05/10/2022 | News release | Distributed by Public on 05/10/2022 15:04
Effective May 9, 2022, BIS imposed export licensing requirements on a very long list of industrial equipment and materials in what it is calling the "Russia Industry Sector Sanctions Expansion" rule.
The rule vastly expands the list of HTS/Schedule B numbers in Supplement 4 to Part 746: it adds 205 HTS codes at the 6-digit level and 478 corresponding 10-digit Schedule B numbers to better align with the European Union's controls. The rule also clarifies that only the items identified in the HTS Description column of the revised supplement are subject to the new licensing requirement. BIS notes that "[t]he other three columns - HTS Code, Schedule B, and Schedule B Description - are intended to assist exporters with their AES filing responsibilities. If an item is classified under one of these HTS Codes or Schedule B numbers, but it is not described by the relevant entry in the HTS Description column, it is not subject to the license requirement…" So the HTS written description is dispositive.
The new rule includes a savings clause: shipments of items that are now no longer eligible for license exceptions or no longer fall under the category No License Required (NLR) "that were en route aboard a carrier to a port of export, re-export, or transfer (in-country)" on May 9, 2022, may proceed to their destination under previous eligibility criteria if the shipment was made pursuant to "actual orders for export, re-export, or transfer (in-country) to or within a foreign destination."
Who needs to go back and check? We have provided the listing of affected HTS codes so that companies can see if the HTS description column captures their exports.
On Sunday, May 8, OFAC and State took further significant sanctions actions against Russia, including two new "Determinations" addressing a new set of prohibited services and threatened sectors; the designation/blocking of 33 individuals, 22 entities, and 69 vessels; three new and one amended General Licenses; and eight new Frequently Asked Questions ("FAQs"). These actions appeared timed to coincide with Russia's World War II Victory Day celebrations and President Putin's tying that celebration to the current invasion of Ukraine (they also coincided with Mother's Day in the United States and many other countries, which certainly was no fun for the many mothers at State and Treasury).
OFAC prohibition on accounting, trust and corporate formation, and management consulting services to persons in Russia.
The prohibition:
OFAC issued a Determination Pursuant to Section 1(a)(ii) of Executive Order 14071, which prohibits, beginning on June 7, 2022, the "exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation." Specifically excluded from this new prohibition are services:
General licenses:
OFAC concurrently issued two general licenses that further delay the effective date of this new prohibition for many transactions:
Interpretation of terms:
FAQ 1034 defines "accounting, trust and corporate formation, and management consulting services" for purposes of this new prohibition as follows:
OFAC also issued a Determination Pursuant to Section 1(a)(i) of Executive Order 14024 identifying the "accounting, trust and corporate formation services, and management consulting sectors of the Russian Federation economy" as sectors targeted under Section 1(a)(i) of EO 14024, which means that any persons determined by Treasury or State to be operating in one of those sectors can be designated for blocking sanctions and placed on the SDN List. These sectors join the financial services, aerospace, electronics, and marine sectors, which were similarly identified earlier this year under Section 1(a)(i) of EO 14014, as well as the defense and related materiel, energy, and financial (yes, that may be somewhat redundant) sectors, which were identified for similar risk of targeted sanctions under EO 13662. With this new determination, the US Government is signaling that these new sectors of the Russian economy are currently in the sanctions' cross-hairs. No concurrent designations were made under this new authority, however, which suggests that OFAC will be focusing on any entities that rush in to fill the void left by US firms' exit, and such entities will do so at significant risk of landing on the SDN List.
The definitions of these sectors are provided in FAQ 1038, which tracks with only a few non-substantive grammatical shifts the same definitions provided for the other Directive in FAQ 1034 discussed above.
It is worth noting briefly that the new prohibition described above was placed in a "Determination" and not, as has been done in the past, a "Directive." There is nothing historically special about this terminology, but Treasury has in the relatively recent past used Directives to set out new prohibitions and used Determinations only to identify new sectors of a country's economy in which participants could henceforth be targeted for blocking sanctions. It seems that this distinction has fallen by the wayside. While a little confusing, there do not appear to be any significant legal ramifications here to worry about, and it will be interesting to see if this was a one-off occurrence or if Treasury may follow any particular pattern with respect to Determinations versus Directives in the future.
Also worth noting is that Treasury issued both of these Determinations through OFAC, and not through the Secretary of the Treasury. OFAC generally has delegated authority from the Secretary of the Treasury to take all actions the Secretary can take under the various sanctions authorities Treasury implements (these delegations usually are contained in the relevant sanctions regulations), but historically something as momentous as a new Directive or Determination is issued by the Secretary of the Treasury, who is a political appointee, and not the Director of OFAC, who is not. Pushing this authority down to the OFAC Director level should not cause much concern, because the OFAC Director is always a highly knowledgeable career servant who does not take any action of this size without approval from the Secretary and, quite often, the President. But others may express concern about a lack of political accountability of OFAC's Director for such significant actions.
OFAC designated/blocked the following:
FAQ 1039 clarifies that the existing general authorization that covers certain agricultural exports (General License 6A) applies and authorizes those transactions with MIB subsidiaries that are involved in the agricultural sector.
These blocking actions also block the property of all entities that are directly or indirectly owned 50 percent or more, whether individually or in the aggregate, by one or more of the above-listed persons.
The Department of State ("State") designated/blocked eight large Russian maritime entities (one of which was already blocked under the Crimea-related sanctions) and identified 69 vessels that are now blocked property due to these new designations. OFAC concurrently placed the entities and vessels on its Specially Designated Nationals and Blocked Persons ("SDN") List. The list of entities and vessels, and all of their identifying information (e.g., addresses, IMO #s, etc.), can be found both in State's press release and OFAC's sanctions announcement, but since OFAC's announcement also contains OFAC's other actions described above, you may find it easier to look at State's press release. In its press release, State explained that the actions targeted the Russian Ministry of Defense's shipping company and private Russian maritime shipping companies that transport weapons and other military equipment for the Government of the Russian Federation ("GoR") as well as one maritime engineering company that works with the GoR and Russian state-owned entities, serving as "a warning to private Russian companies that those who support Putin's war machine risk severe costs." These blocking actions also block the property of all entities that are directly or indirectly owned 50 percent or more, whether individually or in the aggregate, by one or more of the above-listed persons.
The State Department concurrently announced a series of visa actions against certain Russian and Belarusian persons "to promote individual accountability for human rights abuses." The new State visa restrictions include: