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.

Last Friday, the European Union adopted its sixth round of sanctions against Russia, including the highly anticipated ban on imports of Russian seaborne crude oil and petroleum products and the provision of related services, subject to certain exceptions.

The European Union’s latest package also expands its ban on the provision of SWIFT interbank messaging network services, expands the EU dual-use export ban, prohibits the broadcasting or advertising of content from certain Russian media outlets to the European Union, prohibits the provision of various consulting services to Russia, and expands EU asset freeze restrictions.

EU Energy Ban

The latest EU sanctions package prohibits those subject to EU jurisdiction from directly or indirectly purchasing, importing, or transferring listed crude oil or petroleum products originating in, or exported from, Russia, subject to the exceptions below.  Notably, the EU ban currently does not apply to imports by pipeline of CN 2709 00 crude oil into Member States.  The direct or indirect provision by EU persons of related services, such as insurance, technical assistance, brokering services, or financing or financial assistance, is also prohibited.

The list of products subject to the EU Energy Ban are set out in Annex XXV to Regulation (EU) No 833/2014, as amended.  Specifically, the Annex describes the following two categories of energy products subject to the EU embargo, which are further defined by reference to the EU’s Combined Nomenclature (CN):

  • CN Code 2709 00, Petroleum oils and oils obtained from bituminous minerals, crude; and
  • CN Code 2710 00, Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70 % or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations; waste oils.

EU Energy Ban Exceptions

The EU Energy Ban takes immediate effect, but features transitory periods for preexisting contracts and other exceptions.  For contracts concluded before June 4, 2022, EU persons may continue conducting the following transactions, provided that the relevant Member State satisfies EU notification requirements:

  • EU persons may continue conducting limited transactions for near-term delivery of energy products falling under CN 2709 00 until December 5, 2022; and
  • EU persons may continue conducting limited transactions for near-term delivery of energy products falling under CN 2710 00 until February 5, 2023.

Temporary derogations allowing the importation of seaborne crude oil are also available to landlocked Member States whose supply of crude oil by pipeline is interrupted for reasons outside of the Member State’s control.

Nor does the ban apply to listed seaborne crude oil and energy products originating from third countries that are only being loaded in, departing from, or transiting through Russia, provided that the origin and owner of the products are non-Russian.

The EU measure contains specific derogations for the Czech Republic, Bulgaria, and Croatia.

Further Restrictions

The latest measures imposed a number of further restrictions.

First, the EU also imposed SWIFT-related restrictions on Sberbank, Credit Bank of Moscow, JSC Russian Agricultural Bank, and Belinvestbank (Belarusian Bank for Development and Reconstruction).  Persons subject to EU jurisdiction shall be prohibited from providing specialized financial messaging services to Sberbank, Credit Bank of Moscow, and JSC Russian Agricultural Bank, and Belinvestbank, including to entities whose proprietary rights are directly or indirectly owned, 50 % or more, by the same.

Second, the EU expanded its dual-use ban to capture additional exports that may enhance Russia and Belarus’s military and technological capabilities.  The measures include the addition of 80 chemicals to its list of goods subject to export requirements.  Alongside the expanded list of goods and technology are significant additions to the list of Russia and Belarus entities subject to EU dual-use restrictions.

Third, the measure prohibits those subject to EU jurisdiction from advertising products or services in any content produced or broadcast by designated individuals or entities, including the following:

  • Rossiya RTR / RTR Planeta;
  • Rossiya 24 / Russia 24; and
  • TV Centre International.

Fourth, similar to a recent move by the United States, the EU imposed a ban on the direct or indirect provision of various services, such as accounting, auditing, bookkeeping or tax consulting services, or business management consulting or public relations services to the Government of Russia or Russian entities.  The service ban includes various exceptions to its prohibitions.

Fifth, the EU is now requiring that Member States impose appropriate criminal penalties for sanctions violations.  Member States are also required to provide appropriate measures of confiscation of proceeds derived from EU regulation infringements.

Finally, the EU added 65 individuals and 18 entities to its asset-freeze.  The designations focus on Russian military and defense targets, and proliferators of disinformation.  As a reminder, all funds and economic resources belonging to, owned, held, or controlled by designated individuals or entities shall be frozen, and no funds or economic resources shall be made available, directly or indirectly, for the benefit of such individuals or entities.

 

Earlier this week, the COVID-19 Accountability Act was introduced in the Senate and the House by Rep. Senator Lindsey Graham and Rep. Doug Collins respectively.  While the text of the draft legislation is not yet available, a summary indicates that it would require within sixty days that the President certify to Congress that China has:

“Provided a full and complete accounting to any COVID-19 investigation led by the United States, its allies, or United Nations affiliates, such as the World Health Organization (WHO);

  • Closed all wet markets that have the potential to expose humans to health risks; and
  • Released all pro-democracy advocates in Hong Kong that were arrested in the post COVID-19 crackdowns.”

If there is no such certification, the Act would then authorize the President to impose at least two of a variety of sanctions to hold China accountable, including travel bans, visa revocations, asset freezes, restricting U.S. financial institutions from loaning money to Chinese businesses, and barring Chinese firms from being listed on American stock exchanges.  Such sanction would be effective until the certification could be made. Continue Reading COVID-19 Accountability Act – New Potential Sanctions on China

The European Union (EU) is preparing to treat the United Kingdom (UK) as a third country after its withdrawal from the bloc, commonly known as Brexit.  Unless a deal is agreed before 29 March 2019, the UK’s trade with the EU will be heavily impacted by regulatory restrictions, increased costs, and lengthier procedures applicable to the movements of people, goods and services.  Less obvious is the impact on trade of the “no deal” scenario from potentially restricted data flows. With only eight months left until Brexit Day, the UK and EU have yet to start talks on a data protection agreement.

Data flows play an increasingly important part in international trade and are estimated to contribute up to 2.8 trillion USD to the world economy.  In 2016 alone, EU services reliant on data exported to the UK, such as finance, telecoms and entertainment, were worth approximately 36 billion EUR. Data flows from the UK to the EU constitute as much as three-quarters of all data from the UK. Under the EU’s General Data Protection Regulation (GDPR), however, personal data included in such data flows must be protected. For companies, this can include employee data (e.g. payroll information, biographical information, etc.) and customer data (e.g., contact information, transaction information, biographical information, social media profiles, etc.). Data flows from the EU to a third country are permitted if there is an adequacy decision by the European Commission that the third country’s data protection laws are adequate to meet the objectives of the GDPR or through another adequacy mechanism approved by the European Commission (e.g., EU-approved Binding Corporate Rules, use of Standard Contractual Clauses, etc.). Continue Reading No Post-Brexit Arrangement on Data Protection Will Affect UK-EU Trade

Effective Date: May 25, 2018

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