On February 3, 2022, the Commerce Department published a final rule amending the Export Administration Regulations (“EAR”) to clarify the scope of the foreign-direct product rule (“FDPR”).  The FDPR expands the jurisdiction of the EAR, the principal set of regulations that control the export, re-export, and transfers of dual use U.S.-origin items.

Under the FDPR, the EAR controls foreign-produced items that are a (1) direct product of certain U.S.-origin technology or software controlled for national security reasons or (2) are produced by plants, or a major components of plants, that are a direct product of U.S.-origin technology.  The FDPR further restricts the receipt of certain foreign-produced items (i.e., those incorporating U.S. technology or software or produced by plants or major components of plants) by designated entities on the Commerce Department’s Entity List, primarily targeting primarily Huawei and its affiliates.

Previously, the FDPR appeared in two separate parts of the EAR, General Prohibition 3 and the Entity List.  The amendments consolidate and place the FDPR in the scope section of the EAR to “clarif[y] that [the FDPR] are used to determine if a foreign-produced item is subject to, and thus within the scope of, the EAR.”  The Commerce Department also simplified the text of the FDPR to facilitate adherence to the rule and makes clear which terms have special definitions under the EAR.

The Commerce Department’s amendments to re-organize, clarify, and correct the FDPR come amid rising tensions between the United States and Russia.  In 2020, the Commerce Department expanded the FDPR to address Huawei’s threats to U.S. national security and essentially prevented the company from receiving any foreign-produced items that incorporated or was produced with controlled U.S.-origin technology or software, unless a license was obtained.  The United States may take a similar approach to Russian entities and thereby hinder production in key sectors that rely on U.S.-origin items, such as defense and intelligence.

Companies should monitor developments in this space.  If the United States takes further action under the FDPR, companies should conduct supply-chain due diligence to determine if their products are subject to the FDPR and, if so, whether they involve any targeted parties on the Entity List.

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.

As part of a package of new sanctions on Russia that are effective February 24, 2022, the United States imposed a series of significant new export control measures on exports of many products, software and technology to Russia.  The Bureau of Industry & Security (BIS), the bureau at the Commerce Department that administers U.S. “dual use” export control regulations, announced a number of important amendments to the U.S. Export Administration Regulations (EAR) implementing the new restrictions.

The new measures impose U.S. licensing requirements on a broad array of exports to Russia, Russian companies, and the breakaway regions of Ukraine.  In addition to the increased licensing requirement and corresponding policy of denial for most export license applications related to Russia:

  • There are two new, complicated “foreign direct product” rules that apply to products made outside of the United States using U.S. products, software and technology;
  • The Russia Military End User export controls were expanded;
  • The use of many standard license exemptions are restricted for exports to Russia; and
  • A number of companies formerly identified as Military End Users have been moved on to the BIS Entity List, barring most exports to those companies.

U.S. and non-U.S. companies that export goods, software, or technical know-how to Russia or Russian companies should review these updates carefully.

Background on the EAR

Unlike U.S. sanctions rules, which are designed primarily to apply to U.S. persons and business activity directly or indirectly involving the United States, the EAR’s regulations apply to “items” that are “subject to the EAR”.  Those controls often continue to apply to these items after they leave the U.S.  Items include physical goods and commodities, software, and tangible and intangible technical knowhow, referred to as “technology.”  All items located in the United States, U.S. origin items, and items manufactured outside of the United States that contain more than de mininis U.S. origin content or were made using certain U.S. origin technology or software are generally considered “subject to the EAR.”  Exports, re-exports and transfers of items subject to the EAR that occur outside of the U.S. must comply with the EAR’s licensing requirements, including the new restrictions on transfers to Russia, Russian companies, and the breakaway regions of Ukraine.

License requirements for a broad array of dual use items

Today’s changes impose a license requirement on all items controlled under Categories 3 through 9 of the Commerce Control List (CCL), the EAR’s control list.  These categories control an extremely broad array of items, including less sensitive items subject to unilateral U.S. export controls under 900-series Export Control Classification Numbers (ECCNs).  The vast majority of license applications will be reviewed with a policy of denial as the starting point, which means that absent some very unusual situation, those applications will be denied.  Some humanitarian and safety exceptions will apply to that policy of denial.  There is also a limited exception to support certain operations of partner country companies in Russia.

To provide an idea of the broad scope of these new controls, here is a brief overview of the scope of the affected CCL categories:

  • Category 3 covers electronics,
  • Category 4 covers computers,
  • Category 5 covers telecommunications and information security items (including most software containing encryption functionality),
  • Category 6 covers lasers and sensors,
  • Category 7 covers navigation and avionics
  • Category 8 covers marine items, and
  • Category 9 covers aerospace and propulsion items

The increased controls are designed to affect Russia’s development of advanced military capabilities using U.S.-origin items (among certain other goals), and they are likely to do so.  They will also restrict the export from the U.S. to Russia of a wide variety of relatively ‘basic’ products that don’t immediately appear to trigger significant national security concerns. To provide a few examples of how far-reaching the controls are, in the electronics category, all electronic test equipment (ECCN 3A992.a) now requires a license for export to Russia — and such applications will likely be denied.  Under Category 8, (ECCN 8A992) inflatable boats, life jackets, compasses, wetsuits, masks, fins, and weight belts are subject to likely license denial. There is a broad continuum of sophisticated, sensitive items down to many more mundane products that will now be difficult or impossible to export or reexport to Russia under these new rules. Many companies have not paid sufficient attention to some of the 900 series of unilateral export controls because those controls historically have only applied to countries that are subject to comprehensive embargoes, where most U.S. companies do not conduct business.  With this rule change, many items that companies have not classified or treated as export controlled will become licensable for Russia – with a presumption of denial.  That means significant extra classification checks and diligence should be implemented for exports from the U.S. to Russia, and for proposed reexports of U.S. products that are outside the U.S. in foreign inventories that could be shipped to Russia.

Expanded Military End User and Military End User Controls

There are current controls on exports of certain items subject to the EAR to companies in Russia that are military end users or that support military end users.  The list of products subject to these controls has been expanded drastically in this rule.  Restrictions on exports to Russian ‘military end users’ and ‘military end uses’ now cover all items subject to the EAR with exceptions for: (i) food and medicine designated as EAR99; and (ii) certain information security items / software classified as ECCN 5A992.c or 5D992.c.  Even those products, which are relatively unsophisticated information security items, may not be exported to Russian “government end users” or Russian state-owned enterprises if this rule applies.

Two New (Complex) Foreign Direct Product Rules That Apply Specifically 1) to Russia and 2) to Russian Military End Users

Items manufactured outside the United States can become subject to the EAR if those items are made outside the United States using U.S. origin technology pursuant to the Foreign Direct Product Rule (FDPR). In the past, the BIS Foreign Direct Product (FDP) rule applied to goods made outside the U.S. using U.S. origin technology (knowhow) that involved a very limited set of items classified under National Security (NS) reasons for control under the export regulations.  That approach was expanded fairly recently to make it more difficult for one company – Huawei – to use U.S. origin products, software and technology to obtain computer chips and a good deal of other equipment (mostly electronic and 5G related).  Today’s new rules introduce two new forms of the FDPR for exports to Russia.

First, in order to restrict Russia’s ability to acquire certain foreign-produced items made using U.S. origin products, software and knowhow, the new Russia FDP rule sets up new export controls on items made outside the United States that are: (i) the direct product of selected U.S.-origin software or technology subject to the EAR; or (ii) produced by certain plants or major components that are the direct product of selected U.S.-origin software or technology that is subject to the EAR.  The control applies when the seller knows or should know that the foreign-produced item is destined to Russia or will be incorporated into or used in the production or development of any part, component, or equipment produced in or destined to Russia. The rule does not apply to foreign-produced items designated as EAR99 (unsophisticated items not listed in the Commerce Control List).  Pencils, hammers, dish soap, and other consumer products are a few examples of EAR99 items not called out in specific Commerce Control List Export Control Classification Numbers (ECCNs).

Second, a separate, more complex FDPR applies to Russia-Military End Users.  This rule applies to foreign-produced items that are: (i) the direct product of any software or technology subject to the EAR that is on the CCL; or (ii) 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.  Such items will be subject to the EAR and require a license if an entity with a new footnote 3 designation on the Entity List 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 any entity with a footnote 3 designation on the Entity List.  These restrictions apply to all items, including those designated EAR99, with certain very limited exceptions. Licenses for such items are likely to be denied.

To complicate matters further still, the new FDPR requirements do not apply to Russia-related exports from certain countries that maintain export control regimes similar to the United States.  The list of those countries is included in the regulation and BIS guidance.  This rule requires a significant amount of diligence for U.S. companies and non-U.S. companies that must now research whether U.S. products, software or technology were used to manufacture certain products outside of the United States that are now destined for Russia.  Companies should read the rule in detail and apply the required diligence.

License Exception Restrictions

The new rules limit the availability of license exceptions for Russia, increasing the number of exports that will require a license and face BIS’s presumption of denial.

Entity List Additions

Forty-seven entities are being transferred from the MEU List to the Entity List.  The footnote 3 referenced above will apply to these companies.  The change will prohibit the transfer of most items subject to the EAR to the listed entities.  BIS is also adding two new Russian MEUs to the Entity List.

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.

The pace of new Russia sanctions matters slowed this week, with most of the action coming out of the European Union and United Kingdom.  New measures this week included bans on imports of steel and iron products, exports of luxury goods, investments in the Russian energy sector, and dealings with oligarchs and Russian state-owned enterprises. 

This post summarizes current sanctions on Russia and Belarus as of Friday, March 18, 2022.  Please reach out to our team if you have any questions about these or future developments. 

Central Bank Sanctions

G7 countries imposed broad sanctions on transactions involving Russia’s Central Bank, National Wealth Fund, and Ministry of Finance.  These sanctions include a sweeping prohibition on direct or indirect transactions or other business dealings involving the sanctioned entities without authorization.  The U.S. Office of Foreign Assets Control (OFAC) issued two general licenses and expanded two existing general licenses to authorize limited interactions with the sanctioned entities.  OFAC also issued important guidance explaining the intended scope of the U.S. sanctions.

You can read more here and here.

Banks Subject to Blocking or Asset Freeze Restrictions

Western countries have implemented blocking sanctions or asset freeze restrictions on a number of large Russian financial institutions over the last several weeks.  In the United States, banks were added to the List of Specially Designated Nationals.  Russian banks subject to blocking or asset freeze sanctions in at least one Western jurisdiction include: VEB, PSB, VTB Bank, Bank Otkritie, Sovcombank, Novikombank, Bank Rossiya, Black Sea Bank For Development And Reconstruction, Genbank, and IS Bank.

The sanctions generally prohibit any direct or indirect dealings with these banks, unless authorized pursuant to a “wind down” or other type of general license or OFAC Directive.  We cover these sanctions in several posts, including herehereherehere, and here.

Sberbank Restrictions

The United States imposed correspondent and payable-through sanctions on Sberbank, which will limit Sberbank’s ability to conduct U.S. dollar transactions.  The sanctions also require U.S. financial institutions to reject future transactions involving Sberbank and its subsidiaries.  The U.K. imposed similar measures.  You can read more about sanctions on Sberbank here and here.

EU Banking, Financial, & SWIFT Restrictions on Russia & Belarus

The EU imposed a series of financial sanctions on Russia and Belarus, including limits on deposits in the European Union, sanctions on the sale of euro-denominated securities, limits on the listing of shares in the EU, sanctions on the provision of investment services, limits on supplying euro-denominated banknotes, and the expansion of existing securities and debt sanctions.  The EU also imposed a ban on the provision of specialized financial messaging services to listed Russian and Belarusian banks, a move that will effectively cut off those banks from the SWIFT interbank messaging system.  We cover these developments herehere, and here.

New SDNs and Asset Freezes

The United States and allies imposed blocking sanctions and asset freezes on a number of Russian elites, their family members, and Russian companies.  Nord Stream 2 AG and the Russian Direct Investment Fund were also subject to sanctions.  Blocking and asset freeze sanctions generally prohibit all business with the sanctioned parties and their majority-owned entities.  We cover these sanctions in many of our posts.

Financing Restrictions & U.S. Dollar Banknotes

The United States imposed financing restrictions on large Russian state-owned enterprises that prohibit U.S. persons from dealing in new debt of those companies with a maturity of more than 14 days or in new equity of those companies.  The sanctions are very similar to existing U.S. sectoral sanctions that have been imposed on Russian companies pursuant to E.O. 13662 since 2014.  As noted below, the EU expanded similar debt sanctions. 

The United States also prohibited the export, sale, or supply of U.S. dollar banknotes to Russia, subject to certain exceptions.

More information is available here and here.

Expanded Dual-Use Export Controls

The United States, European Union, and other countries amended export control regulations to impose license requirements on exports of a broad array of goods, software, and related technical knowhow to Russia and Belarus.  The U.S. restrictions apply to all items listed in Categories 3 through 9 of the Commerce Control List, including a number of less sensitive items.  Subject to a limited number of exceptions, the U.S. government will review license applications related to these exports under a presumption of denial, which means that licenses will rarely be granted.  The EU and UK imposed corresponding broad-based dual use export bans on Russia and Belarus, subject to limited exceptions.

The United States extended prohibitions on the export of specified items to Military End Users and Uses and added a significant number of Russian and Belarusian companies to the Entity List, broadly prohibiting the transfer of items subject to the EAR to the listed parties.  The United States also expanded existing controls on the transfer of certain items in support of oil refining in Russia and imposed a heightened license review policy.  The EU imposed license requirements on the transfer of enumerated items that could contribute to Russia’s military or technological enhancement and on transfers of specified goods and technology suited for use in oil refining, aviation, and space industries.

The United States also extended its “Foreign Direct Product Rule” (FDPR) to apply to exports of goods made outside the U.S. using certain U.S. equipment and know how to Russia and to Russian Military End Users (including supporters of Military End Users or the Russian military).  The FDPR operates differently depending on whether military end users are involved.  The complex changes to the FDPR significantly increase the scope of non-U.S. origin items that are now subject to the EAR’s Russia-related license requirements.

For more on the new U.S., EU, and U.K. export control measures, see our posts here, herehere, and here.

Energy Bans: Imports & Investment

The United States banned the import of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products into the United States.   The EU and UK announced corresponding measures designed to reduce their reliance on Russian energy supplies.  

The United States and EU also adopted measures that prohibit new investment in the Russian energy sector.  

We cover these developments here and here.

Other Import Bans: Iron & Steel, Seafood, Alcohol, Diamonds

The United States adopted measures that ban the import of certain Russian-origin seafood, vodka and spirits, and diamonds into the United States, while the EU imposed restrictions on dealings in Russian-origin iron and steel products.  We cover these developments here and here.

Luxury Goods Export Bans

The United States and EU imposed bans on the export of luxury goods to Russia, including alcohol products, tobacco products, clothing items, jewelry, vehicles, art, and antique goods, among other items.  We cover these developments here and here.

Embargo and Trading Ban on Separatist Regions

The United States and allies imposed embargoes or trading bans on the separatist Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.  We cover the U.S. and EU bans here and here, and provide initial thoughts on how to comply with the embargo here.

Trade Controls & Sanctions on Belarus

Western countries imposed additional sanctions, export controls, and import restrictions on Belarus in response to the country’s growing involvement in the conflict in Ukraine.  The measures imposed additional asset freeze restrictions on Belarusian companies and officials, extended the new Russia dual-use export controls to Belarus, and limited imports of certain wood, cement, iron, steel, rubbery, and machinery products to the EU.  The U.S. and EU have taken steps to subject Belarus to restrictions that are similar to those imposed on Russia.

We cover Belarus-related developments hereherehere, and here.

Airspace

The United States, EU, and other jurisdictions closed their airspace to Russian aircraft last week.  You can read more about these measures here and here.

Global Considerations

While the United States, EU, and other allies are closely coordinating new sanctions measures, there are meaningful differences between the measures imposed by different jurisdictions.  To ensure compliance with applicable law, it is important to review the new sanctions measures in all of the jurisdictions in which you operate.

It has been almost three weeks since the U.S. and its allies began imposing serious new sanctions and export control restrictions on Russia and Belarus in response to Russia’s invasion of Ukraine.  This post summarizes the state of affairs as of Friday, March 11, 2022.

Please reach out to our team if you have any questions about these or future developments.

Current Status & What’s New

The current sanctions measures still do not amount to a full embargo on Russia, and Russia has not been cut off fully from the global financial system.  As a result, certain types of international trade with Russia remain permissible for U.S., EU, and other western companies.  Cross-border payments also remain possible for certain types of transactions.

That said, the United States, European Union, and other G7 countries have imposed unprecedented sanctions on Russia to-date, with much of the economy subject to direct sanctions or suffering from the secondary effects of those sanctions.  Western companies continued to withdrawal or curtail operations in Russia this week in response to the new measures and public pressure.  As noted last week, Western companies should continue to expect disruptions to legally permissible Russia-related business, as banks, logistics providers, and companies review the new restrictions and impose additional compliance measures.

This week, the United States imposed a ban on imports of energy from Russia and prohibited new investment in the Russian energy sector, imposed a ban on imports of certain Russian goods, banned the export of certain luxury items to the Russian market, and banned the supply of U.S. dollar banknotes to Russia and its government.  President Biden also provided the Treasury Department with legal authority to ban new U.S. investments in other sectors of the Russian economy, suggesting further measures of this type may be coming.  The U.S. and its allies are working to revoke Most-Favored Nation status for Russia, which will increase import duties on Russian goods, in some cases substantially.  The EU and United Kingdom committed to reducing their reliance on Russian energy, imposed asset freeze sanctions on additional Russian oligarchs, and significantly expanded sanctions and export controls on Belarus, among other measures.  FinCEN and OFAC also issued warnings about sanctions evasion, particularly related to the use of virtual or crypto currencies.

Banks subject to blocking or asset freeze restrictions

Western countries have implemented blocking sanctions or asset freeze restrictions on a number of large Russian financial institutions over the last two weeks.  In the United States, banks were added to the List of Specially Designated Nationals (SDN List).  Russian banks subject to blocking or asset freeze sanctions in at least one Western jurisdiction include: VEB, PSB, VTB Bank, Bank Otkritie, Sovcombank, Novikombank, Bank Rossiya, Black Sea Bank For Development And Reconstruction, Genbank, and IS Bank.

The sanctions generally prohibit any direct or indirect dealings with these banks, unless authorized pursuant to a “wind down” or other type of general license or OFAC Directive.  We cover these sanctions in several posts, including herehereherehere, and here.

Sberbank Restrictions

The United States imposed correspondent and payable-through sanctions on Sberbank, which will limit Sberbank’s ability to conduct U.S. dollar transactions.  The sanctions also require U.S. financial institutions to reject future transactions involving Sberbank and its subsidiaries.  The U.K. imposed similar measures last week.  You can read more about sanctions on Sberbank here and here.

Financing Restrictions

The United States imposed financing restrictions on large Russian state-owned enterprises that prohibit U.S. persons from dealing in new debt of those companies with a maturity of more than 14 days or in new equity of those companies.  The sanctions are very similar to existing U.S. sectoral sanctions that have been imposed on Russian companies pursuant to E.O. 13662 since 2014.  As noted below, the EU expanded similar debt sanctions.  More information is available here.

Embargo and Trading Ban on Separatist Regions

The United States and allies imposed embargoes or trading bans on the separatist Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.  We cover the U.S. and EU bans here and here, and provide initial thoughts on how to comply with the embargo here.

New SDNs and Asset Freezes

The United States and allies imposed blocking sanctions and asset freezes on a number of Russian elites, their family members, and Russian companies.  Nord Stream 2 AG and the Russian Direct Investment Fund (RDIF) were also subject to sanctions.  Blocking and asset freeze sanctions generally prohibit all business with the sanctioned parties and their majority-owned entities.  We covered these sanctions in several of our posts.

Central Bank Sanctions

As noted above, G7 countries imposed broad sanctions on transactions involving Russia’s Central Bank, National Wealth Fund, and Ministry of Finance.  These sanctions include a sweeping prohibition on direct or indirect transactions or other business dealings involving the sanctioned entities without authorization.  The U.S. Office of Foreign Assets Control (OFAC) issued two new general licenses and expanded two existing general licenses this week that authorize limited interactions with the sanctioned entities.  OFAC also issued important guidance explaining the intended scope of the U.S. sanctions.

You can read more here and here.

EU Banking, Financial, & SWIFT Restrictions on Russia & Belarus

The EU imposed a series of financial sanctions on Russia and Belarus, including limits on deposits in the European Union, sanctions on the sale of euro-denominated securities, limits on the listing of shares in the EU, sanctions on the provision of investment services, limits on supplying euro-denominated banknotes, and the expansion of existing securities and debt sanctions.  The EU also imposed a ban on the provision of specialized financial messaging services on listed Russian and Belarusian banks, a move that will effectively cut off those banks from the SWIFT interbank messaging system.  We cover these developments herehere, and here.

Expanded Russia Dual-Use Licensing Requirements

The United States, European Union, and other countries amended export control regulations to impose license requirements on exports of a broad array of goods, software, and related technical knowhow to Russia and Belarus.  The U.S. restrictions apply to all items listed in Categories 3 through 9 of the Commerce Control List, including a number of less sensitive items.  Subject to a limited number of exceptions, the U.S. government will review license applications related to these exports under a presumption of denial, which means that licenses will rarely be granted.  The EU and UK imposed corresponding broad-based dual use export bans on Russia and Belarus, subject to limited exceptions.

The United States extended prohibitions on the export of specified items to Military End Users and Uses and added a significant number of Russian and Belarusian companies to the Entity List, broadly prohibiting the transfer of items subject to the EAR to the listed parties.  The United States also expanded existing controls on the transfer of certain items in support of oil refining in Russia and imposed a heightened license review policy.  The EU imposed license requirements on the transfer of enumerated items that could contribute to Russia’s military or technological enhancement and on transfers of specified goods and technology suited for use in oil refining, aviation, and space industries.

The United States also extended its “Foreign Direct Product Rule” (FDPR) to apply to exports of goods made outside the U.S. using certain U.S. equipment and know how to Russia and to Russian Military End Users (including supporters of Military End Users or the Russian military).  The FDPR operates differently depending on whether military end users are involved.  The complex changes to the FDPR significantly increase the scope of non-U.S. origin items that are now subject to the EAR’s Russia-related license requirements.

For more on the new U.S., EU, and U.K. export control measures, see our posts here, herehere, and here.

Energy Bans: Imports & Investment

The United States imposed new sanctions that banned the import of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products into the United States.  The measures also prohibit new investment in the Russian energy sector.  The EU and UK announced corresponding measures designed to reduce their reliance on Russian energy supplies.  We cover these developments here.

Other U.S. Import Bans, Luxury Goods Export Ban, U.S. Dollar Ban

The United States also adopted new measures today to ban the import of certain Russian-origin seafood, vodka and spirits, and diamonds, the export of luxury goods to Russia and Belarus, and the provision of U.S. dollar bank notes to Russia or the Russian government without prior authorization.  We cover these developments here.

Trade Controls & Sanctions on Belarus

Western countries imposed additional sanctions, export controls, and import restrictions on Belarus in response to the country’s growing involvement in the conflict in Ukraine.  The measures imposed additional asset freeze restrictions on Belarusian companies and officials, extended the new Russia dual-use export controls to Belarus, and limited imports of certain wood, cement, iron, steel, rubbery, and machinery products to the EU.  The U.S. and EU have taken steps to subject Belarus to restrictions that are similar to those imposed on Russia.

We cover Belarus-related developments hereherehere, and here.

Airspace

The United States, EU, and other jurisdictions closed their airspace to Russian aircraft last week.  You can read more about these measures here and here.

Global considerations

While the United States, EU, and other allies are closely coordinating new sanctions measures, there are meaningful differences between the measures imposed by different jurisdictions.  To ensure compliance with applicable law, it is important to review the new sanctions measures in all of the jurisdictions in which you operate.

 

Over the last two weeks, the United States, European Union, and allied countries imposed a broad range of sanctions and export control restrictions on Russia and Belarus in response to Russia’s invasion of Ukraine.  Additional sanctions measures are likely in response to the very fluid situation in Ukraine.

This post summarizes the state of affairs as of Friday, March 4, 2022.  Please reach out to our team if you have any questions about these or future developments.

Current Status & What’s New

The current sanctions measures do not amount to a full embargo on Russia, and Russia has not been cut off fully from the global financial system.  As a result, certain types of international trade with Russia remain permissible for U.S., EU, and other western companies.  Cross-border payments also remain possible for certain types of transactions.

That said, the United States, EU, and other G7 countries significantly escalated sanctions on Russia this week, targeting Russia’s Central Bank, National Wealth Fund, and Ministry of Finance.  The sanctions are designed to limit Russia’s ability to deploy its foreign currency reserves and support the value of the ruble, which has led to a sharp drop in the value of the Russian currency and the imposition of currency controls and other defensive monetary measures in Russia.  U.S. measures also broadly prohibit U.S. persons from conducting any transaction or business dealing that directly or indirectly involves the Central Bank, National Wealth Fund, or Ministry of Finance without prior authorization.

This week, Western countries also closed their airspace to Russian aircraft, blacklisted the Russian Direct Investment Fund, imposed trading restrictions and sanctions on Belarus, expanded export controls on Russia, adopted additional financial sanctions targeting Russia, and blacklisted Russian elites and their family members.

Some Western companies responded to this week’s developments by suspending or limiting engagement with the Russian market, as firms assessed the new legal requirements and considered the risk of continued engagements with Russia.  Western companies should continue to expect disruptions to legally permissible Russia-related business, as banks, logistics providers, and companies review the new restrictions and impose additional compliance measures.

Banks subject to blocking or asset freeze restrictions

Western countries implemented blocking sanctions or asset freeze restrictions on a number of large Russian financial institutions over the last two weeks.  In the United States, banks were added to the List of Specially Designated Nationals (SDN List).  Russian banks subject to blocking or asset freeze sanctions in at least one Western jurisdiction include: VEB, PSB, VTB Bank, Bank Otkritie, Sovcombank, Novikombank, Bank Rossiya, Black Sea Bank For Development And Reconstruction, Genbank, and IS Bank.

The sanctions generally prohibit any direct or indirect dealings with these banks, unless authorized pursuant to a “wind down” or other type of general license.  We cover these sanctions in several posts, including herehereherehere, and here.

Sberbank Restrictions

The United States imposed correspondent and payable-through sanctions on Sberbank last week, which will limit Sberbank’s ability to conduct U.S. dollar transactions.  The sanctions also require U.S. financial institutions to reject future transactions involving Sberbank and its subsidiaries.  The U.K. imposed similar measures this week.  You can read more about sanctions on Sberbank here and here.

Financing Restrictions

The United States imposed financing restrictions on large Russian state-owned enterprises that prohibit U.S. persons from dealing in new debt of those companies with a maturity of more than 14 days or in new equity of those companies.  The sanctions are very similar to existing U.S. sectoral sanctions that have been imposed on Russian companies pursuant to E.O. 13662 since 2014.  As noted below, the EU expanded similar debt sanctions.  More information is available here.

Embargo and Trading Ban on Separatist Regions

The United States and allies imposed embargoes or trading bans on the separatist Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.  We cover the U.S. and EU bans here and here, and provide initial thoughts on how to comply with the embargo here.

New SDNs and Asset Freezes

The United States and allies imposed blocking sanctions and asset freezes on a number of Russian elites, their family members, and Russian companies.  Nord Stream 2 AG and the Russian Direct Investment Fund (RDIF) were also subject to sanctions.  Blocking and asset freeze sanctions generally prohibit all business with the sanctioned parties and their majority-owned entities.  We covered these sanctions in several of our posts.

Central Bank Sanctions

As noted above, G7 countries imposed broad sanctions on transactions involving Russia’s Central Bank, National Wealth Fund, and Ministry of Finance.  These sanctions include a sweeping prohibition on direct or indirect transactions or other business dealings involving the sanctioned entities without authorization.  The U.S. Office of Foreign Assets Control (OFAC) issued two new general licenses and expanded two existing general licenses this week that authorize limited interactions with the sanctioned entities.  OFAC also issued important guidance explaining the intended scope of the U.S. sanctions.

You can read more here and here.

EU Banking, Financial, & SWIFT Restrictions

The EU imposed a series of financial sanctions on Russia last week, including limits on deposits by Russian nationals in the European Union, sanctions on the sale of euro-denominated securities to Russian nationals, limits on the listing of shares in the EU, sanctions on the provision of investment services, limits on supplying euro-denominated banknotes to Russian persons, and the expansion of existing securities and debt sanctions.  The EU also imposed a ban on the provision of specialized financial messaging services on seven previously sanctioned Russian banks, a move that will effectively cut off those banks from the SWIFT interbank messaging system.  We cover these developments here and here.

Expanded Russia Dual-Use Licensing Requirements

The United States, European Union, and other countries amended export control regulations to impose license requirements on exports of a broad array of goods, software, and related technical knowhow to Russia.  The U.S. restrictions apply to all items listed in Categories 3 through 9 of the Commerce Control List, including a number of less sensitive items.  Subject to a limited number of exceptions, the U.S. government will review license applications related to these exports under a presumption of denial, which means that licenses will rarely be granted.  The EU and UK imposed corresponding broad-based dual use export bans on Russia this week, subject to limited exceptions.

The United States extended prohibitions on the export of specified items to Military End Users and Uses in Russia and added a significant number of Russian companies to the Entity List, broadly prohibiting the transfer of items subject to the EAR to the listed parties.  The United States also expanded existing controls on the transfer of certain items in support of the Russian oil and gas industry and imposed a heightened license review policy.  The EU imposed license requirements on the transfer of enumerated items that could contribute to Russia’s military or technological enhancement and on transfers of specified goods and technology suited for use in oil refining, aviation, and space industries.

The United States also extended its “Foreign Direct Product Rule” (FDPR) to apply to exports to Russia and to Russian Military End Users (including supporters of Military End Users or the Russian military).  The FDPR operates differently depending on whether military end users are involved.  The complex changes to the FDPR significantly increase the scope of non-U.S. origin items that are now subject to the EAR’s Russia-related license requirements.

For more on the new U.S., EU, and U.K. export control measures, see our posts here, here, here, and here.

Trade Controls & Sanctions on Belarus

Western countries imposed additional sanctions, export controls, and import restrictions on Belarus this week in response to the country’s growing involvement in the conflict in Ukraine.  The measures imposed additional asset freeze restrictions on Belarusian companies and officials, extended the new Russia dual-use export controls to Belarus, and limited imports of certain wood, cement, iron, steel, rubbery, and machinery products to the EU.

We cover Belarus-related developments here, here, here, and here.

Airspace

The United States, EU, and other jurisdictions closed their airspace to Russian aircraft this week.  You can read more about these measures here and here.

Global considerations

While the United States, EU, and other allies are closely coordinating new sanctions measures, there are meaningful differences between the measures imposed by different jurisdictions.  To ensure compliance with applicable law, it is important to review the new sanctions measures in all of the jurisdictions in which you operate.

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.

This week, the United States, European Union, and allied countries imposed a broad range of sanctions and export control restrictions on Russia in response to Russia’s invasion of Ukraine.  We expect Western countries to implement additional measures in the coming days and weeks in response to the very fluid situation in Ukraine.

This post summarizes the state of affairs as of Friday, February 25, 2022.  Please reach out to our team if you have any questions about these or future developments.

Scope of the new measures

The new sanctions measures do not amount to a full embargo on Russia.  Nor has Russia been cut off fully from the global financial system.  Many types of international trade with Russian remain permissible for U.S., EU, and other western companies and cross-border payments remain permissible in many respects, depending on the banks and parties involved.

However, the measures imposed this week were significant and materially impact a number of companies that conduct business in or with Russia.  Dealings with some of Russia’s largest financial institutions have been banned or seriously restricted, new dual use export controls impose license requirements on a broad array of exports to Russia, new financial or sectoral-type sanctions were imposed on large, state-owned enterprises, and dealings with the separatist regions of Ukraine were prohibited or restricted.  Western governments also appear likely to impose additional sanctions on Russia in the coming days and weeks, so these measures may expand in scope in the near future.

Even where trade is legally permissible, companies should expect disruptions in Russia-related business for a period, as banks, logistics providers, and companies review the new restrictions and impose additional compliance measures.

Banks subject to blocking or asset freeze restrictions

Western countries imposed blocking sanctions or asset freeze restrictions on a number of large Russian financial institutions this week.  In the United States, banks were added to the List of Specially Designated Nationals (SDN List).  Russian banks subject to new blocking or asset freeze sanctions in at least one Western jurisdiction include: VEB, PSB, VTB Bank, Bank Otkritie, Sovcombank, Novikombank, Bank Rossiya, Black Sea Bank For Development And Reconstruction, Genbank, and IS Bank. These sanctions generally prohibit any direct or indirect dealings with these banks, unless authorized pursuant to a wind down or other type of general license.

We cover these sanctions in several posts, including here, here, here, here, and here.

U.S. Sberbank Restrictions

The United States imposed correspondent and payable-through sanctions on Sberbank, which will limit the ability of Sberbank to conduct U.S. dollar transactions.  The sanctions also require U.S. financial institutions to reject future transactions involving Sberbank and its subsidiaries.  Similar sanctions on Russian banks have been proposed or are being implemented by the EU and U.K.  We cover the U.S. Sberbank sanctions here.

Financing Restrictions

The United States imposed new financing restrictions on large Russian state-owned enterprises that prohibit U.S. persons from dealing in new debt of those companies with a maturity of more than 14 days or in new equity of those companies.  The sanctions are very similar to existing U.S. sectoral sanctions that have been imposed on Russian companies pursuant to E.O. 13662 since 2014.  More information is available here.

Embargo and Trading Ban on Separatist Regions

The United States and allies imposed embargoes or trading bans on the separatist Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.  We cover the U.S. and EU bans here and here, and provide initial thoughts on how to comply with the embargo here.

New SDNs and Asset Freezes

 The United States and allies imposed blocking sanctions and asset freezes on a number of Russian elites, their family members, and Russian companies.  These sanctions generally prohibit all business with the sanctioned parties and their owned entities.  Today, the United Kingdom imposed largely symbolic sanctions on Vladimir Putin and Russian Foreign Minister Sergei Lavrov, a move that the United States and EU are expected to match.

We covered asset freezes in several of our posts.

Expanded Dual Use Licensing Requirements

The United States amended its export control regulations to impose a license requirement on exports of a broad array of goods, software, and related technical knowhow to Russia.  The restrictions apply to all items listed in Categories 3 through 9 of the Commerce Control List, the U.S. dual use control list, including a number of less sensitive items.  Subject to a limited number of exceptions, 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 EU, UK, and other allies are working on implementing similar restrictions.

The United States extended prohibitions on the export of specified items to Military End Users and Uses in Russia and added a significant number of Russian companies to the Entity List, broadly prohibiting the transfer of items subject to the EAR to the listed parties.

The U.S. also extended its “Foreign Direct Product Rule” (FDPR) to apply to exports to Russia and Russian Military End Users (including supporters of Military End Users or the Russian military).  The FDPR changes significantly increase the scope of non-U.S. origin items that are subject to the EAR’s restrictions in a number of sectors, including the semi-conductor industry.

For more on the new U.S. export control measures, see this post.

Global considerations

While the United States, EU, and other allies are closely coordinating new sanctions measures, there are meaningful differences between the measures imposed by different jurisdictions.  To ensure compliance with applicable law, it is important to review the new sanctions measures in all of the jurisdictions in which you operate.  For more on allied country measures, see here and here.

*             *             *             *             *

Please feel free to reach out to our team with any questions about these developments and how they may impact your company’s business.