAC issued two general licenses temporarily authorizing the continued provision of certain services to Russia.  General License No. 34 authorizes transactions ordinarily incident and necessary to wind down the provision of sanctioned services to Russia until 12:01 am EDT on July 7, 2022.  General License No. 35 authorizes the export of credit rating and auditing services to Russia until 12:01 am EDT on August 20, 2022.  Neither general license authorizes dealings with SDNs or other blocked parties.

OFAC also issued a determination pursuant to E.O. 14024 that allows the agency to designate persons that operate or have operated in the accounting, trust and corporate formation services, or management consulting sectors of the Russian economy as SDNs in the future.  A new FAQ provides definitions for each sector.

New Industrial Export Controls

As announced on Sunday, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) issued a final rule today to expand export controls on equipment and other items that widely used by Russian industry.  The final rule imposes a U.S. license requirement on exports, reexports, and transfers of hundreds of common industrial and commercial items, including “wood products, industrial engines, boilers, motors, fans, and ventilation equipment, bulldozers, and many other items with industrial and commercial applications.”  In total, 205 HTS codes at the six-digit level and 478 corresponding 10-digit Schedule B numbers were added to Supplement No. 4 to Part 746 of the EAR, which lists items subject to Russian industry sector export controls.  BIS will review license requests for exports, reexports, and transfers of such items pursuant to a policy of denial, unless the proposed shipments are necessary for health and safety reasons or to meet humanitarian needs.

The U.S. Nuclear Regulatory Commission (NRC), which administers export controls on more sensitive nuclear items, will also suspend general licenses that previously permitted export of source material, special nuclear material, byproduct material, and deuterium to Russia.

Sanctions on Russian Media Outlets

On Sunday, OFAC designated three major Russian state-owned media outlets as SDNs: Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company.  OFAC amended General License No. 25A to prevent the general license from being used to provide telecommunications and internet communications services, software, hardware, or technology to the newly designated SDNs.

Additional SDNs

OFAC also designated as SDNs Moscow Industrial Bank (MIB) and ten MIB subsidiaries, 27 members of Gazprombank’s Board of Directors, eight current or recent members of SDN Sberbank’s Executive Board, seven shipping companies, one marine towing company, and Russian defense company Limited Liability Company Promtekhnologiya.  As of the date of the designations, all dealings with these persons are prohibited without authorization from OFAC and the property and interests in property of these persons must be formally blocked and reported to OFAC.

Background on USTR’s Section 301 Tariff Review: On Tuesday, May 3, USTR announced the initiation of a statutorily-required review of the tariff actions in the Section 301 investigation of China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation. (See Federal Register notice here.)

Under the statute, unless USTR receives a request for continuation and conducts a review of the case, Section 301 actions will automatically terminate after four years. The agency’s review must examine the effectiveness of the actions in achieving the objectives of the program as well as “the effects of such actions on the United States economy, including consumers.” USTR’s announcement serves as notice to domestic industries that benefit from the tariffs of their possible termination, as well as the opportunity to request their continuation.

USTR is considering all four tranches of Section 301 China tariffs at the same time. Section 301 tariffs were imposed on approximately $34 billion worth of Chinese imports on July 7, 2018 (List 1) and on another $16 billion on August 23, 2018 (List 2). Further modifications were made in September 2018 ($200 billion; List 3) and September 2019 ($110 billion; List 4A).

Deadline for Request for Continuation: Requests for continuation of the tariffs must be submitted prior to the four-year anniversary of the action, which is July 6, 2022, for the first action in the investigation and August 22, 2022 for the second action.

If one or more requests for continuation are submitted, which appears to be almost a certainty, USTR will publish a subsequent notice announcing the continuation of the tariff action and will proceed with a review of the tariffs. If USTR does not receive any requests for continuation (an outcome that appears highly unlikely), the tariffs would automatically terminate at the end of the four year period.

Submitting Comments: For the July 2018 trade action, the web portal at https://comments.ustr.gov/s/ will open for requests to continue the action on May 7, 2022, and close at 11:59 pm on July 5, 2022.

For the August 2018 trade action, the web portal at https://comments.ustr.gov/s/ will open for requests to continue the action on June 24, 2022, and close at 11:59 pm on August 22, 2022.

Requests should “identify the specific industry concerned and should address how the domestic industry benefits from the July 6, 2018 action or August 23, 2018 action, as modified.”

The USTR notice says that entities who wish for the continuation of tariffs under List 3 or List 4A may submit requests through either portal.  We recommend, however, that interested parties that support continuation of Section 301 tariffs on List 3 or List 4A items submit a letter expressing support for continuation of the tariffs to both portals.

Review Timeline: Assuming USTR receives requests for continuation, a formal announcement (i.e., Federal Register Notice) will be published and the tariffs will remain in place while USTR conducts the review. The review will include separate public comment opportunities for interested parties, during which USTR will accept comments on “the effectiveness of the action in achieving the objectives of Section 301, other actions that could be taken, and the effects of such actions on the United States economy, including consumers.”

There is no timeline for the review and no deadline for USTR to report its results.

Today, the Biden Administration announced a legislative proposal aimed at empowering the U.S. government to seize and forfeit property linked to Russian elites.  Specifically, the proposed system would enhance and streamline the seizure and forfeiture of Russian oligarch assets and provide for the liquidation and redistribution of proceeds to support Ukraine.  The announcement unveiled the following items as part of the proposed legislative package:

  • Establishment of an interagency process for forfeiture of Russian oligarch property connected to unlawful conduct, with forfeiture decisions appealable to a Federal Court on an expedited basis;
  • Criminalization of the knowing or intentional possession of proceeds derived from corrupt dealings with the Russian Government;
  • Direction of forfeited funds derived from corrupt practices and violations of U.S. export laws violations to Ukraine;
  • Authorized forfeiture of seized property used to facilitate violation of sanctions rules;
  • Designation of sanctions evasion as a “racketeering activity” under the Racketeering Influenced and Corrupt Organization Act, which would subject perpetrators to intensive Department of Justice investigation and prosecution;
  • Increase of the statute of limitations for money laundering prohibitions and post-conviction forfeitures from 5 to 10 years;
  • Enhancement of cooperation between the United States and allies by improving authorities to enforce foreign restraint and forfeiture orders.

The Administration’s announcement arrives amid reports of burgeoning domestic and international enforcement efforts against the property of Russian oligarchs, and demands for greater assistance to Ukraine.  There are indications that such measures have found bipartisan support within the United States, as well as reports that the European Union and Canada may implement similar measures to fund Ukraine assistance programs using frozen Russian assets.

A similar bill, authorizing seizure of Russian oligarch property, recently passed in the U.S. House of Representatives, a development that bodes well for the Biden Administration’s proposal.

Yesterday, the White House issued a proclamation banning Russian-affiliated vessels from entering U.S. ports in response to Russia’s continued aggression in Ukraine, effective April 28, 2022. Banned vessels include Russian-flagged vessels, vessels owned by Russian persons, and vessels that are Russian operated. The order authorizes the U.S. Department of Homeland Security to issue regulations to implement the ban.

Russian vessels that are carrying certain nuclear materials or that need to dock in a U.S. port on the grounds of “conducting crew changes, emergency medical care, or for other humanitarian need” are exempted from the ban.

The move by the United States follows similar actions by the European Union and Canada.

On April 19, 2022, the Office of Foreign Assets Control (OFAC) issued a fact sheet with guidance on various humanitarian general licenses that authorize activities otherwise prohibited by U.S. sanctions, and respond to the threat Russia’s war in Ukraine poses to global food and energy supply chains.  The fact sheet provides consolidated guidance to non-governmental organizations, financial institutions, companies, and others regarding OFAC’s authorizations for humanitarian assistance, agricultural trade, the provision of medical supplies and services, and other support to people impacted by the war.

Concurrent with the publication of the fact sheet, OFAC issued General License (GL) No. 27, which additionally authorizes certain humanitarian relief efforts by nongovernmental organizations.

Background

As primarily chronicled hereherehere, and here, in response to the war in Ukraine, the United States established the new Russian Harmful Foreign Activities sanctions program (codified as Russian Harmful Foreign Activities Sanctions Regulations (RuHSR) at 31 C.F.R. part 587), which targets a variety of activities involving Russia.  OFAC also expanded the embargo against the Crimea region of Ukraine under the existing Ukraine-/Russia-related sanctions program to impose embargo restrictions on the breakaway regions of the so-called Donetsk People’s Republic (DNR) and the Luhansk People’s Republic (LNR).  Although sanctions against Russia are expansive, OFAC has issued a variety of authorizations to support the people of Ukraine and Russia impacted by the war.

Authorizations to Support the People of Ukraine and Russia

Authorizations under the RuHSR include:

  • GL 6A – Authorizing certain transactions related to the exportation or reexportation of agricultural commodities; medicine; medical devices, replacement parts and components or software updates; the coronavirus disease 2019 (COVID-19) pandemic, or clinical trials
  • GL 25 – Authorizing certain transactions related to telecommunications and internet-based communications
  • GL 27 – Authorizing certain transactions in support of nongovernmental organizations’ activities, including activities to support humanitarian projects; democracy-building initiatives; health, food security, and water and sanitation projects; education; and environmental and natural resource protection
  • GL 18 – Authorizing U.S. dollar-denominated banknote noncommercial, personal remittances
  • GL 19 – Authorizing transactions related the personal maintenance of U.S. individuals located in Russia
  • Section 587.508 – Authorizing the provision and receipt of nonscheduled emergency medical services
  • Sections 587.205(b), 587.510 – Exempting transactions for the conduct of the official business of the U.S. government and the United Nations (including its specialized agencies and programs)
  • GL 7 – Authorizing overflight payments, emergency landings, and air ambulance service

Authorizations under Ukraine-/Russia-related sanctions program include:

Concerning Crimea

  • GL 4 – Authorizing the exportation or re exportation of agricultural commodities, medicine, medical supplies, and replacement parts
  • GL 6 – Authorizing noncommercial, personal remittances
  • GL 7 – Authorizing the operation of an account in a U.S. financial institution for ordinary residents of Crimea
  • GL 9 – Authorizing the exportation of certain services and software incident to internet-based communications
  • GL 25 – Authorizing journalistic activities and the establishment of news bureaus to engage in certain transactions in Crimea

Concerning DNR/LNR

  • GL 18 – Authorizing the exportation or re exportation of agricultural commodities, medicine, medical devices, replacement parts and components, or software updates and transactions related to the COVID-19 pandemic
  • GL 19 – Authorizing certain transactions related to the receipt or transmission or telecommunications, as well as certain transactions of common carriers involving mail and packages
  • GL 20 – Authorizing transactions for the conduct of the official business of certain international organizations and entities
  • GL 21 – Authorizing noncommercial, personal remittances and the operation of accounts of an ordinary resident in DNR and LNR
  • GL 22 – Authorizing the exportation of certain services and software incident to internet-based communications
  • GL 23 – Authorizing certain transactions in support of nongovernmental organizations’ activities in DNR and LNR
  • GL 24 – Authorizing transactions related to the provision of maritime services performed by individuals who are ordinarily resident in DNR and LNR
  • GL 25 – Authorizing news reporting organizations and employees in DNR and LNR to engage in certain transactions related to journalistic activities

Entities responding to the crisis in Ukraine or otherwise impacted by U.S. sanctions on Russia should carefully review the fact sheet, any relevant general licenses in detail, and associated FAQs issued by OFAC.


Today, the U.S. Office of Foreign Assets Control (OFAC) designated Transkapitalbank, a privately-held Russian commercial bank, and its subsidiary, Investtradebank, as Specially Designated Nationals (SDNs). OFAC imposed blocking sanctions on the banks due to their role in facilitating U.S. dollar payments for sanctioned clients and the development of systems designed to evade U.S. and EU sanctions.  U.S. persons are broadly prohibited from conducting business with the banksor with entities that are owned 50 percent or more by the newly designated SDNs without authorization from OFAC.  U.S. persons must also formally “block” (freeze and report) any property or interests in property of the banks that are in theirpossession or control.

OFAC issued two temporary general licenses authorizing limited continued dealings with Transkapitalbank.  First, OFAC issued a general license authorizing certain transactions involving Transkapitalbank that are destined to or originating from Afghanistan in order to support humanitarian relief efforts in that country.  Second, OFAC issued a general license authorizing U.S. persons to wind down certain transactions involving Transkapitalbank and its majority-owned entities through 12:01 am EDT on May 20, 2022, subject to the limitations specified in the license.

Bitriver

OFAC also designated virtual currency mining company Bitriver AG and its Russian subsidiaries as SDNs today.  As with the action against Transkapitalbank, the designation of Bitriver broadly prohibits U.S. persons and those in the United States from conducting transactions involving Bitriver or its property and interests in property, and requires U.S. persons to formally freeze any property or interests in property of Bitriver in their possession or control.  OFAC designated Bitriver to prevent the company from obtaining imported computer equipment and conducting fiat payments necessary to support their business, reducing the ability of Russia to use virtual currencies to offset the impact of sanctions.

Evasion Network

Separately, OFAC updated sanctions on Russian oligarch Konstantin Malofeyev and designated a network of individuals and entities that support Malofeyev’s activities, including those related to sanctions evasion and misinformation campaigns.

New FAQ on Credit Cards

Today, OFAC also issued a new FAQ clarifying the obligations of credit card systems operators under U.S. Russia- and Belarus- related sanctions.  U.S. credit card operators and acquirers are prohibited from processing transactions involving listed foreign financial institutions absent authorization from OFAC.  OFAC also indicates that non-U.S. operators whose payment cards are issued by listed foreign financial institutions would be exposed to U.S. sanctions risks to the extent that those payment cards are used in the United States.  Accordingly, OFAC encourages U.S. persons, including credit card systems operators, to exercise caution and adopt due diligence processes for dealings with non-U.S. operators known to host payment cards issued by sanctioned financial institutions, and whose cards are accepted in the United States.

Yesterday, the United Kingdom imposed additional restrictions on trade with Russia, including a luxury goods export ban, an iron and steel import ban, and asset freeze restrictions on over two-hundred Russian actors.  Notable sanctions targets include Eugene Tenenbaum and David Davidovich, prominent business associates of Roman Abramovich, whose frozen assets are estimated to be valued at about £10 billion.

Trade Restrictions on Luxury Products, Iron, and Steel

Matching recent actions by the United States, European Union, and other G7 countries, the UK amended its Russia sanctions to prohibit the export of luxury goods destined for Russia and the import of Russian iron and steel products.  The list of items subject to the UK trade restrictions are specified in accompanying schedules.

Under the luxury goods export ban, those subject to UK jurisdiction are prohibited from exporting specified luxury goods to or for use in Russia.  The ban also prohibits the following activities:

  • Supplying or delivering luxury goods from a third country to a place in Russia;
  • Making luxury goods available to a person connected with Russia;
  • Making luxury goods available for use in Russia.

The iron and steel import ban applies to all specified products that are cosigned from or originate in Russia.  The prohibition applies to the direct or indirect acquisition of iron and steel products which originate in or are located in Russia.

Asset Freeze

The United Kingdom also imposed asset freeze restrictions on over two-hundred Russian targets in recent days.  The first measure added 206 entries; 178 of the additions were coordinated with the European Union to target supporters of the breakaway regions in Ukraine.  The UK’s second measure designated Eugene Tenenbaum, a director of Chelsea Football Club, and David Davidovich.  Tenenbaum and Davidovich are business associates of Roman Abramovich with substantial holdings in the UK.

All accounts, and other funds or economic resources, and any funds owned or controlled by designated individuals and entities in the UK must be frozen and UK persons must refrain from dealing with frozen funds or assets unless authorized.  As with U.S. blocking restrictions, reporting and anti-circumvention requirements apply.

In a rule change that was effective April 8, 2022, but communicated on April 11, 2022 the Commerce Department’s Bureau of Industry and Security (BIS) expanded coverage of export controls on Russia and Belarus to include any item with an Export Control Classification Number (ECCN).  Prior controls applied to items in Commerce Control List (CCL) Categories 3–9, but this rule expands export controls to cover Categories 0 (miscellaneous), 1 (materials), and 2 (materials processing) as well.  The expansion comes with corresponding revisions to BIS’s Russia- and Belarus-related foreign direct product rule (Russia/Belarus FDP rule).

Under the final rule, U.S. persons are broadly prohibited from exporting, reexporting, or transferring to Russia or Belarus not only U.S. goods, software, and technology listed on Categories 0 through 9 of the CCL, but also foreign-produced items that are derived from the same.   Newly controlled items include the following:

  • Certain composite materials;
  • Certain medical and biological products;
  • Pumps, valves, machine tools; and
  • All other controlled items, including materials and materials processing equipment, software, and technology.

This action marks a substantial expansion of BIS’s regulatory reach.  First, all items with an ECCN, i.e., those that are not designated as EAR99, are now subject to BIS’s Russia- and Belarus- related export controls.

Second, items made entirely outside the United States that are produced using U.S.-origin software or technology included in an ECCN, or made using a variety of commodities covered by ECCNs, require U.S. export licenses to be shipped from foreign destinations to Russia or Belarus under the expanded Russia/Belarus FDP rule.   As a result, non-U.S. sales involving the shipment of goods made outside the United States to Russia or Belarus may be subject to restrictions where U.S. know-how or products were involved in the non-U.S. manufacturing process.  The Russia/Belarus FDP rules are complex and far reaching–we have not described them in full here.

Third, the final rule expanded existing limitations on the availability of License Exception AVS to include aircraft registered in, owned or controlled by, or under charter or lease by Belarus or a national of Belarus, as opposed to only Russian aircraft.

All covered transactions will be subject to U.S. export license requirements.  With limited exception, BIS will review license applications involving items covered by the rules described above under a policy of denial.

Please contact our sanctions and export control team with questions about ensuring compliance with BIS’s latest export controls.

Today, the European Union published its fifth major round of sanctions on Russia and Belarus.  The sanctions package includes a full transaction ban on four major Russian banks, port and transportation sanctions, import bans on coal, wood, cement, seafood, and liquor, an export ban on jet fuel and certain sensitive goods, additional asset freezes, and measures intended to close loopholes in existing sanctions.

The new Russia measures can be found here, and the Belarus measures are available here.

Bank Sanctions

The EU expanded existing banking sanctions by imposing asset freeze on VTB Bank, Sovcombank, Novikombank, and Otkritie FC Bank.  These banks were previously cut off from the SWIFT network and were listed as Specially Designated Nationals by the United States.

Port & Transport Ban

Today’s measures will ban vessels registered under the flag of Russia from entering EU ports after April 16, 2022 and will prohibit any Russian or Belarusian “road transport undertaking” from transporting goods by road within the EU, including in transit.  A “road transport undertaking” is any person or body commercially engaged in the transport of freight by means of motor vehicles or combinations of vehicles.

Import Bans

The sanctions prohibit the purchase, import, or transfer coal and certain other solid fossil fuels into the EU if they originate in Russia or are exported from Russia.  The EU also imposed import bans on certain wood, cement, fertilizers, seafood and liquor products from Russia.  Banned items are listed in Annexes XXII and XXI of (EU) No 833/2014, respectively.

Export Ban

Under the new rules, it is prohibited to export jet fuel and certain sensitive goods to Russia, including quantum computers and advanced semiconductors, high-end electronics, software, certain machinery and transportation equipment.  These items are listed in Annex XXIII of (EU) No 833/2014.

Additional Designations

The EU imposed asset freeze sanctions today on a number of Russian companies, officials, oligarchs, and their family members, including Vladimir Putin’s daughters; German Gref, the CEO of Sberbank; and Oleg Deripaska.

Amendments to Existing Sanctions

The EU also imposed or updated a number of measures to strengthen existing measures and close perceived loopholes in the EU sanctions regime.  These measures include:

  • A general ban on the participation of Russian companies in public procurement in member states;
  • The exclusion of all financial support to Russian public bodies;
  • An extended prohibition on deposits to cryptowallets; and
  • An extension of the ban on the export of euro-denominated banknotes and on the sale of euro-denominated transferrable securities to Russia and Belarus, and persons in those countries, to all official currencies of the EU member states.

On April 7, the U.S. Office of Foreign Assets Control (OFAC) issued a new General License No. 25 (GL25) authorizing certain transactions ordinarily incident to telecommunications and the exchange of communications over the internet in Russia.

GL25 authorizes U.S. persons to engage in transactions that are ordinarily incident and necessary to the to the receipt or transmission of telecommunications involving Russia that are prohibited by OFAC’s Russian Harmful Foreign Activities Sanctions Regulations (31 C.F.R. Part 587), subject to the limitations specified in the license.

GL25 also authorizes U.S. persons to provide services, software, hardware, or technology to Russia incident to the exchange of communications over the internet that would otherwise be prohibited by Part 587.  Qualifying services include instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services.

GL25 does not authorize the opening or maintaining of a correspondent account or payable-through account prohibited under Directive 2 to E.O. 14024; debits to the accounts of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; or transactions that are prohibited by Executive Orders 14066 or 14068.  Note that GL25 does not relieve exporters from separate licensing obligations governing exports and reexports of goods, software, and technology to Russia under U.S. export control rules, including the Export Administration Regulations.

U.S. and global companies that provide telecommunications and internet communications services to Russia should carefully review the scope of the authorized activities for potential application to their business.