Russian Sanctions/Export Controls Update: U.S.-European Sanctions/Export Control Measures Continue to Mount

The Russian invasion of Ukraine is continuing to prompt escalating sanctions and export controls on both sides of the Atlantic. Our team breaks down the latest measures coming out of the European Union, the United Kingdom and the United States.

European Union

New Package of Trade Restrictions Against Russia

On March 15, 2022, the EU formally approved the fourth package of sanctions against Russia,¹ which included a broad set of new trade restrictions, including a ban on (1) investments in the Russian energy sector; (2) specific transactions with certain Russian state-owned enterprises; (3) the import of Russian-origin goods steel and iron products; and (4) the export of certain luxury goods to Russia (e.g., luxury cars, jewelry). 

The EU’s latest measures come on the heels of similar — yet decidedly more stringent measures — announced by the United States and the United Kingdom last week (see recap below). The core elements of the EU’s new trade restrictions consist of the following: 

Restrictions on Russian State-Owned Enterprises (SOEs)

Under the EU regulations, it is prohibited to (directly or indirectly) engage in any transaction with the following SOEs (including (i) any person or legal entity established outside of the EU owned (directly or indirectly) more than 50% by any of the following entities and (ii) any person or entity acting on behalf or at the direction of any of the following entities) (Restricted SOEs):

• OPK Oboronprom (aerospace)
• United Aircraft Corporation (aerospace and defense)
• Uralvagonzavod (military equipment)
• Rosneft (oil and gas)
• Transneft (oil and gas)
• Gazpromneft (oil and gas)
• Almaz-Antey (military/air defense systems)
• Kamaz (large truck producer)
• Rostec (Russian Technologies State Corporation) (aircraft, military, high-tech electronics)
• JSC PO Sevmash (shipbuilding)
• Sovcomflot (shipping/oil and gas transport)
• United Shipbuilding Corporation (shipbuilding)

This prohibition, however, does not apply to:

1. The performance of contracts entered into before March 16, 2022 or ancillary contracts necessary for the performance of such contracts (until May 15, 2022).
2. Transactions that are strictly necessary for the purchase, import or transport of fossil fuels, in particular coal, oil and natural gas, as well as titanium, aluminum, copper, nickel, palladium, and iron ore from or through Russia into the EU.
3. Transactions related to energy projects outside Russia in which a Restricted SOE is a minority shareholder.

Restrictions on Investments in the Russian Energy Sector

The EU has prohibited the following activities in the Russian energy sector:

• Any new (or extension of any existing) participation in any Russian legal entity or any non-Russian legal entity that operates in the Russian energy sector.
• The creation of any new JV with a Russian legal entity or any non-Russian legal entity that operates in the Russian energy sector.
• The provision of any new loans, credit, or other financing, including equity capital to any Russian legal entity or any non-Russian legal entity that operates in the energy sector in Russia.
• The provision of investment services directly related to the activities referred to above.

The prohibition allows for EU member states to authorize, subject to any conditions, activities that (a) are necessary for ensuring critical energy supply within the EU or (b) where such legal entity operating in the Russian energy sector is owned by a legal entity incorporated in the EU. 

Restrictions on Imports from Russia

• Iron and Steel Products: The EU has also imposed a ban on iron and steel products originating or being exported from Russia. This prohibition covers importing, purchasing, transporting or providing technical assistance, brokering services, financing or financial assistance, including financial derivatives, as well as insurance and reinsurance. There is a wind-down period for contracts entered into prior to March 16, 2022, provided they are concluded by June 17, 2022. According to the EU, this ban will amount to approximately € 3.3 billion in lost export revenue for Russia. To compensate for anticipated shortages, the EU says that increased import quotas will be distributed to other third countries.
• Revocation of Most-Favored Nation (MFN) Status: On March 11, 2022, the EU, in conjunction with the Group of Seven (G7) countries (Canada, France, Germany, Italy, Japan, the U.K. and the U.S.) announced its commitment to revoke Russia’s most-favored-nation (MNF) — a move that could result in either new or increased tariffs on certain Russian-origin imports into the EU. The EU formally revoked Russia’s MFN status on March 15, 2022. 

Restrictions on Exports to Russia

• Energy Exploration & Production 
  
  • The EU is prohibiting the right to sell, supply, transfer or export (directly or indirectly) certain goods and technology suited for exploration and production products to any Russian person or legal entity or for use in Russia. This includes the provision of technical assistance, brokering services, or other services related to such goods and technology and providing financing or financial assistance.  
  • There is a wind-down period for contracts executed prior to March 16, 2022, which allows for performance until September 17, 2022, provided that the EU competent authority has been notified at least five working days in advance.
  • There are limited exclusions that allow for the transport of fossil fuels from or through Russia to the EU and for the urgent prevention or mitigation of an event likely to have a serious and significant impact on human health and safety or the environment.  
  • The prohibition allows for EU member states to authorize, subject to any conditions, the sale, supply, transfer, or export and the provision of such technical or financial assistance, that (a) is necessary for ensuring critical energy supply within the EU or (b) where the exclusive use is for an EU person or legal entity. 
  • The EU regulations further specify that these prohibitions do not apply to the provision of insurance or reinsurance to an EU entity with its activities outside the energy sector in Russia.
• Luxury Goods: The EU has also adopted a broad ban on “luxury” goods, covering everything from horses, luxury cars, clothing, jewelry, watches and other items aimed at affecting “Russian elites.”  

Restrictions on Access to Rating Services

The new measures also include a ban on the rating of Russia and Russian companies by EU credit rating agencies, along with the provision of rating services to Russian clients. This measure will go into effect on April 15, 2022. 

The EU also published a "Questions and Answers" offering further guidance and policy context.  

Maritime Navigation Equipment and Technology

The measures described above came less than a week after the EU announced a new export ban targeting the Russian maritime sector — specifically, by prohibiting the sale, supply, transfer or export, directly or indirectly, of listed maritime navigation equipment and technology² to any person in Russia, for use in Russia, as well as any Russian-flagged vessel. The export ban also covers technical assistance, brokering services, other services, financing and financial assistance related to maritime navigation equipment and technology. Certain limited exceptions apply, including if the items are intended for maritime safety, but remain subject to authorization by the competent national authority.

United Kingdom

The U.K. Sanction Regulations³ have imposed trade prohibitions relating to:

• Dual-use goods and technology.⁴
• Military goods and military technology (as specified in Schedule 2 to the Export Control Order 2008).⁵
• Anything which falls within Chapter 93 of the Goods Classification Table,⁶ other than military goods.
• The provision of technical assistance, armed personnel, financial services or funds, or associated brokering services where such provision enables or facilitates the conduct of certain military activities.
• Critical-industry goods and technology (as specified in Schedule 2A to the Regulations).⁷
• Aviation and space goods and technology (as specified in Schedule 2C to the Regulations).⁸
• Energy-related goods (as specified in Part 2 of Schedule 3 to the Regulations) and energy-related services.
• Goods originating in Crimea.
• Infrastructure-related goods (as specified in Part 3 of Schedule 3 to the Regulations).
• Services relating to a relevant infrastructure sector in Crimea.
• Services relating to tourism in Crimea. 

United States

Import Restrictions

• Energy Products: On March 8, 2022, President Biden issued a sweeping Executive Order that prohibits: 
  
  • The import of certain Russian-origin energy products, including crude oil; petroleum; petroleum fuels, oils, and products of their distillation, liquified natural gas, coal, and coal products.  
  • New investment in the Russian energy sector by a United States person, wherever located.

  Pursuant to the EO, these prohibitions extend to “any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by” the EO. 

  In conjunction with the EO, the White House also issued a Fact Sheet and Guidance.

• Additional Products: On March 11, 2022, President Biden issued an Executive Order banning the import of additional Russian-origin products, including:  
  
  • Fish, seafood and preparations thereof.
  • Alcoholic beverages.
  • Non-industrial diamonds. 
  • Any other products of Russian origin as may be determined by the Secretary of the Treasury in consultation with the Secretary of State and the Secretary of Commerce. 
• Revocation of Most Favored Nation (MFN) Status: On March 11, 2022, the U.S., in conjunction with the G7 countries and the EU, announced its commitment to revoke Russia’s most-favored-nation (MNF) status — known in the U.S. as permanent normal trade relations (PNTR) — which, once enacted by Congress, will subject all Russian-origin goods to Column 2 tariff rates.

Blocking Sanctions

The U.S. Department of Treasury’s Office of Foreign asset Controls (OFAC) also designated new entities and individuals to its Specially Designated Nationals and Blocked Persons List (SDN List), including: 

• Russian “elites, oligarchs” and “political and national security leaders”: 
  • VTB Bank’s Management Board: Designated board members include Olga Konstantinovna Dergunova, Vadim Valerievich Kulik, Valerii Vasilyevich Lukyanenko, Anatolii Yuryevich Pechatnikov, Natalia Germanovna Dirks, Maxim Dmitrievich Kondratenko, Erkin Rakhmatovich Norov, Svyatoslav Evgenievich Ostrovsky, Dmitrii Vasilyevich Pyanov and Yuriy Nikolaevich Andresov. 
  • Members of the Russian Duma: Designated members include Vyacheslav Victorovich Volodin (the Duma’s speaker), along with the following: Yuriy Vyacheslavovich Afonin, Yevgeniy Ivanovich Bessonov, Leonid Ivanovich Kalashnikov, Vladimir Ivanovich Kashin, Nikolay Vasilievich Kolomeitsev, Aleksey Vladimirovich Kurinniy, Ivan Ivanovich Melnikov, Dmitriy Georgievich Novikov, Nikolay Ivanovich Osadchiy, Kazbek Kutsukovich Taysaev and Gennady Andreyevich Zyuganov. 
  • Family of Dmitriy Peskov, Kremlin Spokesman: Designations include Peskov’s wife, Tatiana Aleksandrovna Navka, and his two adult children, Nikolay Peskov and Elizaveta Dmitriyevna Peskova.
  • “Network Close to the Kremlin”: The designations include property owned by Viktor Feliksovich Vekselberg, described by the White House as “a prominent Russian businessman with an estimated net worth exceeding $6 billion” who was previously designated on April 6, 2018, pursuant to EO 13662 for operating in the energy sector of the Russian economy.
• Russian Entities/Individuals Affiliated with North Korea’s Weapons Program: On March 11, 2022, OFAC also designated two individuals and three Russian entities for supporting the Democratic People’s Republic of Korea’s (DPRK) development of its weapons of mass destruction (WMD) and ballistic missile programs, including: 
  
  • Apollon OOO and its director, Aleksandr Andreyevich Gayevoy.
  • Zeel – M Co., Ltd and its director, Aleksandr Aleksandrovich Chasovnikov (Chasovnikov). 
  • RK Briz, OOO.

  Identifying information on the listed individuals and entities described above can be found on Treasury’s website.

• Human Rights Violators: On March 15, 2022, OFAC designated four individuals and one entity pursuant to the Sergei Magnitsky Rule of Law Accountability Act of 2012, which targets those involved in concealing events surrounding the death of Russian whistleblower Sergei Magnitsky or connected to human rights violations against Russian human rights defender Oyub Titiev. The designees include:  
  
  • Alyaksandr Ryhorovich Lukashenka and his wife Halina Radzivonawna Lukashenka.
  • Natalia Mushnikova, a district judge in Moscow. 
  • The Kurchaloi District of the Chechen Republic Branch of the Ministry of Internal Affairs of the Russian Federation (Kurchaloi OMVD), and three of its officers, including Nurid Denilbekovich Salamov, Khusein Merlovich Khutaev and Dzhabrail Alkhazurovich Akhmatov. 

  OFAC also redesignated Belarus’s president, Alyaksandr Lukashenka, and newly designated Lukashenka’s wife, Halina Radzivonawna Lukashenka.

  Identifying information on the listed individuals and entities designated on March 15, 2022, can be found on Treasury’s website. 

Export Controls

Per President Biden’s March 8, 2022, EO, U.S. persons are also prohibited from making new investments in “any sector” of the Russian economy, as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State. 

The March 8, 2022, EO also prohibits the export, reexport, sale or supply (direct or indirect) from the United States, or by a United States person, wherever located, of the following items: 

• Luxury goods, and any other items as may be determined by the Secretary of Commerce, in consultation with the Secretary of State and the Secretary of the Treasury, to any person located in Russia. 
• U.S. dollar-denominated banknotes to the Russian Government or any person located in Russia. 

On March 11, 2022, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) also announced new restrictions on the export, reexport and transfer (in country) of luxury goods to all end users in the Russia and Belarus; as well as to certain Russian and Belarusian oligarchs and malign actors located worldwide. Per the announced rule, impacted products include certain alcoholic beverages, tobacco products, carpets and textile floor coverings, personal accessories, perfumery and cosmetics, clothing items, footwear, fabrics, jewelry, machinery, vehicles, works of art and antique goods.

Additional Announcements

On March 11, 2022, OFAC issued four general licenses: 

• General License 17, authorizing transactions that are “ordinarily incident and necessary” to the importation into the U.S. of fish, seafood, and preparations thereof; alcoholic beverages; or non-industrial diamonds. 
• General License 18, authorizing transactions that are “ordinarily incident and necessary” to the transfer of U.S. dollar-denominated banknote noncommercial, personal remittances from the U.S. to Russia. 
• General License 19, authorizing transactions that are “ordinarily incident and necessary” to personal maintenance within Russia, including 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.
• Ukraine-related General License 23, authorizing certain transactions that are “ordinarily incident and necessary” to nongovernmental organizations’ activities in the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine, including activities related to humanitarian projects “to meet basic human needs, democracy building, education, non-commercial developments projects, and environmental and natural resource protection.” 

For More Information

Despite the significant sanctions and export control measures imposed thus far, U.S. and European leaders continue to face significant pressure to impose additional measures. 

In the U.S., Congress is now moving on legislation to (1) revoke Russia’s MFN status (a move that, as noted above, cannot be accomplished via executive authority), (2) authorize the president to unilaterally impose or increase tariffs on Russian-origin goods and (3) impose a statutory ban on Russian-origin energy products. It is reported and we anticipate that members of Congress will continue to press the Biden administration to further expand current sanctions and export controls, particularly in relation to Russia’s energy sector 

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.