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.