Bloomberg Law
March 16, 2023, 8:00 AM

Federal Sanctions on Russia Continue to Impact Finance and Trade

Gregory Bernstein
Gregory Bernstein
Fried Frank
Michael Gershberg
Michael Gershberg
Fried Frank

One year after Russia invaded Ukraine, the Treasury and Commerce Departments, in coordination with international allies, announced significant new export controls and sanctions on Russia. These measures broaden and deepen existing restrictions by targeting a range of actors and technologies that Russia has used to support its war effort.

They are part of a whole-government approach to respond to Russia’s ongoing war against Ukraine, including an increased focus on preventing sanctions evasion. Here is the latest round of trade controls and key takeaways for US businesses.

Export Control Measures

The Commerce Department’s Bureau of Industry and Security took several actions in concert with international allies. First, it expanded the scope of existing Russian and Belarusian industry sector restrictions by requiring an export license for a greater range of products related to oil and gas production, commercial and industrial items, and chemical and biological precursors.

The bureau also expanded the scope of luxury goods sanctions by adding additional luxury items subject to export and reexport restrictions. These changes are intended to better align US export controls with those that have been implemented by US allies.

Second, the BIS imposed additional export controls on Iran to curb the use of Iranian unmanned aerial vehicles by Russia in its war effort. These include new export license requirements for certain EAR99-classified items, including semiconductors destined for Iran, regardless if a US person is involved in a transaction.

The Foreign Direct Product Rule is expanded for those same items exported to Iran, which broaden the BIS’s jurisdiction over shipments of foreign-produced items that contain US-origin content. And the existing Russia/Belarus FDP rule is revised to cover EAR99 items that have been used in UAVs and found on battlefields in Ukraine.

The BIS also added 86 entities to the Entity List, which cuts off their access to US products and technology. These entities are primarily located in Russia, but also include Canadian and European subsidiaries of Russian and Chinese companies.

Sanctions Measures

The Treasury’s Office of Foreign Assets Control issued a new determination related to the metals and mining sector of the Russian economy. This measure authorizes OFAC to sanction any individual or entity that operates or has operated in this sector.

Pursuant to this authority, OFAC imposed sanctions on 22 individuals and 83 entities. OFAC also targeted the Russian financial sector by imposing an asset freeze on a dozen major financial institutions.

These designations include Credit Bank of Moscow PJSC, one of Russia’s largest banks. The EU previously removed the bank from SWIFT and the US had subjected it to more limited restrictions.

Other newly sanctioned Russian entities include wealth management-related firms and individuals that OFAC views as playing a key rule in raising capital in support of Russia’s war against Ukraine.

Along with this new round of sanctions, OFAC issued two general licenses that authorize, through May 25, the wind-down of transactions involving the newly designated financial institutions as well as transactions ordinarily incident and necessary to the divestment and transfer of debt or equity of those banks.

OFAC also issued new FAQs, including to clarify that General License 13D does not authorize the payment of “exit taxes” that may be required by the Russian government in connection with the divestment of assets located in Russia.

Such exit taxes are not considered to be ordinarily incident and necessary to the day-to-day operations of US companies operating in Russia and are thus outside the scope of General License 13D. US persons who are requested or required to pay an exit tax in connection with any divestment of assets from Russia may, however, apply for a specific license from OFAC.

These new export controls and sanctions continue the US effort to work with international partners to impose costs on Russia for its invasion of and ongoing war with Ukraine. Taken together, these new measures are likely to have a significant effect on Russia, as well as US and Western businesses that continue operations in or exports to Russia.

Accordingly, US companies that have any dealings with Russia or Russian persons or assets should assess their exposure to Russia-related sanctions and export controls—even if these business connections do not relate to high-tech items or financial services.

The US, which has increasingly sought to coordinate sanctions actions its G7 partners, is likely to continue imposing incremental sanctions and restrictions on Russia if the Ukraine war continues in 2023. It is also ramping up efforts to crack down on Russian sanctions evasion, which increases the enforcement risk for US and foreign persons regarding this sanctions regime.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Gregory Bernstein is an associate at Fried Frank, focused on M&A and private equity. He works on matters related to economic sanctions and export controls.

Michael Gershberg is a partner at Fried Frank, specializing in international trade and investment. He focuses on economic sanctions, export control laws and regulations, and CFIUS review.

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