Marking One Year of War, US Broadens Sanctions and Export Controls Against Russia and Other Actors

Broadening its response to Russia’s one-year-old assault on Ukraine, the United States announced additional export control and sanctions measures, effective February 24, 2023.

These new measures expand restrictions on specific industries in Russia and Belarus, sanction numerous parties within and outside Russia, and impose new export controls on activities previously outside US jurisdiction, including through a new Iran Foreign Direct Product (FDP) rule spurred by Iranian-provided drones supporting Russia on the battlefield. Mindful of these additional obligations, US companies should revisit their compliance measures, rescreen their counterparties, and consider how their supply chains may be impacted.

US sanctions and export controls are administered by the Department of the Treasury’s Office of Foreign Assets Control (OFAC), the Department of Commerce’s Bureau of Industry and Security (BIS), and the Department of State. Enforcement will be enhanced by the new Disruptive Technology Strike Force, a joint arm of the Department of Justice and Department of Commerce, and informed by a recent compliance note identifying “warning signs” of evasion and corresponding compliance measures.

Prior measures targeting Russia, Belarus, and certain regions of Ukraine are described in our related alerts: Phase I, Phase II, Phase III, and Phase IV (restrictions immediately prior to Russia’s invasion through the weeks that followed) and Additional Measures of May 2022.

1. Expanded Sector-Based Restrictions, Including for the Russian Metals and Mining Sector

OFAC and BIS expanded restrictions on entities operating in areas of the Russian and Belarusian economies essential to Russia’s war efforts. This includes a determination to authorize sanctions against persons in the Russian metals and mining sector, adding this sector of the Russian economy to those already targeted (financial services, quantum computing, electronics, management consulting, and the aerospace, defense, and related materiel sectors, and others). New FAQs from OFAC detail how the agency defines the Russian metals and mining sector and how it will designate specific persons operating in this sector.

BIS also expanded sector-based export controls affecting Russia and Belarus, including imposing additional license requirements concerning:

• Chemicals, biologics, their precursors, and related equipment (here) 
• Electronics, industrial machinery and equipment, and other commercial and industrial goods (here and here) 
• “Luxury goods,” which now include small/personal electronics, vehicle parts including engines, and residential and commercial appliances
• Parts, components, accessories, and attachments for items that themselves require an export license under heightened Russia and Belarus restrictions

BIS clarified that certain exports of “mass market” encryption items that are also “luxury goods” — for instance, smartphones — are excluded from the new controls when classified in accordance with License Exception ENC.

2. New Restrictions Against Persons and Entities Supporting the Russian War Effort, Including Many Outside of Russia

Through scores of new restricted-party designations, the US and its allies continue to disrupt Russia’s military supply chain and isolate its economy. These designations move beyond Russia to target persons from countries such as Canada, France, Germany, Italy, Luxembourg, and the Netherlands — highlighting the importance of screening customers, partners, suppliers, and others, even when located in countries that may not typically raise concerns.

OFAC added more than 100 individuals, entities, and vessels to its Specially Designated Nationals and Blocked Persons (SDN) List, including:

• Russian banks, wealth-management firms, and other key financial services institutions and personnel, including the Credit Bank of Moscow Public Joint Stock Company, one of the largest banks in Russia
• Parties operating in the electronics or technology industries, including cybersecurity firms, software developers, computer programming companies, microelectronics and quantum companies, and server and other hardware manufacturers
• Parties operating in the defense, aerospace, or other high-technology industries, including research institutions and companies manufacturing carbon fiber, other advanced materials, and defense articles such as dual-use electronic instruments, and composite goods for aerospace applications

OFAC also issued new or updated general licenses mitigating the effects of some restrictions on the banking sector, including temporary authorizations for certain wind-down transactions, transactions relating to divestments and transfers of debt or equity, and energy-related transactions. As a reminder, US persons are prohibited from engaging in transactions and dealings involving SDNs or their property interests (including entities owned at least 50% by one or more SDNs), except as authorized by general or specific license.

The State Department joined OFAC in designating individuals and entities that support the Russian government, including numerous political officials and others complicit in supporting the defense industrial base and/or occupation of disputed Ukrainian territories, and imposed visa-related sanctions against hundreds of Russian military officials.

Separately, BIS announced 86 additions to the Entity List (here and here). Most were designated as Russian or Belarusian “military end users,” restricting their access to items that are subject to the Export Administration Regulations and covered under the Russia/Belarus-Military End User FDP rule (see our Phase II and Phase III client alerts for more information on these restrictions).

Each of these newly designated parties has been added, as appropriate, to the OFAC SDN List or BIS Entity List, which can be screened in a single portal here.

3. New Controls Aimed at Curbing Third-Country Support for Russia’s War Efforts, Particularly From Iran

BIS imposed new restrictions on Iran, Russia, and Belarus in response to Russia’s use of Iranian unmanned aerial vehicles (UAVs) in Ukraine. Although the United States has long maintained an embargo against Iran, these controls extend to transactions previously outside its scope.

Certain US-origin UAV parts and components that are not considered “dual-use” (and so are designated EAR99) now require a license for export or reexport to Iran, Russia, or Belarus, even absent US-person involvement in the transaction. This restriction extends to “foreign direct products” — items produced outside the United States that are the “direct product” of certain US-origin software or technology, or are produced by a plant (or major component of a plant) that itself is such a direct product.

This new Iran FDP rule also imposes a license requirement for foreign direct products destined for Iran if they fall within Categories 3, 4, 5, or 7 of the Commerce Control List (certain electronics, computers, telecommunications and information security/software items, and navigation and avionics).

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If you would like additional information about the issues addressed in this client alert, please contact Rich Matheny or Jacob Osborn, or the Goodwin attorney with whom you typically consult.