Russia Sanctions and Export Controls Update – July 6, 2022 | Foley Hoag LLP
Key points to remember:
- OFAC imposes restrictions on imports of gold from the Russian Federation
- OFAC and US State Department impose new sanctions on Russian entities and individuals with focus on Russian defense and aerospace industries
- The U.S. Department of Commerce’s Bureau of Industry and Security imposes additional export controls on entities identified as attempting to evade U.S. export controls and sanctions against Russia and issues a joint alert with FinCEN warning US citizens to remain vigilant of continued escape attempts.
I. OFAC prohibits the import of gold from the Russian Federation
Implementing the June 26, 2022 G-7 Leaders’ Statement, the United States joined the United Kingdom, Canada, and Japan in banning the import of newly mined or refined gold from the United States. Russian Federation. The restriction was imposed after a determination issued by the Office of Foreign Assets Control (“OFAC”) of the United States Department of the Treasury pursuant to Section 1(a)(i) of Executive Order 14068 and became effective immediately upon its announcement on June 28, 2022. The Treasury Department had previously warned that transactions in gold may be considered prohibited transactions in certain circumstances, including when it is established that persons operate or have operated in the financial services sector of the economy of the Russian Federation. A limited exception to the import ban is provided for transactions involving gold of Russian origin that was located outside the Russian Federation prior to June 28, 2022. OFAC also issued a new FAQs related to determination.
II. New SDN List Designations
On June 28, 2022, OFAC and the Department of State also announcement the addition of 70 entities and 29 individuals to the Specially Designated Nationals and Blocked Persons List (“SDN List”), including those operating in the Russian defense and materiel sectors, those seeking to evade export controls and sanctions against Russia, mercenary organizations and certain Russian military units operating in Ukraine and accused of human rights violations. A notable addition is State Corporation Rostec (“Rostec”), a defense conglomerate that was previously added to the Sector Sanctions Identification List (“SSI List”), which prohibited all dealings in new Rostec debt with a maturity greater than 30 days (including extensions of credit/payment terms on purchases of goods/services). As a defense conglomerate, the SDN designation also impacts the many wholly or majority owned subsidiaries of Rostec through the application of the 50% rule, which generally treats all entities 50% or more owned by an SDN as if they were also on the SDN list. However, the simultaneous emission of General License 39 provides for a grace period, authorizing transactions usually incidental and necessary to the liquidation of transactions involving Rostec until August 11, 2022.
Additional designations on the SDN list targeted the Russian aerospace sector. In addition to Rostec, Tupolev PJSC, Irkut Corporation JSC, PJSC United Aircraft Corporation and other Russian aerospace companies have been added to the SDN list. Other targeted sectors include Russian defense technology companies and industrial exporters, including JSC Shvabe, a producer of optical and laser systems, and KAMAZ Inc., Russia’s largest truck manufacturer, along with nine of its subsidiaries. .
The US State Department has also designated Uzbekistan-based PC Promcomplektlogistic, pursuant to EO 14024, for supporting the efforts of sanctioned Russian defense companies attempting to evade US sanctions. Promcomplektlogistic PC was simultaneously added to the Commerce Department’s Entity List.
Due to the SDN List designations, nearly all transactions by US persons with SDNs are prohibited, and all US assets of SDNs are “blocked” and must be reported to OFAC. Named natural persons are also subject to a travel ban. In addition, any person, including a non-U.S. person, may themselves be designated as an SDN for having materially aided, sponsored, or provided financial, material, or technological support, or goods or services to, or in their favor.
III. New General Licenses Nos. 39-43
Along with the new penalties, OFAC also issued five new general licenses. General License No. 39as previously stated, authorizes the liquidation of transactions with Rostec. General License No. 40 authorizes transactions with certain sanctioned entities usually incidental to and necessary for the supply, export or re-export of goods, technology or services to ensure the safety of civil aviation, provided that the aircraft is registered in a jurisdiction only outside the Russian Federation. General License No. 41 authorizes transactions usually incidental and necessary for the manufacture, sale and service of agricultural equipment, components and spare parts produced by the listed company Nefaz (“Nefaz”) or the public joint stock company Tutaev Motor Plant (“Tutaev Motor Plant”), or any entity in which Nefaz or Tutaev Motor Plant holds, directly or indirectly, individually or in aggregate, a 50% or greater interest. General License No. 42 provides a limited exception to transactions involving the Russian FSB related to the licensing and distribution of certain information technology products. To finish, General License No. 43 grants a license to gradually reduce investments in PJSC Severstal or Nord Gold PLC until August 31, 2022.
IV. Additional export controls
Also on June 28, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added many companies to its Entity List, which imposes specific export license requirements on each listed entity. The additions included companies in China, Lithuania, Pakistan, Russia, Singapore, United Arab Emirates, United Kingdom, Uzbekistan and Vietnam, which allegedly tried to evade US export controls on Russia and Belarus.
On the same day, the BIS also issued a joint statement alert with the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) reminding companies to remain vigilant against continued attempts by Russia and Belarus to evade U.S. export controls. The alert also provides an overview of current BRI export restrictions related to Russia and Belarus, a list of some products of concern for possible evasion of export controls and examples of red flags to help financial institutions to identify suspicious transactions.
Foley Hoag will continue to provide updates as the situation regarding Ukraine develops.