/>iWhat Your Business Needs to Know
The designations were announced on February 23 by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), US Department of State, and US Department of Commerce’s Bureau of Industry and Security (BIS). Per a statement released by President Joe Biden, the agency’s actions are meant to retaliate against Russia for Navalny’s death, weaken Russia’s defense industrial base, and take action against evaders of US sanctions and export controls.
The latest designations did not, however, change the underlying BIS or OFAC regulations, which should be a relief to businesses accustomed to an ever-shifting kaleidoscope of substantive legal restrictions related to trade with Russia (and Belarus) over the past two years. However, companies should be sure that:
- They are using screening software or other means to check existing (in addition to new) vendors, customers, banks, and other parties with whom they do business against the new and expanded lists of sanctioned persons.
- They are also screening the owners of all counterparties in high-risk jurisdictions (including but not limited to Russia and Belarus) due to OFAC’s 50% rule, which imposes blocking sanctions and prohibitions on entities owned 50% or more, directly or indirectly, by one or more sanctioned parties.
- They are checking changes in laws and sanctions lists in other countries — such as the European Union (EU) and Canada.
1. Additions to the BIS Entity List
BIS announced the addition of 93 entities under 95 entries to the Entity List under destinations in China, India, Kyrgyzstan, Russia, South Korea, Turkey, and the United Arab Emirates. The Export Review Committee determined that these entities had:
- significantly contributed to Russia’s military and/or defense industrial base;
- supplied Russia with US-origin items of potential importance to their war effort;
- diverted or attempted to divert US-origin items to Russia without prior authorization from BIS
- acquired or attempted to acquire US-origin items for Russia’s military; or
- were implicated in the attempted transshipment of US-origin goods to Iran or Russia.
Effective February 23, a license is required to export, reexport, or transfer (in-country) all items subject to the Export Administration Regulations (EAR) to these 93 entities.
Fifty-one out of the 93 entities have been designated under footnote 3 pursuant to 15 CFR § 744.21 and are subject to the Russia/Belarus-Military End User Foreign Direct Product (FDP) rule in § 734.9(g). BIS will review applications to these 51 entities under a policy of denial for all items subject to the EAR except food and medicine that don’t appear on the Commerce Control List (CCL), which will be subject to case-by-case review. This means that non-US origin products that are the direct product of any technology or software that is subject to the EAR and appears on the CCL, or that are produced on equipment that is the direct product of any technology or software that is US-origin and appears on the CCL, requires a BIS license for export, reexport or transfer when one of these footnote 3 entities is a party to the transaction (although exports from certain US allies are exempt from Russia/Belarus-Military End User FDP rule.)
Six out the 93 of entities are corporate affiliates of an existing Entity List party, OOO Sovtest Comp, which was added to the Entity List for acquiring both radiation-hardened parts and other sensitive electronic components and reexporting those US-origin components to Russia without required licenses.
This BIS rule includes a savings clause: items affected by this rule that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on February 23, 2024, pursuant to actual orders for export, reexport, or transfer to or within a foreign destination, are allowed to proceed to that destination under previous eligibility criteria (i.e., a license exception or without a license) before March 24, 2024. Any such items not actually exported, reexported, or transferred (in-country) before midnight, on March 24, 2024, require a license.
2. Multilateral Efforts and Updating Common High Priority Items List
Since February 24, 2022, BIS has implemented strict export controls aimed at restricting Russia and Belarus’ access to technologies crucial for the war against Ukraine. BIS, in collaboration with the EU, Japan, and the United Kingdom, has identified "common high priority items" crucial to Russia's weapons programs, expanding the list from 45 to 50 items, due to the heightened risk of certain machine tools being illegally diverted to Russia. The common high priority items list can be accessed here.
The items are divided into four tiers with Harmonized System Codes (HS codes) that encompass both lower technology items designated EAR99, as well as more sensitive items on the CCL, including items designated under Export Control Classification Numbers 2A001, 2A101, 2A991, 2B001, 2B002, 2B003, 2B201, 2B991, 2B992, 2B993, 2B998, 3A001, 3A002, 3A090, 3A991, 3A992, 3B001, 3B991, 3B992, 5A001, 5A991, 6A002, 6A003, 6A993, 7A003, 7A994, and 9A991.
3. OFAC Actions
In addition to BIS’s actions, OFAC on Friday announced that almost 300 individuals and entities were being added to the Specially Designated Nationals and Blocked Persons List (SDN List). OFAC’s press release notes that “[t]ogether with actions from the U.S. Department of State (State), this is the largest number of sanctions imposed since Russia’s full-scale invasion of Ukraine.” State and Treasury are in total sanctioning over 500 targets as a result of Russia’s “repression, human rights abuses, and aggression against Ukraine.”
The designations include hundreds of entities which OFAC believes contributed to Russia’s military-industrial base, participated in procurement networks for sensitive items such as unmanned aerial vehicles, or operated in other key sectors. The goods and services which the targeted entities supplied included: weapons production, additive manufacturing, machine tools and metalworking equipment, industrial chemicals, semiconductors, industrial automation, optics, navigational instruments, information technology, energy storage and power supply equipment, military-industrial base software, aerospace, and logistics.
OFAC also took a significant step to increase the isolation of Russia’s financial sector by sanctioning Russia’s National Payment Card System Joint Stock Company (NSPK) — operator of the Mir payment system. Russia has leaned heavily on Mir as an alternative to US-based companies such as Visa and Mastercard, which suspended operations in Russia shortly after the war broke out.
Beyond Russia-based entities, OFAC imposed so-called “secondary sanctions” on more than two-dozen entities in 11 countries across Europe, East Asia, Central Asia, and the Middle East by placing them on the SDN List. These entities were determined to have assisted Russian efforts to evade US sanctions and procure weapons, technology, equipment, and parts to support Russia’s war effort.
Placement on the SDN list blocks all property and interests in property which belong to the designated persons (and to individuals or entities owned 50% or more by one or more blocked persons) and which are in the United States or in the possession or control of US persons. All transactions by US persons or within (or transiting) the United States involving such property or interests in property are prohibited unless otherwise authorized.
4. State Actions
Concurrently with OFAC’s actions, the Department of State designated a range of persons and entities involved in supporting Russian future energy revenue sources, maintaining Russia’s capacity to wage its war of aggression, and facilitating sanctions evasion and circumvention. The parties designated by State have been subjected to blocking sanctions implemented by OFAC. Per the agency’s fact sheet released on February 23, Department of State noted that three individuals connected with Navalny’s death as well as 250 other entities and individuals will be placed on the SDN List. The Department of State also took steps to impose visa restrictions on five “Russia-installed purported officials” due to their involvement in “human rights abuses of Ukrainian civilian minors, in connection with the transfer, deportation, and confinement of Ukraine’s children by Russian Federation and Russia-backed authorities.”
5. Russia Business Advisory
In addition to new export controls and sanctions, the US government issued a business advisory to help companies conducting business in Russia make informed decisions regarding legal, regulatory, and reputational risks. Jointly authored by the Departments of State, Treasury, Commerce, and Labor, the advisory provides a high-level primer on Russia-related compliance issues regarding sanctions, export controls, import prohibitions, money laundering, and corruption. The advisory also highlights the risks to businesses created by Russian state actions both in Ukraine and domestically, including potential legal obligations to support the war in Ukraine, the possibility of supply chains being tainted with forced labor from Russia’s prison system, and the dangers of operating against the backdrop of state surveillance, restricted free expression, and anti-LGBTQ+ discrimination.
Businesses and individuals operating in Russia are advised to conduct heightened due diligence. In addition to being aware of international human rights guidelines, the advisory also recommends consulting with available resources from US agencies, including:
- Comply Chain, the Department of Labor's interactive platform for minimizing child and forced labor risks in supply chains;
- The Department of State’s Guidance on Implementing the "UN Guiding Principles" for Transactions Linked to Foreign Government End-Users for Products or Services with Surveillance Capabilities;
- OFAC’s Framework for OFAC Compliance Commitments and Guidance for Foreign Financial Institutions on OFAC Sanctions; and
- BIS’s Export Compliance Guidelines and Human Rights FAQs.
