On February 2, 2017, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued a general license (General License 1) permitting certain limited transactions with the Russian Federal Security Service (FSB), Russia’s principal security agency. FSB was designated by OFAC as a Specially Designated National (SDN) on December 29, 2016 and subsequently also added to the U.S. Commerce Department’s Entity List on January 4, 2017. FSB remains designated, but OFAC’s General License 1 is a welcome step towards alleviating concerns of U.S. technology companies over the need to deal with FSB in its regulatory role in approving the import, distribution, and use of encryption products in Russia, as well as its broader law enforcement role. Meanwhile, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) has yet to take parallel action to authorize exports, reexports, and transfers to FSB of goods, software, and technology subject to U.S. jurisdiction under the Export Administration Regulations (EAR).
General License 1 permits certain activities involving FSB that are otherwise prohibited under Executive Order 13757 of December 28, 2016 (Cyber EO 2). Cyber EO 2 was issued by President Obama in response to the Russian government’s alleged cyber operations aimed at influencing the U.S. election. It expanded the sanctions authorities under the earlier Executive Order 13694 of April 1, 2015 (Cyber EO) targeting certain “malicious cyber-enabled activities.” For more on Cyber EO 2, please see our previous blog post here.
What is Authorized?
General License 1 authorizes the following activities by U.S. Persons:
- transactions and activities that are “necessary and ordinarily incident to” receiving approval from FSB to import, distribute, or use encryption products in Russia. This includes requesting, receiving, using, paying for, or dealing in licenses, permits, certifications, or notifications issued or registered by FSB. Any exports/reexports of items subject to the EAR must be licensed or otherwise authorized by BIS. Any fees paid to FSB for such licenses, etc. may not exceed $5000 in any calendar year.
- compliance with law enforcement or administrative actions or investigations involving FSB (e.g. anti-bribery investigations).
- compliance with the rules and regulations of FSB.
What is Not Authorized?
General License 1 expressly excludes the following:
- providing goods or technology to or on behalf of FSB, unless authorized as part of FSB’s approval process covered by General License 1.
- exporting, reexporting, or providing goods, technology, or services to the Crimea region of Ukraine.
- dealing with other SDNs or transferring any property or debiting accounts blocked under other Executive Orders, statutes, or otherwise under the OFAC sanctions.
Also, until BIS takes similar action, exports, reexports, and transfers to FSB by any person, including non-U.S. companies, of goods, software, or technology subject to U.S. jurisdiction under the EAR remain prohibited at this time. We are continuing to follow-up on this and will issue a further update as developments occur.