On February 24, 2023, the one-year anniversary of the Russia-Ukraine conflict, the United States released extensive new measures designed to impose additional sanctions on Russia for its aggression against Ukraine. These new measures are summarized below.
The latest measures include actions by:
- The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC), which imposed new sanctions on the metals and mining industries, sanctioned a number of individuals and entities (including newly-designated Russian financial institutions), and issued new and updated licenses and FAQs;
- The U.S. Department of State, which sanctioned dozens of individuals and entities;
- The Office of the United States Trade Representative, which increased tariffs on U.S. imports of aluminum and other metals; and,
- The U.S. Department of Commerce’s Bureau of Industry and Security (BIS), which introduced four new rules, one of which expands the scope of Russian and Belarusian industry sector restrictions.
OFAC announced that it has added individuals and entities to the Specially Designated National (SDN) List in a number of industries that support the Russian military efforts in Ukraine. These additions include a number of Russian banks; producers of carbon fiber and related advanced materials used for Russian defense systems; and entities operating in Russia’s aerospace, technology, and/or electronics sectors.
In addition, OFAC sanctioned over 30 third-country actors for their roles in sanctions evasion efforts. Designated parties include Swiss, German and Italian nationals who allegedly assisted Russian companies covertly procure sensitive Western technologies and equipment.
U.S. persons generally are prohibited from dealing with SDNs or any entity owned 50% or more by an SDN. Primary sanctions also apply to transactions where there is a U.S. nexus, such as when a foreign entity engages in a transaction with an SDN in U.S. dollars which clears through a U.S. bank.
Metals and Mining Sanctions
OFAC also announced a new determination that authorizes sanctions in the metals and mining sectors of the Russian economy, and simultaneously sanctioned 22 individuals and 83 entities from these industries.
FAQ 1115 clarifies that the “metals and mining sector of the Russian Federation” 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.”
Prohibition against Payment of “Exit Tax” to Russia
OFAC also issued guidance in the form of FAQ 1118, which clarifies that general license (GL) 13D, authorizing payments to the Russian government of taxes, registration fees and similar payments, does not apply if an “exit tax” is required by the Russian government to complete a divestment. This may complicate the exit strategies of Western and other foreign companies looking to leave the Russian market and could result in situations where Russia requires a payment for a company to leave, while U.S. sanctions prohibit the company from paying it.
Additional Designations by U.S. State Department
The State Department also designated dozens of individuals and entities, including government ministers, governors, high-level officials, financial service providers, and entities linked with future energy production and export capacity, the advanced technology sector, and nuclear weapons, among others.
The White House announced that Russian aluminum articles and derivative aluminum articles will be subject to a 200 percent ad valorem tariff under Section 232 of the Trade Expansion Act of 1962 beginning March 10, 2023. On April 10, 2023, the United States will impose a 200 percent tariff where any amount of primary aluminum used in the manufacture of aluminum articles is smelted in Russia, or the aluminum articles are cast in Russia.
The White House also announced that it is increasing tariffs on other Russian and Belarusian goods starting on April 1, 2023, doubling the tariff on most metal and metal products from 35 to 70 percent.
U.S. Export Controls
BIS issued four new rules that went into effect immediately on February 24, 2023.
The first rule expands the scope of various existing sanctions to align them with actions by U.S. allies and partners imposing similar controls. Specifically, Part 746 of the Export Administration Regulations (EAR) was revised as follows:
- Industry Sector Sanctions – Oil & Gas: Supplement No. 2 to Part 746, which includes oil and gas-related items that are subject to EAR Section 746.5 Russian Industry Sector Sanctions, was amended to include Belarus. In addition, Harmonized Tariff Schedule (HTS) 6 digit codes and descriptions are now used to identify the items in Supplement No. 2, instead of Schedule B numbers and descriptions as previously. Revisions were also made to Supplement No. 2 to cover “components,” “parts,” “accessories” and “attachments” of items even if they are not specifically identified by HTS code or HTS description.
- Exclusion of Taiwan from Certain License Requirements: Supplement No. 3, which consists of a list of countries to which certain licensing requirements pertaining to foreign-produced items under EAR Section 746.8 do not apply, was amended to include Taiwan. Taiwan was added as an excluded country in recognition of its implementation of similar measures against Russia and Belarus.
- Industry Sector Sanctions – Industrial Items: Supplement No. 4, which includes industrial items that are subject to EAR Section 746.5 Russian Industry Sector Sanctions, was amended to include new HTS classifications corresponding to 322 industrial items that are now controlled for Russia and Belarus. Similar to Supplement No. 2, the HTS code and description will now govern licensing requirements.
- Luxury Goods: Supplement No. 5, which includes a list of “luxury goods” subject to licensing requirements for the export, reexport, or in-country transfer to or within Russia or Belarus and to designated Russian and Belarusian oligarchs and other designated persons worldwide, was amended to include 276 additional “luxury goods” items. The additional “luxury goods” include a range of household items, such as air conditioners, refrigerator-freezers, cooking stoves, dishwashers, toasters, vacuum cleaners, electric hair dryers, smartphones, modems, record players, smoke detectors, laser printers, photocopiers, and washing machines.
- Chemical and Biological Weapons-Related Items: Supplement No. 6, which includes chemical and biological weapons production-related items designated as EAR99 that are subject to EAR Section 746.5 Russian Industry Sector Sanctions, was expanded. This rule also makes certain clarifying changes, such as adding explanatory notes.
The second rule imposes new controls on Iran in order to address Russia’s use of Iranian unmanned aerial vehicles (UAVs) in Ukraine. Specifically, the rule imposes the following new export control measures on Iran:
- License requirements for a subset of generally low-technology (EAR99) items, including semiconductors that are destined for Iran, which are identified by HTS classifications in a new Supplement No. 7 to Part 746.
- A new “Iran Foreign Direct Product (FDP) Rule” specific to Iran for non-U.S. made items that are a direct product of items identified in the new supplement.
- Expansion of the existing Russia/Belarus FDP rule to cover EAR99 items that have been found in UAVs that contained parts and components branded U.S. or U.S.-origin (although they may not actually be U.S. branded or U.S.-origin).
The third rule and fourth rule add 86 parties to the Entity List for activities supporting Russia’s military or defense industrial base. These entities are from Canada, China, France, Luxembourg, Netherlands and Russia.