International Trade & Compliance Alert
March.16.2022
The United States and its allies continue to ramp up pressure on Russia and Belarus in response to Russia’s continued hostilities in Ukraine. In this alert, we describe the latest export, import, and investment bans and restrictions implemented by the United States, the European Union, and the United Kingdom (see our prior alert discussing recent previous measures).
Key developments include:
I. Export Restrictions
Expanded Prohibitions on Exports to the Russian Energy Sector. On March 8, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) expanded the scope of the existing general prohibition on exports, reexports and in-country transfers of certain items subject to the Export Administration Regulations (the “EAR”) where a person has knowledge that the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater, Arctic offshore, or shale projects or the person is unable to determine whether the item will be used in such projects in Russia. These restrictions were originally added to the EAR in 2014. The expanded general prohibition, which contains no knowledge requirement, also covers exports, reexports and in-country transfers to or within Russia of any items needed for oil refining subject to the EAR and listed in a new supplement to part 746 of the EAR.
New Export Controls on Belarus and Russia. On March 8, 2022, BIS imposed the same export control measures on exports, reexports and in-country transfers to or within Belarus that it imposed on Russia in late February (including a new export license requirement for exports, reexports, and in-country transfers to or within the country of many items subject to the EAR, expansion of the scope of U.S. export controls via two new “foreign direct product rules,” and expanded controls associated with “military end users” and “military end uses” (see our prior alert)). BIS also expanded licensing requirements associated with exports, reexports and transfers to or within Russia of encryption items (see our prior alert).
Export Ban on Luxury Goods. On March 11, 2022, President Biden issued Executive Order 14,068, prohibiting, among other things, the direct or indirect supply of “luxury goods” to any person located in Russia from the United States or by U.S. persons. A new BIS rule, effective on the same day, implements these new prohibitions by imposing license requirements on, and adopting a general policy of denial with respect to license applications for, all exports, reexports and in-country transfers of “luxury goods” to or within Russia or Belarus, and to certain Russian and Belarusian persons now subject to sanctions administered by the Treasury Department’s Office of Foreign Assets Control (“OFAC”). The “luxury goods” include certain alcoholic beverages, tobacco products, perfumes and cosmetics, leather goods, apparel, footwear, jewelry, marine engines, watches, automobiles, motorcycles, and artwork.
Export Ban on U.S. Dollar-Denominated Banknotes. Executive Order 14,068 also prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by U.S. persons, of U.S. dollar-denominated banknotes to the Russian government or to anyone in Russia. Certain transactions that are ordinarily incident and necessary to the transfer of U.S. dollar-denominated banknotes for noncommercial, personal remittances are authorized.
II. Import Restrictions
Ban on Imports of Russian Oil. On March 8, 2022, despite previous U.S. reluctance to sanction the Russian energy sector, President Biden issued Executive Order 14,066, banning the import into the United States of oil and energy-related commodities (crude oil, petroleum, petroleum fuels, oils and products of their distillation, liquefied natural gas, coal, and coal products) of “Russian origin.” Items of “Russian origin” include goods produced, manufactured, extracted, or processed in Russia, but exclude any Russian-origin good incorporated or substantially transformed into a foreign-made product. OFAC has authorized, until April 22, 2022, transactions that are ordinarily incident and necessary to such imports pursuant to written contracts entered into before March 8, 2022.
Transactions to unwind existing commitments or redirect shipments that are in process are permitted. Non-U.S. persons importing such products outside of the United States are not exposed to sanctions risks under Executive Order 14,066, provided such imports do not involve a sanctioned person or an otherwise prohibited transaction.
Ban on Imports of Certain Russian Goods. Executive Order 14,068 prohibits the importation into the United States of fish, seafood, and preparations thereof, alcoholic beverages, and non-industrial diamonds, and other items of Russian origin as the U.S. government may determine. Until March 25, 2022, transactions that are ordinarily incident and necessary to such importation pursuant to written contracts entered into before March 11, 2022 are permitted.
III. Investment Bans
Ban on New Investment in the Russian Energy Sector and Authorization to Impose Further Bans. Executive Order 14,066 prohibits new (March 8, 2022 or later) investment by U.S. persons, wherever located, in the Russian energy sector. “New investment” broadly means commitments or contributions of funds or other assets for, or loans or other extensions of credit to, new energy sector activities occurring in Russia. Executive Order 14,068 authorizes the Secretary of the Treasury to impose additional bans on new investment in any sector of the Russian economy.
IV. Other
Additional Blocked Parties. On March 3, 11, and 15, 2022, OFAC imposed “blocking” sanctions on additional parties, including Belarusian President Alyaksandr Lukashenka and parties described as “Russian elites.” As a result, U.S. persons are generally prohibited from dealing directly or indirectly with the blocked parties, entities that are directly or indirectly owned 50% or more by one or more of such parties, and their property or property interests. Non-U.S. persons can be held liable for “causing” violations by U.S. persons involving transactions with the blocked parties and can also be subject to the U.S. secondary sanctions risks.
Closure of U.S. Air Space to Certain Russian Persons. On March 1, 2022, President Biden announced closure of U.S. airspace to Russian aircraft. The next day, the Federal Aviation Administration (the “FAA”) issued an implementation notice that prohibited all Russian air carriers and operators, Russian aircraft, and aircraft owned or operated by Russian citizens from using U.S. airspace. On March 10, 2022, the FAA revised its previous notice, narrowing the scope to Russian air carriers and operators, Russian aircraft, and aircraft owned by Russian persons or entities identified on the International Trade Administration’s consolidated screening list. This restriction does not apply to certain humanitarian or authorized operations and those involving in-flight emergencies.
Since our prior alert, the European Union has introduced the following further sanctions against Russia and new sanctions against Belarus:
SWIFT. The European Union prohibited providing specialized financial messaging services used to exchange financial data to certain Russian and Belarusian banks. As a result, on March 12, 2022, Belgian-based SWIFT disconnected from the SWIFT network seven Russian banks (Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, Vnesheconombank, and VTB Bank) and announced that it will disconnect three Belarusian banks (Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus) on March 20, 2022.[1]
Financial Sanctions. The European Union banned transactions related to the management of the Russian Central Bank’s reserves and assets. The competent authorities may authorize certain transactions that are strictly necessary to ensure the financial stability of the European Union as a whole or of the Member State concerned.
Further, the European Union introduced a ban on investing, participating or otherwise contributing to future projects co-financed by the Russian Direct Investment Fund and on selling, supplying, transferring or exporting euro banknotes to Russia or to any individual or entity in Russia.
Economic Sanctions. The European Union imposed a further package of economic sanctions including a ban on (i) all transactions with certain Russian state-owned enterprises, (ii) the provision of credit rating services to any Russian person or entity, and (iii) new investments in the Russian energy sector. In addition, the European Union introduced trade restrictions for iron, steel and luxury goods as well as further restrictive measures with regard to the export of maritime navigation goods and radio communication technology to Russia.
Belarus. In response to Belarus’ recent actions in the Ukraine crisis, the European Union adopted additional measures targeting the Belarusian financial sector. These measures include: (i) the exclusion of the three Belarusian banks from SWIFT, as noted above, (ii) the prohibition of transactions with the Central Bank of Belarus, (iii) the prohibition of the listing and provision of services related to shares of Belarusian state-owned companies on EU trading venues, (iv) the restriction of financial inflows from Belarus to the European Union, and (v) the prohibition of the supply of euro-denominated banknotes to Belarus.
Individual Sanctions. The European Union has significantly increased the number of sanctioned persons, including oligarchs, individuals active in the oil, banking and finance sectors, persons connected to Russia’s defense and industrial base, members of the Russian government, alleged propagandists, and persons involved in key economic sectors providing a substantial source of revenue to the Russian Federation. The restrictive measures include an asset freeze and a prohibition from making funds available to such persons. In addition, tighter export restrictions were imposed on dual-use goods destined to specific persons and on goods and technology which might contribute to Russia’s technological enhancement of its defense and security sector.
The European Union also extended the sanctions against persons responsible for undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (see our prior alert) for a further six months until September 15, 2022.
Other. The European Union made it mandatory for Member States to deny permission to land in, take off from, or overfly the territory of, the European Union to any aircraft operated by Russian air carriers, including as a marketing carrier in code-sharing or blocked-space arrangements, or to any Russian registered aircraft, or to any non-Russian-registered aircraft which is owned or chartered, or otherwise controlled by any Russian individual or entity. This restriction does not apply in the case of an emergency landing or an emergency overflight. EU Member States may grant exemptions for landing, take-off or overflight which are required for humanitarian purposes.
Further, the European Union approved the suspension of the broadcasting activities in the European Union of the Russian media outlets Sputnik and Russia Today.
Since our prior alert, the United Kingdom has continued to tighten sanctions against Russia, including by:
G7 Measures. On March 11, 2022, leaders of the G7 nations and the European Union resolved to implement further measures, including revocation of Russia’s most favored nation status which would, among other things, raise tariffs on Russian goods.
U.S. Congressional Proposals. In addition, the U.S. Congress is considering several bills that would impose additional measures, such as banning U.S. financial institutions and businesses subject to the Bank Secrecy Act from providing any product or service to Russia- or Belarus-based businesses, requiring the delisting of Russian and Belarussian companies from U.S. exchanges and indexes, and prohibiting the underwriting and trading of securities of Russia-based companies.
UK Legislative Developments. The UK Parliament is expected to enact legislation to both (i) “phase out” imports of Russian oil by the end of 2022, and (ii) create a register of the ownership of overseas companies which hold property in the United Kingdom.
[1] OFAC previously designated all of the banks – except Belagroprombank – as Specially Designated Nationals and Blocked Persons.