US Issues New Russia-Related Export Controls, Sanctions

February 27, 2023 by Ian Cohen|Top News

The U.S. announced a new, sweeping set of export controls and sanctions last week to further hobble Russia on the one-year anniversary of its invasion of Ukraine, including additions to the Entity List, an expansion of industry sector restrictions on both Russia and Belarus, new export controls against Iran to address its drone transfers to Russia, and new financial sanctions against more than 100 people and entities. Many of the measures, which were announced alongside similar actions by U.S. G-7 allies, aim to “cut off the Russian defense industrial base and military from even low-technology consumer items,” the Bureau of Industry and Security said.

Effective Feb. 24, the new export controls added 86 new entities to the Entity List, placed additional restrictions on commercial, industrial and luxury goods items, imposed new license requirements on “low-technology” items destined to Iran, created a new Iran Foreign Direct Product Rule and more. The Office of Foreign Assets Control also announced a range of new Russia sanctions, including new restrictions targeting the country’s metals and mining sector and new financial sanctions against people and entities to limit “Russia’s ability to obtain the capital, materials, technology, and support that sustain its war against Ukraine,” the Treasury Department said.

In two separate rules released last week, BIS added a group of mostly Russian entities to the Entity List, but also entities in Canada, China, France, Luxembourg and the Netherlands. They were added to the list for providing support to Russia’s war efforts, including by sending controlled U.S.-origin items to Russia’s military or “significantly” contributing to Russia’s military or defense industrial base. Seventy-six of the entities were designated as Russian/Belarusian Military End Users, “effectively cutting them off from obtaining items subject to the” Export Administration Regulations, BIS said.

All the entities will face a license requirement for all items subject to the EAR. BIS will review some applications under a presumption of denial, while others will be reviewed under a policy of denial. Others will be subject to a license review policy of denial except for certain food and medicine designated as EAR99 and for U.S. government-supported use in the International Space Station, which will be reviewed case by case.

BIS also modified existing Russian entries on the Entity List by revising their aliases, addresses and license requirements and adding new aliases. The agency revised the license review policy for four Russian entities to a “policy of denial” because they “have acquired and attempted to acquire U.S.-origin items in support of Russia’s military.”

All exports that now require a license as a result of the Entity List additions and changes that were aboard a carrier to a port as of Feb. 24 may proceed to their destinations under the previous eligibility without a license. See the two BIS notices for a complete list of the Entity List additions.

In a separate rule, BIS said it’s “expanding and strengthening” existing export restrictions against Russia and Belarus, including the scope of its luxury goods controls. The agency said the new restrictions better align U.S. controls with those of its allies and revise the EAR to make it “stronger, more effective, and easier to understand.”

The 83-page rule describes a host of revisions to the EAR, including a change in the “methodology for identifying” controlled items by using the Harmonized Tariff Schedule-6 Code and HTS Description to “make it easier to align with U.S. allies’ and partners’ controls.” BIS also added new license requirements and expanded the scope of controls on a variety of electronics, industrial machinery, equipment, and chemical and biological precursors.

Notably, the agency also added Taiwan to Supplement No. 3 to Part 746 of the EAR, which is the list of countries excluded from certain U.S. licensing requirements because they impose “substantially similar export controls” on Russia and Belarus. BIS added Taiwan to the list “in recognition of Taiwan’s implementation of such measures,” which included a new set of export controls against Russia in January (see 2301040033).

All exports that now require a license as a result of this rule that were aboard a carrier to a port as of Feb. 24 may proceed to their destinations under the previous eligibility as long as the export is completed no later than March 27.

Another rule imposed new export controls against Iran to address Russia’s purchase and use of Iranian unmanned aerial vehicles in Ukraine. The new controls place license requirements on a subset of EAR99 items destined to Iran, “regardless of whether a U.S. person is involved in the transaction,” BIS said, and are identified by HTS-6 Codes in a new supplement to the EAR to allow BIS and other agencies to “track and quantify these exports.” The items include certain compression-ignition internal combustion piston engines, radio navigational aid apparatus, tantalum capacitors, certain amplifiers and certain electronic integrated circuits.

The rule also created an Iran-specific foreign direct product rule and revised the existing Russia/Belarus FDP rule to cover EAR99 items that have been found in UAVs, including parts and components considered U.S.-origin. BIS said the new Iran FDP rule is “generally modeled” after the Russia/Belarus FDP rule “but with slight differences to make the Iran FDP rule more narrowly targeted at Iran’s UAV activities of concern.” The Iran FDP rule imposes license requirements on foreign-produced items that are the “direct product” of U.S.-origin software or technology classified in categories 3 through 5 and 7 of the Commerce Control List, or are “produced by a plant or major component of a plant which itself is the ‘direct product’ of such software or technology,” BIS said.

Although Iran is “already subject to comprehensive export restrictions,” this rule “builds on recent efforts” to restrict Russia’s ability to buy Iranian-supplied UAVs by imposing new destination-based controls on Iran. The new controls, along with the new FDP rule, have the “purpose of substantially degrading the Iranian UAV program and Russia’s use of such UAVs against Ukraine,” BIS said.

The new package of rules “shows that our commitment -- and that of our allies -- is not wavering, and that we will meet whatever Russia, Belarus, Iran, private firms, such as those from China, or anyone globally who seeks to support them can muster with strong, coordinated action,” BIS Undersecretary Alan Estevez said. Thea Kendler, the agency’s assistant secretary for export administration, noted BIS also has “worked overtime” to expedite “approvals of over $1 billion worth of items” to Ukraine.

Along with the export controls, the U.S. announced a range of new financial sanctions against Russia, including designations against people and entities operating in Russia’s financial services sector and involved in sanctions evasion. The sanctions target entities with ties to countries that the U.S. has warned about facilitating Russian sanctions evasion, including MTS Bank, a Russian bank with branches in the United Arab Emirates.

Other designations target people outside of Russia for helping the country evade sanctions. One is Swiss-Italian businessman Walter Moretti, who runs a network of associates and companies that OFAC said has “covertly procured sensitive Western technologies and equipment for Russian intelligence services and the Russian military.” OFAC also sanctioned Russian-Turkmen arms dealer Nurmurad Kurbanov, who it said has “facilitated military and technical cooperation efforts between Russia and foreign countries.”

OFAC also issued a new determination, effective Feb. 24, allowing the U.S. to impose sanctions on any person or entity operating in Russia's metals and mining sector. The agency used the new authority to immediately designate four entities: Joint Stock Company Burevestnik Central Scientific Research Institute, a Russia-based arms manufacturer; OOO Metallurg-Tulamash, a Russia-based steel manufacturer; TPZ-Rondol OOO, a Russia-based company specializing in coating metals; and Mtsenskprokat, a Russia-based company that makes “unique metal alloys” for the country's defense industry.

The agency also published a new set of frequently asked questions to provide guidance on the metals and mining sector restrictions. OFAC said it doesn’t “intend” to target people for operating in Russia’s metals and mining sector “where the provision of goods or services is solely for the safety and care” of human life or environmental mitigation. The agency said examples of goods and services that fall in this category are personal protective equipment, safety devices, ventilation systems, accident response services and safety inspections, among other things.

OFAC said it defines Russia’s metals and mining sector to include any act of extracting coal, precious stones or other minerals in Russia, or any act of procuring or processing those materials, including transporting them to, from or within Russia.

Other designations target Russian entities that produce carbon fiber and other advanced materials for the country’s military and entities operating in Russia’s aerospace, technology and electronics sectors.

OFAC also published new and updated general licenses, including new General License 60, which authorizes the wind-down and rejection of certain transactions involving various Russian financial institutions sanctioned last week and any entity they own by 50% or more. Those transactions are authorized through 12:01 a.m. EDT May 25.

New General License 61 authorizes certain transactions related to the divestment or transfer of debt or equity of certain Russian banks and any entity they own by 50% or more. All transactions authorized by the license related to covered debt or equity and placed prior to 4 p.m. EST Feb. 24 are authorized through 12:01 a.m. EDT May 25. Other restrictions may apply, including for transactions involving the wind-down of derivative contracts.

OFAC also issued General License 8F, which replaced 8E, to add new entities to the scope of the authorization. Updated General License 13D, which replaced 13C, extends the authorization through 12:01 a.m. EDT June 6. The previous license was scheduled to expire March 7 (see 2211210015).