Russian Sanctions/Export Controls Update: OFAC and BIS Expand Restrictions

Seven months into Russia’s invasion of Ukraine, the United States continues to expand and develop its Russia sanctions program. Most recently, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a number of new and revised general licenses and additional guidance on ongoing prohibitions, while the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) added items to its list of EAR99 products which require a license for export to Russia, amended certain regulations, and expanded its Military End User and Military Intelligence End User rules to users of certain countries located anywhere in the world.

Expansion of EAR99 Licensing Requirement

On September 15, the BIS issued a rule applying further export controls on industrial and commercial items. The new rule further expands the scope of Russian industry sector sanctions, which impose a licensing requirement for certain items classified as EAR99, which previously did not require a license for most exports to Russia.

In May, the BIS added 205 6-digit Harmonized Tariff Schedule (HTS) codes to the list of items requiring a license for the export, reexport or transfer (in-country) to Russia. The September 15 rule builds on this by adding items potentially useful for Russia’s chemical and biological weapons production capabilities and quantum-computing-related hardware, software and technology. The rule also adds Belarus to the scope of industry sector sanctions that previously applied only to Russia. Finally, the new rule revised the dollar thresholds for EAR99 luxury items which also require a license to export or re-export to Russia (or Russians located outside Russia) to be more consistent with European requirements.

Amendments to License Exceptions and Military End User/Military Intelligence End User Rule

Importantly, BIS has amended the military end user (MEU) and military intelligence end user (MIEU) rule to apply to Cambodia. Additionally, the rule will now apply to MEUs and MIEUs of covered countries “located anywhere in the world.” BIS continues to maintain that its EAR99 restrictions and expansion of the foreign direct product rule for Russian/Belarusian MEUs apply to entities identified on its Entity List. Similarly, the expansion to MIEUs and MEUs located anywhere in the world only applies to those identified on the MEU list in Supplement No. 7 to 15 CFR Part 744. BIS has clarified, again, that Supplement No. 7 is not an exhaustive list for MEUs and MIEUs when they are located in Cambodia, Myanmar/Burma, Russia, Belarus, China and Venezuela.

Finally, BIS amended License Exception Consumer Communication Device (CCD) to better reflect technological advancements and consumer technology and clarified the license review policy for luxury items.

The full text of the rule can be found here.

Extension of General License 13

General License 13B (GL 13B) extends the authorizations granted under General License 13 through December 7, 2022. Under GL 13B, U.S. companies (and entities owned or controlled by U.S. companies, whether directly or indirectly) are authorized to pay taxes, fees or import duties, and purchase or receive permits, licenses, registrations or certifications, even if otherwise prohibited by Directive 4 under Executive Order 14024 (Directive 4). Directive 4, which is still in effect, prohibits U.S. persons from engaging in transactions that involve the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.

As under the previous general license, transactions must be ordinarily incident and necessary to the day-to-day operations of the U.S. company in the Russian Federation in order to fall under GL 13B.

New General Licenses

OFAC issued two additional general licenses on September 15:

• General License 51 (GL 51) authorizes transactions ordinarily incident and necessary to the wind down of transactions involving Limited Liability Company Group of Companies Akvarius (Aquarius) (including any entity in which Aquarius owns, directly or indirectly, a 50% or greater interest) through October 15. GL 51 does not authorize transactions prohibited by Directive 4 or by Directive 2 under EO 14024.
• General License 52 (GL 52) authorizes U.S. news reporting organizations and U.S. journalists (including photojournalists and broadcast or technical personnel) to engage in certain transactions, so long as (i) those transactions are ordinarily incident and necessary to journalistic activities or establishing or operating a news bureau; and (ii) the only involvement of blocked persons is the processing of funds by financial institutions. Those transactions include compensating support staff; leasing or renting office space; purchasing, leasing or renting goods and services; and paying for all other expenses ordinarily incident and necessary to journalistic activities, including sales or employment taxes.

Issuance of Preliminary Guidance on Maritime Services Policy for Seaborne Russian Oil

Rounding out an active week, OFAC also published preliminary guidance on the implementation of a maritime services policy and related price exceptions for seaborne Russian oil. The U.S., as part of a coalition of countries including the G7 and European Union, will implement a ban on certain services related to maritime transportation of Russian Federation origin crude oil and petroleum products. The ban will go into effect in two phases:

• On December 5, 2022, with respect to the maritime transportation of Russian Federation origin crude oil; and
• On February 5, 2023, with respect to the maritime transportation of Russian Federation origin petroleum products.

Critically, the policy will build in a price exception allowing certain jurisdictions or actors purchasing seaborne Russian oil at or below a price cap to continue to receive maritime transportation services with respect to that seaborne Russian oil. The price exception will be set by the coalition, with the intent to establish a framework by which Russian oil can be exported by sea under a capped price.

OFAC’s preliminary guidance suggests that this framework is a direct response to the Russian Federation’s “own war of choice” in Ukraine, which has subsequently inflated global energy prices. The framework aims to accomplish three things:

• Maintain a reliable supply of seaborne Russian oil to the global market;
• Reduce upward pressure on energy prices; and
• Reduce the revenues the Russian Federation earns from oil.

For More Information

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.