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U.S. Significantly Expands Russia-Related Sanctions and Export Controls Following G7 Summit

Washington, D.C. (July 9, 2024) - On June 12, 2024, the United States intensified its sanctions and export control measures against Russia, aligning with commitments made by the G7 countries. Specifically, the United States designated more than 300 additional entities — including major supporters of the Russian financial infrastructure — broadened the scope of secondary sanctions applicable to foreign financial institutions, and imposed additional export controls on information technology and software, among other items and services. These actions, coinciding with the 50th G7 summit, significantly expand restrictions aimed at Russia's military operations in Ukraine and implicate new legal and business considerations for U.S. persons and companies with international operations.

I. OFAC Sanctions, Updated Guidance, and General Licenses

A. New Blocking Sanctions Designations

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. State Department designated more than 300 additional individuals and entities for supporting Russia’s military-industrial base and evading existing sanctions. These designations impose blocking sanctions. U.S. persons are broadly prohibited from transacting with designated entities or their property, directly or indirectly, absent an applicable license. Among the 300 newly-designated entities are:

  1. Russian Financial Services Sector: Moscow Exchange (“MoEx”), as well as two subsidiaries, National Clearing Center (“NCC”) and National Settlement Depository (“NSD”) were designated for facilitating investments in Russian entities, including those in the defense sector.
     
  2. Sanctions Evaders: More than 90 non-financial entities across various countries—including Russia, Belarus, the British Virgin Islands, Bulgaria, China, Kazakhstan, Kyrgyzstan, Serbia, South Africa, Turkey, and the United Arab Emirates— have been designated due to their involvement in attempts to circumvent or evade sanctions in supplying critical goods like electronics, technology, and military equipment to Russia through illicit means.
     
  3. Russian Liquefied Natural Gas (“LNG”) Projects: OFAC designated entities supporting three major Russian LNG projects— Obsky LNG, Arctic LNG 1, and Arctic LNG 2 — as well as seven entities and vessels associated with these projects.

B. Expanded Secondary Sanctions & FFIs

Additionally, OFAC published FAQ 1181 and updated guidance expanding the scope of secondary sanctions on Foreign Financial Institutions (“FFIs”). Specifically, the U.S. Department of the Treasury updated its definition of “Russia’s military-industrial base” to include all persons blocked pursuant to E.O. 14024. This definition was previously limited to persons “operating in the technology, defense and related materiel, construction, aerospace, and manufacturing sectors of the Russian Federation economy.” Consequently, OFAC is now authorized to sanction FFIs that provide any service to any entity blocked pursuant to E.O. 14024, unless otherwise authorized — a significant expansion of its secondary sanctions authority.

C. IT and Software Service Prohibitions

Pursuant to a separate Executive Order, E.O. 14071, and in coordination with the U.S. Commerce Department (which promulgated related regulations, as described more fully below), OFAC also issued a new “Prohibition on Certain Information Technology and Software Services” (“IT Determination”), which broadly prohibits the supply to any person in the Russian Federation of (1) Information Technology (“IT”) consultancy and design services; and (2) IT support services and cloud-based services for enterprise management software and design and manufacturing software. The prohibitions become effective at 12:01 a.m. eastern daylight time on September 12, 2024.

Although the new prohibitions are broad, they contain a number of exceptions, and OFAC has provided guidance as to its definitions of affected “enterprise management software,” “cloud-based services,” and “consultancy and design services,” among other terms. See FAQs 1184, 1185, 1186, 1187, 1188. Additionally, OFAC has amended several General Licenses, identified more fully below, to enable certain transactions related to the provision of humanitarian services.

D. New and Updated General Licenses (GLs)

Corresponding with the June 12 designations and other prohibitions, OFAC published several new or updated GLs, which broadly authorize certain transactions with specified entities. The new GLs include the following:

1. General License 98 (GL 98):

  • Authorized Activities: GL 98 permits U.S. persons to engage in certain transactions ordinarily incident and necessary to the wind down of any transaction with specified entities, provided that any payment to a blocked person is made into a blocked account, pursuant to 31 C.F.R. § 587.
  • Duration: GL 99 authorizes such transactions until 12:01 a.m., eastern daylight time, August 13, 2024. After that time, such transactions are no longer authorized, absent renewal of the GL or a specific license provided by OFAC.
  • Applicability: This license applies only to (1) MoEx; (2) NCC; (3) NSD; and (4) any entity in which one or more of these entities owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest.

2. General License 99 (GL 99):

  • Authorized Activities: GL 99 authorizes, with certain restrictions, U.S. persons to engage in transactions necessary to wind down transactions with, or divest, clear, or settle, debt, equity, or other holdings in, MoEx, NCC, or NSD, among other specified activities. OFAC FAQ 1183 provides additional guidance as to the scope of authorized transactions.
  • Duration: GL 99 authorizes such transactions until 12:01 a.m., eastern daylight time, August 13, 2024. After that time, such transactions are no longer authorized, absent renewal of the GL or a specific license provided by OFAC.
  • Applicability: This license applies only to (1) MoEx; (2) NCC; (3) NSD; and (4) any entity in which one or more of these entities owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest.

3. General License 100 (GL 100):

  • Authorized Activities: GL 100 permits U.S. persons to engage in transactions necessary to divest debt, equity, or other holdings to a non-blocked non-U.S. person, involving MoEx, NCC, or NSD acting solely as a securities, trade, or settlement depository, central counterparty or clearing house, or public trading market, subject to certain restrictions.
  • Duration: GL 100 authorizes such transactions until 12:01 a.m., eastern daylight time, August 13, 2024. After that time, such transactions are no longer authorized, absent renewal of the GL or a specific license provided by OFAC.
  • Applicability: Like GL 99, GL 100 authorizes certain transactions involving MoEx, NCC, or NSD. However, its primary authorizations are related to the divestment of debt, equity, or other holdings to a non-blocked non-U.S. person; GL 100 implicates MoEx, NCC, or NSD only insofar as they act as a securities, trade, or settlement depository, central counterparty or clearing house, or public trading market.

In addition to the new GLs, OFAC amended several other previously published GLs, corresponding with the designation of NCC and updated IT Determination. Specifically, GL 8J, which previously authorized certain energy-related transactions, was amended to include NCC. OFAC also amended GL 6D and GL 25D to authorize the provision of certain agricultural and medical or telecommunications services, respectively, following the updated IT determination.

II. Export Control Measures

Coinciding with the Treasury and State Department sanctions, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) implemented extensive export controls on Russia and Belarus in a June 18, 2024, Final Rule and provided updates to other Russia-related actions in a June 12, 2024 press release.

A. BIS Final Rule

The Final Rule includes additional Harmonized Tariff Schedule (“HTS”) code entries, updates to the BIS Entity List, a narrowed Consumer Communications Devices (“CCD”) license exception, and new software restrictions. The Final Rule and related restrictions are effective as of June 12, 2024, with the exception of the EAR99-designated software restrictions, which are effective September 16, 2024.

  1. Additional HTS Codes: The Final Rule expanded the range of items subject to BIS licensing requirements for export, reexport, or transfer (in-country) to or within Russia or Belarus, with the addition of more than 500 HTS codes. Subject items include certain minerals, oil and gas equipment, chemicals, vehicles, manufactured articles, and other items related to the Russian and Belarusian industrial bases. As of June 12, 2024, the export, re-export, and in-country transfer of items that fall within these categories to Russia and Belarus now requires a license from BIS.
     
  2. Entity List Updates and Listing By Address: In addition to placing five new Russian and Chinese entities on the Entity List, BIS, through new authority granted by the Final Rule, identified eight addresses also subject to Entity List restrictions. BIS determined that all eight addresses, which are located in Hong Kong, are associated with significant transshipment of goods to Russia; BIS noted in a press release that its new authority to list addresses enables it to target shell companies that might otherwise change names or utilize multiple corporate identities to avoid export restrictions.
     
  3. Narrowed Consumer Communications Devices (“CCD”): BIS narrowed a license exception for certain CCDs, requiring a BIS export license for exports, re-exports, and in-country transfers of these items to Russia and Belarus. The CCDs no longer subject to the exception include, among other items, certain disk drives and solid-state storage equipment; modems, network interface cards, routers, and switches; graphics accelerators and graphics coprocessors; and digital cameras.
     
  4. Software Restrictions: Effective September 16, 2024, BIS will impose license restrictions for the export of EAR99-designated software to Russia and Belarus, corresponding with the OFAC IT Determination. Consequently, EAR99-designated software such as enterprise resource planning (“ERP”); customer relationship management (“CRM”); business intelligence (“BI”); supply chain management (“SCM”); and computer-aided design (“CAD”) software, among others, will require a license for export, reexport or in-country transfer to or within Russia and Belarus.

B. Additional BIS Actions

In addition to its actions taken pursuant to the Final Rule, BIS announced in the June 12, 2024, press release that it had issued two Temporary Denial Orders (“TDOs”) against Russian procurement networks for violating export controls, restricting their access to U.S. goods. The two TDOs target (1) Turboshaft FZE, Treetops Aviation, Black Metal FZE, Timur Badr, and Elaine Balingit, and (2) Skytechnic, Skywind International Limited, Hong Fan International, Lufeng Limited, Unical dis Ticaret Ve Lojistik JSC, Izzi Cup DOO, Alexey Sumchenko, Anna Shumakova, Branmir Salevic, and Danijela Salevic for the combined export of more than 760 shipments of aircraft parts to Russia. According to BIS, the TDOs “cut off not only the right to export items subject to the EAR from the U.S., but also the ability to receive or participate in exports from the United States or reexports of items subject to the EAR.”

Separately, BIS informed more than 130 U.S. distributors of additional restrictions on shipments to parties known to be supplying items to Russia. These actions, according to BIS, “focused on disrupting the flow of U.S. and foreign-produced electronic components destined to Russia through intermediaries and build on BIS’s ongoing efforts to crack down on shipments of high-priority items to Russia.” BIS further indicated that it would “more extensively target foreign companies who supply U.S.-branded products to Russia” in the future through additions to the Entity List or other actions, even if such items not of U.S.-origin.

Conclusion

These significant new measures from the U.S. Treasury, State, and Commerce Departments underscore the continuing U.S. commitment, in coordination with G7 allies, to escalate economic pressure on Russia amidst the ongoing Russia-Ukraine conflict. Companies with international operations should carefully review these additional sanctions and export controls to ensure compliance and mitigate risks associated with dealings involving Russia and Belarus, both directly and indirectly.

Lewis Brisbois’s attorneys are actively advising clients on managing legal and business risk in the rapidly-developing area of international sanctions and export controls. For more information, contact the author or editors of this alert, and visit our Ukraine Conflict Response Practice page for additional alerts in this area.

Author:

George Leahy, Associate

Editors:

Jane C. Luxton, Managing Partner - Washington, D.C.

Andrew Pidgirsky, Partner and Chair of Ukraine Conflict Response Practice

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