International Trade & Compliance Alert
In March 2021, three federal agencies promulgated international trade restraints as part of the Biden Administration’s response to alleged mistreatment of Russian opposition leader Alexey Navalny in 2020. Specifically, the Commerce Department’s Bureau of Industry and Security (“BIS”) imposed certain Russia-related export control restrictions, and the State Department imposed a number of new financial sanctions and export restrictions on Russia and subjected Russia to a U.S. arms embargo. In addition, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added seven prominent Russian officials to the List of Specially Designated Nationals and Blocked Persons (the “SDN List”), and BIS added 14 Russian parties to the Entity List. The U.S. government acted in coordination with the European Union, which imposed similar trade sanctions against Russia.
On March 18, 2021, BIS expanded Export Administration Regulations (“EAR”) restrictions on exports and reexports to Russia of items that are controlled for national security reasons. First, BIS established a presumption of denial for review of export license applications for national security-controlled items, including for exports to commercial end users and civil end uses. Second, BIS suspended the following EAR license exceptions: Servicing and Replacement Parts and Equipment, Technology and Software Unrestricted, and Additional Permissive Reexports. Waivers will be available in some circumstances, including (i) items necessary for the safety of civil fixed-wing passenger aviation, (ii) deemed exports and reexports to Russian nationals, (iii) items destined for wholly-owned U.S. subsidiaries and other foreign subsidiaries of U.S. companies that are located in Russia, and (iv) items supporting government space cooperation, and, until September 1, 2021 only, items supporting commercial space launch activities.
On March 18, 2021, the State Department added Russia to the International Traffic in Arms Regulations’ (“ITAR”) list of “proscribed countries” subject to a policy of denial for exports of defense articles and defense services, commonly known as the Section 126.1 list. While exports of items subject to the ITAR to Russia were already tightly controlled, the March 18, 2021 action effectively imposes an arms embargo on Russia, with certain limited exceptions. The State Department’s Directorate of Defense Trade Controls has indicated that it will execute case-by-case review of license applications in support of government space cooperation and will allow continued use of certain ITAR exemptions for exports to Russia in furtherance of commercial space launches for six months.
Countries on the Section 126.1 list are automatically classified as Country Group D:5 countries under the EAR, which means that certain licensing exceptions under the EAR are unavailable for exports involving such countries.
On March 2, 2021, OFAC added seven senior Russian government officials to the SDN List. All property and property interests of these seven individuals that come within the United States or the possession or control of U.S. persons are blocked, and U.S. persons are generally prohibited from engaging in transactions with these individuals and any entities 50% or more owned by one or more of them or any other designated persons.
Also on March 2, 2021, the State Department added six Russian government scientific research centers and institutes to the list of entities under Section 231 of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), which identifies parties that are part of, or operate for or on behalf of, the defense or intelligence sectors of the Russian government. CAATSA instructs the State Department to sanction U.S. or non-U.S. persons who knowingly engage in a significant transaction with a party designated under Section 231.
Effective March 4, 2021, BIS added 14 Russian government-associated entities to the EAR Entity List pursuant to the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 in connection with their proliferation activities in support of Russia’s weapons of mass destruction programs and chemical weapons activities. BIS took this action pursuant to a March 2, 2021 determination by the Secretary of State that the Government of Russia has used chemical or biological weapons in violation of international law or lethal chemical or biological weapons against its own nationals. BIS stated that the U.S. government seeks to prevent Russia from accessing sensitive U.S. technologies that might be diverted to its malign chemical weapons activities. The Entity List designation means that exports, reexports, and in-country transfers of items subject to the EAR are generally prohibited to these entities without a license.
Earlier this year, the State Department imposed sanctions under Section 232 of CAATSA on the Russian-flagged vessel FORTUNA and its owner KVT-RUS and added them to the SDN List for engaging in pipe-laying activities for the Nord Stream 2 project. On March 18, 2021, U.S. Secretary of State Blinken reiterated the warning that any entity involved in Nord Stream 2 risks U.S. sanctions and should immediately abandon work on the pipeline. U.S. sanctions mandated by the Protecting Europe’s Energy Security Act of 2019 (“PEESA”), as amended in 2020, target certain activities related to provision of vessels “engaged in pipe-laying at depths of 100 feet or more below sea level for the construction of the Nord Stream 2 pipeline project.” Further, PEESA authorizes the State Department to sanction any person investing in or providing goods or services to Nord Stream 2 project that have a fair market value of at least $1 million or, during a 12-month period, of $5 million or more.
The sanctions and regulatory changes described above will require attention to any new compliance obligations for affected industries and entities. U.S. and non-U.S. companies doing business in and with Russia are advised to closely monitor the developments in U.S. trade policy. We expect that in the coming months coordinated U.S. and European trade restrictions and associated sanctions measures against Russia may increase.