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In recent weeks, the U.S. Department of the Treasury has further expanded the scope of sanctions targeting Russia in response to its ongoing invasion of Ukraine and its purported annexation of the Kherson, Zaporizhzhya, Donetsk, and Luhansk regions of Ukraine. The U.S. Department of Commerce also has expanded export controls against Russia and Belarus. These measures are in addition to the new EU and UK sanctions and export controls announced last week and covered in our October 10 client alert.

On September 30, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued guidance that the United States is prepared to more aggressively use its existing authorities to impose sanctions against persons who provide material support to or for sanctioned persons or sanctionable activity, with a particular emphasis on entities and individuals in jurisdictions outside of Russia that provide political or economic support for Russia’s purported annexation of Ukrainian territory. This guidance was accompanied by a series of new designations to OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”), including a Chinese firm and an Armenian firm that were designated for having provided material support to a Russian firm that specializes in procuring foreign items for Russia’s defense industry.

On September 15, OFAC issued two new determinations: a determination pursuant to Executive Order (“E.O.”) 14024 and a determination pursuant to E.O. 14071. The first authorizes the imposition of property-blocking sanctions against persons determined to operate in, or to have operated in, the quantum computing sector of the Russian economy. The second prohibits U.S. persons, with limited exceptions, from providing quantum computing services to any person located in Russia.

On September 9, OFAC issued preliminary guidance concerning a ban on a broad range of services related to the maritime transportation of Russian-origin crude oil and petroleum products (collectively “seaborne Russian oil”). The ban will take effect on December 5, 2022 with respect to maritime transportation of Russian crude oil and on February 5, 2023 with respect to maritime transportation of Russian petroleum products. The ban will include an exception for the receipt of services by jurisdictions or actors that purchase seaborne Russian oil at or below a price cap to be established by a coalition of countries including members of the G7, the EU, and the United States.

Additionally, the Commerce Department’s Bureau of Industry and Security (“BIS”) amended the Export Administration Regulations (“EAR”) on September 15 to (i) expand the scope of the Russian industry sector export restrictions to cover additional items, including quantum computing and advanced manufacturing-related hardware, software, and technology, and to apply the industry sector export restrictions to Belarus; (ii) add dollar value exclusion thresholds to some earlier restrictions on luxury goods exports to Russia; and (iii) expand the scope of the military end-user and military-intelligence end-user rules to reach entities in third countries, with a particular focus on entities that support military or military-intelligence end users or end uses in Russia or Belarus. On September 30, following Russia’s announcement that it would annex the Donetsk, Luhansk, Kherson, and Zaporizhzhya regions of Ukraine, BIS added dozens of entities to its Entity List, which imposes BIS licensing requirements for the export, reexport, or transfer (in-country) to such entities of any goods, technology, and software that are subject to the EAR.…

Continue Reading The United States Imposes Additional Sanctions and Export Controls Against Russia and Belarus

On June 6 and June 9, 2022, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued additional guidance on the sanctions that prohibit U.S. persons from making a “new investment” in Russia and from providing accounting, trust and corporate formation, and management consulting services to any person located in Russia.

Separately, from June 15, 2022, the UK Office of Financial Sanctions Implementation (“OFSI”) gained new powers to impose financial penalties for breaches of UK sanctions regulations (including, but not limited to, the UK sanctions regulations with respect to Russia) on a strict liability basis and to publish reports of cases where it is satisfied that a breach of financial sanctions has occurred but where no penalty is imposed.

This alert summarizes these new sanctions developments.

New U.S. Sanctions Developments

Guidance on the Prohibitions on “New Investment” by U.S. Persons in Russia

On June 6, 2022, OFAC issued guidance in the form of responses to new frequently asked questions (“FAQs”) to clarify certain aspects of the prohibitions on “new investment” in Russia by U.S. persons that were imposed under the following executive orders (“E.O.s”):

  • E.O. 14066, issued on March 8, 2022 (prohibiting new investment by U.S. persons in the energy sector of the Russian Federation, as described in our March 10 alert); 
  • E.O. 14068, issued on March 11, 2022 (prohibiting new investment by U.S. persons in any sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State); and 
  • E.O. 14071, issued on April 6, 2022 (prohibiting “all new investment in the Russian Federation by U.S. persons, wherever located” as well as “any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by E.O. 14071 if performed by a U.S. person or within the United States,” as described in our April 11 alert.

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Continue Reading Recent Developments in U.S. and UK Sanctions: OFAC Guidance on “New Investment” and Prohibition on the Provision of Certain Services to Any Person in Russia; UK Sanctions Enforcement Developments

It has been publicly reported that discussions are underway within the Trump Administration for a coordinated interagency initiative to remove key industrial supply chain dependencies from overseas, especially China, and redouble efforts to secure such supply chains in the United States. While this initiative proceeds alongside ongoing efforts to secure supply chains in sectors such…

On 4 September 2019, the U.S. Department of State (“DoS”) published draft ‘Guidance for the Export of Hardware, Software and Technology with Surveillance Capabilities and/or Parts/Know-How’ (the “Guidance”). The DoS invited public comment on the draft Guidance until 4 October 2019, after which they will publish finalised guidance.

Goal: Preventing Human Rights Abuse

While noting…

The U.S. government is now considering how to define potential new export controls on “emerging technologies.” Our article in the China Business Review explains the legislative context informing the current rulemaking process, highlights key themes in public comments submitted by stakeholders in response to an initial request for input, and offers recommendations for companies and…

On February 15, 2018, House Foreign Affairs Committee Chairman Ed Royce (R-CA) introduced bipartisan legislation—the Export Control Reform Act of 2018 (“ECRA”)⸺to modernize U.S. export control regulation of commercial and dual-use items. The bill is co-sponsored by the committee’s ranking Democratic member, Eliot Engel (D-NY). The proposed legislation seeks to establish a permanent statutory basis for export control of commercial, dual-use, and less sensitive defense items.

Introducing the ECRA, Chairman Royce emphasized that the need for export control reform is dictated by aggressive Chinese government policies that have increasingly forced U.S. companies to hand over sensitive technology as a cost of doing business in China. In response, the ECRA establishes a framework to protect critical and emerging U.S. technology and know-how. The same issue also has been taken up through the Foreign Investment Risk Review Modernization Act (“FIRRMA”), a bipartisan effort to control outbound technology transfers (among other issues) through the expansion of the authority and operation of the Committee on Foreign Investment in the United States (“CFIUS”). It remains to be seen whether Congress will proceed with the ECRA or FIRRMA, or potentially combine the two efforts.

Key Aspects of the Export Control Reform Act

If enacted as introduced, the potential impact of the ECRA on export controls would be far- reaching:

  • The ECRA on its face would significantly expand U.S. jurisdiction to regulate the transfer abroad by U.S. and foreign persons of commodities, software, or technology regardless of any U.S. content.
  • The ECRA would for the first time apply U.S. deemed export controls to transfers of controlled technology to U.S. companies unless they are majority-owned by U.S. natural persons.
  • The ECRA would establish control over release of technology that includes information at any stage of its creation, such as “foundational information” and “know-how,” in order to protect emerging technology and sensitive intellectual property. To that extent, the bill would require the president to establish an interagency process to identify emerging technologies that are not identified in any U.S. or multilateral control list, but nonetheless could be essential to U.S. national security.

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Continue Reading Export Control Reform Act Introduced in Congress

During the past two weeks, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the U.S. Department of State have taken a number of steps toward implementing aspects of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), a major piece of sanctions legislation passed by the U.S. Congress in July and signed by President Trump in early August. These steps are in addition to those described in our client alert last month.

Specifically, as called for by CAATSA, OFAC on October 31 issued a revised Russia sectoral sanctions Directive 4 that expands the restrictions on U.S. person support for certain unconventional oil projects to reach new such projects being undertaken anywhere in the world where a sectorally sanctioned Russian energy company has a majority voting or 33 percent or greater ownership interest in the project. OFAC also issued related guidance on this expanded sanction. In addition, OFAC issued guidance on the application of secondary sanctions to foreign financial institutions and on the implementation of other measures in CAATSA.

Also with respect to CAATSA, the U.S. Department of State has issued guidance on the imposition of secondary sanctions relating to Russia’s energy export pipelines, investments in special Russian crude oil projects, and a CAATSA provision that requires the President to sanction persons who knowingly engage in significant transactions with parties affiliated with Russia’s defense and intelligence sectors.

With respect to Iran, OFAC issued amended regulations on October 31 implementing CAATSA’s requirement to impose terrorism-related sanctions with respect to officials, agents, or affiliates of Iran’s Islamic Revolutionary Guard Corps (“IRGC”).

Primary Sectoral Sanctions Targeting Russia’s Energy Sector

Since September 12, 2014, OFAC Directive 4 has prohibited U.S. persons from providing goods, services (except for financial services), or technology in support of exploration or production from deepwater, Arctic offshore, or shale projects that have the potential to produce oil in Russia or its territorial waters and that involve a sectorally sanctioned Russian energy company or an entity owned 50 percent or more, directly or indirectly, individually or in the aggregate, by one or more such companies. “U.S. persons” are legal entities organized under U.S. law and their non-U.S. branches; individual U.S. citizens and lawful permanent residents (“green-card” holders), wherever located or employed; and any persons when physically present in the United States.…

Continue Reading Russia and Iran Sanctions: Recent Developments

President Obama’s announcement that the United States is “changing its relationship with the people of Cuba” has been welcomed by many in the business community, who continue to await regulatory amendments that will implement the new policy.  (For background on the President’s announcement, please see our client alert of December 17, 2014 and our audio …