Key Notes:

  • The Executive Order does not change the review process or legal jurisdiction of CFIUS.
  • The Executive Order revises the national security factors for CFIUS to include in its foreign investment review process.
  • The Office of Science and Technology Policy is tasked with publishing lists of technology sectors it assesses are fundamental to U.S. technology leadership and national security.

On September 15, 2022, President Biden issued Executive Order (E.O.) 14083 to elaborate upon existing statutory factors and include additional national security factors the Committee on Foreign Investment in the United States (CFIUS or “Committee”) must consider in its review process of covered transactions. This marks the first time a president has issued a formal presidential directive on CFIUS-related matters since President Carter’s E.O. in 1975 which established the Committee.

The E.O. does not change the Committee’s review process or legal jurisdiction, but it must be considered in conjunction with the national security factors already set out in the CIFUS’s authorizing statute (see Section 721 of the Defense Production Act of 1950, as amended). “The United States welcomes and supports foreign investment,” the E.O. begins. “Some investments in the United States by foreign persons, however, present risks to the national security of the United States, and it is for this reason that the United States maintains a robust foreign investment review process focused on identifying and addressing such risks.”

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On September 30, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated hundreds of Russian individuals and entities and placed them on the Specially Designated Nationals (SDN) List in response to Russia’s illegal annexation of additional Ukrainian territories.

The new designations target 14 suppliers connected to the country’s military-industrial complex, including two international suppliers, as well as three key leaders of Russia’s financial system and 278 members of Russia’s legislature. These entities are, broadly, defense procurement and supplier for Russia’s defense industrial base and Russian technology firms, and the financial leaders are, or were, related to the Central Bank of Russia. The sanctions now also extend to immediate family members of some of Russia’s senior officials, including the wife and two adult children of Russian Prime Minister Mikhail Mishustin. Additional identifying information and details on the entities sanctioned is available here.

“We will not stand by as Putin fraudulently attempts to annex parts of Ukraine,” Treasury Secretary Janet Yellen said in a press release announcing the new designations. She added that the United States will continue “our aggressive and coordinated effort to hold Putin and his enablers accountable for his unprovoked invasion, and limit their ability to prop up their economy.”

In addition to updating the SDN List, OFAC also issued Frequently Asked Question (FAQ) 1091 to provide new guidance about the heightened sanctions risk international actors outside of Russia could face if they provide material assistance, sponsorship, financial, material, or technological support for, or goods or services to sanctioned persons or activities involving Russia’s military and defense industrial base. This includes efforts to circumvent sanctions on Russia and Belarus.

Overall, OFAC’s actions were part of a joint effort, in conjunction with the Department of Commerce and the Department of State, to undermine Russia’s ability to wage war against Ukraine; the Department of Commerce added 57 entities to the Entity List (see Update of October 3, 2022), while the Department of State imposed visa restrictions on 910 individuals, including members of Russia’s military and proxy fighting force in Ukraine, and Belarussian military officials.

On September 30, 2022, in response to Russia President Vladimir Putin’s illegal effort to annex further Ukrainian territory, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Rule that added 57 entities located in Russia and the Crimea region of Ukraine to the Entity List for supporting the Russian military’s continuing assault on Ukraine. BIS stated that with these new listings, the number of entities added to the Entity List for activities related to Russia’s invasion of Ukraine in February 2022 now totals 392.

BIS noted that the new entities added to the Entity List were identified as acquiring or attempting to acquire U.S.-origin items in support of Russia’s military, and others for their involvement in the development of quantum computing technologies, which would further enable Russia’s malicious cyber activities.

The addition of these 57 new entities to the Entity List means these entities are subject to a license requirement – with review by BIS under a “policy of denial,” with no license exceptions available – for the export, reexport, , or transfers (in-country) of all items subject to the Export Administration Regulations (EAR) (including items described under the Russia/Belarus foreign direct produce rule) destined to these entities.

This Final Rule is effective as of September 30, 2022.

Application of ‘Military End User’ Controls to Third Country Entities

Further, and as a result of Russia’s continued aggression against Ukraine, BIS has published guidance in the form of a FAQ that “makes clear that it is prepared to aggressively apply the export controls imposed in response to Russia’s war of aggression against Ukraine against any entities, both inside and outside of Russia, that seek to provide material support for Russia and Belarus’s military and industrial sectors.” This FAQ states that the ‘military end user’ controls of the EAR have been expanded to allow BIS to designate entities in third countries – not just entities within Russia or Belarus – that support ‘military end uses’ in Russia or Belarus as ‘military end users’ on the Entity List. This revision was made in early September 2022 (see Update of September 16, 2022) to “discourage companies or government entities in third countries from backfilling and providing items needed by the Russian and Belarusian military and industrial sectors.” Entities in third countries designated on the Entity List as Russian ‘military end users’ will have a footnote 3 designation in the license requirement column. This restriction includes not only U.S.-origin items or items located in the United States, but also certain foreign-produced items.

On September 29, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned a network of international companies for facilitating the sale of hundreds of millions of dollars’ worth of Iranian petrochemicals and petroleum products to South and East Asia. OFAC targeted the network, which includes a myriad of front companies in the United Arab Emirates, Hong Kong, and India, not only for concealing the origin of the Iranian shipments, but also for enabling two sanctioned Iranian brokers, Triliance Petrochemical Co. Ltd. (Triliance) and Persian Gulf Petrochemical Industry Commercial Co. (PGPICC), to transfer funds and ship Iranian petrochemicals and petroleum.

The sanctions were imposed pursuant to Executive Order (E.O.) 13846 and follows numerous recent actions by OFAC to target evasive networks supporting the sale of Iranian petrochemical and petroleum products. In fact, in 2020, E.O. 13846 was the basis for designating Triliance for “having materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of” an Iranian oil company sanctioned even earlier by OFAC. PGPICC, meanwhile, was designated a year prior, in 2019, pursuant to E.O. 13382.

Although the action represents a commitment to “severely restrict[] Iran’s illicit oil and petrochemical sales…[and] will continue on a regular basis,” OFAC noted the sanctions “are reversible in the event of Iran’s return to JCPOA compliance”, referencing the multi-country 2015 Joint Comprehensive Plan of Action.  In announcing the sanctions, OFAC also expressed “concern[] about a wide range of Iranian policies, from their nuclear program, to abuses perpetrated against their own people, to supporting Russia’s war of aggression against Ukraine with drones and military training, and destabilizing activities across the region.”

Additional identifying information and details on the entities sanctioned are available here.  All property and interests in property of these newly designated Specially Designated Nationals (SDN) List entities 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 otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt.

On September 28, 2022, the Coalition of Freight Coupler Producers – McConway & Torley LLC and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union (Petitioners) – filed petitions with the U.S. Department of Commerce (Commerce) and the U.S. International Trade Commission (ITC) seeking antidumping and countervailing duties on imports of freight rail couplers (FRC) and parts from the People’s Republic of China (PRC) and Mexico.

These petitions follow antidumping and countervailing investigations instituted at the request of the Petitioners in September 2021 concerning imports of FRC systems and components from the PRC. Those investigations resulted in an ITC negative injury finding in July 2022 and no trade remedy duties when the ITC determined that the domestic industry was not materially injured or threatened with material injury by reason of imports of subject merchandise because, inter alia, there was no casual nexus between subject imports and the domestic industry’s declining performance during the period of investigation.

In the petitions filed this week, the Petitioners allege that imports of subject merchandise from the PRC and Mexico are being or likely to be sold at less than normal value in the United States and that imports from the PRC benefit from countervailable subsidies, causing material injury to the domestic FRC industry and threatening further material injury if trade remedy duties are not imposed. The Petitioners allege a dumping margin of more than 115% and 165% for imports from China and Mexico, respectively. The Petitioners also allege that Chinese FRC producers are benefiting from more than 30 subsidy programs.

Notably, these petitions include a modified proposed scope covering FRCs and parts, including certain knuckles and bodies, that meet or exceed the AAR specifications of M-211, “Foundry and Product Approval Requirements for the Manufacture of Couplers, Coupler Yokes, Knuckles, Follower Blocks, and Coupler Parts,” and/or AAR M-215, “Coupling Systems,” or other equivalent domestic or international standards (including any revisions to the standard(s)). For a copy of the proposed scope, please contact us.

Commerce will determine by October 18, 2022, whether to formally initiate the investigations, and, if it does, the ITC will decide 25 days after that whether there is a reasonable indication of material injury or threat of material injury to the domestic FRC industry and whether the investigations should be continued or terminated.

On September 23, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a revised Iran General License (GL) D-2 which authorizes the export, reexport by U.S. persons to Iran of certain services, software and hardware incident to communication. The purpose of the revised GL is to bring this OFAC guidance on Iran in line with the changes in modern technology since the issuance of Iran GL D-1 in 2014. OFAC announced that these changes are also, in part, due to the Iranian government’s recent restrictions and removal of access to its citizens to the Internet. As a result, the United States “is taking action to support the free flow of information and access to fact-based information to the Iranian people. The updated guidance will authorize technology companies to offer the Iranian people more options of secure, outside platforms and services.”

The expanded GL D-2 covers in its scope the following key issues:

  • Removes the requirement that the scope of the GL is limited to and verified as for communications that are “personal” in nature, in line with similar licenses in other OFAC programs. Where the more restrictive term “exchange of personal communications” previously existed in this GL, it has generally been replaced with the term “exchange of communications.”
  • For both fee-based or no-cost services and software, adds further technology to cover social media platforms, collaboration platforms, video conferencing, and cloud-based services in support of such services, as well as tools that incorporate communication functions and are often included with authorized items or services (e.g., online maps, e-gaming, e-learning platforms, automated translation, web maps, and user authentication services). Note: The previous version of this GL covered only instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging.
  • For Internet connectivity servers and telecommunications capacity, removes the term “consumer-grade Internet connectivity services” and replaces it with “non-commercial-grade Internet connectivity services, to include cloud-based services” in order to assist Iranians “in resisting repressive internet censorship and surveillance tools deployed by the Iranian regime.”
  • Under the section for specific licensing policy, continues to note that OFAC licenses will be considered on a case-by-case basis, but clarifies that this includes activities “to support internet freedom in Iran, including development and hosting of anti-surveillance software by Iranian developers” in order to allow such developers to create “homegrown anti-surveillance and anti-censorship apps, which many Iranian people rely upon to circumvent domestic internet controls.”

OFAC also issued several new Iran-related FAQs to assist in determining the scope and applicability of “cloud-based” services and software.

The categories in the Annex to GL D-2 have not changed and continue to cover the export, reexport or provision of certain services to Iran for mobile and satellite phones; consumer modems, routers, switches and related electronics; residential consumer satellite terminals and related equipment; laptops, tablets and other personal computing devices and peripherals; anti-virus and anti-malware software; anti-tracking software; mobile operating systems and related software; anti-censorship tools and related software; Virtual Private Network (VPN) client software; and related software. Separately, OFAC stated that in order to support Internet freedom in Iran, persons seeking to export items to Iran or conduct other activities in support of Internet freedom in Iran that are not authorized by GL D-2 or other authorizations “are encouraged to submit a specific license application to OFAC.”

On September 21, 2022, after a year-long Section 232 investigation, the Department of Commerce’s Bureau of Industry and Security (BIS) announced that rare earth neodymium-iron-boron (NdFeB) magnet imports threaten national security. The investigation was initiated in September 2021 due to concerns that “critical national security systems rely on NdFeB permanent magnets, including fighter aircraft and missile guidance systems. In addition, NdFeB permanent magnets are essential components of critical infrastructure, including electric vehicles and wind turbines. The magnets are also used in computer hard drives, audio equipment, and MRI devices.” (See Update of September 28, 2021). While the full report concludes that NdFeB magnets are essential to national security and imports from China of NdFeB magnets constitute a national security threat — a finding that President Joseph Biden endorsed in his review of the report — Section 232 tariffs will not be implemented.

The public version of the report found that the People’s Republic of China (China) over the last three decades has essentially captured the entire supply chain — with nearly 60 percent of mined production, over 85 percent of processing capacity, and over 90 percent of permanent magnet production. The report also noted that U.S. consumption of these magnets, driven by increased demand from electric vehicles and wind energy industries, will likely double in the next decade. Despite these findings, the Biden administration intends to implement various Department of Commerce recommendations in lieu of tariffs on these imports. These recommendations include:

  • Bolstering domestic production and supply of NdFeB magnets;
  • Supporting domestic demand by developing a strategy for domestic recovery and reprocessing these magnets;
  • Engaging with allies and partners on supply chain resilience for critical minerals;
  • Supporting the development of a highly-skilled domestic workforce for qualified and experienced engineers, scientists and production line workers; and
  • Supporting research to mitigate supply chain vulnerabilities.

In addition, to ensure continued support for the domestic NdFeB magnet industry faced with unfair competition from China, the Department of Commerce and the Office of the U.S. Trade Representative (USTR) will continue to monitor the supply chain to determine whether additional actions should be undertaken to counteract non-market policies or practices or other unfair trade practices.

Due to heavy U.S. dependence on these magnet imports, the report notes, the Department of Commerce was not recommending the implementation of tariffs, quotas or other import restrictions. The report states that, “[g]iven the current severe lack of domestic production capability throughout the magnet supply chain, tariffs and quotas would have an adverse impact on consuming sectors and might incentivize businesses to move operations incorporating NdFeB magnets offshore.”

All U.S. persons and persons otherwise subject to U.S. jurisdiction, not only U.S. financial institutions, holding property blocked pursuant to various OFAC sanctions programs must file their annual reports on such blocked property by September 30, 2022. This report is pursuant to  31 C.F.R. §§ 501.603. This report must include all blocked property held as of June 30, 2022, and must be filed by September 30, 2022. Filers must use OFAC spreadsheet form TD-F 90-22.50. OFAC has also prepared a guide for filing the 2022 annual reports.

What Is Blocked Property?

All property and interests in property of any person designated by the Office of Foreign Assets Control (OFAC) to the Specially Designated Nationals and Blocked Entities List (SDN) or any person owned 50% or greater by an SDN entity that is in the United States, comes within the United States or comes within the possession and control of U.S. persons is blocked. Property of persons subject to certain other sanctions may also be blocked under the terms of the sanctions. U.S. persons are prohibited from directly or indirectly dealing in or with blocked property. Blocked property and interests in property is defined broadly to include not only tangible and intangible property but also accounts payable, invoices, contracts and other intangible items in which a blocked person holds an interest.

What Does Not Have to Be Reported?

OFAC notes that the following property should not be reported:

  • Property that has been unblocked by general or specific OFAC license is not blocked property.
  • Property that has been unblocked because the blocked person originally associated with the property was no longer blocked before July 1, 2022.
  • Property that has been unblocked as a result of an OFAC sanctions program being terminated (e.g., 31 C.F.R. part 537 (Burma), 31 C.F.R. part 543 (Côte d’Ivoire)) and is not currently blocked under any active sanctions program administered by OFAC.
  • Restricted “Iranian accounts,” as defined in OFAC’s regulations, should not be reported to OFAC on the annual report unless they are otherwise blocked.

Annual reports may be filed using the OFAC Reporting System (ORS), a publicly accessible electronic reporting platform for submitting reports on blocked property. To register for access, filers should email OFACReport@treasury.gov and include the name of the reporting institution and the names and emails of the primary point of contact and any other person authorized to file reports​. Currently, the use of ORS remains voluntary. If the ORS is unavailable, or if filers prefer, completed forms may be sent to via email to OFACReport@treasury.gov.

On September 9, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) published preliminary guidance on how the United States, in coordination with the other G7 members, will implement a price cap on services related to the maritime transportation of Russian-origin crude oil and petroleum products. OFAC’s preliminary guidance reflects the joint statement issued from the G7 Finance Ministers Meeting of September 2, 2022, which confirmed the coalition’s intention to implement a maritime services policy against Russia for its invasion of Ukraine (see Update of September 6, 2022).

OFAC anticipates that this price cap will be implemented by issuing a determination pursuant to Executive Order 14071 (“Prohibiting New Investment In And Certain Services To The Russian Federation in Response to Continued Russian Federation Aggression”), which will (i) permit the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of services related to the maritime transportation of seaborne Russian oil, if the seaborne Russian oil is purchased at or below the price cap and (ii) prohibit such services if the seaborne Russian oil is purchased above the price cap. In essence, the framework will be implemented as a ban, from which there will be an exception for services related to Russian seaborne oil purchased at or below the cap. The price cap will not undo the prohibition on the importation of Russian oil into the United States that went into effect pursuant to Executive Order 14066 (see Update of March 9, 2022). However, U.S. persons will be authorized to provide maritime transportation services related to Russian seaborne oil that is being sold below the price cap for use elsewhere.

OFAC announced the price cap on Russian crude oil will take effect on December 5, 2022, while the price cap on other Russian petroleum products will take effect on February 5, 2023. Although the guidance acknowledged that the G7 has not yet reached a consensus on setting the price cap, OFAC expressed confidence that the policy will “reduce the revenues the Russian Federation earns from oil after its own war of choice in Ukraine [that] has inflated global energy prices.”

The guidance states that the price cap program will include a recordkeeping and attestation process that allows each party in the supply chain of seaborne Russian oil to demonstrate or confirm that oil has been purchased at or below the price cap. Parties who conform to this recordkeeping and attestation process will have a safe harbor if it is discovered that they inadvertently provided services related to the purchase of seaborne Russian oil above the price cap due to falsified records provided by those who act in bad faith and make material misrepresentations.

OFAC also provided examples of red flags for evasion of the price cap, including:

  • Evidence of deceptive shipping practices;
  • Refusal or reluctance to provide requested price information;
  • Unusually favorable payment terms, inflated costs, or insistence on using circuitous or opaque payment mechanisms;
  • Indications of manipulated shipping documentation, such as discrepancies of cargo type, voyage numbers, weights or quantities, serial numbers, shipment dates, etc.;
  • Newly formed companies or intermediaries, especially if registered in high-risk jurisdictions; and
  • Abnormal shipping routes.

The guidance concludes by noting that additional details and red flag guidance will be provided in the future and by advising service providers to remain vigilant and “review the information available to them for potential red flags” indicative of deceptive, sanctionable, or illicit maritime trade.

On September 15, 2022, the Department of the Treasury and Department of Commerce took additional actions to sanction entities and individuals furthering Russia’s aggression against Ukraine and to tighten export controls targeting Russia’s military and defense capabilities.

OFAC Additions to the SDN List

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced the designation of numerous Russian individuals and entities to the Specially Designated Nationals (SDN) List, as well as providing revisions and updates involving other previously designated Russian persons and entities. The additions and changes to the SDN List are available here. All property and interests in property of these newly designated SDN List entities 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 otherwise blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt.

One of the newly listed entities is the Limited Liability Company Group of Companies Akvarius (aka LLC Gruppa Akvarius), a Russian electronics company that manufactures more than one million electronic devices annually, including secure smartphones for Russia’s military and intelligence agencies. However, in order to allow U.S. persons to engage in transactions ordinarily incident and necessary to the wind-down of transactions involving this Russian entity, OFAC has issued General License (GL) No. 51. This GL will remain in effect until October 15, 2021; certain dealings remain unauthorized under this general license and, therefore, potential dealings with this entity require close analysis.

These new designations were made in consultation with the Department of State, which issued a helpful fact sheet providing additional information on these designated individuals and entities. OFAC has also published a Frequently Asked Question (FAQ) to provide additional guidance on the heightened risk of facilitating Russia’s efforts to evade sanctions through the expanded use of the National Payment Card System (NSPK) or the Mir National Payment System, given the broad sanctions which have been imposed on Russia’s financial system.

BIS Imposes New Export Controls on Russia and Belarus

The Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Rule imposing new export controls, including expanding the scope of the Russian industry sector sanctions, to add lower-level items potentially useful for Russia’s chemical and biological weapons production capabilities and items needed for advanced production and development capabilities to enable advanced manufacturing across a number of industries. This rule also adds Belarus to the scope of industry sector sanctions that have previously only applied to Russia due to concerns of diversion from this country to Russia. In implementing these new controls, BIS has added Supplement No. 6 to Part 746 for items that are otherwise designated as EAR99 but have the potential to be useful for Russia’s development of chemical and biological weapons. These items consist of discrete chemicals, biologics, fentanyl and its precursors, and related equipment and BIS has specified Chemical Abstract Numbers (CAS) where applicable.

The rule also revises and refines existing controls on Russia and Belarus to more closely align with the export controls implemented by allied countries by adding additional dollar value exclusion thresholds for certain “luxury goods” identified in Supplement No. 5 to Part 746. BIS has revised the “10-Digit Commodity Description and Per Unit Wholesale Price in the U.S. if Applicable” column in Supplement No. 5 (in those entries in which such information is applicable) to add additional dollar value exclusion thresholds. BIS determined its earlier dollar value exclusions were more permissive than those implemented by allies; however, even with these revisions, certain luxury goods entries continue to not warrant a dollar value exclusion and those entries remain unchanged by this rule.

This Final Rule also broadens the “military end user” and “military-intelligence end user” controls under the Export Administration Regulations to “more effectively target” military and/or military-intelligence support for Russia and Belarus by expanding: (i) the “is informed” provisions for entities acting contrary to U.S. national security and foreign policy interests under § 744.11; (ii) the “military end user” controls under § 744.21 to reach Belarusian, Burmese, Cambodian, Chinese, Russian, and Venezuelan military end users located anywhere in the world; (iii) and the “military-intelligence end user” controls under § 744.22 to also reach Belarusian, Burmese, Cambodian, Chinese, Russian, and Venezuelan military-intelligence end users or military-intelligence end users of countries in Country Group E:1 or E:2, wherever located. As a result of this broadening of terms, BIS has revised the Entity List to designate six entities under the destinations of China, Lithuania, Russia, the United Kingdom, Uzbekistan, and Vietnam.

This Final Rule is effective as of September 15, 2022.