On February 24, 2023, the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce Bureau of Industry and Security (BIS) expanded the scope of trade control measures targeting Russia on the one-year anniversary of that country’s invasion of Ukraine. These measures include an expansion of export controls on common industrial and commercial items provided to Russia and Belarus, the addition of nearly 90 Russian and third-country companies to the Entity List, new export controls targeting the Iranian drone industry, and new blocking sanctions against more than 100 people and entities, including over a dozen Russian financial institutions and nearly two dozen Russian technology companies. The White House also announced increased tariffs on imports of over 100 Russian products, including metals, minerals, chemicals and aluminum products.
The new rules expand on the substantial trade controls imposed on Russia and Belarus last year and reflect an increased focus on targeting entities and individuals that facilitate sanctions evasion and continue to supply Russia with goods, software and technology in support of Russia’s defense and technology sectors.
The United States and its allies have announced a number of initiatives to step up enforcement of the already substantial sanctions and export controls imposed on Russia and Belarus. Companies can also expect their banking partners to impose enhanced due diligence on transactions related to either country to identify potential sanctions evasion and export control violations, particularly related to the technology sector. In a joint notice last year, for example, BIS and Financial Crimes Enforcement Network (FinCEN) specifically called out aerospace items, antennas, cameras, GPS systems, integrated circuits and other microelectronics as items of concern for diversion to Russia and Belarus.
At the same time, the regulators are making clear that they will work with companies to withdraw operations from those regions, and in this latest round, BIS announced a favorable export licensing policy to support such efforts.
BIS expanded export controls under its U.S. Export Administration Regulations (EAR) to prohibit the export of additional items not previously controlled (referred to as “EAR99”) to Russia and Belarus; announced a favorable licensing policy to facilitate the wind-down of operations in those countries; and imposed new export restrictions targeting the Iranian drone industry. These updates reflect the U.S. government’s effort to better align them with controls implemented by U.S. allies and partners.
Other amendments to the EAR include an exception to expanded foreign direct product rules for Taiwan and updates to the list of “luxury goods” subject to an export ban for Russia and Belarus.
BIS added 89 entities in Russia (76), Canada (2), China (5), France (1), Luxembourg (1), Netherlands (1) and Russia (3) to the Entity List. The targeted companies include many technology and research companies that are involved in procuring items for Russia’s military, evading U.S. controls and providing biometric technology to suppress Ukrainian resistance and enforce loyalty among the Ukrainians living under Russian occupation. Most exports of items subject to the EAR, including EAR99 items, to the listed entities are now prohibited. See Federal Register notices here and here.
OFAC added a large number of financial institutions, technology, defense and aerospace companies, and parties involved in sanctions evasion to its List of Specially Designated Nationals (SDN List).
OFAC added 13 Russian banks and financial institutions, five Russian wealth-management-related entities and three individuals to the SDN List. Dealings by U.S. persons with SDNs are broadly prohibited unless licensed, and U.S. persons are obligated to block the property and interests in property of an SDN within the U.S. person’s possession or control. OFAC issued limited wind-down general licenses applicable to some of the sanctioned financial institutions that are valid until March 25, 2023. Companies should ensure that the newly sanctioned banks are not included as beneficiary or intermediary institutions on wire transfers, as such transfers may violate the new sanctions and because U.S. and global banks may block (freeze) those transactions and report the transfers to OFAC.
OFAC also added a large number of Russian parties to the SDN List, including:
President Biden signed proclamations significantly raising tariffs on imports of Russian metals, minerals and chemical products. The changes impose duties of 35% or 70% on many items and a 200% ad valorem tariff rate (compared to a 10% rate applicable to most countries) on Russian-origin aluminum articles and derivative aluminum articles beginning on March 10, 2023.
On March 2, BIS, OFAC and the U.S. Department of Justice published a Tri-Seal Compliance Note alerting the business community to Russian end-user efforts to circumvent restrictions through third-party intermediaries. The note details common red flags for identifying warning signs, including use of corporate vehicles and shell companies to obscure ownership and funding, IP addresses not corresponding to reported locations, payments coming from third parties, use of personal instead of business email addresses, and reluctance to share information about end use. The note reminds companies that “[e]ffective compliance programs employ a risk-based approach to sanctions and export controls compliance by developing, implementing and routinely updating a compliance program, depending on an organization’s size and sophistication, products and services, customers and counterparties, and geographic locations.” To that end, an effective compliance program typically will include measures to mitigate risks of evasion, tailored to the company’s operations and industry.