On February 24, 2023, the Biden Administration issued a package of sanctions, export controls, and tariffs against Russia, an action timed to coincide with the one-year anniversary of Russia’s invasion of Ukraine. The U.S. measures, which also target Belarus and Iran in certain respects, were implemented in concert with related UK and EU actions.
Sanctions
The U.S. Department of the Treasury, Office of Foreign Assets Control (“OFAC”) designated 22 individuals and 83 entities for asset freeze sanctions, and issued a determination that the Russian metals and mining sector is subject to sanctions under Executive Order 14024. As a result, U.S. persons are prohibited from engaging in transactions and dealings with the 105 newly sanctioned parties and are required to freeze their assets. Furthermore, individuals and entities that OFAC determines are “operating” in the Russian metals and mining sector are subject to potential designation for asset freeze sanctions.
Moreover, OFAC issued FAQ guidance indicating that U.S. persons seeking to divest from Russian investments may need a license from OFAC before paying any recently required “exit tax” to the Russian government under Russian law, potentially complicating divestment efforts.
Export Controls
The U.S. Department of Commerce, Bureau of Industry and Security (“BIS”) issued a range of new export controls under the Export Administration Regulations (“EAR”) in response to Russia’s ongoing invasion of Ukraine, including new rules:
- expanding the scope of items restricted for export to Russia and Belarus, including 322 types of industrial items, parts, and components of certain energy-related items, and certain chemicals and luxury goods, and adding Taiwan to the list of countries eligible for certain exclusions from the export restrictions;
- addressing Russia’s use of Iran-origin unmanned aerial vehicles (“UAVs”), including by restricting the export to Iran, Russia, and Belarus specified items used in Iran’s UAV program, including non-U.S. items that are the “direct product” of certain U.S. technology and software;
- adding 76 Russian entities to the BIS Entity List, thereby cutting them off from all goods, software, and technology subject to the EAR; and
- adding 10 other entities to the Entity List, including entities based in China, Canada, and Europe.
The BIS rules apply to all persons worldwide who export, re-export, and transfer items “subject to the EAR,” i.e., goods, software, and technology that is: (a) located in the United States; (b) of U.S. origin, wherever located; (c) of non-U.S. origin, and incorporating more than a de minimis level of export-controlled U.S. content; and (d) of non-U.S. origin, and the “direct product” of certain U.S. technology or software.
Tariffs
The Biden Administration imposed tariffs on a range of imports from Russia, including a tariff increase of up to 270 percent on Russian aluminum and tariffs on certain other Russian metals and products.
UK and EU Sanctions
The United Kingdom and European Union issued new sanctions that broadly overlap with the U.S. measures noted above, with the UK sanctions aiming to ban the export of “every item Russia is using on the battlefield,” and the EU sanctions (among other measures) including import bans on Russian bitumen, asphalt, synthetic rubber, and carbon blacks.
Key Takeaways
- The new sanctions are reflective of intense efforts by the United States and its partners to stem the flow of technology to the Russian war effort in Ukraine.
- Companies that sell items such as drone components, electronics, and industrial equipment should consider the risk that their items could be diverted to the Ukrainian battlefield or to Russia’s defense industrial base, including through resale or “gray market” activity.
- Companies with such potential indirect exposure to Russia, Iran, and/or Belarus in their sales channels should assess whether to conduct an audit to gauge the related export control risk, given the scrutiny of such diversion by U.S. authorities and the media.
- The EAR restrictions will sweep in a broad range of non-U.S. items that incorporate U.S. content or are based on U.S. technology and software, which will be particularly impactful in jurisdictions that are not aligned with U.S. sanctions, such as China, India, and much of the Middle East and Latin America.
- The targeting of additional Russian banks will have the effect of making it more challenging to conduct lawful business in Russia, and comes amidst reported U.S. scrutiny of non-Russian banks continuing to support business in Russia.
- U.S. investors continuing to own interests in Russian entities may face increased difficulties in divesting to the extent the Russian government requires payment of an “exit tax,” as OFAC made clear in FAQ guidance that payment of such a tax may require a license.