U.S. Cancels Russia: New Import Bans, Export Controls, and Sanctions on Russia, Belarus, and Areas of Ukraine
By Harold Jackson, Braumiller Law Group
In response to Russia’s continued invasion of Ukraine, the U.S and its allies have imposed several layers of economic sanctions and actions against Russia and Belarus. In addition to decimating the Ruble to a value of less than $0.01 (USD), the prohibitive actions by the U.S. and its trading partners have left global supply chain participants in a mire of new requirements. This article touches on each of the economic actions by the U.S. government in response to Russia’s invasion of Ukraine.
In response to Russia’s continued invasion of Ukraine, the U.S and its allies have imposed several layers of economic sanctions and actions against Russia and Belarus. In addition to decimating the Ruble to a value of less than $0.01 (USD), the prohibitive actions by the U.S. and its trading partners have left global supply chain participants in a mire of new requirements. This article touches on each of the economic actions by the U.S. government in response to Russia’s invasion of Ukraine.
New Export Controls and Rules Under the EAR
The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) published new export controls related to transfers to Russia, Belarus, and Russian/Belarusian entities.
A) New Commerce Control List (“CCL”)-based license requirements for Russia.
A license is required to export, reexport, or transfer certain items subject to the EAR (Export Administration Regulations) (i.e., goods from the U.S.) and classified under Categories 3, 4, 5, 6, 7, 8, or 9 of the Commerce Control List to Russia.
B) Review policy of denial to license applications for exports to, reexports to, or transfers within Russia
The new rules implement a review policy of denial for new licenses for exports to Russia. This means that, when a company applies to BIS for a license to export items to Russia, BIS is instructed to deny the application unless there are extreme, rare, and extenuating circumstances. Those circumstances must include exports that involve items that ensure safety of flight, maritime safety, meet humanitarian needs, enable government space cooperation, and allow transactions for items destined to specified Western subsidiaries and joint ventures, support civil telecommunications infrastructure in certain countries, or government-to-government activities.
C) Military End Use / User Controls
The BIS rule prohibits exports of all items subject to the EAR (even those classified as EAR99) if, at the time of the export, reexport, or transfer (in-country), the person has knowledge that the item is intended for a military end use or military end user in Russia. Prior to the new rule, only a handful of specifically identified ECCNs were prohibited. These new rules designate many additional foreign-produced items as subject to the EAR.
D) Addition of two new Foreign Direct Products Rules specific to Russia and Russian Military End Users
A license is required from BIS to export a foreign-produced item that is the “direct product” of U.S.-origin “technology” or “software” provided for in any ECCN in product groups D or E in certain Categories of the Commerce Control List, if that item is going to Russia, Belarus, or the entities listed on the military end users listed. A foreign-produced item meets the scope of the rules if there is knowledge that the foreign-produced item is destined for Russia, or will be incorporated into, or used in the production or development of any part, component, or equipment produced in or destined to Russia.
E) Additional Controls related to Russia’s Oil & Gas Industry
A license is now required to export certain oilfield equipment classified under Chapters 84 and 85 of the Harmonized Tariff Schedule. The list of items can be found in Supplement No. 4 to Part 746 of the EAR.
F) Additional 140 Entities added to the BIS Entity List
BIS added a total of 140 entities to the Entity List under Supplement No. 4 to Part 744 of the EAR. Most of these entities are located in Russia or Belarus, but there are a few entities located throughout Europe and Asia.
Import Restrictions of Certain Russian-Origin Products
The U.S. banned the importation of several categories of products Russia, including oil, gas, petroleum, and coal products, fish, seafood, alcohol, and diamonds.
A) Oil, Gas, Petroleum, and Coal Products
Executive Order 14066 prohibits the importation of crude oil, petroleum, petroleum fuels, oils, and products of their distillation, liquefied natural gas, coal, and coal products into the U.S. from Russia. OFAC published General License 16 that allows companies to continue to purchase these energy-related products from Russia if the products are ordered prior to April 22, 2022. In other words, under this license, companies can still place orders for these products until April 22, and can import those purchased products, even if those products enter the U.S. after April 22. To enter these types of products that were ordered before April 22, Customs & Border Protection (“CBP”) is requiring importers to submit a Form 241 with the dated purchase orders upon entry.
B) Other Prohibited Imports
In addition to the energy-related products above, the importation of fish, seafood, and preparations thereof, alcoholic beverages, and non-industrial diamonds is prohibited from Russia. See Executive Order 14068 and the related General License 17, which allows importation of these goods if they were ordered prior to March 11, 2022 and entered by March 25, 2022.
Economic Sanctions on Russian Financial Institutions
On February 24, 2022, the President issued Executive Order 14024, which resulted in several Directives by the Department of Treasury that banned transactions with most Russian financial institutions. In general, the Directives published by U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) prohibit U.S. persons and entities from engaging in certain transactions with the listed Russian banks and financial institutions, which make up over 80% of Russia’s financial sector. Directive 3 prohibits “new debt or new equity” of longer than 14 days maturity for transactions entered into after March 26, 2022, from Russia’s largest banks and lending institutions, which are listed in the Directive. Directive 4 prohibits all transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. For other restrictions on bonds, sovereign debt, payable-through accounts and other financial related restrictions for Russian entities, see Directive 1A and Directive 2 pursuant to E.O. 14024.
Other U.S. Actions and Prohibitions Related to Russian Activities
- Addition of Vladimir Putin and other Russian oligarchs as restricted parties on the SDN (Specifically Designated Nationals) list.
- Prohibitions of U.S. person’s ability to engage in new transactions in the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine, as well as importation or exportation of any goods, services, or technology from or to these areas, which amounts to an embargo of these territories.
- Addition of several Belarusian individuals and entities as restricted parties to the SDN list due to Belarus’s involvement in the Russian invasion of Ukraine.
- Export prohibition of luxury goods Supplement No. 5 to Part 746 of the EAR that are subject to the EAR to any person located in the Russian Federation. The list of goods includes beer, cigarettes, cars, in addition to other products that are traditionally considered luxurious, such as clothes, leather products, and jewelry.
Conclusion
These U.S. trade restrictions are likely to stick around as Russia continues its invasion of Ukraine. Navigating these rules will require due diligence in reviewing a company’s downstream and upstream operations, including its customers and vendors, understanding the ins and outs of the current restrictions, and staying up to date on the latest restrictions as the situation in Ukraine unfolds. Specifically, companies whose operations are potentially subject to these rules should follow BIS, OFAC, and White House updates for news and developments. U.S. companies should reexamine their operations in Russia with these restrictions in mind as many key players are limiting or ending their business ties with Russia in compliance with these rules.