Russian Sanctions/Export Controls Update: New Targets Identified | Faegre Drinker Biddle & Reath LLP

As the Russian invasion of Ukraine continues to escalate, the United States and its allies continue to implement (and consider) additional sanctions and export controls aimed at isolating the economy Russia and to weaken Russia’s ability to wage war.

As described in our previous Client Alerts, US sanctions and export controls have so far included (in chronological order):

  1. Blocking sanctions against (a) senior government officials, including Russian President Vladimir Putin, and (b) entities deemed “essential to the management of one of Russia’s main sovereign wealth funds”.
  2. A prohibition for any U.S. person, unless authorized or otherwise authorized by the Treasury Department’s Office of Foreign Assets Control (OFAC), to engage in “any transaction” involving the Central Bank of Russia, the Fund Wealth Department or Department of Finance.
  3. An announced commitment to withdraw certain Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

To see Customer Alert: Russian Sanctions/Export Controls Update: Extraordinary Measures (February 28, 2022)

For the latest series of measures announced by the White House on March 2 and 3, the United States imposes:

  • Additional blocking sanctions against a new list of ‘Russian elites and their family members who enable Putin’ – as well as certain Russian individuals and entities identified as enablers of ‘Russia’s efforts to spread disinformation and influence perceptions as part of their invasion of Ukraine.
  • New export controls directed against (a) Belarus because of its “substantial capacity for further Russian invasion of Ukraine”; (b) exports of technologies used to support Russia’s oil refining capacity; and (c) 91 entities (located in 10 different countries) that have been designated for their “support to Russian military activities”. New export controls targeting the Russian oil and gas industry.
  • Additional entities have been added to the “Entity List” of the Bureau of Industry and Security (BIS) of the Ministry of Commerce.

Below is a breakdown of the latest developments.

Blocking penalties

OFAC has announced the designation of the following entities and individuals to its Specially Designated Nationals and Blocked Persons List (SDN List):

  • “Russian elites and their family members”
    • Alisher Burhanovich Usmanovdescribed by OFAC as “one of the richest billionaires in Russia with vast assets in several sectors of [Russia] as well as internationally. Along with this designation, OFAC also issued a blanket license authorizing all transactions and unlocking all assets of any entity owned 50% or more, directly or indirectly, by Usmanov, who does not appear on the SDN list. and does not violate any other part of the Russian Harmful Sanctions Regulations (RuHSR).
    • Nikolai Petrovich Tokarev, described by OFAC as a “longtime associate of Putin” and “chairman of one of Russia’s most important companies, Transneft, a public pipeline company responsible for transporting 90% of the oil extracted in Russia”. OFAC also named Tokarev’s wife, daughter and three entities allegedly owned by Tokarev’s daughter (Ostozhenka 19 Limited Liability Company (Ostozhenka 19), Katina Drustvo s Ogranicenom Odgovornoscu za Nekretnine I Ugostiteljstvo (Katina) and TGADOO za Trgovinu I Usluge (TGA).
    • Yevgeny Prigozhin, described by OFAC as the “Russian financier of the Internet Research Agency (IRA), which it uses to conduct global influence operations.” OFAC also named Prigozhin’s wife, daughter, son and three companies he allegedly controls (Lakhta Park, OOO; Lakhta Park Premium, OOO; and Lakhta Plaza, OOO).
  • Disinformation points run by Russian intelligence
    • OFAC has designated 26 individuals based in Russia and Ukraine and seven Russian entities as part of Russia’s efforts to “spread misinformation and influence perceptions”.

Identifying information about listed individuals and entities is available on OFAC’s website.

Export controls directed at Belarus

Under an unpublished final rule with an effective date of March 3, 2022, Belarus will now be subject to the same export controls that apply to Russia (the BRI ones announced on February 24, 2022). More specifically, these measures will include:

  • New licensing requirements based on the Commerce Control List (CCL): Licensing requirements are added for all Export Control Classification Numbers (ECCN) in CDC Categories 3-9. Many of these items did not previously require licenses for export, re-export, transfer or release to Belarus (eg parts and components used in civil aircraft).
  • New review policy for exports, re-exports or transfers: For the export, re-export or transfer (within the country) of items requiring a license for Belarus, applications will be considered, with some exceptions, under a denial policy.
  • “Military End Use” and “Military End User” Controls: Belarus will be added as a country subject to “Military End-Use” and “Military End-User” controls which will cover, with some exceptions, all items subject to EAR. BIS also added “JSC Integral” and “The Ministry of Defense of the Republic of Belarus, including the Armed Forces of Belarus and all operational units wherever located” to the list of entities as “military end users”.
  • New Foreign Direct Product (FDP) Rules
    • Added Belarus to Russian FDP rule: Similar to Russia’s new FDP rule, Belarus will now be subject to restrictions on foreign-produced items that are: (i) “the direct product of certain US-origin software or technology subject to EAR”; or (ii) “produced by certain factories or their major components which are themselves the direct product of certain US-origin software or technology subject to the EAR”. According to the BIS, the rule applies “when the item produced abroad is known to be destined for Belarus or will be incorporated or used in the ‘production’ or ‘development’ of any ‘part’, “component” or “equipment” produced or intended for Belarus. Some EAR99 items will not currently be subject to the new rule.
    • Belarusian military end users (FDP Belarus-MEU rule): Like the Russia-MEU FDP Rule, the Belarus-MEU FDP Rule applies, in part, to foreign-produced items that are the “direct product” of any CCL software or technology subject to a license requirement “when it is known that the foreign-produced item will be incorporated into, or will be used in the “production” or “development” of any “part”, “component” or “equipment” produced, purchased or ordered by any entity with a footnote designation of 3 in the license requirements column of the entity listing.” With some exceptions, EAR99 items are covered by the rule.

Similar measures against Belarus have also been announced by US allies, including the European Union and the United Kingdom.

Export controls on Russian oil refining and military activities

The U.S. Department of Commerce also announced that it was imposing new export controls targeting Russia’s oil refining sector and military activities that went into effect March 3, 2022.

According to an unpublished final rule, the new export controls related to Russia’s petroleum sector are intended to “restrict the export, re-export and transfer (into the country) of additional items necessary for petroleum refining.” These include the first US actions since 2014 directly targeting the Russian oil and natural gas sector. It should be noted that in announcing these new measures, the Biden administration said that the United States and its allies “do not have a strategic interest in reducing global energy supply.”[,]while adding that instead, “a strong interest [exists] to downgrade Russia’s status as a major energy supplier over time.

Regarding Russia’s military activities, a second unpublished final rule adds 91 entities – located in 10 countries, including Belize, Estonia, Kazakhstan, Latvia, Malta, Russia, Singapore, Slovakia, Spain and the United Kingdom – to the list of BRI entities. According to Commerce, the new designations are “based on their involvement, contributions, or other support to Russian security services, military and defense sectors, and military and/or defense research and development efforts.”

Additional announcements

  • US Treasury Department: On March 2, 2022, OFAC issued or amended four general licenses authorizing certain transactions affected by the Russia-related sanctions that are related to debt or equity, derivative contracts, compliance (for example, payment taxes, fees, import duties) and clearing/settlement. OFAC has also updated and added FAQs regarding the latest US sanctions.
  • US Department of Justice (DOJ): On March 2, 2022, the DOJ announced the creation of “Task Force KleptoCapture,” described, in part, as an “interagency law enforcement task force dedicated to enforcing sweeping sanctions, restrictions on export and economic countermeasures that the United States imposed, along with allies and partners, in response to Russia’s unprovoked military invasion of Ukraine. According to a press release, the task force will be made up of prosecutors, officers, analysts and professionals who are “experts in sanctions enforcement and export controls, anti-corruption, asset forfeiture, anti-money laundering, tax enforcement, national security investigations and overseas evidence gathering.

For more information

In the coming days, we expect more information on the latest US sanctions and export controls from OFAC and BIS, as well as further developments on a host of legislative proposals targeting Russia that are now filtering through to Capitol Hill. Perhaps most importantly, bipartisan momentum is building in both the House and Senate to impose tariffs on imports from Russia via revocation of Most Favored Nation (MFN) status/relations Permanent Normal Trade (PNTR) of Russia – a decision that Canada already announced on March 3, 2022.

James V. Hayes