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.

On March 9, 2022, the European Union imposed new sanctions on Russian oligarchs, businesspeople and government officials; significantly expanded sanctions on Belarus; and imposed new maritime-related export controls on Russia.

Below is a summary of the new measures.

New Asset Freeze Sanctions

The EU imposed asset freezes on following 14 Russian oligarchs and prominent businesspeople:

  • Dmitry Alexandrovich Pumpyansky, Chairman of the Board of Directors for Pipe Metallurgical Company, Galina Evgenyevna Pumpyanskaya, Chairwoman of the Board of trustees of BF “Sinara”, and Alexander Dmitrievich Pumpyansky, son of Dmitry Alexandrovich Pumpyansky and President of Group Sinara
  • Alexander Semenovich Vinokurov, businessperson with business interests in retail, pharmaceuticals, agriculture, and infrastructure, including leadership positions in Maraton Group and Magnit;
  • Andrey Igorevich Melnichenko, owner of EuroChem Group and SUEK, and Nikita Dmitrievich Mazepin, the son of Dmitry Arkadievich Mazepin, General Director of JSC UCC Uralchem;
  • Dmitry Arkadievich Mazepin, CEO of Uralchem Group;
  • Mikhail Eduardovich Oseevsky, President of PJSC Rostelecom;
  • Mikhail Igorevich Poluboyarinov, CEO of OJSC Aeroflot;
  • Sergey Alexandrovich Kulikov, Chairman RUSNANO LLC, Member of the Board of Directors of Rusnano JSC, first deputy Chairman of the board of the Military Industrial Commission;
  • Vadim Nikolaevich Moshkovich, Russian entrepreneur with business interests in agriculture and real-estate development, founder of Rusagro Group;
  • Vladimir Sergeevich Kiriyenko, CEO of VK Company Limited;
  • Andrey Andreevich Guryev, Member of the Board, the CEO and the Chairman of the Management Board of PJSC PhosAgro; and
  • Dmitry Vladimirovich Konov, Chairman of the Management Board of PJSC SIBUR Holding.

Moreover, the EU froze the assets of 146 members of the Russian Federation Council who ratified the decision to recognize the separatist regions of the Donetsk People’s Republic and the Luhansk People’s Republic as independent from Ukraine.

The new rules prohibit all movements, transfers, alterations, use of, access to, or dealings with such funds and economic resources, and the direct or indirect sharing of funds or economic resources with listed parties and entities subject to their ownership or control.

Maritime Export Controls on Russia

The EU imposed new export controls that restrict the export of listed maritime navigation goods and radio communication technology to Russia, including vessels, marine systems or equipment, and specially designed components for enumerated navigation and radio-communication equipment.  Subject to limited exceptions, the controls prohibit sales and transfers of listed items to Russian entities, for end use in Russia, or for placement on board Russian-flagged vessels.  The provision of associated technical, brokering, or other services, as well as financing or financial assistance is also prohibited.

The EU also added the Russian Maritime Register of Shipping to the list of state-owned enterprises subject to financing limitations. These maritime export controls are the latest in multiple rounds of export control restrictions imposed by the EU and G7 countries over the last ten days.

Expansion of Sanctions on Belarus

Finally, the EU expanded sanctions on Belarus yesterday, subjecting that country to the type of sanctions measures that have been imposed on Russia in recent weeks.  The measures most notably:

  • Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets;
  • Prohibit the provision of public financing for trade and investment with Belarus, subject to limited exceptions;
  • Prohibit the listing of Belarusian entities with over 50% public ownership on EU trading venues, including the provision of services in relation to transferable securities, as of April 12, 2022;
  • Prohibit the acceptance of deposits from Belarusian nationals and residents where the total value of deposits of the national per credit institution exceeds €100,000, unless necessary for non-prohibited cross-border trade between the EU and Belarus;
  • Prohibit, with exception, selling euro-denominated transferable securities issued after April 12, 2022;
  • Prohibit, with exception, selling, supplying, transferring, or exporting euro-denominated bank notes to Belarus or Belarusians, including the Government and Central Bank of Belarus;
  • Prohibit, as of March 20, 2022, the provision of specialized financial messaging services, including SWIFT services, to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries whose proprietary rights are 50 % or more owned by the same.

Companies with operations subject to EU Member State jurisdiction should carefully review these new provisions and the associated exceptions.

 

Today, the European Union imposed sweeping export controls and sanctions on Belarus.  The export restrictions follows a similar template to the recent ban imposed against Russia.  Namely, the EU measure prohibits trade in listed dual-use goods and technology and broadly prohibits  trade of items that may contribute to Belarus’s military and technological enhancement.

The measure also prohibits the import or purchase of certain products from Belarus, including specified:

  • Wood products
  • Cement products
  • Iron products
  • Steel products
  • Rubber products, and
  • Machinery

The trade prohibitions come with accompanying restrictions on the provision of related services, and exceptions and derogations apply.

On Friday, the Commerce Department’s Bureau of Industry and Security (BIS) added 120 parties operating in the Russian and Belarusian aerospace, maritime, and defense sectors to the Entity List.  BIS designated the parties for attempting to procure items subject to the Export Administration Regulations (EAR) for the Russian and Belarusian militaries and for their military modernization efforts in Russia.  The addition of the parties to the Entity List means that no goods, software, or technology (technical knowhow) subject to the EAR may be exported, reexported, or transferred to the designated entities without a license from BIS, which is very unlikely to be granted.  The restrictions apply to all items on the EAR’s Commerce Control List (CCL), as well as less sensitive EAR99 items.

BIS designated 95 of the parties as “military end users” under Footnote 3 of the Entity List, subjecting the entities to the expansive Russian/Belarusian Military End User foreign-direct product rules (MEU FDPRs).  The MEU FDPRs extend the jurisdictional reach of the EAR to control items that are the direct product of any software or technology subject to the EAR that is on the CCL or that are produced by certain plants or major components of plants that are themselves the direct product of any U.S.-origin software or technology on the CCL.  Exports, reexports, and transfers of such items are prohibited without a license if an entity with a footnote 3 designation is a party to the transaction, or if there is knowledge that the item will be incorporated into or used in the production or development of any part, component, or equipment produced, purchased, or ordered by a footnote 3 entity.

The designations are effective Friday, April 1, 2022, with expected publication of the Final Rule on April 7, 2022.

Today, the United Kingdom expanded sanctions on Russia by imposing asset freeze restrictions on 59 Russian and six Belarusian actors.  The measures target key strategic industries in Russia, and include large banks, defense companies, and Russian elites.

Of note, the following Russian banks and companies have been added to the U.K.’s consolidated asset freeze list:

  • Alfa-Bank JSC
  • Gazprombank
  • Russian Agricultural Bank
  • Alrosa
  • Kronshtadt
  • Wagner
  • Russian Railways
  • Russian Venture Company

Moreover, the United Kingdom imposed asset freeze and travel sanctions on many Russian elites and oligarchs, including:

  • Oleg Tinkov, founder of Tinkoff Bank;
  • Herman Gref, CEO of Sberbank;
  • Oleg E Aksyutin, Deputry Chairman of Gazprom PJSC;
  • Didier Casimiro, the First Vice President of Rosneft;
  • Zeljko Runje, Deputy Chairman and First Vice President for Oil, Gas, and Offshore Business Development of Rosneft;
  • Galina Danilchenko, named mayor of Melitopol;
  • Eugene Markovich Shvidler, a billionaire oligarch.

With respect to Belarus, the United Kingdom sanctioned the following entities:

  • Bank Dabrabyt Joint Stock Company
  • CJSC Belbizneslizing
  • Industrial-Commercial Private Unitary Enterprise Minotor-Service
  • JSC Transaviaexport Airlines
  • Limited Liability Company Belinvest-Engineering
  • OJSC KB Radar-Managing Company Holding Radar System

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.

The UK issued two general licenses (INT/2022/1424276 and INT/2022/1424277) authorizing the wind down of certain transactions involving Alfa Bank JSC,  GazPromBank,  Rosselkhozbank,  SMP Bank,  Ural Bank for Reconstruction and Development, and Bank Dabrabyt Joint Stock Company through April 23, 2022.

The UK also clarified that existing general license INT/2022/1381276 authorizes the provision of financial services to wind down certain transactions entered into prior to March 1, 2022 with entities owned, controlled, or acting on behalf of Russia’s Central Bank, National Wealth Fund, or Russian Ministry of Finance.

 

March 4, 2022 Update: This post was updated after BIS published new export controls on oil and gas equipment and Entity List sanctions on firms related to the Russian defense industry.

Today, the United States announced another round of significant sanctions and export control restrictions on Russia and Belarus in response to the deteriorating situation in Ukraine.  Today’s actions subject Belarus to the same harsh export control restrictions that were imposed on Russia last week and effectively close U.S. airspace to Russian aircraft.  The White House also announced that United States would impose new restrictions on exports of oil and gas equipment to Russia and blocking sanctions on Russian defense companies.  We expect the Commerce and Treasury Departments to implement those restrictions in the coming days.

U.S. Belarus Export Controls

In coordination with the European Union, the U.S. Commerce Department announced amendments to the Export Administration Regulations today that subject Belarus to the same sweeping export control restrictions as those imposed on Russia last week.

The new rules effectively prohibit the export, re-export, or transfer of a broad range of dual-use items to Belarus, including all items listed in Categories 3 through 9 of the Commerce Control List, the U.S. dual use control list.  With limited exception, the U.S. government will review license applications related to these exports subject to a presumption of denial, which means that licenses will rarely be granted.  The rules also impose broad restrictions on exports of items to Military End Users and Uses in Belarus and added add two Belarusian entities to the Entity List as “military end users,” broadly prohibiting the transfer of items subject to the EAR to the listed parties.

Today’s amendments also extend the “Foreign Direct Product Rule” (FDPR) to apply exports to Belarus and Belarusian Military End Users, expanding the scope of items manufactured outside the United States that are now subject to U.S. export control and licensing requirements.

Additional information on the nature of these expanded controls is available in our prior post on Russia, available here.

Oil & Gas Equipment Restrictions

The White House announced that the United States would adopt new export controls on oil and gas extraction equipment shipped to Russia.  The new controls are designed to limit the ability of Russia to support its refining capacity over the long term.  Additional information about the oil and gas export controls is available here.  The EU also recently imposed similar restrictions on an array of items used for oil refining.

Defense Sanctions

The White House also announced that 22 Russian defense-related entities would be added the List of Specially Designated Nationals (SDN List), including companies that manufacture “combat aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military.”  As of this writing, the SDN List had not yet been updated with these entities.

On March 4, 2022, BIS added 91 entries to its Entity List, effectively prohibiting exports of items “subject to the EAR” to the listed parties.  The entities, which are located in Belize, Russia, Singapore, and the United Kingdom, were sanctioned for their involvement or support of Russian security, military, and defense efforts.

Airspace Restrictions

In coordination with U.S. allies, the United States also announced the closure of U.S. airspace to Russian aircraft.  The new measures ban aircraft certified, operated, registered or controlled by any person connected with Russia from the United States.  Accordingly, the Department of Transportation issued a notice today revoking Russian passenger and cargo airlines’ ability to operate to and from U.S. destinations and refusing entry of Russian-operated aircraft into U.S. airspace.

Yesterday, the United Kingdom expanded export controls on shipments to Russia and imposed new sanctions on Russian and Belarusian parties in response to the ongoing conflict in Ukraine.  The latest measures impose a dual-use trading ban on Russia, asset freezes on specified parties, and financial sanctions on Sberbank.

Dual Use Export Controls

The UK updated its dual use export control regulations to remove Russia as a permitted destination from open general export licenses, including licenses involving the export of chemicals, cryptographic development, and oil and gas exploration.  The UK has also suspended approval of new export licenses for exports of dual-use items to Russia.  The moves align the UK’s approach with the broad dual use export control restrictions imposed by the United States, EU, and other allies in recent days.

Sanctions: Asset Freezes & Financial Restrictions

Matching sanctions imposed by other countries, the UK imposed asset freeze restrictions on the Russian Direct Investment Fund, its CEO, Kirill Alexandrovich Dmitriev, VEB.RF, Bank Otkritie, and Sovcombank in Russia.  The UK also imposed sanctions on JSC 558 Aircraft Repair Plant and JSC Integral in Belarus and four Belarusian individuals.  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.

The UK also imposed financial and investment restrictions on PJSC Sberbank limiting, among other things, the ability of UK credit or financial institutions to process sterling payments involving Sberbank.

The latest UK sanctions can be found here, here, here, and here.

Today, the European Union announced that it would close EU airspace to all Russian-owned, Russian registered, or Russian-controlled aircraft, including private aircraft owned by the Russian elite.  The bloc’s move follows similar measures adopted by a growing number of Member States in recent days.

The EU will also impose sanctions on Russia Today and Sputnik, two Russian government media outlets, limiting those companies’ ability to operate in Europe.

In the same announcement, the EU indicated that it will impose sanctions on critical sectors of the Belarusian economy.  The measures include sanctions designed to “stop [Belarusian] exports of products from mineral fuels to tobacco, wood and timber, cement, iron and steel,” according to a statement released by European Commission President Ursula von der Leyen.

Today, the Treasury Department’s Office of Foreign Assets Control (OFAC) imposed blocking sanctions on 24 Belarusian individuals and entities for supporting or otherwise facilitating Russia’s actions in Ukraine, including two significant Belarusian banks, a series of defense companies, and government officials.

These individuals and entities have been added to OFAC’s List of Specially Designated Nationals (SDN).  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.

OFAC’s latest additions to the SDN list include:

  • Two state-owned Belarusian financial institutions – Belarussian Bank of Development and Reconstruction Belinvestbank Joint Stock Company and Bank Dabrabyt Joint-Stock Company;
  • 11 businesses operating in the defense and security industries of the Belarusian economy – Minsk Wheeled Tractor Plant, State Authority for Military Industry of the Republic of Belarus, State Owned Foreign Trade Unitary Enterprise Belspetsvneshtechnika, OJSC KB Radar-Managing Company Holding Radar System, JSC 558 Aircraft Repair Plant, Public Joint Stock Company Integral, Industrial-Commercial Private Unitary Enterprise Minotor-Service, OOO Oboronnye Initsiativy, OKB TSP Scientific Production Limited Liability Company, LLC Synesis, and LLC 24×7 Panoptes;
  • Five individuals operating in the defense and security industries of the Belarusian economy;
  • Two Minsk-based companies – Limited Liability Company Belinvest-Engineering and CJSC Belbizneslizing; and
  • Four Belarussian officials.

OFAC also issued General Licenses 6 and 7, which authorize transactions with the above SDNs relating to the official business of the U.S. government and international organizations and entities.

Please contact our sanctions and export control team with any questions about ensuring compliance with the Belarus sanctions program.

 

On December 2, 2021, the Treasury Department’s Office of Foreign Assets Control (OFAC)  expanded its Belarus-related sanctions program by imposing restrictions on dealings in Belarusian sovereign debt and adding 32 individuals and entities to its List of Specially Designated Nationals (SDN List).  Among these additions are several state-owned or -controlled companies operating in the tourism, transportation, defense, security, and potassium chloride (potash) sectors of the Belarusian economy.  OFAC also issued a general license that temporarily authorizes the wind down of transactions involving specified Belarusian SDNs, and issued guidance clarifying the scope of this latest round of sanctions.

Last week’s sanctions were imposed pursuant to Executive Orders (E.O.) 14038 and 13405, which authorize OFAC to impose sanctions on the Government of Belarus and key sectors of the Belarusian economy.

Sectoral Sanctions on Belarusian Sovereign Debt

With the publication of Directive 1, OFAC imposed restrictions on dealings in certain debt of the Ministry of Finance of the Republic of Belarus (Ministry of Finance) and the Development Bank of the Republic of Belarus  (Development Bank).  The directive prohibits “all transactions in, provision of financing for, and other dealings in new debt with a maturity of greater than 90 days issued on or after December 2, 2021” by the Ministry of Finance or the Development Bank.   Notably, OFAC’s “50 percent rule” does not apply to Directive 1’s prohibitions, which means that these restrictions do not extend to entities owned 50 percent or more, directly or indirectly, by the Ministry of Finance or the Development Bank.

Interested persons should carefully review OFAC’s “Frequently Asked Questions,” as OFAC has issued important clarifications on how Directive 1 applies in a number of contexts.  For instance, OFAC has indicated that Directive 1’s prohibitions extend to derivative contracts linked to new debt issued by the Ministry of Finance and Development Bank.

New Belarusian Designations

OFAC also added 20 individuals and 12 entities to its SDN List.  Among the designations are Republican Unitary Enterprise Tsentrkurort, JSC Transaviaexport Airlines, CJSC Beltechexport, AGAT Electromechanical Plant OJSC, Joint Stock Company 140 Repair Plant, Kidma Tech OJSC, JSC Peleng, OOO Gardservis, Open Joint Stock Company Belarusian Potash Company (BPC), BPC’s subsidiary Agrorozkvit LLC, and Foreign Limited Liability Company Slavkali.

Pursuant to the new General License 5, U.S. persons are permitted to engage in certain, limited activities ordinarily incident and necessary to the wind down of transactions with BPC, Agrorozkvit LLC, and entities owned 50 percent or more by those companies until 12:01 a.m. eastern standard time, April 1, 2022.

Bottom Line

OFAC’s latest updates, taken in coordination with U.S. allies, introduce heightened sanctions risks for companies doing business in Belarus.  Companies with operations involving Belarus will need to carefully examine these developments and monitor future moves by OFAC and allied governments.

Please contact our sanctions and export control team with any questions about ensuring compliance with the evolving Belarus sanctions program.