For companies conducting or pursuing international business, it is important to understand restricted countries and industries. Intentionally or unintentionally, conducting business with sanctioned countries or industries can cause devastating penalties to a company and governing authorities. The following outlines new export restrictions and the importance of understanding such restrictions for entities doing business or planning to do business in or with Russia.
Recently, the Bureau of Industry and Security (BIS) increased restrictions against Russia by amending Export Administration Regulations (EAR), 15 C.F.R. Parts 730-774 and adds Section 746.5. These amendments (BIS Rule) impose sanctions and controls pertaining to Russia's energy sector items with the potential to produce oil or gas in Russia through exploration or production from deepwater ( greater than 500 feet), Artic offshore or shale projects. The BIS Rule was issued on August 1, 2014, and became effective August 6, 2014, which effects licensing requirements and adds entities to the Sectoral Sanctions Identifications (SSIs) list and Specifically Designated Nationals (SDNs) list.
The BIS Rule removes Russia's previously enhanced favorable licensing treatment afforded under Section 742.4(b)(5) and attaches the presumption of licensing denial, excluding Kazakhstan and Mongolia. The BIS Rule adds, "controls on the export, re-export, or transfer (in-country) to any item subject to the EAR listed in new Supplement No. 2 to [Part 746], and specified in Export Control Classification Numbers (ECCNs) 0A998, 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, and 8D999…." This requirement is effective where the exporter, re-exporter or transferor retains the following information: (1) knowledge that the item will be directly or indirectly used in Russia's energy sector exploration or production of oil or gas from deepwater, artic offshore or shale projects taking place in Russia; or (2) is unable to determine whether the item will be used in the aforementioned projects.
The above referred to items include drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, and Arctic-capable marine equipment (see BIS Rule for additional items). Additionally, the rule controls software and data, items that were not previously regulated because they were not considered "technology" as relating to the ECCNs on the Commercial Control List (CCL). However, due to the ability to sell the analysis of the raw seismic and other data, the software and data have come into the control of this rule. You can view the comprehensive list of Supplement No. 2 identified items here.
Additionally, the BIS Rule adds by way of the Office of Foreign Assets Control (OFAC), entities to the SSIs and SDNs lists. Added to the SSIs list are the Bank of Moscow, Russian Agricultural Bank, VTB Bank OAOand Bank Vneshney Torgovli JSC, which restricts U.S. persons from transacting in new debt or equity (debt with a maturity of more than 90 days; equity issued by, on behalf, or for these banks' benefit). It also adds the United Shipbuilding Corporation and its officials Vladimir Andreyevich Konstantinov, Vladimir Igorevich Kozhin and Vladimir Yakunin, to the list by way OFAC. The Russian state-owned United Shipbuilding Corporation manufactures ordinance and accessories and engages in shipbuilding, repair, and maintenance.
As this corporation has been added to the list, the licensing requirement process becomes applicable to "any transaction in which items are to be exported, re-exported, or transferred [where the corporation acts] as purchaser, intermediate consignee, ultimate consignee, or end-user." It should be noted that United Shipbuilding Corporation does business through four aliases: (1) Obedinennaya Sudstroiteylnaya Korporatsiya OAO; (2) OJSC United Shipbuilding Corporation; (3) United Shipbuilding Corporation Joint Stock Company; and (4) OSK OAO. Thus, as of the implementation of the BIS Rule, any transaction with the above listed persons is subject to the licensing requirements with the same presumption of denial as discussed previously in this article.
For additional information regarding the newly recognized Russian sanction, OFAC has issued a new FAQ guidance for your reference. As you continue to endeavor internationally, it is important that you ensure you are not doing business with embargoed territories or entities. If you choose to do business with such territories, it's very important you determine whether there is a legal way to continue relations or those relations must discontinue.