On May 19, 2023, the Department of the Treasury issued a Determination pursuant to E.O. 14071 that prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of architecture or engineering services to any person located in the Russian Federation. The determination excludes the following: (1) any service to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a United States person; and (2) any service in connection with the wind-down or divestiture of an entity located in the Russian Federation that is not owned or controlled, directly or indirectly, by a Russian person. OFAC has provided the full scope of the definitions for architecture and engineering services in a new FAQ  (see FAQ 1128). This determination takes effect at 12:01 a.m. EDT on June 18, 2023. 

In conjunction with this determination, the Office of Foreign Assets Control (OFAC) issued a related Determination pursuant to E.O. 14024, which allows for sanctions to be imposed on any individual or entity determined to operate or have operated in the following sectors of the Russian Federation economy: 

  • architecture,
  • engineering,
  • construction,
  • manufacturing, and
  • transportation.

OFAC has provided the full scope of the definitions for these sectors of the Russian economy in a new FAQ (see FAQ 1126).  A sector determination pursuant to E.O. 14024 exposes persons that operate or have operated in an identified sector to sanctions risk and allows for sanctions to be imposed on any individual or entity that may subsequently be determined and designated by OFAC to operate or have operated in this sector. The determination does not automatically impose sanctions on all persons who operate or have operated in the sector. This determination took effect on May 19, 2023.

With these new determinations, OFAC has also amended FAQs 1059 and 1061-1062 to further assist persons in understanding the full scope and impact of these determinations.

These determinations complement existing sanctions authorities against those that operate or have operated in the metals and mining (see Update of February 24, 2023), quantum computing (see Update of September 16, 2022), accounting, trust and corporate formation, management consulting (see Update of May 13, 2022), aerospace, marine, electronics (see Update of March 31, 2022), and defense and related materiel (see Update of March 7, 2022) sectors of the Russian Federation economy.

On May 23, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Venezuela-related General License 8L, extending authorization until November 19, 2023 for certain activities previously authorized under General License 8K. General License 8L authorizes the continuation of transactions and activities “ordinarily incident and necessary to the limited maintenance of essential operations, contracts, or other agreements,” that:

  1. are for safety or the preservation of assets in Venezuela;
  2. involve Petróleos de Venezuela, S.A. (PdVSA) or any entity in which PdVSA owns, directly or indirectly, a 50% or greater interest; and
  3. were in effect prior to July 26, 2019, for the following entities and their subsidiaries:
    • Halliburton
    • Schlumberger Limited
    • Baker Hughes Holdings LLC Weatherford International, Public Limited Company

The term “safety or the preservation of assets” covers transactions and activities necessary “to ensure the safety of personnel, or the integrity of operations and assets in Venezuela; participation in shareholder and board of directors meetings; making payments on third-party invoices for transactions and activities authorized” under this general license (or prior to April 21, 2020, if such activity was authorized at that time) as well as “payment of local taxes and purchase of utility services in Venezuela; and payment of salaries for employees and contractors in Venezuela.” The general license authorizes such activities involving PdVSA and the other listed entities through 12:01 a.m. EST, November 19, 2023.

As with past extensions, General License 8L does not authorize any activities related to Venezuelan-origin petroleum or petroleum products; the provision or receipt of insurance or reinsurance for such products; the design, construction or work on wells or other facilities or infrastructure in Venezuela; contracting any additional personnel or services (except as required for safety); or the payment of any dividends to PdVSA. Further, this General License does not authorize transactions related to the export or re-export of diluents to Venezuela; the issuance of any loans to, or accrual of additional debt by, or subsidization of PdVSA; or any transactions otherwise prohibited by OFAC’s Venezuela Sanctions Regulations (31 C.F.R. part 591) or with any blocked persons other than those identified in this General License.

General License 8L replaces and supersedes General License 8K. See also SmarTrade Update of November 28, 2022.

On May 19, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the Department of State sanctioned and placed on the Specially Designated Nationals (SDN) List over 225 individuals, entities, vessels and aircraft. These actions came at the same time the G7 member countries were meeting and jointly announced both continued support for Ukraine and a coordinated effort to increase sanctions and pressure on Russia. In a related G7 statement, the member countries noted that joint efforts will continue to include “working together to prevent evasion and circumvention of these coordinated sanctions and economic measures. G7 members will also work to further curtail Russia’s use of the international financial system to further its war efforts, and will continue to reduce Russia’s oil and energy revenues.”

The designations are a continuing effort to target those attempting to circumvent or evade sanctions and other economic measures against Russia. OFAC notes that these efforts to evade or circumvent sanctions are sometimes directed by Russia’s intelligence services and defense companies, who stand to benefit from the procurement of hard-to-get goods. As such, many of the designations continue to target known “covert procurement programs” in over 20 jurisdictions that have helped Russia continue to procure: (1) sensitive technologies and equipment for Russia’s intelligence serves and military; (2) military materials and gear; (3) semiconductor and nanotechnology production equipment; (4) testing systems for the microelectronic industry; (5) materials for Russian laboratories focused on nuclear weapon design and development as well as research on advanced conventional weapons technologies; and, (6) electronic components.

The designations also target third-party intermediaries or transshipment points seeking to circumvent restrictions, disguising the involvement of persons on the SDN List or entities on the Department of Commerce’s Entity List in transactions, and obscuring the true identities of Russian end-users, as noted in FAQ 1092.

The new designations also target “training grounds for Russia’s future energy specialists, the Russian research institutes where new extraction technologies are developed, Russian companies that facilitate drilling and mining operations, and firms that attract and advise on investment in Russia’s energy industry.” Five Russia-based Federal State Budget Educational Institutions involved in Russia’s energy sector have been placed on the SDN List. In addition, several Russian energy-related research institutions have been added to the list, including numerous private and state-owned research entities. Several Russian drilling and mining equipment companies have been designated. The new SDN designations also include both Russian-based and foreign investment entities that have been involved in Russia’s energy sector. The State Department separately identified and sanctioned numerous entities involved in expanding Russia’s future energy production and export capacity across a range of industries where Russia has strategic dependencies, and other entities involved in the metals and mining sector of Russia’s economy.

The State Department separately designated numerous additional Russian officials, elites, and other individuals and entities involved in Russia’s military establishment and defense industry.  In addition, the Foreign Intelligence Service of the Russian Federation (SVR), the Russian Government’s intelligence agency, has itself been designated and placed on OFAC’s SDN List.

The full list of newly added individuals, entities, vessels and aircraft to the SDN List is available here. Helpful press releases from OFAC and the State Department are also available.

As a result of these actions, all property and interests in property of the persons placed on OFAC’s SDN List above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

New Russia-related General Licenses

In adding certain entities to the SDN List, OFAC has issued several new Russia-related General Licenses (GL):

  • GL 66, “Authorizing the Wind Down of Transactions Involving Public Joint Stock Company Polyus” through 12:01 a.m. eastern daylight time, August 17, 2023. 
  • GL 67, “Authorizing Certain Transactions Related to Debt or Equity of, or Derivative Contracts Involving, Public Joint Stock Company Polyus” through 12:01 a.m. eastern daylight time, August 17, 2023. This GL authorizes the divestment or transfer of debt or equity in this company purchased prior to May 19, 2023. It also authorizes facilitating, clearing and settling trades of covered debt or equity that were placed prior to 4 p.m. eastern daylight time, May 19, 2023. It covers transactions necessary to the wind down of derivative contracts entered into prior to 4 p.m. eastern daylight time, May 19, 2023.
  • GL 68, “Authorizing the Wind Down of Transactions Involving Certain Universities and Institutes” through 12:01 a.m. eastern daylight time, July 18, 2023. This GL identifies five Russian Federal State Budgetary Educational Institutions and covers any entity in which one of these institutions own, directly or indirectly, individually or in the aggregate, a 50% or greater interest.

Certain transactions remain unauthorized under these general licenses and therefore require close analysis.

On May 19, 2023, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a significant Final Rule implementing additional sanctions and revising existing export controls against Russia and Belarus for ongoing aggression against Ukraine. According to the announcement, these revisions and additions seek to better align U.S. sanctions with the controls that have been implemented by U.S. allies imposing substantially similar controls on Russia and Belarus. The rule also revises recent BIS restrictions targeting Iran’s supply of Unmanned Aerial Vehicles (UAVs) to Russia. Finally, BIS has added 71 entities to its Entity List to prevent Russia from accessing goods it needs for continuing its efforts in Ukraine. 

Expansion of Russia and Belarus Industry Sector Sanctions

Under this Final Rule, BIS has significantly expanded the scope of industry sector sanctions against Russia and Belarus.

Changes to Supplement No. 4 under Part 746 – 1,224 additional Harmonized Tariff Schedule (HTS) six-digit codes have been added to Supplement No. 4; thus, covered items – as well as any modified or designed components, parts, accessories, and attachments therefor regardless of the HTS Code or HTS Description – will now require a license for export or reexport to or transfer within Russia or Belarus. The items added include a variety of electronics, instruments, and advanced fibers for the reinforcement of composite materials, including carbon fibers. BIS’ review of any license applications for items listed on Supplement No. 4 remains a “policy of denial.”

Removal of Schedule B Numbers for Supplement No. 5 to Part 746 – Supplement No. 5 lists various “luxury items” that are restricted for export to Russia and Belarus. This list has relied on identifying covered items by their Schedule B numbers and descriptions. The Final Rule revises the list to replace the columns for Schedule B and Schedule B Description with columns for HTS Code and HTS Description. BIS’ review of any license applications for items listed on Supplement No. 4 remains a “policy of denial.”

Expansion of List under Supplement No. 6 of Part 746 – This list has been expanded to include additional chemicals (identified by their CAS numbers). Items on this list are a subset of items that are otherwise designated as EAR99 under the Commerce Control List (CCL). These items may be useful for Russia’s chemical and biological weapons production capabilities or may be diverted from Belarus to Russia for these activities of concern. These items consist of discrete chemicals, biologics, fentanyl and its precursors, and related equipment. While historically not controlled for export to Russia or Belarus, items on Supplement No. 6 require a license from BIS. BIS’ review of any license applications for items listed on Supplement No. 6 remains a “policy of denial.”

The Final Rule also makes numerous corrections and clarifications to existing controls on Russia and Belarus, including clarifications under the Russian and Belarus industry sector sanctions at 15 C.F.R. 746.5.

Revisions to Iran UAVs Rule and Related Iran FDP Rule

BIS previously imposed license requirements for a subset of generally low-technology (EAR99) items when destined for end-use in Iran, Russia or Belarus, regardless of whether a U.S. person is involved in the transaction. BIS established a new list (Supplement no. 7 to part 746 of the EAR) identifying these EAR99 items by their six-digit HTS subheading and description. Although exports of nearly all U.S. origin items and items with more than de minimis content are restricted for export to Iran, these items are subject to the Iran Foreign Direct Product (FDP) Rule which means that non-U.S. origin items on this list that are the result of U.S. origin technology are also subject to these restrictions.

The Final Rule adds one additional HTS-6 Code entry (HTS 854800) to Supplement No. 7. The items covered under this HTS subheading include a variety of electrical parts of machinery or apparatus, NESOI. For additional details on BIS’ original rule on this matter to address Iran’s support of Russia and the Iran FDP Rule, see Update of February 27, 2023.

Expansion of Russia/Belarus FDP Rule to Occupied Crimea

The Final Rule also expands the Russia/Belarus Foreign-Direct Product (FDP) Rule to add the “temporarily occupied Crimea region of Ukraine” to the scope of this FDP Rule in order to strengthen the EAR’s controls in this region of Ukraine and make it more difficult for items to be procured for Russia’s use in Crimea in support of its ongoing and overall military aggression in Ukraine. For additional details on BIS’ original rule on this matter, see Updates of February 25, 2022 and March 4, 2022.

Additions to the Entity List

Under a separate Final Rule, BIS added 71 entities to the Entity List. These entities were determined to be acting contrary to the national security or foreign policy interests of the United States and will be listed on the Entity List under the following countries: Armenia, Kyrgyzstan and Russia.

BIS has added 69 entities to the Entity List under Russia for providing support to Russia’s military and defense sector and determined that these entities are Russian or Belarusian ‘military end users.’ As such, these entities are receiving a Footnote 3 designation that subjects them to the Russia/Belarus-Military End User FDP Rule. These entities are added to the Entity List with a license requirement for all items subject to the EAR. They are added with a license review “policy of denial” for all items subject to the EAR apart from food and medicine designated as EAR99, which will be reviewed on a case-by-case basis.

An Armenian company and a Kyrgyzstan company have been added to the Entity List due to conduct that prevented the successful accomplishment of an end-use check. These two entities are added with a license requirement for all items subject to the EAR and a license review policy of presumption of denial.

Savings Clause

Both Final Rules are effective as of May 19, 2023. However, for the changes being implemented by the rules, shipments of items removed from eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR) as a result of this regulatory action that were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on May 19, 2023, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under the previous eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR), provided the export, reexport, or transfer (in-country) is completed no later than on June 20, 2023.

On May 19, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued an amended Directive 4, “Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation.” The purpose of the amendment is to identify the assets of these Russian financial entities in order to fully map and immobilize holdings of Russia’s sovereign assets “until Russia pays for the damage it has caused to Ukraine.”

A prior version of Directive 4 issued on February 28, 2022 (see Update of February 28, 2022) is superseded in its entirety by this amended version. The amended version continues to prohibit transactions involving U.S. persons and the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation (collectively, “Directive 4 Entities”).

The amended Directive 4 includes a new “Reports” section requiring U.S. persons to report to OFAC any property in their possession or control in which any Directive 4 Entities have an interest. U.S. persons must submit a report to OFACreport@treasury.gov on or before June 18, 2023, and annually thereafter, regarding property in their possession or control with an interest, direct or indirect, of any Directive 4 Entity. OFAC also updated Frequently Asked Questions (FAQs) 998-1002, 1004-1005, and 1118 to reflect the amendment.

Separately, OFAC issued Russia-related General License 13E, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024” (effective until August 17, 2023). Such administrative transactions include paying taxes, fees or import duties and purchasing or receiving permits, licenses, registrations or certifications that are “ordinarily incident and necessary to the day-to-day operations in the Russian Federation” of any U.S. person. Note that General License 8G also allows for limited continued transactions “related to energy” with the Central Bank of the Russian Federation and certain other Russian financial institutions until November 1, 2023.

On May 9, 2023, the Department of Commerce (“Commerce”) published proposed rules (“Proposed Rules”) to amend certain areas in its antidumping duty (AD) and countervailing duty (CVD) regulations to “enhance, improve, and strengthen its enforcement of trade remedies.” Interested parties may submit comments by July 10, 2023.

Commerce’s Proposed Rules cover 22 different topics that are related to its AD and CVD regulations. These proposed modifications are generally intended to clarify and codify certain practices and procedures and “to enhance and strengthen other provisions to enforce the trade remedy laws more effectively.” Key aspects of Commerce’s proposed modifications include:      

  • Particular Market Situation: Commerce proposes to add a new section to its regulations to address its findings of a particular market situation (PMS) that distorts the prices or costs in an exporting country. The Proposed Rules follow various court decisions, including the Federal Circuit’s 2022 NEXTEEL decision which remanded Commerce’s PMS findings to address distortions in the exporting market, and aim to provide guidance as to the legal and evidentiary standards in future PMS findings. For example, the Proposed Rules explain what a PMS is, what information is required for Commerce to make a PMS finding, and provide 12 examples when Commerce might determine the existence of a PMS. These examples include situations where there is significant overcapacity in the production of a significant input used in the production of the subject merchandise or where a state-owned enterprise is directly involved in the production of a significant input used to make the subject merchandise.
  • Transnational Subsidies: Commerce proposes to eliminate the current regulation preventing the consideration of allegations of transnational subsidies, which are subsidies that benefit foreign production. In the Proposed Rules, Commerce explained that the assumptions underlying its previous rules preventing the consideration of transnational subsidies have changed, since it observed in recent years “that instances in which a government provides a subsidy that benefits foreign production are far more prevalent.” If adopted, Commerce would potentially be able to countervail transnational subsidy programs that benefit recipients located outside of the subsidizing country, such as subsidy programs arising from China’s Belt and Road Initiative.
  • Foreign Government Inactions: Commerce also proposed new rules to address foreign government inactions that benefit foreign producers. The Proposed Rules codify Commerce’s practice of determining that countervailable subsidies are conferred by certain unpaid or deferred fees, fines, and penalties. In addition, Commerce also proposes to address distortions resulting from foreign governments’ “weak, ineffective, or nonexistent property, intellectual property, human rights, labor, and environmental protections” on prices and costs of products in antidumping proceedings within the context of selecting surrogate values and benchmarks in non-market economy proceedings.

As noted previously, the deadline for comments is July 10, 2023. This is an important opportunity for companies and business associations to address and comment on these proposed modifications, and Thompson Hine’s international trade team is available to assist with this process.

The Office of the U.S. Trade Representative (USTR) has issued a Notice announcing the continuing extension of Section 301 tariff exclusions for 81 medical products that were scheduled to expire on May 15, 2023. These extensions come after a 75-day extension in February 2023 when USTR sought public comment on whether further exclusions were necessary since “the rates of infection of COVID in the United States continue to fluctuate. … Domestic production of certain products covered by these exclusions also has increased.” See Update of February 3, 2023. The Notice states that the USTR is extending the tariff exclusions for 77 products through September 30, 2023. Exclusions for four medical products will expire on May 31, 2023.

After evaluating the public comments and conferring with the interagency Section 301 Committee and the White House COVID Response Team, the USTR determined that extending the 77 exclusions “is not likely to adversely harm domestic manufacturing of products covered by the exclusions, and extending them through September 30, 2023 will allow the U.S. Trade Representative to consider and align, as appropriate, the exclusions with the results of the statutory 4-year review.” For more information on the statutory review process, see Updates of September 6, 2022 and May 3, 2022.

On May 12, 2023, the plaintiff group in the China Section 301 tariff refund litigation, in response to the recently issued decision by the U.S. Court of International Trade (CIT) upholding those Section 301 tariffs, formally filed its Notice of Appeal. The appeal will be heard by the U.S. Court of Appeals for the Federal Circuit (CAFC). The CIT will formally submit the Notice and the CIT’s docket to the CAFC, which will docket the appeal under its own caption and court number. The CAFC docketing will also trigger various applicable deadlines for parties from the underlying CIT case, including the deadline for the plaintiff group’s opening brief. Thompson Hine LLP will continue to monitor this litigation and report on further developments at the appellate level.

For additional details on the CIT’s recent ruling, see Update of March 20, 2023, as well as the CIT’s remand order, see Update of April 6, 2022. For additional information on the content of the USTR’s remand explanation, see Update of August 2, 2022. See Update of September 15, 2022 for details on the plaintiff group’s comments in response to the USTR’s remand explanation. For additional information on the oral argument in the matter, see Update of February 9, 2023.

On May 5, 2023, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued amended Russia-related General License No. 8G extending the authorization to conduct transactions involving Vnesheconombank, Bank Financial Corporation Otkritie, Sovcombank,  Sberbank, VTB Bank, Alfa-Bank, Rosbank, Bank Zenit, Bank Saint-Petersburg, and the Central Bank of Russia that are related to energy until November 1, 2023. The original General License No. 8, issued on February 24, 2022, had previously been amended to expand the list of Russian financial institutions and was scheduled to expire on May 16, 2023. The term “related to energy” means the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources.

General License No. 8G authorizes energy-related transactions through 12:01 a.m. EST, November 1, 2023, unless renewed.  Certain dealings remain unauthorized under this general license and therefore require close analysis.

For prior updates on this topic, see Updates dated December 15, 2022,  June 14, 2022, April 7, 2022, and February 28, 2022.

On May 5, 2023, the Department of the Treasury’s Office of Investment Security published in the Federal Register a Proposed Rule that would amend the regulations pertaining to certain transactions by foreign persons involving real estate in the United States pursuant to section 721 of the Defense Production Act of 1950, as amended, and implemented by the Committee on Foreign Investment in the United States (CFIUS).  The rule would amend a portion of the CFIUS covered real estate transaction regulations at 31 C.F.R. Part 802 regarding the term “military installations” and revise Appendix A (identifying specific bases, ranges and other installations that meet the CFIUS definition of military installations) to include the eight sites listed below:

  1. Air Force Plant 42, located in Palmdale, California
  2. Dyess Air Force Base, located in Abilene, Texas
  3. Ellsworth Air Force Base, located in Box Elder, South Dakota
  4. Grand Forks Air Force Base, located in Grand Forks, North Dakota
  5. Iowa National Guard Joint Force Headquarters, located in Des Moines, Iowa
  6. Lackland Air Force Base, located in San Antonio, Texas
  7. Laughlin Air Force Base, located in Del Rio, Texas
  8. Luke Air Force Base, located in Glendale, Arizona

These eight bases would be placed under Part 2 of Appendix A that applies to real estate that extends 99 miles outward from the boundaries of these military installations.  These locations are new designations and were not previously listed in Part 1 of Appendix A which applies only to real estate within close proximity (i.e., one mile) from certain military installations.  Once finalized, this rule would increase CFIUS’ jurisdiction and ability to review certain covered real estate transactions involving foreign investment within the “extended range” of these U.S. military installations.

Comments on the proposed rule must be received by June 5, 2023.  Comments may be submitted electronically via the Federal government eRulemaking portal at https://www.regulations.gov.  Electronic submission of comments citing “Provisions Pertaining to Certain Transactions by Foreign Persons Involving Real Estate in the United States.”  Comments may also be submitted via regular mail to U.S. Department of the Treasury, Attention: Meena Sharma, Deputy Director of Investment Security Policy and International Relations, 1500 Pennsylvania Avenue, N.W., Washington, DC 20220.