A double agent. Nerve gas. Violations of international law. The cause of the recently imposed sanctions on Russia have all the makings of a James Bond movie but, unfortunately, those sanctions may cause some less-than-entertaining headaches for your business.

Why These Sanctions

On August 8, the U.S. State Department notified Congress it would impose new sanctions on Russia based on the U.S. Government’s determination that the Russian Government has used chemical and biological weapons in violation of international law. That determination was made under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (“CBW”) after the Russian government’s use of the “Novichok” nerve agent in an attempt to assassinate UK citizen (and double agent to Russia and the UK) Sergei Skripal and his daughter Yulia Skripal.

Scope of the Sanctions

As of Monday, August 27, 2018, the following sanctions are in effect:

• The prohibition of defense articles, services, or design and constructive services sales to Russia;

  • The U.S. will still issue licenses for the export of U.S. Munitions list items to Russia on a case-by-case basis and provided that they are in support of government space cooperation and commercial space launches.

• The prohibition of foreign military financing for Russia;

• The prohibition of U.S. government credit or other financial assistance to Russia;

• The prohibition of the export of goods and technology included on the Commerce Control List and controlled for National Security (NS) reasons to Russia. This prohibition is waived with respect to exports and reexports that are —

  • Eligible under license exceptions,

  • Necessary for flight safety,

  • Deemed exports and reexports to Russian nationals,

  • To wholly-owned U.S. subsidiaries in Russia,

  • In support of government space operations, or

  • For commercial end users in Russia.

• License applications for the export and reexport of Commerce Control List goods to Russian state-owned or funded enterprises will be reviewed under a “presumption of denial” policy.

Potential Expansion of the Sanctions

If the Russian government does not cease its use of chemical weapons, provide assurances that it will do so, and allow inspections with respect to its use of chemical weapons, the President will impose at least three additional sanctions. The additional sanctions are likely to be imposed near the end of November 2018. Those sanctions could include the following:

• The United States opposing the extension of loans or other assistance to Russia by multilateral development banks;

• The prohibition on the extension of credit or loans from U.S. banks to the Russian government;

• Additional bans on the export of goods and technology;

• Restrictions on the import of Russian goods into the United States;

• The suspension of diplomatic relations between the United States and Russia; and

• The termination of Russian government-owned aircraft transportation rights with regard to the United States.

Anticipated Impact of the Sanctions

The sanctions currently in place have the potential to disrupt business for those companies exporting USML or CCL goods controlled for NS reasons to Russia. However, several exceptions are available that may ease that disruption. Those exceptions make the current sanctions less restrictive than they may appear at first glance. Whether the Russian government will cease use of chemical weapons, provide the assurances, and allow the inspections remains to be seen. The menu of additional sanctions for that failure to cooperate could push the sanctions from somewhat restrictive to an absolute ban on exports to Russia and imports from Russia. Obviously, that drastic scenario would significantly restrict U.S. companies’ business with Russia and would limit non-U.S. companies with a certain U.S. nexus to their operations. We will keep you informed of additional developments as they arise this fall.