Significant new U.S., UK and EU measures mark anniversary of Russia’s invasion of Ukraine

The governments of the United States and the United Kingdom announced new measures, on 24 February 2023, the one-year anniversary of Russia’s war against Ukraine.

United States

The U.S. government issued a significant new package of trade control measures targeting Russia. These include actions taken by the Treasury, State, and Commerce Departments.  A summary of key measures follows:

Treasury sanctions

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has imposed several new sanctions measures, effective immediately, including the following:

1. OFAC Determination Targeting Metals and Mining Sector in Russia – OFAC has issued a new determination under Executive Order 14024 (the Determination) authorizing asset-freezing sanctions (i.e. designation to the Specially Designated Nationals (SDN) List) on any person determined by the Secretary of the Treasury in consultation with the Secretary of State to operate or have operated in the metals and mining sector of the Russian economy.  The Determination does not automatically impose sanctions on all persons operating in the targeted sector, but provides the U.S. government with the authority to impose sanctions on such persons (see OFAC’s new FAQ 1116). Using this new authority, OFAC designated four entities for operating or having operated in the metals and mining sector of Russia, which are identified below, and may designate additional such entities in the future.

   • Per OFAC’s new FAQ 1115, OFAC anticipates publishing regulations defining the term “metals and mining sector of the Russian Federation economy” to include any act, process, or industry of extracting, at the surface or underground, ores, coal, precious stones, or any other minerals or geological materials in the Russian Federation, or any act of procuring, processing, manufacturing, or refining such geological materials, or transporting them to, from, or within the Russian Federation.

   • Per OFAC’s new FAQ 1117, OFAC does not intend for the Determination to target persons operating in the metals and mining sector where such activities are “solely for the safety and care of personnel, protection of human life, prevention of accidents or injuries, maintenance or repair necessary to avoid environmental or other significant damage, or activities related to environmental mitigation or remediation.  Examples of such goods include personal protective equipment, safety devices, ventilation systems, and alarm systems; examples of such services include rescue and accident response services, cleaning, safety inspections, and services necessary for use of the goods described above.”  OFAC has also clarified in this FAQ that non-U.S. Persons generally would not risk exposure under the Determination for engaging in transactions with blocked persons where those transactions would not require a specific license if engaged in by a US Person (e.g., transactions that are authorized under general licenses).

2. New SDN Designations – OFAC designated as SDNs 22 individuals and 83 entities, including major Russian financial institutions.  U.S. Persons are now prohibited from engaging in virtually all transactions with these designated entities unless licensed or otherwise authorized, and the assets of designated persons that come within the control of US Persons are subject to blocking.  These restrictions also apply to entities owned 50% or more by designated persons. A full list of the new designations is available here and key designations are summarized below.

   • Bank designations

     • OFAC has designated the following Russian banks for operating or having operated in the Russian financial services sector:

       1. Credit Bank of Moscow Public Joint Stock Company

       2. Joint Stock Company Commercial Bank Lanta Bank

       3. Public Joint Stock Company Commercial Bank Metallurgical Investment Bank (Metallinvestbank)

       4. Public Joint Stock Company MTS Bank

       5. Novosibirsk Social Commercial Bank Levoberezhny Public Joint Company

       6. Bank Saint-Petersburg Public Joint Stock Company

       7. Joint Stock Commercial Bank Primorye

       8. SDM-Bank Public Joint Stock Company

       9. Public Joint Stock Company Ural Bank for Reconstruction and Development (UBRD)

       10. Public Joint Stock Company Bank Uralsib

       11. Bank Zenit Public Joint Stock Company

     • General licenses – OFAC has issued three general licenses (GLs) in relation to the designation of the Russian banks listed above, including:

       1. GL 60 -  authorizing the wind down and rejection of transactions involving certain newly designated financial institutions through 12:01 a.m. eastern daylight time, 25 May 2023.

       2. GL 61 - authorizing the wind down of certain securities and derivatives transactions involving certain newly designated financial institutions through 12:01 a.m. eastern daylight time, 25 May 2023.

       3. GL 8F - adding certain newly designated financial institutions to the authorization to process certain energy-related transactions.

• • Mining sector designations

    • OFAC has designated four entities for operating or having operated in the metals and mining sector of Russia:

      1. Joint Stock Company Burevestnik Central Scientific Research Institute

      2. OOO Metallurg-Tulamash

      3. TPZ-Rondol OOO

      4. Mtsenskprokat

• • Russian sanctions evasion designations.  OFAC has made designations of various entities and individuals for their roles in Russia’s sanctions evasion efforts, including third-country nationals and companies.  These designations include arms dealers and persons engaged in illicit financial activity.

• • Russian military supply chain designations.  OFAC has made designations of various individuals and entities connected to Russia’s defense industry or for supporting Russia’s war against Ukraine.

3. GL 13D and Exit Taxes for Divestment – OFAC has issued GL 13D, an extension of GL 13C authorizing U.S. Persons or their owned or controlled entities to pay taxes, fees, import duties, or purchase or receive permits, licenses, registrations, or certifications where such transactions would otherwise be prohibited for involving the Central Bank of Russia, National Wealth Fund of Russia, and Ministry of Finance of Russia, provided such transactions are ordinarily incident and necessary to the day-to-day operations in Russia of U.S. Persons.  GL 13D is valid until 6 June 2023. 

   • OFAC has issued a new FAQ 1118 clarifying that the payment of a so-called “exit tax” prior to the divestment of assets located in Russia, potentially requiring transactions involving the Central Bank of Russia or the Ministry of Finance of Russia, is not authorized by GL 13D.  U.S. Persons whose divestment will involve an exit tax payment may require a license from OFAC.

4. Actions by the Financial Action Task Force (FATF) – The U.S. Department of the Treasury Secretary Janet L. Yellen also announced that FATF, the international standard-setting body on illicit finance, suspended Russia from its membership, which had been active since 2003. This is the first time the international organization ever has suspended a member. 

The suspension is less extreme than blacklisting Russia and officially introduces no new obligations on businesses or financial institutions that deal with the Russian market.  Nevertheless, FATF’s suspension of Russia took place on the same day that the U.S. announced additional sanctions against Russian entities and individuals, requiring significant risk analysis and due diligence on the part of the few banks and business still serving the Russian market. Recall that U.S. sanctions prohibit U.S. Persons from transacting with those who have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” SDNs.  Accordingly, major international banks may decide to de-risk and not process any Russian-related payments at all and, anecdotally over the past week, have started debanking significant waves of Russian nationals living outside of Russia.

In the FATF’s view, Russia remains accountable for its obligation to implement the FATF Standards, and could be eligible for readmission to the membership after it pays membership dues incurred during its suspension.  

State Department sanctions

The State Department is sanctioning various individuals and entities pursuant to EO 14024 for being members of the Russian Government, for operating in the targeted financial services or defense and related materiel sectors of Russia, or for otherwise facilitating the war in Ukraine.  As a result, designated persons have been added to the SDN List. Such designated persons and entities owned 50% or more by such persons are subject to asset-blocking sanctions and transactions involving a U.S. nexus with such persons is generally prohibited.   For a full list of those designated, see the State Department fact sheet here. 

The State Department is also imposing visa restrictions on 1,219 members of Russia’s military for actions that threaten the independence of Ukraine, and designating Russian Federation military officials, Artyom Igorevich Gorodilov, Aleksey Sergeyevich Bulgakov, and Aleksandr Aleksandrovich Vasilyev, under Section 7031(c) of the Department of State, Foreign Operations, and Related Programs Appropriations Act, 2023.  These individuals and their immediate family members are ineligible for entry into the U.S. as a result. 

Commerce Department controls

The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has imposed new export control measures, effective immediately, including the following:

1. Expansion of Industry Sector Sanctions and Luxury Goods Sanctions – BIS is expanding the scope of the Russian industry sector and luxury good sanctions by adding additional items to the lists of items controlled for export, reexport and transfer to Russia and Belarus.  This action was taken to align with sanctions imposed by US partners and allies.  BIS has also made revisions to the EAR to clarify the scope of the restrictions and understanding of items that are restricted.  Key changes include:

   1. Expansion to Supplement No. 2 (oil and gas production items) to Part 746 to expand the items captured to include any modified or designed components, parts, accessories, and attachments of listed items, regardless of HTS Code or HTS Description.

   2. Expansion of Supplement No. 4 (commercial and industrial items) to Part 746 by adding 322 items to the list of industrial items requiring a license for export to Russia or Belarus.  The items added include a variety of electronics, industrial machinery, and equipment. 

   3. Expansion of Supplement No. 6 (chemical and biological precursors) to Part 746 by adding certain items and certain components, parts, and accessories to previously listed items.

   4. Expansion of Supplement No. 5 to Part 746 by adding 267 additional luxury good items that will require a license for Russia or Belarus or designated Russian and Belarusian persons.  Newly added items include many common consumer commodities, including smartphones, telephone sets, modems, microwaves, and toasters.

   5. Clarification that the exception from the license requirement for items controlled under ECCN 5A992 and 5D992 that applies to certain U.S. and Country Group A:5 or A:6 entities in Russia or Belarus also applies for the luxury items license requirement.

   6. Imposition of a case-by-case license review policy for applications of the disposition of items by companies curtailing or closing operations in Russia or Belarus.  BIS seeks to encourage companies to exit Russia and Belarus with this new policy by facilitating the orderly exit from Russia and Belarus.

2. Export control restrictions to address Iranian UAVs – BIS is imposing new export control measures on Iran to address the use of Iranian unmanned aerial vehicles (UAVs) by Russia in the war against Ukraine.  A BIS license requirement is now required for specific EAR99 items that can be used in UAVs that are destined to Iran, regardless of whether a U.S. Person is involved in the transaction.  The specific items controlled are identified by HTS code in a newly added Supplement no. 7 to Part 746 of the EAR.  The rule also adds a new foreign direct product (FDP) rule specific to Iran that applies to certain items controlled on the Commerce Control List (CCL) Categories 3-5 or Category 7 and EAR99 items identified in supplement No. 7, to ensure that these foreign produced items are subject to the EAR when destined for Iran.  The rule also revises the existing Russia/Belarus FDP rule to cover EAR99 items that can be used in UAVs to ensure such items are not available for shipment to Iran for use in manufacture of UAVs used by Russia. 

3. Designations to the Entity List – BIS is designating 10 third-country entities to the Entity List for their role in supporting Russia and designating 76 entities under the destination of Russia to the Entity List.

New or additional tariffs on Russian products Imported into The United States

In addition to the sanctions and export control measures described above, the White House  announced proclamations to raise tariffs on certain Russian products imported to the United States.  These measures are designed to target key Russian commodities that generate revenue for the Russian government.  The action will result in increased tariffs on over 100 Russian metals, minerals, and chemical products worth approximately $2.7 billion.  It is also anticipated to increase costs for aluminum smelted or cast in Russia to enter the US market.

1. Section 232 Proclamation to Increase Tariffs on Russian Aluminum to 200%: On 24 February 2023, the President signed a Proclamation further modifying the 2018 Section 232 tariffs on aluminum, stating that:

   • beginning 10 March 2023 there will be a 200% tariff on Russian aluminum imported into the United States, including derivative products, and,

   • beginning on 10 April 2023 aluminum articles and aluminum derivatives imported into the United States from other countries that used any primary aluminum from Russia, or cast in Russia, will also be tariffed at 200%, unless those third countries also impose 200% tariffs on imported Russian aluminum. 

   • Additionally, under the Proclamation, subject aluminum products will not eligible for in-quota treatment for any quota or tariff-rate quota under Section 232 duties, or eligible for General Approved Exclusions as set forth in 15 CFR 705, Supplement No. 3. Also subject aluminum product imported into a foreign trade zone (FTZ) under privileged foreign status are subject to the 200% section 232 duties upon entry for consumption.

2. Proclamation to Increase Tariffs on More Than 100 Russian Metal, Mineral, and Chemical Products:  In a second Proclamation, issued under the Suspending NTR Act, the President increased the Column 2 duty rate for over 100 metal, mineral, and chemical products from Russia from between 35 to 70 percent.  The new tariffs, which cover $2.8 billion in traded goods,  follows the United States’ previous suspension of its Normal Trade Relations with Russia and Belarus on 8 April 2022 through both legislative act and Presidential proclamation. (This Proclamation does not apply to products of Belarus.) The original 2022 action increased the Column 2 duty rates for certain products to 35 percent. Today’s action is much broader in terms of covered products and includes products that were not previously subject to tariffs.

   • The HTSUS codes that are now subject to 35% Column 2 duty rate per revised Chapter 99, U.S. Note 30 (b) of the HTSUS (in addition to previously designated codes listed in in Note 30 (b)) cover mineral and mining products such as certain i) mineral ores, ii) carbon, hydrogen, and calcium products, iii) hydroxide, nitrates, rare-earth oxides or chlorides, and iv) diamonds, platinum, and  nickel.  Additionally, motor vehicle bumpers made of aluminum and steel are covered by this tariff rate increase.

   • Further, certain HTSUS codes (certain of which previously had been increased to 35% as a result of the 27 June 2022 action) are now subject to 70% Column 2 duty rate in newly added Chapter 99, U.S. Note 30 (c) and (d) of the HTSUS.  These tariff codes cover, among others, i) a large number of primary iron and steel materials, ii) certain manufactured or processed steel and iron products such as tubes, pipes, casings, tube and pipe fittings, iii) refined copper and copper foil, iv) unwrought aluminum, aluminum bars, and other aluminum structures, v) unwrought lead, and vi) other base metal materials such as titanium.

   • These new tariffs on metals, mineral and chemicals will be effective with respect to goods entered for consumption, or withdrawn form warehouse for consumption, on or after 12:01 am EST 1 April 2023.  

   • The Suspending NTR proclamation includes some aluminum products, which are also covered by the Section 232 aluminum proclamation, and therefore additionally subject to the 200% tariff rate, resulting in some products subject to 270% accumulated tariffs.

United Kingdom

Designations

The new designations include 80 individuals and 12 entities.

Designations include four Russian banks, Bank Saint Petersburg PJSC, Bank Uralsib PJSC, MTS Bank PJSC and Bank Zenit PJSC, and six entities involved in the manufacture or repair of military equipment for Russia’s armed forces, AO Izumrud, LLC Zavod Sokol, AO Zavod Elekon, JSC Zvezda, JSC Rembaza, and JSC Lomo. Designated individuals include executives at Rosatom, Rostec and Almaz-Antey, as well as Gazprom and Aeroflot. However, for completeness noting that Gazprom and Rosatom are not themselves listed. Four Russian elites, Alexei Gennadyevich Dyumin, Alexey Nikolaevich Kozak, Matthias Artur Warnig, and Lyubov Mikhailovna Kabaeva, associated with the Kremlin, have also been designated as well as five senior Iranian executives in Qods Aviation Industry, a company manufacturing drones. The full list of designations can be found here.

Trade measures

The Foreign Secretary also announced new trade measures, including export bans on hundreds of goods, which will include aircraft parts, radio equipment, and electronic components, including those used in the production of UAVs. According to a press release issued by the UK Government, this restriction is aimed at banning exports on every item Russia has been found using on the battlefield to date. The UK will also ban the import of 140 goods including iron and steel products processed in third countries. These measures have not yet come into force.

The UK has also announced that it will be extending existing measures against Crimea, and non-government controlled territory in Donetsk and Luhansk oblasts, to target Russian controlled areas of Kherson and Zaporizhzhia oblasts, restricting their access to UK trade and finance. These measures have not yet come into force.

European Union

The EU 10^th package of sanctions against Russia include: (1) an export ban on certain rare earths and compounds, electronic integrated circuits, photographic cameras, aviation and space industry items, and other industrial goods; (2) a prohibition to transit dual-use items through Russia; (3) an import ban on bitumen and related materials like asphalt, carbon blacks and synthetic rubber; (4) the broadcasting ban is extended to RT Arabic and Sputnik Arabic; (5) additional reporting obligations for Russian Central Bank assets; (6) a prohibition on Russian persons to hold governing positions in EU critical infrastructures and entities; (7) restriction on the provision of gas storage to Russian persons; (8) additional authorisations and exemptions related to listed State Owned Enterprises (SOEs) subject to a transaction ban; and (9) an authorisation for the provision of restricted professional services during divestment of operations in Russia. Further, Australia, Canada, New Zealand and Norway are added to the list of partner countries, which benefit from exemptions / derogations other than those available to EEA countries.

The EU has also imposed asset freezing measures on 87 individuals and 34 entities. In total, 205 entities and 1,473 individuals are currently subject to asset freezing measures under the EU Russia sanctions. 

 Additionally, the EU has listed nine individuals and seven entities related to Wagner Group under the EU Mali Sanctions and the EU Global Human Rights Sanctions programs.

Next steps

Companies should continue to review their business activities and compliance procedures regularly to ensure they comply with applicable new restrictions. Hogan Lovells lawyers can assist you with assessing the potential impact of these and other trade restrictions on the global operations of your company.

Please contact any of the listed Hogan Lovells lawyers for further information or assistance.

Authored by Deborah Wei, Stephanie Seeuws, Cayla Ebert, Kelly Zhang, Ari Fridman, Anthony Capobianco, Beth Peters, Liz Boison, Kelly Ann Shaw, Aline Doussin, Lourdes Catrain, and Andrea Fraser-Reid.