The United States, in coordination with other G7 countries, last week introduced a new round of sanctions and export control restrictions against Russia. These actions include the following:
- New export control licensing requirements for certain industrial and commercial items;
- New licensing policies for certain nuclear-related materials;
- A ban on the provision of certain corporate services;
- Full blocking sanctions on newly designated entities and individuals; and
- Issuance of new and updated general licenses by the Treasury Department.
Further information about these actions can be found below.
BIS and NRC Impose New Export Controls
The Department of Commerce’s Bureau of Industry and Security (BIS) imposed a new rule on May 9, 2022, to expand existing sanctions against Russian industry sectors by imposing a license requirement for exports, reexports, or (in-country) transfers to and within Russia for additional items subject to the Export Administration Regulations (EAR). As announced by the White House, items subject to the new licensing requirements consist of hundreds of common industrial and commercial items, including “wood products, industrial engines, boilers, motors, fans, and ventilation equipment, bulldozers, and many other items with industrial and commercial applications.”
The items subject to this new rule are listed under specific Schedule B numbers or Harmonized Tariff Schedule (HTS) codes added to Supplement No. 4 to Part 746 of the EAR. BIS will review license requests for exports, reexports, and transfers of such items under a policy of denial. However, license applications for export, reexport, and transfers of items that may be necessary for health and safety reasons or for items that meet humanitarian needs will be reviewed on a case-by-case basis.
In addition, the White House announced that the Nuclear Regulatory Commission (NRC), which administers export controls on more sensitive nuclear items, will also suspend general licenses for exports of source material, special nuclear material, byproduct material, and deuterium to Russia.
OFAC Expands Sanctions Authority and Prohibits Certain Services in Russia
The Department of Treasury’s Office of Foreign Assets Control (OFAC), on May 8, 2022, expanded its sanctions authority pursuant to Section 1(a)(i) of Executive Order (E.O.) 14024 of April 15, 2021 to apply to the accounting, trust and corporate formation services, and management consulting sectors of the Russian economy. This determination allows OFAC to impose full blocking sanctions against companies and individuals that operate or have operated in these sectors of the Russian economy by adding them to the Specially Designated Nationals (SDN List).
OFAC defines the above-listed services in FAQ 1034 and FAQ 1038 as follows:
- “Accounting services” includes services related to the measurement, processing, and evaluation of financial data about economic entities.
- “Trust and corporate formation services” includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts. Please note that all of these activities are common activities of trust and corporate service providers (TCSPs), although they may be provided by other persons.
- “Management consulting services” includes services related to strategic business advice; organizational and systems planning, evaluation, and selection; development or evaluation of marketing programs or implementation; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.
OFAC also issued a determination pursuant to section 1(a)(ii) of E.O. 14071 that the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in Russia is prohibited effective 12:01 a.m. EDT, June 7, 2022. This determination, however, excludes the following:
- Any service to an entity located in Russia that is owned or controlled, directly or indirectly, by a U.S. person; and
- Any service in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled, directly or indirectly, by a Russian person.
Russia-related General Licenses 33 and 34, discussed further below, authorize certain transactions involving the wind down of activities involving services now prohibited pursuant to this determination by OFAC.
OFAC Makes Additions to the SDN List
OFAC added numerous individuals and entities to the SDN List on May 8, 2022, including the following:
- Three of Russia’s top state-owned television stations: (1) Joint Stock Company Channel One Russia; (2) Television Station Russia-1; and (3) Joint Stock Company NTV Broadcasting Company;
- Eight senior executives of Sberbank, Russia’s largest financial institution;
- 27 members of the board of directors of Gazprombank, the third largest bank in Russia, which serves the financial needs Russia’s Gazprom, one of the largest natural gas exporters in the world;
- Joint Stock Company Moscow Industrial Bank (MIB), a Russian state-owned bank, and ten of its subsidiaries;
- Limited Liability Company Promtekhnologiya, a producer of rifles and other weapons that have been used in Russian military operations in Ukraine;
- Seven shipping companies, which own or operate 69 vessels;
- Fertoing, a marine engineering company.
All property and interests in property of designated individuals and entities, as well as any entities owned 50 percent or more by one or more of these blocked persons, that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. All transactions with these SDNs by U.S. persons, wherever located, or persons within the United States are generally prohibited unless otherwise authorized by a general or specific license issued by OFAC. See below for information on general licenses relating to certain transactions involving these SDNs.
New and Updated OFAC General Licenses
OFAC issued the following new and updated Russia-related general licenses:
- General License 7A (replacing and superseding General License 7, dated February 24, 2022) authorizes all transactions ordinarily incident and necessary to the receipt of, and payment of charges for, services rendered in connection with overflights of the Russian Federation or emergency landings in Russia by aircraft registered in the United States or owned or controlled by, or chartered to, U.S. persons. It also authorizes all transactions ordinarily incident and necessary to provide air ambulance and related medical services, including medical evacuation, to individuals in Russia.
- General License 25A (replacing and superseding General License 25, dated April 7, 2022) authorizes all transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving the Russian Federation that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587 (RuHSR). It also authorizes the exportation or reexportation, sale, or supply of services, software, hardware, or technology incident to the exchange of communications over the internet, such as instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services to Russia from the United States or by U.S. persons, wherever located.
- General License 26A (replacing and superseding General License 26, dated April 12, 2022) authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Joint Stock Company SB Sberbank Kazakhstan, Sberbank Europe AG, or Sberbank (Switzerland) AG (collectively, “the Sberbank subsidiaries”), or any entity owned 50 percent or more by the blocked Sberbank subsidiaries, through 12:01 a.m. EDT, July 12, 2022.
- General License 31 authorizes certain transactions in connection with a patent, trademark, copyright, or other form of intellectual property protection (collectively, “IP protections”) in the United States or Russia, including:
(1) The filing and prosecution of any application to obtain IP protections;
(2) The receipt of an IP protection;
(3) The renewal or maintenance of IP protections; and
(4) The filing and prosecution of any opposition or infringement proceeding with respect to IP protections, or the entrance of a defense to any such proceeding.
- General License 32 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Amsterdam Trade Bank NV, or any entity owned 50 percent or more by Amsterdam Trade Bank NV, through 12:01 a.m. EDT, July 12, 2022.
- General License 33 authorizes all transactions ordinarily incident and necessary to the wind down of operations, contracts, or other agreements in effect prior to May 8, 2022, prohibited by E.O. 14024 involving (1) Joint Stock Company Channel One Russia; (2) Joint Stock Company NTV Broadcasting Company; (3) Television Station Russia-1; or (4) any entity owned 50 percent or more by one or more of the foregoing entities, through 12:01 a.m. EDT, June 7, 2022, provided that any payment to a blocked person must be made into a blocked account located in the United States in accordance with the RuHSR.
- General License 34 authorizes all transactions ordinarily incident and necessary to the wind down of the exportation, reexportation, sale, or supply of accounting, trust and corporate formation, or management consulting services to any person located in Russia prohibited by section 1(a)(ii) of E.O. 14071, from the United States or by a U.S. person, wherever located, through 12:01 a.m. EDT, July 7, 2022.
- General License 35 authorizes all transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply of credit rating or auditing services to any person located in Russia prohibited by section 1(a)(ii) of E.O. 14071, from the United States or by a U.S. person wherever located, through 12:01 a.m. EDT, August 20, 2022. OFAC FAQ 1035 defines “credit rating services” as services related to assessments of a borrower’s ability to meet financial commitments, including analysis of general creditworthiness or with respect to a specific debt or financial obligation, and “auditing services” as examinations or inspections of business records by an auditor, including checking and verifying accounts, statements, or other representations of the financial position or regulatory compliance of the auditee.
U.S. individuals and companies should carefully review the requirements, limitations, and restrictions of these general licenses to ensure proper compliance.
*****
The sanctions and restrictions described above supplement actions taken in recent weeks and months by the U.S. government. Companies should carefully review any current or future dealings in Russia, or with any of the above-listed individuals or entities, to determine if they are engaged in or plan to be engaged in any transactions covered by these or other applicable sanctions programs.
U.S. sanctions with respect to Russia, Ukraine, and Belarus are expected to continue changing in the coming days and weeks. Contact us if you have questions about these developments or their potential impact on your business.