As of March 20, 2022, a new Executive Order (EO) prohibited certain imports, exports, the transfer of US dollar banknotes to Russia, and new investments involving certain sectors of the Russian economy. The US Office of Foreign Assets Control (OFAC) also issued new General Licenses and Frequently Asked Question (FAQ) guidance. Additionally, the US Department of Commerce’s Bureau of Industry & Security (BIS) announced new regulations to control the export, reexport, and transfer (in country) of certain luxury goods to or within Russia and Belarus. BIS also identified numerous aircraft subject to US export controls jurisdiction that had flown to Russia without a license, and issued a reminder regarding the restrictions under General Prohibition 10 under the Export Administration Regulations (EAR) of servicing such aircraft.
Key points of these US sanctions developments and export controls are summarized below.
For a summary of US sanctions and export controls adopted between February 21 and March 8, 2022, see this Steptoe blog post.
Executive Order Targeting Certain Imports, Exports, and New Investment in Russia
US Imports of Certain Russian-Origin Goods
On March 11, 2022, President Biden issued EO 14068 prohibiting the importation into the United States of any Russian Federation origin fish, seafood, and preparations thereof; alcoholic beverages; and non-industrial diamonds. The US Treasury Secretary, in consultation with the Secretary of State and the Secretary of Commerce, is also authorized to designate additional products subject to the import ban.
The US Treasury Department’s Office of Foreign Assets Control (OFAC) previously issued FAQ 1019 defining Russia Federation-origin goods as “goods produced, manufactured, extracted, or processed in the Russian Federation, excluding any Russian Federation origin good that has been incorporated or substantially transformed into a foreign-made product” under EO 14066 of March 8, 2022. FAQ 1027 under EO 14068 of March 11, 2022 refers to the same interpretation.
FAQ 1027 also provides the Harmonized Tariff Schedule of the United States (HTSUS) subheadings covering imports of fish, seafood, and related preparations, alcoholic beverages, and non-industrial diamonds prohibited under EO 14068. General License (GL) No. 17 authorizes transactions ordinarily incident and necessary to the importation of such goods, pursuant to preexisting written contracts or agreements before March 11, 2022, until 12:01 a.m. eastern daylight time on March 25, 2022.
FAQ 1023 states that US persons are not prohibited from engaging in transactions to unwind contracts or other business activities affected by the import ban. FAQ 1024 notes that US persons can engage in transactions to sell or re-direct shipments outside the United States that were previously destined for the United States but are now prohibited by the EO.
FAQ 1025 states that US persons can continue to rely on GL No. 6 (“Transactions Related to the Exportation or Reexportation of Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates, or the Coronavirus Disease 2019 (COVID-19) Pandemic”) for transactions involving agricultural commodities, such as fish, seafood, and preparations thereof, provided such transactions are not for the importation of these Russian-origin products into the United States.
FAQ 1026 states that non-US persons are not exposed to secondary sanctions risks under EO 14068 for engaging in imports of covered Russian-origin items to countries other than the United States, provided the importation “does not involve a sanctioned person or an otherwise prohibited transaction.”
US Exports of Luxury Goods to Russia and Banknotes to Russia
EO 14068 also prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US person, wherever located, of luxury goods to any person located in the Russian Federation. The Commerce Department’s Bureau of Industry and Security (BIS) concurrently issued an amendment to the Export Administration Regulations (EAR) implementing this prohibition for items subject to the EAR exported, reexported, or transferred (in country) to or within Russia and Belarus and defining the term “luxury goods” for the purposes of EO 14068. (See below for a summary of the new BIS rule.)
US persons are also prohibited under EO 14068 from the exportation, reexportation, sale, or supply, directly or indirectly, of US dollar (USD) -denominated banknotes to the Russian government or any person located in Russia.
However, GL No. 18 authorizes transactions ordinarily incident and necessary to the transfer of such banknotes for non-commercial, personal remittances from: (i) the United States or a U.S. person, wherever located, to an individual located in Russia; or (ii) a U.S. person who is an individual located in the Russia, provided those remittances are to an individual in Russia from an individual US person in Russia
FAQ 1028 states that US financial institutions are not permitted to process transactions for the provision of USD-denominated banknotes to foreign financial institutions for further distribution or supply to the Russian government or any person located in Russia.
EO 14068 authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to prohibit new investments from the United States or by a US person, wherever located, in any sector of the Russian economy. As of March 20, 2022, the Treasury Department has not yet identified any such sectors for the purpose of EO 14068 (i.e., in addition to the energy sector of Russia identified as part of EO 14066).
On May 18, OFAC updated FAQ 1020 to clarify that EO 14066 does not prohibit dealing in Kazakh-origin crude oil of the Caspian Pipeline Consortium (CPC). The CPC transports crude oil through the CPC pipeline that is predominantly of Kazakh origin and that is marketed and loaded with a certificate of origin verifying that the crude is of Kazakh origin. Any crude oil that is primarily of Russian Federation origin is to be marketed and loaded separately and certified as Russian origin. The FAQ notes that U.S. persons may reasonably rely upon a certificate of origin for purposes of assessing whether crude oil marketed by the CPC is of Russian origin, but should exercise caution if they have a reason to believe such certificate has been falsified.
Lastly, the EO prohibits US persons, wherever located, from any approval, financing, facilitation, or guarantee of a transaction by a foreign person that would be prohibited if performed by a US person or within the United States. This would include, for instance, financing the export of luxury goods from a third country to Russia.
Other New OFAC General Licenses since 8 March 2022
Maintenance of US Individuals in Russia
OFAC GL No. 19 authorizes transactions that are ordinarily incident and necessary to the personal maintenance of US individuals within the Russian Federation that would otherwise be prohibited by EO 14068 of March 11, 2022. These include payment of housing expenses, acquisition of goods or services for personal use, payment of taxes or fees, and purchase or receipt of permits, licenses, or public utility services.
OFAC GL No. 23 authorizes US persons to engage in transactions that are ordinarily incident and necessary to certain activities by nongovernmental organizations (NGOs) in the Covered Regions. These include payment of housing expenses, acquisition of goods or services for personal use, payment of taxes or fees, and purchase or receipt of permits, licenses, or public utility services. The NGO activities covered by GL No. 23 include those to support (i) humanitarian projects to meet basic human needs; (ii) democracy building; (iii) education; (iv) non-commercial development projects directly benefiting the people; and (v) environmental and natural resource protection. Religious and other activities are not covered.
Civil Maritime Services
OFAC GL No. 24 permits certain transactions related to the provision or receipt of civil maritime services performed by individuals who are ordinarily resident in the so-called Donetsk People’s Republic or Luhansk People’s Republic regions of Ukraine, or such other regions of Ukraine determined by OFAC (Covered Regions). Specifically, the GL authorizes such transactions provided that: (i) such services are performed outside the Covered Regions; and (ii) are not performed on behalf of any entity located in, or organized under the laws of, the Covered Regions. The GL does not authorize new investment in the Covered Regions or transactions involving persons blocked pursuant to EO 14065, unless separately authorized by OFAC.
New FAQ 1021 reiterates that the prohibitions contained in the Russian Harmful Foreign Activities Sanctions Regulations apply to virtual currency transactions, as explained in OFAC’s Sanctions Compliance Guidance for the Virtual Currency Industry and FinCEN’s March 7, 2022 Alert on Increased Vigilance for Potential Russian Sanctions Evasion Attempts.
New Designations of Russian Elites and Politicians
On March 11, 2022, the US Treasury and State Departments designated several prominent Russian individuals and politicians as Specially Designated Nationals (SDNs) pursuant to EO 14024 of April 15, 2021.
These include close relatives of Dmitriy Peskov, a spokesperson for President Vladimir Putin, 10 members of the management board of VTB Bank, and 12 members of the Russian Duma. OFAC re-designated Viktor Vekselberg, who was first sanctioned in 2018, and identified his private jet and yacht as blocked property.
The US State Department identified 12 individuals and one entity as SDNs These include AO ABR Management and six of its board members, four board members of Novikombank, and four family members of two of the AO ABR Management board members.
On March 15, the US State Department designated an additional 11 individuals, including eight deputy ministers of defense and Viktor Zolotov, Commander-in-Chief of Russia’s National Guard and a member of Russia’s Security Council.
New Magnitsky Act Designations
On March 15, 2022, OFAC designated four individuals and one entity pursuant to the Magnitsky Act. According to a Treasury Department press release, Natalia Mushnikova, a district judge in Moscow, was designated for her role in concealing events surrounding the death of Russian whistleblower Sergei Magnitsky. OFAC also designated Kurchaloi District of the Chechen Republic Branch of the Ministry of Internal Affairs of the Russian Federation and three of its officers for committing gross human rights violations against Russian human rights advocate Oyub Titiev.
Re-Designation of Alexander Lukashenko and Designation of Lukashenko’s Wife
On March 15, 2022, the OFAC re-designated Belarusian leader Alexander Lukashenko and newly designated his wife, Halina Lukashenko, pursuant to EO 13405.
New BIS Russia and Belarus Export Controls
On March 11, 2022, BIS announced a final rule restricting exports, reexports, and in-country transfers of luxury goods to all end users in Russia and Belarus and to certain Russian and Belarusian individuals located worldwide. Previously, only North Korea was subject to such restrictions on luxury goods.
The new final rule adds § 746.10 to the EAR and introduces two new license requirements covering:
- Russia or Belarus, regardless of the end-user or end-use involved; and
- Russian and Belarusian oligarchs and malign actors, identified by OFAC as SDNs under any of seven Russia or Ukraine-related EOs, regardless of their location.
A list of luxury goods subject to this license requirement, along with their Schedule B numbers and descriptions, are included in the new Supplement No. 5 to EAR Part 746. The luxury goods identified include certain spirits, tobacco products, clothing items, diamonds, vehicles, and antique goods.
License exceptions AVS and BAG with certain limitations are available to overcome this new BIS licensing requirement. Applications for the export and reexport of luxury goods to identified locations and individuals will be reviewed under a policy of denial. These new restrictions do not apply to luxury goods subject to the EAR that “were en route aboard a carrier to a port of export, reexport, or in-country transfer” as of March 11, 2022.
Notably, EO 14068’s prohibitions on the exportation, reexportation, sale, or supply of luxury goods are not limited to goods subject to the EAR. US persons, wherever located, are prohibited from such transactions or provision of related services even if the transactions involve luxury goods that are not subject to the EAR.
Restrictions on Transactions Involving Certain Russian Aircraft
While not a new regulatory action, on March 18, 2022, BIS issued a notice indicating that it had identified numerous aircraft that had been exported to Russia in apparent violation of the EAR. The notice reminded the public that, pursuant to the EAR’s General Prohibition 10, a BIS authorization is required for “any person anywhere” to provide services to such aircraft. BIS indicated that these restrictions include, but are not limited to, refueling, maintenance, repair, or the provision of spare parts or services. There are no license exceptions to these restrictions.