Russian Sanctions/Export Controls Update: New Targets Identified

As the Russian invasion of Ukraine continues to escalate, the U.S. and its allies are still implementing (and considering) additional sanctions and export control measures aimed at isolating Russia’s economy and weakening Russia’s ability to wage war. 

As described in our previous client alerts, U.S. sanctions and export controls have thus far included (in chronological order):

• Blocking sanctions and export controls directly tied to the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine. See Client Alert: Russian Sanctions and Export Controls Update (Feb. 22, 2022)
• A “first tranche” of broader sanctions targeting Russian individuals and entities, including Russia’s fifth-largest financial firm. See Client Alert: Russian Sanctions and Export Controls Update: The First Tranche (Feb. 23, 2022)
• A “second tranche” of broader sanctions targeting Russian individuals and entities (including Russia’s largest bank and second largest financial institution), along with additional export controls aimed at depriving Russia from certain “cutting edge” technological inputs. See 
• Client Alert: Russian Sanctions/Export Controls Update: The Second Tranche (Feb. 25, 2022)
• A “third tranche” of measures consisting of:   

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

See Client Alert: Russian Sanctions/Export Controls Update: Extraordinary Measures (Feb. 28, 2022)

For the latest round of measures, as announced by the White House on March 2 and March 3, the U.S. is imposing:

• 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 due to its “substantial enabling of Russia’s further invasion of Ukraine”; (b) technology exports used to support Russia’s oil refining capacity; and (c) 91 entities (located in 10 different countries) that have been designated for their “support of Russian military activities.” New export controls targeting the Russian oil and gas industry.
• Additional entities have been added to the Department of Commerce’s Bureau of Industry and Security’s (BIS) “Entity List.”

Below is a breakdown of the latest developments.

Blocking Sanctions

OFAC 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 Usmanov, described by OFAC as “one of Russia’s wealthiest billionaires with vast holdings across multiple sectors of [Russia] as well as internationally.” Concurrent with this designation, OFAC also issued a general license authorizing all transactions and unblocking all property of any entity owned 50 percent or more, directly or indirectly, by Usmanov, that does not appear on the SDN List and does not violate any other portion of the Russian Harmful Sanctions Regulations (RuHSR). 
  • Nikolay Petrovich Tokarev, described by OFAC as a “long-time Putin associate” and “president of one of Russia’s most important companies, Transneft, a state-owned pipeline company that is responsible for transporting 90 percent of oil extracted in Russia.” OFAC also designated Tokarev’s wife, daughter and three entities purportedly owned by Tokarev’s daughter (Limited Liability Company Ostozhenka 19 (Ostozhenka 19), Katina Drustvo s Ogranicenom Odgovornoscu za Nekretnine I Ugostiteljstvo (Katina) and T.G.A. D.O.O. za Trgovinu I Usluge (TGA). 
  • Yevgeniy Prigozhin, described by OFAC as the “Russian financier of the Internet Research Agency (IRA), which he utilizes to operate global influence operations.” OFAC also designated Prigozhin’s wife, daughter, son and three companies he purportedly controls (Lakhta Park, OOO; Lakhta Park Premium, OOO; and Lakhta Plaza, OOO). 
• Russian Intelligence-Directed Disinformation Outlets
  • OFAC designated 26 Russian- and Ukrainian-based individuals and seven Russian entities in connection with Russia’s efforts to “promulgate disinformation and influence perceptions.”  

Identifying information on the listed individuals and entities can be found on OFAC’s website. 

Export Controls Directed at Belarus 

Per an unpublished Final Rule with an effective date of March 3, 2022 Belarus will now be subject to the same export controls that are applicable to Russia (those BIS announced on February 24, 2022). Specifically, such measures will include:  

• New Commerce Control List (CCL)-Based License Requirements: License requirements are added for all Export Control Classification Numbers (ECCNs) in Categories 3-9 of the CCL. Many of these items did not previously require licenses for export, re-export, transfer or release to Belarus (e.g., parts and components used in civil aircraft).  
• New Review Policy for Exports, Reexports or Transfers: For the export, reexport or transfer (in-country) of items requiring a license for Belarus, applications will be reviewed, with certain limited exceptions, under a policy of denial. 
• “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 that will cover, with limited exceptions, all items subject to the EAR. BIS has also added “JSC Integral” and “The Ministry of Defence of the Republic of Belarus, including the Armed Forces of Belarus and all operating units wherever located” to the Entity List as “military end users.”  
• New Foreign Direct Product (FDP) Rules 
  
  • Addition of Belarus to the Russia FDP rule: Like the new Russia FDP rule, Belarus will now be subject to restrictions on foreign-produced items that are: (i) “the direct product of certain U.S.-origin software or technology subject to the EAR”; or (ii) “produced by certain plants or major components thereof which are themselves the direct product of certain U.S.-origin software or technology subject to the EAR.” According to BIS, the rule applies “when it is known that the foreign-produced item is destined to Belarus or will be incorporated into or used in the ‘production’ or ‘development’ of any ‘part’, ‘component’, or ‘equipment’ produced in or destined to Belarus.” Certain EAR99 items will not currently be subject to the new rule. 
  • Belarusian Military End Users (Belarus-MEU FDP 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 3 designation in the license requirement column of the Entity List.” With certain exceptions, EAR99 items are covered by the rule.

Similar measures against Belarus were also announced by U.S. allies, including the European Union and the United Kingdom.  

Export Controls Directed at Russian Oil Refining and Military Activities

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

Per an unpublished Final Rule, the new export controls related to the Russian oil sector are aimed at “restricting the export, reexport and transfer (in-country) of additional items needed for oil refining.” Notably, this represents the first U.S. actions since 2014 aimed directly at Russia’s oil and natural gas sector. It’s worth noting that in announcing these new measures, the Biden administration stated that the United States and its allies “do not have a strategic interest in reducing the global supply of energy[,]” while adding that, instead, “a strong interest [exists] in degrading Russia’s status as a leading energy supplier over time.” 

As to 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 United Kingdom — to BIS’s Entity List. According to Commerce, the new designations are “based upon their involvement in, contributions to, or other support of the Russian security services, military and defense sectors, and military and/or defense research and development efforts.”  

Additional Announcements

• U.S. 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 (e.g., payment of taxes, fees, import duties) and clearing/settlement. OFAC also updated and added FAQs regarding the latest U.S. sanctions. 
• U.S. Department of Justice (DOJ): On March 2, 2022, DOJ announced the creation of “Task Force KleptoCapture”, described, in part, as an “interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has 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 staffed with prosecutors, agents, analysts and professional staff who are “experts in sanctions and export control enforcement, anticorruption, asset forfeiture, anti-money laundering, tax enforcement, national security investigations, and foreign evidence collection.” 

For More Information

In the coming days, we expect more guidance on the latest U.S. sanctions and export controls from OFAC and BIS, along with new developments on a host of legislative proposals targeting Russia that are now percolating on Capitol Hill. Perhaps most significant, bipartisan momentum is building in both the House and Senate to impose tariffs on Russia-origin imports via the revocation of Russia’s most-favored-nation (MFN)/permanent normal trade relations (PNTR) status — a move that Canada already announced on March 3, 2022.

Please note that we will continue to closely monitor this situation and provide timely updates, as warranted. In the meantime, please do not hesitate to reach out to a member of the Faegre Drinker Customs and International Trade Team if you have any questions.