The OFAC press release and the State Department press release contain full lists of the newly designated individuals, entities, vessels and aircraft.

In connection with the G7 meeting recently held in Japan, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) have issued new and broadened export controls and sanctions relating to Russia and Belarus. The expansive nature of these measures and the severity of the fines and penalties for lack of compliance make it imperative for companies to have robust compliance and screening procedures.

The two new BIS rules continue efforts to impose powerful and coordinated restrictions on Russia for its ongoing, full-scale invasion of Ukraine. The rules: (1) expand export controls to additional items in alignment with international partners and allies; and (2) add 71 entities to the Entity List, primarily for supporting Russia’s military and defense sectors. BIS also released a second joint alert with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), which urged continued vigilance by U.S. financial institutions against potential Russian export control evasion.

Meanwhile, OFAC, along with the U.S. Department of State, have taken numerous actions, including designating over 300 individuals, entities, vessels and aircraft in more than 20 countries as Specially Designated Nationals, and expanding the Russian sectoral sanctions to include the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian Federation economy. The OFAC press release and the State Department press release contain full lists of the newly designated individuals, entities, vessels and aircraft.

The New BIS Export Control Rules

The effective date for the new rules is May 19, 2023. A brief summary of the two rules follows.

Implementation of Additional Sanctions Against Russia and Belarus Under the Export Administration Regulations and Refinements to Existing Controls

The first rule builds on the existing Russian and Belarusian industry sector sanctions already put in place by the United States and its allies, targeting Russia’s industrial, commercial, chemical, biological and other sectors that can support Russia’s defense industrial base and/or be diverted to such uses through Belarus. The rule adds license requirements for additional items, as outlined in the Export Administration Regulations (EAR), to align U.S. controls further with those implemented by its partners and allies. The rule makes four major changes:

• In coordination with other countries imposing similar restrictions, the rule significantly expands the scope of items that may not be exported/reexported to Russia without a license, including a range of EAR99 items. Specifically, the rule adds the remaining HTS-6 Codes under three entire harmonized tariff system chapters―Chapter 84 (machinery and mechanical appliances), Chapter 85 (electrical machinery) and Chapter 90 (optical, photographic, measuring, medical and surgical instruments)―to the industrial and commercial controls listed in Supplement No. 4 to part 746 of the EAR, so that every HTS-6 Code under these three chapters is now controlled. The items added in the rule include a variety of electronics, instruments and advanced fibers for the reinforcement of composite materials, including carbon fibers. This comprehensive approach seeks to further cut off Russia’s access to any items of potential military application within these chapters, while also simplifying compliance decisions as all items in these chapters now require a license.
• The rule also adds certain additional chemicals and related equipment to Supplement No. 6 to part 746 of the EAR, which consists of discrete chemicals, biologics, fentanyl and its precursors and related equipment designated as EAR99 that may be useful for Russia’s industrial capability or may be diverted from Belarus to Russia.
• The rule expands the list of foreign-produced items in Supplement No. 7 to part 746 of the EAR that require a license when destined to Russia, Belarus and Iran. The expanded list of items (including EAR99 items) that now need a license includes certain electrical parts and machinery under HTS Code 8548.00 that are important for Russian production of defense items, including drones. This change aims to make the EAR’s controls stronger, more effective and easier to understand, and to further limit Iran’s ability to support Russia’s military aggression against Ukraine by providing unmanned aerial vehicles.
• Finally, the rule expands the scope of the Russia/Belarus Foreign-Direct Product (FDP) Rule to apply to the Crimea region of Ukraine, thereby making it more difficult for items to be procured for Russia’s use in Crimea in support of its ongoing military aggression in Ukraine.

Under the stringent licensing review policy, applications for the export, reexport or transfer (in-country) of items that require a license for Russia or Belarus will be reviewed, with certain limited exceptions, under a general policy of denial. These reviews are conducted on a case-by-case basis. Therefore, companies wishing explore the possibility of obtaining a BIS export license are advised to contact experienced international trade compliance counsel.

 Addition of Entities to the Entity List

The second rule adds 69 entities in Russia and one entity each in Armenia and Kyrgyzstan to the Entity List.

• The 69 Russian entities are added to the Entity List for providing support to Russia’s military and defense sector. These entities are also receiving “footnote 3” designations as Russian or Belarusian “military end users” and will be subjected to the restrictions imposed under the Russia/Belarus-Military End User FDP Rule, which represent some of the most severe restrictions available under the EAR. In general, no person can export any item subject to the EAR to such persons absent a BIS authorization for exports, reexports and in-country transfers.
• One Armenian entity and one Kyrgyz entity are added to the Entity List for preventing the successful accomplishment of end-use checks and posing a risk of diversion of items subject to the EAR to Russia.

BIS-FinCEN Joint Alert

The supplemental alert builds on FinCEN and BIS’s first joint alert, issued in June 2022, and provides financial institutions additional information with respect to new BIS export control restrictions relating to Russia. The alert also reinforces ongoing U.S. government engagements and initiatives designed to further constrain and prevent Russia from accessing needed technology and goods to supply and replenish its military and defense industrial base. Specifically, the alert highlights Russia's use of intermediaries in third countries to evade export controls and urges financial institutions to take appropriate due diligence measures, particularly with respect to high-priority items (identified below). The joint alert also identifies real world “red flags” of diversion risk.

High Priority Items

OFAC’s Expanded Sanctions Against Russia

Also on May 19, 2023, OFAC took a number of specific actions:

• OFAC expanded the scope of designated sectors under Executive Order No. 14024 to include those who operate in the architecture, engineering, construction, manufacturing and transportation sectors of the Russian Federation economy. Any party operating in those sectors of the economy risks blocking sanctions. This action builds on OFAC’s previous May 8, 2022, and September 15, 2022, bans on the export of services to the following sectors in Russia: accounting, trust and corporate formation, management consulting and quantum computing. The new sectoral sanctions further expand the list of prohibited sectors.
• Under Executive Order 14071, OFAC expanded its prohibitions on the types of services that U.S. persons can provide to persons in Russia to include architectural services and engineering services. This prohibition takes effect on June 18, 2023.
• OFAC modified Directive 4 under Executive Order 14024, which prohibits transactions with the Russian Federation's Central Bank, National Wealth Fund and Ministry of Finance, to require U.S. persons to report to OFAC any property in their possession or control in which these entities have an interest. U.S. persons holding property of the foregoing Russian entities must submit a report to OFAC on or before June 18, 2023, and annually thereafter by June 30 of a given year.
• OFAC and the U.S. Department of State designated over 300 individuals, entities, vessels and aircraft in more than 20 countries as Specially Designated Nationals. These new sanctions target those attempting to circumvent or evade sanctions and other economic measures against Russia, the channels Russia uses to acquire critical technology, Russia’s capacity to wage its war of aggression against Ukraine, its future energy extraction capabilities and Russia’s financial services sector. 

In connection with the above actions, OFAC replaced Russia-related General License 13D with new Russia-related General License 13E, which authorizes certain administrative transactions otherwise prohibited by Directive 4 under Executive Order 14024. OFAC also issued Russia-related General License 66, authorizing the winding down of transactions involving public joint stock company Polyus; Russia-related General License 67, authorizing certain transactions related to debt or equity of, or derivative contracts involving, Polyus; Russia-related General License 68, authorizing the winding down of transactions involving certain universities and institutes; and Russia-related General License 69, authorizing certain debt securities servicing transactions involving International Investment Bank. A full list of the general licenses available in relation to the Russian Harmful Foreign Activities Sanctions is available on the OFAC website.

About Duane Morris

Attorneys in the firm’s International Group have considerable experience in assisting clients on a wide range of matters involving U.S. export controls and economic sanctions. Such assistance includes: performing export control classification reviews; advising on the viability of proposed transactions; applying for and obtaining licenses and other kinds of export authorizations from BIS and other U.S. government agencies (e.g., DDTC and OFAC); and developing, implementing and assessing trade compliance programs for companies.

For More Information

If you have any questions or comments about this Alert, please contact Geoffrey M. Goodale, Hope P. Krebs, Thomas R. Schmuhl, Mauro M. Wolfe, Brian S. Goldstein, Raul Rangel Miguel, Lauren E. Wyszomierski, any of the attorneys in our International Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.