Last Friday, on the anniversary of the Ukraine invasion, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) took significant action by imposing sanctions against the Russian economy, targeting Russia’s financial services sector, sanctions evasion networks, military supply chains, and metals and mining sector.  The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), concurrently, amended the Export Administration Regulations (“EAR”) to extend export controls on Russia and Belarus and align U.S. restrictions with those of U.S. allies.  BIS listed nearly 90 Russian and third-country entities (here and here) for engaging in sanctions evasion and activities that support Russia’s military.  BIS also extended restrictions on luxury goods, as well as issued new restrictions targeting the supply of Iranian drones to Russia

New Blocking Sanctions: Financial Services, Wealth Management, Sanctions Evasion, Metals and Mining

In total, OFAC added 22 individuals and 83 entities to its list of Specially Designated Nationals (“SDN”) for their connections to Russia’s economy and war efforts.  U.S. persons are broadly prohibited from conducting business with SDNs or entities owned 50 percent or more by SDNs, and U.S. persons must formally “block” (freeze and report) any property or interests in property that are in an SDN’s possession or control.  Moreover, non-U.S. dealings with SDNs may risk exposure to sanctions in the future.

OFAC sanctioned Russian banks and key parties involved in wealth management within Russia’s financial services sector.  Notably, OFAC designated the Credit Bank of Moscow and prominent Russian national and Rosbank executive Ulan Vladimirovich Ilishkin.  (Rosbank itself was designated an SDN late last year.)  OFAC also designated members of cross-border networks that support Russia’s evasion of U.S. sanctions, such as by procuring sensitive Western technologies, arms, and securing illicit financing for Russian intelligence and defense.  OFAC’s action additionally targets military supply chains, including  several parties operating in Russia’s aerospace sector, and individuals and Russia’s technology and electronics sector, and more.

OFAC issued a new determination to E.O. 14024 that identifies and authorizes OFAC to impose sanctions on actors operating within the metals and mining sector of the Russian economy.  As a result, any person determined to operate within that sector may risk blocking sanctions.

In connection with the above, OFAC issued Russia-related General Licenses Nos. 60 and 61.  General License No. 60 authorizes the wind down and rejection of transactions involving designated financial institutions through 12:01 a.m. eastern daylight time, May 25, 2023.   General License No. 61 authorizes the wind down of certain securities and derivatives transactions involving designated financial institutions through 12:01 a.m. eastern daylight time, May 25, 2023.  OFAC also updated existing general licenses:  General License No. 8F expands the authorization relating to the processing of certain energy-related transactions to include certain newly designated financial institutions.  And General License No. 13D extends,  through 12:01 a.m. eastern daylight time, June 6, 2023, the authorization to conduct certain administrative transactions prohibited by Directive 4, such as taxes, fees, or import duties.

Enhanced Export Control Restrictions on Russia and Belarus, New Entity List Designations, and New Restrictions Targeting Iranian Drones

BIS added nearly 90 entities to the Entity List for their activities contributing to the Russian defense sector and the war in Ukraine.  As a result, most exports of U.S. items, including technical know-how, to these entities require a license from BIS.  The listings prevent these entities from procuring key U.S. components, like semiconductors, that can be used for military applications.

BIS also expanded existing export control restrictions to align with U.S. allies’ measures.  In particular, BIS added new industrial and commercial items used in Russian and Belarusian industry that now require an export license.  Many of the items are so-called EAR99 items, like electric coffee or tea makers, that would not have previously required an authorization for export, reexport, or transfer to Russia or Belarus.  BIS also extended “luxury goods” controls by requiring a license to export, reexport, or transfer an additional 276 luxury items, ranging from hair dryers to keyboards, destined for Russian and Belarusian oligarchs and malign actors.  The new export restrictions aim to impose additional costs on Russian and Belarusian industry and persons supporting the war in Ukraine.

Finally, BIS imposed a new license requirement on certain EAR99 items destined for Iran, regardless of U.S. person involvement, that may be used in Iranian Unmanned Aerial Vehicles (“UAVs”).  BIS also added a new foreign direct product rule that brings within the scope of the EAR certain foreign-produced items.  Consequently, items made outside of the United States may require a license to export, reexport, or transfer to Iran.  The measures are intended to address Russia’s use of UAVs in Ukraine.

The Office of Foreign Assets Control (“OFAC”) recently announced a settlement agreement with Danfoss A/S (“Danfoss” or “the company”) in response to allegations that Danfoss directed its customers in Iran, Syria, and Sudan to make payments through third-party agents to Danfoss’s bank account at the branch of a U.S. financial institution located in the United Arab Emirates (“UAE”). These directions apparently came to customers via Danfoss FZCO, Danfoss’s wholly owned UAE entity. 

According to OFAC, the Danish manufacturer of cooling products directed its sanctioned customers to remit payments to the U.S. financial institution in the UAE worth a total value of approximately $17 million.  OFAC indicated that although Danfoss FZCO did not willfully use third-party agents for the purpose of evading sanctions, it ignored or failed to respond to red flags that its activities could be considered in violation of U.S. sanctions regulations. 

The company’s inability to recognize these red flags, according to OFAC, came from deficiencies within its own sanctions compliance program.

OFAC considered Danfoss’s activities to be “non-egregious” (e.g., the transactions did not involve willful or reckless conduct and did not present serious harm to sanctions program objectives) and assessed a maximum civil penalty equal to the sum of the applicable schedule amount for each violation. OFAC did find several mitigating factors, and as a result, OFAC assessed Danfoss’s ultimate penalty to be $4,379,810. 

Having a robust sanctions compliance program in place, and regular compliance training for employees is critical to avoiding these types of penalties.

Today, the Office of Foreign Assets Control (“OFAC”) added Russian oligarch Vladimir Potanin along with several of his companies to the Specially Designated Nationals (“SDN”) List.  OFAC’s action specifically targets Mr. Potanin, Interros, an investment holding company controlled by Mr. Potanin, and Rosbank, a major Russian bank owned by Interros.  U.S. persons are prohibited from engaging, directly or indirectly, in any transaction or activity involving an SDN, as well as with any entities owned 50 percent or more, directly or indirectly, by one or more SDN(s). 

According to OFAC’s press release, Mr. Potanin is a close associate of President Vladimir Potanin, and Rosbank has served as an important credit institution for the Government of Russia, helping to fuel the war in Ukraine.  Mr. Potanin is also a major shareholder of Norilsk Nickel, one of the world’s largest producers of palladium and refined nickel.  OFAC confirmed in an FAQ that Norilsk Nickel is not blocked as a result of Mr. Potanin’s designation, which is consistent with publicly available information that Mr. Potanin owns less than the 50 percent required to trigger the extension of blocking sanctions on Norilsk Nickel.

Concurrent with Rosbank’s designation, OFAC issued General Licenses (“GLs”) 58 and 59 that authorize certain wind-down activities until 12:01 AM eastern daylight time, March 15, 2023.  GL 58 authorizes transactions ordinarily incident and necessary to exit operations, contracts, or other agreements involving Rosbank or entities owned 50 percent or more, directly or indirectly, by Rosbank (collectively, “Rosbank entities”).  GL 58 also authorizes U.S. financial institutions to reject, rather than block, all transactions ordinarily incident and necessary to the processing of funds involving Rosbank entities, as well as for individuals to close their accountsGL 59 authorizes U.S. persons to divest or transfer securities in Rosbank entities during the wind-down period.

OFAC also added 17 subsidiaries of VTB Bank Public Joint Stock Company, Russia’s second largest bank, to the SDN List as part of this action, among other individuals and entities.

As part of a comprehensive streamlining effort, the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) issued an interim final rule that reorganizes and restructures Part 120 of the International Traffic in Arms Regulations (ITAR).  This action marks the initial stage of the DDTC’s effort to restructure and consolidate the ITAR through a series of rulemaking proceedings.  The interim final rule divides DDTC’s changes to Part 120 of the ITAR into general and section-specific revisions.

Generally, the newly amended Part 120 seeks to prioritize a clearer regulatory framework and roadmap by taking a functional approach to grouping regulatory measures and statements.  Namely, rather than situating general definitions and statements at disparate locations, Part 120 is now divided into three subparts based on the function of the underlying provisions.  Subpart A consolidates general information useful for understanding the ITAR, such as the legislative authorities and regulatory intent underlying the ITAR’s provisions.  Subpart B consolidates statements of policy and other information about processes under the ITAR.  And Subpart C provides a consolidated set of defined terms that are applicable throughout the rules.

Section-specific changes to Part 120 focus on clarifying edits and deleting redundancies.  These changes are described by DDTC as “non-editorial.”  Edits include express reference to Blue Lantern—the program used by DDTC for end-use monitoring—the creation and grouping of international organizations and arrangements, and the removal, in its entirety, of the Missile Technology Control Regime Annex formally found at § 121.16.  And section 120.12 has been revised in its entirety so that it now describes the process for obtaining a Commodity Jurisdiction determination.  Note that, for certain revisions, DDTC specifically mentions that the change is non-substantive or otherwise not intended to reflect a substantive change, such as for certain changes relating to the introduction of and references to the U.S. Munitions List.   Interim final rule is effective as of September 6, 2022.  And, for clarity, the rule features a table that details the movement of all sections.

Please contact our export control and sanctions compliance team if you have any questions about this development.

On October 20, the Committee on Foreign Investment in the United States (CFIUS or the Committee) issued a press release laying out new guidance to provide clarity about how the Committee assesses violations of the laws and regulations that govern transaction parties, including potential breaches of CFIUS mitigation agreements.

Penalties are possible for the following behavior:

  • Failure to File – After the 2018 and 2019 amendments to the CFIUS rules, certain CFIUS filings are now mandatory, including those where the U.S. target makes or holds information related to making items that are controlled for export.  Many companies (especially those that don’t export) are not aware that their products (or existing know-how) are controlled for export.  Moreover, the scope of export controls has been expanding, which in turn expands the scope of covered CFIUS transactions.
  • Non-Compliance with CFIUS Mitigation – When CFIUS has national security concerns about a transaction that it believes can be mitigated through restrictions on foreign national access to technology and via other limiting steps, it will sometimes agree to allow the transaction to proceed, but only if specific, agreed mitigating steps are  are fully followed, often described in national security agreements.  The new guidance emphasizes that CFIUS will be watching more carefully for compliance with those agreements and that penalties await companies that do not comply.
  • Material Misstatement, Omission, or False Certifications to CFIUS during a Review Process – If a party to a CFIUS review makes material misstatements, omissions, and/or false certifications in their documentation filed with CFIUS, then that party could be seen as inhibiting the Committee’s ability to conduct a comprehensive review, and that risks imposition of a penalty.

After implementing its new regulations based on the 2018 amendments to its governing statute, the Committee has been busy processing an increased caseload.  This new enforcement announcement is effectively a warning to parties planning submissions, and to parties that have gone through reviews, that the Committee is serious about its enforcement authorities.  Those appearing before the Committee and those with existing national security agreements have been put on notice.

We expect to see announcements of penalties going forward.

Yesterday, the European Union implemented its eighth round of sanctions on Russia in response to Russia’s claimed annexation of Ukrainian territory.  This latest package includes expanded import and export restrictions, an initial implementation of an EU price cap on the transport of Russian seaborne oil, an expansion of restrictions on non-government controlled regions of Ukraine, a prohibition on the provision of certain services to Russia and Russian nationals, and sanctions on the Russian Maritime Register, among others.

Export Restrictions

The EU measures seek to further degrade Russian military and defense capabilities by expanding the category of items subject to export restrictions, including additional less sensitive industrial and technology items.  The following categories of items were added to Annex XXIII, subjecting them to EU restrictions:

  • Items supporting Russian industry, including coke and semi-coke of coal;
  • Electrical components used in the manufacture of Russian weaponry;
  • Technical items used in Russia’s aviation sector;
  • Certain chemical items; and
  • Certain small arms and their essential components, and other goods that could be used for torture or capital punishment, as set out under the EU Anti-Torture regulation.

Import Restrictions

The EU expanded import bans on Russian goods to include a number of new items, subject to certain wind-down exceptions and other carve outs:

  • Finished and semi-finished steel products (subject to a transition period for certain products);
  • Machinery and appliances;
  • Plastics;
  • Vehicles;
  • Textiles;
  • Footwear
  • Leather;
  • Ceramics;
  • Certain chemical products; and
  • Non-gold jewelry

The ban extends to goods that originate in Russia or have been exported from Russia, as well as to certain steel products that have been further processed in third countries.

Price Cap on Russian Oil

In addition to the EU ban on Russian oil imports, today’s measure seeks to further curtail Russian energy revenues by introducing the beginning stages of a price cap on Russian oil to third countries.  The price cap mechanism will function as an exemption to the prohibition on the provision of maritime transport services to third countries of crude oil and certain petroleum products that are purchased at or below a pre-established price agreed upon by a coalition of States.

The effective date for the price cap with respect to Russian crude oil is December 5, 2022, while the effective date with respect to refined petroleum products is February 5, 2023, after further decision from the Council.

Kherson, and Zaporizhzhia Oblasts

Yesterday’s measure expands the geographical scope of the EU restrictions on dealings with non-government controlled areas of Ukraine to include the non-government controlled areas of Ukraine in the oblasts of Kherson and Zaporizhzhia.  These restrictions include a wide range of activities, including a ban on imports from the covered regions into the European Union, a ban on investment and acquisitions of real property, and a ban on the provision of tourism services, among other measures.

Service Ban

The European Union imposed restrictions on the direct and indirect provision of several types of services to the Government of Russia or legal persons, entities, and bodies established in Russia:

  • Non-contentious legal advisory services;
  • Information technology services; and
  • Architectural and engineering services.

The Regulations contain carve-outs for the provision of services provided for the exclusive use of companies owned or controlled by EU Member States, country members of the European Union Economic Area, Switzerland, or listed partner countries, including the United States. For contracts concluded before the effective date, the prohibition will not apply to the provision of services strictly necessary for the termination of non-compliant contracts by January 8, 2023.  The EU also expanded the ban on crypto-wallet services, irrespective of the amount of the wallet, eliminating the previous €10,000 limit.

Asset Freeze & SOE Restrictions

Also included in yesterday’s package are restrictions targeting Russian officials and elites.  Targets include:

  • Those involved in the illegal annexation of Ukraine territory;
  • Parties operating in, and companies supporting, Russia’s defense and security sector;
  • High ranking military officials; and
  • Those involved in disseminating misinformation.

All funds and economic resources belonging to designated individuals and entities shall be frozen under EU law, and those subject to EU jurisdiction are forbidden from making funds directly or indirectly available to designated targets.

The EU also expanded the ban on dealings with Russian state owned enterprises (SOEs) to include the Russian Maritime Register, subject to wind down and other exceptions.  The expanded rules also prohibit EU nationals from holding posts in the governing bodies of sanctioned SOEs in Annex XIX.

Other Measures & Exceptions

Other restrictions imposed yesterday included a broadening of criteria to allow for the imposition of sanctions on those facilitating the circumvention of EU sanctions.  This latest package also includes several exceptions, including those designed to facilitate the provision of humanitarian assistance, transactions necessary to promote nuclear safety and security, and certain wind down activities.

Today, the U.S. Treasury Department and Commerce Department imposed new sanctions on Russia and Belarus as part of the G-7’s collective response to Russia’s claimed annexation of additional Ukraine territory.  The new sanctions target supporters of Russia’s military and defense sectors in Russia, Belarus, and third countries.

The Treasury Department’s Office of Foreign Assets Control (OFAC) and the Commerce Department’s Bureau of Industry and Security (BIS) also issued guidance today warning of the U.S. government’s intention to aggressively use existing authorities to impose sanctions against third country supporters of Russia’s military and defense sectors.

Blocking Sanctions

OFAC imposed blocking sanctions on companies in Russia, Belarus, China, and Armenia involved in supporting Russia’s military and related illicit procurement networks, including:

  • Scientific-Technical Center for Electronic Warfare, engaged in research and development for Russia’s Ministry of Defense;
  • Rotek Elpom, engaged in creation of certain stationary and vehicular-mounted security systems;
  • ZAO NTTs Modul, engaged in production of computer and equipment and software used in Russia’s aviation and space sectors;
  • OOO Valtex-ST, engaged in procurement of high technology scientific and industrial equipment;
  • OAO Radioavionika (Radioavionika), engaged in production of technological products for Russia’s military defense; and
  • Open Joint Stock Company Svetlogorsk Khimvolokno, Belarusian supplier to Russia’s defense-industrial base.
  • Vladimir Aleksandrovich Ivanov, Sergey Vyacheslavovich Byzov, and Dmitrii Vladimirovich Galin, of Radioavionika’s leadership team;
  • Novastream Limited and its General Director, Andrei Vladimirovich Khokhlov, operating in close coordination with Radioavionika; and
  • Third Country Parties Sinno Electronics Co., Limited, of the People’s Republic of China, and Taco LLC, of Armenia, suppliers working with and supporting Radioavionika.

OFAC has also added hundreds of Russian government officials and their family members to the Specially Designated Nationals (SDN) List.

Business with—and any dealings in the property or property interests of—an SDN is broadly prohibited absent prior authorization from OFAC.  This includes entities owned 50 percent or more, individually or in the aggregate, by one or more SDNs.  U.S. persons must report any property or interests in property of the blocked parties in their possession or control to OFAC within 10 business days.

Entity List Designations

BIS also added 57 entities located in Russia and the Crimea region of Ukraine to its Entity List today, generally barring the export, re-export, or transfer of items subject to the Export Administration Regulations to the listed parties without a license.  Companies added to the list include those involved in acquiring U.S. technology in support of Russia and firms that develop quantum technologies that may enable Russia to engage in malicious cyber activities or otherwise enhance Russia’s advanced production and development capabilities.  Fifty of the 57 entries are subject to a “footnote 3” designation, subjecting those entities to the expansive Russia/Belarus-Military End User (MEU) Foreign Direct Product (FDP) rule.

Inclusion on BIS’s Entity List broadly prohibits the export, re-export, or transfer of items subject to the Export Administration Regulations to the listed parties without a license from BIS.  For those subject to a “footnote 3” MEU FDP designation, complex licensing requirements may apply to export transactions with the listed entity involving foreign items that are the direct product of U.S. knowhow.

Warning of Additional Sanctions

Both OFAC and BIS issued guidance warning of a more aggressive sanctions response against third country supporters of Russian aggression.

OFAC indicated that the United States is prepared to use existing authorities to sanction targets that, among other things, engage in the following activities:

  • Provide material support for the organization of Russia’s sham referenda or annexation;
  • Provide material support to Russia’s military and defense industrial base;
  • Attempt to circumvent or evade U.S. sanctions on Russia and Belarus; or
  • Provide material support to blocked Russian parties.

OFAC reiterated that U.S. sanctions are not intended to target Ukraine or hinder the provision of food or medicine or humanitarian services.

BIS similarly advised that it is prepared to place export restrictions on companies and government entities in third countries that support Russia’s aggression.  According to BIS, the agency will target those inside and outside of Russia that provide material support to Russia and Belarus’s military and industrial sectors, including those who replenish or backfill technologies subject to export control restrictions imposed by the United States and its allies.

G-7 and European Union Response

G-7 countries have also announced and implemented additional restrictions against Russia.  Earlier this week, the United Kingdom imposed asset freeze restrictions targeting collaborators of Russia’s illegal sham referenda.   The European Union is expected to follow suit, with reports indicating additional restrictions on Russia’s technology sector, trade in steel and steel products, and more.

Please contact our sanctions and export team with any questions regarding these latest developments.

On September 15, President Biden signed an Executive Order (EO) with the first ever formal Presidential direction to the Committee on Foreign Investment in the United States (CFIUS or the Committee). The EO emphasizes the risks that the Committee should consider when reviewing covered foreign company purchases of U.S. businesses. The EO is intended reemphasize existing CFIUS concerns that countries are increasingly stepping up efforts to obtain the “sensitive personal data” of U.S. persons and technology critical to U.S. national security, with a focus on export-controlled know-how. The new measures from the EO are outlined below.

Supply Chain Resilience. The EO directs the Committee to consider a covered transaction’s effect on supply chain resilience and security, both within and outside of the defense industrial base. The underlying message is that CFIUS should look broadly at supply chain effects of proposed acquisitions and not just focus on direct national security effects. The concept of the U.S. supply chain writ large as a CFIUS national security concern is relatively new and could lead to CFIUS reviews of more proposed transactions.

U.S. Technological Superiority. The EO identifies sectors crucial to the U.S.’s global technological advantage, including, but not limited to, microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, climate adaptation technologies, and the agricultural industrial base. The EO directs the Committee to consider whether or not a transaction would compromise the manufacturing capabilities, services, critical mineral resources, or technologies of the listed sectors.

Industry Investment. The EO also directs the Committee to consider the risks arising from a covered transaction in the context of multiple acquisitions or investments in a single sector or in related sectors in order to safeguard any given sector from compromise / control by an adversarial foreign entity.

Cybersecurity. The EO directs the Committee to consider whether a covered transaction may provide a foreign person, or a third-party, with access to conduct malicious cyber activities, in addition to the cybersecurity posture, practices, capabilities, and access of all parties to the transaction that could afford a foreign person, or third-party, the ability to achieve such activities.

Sensitive Personal Data. The EO directs the Committee to consider whether a covered transaction involves a U.S. business with access to U.S. persons’ sensitive data, and whether the foreign investor has the ability to exploit such information to the detriment of national security, including through the use of commercial or other means.

This EO instructs CFIUS to pay attention to many areas that are already the focus of Committee activity – as reflected in the Committee’s regulations and in much of itsrecent activity. That said, the instruction on supply chains will encourage CFIUS to think more broadly in that area.  The EO is also intended as a message to U.S. acquisition targets and to non-U.S. companies thinking about acquisitions, including Chinese companies that have been contemplating a stricter CFIUS landscape, that scrutiny of proposed transactions in the key areas listed will be enhanced even further. The EO is also a message that can be referenced in forthcoming mid-term election races that this administration is intent on protecting U.S. national security as defined very broadly by this EO.

Today, the U.S. Treasury, State, and Commerce Departments announced new sanctions and export control restrictions on Russia and Belarus, targeting parties in and activities related to the technology, quantum computing, finance, and advanced manufacturing sectors.  The Commerce Department’s Bureau of Industry and Security (BIS), in particular, expanded and updated a number of Russia- and Belarus-related sanctions measures under the Export Administration Regulations (EAR), including new controls on a number of common EAR99 items related to the chemicals, fluid handling, quantum computing, advanced manufacturing, and other industries.

Technology & Quantum Computing Sanctions

The Treasury Department’s Office of Foreign Assets Control (OFAC) added a number of Russian technology, space, and electronics companies and technical institutes to its List of Specially Designated Nationals (SDNs), including Limited Liability Company Group of Companies Akvarius (Akvarius), a large Russian electronics manufacturer.  Transactions ordinarily incident and necessary to the wind down of pre-existing dealings with Akvarius are authorized pursuant to a new General License No. 51 until October 15, 2022, but transactions involving the other new SDNs are now prohibited absent a specific license from OFAC.

In addition to the new designations, OFAC issued a ban on the export, reexport, sale, or supply of quantum computing services to any person in Russia pursuant to a new Determination under E.O. 14071.  OFAC considers prohibited quantum computing services to be any of the following when related to quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing:

“[I]nfrastructure, web hosting, or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services, and related services; repairing computer, computer peripherals, or communication equipment; other computer-related services; as well as services related to the exportation, reexportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing[.]”

The ban excludes services provided to certain U.S.-owned or controlled entities located in Russia, as well as services provided in connection with the wind down or divestiture of entities located in Russia that are not owned or controlled by a Russian person.

The quantum computing services ban becomes effective on October 15, 2022.  In addition to the ban on quantum-related services, OFAC issued a separate Determination under E.O. 14024 allowing the agency to designate as an SDN any party it identifies as operating or having operated in Russia’s quantum computing sector, effectively immediately.

Banks That Join Russia’s MIR National Payment System Risk U.S. Sanctions

OFAC issued guidance today warning that non-U.S. banks could be added to the U.S. SDN List if they enter into new or expanded agreements involving the use of the MIR National Payment System outside of Russia.  Recent media reports have suggested that banks in Turkey may be particularly at risk of U.S. sanctions for their involvement in expanding the use of the payment system in Turkey, but financial institutions in central Asia and other regions also face risks if they are involved in expanding the use of MIR outside of Russia.

Expanded Export Controls

BIS made a number of important updates to its Russia- and Belarus-related export controls.  These include, among other things, the following changes:

  • Expansion to Belarus: The amendment expands the EAR’s “Russian Industry Sector Sanctions” to also generally apply to exports, reexports, and transfers to Belarus.
  • EAR99 fluid handling equipment, chemicals, and biologics:  The new rules prohibit the export, report, and transfer of a number of common EAR99 items that could be used for chemical or biological weapons production to Russia or Belarus without a license from BIS.  The newly controlled items, which are described in a new Supp. No. 6 to Part 746, include very common fluid handling equipment used in a range of industrial applications, such as reaction vessels, fermenters, agitators, heat exchangers, condensers, pumps (including single seal pumps), valves, storage tanks, containers, receivers, and distillation or absorption columns regardless of materials of construction.  Other controlled EAR99 items include certain biologics, chemicals, laboratory equipment.
  • Quantum computing & advanced manufacturing:  The amendment imposes a license requirement on the provision of certain EAR99 quantum computers and associated assemblies, components, and additive manufacturing equipment and related items to Russia and Belarus without a license from the Commerce Department.  EAR99 technology related to the production, development, and use of these items is also now controlled.
  • Expansion of Supp. No. 4 controls on EAR99 industrial items:  Today’s amendment adds 57 EAR99 industrial items to Supp. No. 4, including certain heat pumps, fork-lift trucks, sawing and cutting machines, and locomotives, among others, barring their sale to Russia without prior approval.  In addition, Supp. No. 4 is being expanded to apply to all items modified or designed as components, parts, accessories, or attachments of items listed in the supplement, even if those constituent items are not specifically included in the supplement, subject to certain exceptions.
  • Military and military-intelligence end users: The Commerce Department amended the EAR to allow the agency to designate end-users outside of Russia, Belarus, or other countries listed in sections 744.21 and 744.22 of the EAR as military end users (MEU) or military-intelligence end users.   While the MEU List is normally not exhaustive, the new rule limits application of military and military-intelligence related licensing requirements with respect to users outside of Russia and Belarus to those specifically identified on BIS’s Entity List.  The limitation reflects BIS’s understanding of the substantial compliance burden that would be imposed on exporters, reexporters, and transferors of having to independently identify the presence of Russian or Belarusian MEU or military-intelligence end users on a worldwide basis.
  • Dollar-value thresholds for luxury goods:  To better align U.S. controls with those implemented by allies, the new rule implements dollar value thresholds for controls related to exports, reexports, or transfers of certain luxury goods to Russia.  Previously, the restrictions generally applied regardless of the value of the goods at issue.

In addition to these updates, the amendment makes a number of corrections and clarifications to the EAR, including to license exceptions related to consumer communications devices and the news media, exceptions related to certain transfers of 5A992 and 5D992 items involving U.S.- or allied country-based companies, recordkeeping requirements, certain licensing policies, the General Prohibitions, the Commerce Country Groups, and the application of the Foreign Direct Product Rule.

Please contact our sanctions and export team with any questions regarding these developments.

On September 8, the U.S. Office of Foreign Assets Control (OFAC) extended a general license authorizing certain administrative transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. The new General License 13B authorizes U.S. persons and entities owned or controlled by U.S. persons to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications provided that those transactions are ordinarily incident and necessary to day-to-day operations in Russia.

A previous version of the general license was set to expire on September 30, 2022.  As with prior versions of the general license, General License 13B does not authorize debits from 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.  Nor does GL 13B authorize any transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR), including transactions involving any person blocked pursuant to the RuHSR, unless separately authorized.