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A Snapshot of Russia-Related Sanctions and Export Controls

Since Russia’s invasion of Ukraine on February 24, the United States and its partners have imposed a web of complex economic sanctions and export controls targeting Russia. These restrictions have broadened and intensified over the course of the conflict, at times at a dizzying pace.

At this point, the United States has not yet imposed a comprehensive embargo on Russia akin to the sanctions on Iran, Cuba, Syria, or North Korea. Rather, the Russia sanctions mainly are aimed at specific individuals, companies, and other entities. In addition, there are U.S. restrictions on certain types of imports (including energy), exports (including a broad range of goods and certain services), and new investment. Accordingly, the Biden Administration has ample opportunity to further expand restrictions to ramp up the impact on Russia’s economy.

This article provides a snapshot of the U.S. measures currently in place. It should be noted that the situation remains fluid, and the applicable restrictions are subject to change.

Sanctions Against Russia

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), mainly under authority of Executive Order 14024, administers a range of financial and trade restrictions under the Russian Harmful Foreign Activities Sanctions Regulations (RHFASR), 31 C.F.R. Part 587.

The sanctions apply to “U.S. persons,” defined as persons located in the United States, U.S. citizens and permanent residents (wherever located), and U.S.-incorporated entities and their non-U.S. branches.

‘Blocking’ Sanctions. The Biden Administration has designated many Russian individuals and entities on OFAC’s List of Specially Designated Nationals and Blocked Persons (SDNs), including Vladimir Putin and members of his inner circle, a number of Russian oligarchs, and many prominent Russian banks and companies (such as, among many others, Alfa-Bank, Sberbank, VTB Bank, Prominvestbank, Promsvyazbank, VEB, Otkritie Bank, YooMoney, Russian Helicopters, and three of Russia’s top state-owned television stations).

As a result of these designations, these individuals and entities are “blocked,” meaning that U.S. persons are required to freeze their property and interests in property, and are prohibited from engaging in transactions or dealings with them. Notably, these sanctions apply not only to the designated SDNs, but also to unlisted entities owned in the aggregate 50% or greater by SDNs.

OFAC Directives. OFAC has issued four directives under the RHFASR restricting certain financial transactions related to Russia, as follows:

• Directive 1A: This prohibits U.S. financial institutions from participating in the primary or secondary markets for bonds issued after certain trigger dates by Russia’s Central Bank (CBR), National Wealth Fund (NWF), or Ministry of Finance (MinFin).
• Directive 2: This prohibits U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for certain designated Russian banks and their subsidiaries, and from processing transactions involving such entities.
• Directive 3: This prohibits U.S. persons from dealing in equity of certain designated entities and their subsidiaries, and debt of such parties with a maturity of greater than 14 days, issued after certain trigger dates.
• Directive 4: This prohibits U.S. persons from engaging in any transaction involving the CBR, NWF, or MinFin.

Energy Imports. Under Executive Order 14066, it is prohibited to import into the United States Russian-origin crude oil, petroleum, petroleum fuels and oils, liquefied natural gas, coal, and coal products.

Imports and Exports of Luxury Goods. Under Executive Order 14068, it is prohibited to import into the United States Russian-origin fish, seafood, alcoholic beverages, non-industrial diamonds, and other products as may be specified by OFAC.

Furthermore, the order prohibits U.S. persons from exporting to Russia luxury goods specified by the U.S. Department of Commerce.

New Investment. Executive Order 14071 prohibits U.S. persons from engaging in “new investment” in Russia. Although the order does not define the term, notably the Iran, North Korea, and Syria sanctions programs define “new investment” as “[a] commitment or contribution of funds or other assets; or [a] loan or other extension of credit.”

Exports of Services. Under Executive Order 14071, U.S. persons are prohibited from exporting to Russia any category of services as may be specified by OFAC.

On May 8, OFAC issued a determination prohibiting the exportation to Russia of “accounting, trust and corporate formation, or management consulting services,” effective June 7. The determination excludes services provided (1) to U.S.-owned entities in Russia; or (2) in connection with the wind-down or divestiture of non-Russian-owned entities. Additionally, OFAC has issued certain wind-down general licenses.

General Licenses. As of this time, OFAC has issued 28 general licenses authorizing certain activity that otherwise would be prohibited under the measures described above. These include a number of measures authorizing wind-down of certain dealings, and authorizations for certain agricultural, medical, and humanitarian transactions. Notably, this includes General License 8B, which effectively allows U.S. dollars and financial institutions to be used in connection with Russia’s oil and gas transactions. Expiration of this license (currently set for June 24) would effect a significant tightening of U.S. sanctions on Russia’s energy sector.

Export Controls Regarding Russia

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has imposed broad Russia-related export controls under the Export Administration Regulations (EAR), 15 C.F.R. Parts 730-772.

The EAR apply to all persons worldwide that export, re-export, or transfer (in-country) hardware, software, or technology that are: (1) located in the United States; (2) of U.S. origin, wherever located; (3) of non-U.S. origin, but incorporating more than a de minimis level of “controlled” U.S. content; or (4) of non-U.S. origin, but the “direct product” of certain U.S. technology or software.

The main EAR restrictions regarding Russia are set out in §746.8 of the EAR, while certain energy-related provisions are set out in §746.5.

Commerce Control List (CCL) Restrictions. Under the EAR, a BIS license is required to export to Russia any item listed on the CCL, which specifies items across ten categories, including materials, chemicals, and toxins; materials processing; electronics; computers; telecommunications; information security; sensors and lasers; navigation and avionics; marine; and aerospace and propulsion.

Non-U.S. Items/‘De Minimis’ Rule. For exports to Russia, non-U.S. items are subject to the EAR, and potentially subject to a BIS licensing requirement, to the extent they incorporate more than 25% “controlled” U.S. content. For exports from most countries in the world, this means that if an item incorporates more than 25% (by value) CCL-listed content, it is subject to the EAR when exported to Russia.

An exclusion applies, however, for non-U.S. items exported to Russia from countries listed in Supplement No. 3 to Part 746 of the EAR (currently consisting of EU member states, the United Kingdom, and certain other U.S.-aligned countries). For exports from those countries, the “de minimis” calculation is based on the level of controlled U.S. content as under the narrower controls for Russia that were in place prior to the invasion of Ukraine.

Non-U.S. Items/‘Foreign Direct Product’ Rule. For exports to Russia, non-U.S. items are subject to the EAR, and subject to a BIS licensing requirement if they are classified as other than “EAR99,” to the extent they are the “direct product” of U.S. CCL-listed technology or software, or a plant or “major component” thereof that is the “direct product” of U.S. CCL-listed technology or software. This rule applies where a person has knowledge that the item is to be exported to Russia, or incorporated into or used in the production of an item to be exported to Russia.

Additionally, for Russian entities designated on the BIS Entity List and identified as “military end-users,” the same rule applies to any non-U.S. item (including EAR99 items) meeting the other “direct product” criteria, except for EAR99 food and medicine.

As with the “de minimis” rule described above, an exclusion applies for non-U.S. items exported from a country listed in Supplement No. 3. For exports from those countries, the narrower pre-invasion “foreign direct product rule” applies.

License Exceptions. BIS has significantly restricted availability of EAR license exceptions available for exports to Russia. License exceptions currently are limited to:

• License Exception ENC for encryption items, for civil end-users wholly-owned by a U.S. company or company headquartered in BIS Country Groups A:5 or A:6, and certain related business combinations. (Exports of “mass market” 5A992 and 5D992 items are authorized under the same circumstances.)
• License Exception TSU for software updates, limited to the same scope as License Exception ENC.
• License Exception TMP for temporary exports for use by the news media.
• License Exception GOV for end-uses in support of official government and international organization functions.
• License Exception BAG, for exports of personal baggage.
• License Exception AVS for aircraft exports, excluding Russian-registered aircraft.
• License Exception CCD for consumer communications devices.

Energy-Related Export Restrictions. The EAR require a license to export to Russia specified items for use in exploration or production of oil or gas from Arctic offshore, deepwater, or shale reserves, and specified oil refining equipment.

Non-U.S. Sanctions and Export Controls Regarding Russia

It is important to note that a number of U.S. partners—including the European Union, the United Kingdom, Canada, and Australia—have imposed significant sanctions and export controls regarding Russia. At a high level, these measures are similar to the U.S. measures described above, but there are many key differences among the various regimes. Parties subject to such non-U.S. sanctions and export controls should carefully consider the potential impacts.

"A Snapshot of Russia-Related Sanctions and Export Controls," by Anthony Rapa and Matthew J. Thomas was published in the New York Law Journal on May 19, 2022.

Reprinted with permission from the May 19, 2022, edition of the New York Law Journal © 2022 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or reprints@alm.com.