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

Penalties are possible for the following behavior:

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

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

We expect to see announcements of penalties going forward.

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

Export Restrictions

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

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

Import Restrictions

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

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

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

Price Cap on Russian Oil

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

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

Kherson, and Zaporizhzhia Oblasts

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

Service Ban

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

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

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

Asset Freeze & SOE Restrictions

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

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

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

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

Other Measures & Exceptions

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

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

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

Blocking Sanctions

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

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

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

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

Entity List Designations

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

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

Warning of Additional Sanctions

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

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

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

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

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

G-7 and European Union Response

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

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

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

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

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

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

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

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

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

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

Technology & Quantum Computing Sanctions

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

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

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

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

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

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

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

Expanded Export Controls

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

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

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

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

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

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

Yesterday, the U.S. Bureau of Industry and Security (BIS) issued an interim rule imposing new export controls on four emerging and foundational technologies.  The new rules control two substrates of ultra-wide gap semiconductors; Electric Computer-Aided Design (ECAD) software specially designed for the development of integrated circuits with Gate-All-Around Field-Effect Transistor (GAAFET) structure; and Pressure Gain Combustion (PGC) technology for national security and antiterrorism reasons, which means that exports of the items to most countries will require an export license or the use of a license exception.  Release of controlled technology to most foreign nationals will similarly require authorization under U.S. export control rules.

The amendment reflects new multilateral controls agreed upon by the United States and other members of the Wassenaar Arrangement at the 2021 Plenary.

Semiconductor Substrates: BIS’s interim rule amends the Export Administration Regulations (EAR) by imposing licensing requirements on exports of certain Gallium Oxide and diamond semiconductor substrates used in the production of sophisticated devices capable of operating under severe conditions, such as under higher voltages and temperatures.  Because of the significant potential for military application of these technologies, the new rule controls the substrates under ECCNs 3C001.d-.f, 3C005.a-.b, and 3C006.

ECAD Software Specially Designed for GAAFET Structure: BIS imposed licensing requirements on certain ECAD software that are particularly suited to the efficient design of GAAFET circuits by controlling ECAD Software “specially designed” for the “development” of integrated circuits having any GAAFET structure that meets parameters set forth under the newly established ECCN 3D006.  BIS has delayed the implementation of the new controls on ECAD software for 60 days to allow time for industry to provide comments on the new proposed controls.  Industry comments are due no later than September 14, 2022.

Gas Turbine Technologies:  While BIS has not identified any engines currently in production that utilize PGC technology, the interim rule notes that PGC technology’s novel use of techniques likeresonant pulsed combustion, constant volume combustion, and denotation to increase the efficiency of gas turbine engines provides military advantages in a variety of applications. The new interim rule adds paragraph 9E003.a.2.e.to the EAR to control the production and development of combustors that use PGC technology.

Saving Clause:  
The new rule contains a saving clause that allows for certain exports that are on dock for loading, laden aboard an exporting carrier, or en route aboard a carrier to a port of export on August 30, 2022 pursuant to actual orders to a foreign destination so long as they have been exported, reexported, or transferred before midnight on September 14, 2022.  The saving clause does not apply to export transactions controlled under 3D006, which is subject to a delayed effective date.  For shipments subject to 3D006 controls, the interim rule establishes a saving clause for orders that are similarly in-transit on October 14, 2022, so long as the export, reexport, or transfer is completed before midnight on November 14, 2022.

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

Continue Reading U.S. Implements New Export Controls on Emerging and Foundational Technologies, Targeting Semi-Conductors and Gas Turbine Technologies

Today, the United States imposed another round of sanctions on Russia, targeting Russian elites, universities, and technological institutions.

Blocking Sanctions

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) added the following notable Russian elites to the List of Specially Designated Nationals (SDN), subjecting them to full U.S. blocking sanctions:

  • Andrey Grigoryevich Guryev, Russian billionaire oligarch and son, Andrey Andreevich Guryev, of PhosAgro PJSC, a leading fertilizer company;
  • Viktor Filippovich Rashnikov, a Russian billionaire oligarch of Russia’s iron and steel industry;
  • Alina Maratovna Kabaeva, former member of the State Duma; and
  • Natalya Valeryevna Popova, a prominent official of Russia’s technology sector.

Guryev, Rashnikov, and Kabaeva are also subject to EU asset freeze restrictions.  OFAC, in tandem with the State Department, also designated a number of Russian businesses and institutions as SDNs, including prominent Russian educational and technological institutions:

  • Skolkovo Foundation;
  • Skolkovo Institute of Science and Technology;
  • Technopark Skolkovo Limited Liability Company;
  • Joint Stock Company Promising Industrial and Infrastructure Technologies;
  • Joint Stock Company Penzensky Nauchno Issledovatelsky Elektrotekhnichesky Higher Education Institution;
  • JSC Zelenograd Nanotechnology Center;
  • Federal State Budgetary Scientific Institution Research and Production Complex Technology Center;
  • JSC Scientific Research Institute Submicron; and
  • Academician A.L. Mints Radiotechnical Institute Joint Stock Company.

Business with—and any dealings in the property or interests in property of—parties subject to U.S. blocking sanctions are broadly prohibited absent prior authorization from OFAC.  U.S. persons must also report any property or interests in property of the blocked parties in their possession or control to OFAC within 10 business days.

Guidance and General Licenses

With today’s designations, OFAC also issued general licenses and published new guidance on the intended scope of the sanctions.  The general licenses authorize, among other things, certain transactions related to civil aviation safety, the winding down or pre-existing transactions with certain newly listed parties, and the divestment of holdings in recently blocked entities.

Importantly, OFAC indicates in new FAQs that the agency currently does not view PhosAgro PJSC as subject to blocking sanctions via application of the 50 percent rule, and stresses that agricultural and medical trade are not the focus of the U.S. sanctions on Russia.

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

Last week, the European Union imposed its seventh round of sanctions on Russia, imposing a range of new restrictive measures.  The new sanctions include a ban on dealings in Russian-origin gold, updates to existing sanctions to bolster the effectiveness of those measures, and an expanded list of parties subject to an EU asset freeze.

Ban on Russia-Origin Gold & Gold Jewelry

The EU’s “maintenance and alignment” sanctions package imposes a ban on Russia-origin gold that broadly prohibits the direct or indirect import, transfer, or purchase of listed Russian-origin gold products (including jewelry) after July 22, 2022.  The ban covers gold and jewelry that are processed in third countries and incorporate listed Russian-origin gold products.

Other “Maintenance and Alignment” Sanctions

The European Union took a number of other steps to strengthen existing sanctions against Russia, including the following:

  • Expansion of items that are controlled for export to Russia as potentially contributing to Russia’s military capabilities and defense sector;
  • Extension of port access ban to lock access;
  • Permissions relating to the standard setting activities of the International Civil Aviation Organization;
  • Exemption from prohibitions against transactions with Russian public entities that are necessary to ensure access to judicial, administrative or arbitral proceedings;
  • Expansion on prohibition against acceptance of deposits to include entities established in third countries and majority owned by Russians, requirement that acceptance of deposits for non-prohibited cross-border trade be subject to prior authorization by competent authorities;
  • Extension of exemption to prohibitions against transactions with certain Russian state-owned entities that are necessary for the transport of agricultural and oil products to third countries; and
  • Clarification that third countries and their nationals may purchase pharmaceutical and medical products from Russia.

Asset Freeze Restrictions

The EU’s latest package of sanctions expanded its list of designations to include additional 48 individuals and 9 entities.  The latest expansion notably includes asset freeze restrictions on Sberbank.

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

Today, the United States, in coordination with other G7 countries, announced new sanctions, export controls, and import restrictions on Russia.  The latest U.S. package of measures include sanctions targeting Russia’s defense sector, Entity List designations, increased tariffs on a broad range of Russian goods, and an import ban on Russian gold.

New Sanctions

Various U.S. agencies imposed sanctions on transactions involving individuals and entities connected to Russian aggression in Ukraine.

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and U.S. State Department imposed blocking sanctions on dozens of individuals and entities supporting Russia’s defense sector.  The designations target major state-owned defense companies, defense research organizations, and military operations in Ukraine implicated in international human rights violations.

OFAC designated 29 individuals and 70 entities, including the Russian defense-conglomerate, State Corporation Rostec (Rostec).  The State Department sanctioned 29 individuals and 45 entities, including re-designation of Russia’s Federal Security Service (a.k.a. the FSB).

U.S. persons are prohibited from engaging in any direct or indirect dealings with SDNs without prior authorization from OFAC.  All property or property interests of an SDN are also “blocked,” which means that any SDN property or property interest within the possession or control of a U.S. person must be formally frozen and reported to OFAC.

Today, OFAC also issued several general licenses authorizing transactions with certain newly designated SDNs, including:

  • General License No. 39 authorizing transactions to wind-down activities with Rostec, as well as any entity in which Rostec owns, directly or indirectly, a 50 percent or greater interest, by August 11, 2022;
  • General License No. 40 authorizing transactions involving specified SDNs related to the provision, export, or reexport of goods, technology, and services to ensure civil aviation safety;
  • General License No. 41 authorizing transactions for the manufacture, sale, and maintenance of agricultural equipment produced by SDNs Nefaz Publicly Traded Company (Nefaz) or Public Joint Stock Company, Tutaev Motor Plant (Tutaev Motor Plant), or any entity in which Nefaz or Tutaev Motor Plant owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest; and
  • General License No. 42 authorizing limited transactions related to requesting, receiving, utilizing, paying for, or dealing in licenses, permits, certifications, or notifications from the FSB.

The U.S. Commerce Department’s Bureau of Industry and Security (BIS) announced the addition of 36 entities from nine countries to its Entity List for evading newly imposed export controls on Russia.  The export, reexport, or transfer of U.S. origin goods, software, and technologies to those designated on BIS’s Entity List are generally not permissible absent prior authorization from BIS, which will rarely be granted.

Tariffs and Import Restrictions

Pursuant to the United States’ suspension of permanent normal trade relations with Russia and Belarus, the Biden Administration issued a proclamation yesterday increasing tariffs on more than 570 groups of Russian products.  The 35 percent ad valorem duties are effective 12:01 a.m. eastern daylight time on July  27, 2022, and apply to a wide variety of products, including steel and aluminum, minerals, chemicals, wood and paper products, aircraft and parts, and automotive parts, among many others.  The heightened duties will apply irrespective of antidumping and countervailing duties, or other fees or extractions applicable to the Russian products.

Ban on Gold Imports

Finally, OFAC imposed an import ban on Russian-origin gold, effective immediately.  Russian-origin gold includes gold produced, manufactured, extracted, or processed in Russia but not gold that has been incorporated or substantially transformed into a foreign-made product.  See OFAC FAQ 1019.  There is a narrow exception related to imports of Russian-origin gold located outside of Russia prior to imposition of the import ban.  As with OFAC’s prior restrictions on the gold market, a newly amended FAQ reiterates that gold market participants, including persons that process or facilitate gold-related transactions, could face sanctions for circumventing or engaging in prohibited gold-related transactions.  See OFAC FAQ 1029.