On Friday, February 24, the one-year anniversary of Russia’s further invasion into Ukraine, President Biden, the Office of Foreign Assets Control (OFAC), the US Department of State, and the US Department of Commerce, Bureau of Industry and Security (BIS) imposed new sanctions, export controls, tariffs, and duties relating to Russia, Belarus, (and Iran). We spent our weekend reading the dense and unexciting prose so you could enjoy your weekend. You are welcome.

Here’s what you need to know.

Executive Summary

If you still do business with Russia and Belarus (or Iran, or service vessels or aircraft), here’s what to focus on:

• Screen Again (and Again): You need to rescreen all parties with whom you do business as well as all banks. OFAC and State have imposed sanctions on more than 200 individuals and entities including over a dozen Russian banks. Since more than 80% of the Russian banking sector was already sanctioned, this means that very few Russian-owned banks are not sanctioned. BIS has also placed 86 parties on the Entity List (76 Russian Entity List entities and 10 Russian and non-Russian entities added to both Entity and the Military End-User list).

• Watch out for Russian Metals and Mining: If you do business in the metals and mining sector of Russia, and if the Russian companies you do business with were not sanctioned on February 24 (four were placed on the SDN list), there is a risk going forward that they can be sanctioned in future, as OFAC has made a sectoral determination authorizing the imposition of sanctions in future. You could also be sanctioned too for doing business with them even before they are sanctioned.

• Pay Really High US Import Duties on Aluminum and Some Other Russian Imports or Do Not Import at All: If you import from Russia, 200% tariffs have been imposed on imports of aluminum and aluminum derivative articles produced in Russia, as well as articles smelted or cast in Russia. Duties on imports of other articles (yet to be published) from Russia will go from 35% to 70%. By contrast, the importation of all of the following is prohibited entirely: products classified under HTSUS Chapter 27; crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products; and fish, seafood, and preparations thereof; alcoholic beverages; and non‑industrial diamonds, is now prohibited entirely. Read more here.

• Check Supplements 4, 5, and 6 Again: If you still export, reexport or transfer in-country EAR99 products to or in Russia or Belarus, you need to recheck those pesky Supplements to part 746 because a ton more EAR99 items now require a BIS license. BIS has added:

  • 322 new entries in HTS Chapters 72, 73, 76, 84, 85, 87, and 90 to Supplement 4

  • 267 new entries to Supplement 5

  • Two new chemical and biological precursors entries to Supplement 6

And Beware of the Dread Supplement 7: BIS has also imposed a new license requirement on the export, reexport, and transfer of items that fall in a brand-new Supplement 7 for both items subject to the EAR and those subject to the Russia/Belarus Foreign Direct Product Rule, expanded to include Supp 7. Supplement 7 includes, by 6 digit HTS number, machines to receive and transmit voice, images and data, processing units, processors, controllers, memories, amplifiers, capacitors and other electronic integrated circuits. (Note: it appears that the necessary modification to 746.8 to make this change was omitted by error from the regulations released on February 24, 2023, but will doubtless be rectified shortly).

All these annexes now include “any modified or designed components, parts, accessories and attachments therefor” – meaning those lists are actually even broader than they look.

• You May Need Two Licenses from BIS and OFAC Just to Shut Down Operations in Russia: If you are still shutting down operations in Russia, be aware that that, if you are required to pay the Russian Government’s so-called “exit tax,” you will need an OFAC license to do so. Moreover, the increase in the number of EAR99 items requiring a license means that sales of plant and office assets in Russia will likely require a license from BIS as well. But BIS assures us that it encourages US businesses to leave Russia and has adopted a case-by-case licensing policy for such license applications, so presumably the dual OFAC/BIS licensing requirement is aimed at making the process easier.

• Did We Mention the Dread Supplement 7? This Supplement is the Huawei FDPR on steroids for your supply chain: If your non-US businesses – or its customers-- do any business with Iran, be aware that: (1) EAR99 items in Supplement 7 that are US origin or otherwise subject to the Export Administration Regulations (EAR) require a license to Iran even absent the participation by an US person; and (2) a very broad Foreign Direct Product Rule – aimed at drones but eschewing any ECCN that begins with “9” – means that if you export, reexport, or transfer any foreign origin item that falls into the new Supplement 7, or would have (if subject to the EAR) an ECCN beginning with 3,4, 5, or 7, you need to check if that foreign product is the “direct product” of US origin technology or software with an ECCN beginning with 3, 4, 5, or 7 or made in a plant where a major piece of equipment is a "direct product” of such US origin technology or software. If that is the case, a license is required if you have any reason to know that the foreign product is or will be:

  • Destined for Iran; or

  • Incorporated into something destined for Iran; or

  • Used in the production or development of parts components or equipment (or modified or designed components, parts, accessories or attachments therefor) identified in Supplement 7 or ECCNs beginning with 3,4, 5, or 7 destined for Iran.

An even broader variant applies to the destinations of Russia and Belarus. In short, for companies that produce or sell non-US origin items falling in the new Supplement 7 outside of the Supplement 3 ally countries, you can be like the three monkeys and take your chances, or you can do exhaustive research to see if the direct product rule applies, and if it does, tell your customers that what they buy from you and, in some cases, the downstream products made with or incorporating your products, will require a BIS license for sale to Iran, Russia and Belarus.

• Aviation and Vessel Manufacturers and Servicers Beware: If you have nothing to do with Russia, Belarus, or Iran – or with customers that do business with those countries – but you repair foreign aircraft and vessels, be aware that BIS has expanded 744.7 to include “transfers in country” on the grounds that BIS has received a lot of questions assuming 744.7 did apply to transfers in country which may be one of the most interesting reasons for what looks to be an expansion of export licensing requirements ever, and something akin to Santa giving coal to a kid who wrote asking if they were going to get coal. Hey exporting community, let’s be careful what we ask for!

• Taiwan makes the Supplement 3 Group of Countries: This means that, like the other allies that have adopted similar sanctions on Russia and Belarus, Taiwan does not have to worry about counting US origin kitchen sinks in US controlled content for de minimis^[1] or turning itself into a pretzel with the FDPRs for Russia, Belarus, and now Iran. Since a good chunk of the world’s production of Supplement 7 is likely based in Taiwan, that must be a huge relief for Taiwan.

I. Sanctions

On February 24, in coordination with G7 partners and allies, the Departments of the Treasury and State implemented sweeping sanctions against Russia’s key revenue generating sectors. In total, OFAC and State imposed sanctions on more than 200 individuals and entities, which comprised both Russian and third-country actors across Europe, Asia, and the Middle East that were supporting Russia’s war effort. The sanctions target a dozen Russian financial institutions, Russian officials and proxy authorities illegitimately operating in Ukraine. The sanctions also target actors tied to Russia’s defense and technology industry, which includes “those responsible for backfilling Russian stocks of sanctioned items or enabling Russian sanctions evasion.” Additionally, among others, the sanctions target “Russia’s future energy capabilities in a manner that does not impact current production to minimize market disruption.” Finally, the US is also “expanding its sanctions authorities to Russia’s metals and mining sector.”

1. Individuals Added to OFAC’s Specifically Designated Nationals (SDN) List:

OFAC added over 100 new individuals, 150 entities and 22 vessels to its SDN List. Over thirty of the designations were of individuals and entities located outside of Russia that were connected with Russian sanctions evasion efforts, including Swiss, German and Italian nationals and their companies in various countries. In addition, among the many sanctions targets were the following:

• Russian and Cypriot Wealth Management-Related Entities and individuals

• A Russian-Turkmen arms dealer

• A Russian business tied to illicit financial activity and his businesses

• Russian entities that produce carbon fiber and advance materials for Russia’s war efforts

• A number of Russian companies that operate in the aerospace sector of Russia

• A number of Russian companies that operate in Russia’s technology and electronics sectors

• Three Russian companies operating in the defense and related materiel and security services sectors supporting Russia’s war against Ukraine.

2. Banking Sector Sanctions

In addition to these designations, OFAC designated over a dozen Russian banks, even though  OFAC noted in its press release that Russian banks representing over 80% of Russian banking assets were already designated. The banks designated were as follows:

1. Credit Bank of Moscow Public Joint Stock Company, one of Russia’s 10 largest banks by asset value and located in Moscow, is Russia’s largest non-state public bank.

2. Joint Stock Company Commercial Bank Lanta Bank, a bank located in Moscow, Russia.

3. Public Joint Stock Company Commercial Bank Metallurgical Investment Bank (Metallinvestbank), a bank located in Moscow, Russia. Metallinvestbank has used alternative payment routes to facilitate the receipt of payments for Russian exports.

4. Public Joint Stock Company MTS Bank, a bank located in Moscow, Russia, and Abu Dhabi, United Arab Emirates. The UK also designated this bank.

5. Novosibirsk Social Commercial Bank Levoberezhny Public Joint Company, a bank located in Novosibirsk, Russia.

6. Bank Saint-Petersburg Public Joint Stock Company, a bank located in Saint Petersburg, Russia. The UK also designated this bank.

7. Joint Stock Commercial Bank Primorye, a bank located in Vladivostok, Russia.

8. SDM-Bank Public Joint Stock Company, a bank located in Moscow, Russia.

9. Public Joint Stock Company Ural Bank for Reconstruction and Development (UBRD), a bank located in Yekaterinburg, Russia. UBRD is also sanctioned by Canada and the UK.

10. Public Joint Stock Company Bank Uralsib, a bank located in Moscow, Russia. The UK also designated this bank.

11. Bank Zenit Public Joint Stock Company, a bank located in Moscow, Russia. The UK also designated this bank.

12. Additionally, Russia-based financial institutions OOO Zenit Finance, OOO Zenit Leasing, and OOO Zenit Factoring MSP were designated pursuant to E.O. 14024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, Bank Zenit.

OFAC issued General Licenses No. 60 authorizing transactions that are ordinarily incident and necessary to the wind down of transactions involving some – but not all of the above banks -- through May 24, 2023 at 12:01 a.m. EST, although payments made to a Blocked Entity must be made into a blocked account. Notably Wind down License 60 does not cover MTS Bank or Novosibirsk. OFAC also issued General License No. 61 authorizing transactions that are ordinarily incident and necessary to the divestment or transfer, or the facilitation of the divestment or transfer to non-US persons, of debt or equity of a smaller subset of Russian banks through May 24, 2023 at 12:01 a.m. EST.

3. OFAC Adds Russian Metals and Mining as a Sanctionable Sector

OFAC issued a determination under Section 1(a)(i) of Executive Order 14024 to apply sanctions to the metals and mining sector of the Russian economy. As a result, any persons determined to operate or have operated in this sector can be designated by OFAC as SDNs. In FAQ 1115, OFAC indicated that the term “metals and mining sector of the Russian Federation economy” includes any act, process, or industry of extracting, at the surface or underground, ores, coal, precious stones, or any other minerals or geological materials in the Russian Federation, or any act of procuring, processing, manufacturing, or refining such geological materials, or transporting them to, from, or within the Russian Federation.” OFAC designated four entities for operating in the metals and mining sector:

1. Joint Stock Company Burevestnik Central Scientific Research Institute, a Russia-based arms and artillery manufacturer that is also involved in manufacturing metals.

2. OOO Metallurg-Tulamash, a Russia-based steel manufacturer that also manufactures armaments for Russia’s navy.

3. TPZ-Rondol OOO, a Russia-based company that specializes in coating metals and is a subsidiary of one of Russia’s leading ammunition manufacturers.

4. Mtsenskprokat, a Russia-based company that produces unique metal alloys and products for Russia’s aviation and defense industries.

It is important to note that a non-Russian entity can be designated under this new authority even if the Russian entities with which it is dealing are not blocked. In particular, any non-Russian entities helping Russian metals and mining entities evade sanctions by masking their international transactions are at high risk of designation under this new authority. That said, in FAQ 1117, OFAC made it clear that it does not intend to target persons “where the provision of goods or services is solely for the safety and care of personnel, protection of human life, prevention of accidents or injuries, maintenance or repair necessary to avoid environmental or other significant damage, or activities related to environmental mitigation or remediation” or where a US person would be authorized to engage in the transaction, for example, by an OFAC general license.

4. GL 8 Authorizing Certain Transactions Related to Energy Expanded to Include New Financial Institutions:

OFAC expanded General License No. 8F authorizing transactions related to energy otherwise prohibited by Executive Order 14024, through May 16, 2023, to include Bank Zenit Public Joint Stock Company, Bank Saint-Petersburg Public Joint Stock Company, and Central Bank of the Russian Federation.

5. OFAC Extended General License 13, Authorizing Certain Administrative Transactions:

OFAC issued General License No. 13D authorizing through June 6, 2023, at 12:01 EST, US persons, or entities owned or controlled, directly or indirectly, by a US person, to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications, to the extent that they are prohibited by Directive 4 under Executive Order 14024 (prohibiting, unless otherwise provided by law, licensed or otherwise authorized by OFAC, any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation).

II. Export Controls

a. Russia and Belarus Industry Sector Sanctions Regulations

In a series of Federal Register Notices, the Department of Commerce added 86 Russian and other entities to the Entity List (76 Russian Entity List entities and 10 Russian and non-Russian entities added to both Entity and the Military End-user list), and imposed a number of new export controls with respect to industrial machinery, luxury goods, and other items (collective, the “Rule”).^[2] Links to the Federal Register Notices can be found here (Implementation of Additional Sanctions Against Russia and Belarus Under the Export Administration Regulations (EAR) and Refinements to Existing Controls), here (Export Control Measures Under the Export Administration Regulations (EAR) To Address Iranian Unmanned Aerial Vehicles (UAVs) and Their Use by the Russian Federation Against Ukraine), here (Additions of Entities to the Entity List) and here (Additions of Entities to the Entity List; Revisions of Entities on the Entity List).

The Rule adds 322 new entries in HTS Chapters 72, 73, 76, 84, 85, 87, and 90 to Supplement 4 that now require a license to Russia and Belarus. If you continue to export items in these chapters to Russia or Belarus, then you should review the list of additions. The items added include a variety of electronics, industrial machinery, and equipment related to oil and gas production. The Rule notes that the license requirement under Supplement 4 to part 746 is now determined by using the HTS-6 Code column instead of the HTS Description column.

As previously discussed, BIS has implemented restrictions on the export, reexport, and transfer (in-country) of certain “luxury goods.” The Rule adds 267 new entries to Supplement 5 that now require a license for export or reexport to or transfers within Russia or Belarus and for designated Russian and Belarusian oligarchs and malign actors worldwide. Such items include nuclear reactors, boilers, machinery, mechanical appliances, electronics and related equipment and parts.

The Rule adds two new chemical and biological precursors entries (e)(6) and (7) to Supplement 6 that now require a license to Russia and Belarus. They include reagents and materials for oligonucleotide synthesis, n.e.s. and resins, reagents, and materials for peptide synthesis. These expansions are made to align with the US allies’ and partners’ controls on these items.

Other Changes to the Russian and Belarusian Industry Sector Sanctions

Supplement 3 to part 746 of the EAR has been amended to include Taiwan as one of the countries excluded from certain license requirements of §§ 746.7 and 746.8.

The Rule also removes the columns for Schedule B and Schedule B Description in Supplement 2 and will now utilize the HTS-6 Code and HTS Description columns instead to align U.S. controls with those of U.S. allies. The Rule adds a new paragraph (b) to clarify that items in Supplement 2 require a license when exported, reexported or transferred for certain deepwater, Arctic offshore, or shale exploration in Russia or Belarus. The Rule specifies that the items captured include any modified or designed “components,” “parts,” “accessories,” and “attachments” therefor, regardless of their HTS Code or HTS Description. It notes that “[i]n many cases these “components,” “parts,” “accessories,” and “attachments” are not specifically identified by HTS Code or HTS Description.” However, “[t]he expansion does not include any “part” or minor “component” that is a fastener (e.g., screw, bolt, nut, nut plate, stud, insert, clip, rivet, pin), washer, spacer, insulator, grommet, bushing, spring, wire, or solder.”

The Rule further clarifies that the § 744.7 Restrictions on Certain Exports to and for the Use of Certain Foreign Vessels or Aircraft extend to transfers (in-country), in addition to exports and reexports.

Additionally, the Rule clarifies that the exclusion for mass market equipment and software controlled under ECCN 5A992 and 5D992 also applies to the ‘Luxury Goods Sanctions’ license requirements under § 746.10(a)(1).

The Rule also establishes  “a case-by-case license review policy for applications for the disposition of items needed as part of companies curtailing or closing all operations in Russia or Belarus.”

Savings Clause

The Rule includes a Savings Clause stating that shipments of items that are no longer eligible for a License Exception or may no longer be exported without a license “that were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on February 24, 2023, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under the previous eligibility. . . provided the export, reexport, or transfer (in-country) is completed no later than on March 27, 2023.”

b. Amendments to the EAR to Restrict Certain EAR99 Items to Iran due to their potential use in Unmanned Aerial Vehicles (UAVs) being used by Russia in Ukraine

BIS has amended the EAR to impose new export controls that target Iran’s supply of UAVs to Russia in its ongoing war against Ukraine.

License Required for Certain EAR99 items that are destined to Iran

Under the new Rule, BIS has created a list of EAR99 items used in Iranian UAVs that now require a license for reexport from third countries to Iran, regardless of whether a U.S. person is involved in the transaction.^[3] These items are identified using HTS-6 codes in a new supplement no. 7 to part 746 of the EAR. They include various low-technology items, including semiconductors, radio navigation equipment, memories, amplifiers, and internal combustion piston engines.

Note that although the new rule was created with the Iranian drone issue in mind, there is no requirement that the items actually be used in Iranian drones: a license is required to export or reexport to Iran any of the above items that are subject to the EAR, meaning they are in the United States, US origin or contain more than de minimis US controlled content, or, as we will now discuss, if they are subject to expanded and new Foreign Direct Product Rules.

New Iran and Expanded Russian/Belarus Foreign Direct Product Rules (FDPR)

The Iran FDPR expands the Russia/Belarus FDPR to include items identified in new supplement no. 7 to part 746, even if such items are designated EAR99. A foreign produced item is subject to the expanded FDPR if it meets the preexisting “direct product” requirement of technology or software on the Commerce Control List or if it is produced by a plant or major component of a plant which itself is the “direct product” of such software or technology, and there is “knowledge” that the foreign-produced item is destined to Russia or Belarus or will be incorporated into or used in the “production” or “development” of any “part,” “component,” or “equipment” specified in any ECCN on the CCL or in supplement nos. 6 or 7 to part 746 of the EAR and produced in or destined to Russia or Belarus.

The new Iran FDPR establishes jurisdiction over a slightly smaller slice of foreign-produced items – those that that are the direct product of U.S.-origin software or technology classified in Categories 3 through 5 and 7 of the CCL or are produced by a plant or major component of a plant which itself is the “direct product” of such software or technology. The product scope is limited to foreign-produced items identified in supplement no. 7 to part 746, including items designated EAR99 and items with an ECCN classified in Categories 3 through 5 and 7 of the CCL. A foreign-produced item is subject to the new Iran FDPR licensing requirement if there is “knowledge” that the foreign-produced item is destined to Iran or will be incorporated into or used in the “production” or “development” of any “part,” “component,” or “equipment” specified in any ECCN classified in Categories 3 through 5 and 7 of the CCL or is identified in supplement no. 7 to part 746 of the EAR and produced in or destined to Russia or Belarus.

Savings Clause

The Rule includes a Savings Clause, which is the same as the Savings Clause for the revisions to the Russia and Belarus Industry Sector Sanctions Regulations.

FOOTNOTES

^[1] To forestall export control geeks everywhere, let us reassure you that we know most kitchen sinks are EAR99 and therefore rarely will be considered US controlled content. 

^[2] In the first action, the End-User Review Committee (ERC) added 76 entities under the country heading of Russia to the Entity List for their involvement in “activities that are contrary to the foreign policy interests of the United States…including but not limited to providing support for Russia’s filtration operations in occupied areas of Ukraine, which include the use of biometric technology in suppressing Ukrainian resistance and enforcing loyalty among the Ukrainian population in occupied areas.”

In the second action, the ERC added 10 entities under the country headings of Canada (2), China (5), France (1), Luxembourg (1), Netherlands (1), and Russia (3). The ERC designated these 10 entities under footnote 3 as Russian/Belarusian ‘military end users’ in accordance with § 744.21. As a result, these entities are subject to the Russia/Belarus Foreign Direct Product Rule (FDPR) pursuant to § 734.9(g). Additionally, a license is required for the export, reexport, or transfer (in-country) of any item subject to the EAR destined to a footnote 3 entity. License applications will be reviewed under a policy of denial for all items subject to the EAR.

^[3]EAR99 items already require a license for export from the United States, directly or indirectly, to Iran.  However, absent a US person’s involvement, EAR99 items that had come to rest in inventory outside the United States previously did not require a license for reexport to Iran.