Increased Russian Sanctions, Export Controls Could Have Major Implications for US Companies: Law Firms

The recent U.S. decision to increase sanctions and export controls on Russia, although largely narrow, could have significant implications for exporters doing business in Russia, law firms said. U.S. companies should pay close attention to new restrictions on certain controlled services and the potential impacts of the restrictions on disclosure and reporting requirements, the firms said.

The State Department’s increased restrictions on Russia could have “important implications” for companies that provide insurance or brokering services in the country, Hogan Lovells said in a March 18 post, particularly services involving defense items controlled under the International Traffic in Arms Regulations. Before the sanctions were imposed earlier this month (see 2103170022), companies that provided brokering services to Russia were exempt from registering as a broker. But companies will now “no longer be able to rely on this exemption unless the activities involve the U.S. Government or other international government cooperation,” Hogan Lovells said.

In addition, the Office of Foreign Assets Control’s designation of Russia’s Federal Security Service (FSB) may affect filing requirements to the Securities and Exchange Commission, the firm said. Although OFAC issued a general license to allow companies to interact with the FSB -- partly because companies must notify the FSB before importing certain consumer technology goods into Russia -- the license doesn’t exempt companies from disclosing those activities to the SEC. Businesses must disclose any transactions with OFAC-designated entities to the SEC, even if they are conducted with an OFAC general license, the firm said. This could lead to a substantial increase in SEC filings because “many companies are required to interact with the FSB in some capacity.”

Companies may also face broader reporting requirements due to the State Department’s decision to add Russia to the list of countries subject to an ITAR policy of denial for exports of defense goods and services, Baker McKenzie said March 17. The firm said that any ITAR violations that involve Russia or Russian nationals could now trigger a “mandatory reporting requirement” to the Directorate of Defense Trade Controls.

Although companies may face more reporting requirements with DDTC, the firm said other increased restrictions will likely have a “limited impact,” including BIS’s addition of Russia to Country Group D:5 under the Export Administration Regulations. While Country Group D:5 countries are subject to increased restrictions for certain 600 series items -- including various controlled munitions -- Russia was already subject to many of those controls due to its April 2020 inclusion in BIS’s military end-user and-use rule (see 2004270027), Baker McKenzie said.

BIS also increased restrictions on various Russian entities (see 2103020067), imposing a “more tailored license review policy” when compared with other Entity List additions, Hogan Lovells said. While Entity List additions are generally subject to a license requirement for all items subject to the EAR, BIS instead outlined varying levels of licensing requirements that apply to nuclear and weapons-related end-uses for those Russian entities. “In other words, these restrictions are more targeted than BIS’s typical policy of denial for all items subject to the EAR,” the firm said. While the restrictions “may not directly impact many companies conducting business with Russia,” the firm said companies should “confirm that the entities and individuals are not business partners” and that their “ongoing activities” are not restricted.