Sanctions and ban on consulting services targeting exports to Russia

On May 8, 2022, the US Treasury Department’s Office of Foreign Assets Control (OFAC) announced new sanctions against Russia, including a ban on providing certain categories of services to Russia. The latest set of OFAC sanctions was imposed in conjunction with new export controls on industrial products put in place by the US Department of Commerce’s Bureau of Industry and Security (BIS)..

US imposes additional targeted sanctions on Russian companies and individuals

Building on previous rounds of targeted sanctions, OFAC has issued a number of designations targeting Russia’s state-run finance, defense and communications sectors. OFAC added eight current and past managers of PJSC Sberbank and 27 managers of Gazprombank on the Specially Designated Nationals (SDN) list. In addition, OFAC added the Russian state bank, JSC Moscow Industrial Bank (including 10 of its subsidiaries), a defense entity, the limited liability company Promtekhnologiya (a rifle producer) and three networks of Russian state-owned information, JSC Channel One Russia. , Television Station Russia-1 and JSC NTV Broadcasting Company, to the SDN list.

Executive Order 14071 Determination

The new sanctions package imposed a new ban on the export of certain services to Russia pursuant to Executive Order 14071. Effective June 7, 2022 (and subject to short-term reduction authorization, General License 34, described below), it is prohibited for U.S. persons to engage in or facilitate the export, re-export, sale or supply, directly or indirectly, of management consulting, trust and business formation and accounting services to any person in Russia. The new ban on services provides the following two exceptions: “(1) any service to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a [U.S. person]or “(2) any service related to the liquidation or disposal of an entity located in the Russian Federation that is not owned or controlled, directly or indirectly, by a Russian person. These measures follow the ban imposed by the United Kingdom on British persons or entities from exporting certain professional services to Russia. See May 6 GT alert.

Potential exposure to secondary sanctions for advisory service providers

In addition to these primary sanctions prohibitions on the provision of certain services to Russia, OFAC has additionally issued a determination pursuant to Executive Order 14024 authorizing the imposition of secondary sanctions on non-U.S. persons. Effective immediately, any person designated by the Secretary of the Treasury in consultation with the Secretary of State who is determined to operate or have operated in the accounting, trust and business formation services, and management consulting of the Russian economy will be targeted by the United States. punishments. Currently, the determination does not designate any person or entity, but it does allow sanctions to be imposed on any person or entity determined to operate or have operated in any of the aforementioned sectors. Unlike the primary sanctions bans, the secondary sanctions expose individuals and businesses unaffiliated with the United States to potential OFAC sanctions action, signaling the US government’s determination to deter even non-U.S. persons from doing business with Russia.

Issuance of general licenses related to Russia

Along with the sanctions measures described above, OFAC has issued a number of Russia-related blanket licenses authorizing certain types of limited activities by U.S. persons in or with Covered Regions or with sanctioned entities or individuals. , in particular by temporarily authorizing certain activities to assign, transfer, or reduce the assets affected.

  • General License No. 25A authorizes activities related to telecommunications and certain communications on the Internet.

  • General License No. 33 authorizes the winding down of existing transactions or contracts (that were in effect prior to May 8, 2022) involving certain blocked entities until June 7, 2022 (12:01 a.m. EST).

  • General License No. 34 authorizes the phasing out of accounting, trust and business formation and management consulting services until July 7, 2022 (12:01 a.m. EST).

  • General License No. 35 allows transactions involving credit rating and auditing services through August 20, 2022 (12:01 a.m. EST).

Extension of sanctions against Russian industrial sectors within the framework of the EAR

Along with the announcement of new OFAC sanctions, the BIS issued a final rule extend export controls on equipment and other items widely used in various Russian industries. Final rule imposes export license requirement for exports, re-exports and transfers to Russia of several hundred product categories, including industrial engines, wood products, boilers, motors, fans , ventilation equipment, bulldozers and various other items for industrial and commercial use. uses. All products subject to the new licensing requirement are classified as EAR99 items, which generally do not require a license for export or re-export except to sanctioned destinations. The new measure signals the severity of the US export control regime currently in place with respect to Russia.

In total, the new export licensing requirement covers 205 Harmonized Tariff Schedule (HTS) codes at the six-digit level and 478 corresponding 10-digit List B numbers. These items have been added to Supplement No. 4 to Part 746 of the Export Administration Regulations. Requests to export or re-export these products will be subject to a denial policy unless the proposed transactions are essential for health and safety reasons or are necessary to meet humanitarian needs.

The expansion of export controls will impose even more restrictions on Russia’s access to American technologies and raw materials. Targeted controls largely target Russia’s industrial goods sector and are designed to further limit Russia’s access to items needed to support its military operations.

Key points to remember

Given the dynamic security and legal situation in the region, all companies and organizations engaged in activities involving Russia, Ukraine and Belarus should continuously assess the nature and type of activities, nationality of personnel involved in these activities and the measures necessary to put an end to them. activities if they cannot continue in an authorized manner within the framework of the sanctions measures in force. And with US authorities imposing secondary sanctions, even non-US individuals and companies doing business in Russia should assess their exposure to possible US sanctions measures.

Additionally, in light of US export controls that have expanded in recent months, companies assessing their operations in the region can also examine what items (goods, software and technology) are being exported, re-exported or re-transferred to or from Russia, and take internal action. compliance measures to prevent unauthorized and even inadvertent exports of controlled items to Russia.

Companies must classify all products they continue to export or re-export to Russia under US export control regulations to determine whether the measures trigger new export licensing requirements . Exporters can no longer assume that low-level or commercially available products can be exported to Russia without a license.

Given the fluid situation of the Russian-Ukrainian conflict, companies and organizations should continue to closely monitor communications/guidance from the BIS, the Treasury Department’s Office of Foreign Assets Control, and the White House. If the conflict continues to escalate, President Biden and other leaders have indicated their willingness to step up sanctions in response.

©2022 Greenberg Traurig, LLP. All rights reserved. National Law Review, Volume XII, Number 139