Written by: Richard Newcomb, Nate Bolin, Thomas deButts, Nicholas Klein, Lawrence Levinson, David Peyman, Harout Samra, Martin Schaefermeier

On the one-year anniversary of Russia’s invasion of Ukraine, the US and its G7 allies announced a broad expansion of the existing economic sanctions, export controls and other measures that have been imposed over the last 12 months of the ongoing conflict. These latest measures, according to the White House, are intended to “impose costs on Russia for its aggression,” and are relevant for Israeli companies.

Secretary of State Anthony Blinken echoed the White House’s statement, noting that “[o]ur economic sanctions, export controls, and tariffs announced this week, in coordination with the G7, demonstrate that we will continue to work with our allies and partners to increase the pressure on President Putin, make it harder for him to wage his brutal war, and continue degrading the Russian economy’s ability to fuel continued aggression.”

This announcement is significant for numerous reasons beyond the fact that it marked one year since the beginning of the Russian invasion. First, more than 250 individuals and entities were named on the OFAC List of Specially Designated Nationals and Blocked Persons (SDN List), including more than 30 non-Russian parties engaged in evasion of US sanctions against Russia. Concurrently, the US designated over a dozen Russian banks being used by sanctions evaders, adding to previous rounds of designations that covered roughly 80 percent of Russia’s banking sector.

These steps represent a significant expansion of sanctions enforcement efforts to non-US persons and carry important implications for US and non-US companies in their efforts to comply with sanctions. The continued expansion of parties designated under the US sanctions against Russia – 2,500 parties alone in 2022 – accentuates the need for enhancing due diligence on Russia-related transactions, including the need for robust know-your-customer, know-your-customer’s-customer and third-party/counterparty screening. OFAC’s 50 Percent Rule, which effectively sanctions companies that may not appear on OFAC’s SDN List but are owned 50 percent or more by sanctioned parties, heightens the need for enhanced due diligence on Russia-related transactions. Additional complexities are presented by the availability of secondary sanctions under the relevant provision of the Countering America’s Adversaries Through Sanctions Act (CAATSA).

Second, OFAC has determined to impose sanctions on a new key sector of the Russian economy, metals and mining, which will have a powerful effect on a broad range of businesses. While a sector determination does not automatically impose sanctions on all persons who operate or have operated in the metals and mining sectors (FAQ 1116), US and non-US persons must consider and navigate a host of considerations and risks for engaging with parties in these sectors. For example, the determination is a warning that as of yet non-sanctioned entities in this sector may be the focus of designation targets in the near future.

Third, expanded export controls restrictions for a broad range of products, software and technology that is not currently controlled for export to Russia (including many EAR99 items) will impact businesses in several sectors with lingering ties to Russia.

This alert provides an overview of the significant new economic sanctions, export controls and tariffs imposed on Russia and Belarus in the last month. Prior actions taken by the US government are described in our previous client alerts published on April 15, 2021 and February 23,February 25February 28March 4March 9March 16March 29April 5April 8 and May 15, 2022. While sanctions against Russia are becoming increasingly broader, there are still a host of permissible activities, and the US government has provided for certain general licenses exempting certain transactions from sanctions.

Targeted sectors of the Russian economy

The White House announced that the US, together with its G7 allies, was making “new commitments” to impose economic pressure on Russia’s economy, focusing on the following sectors:

  1. Russian financial and wealth management
  2. Mining and metals
  3. Defense
  4. Electronics
  5. Technology
  6. Energy (and certain related maritime transport of energy products)
  7. Nuclear

OFAC has already designated numerous entities in these sectors, but also announced additional sanctions, and signaled that further sanctions against actors in these sectors of the Russian economy would be forthcoming. This statement is a warning that transactions or investments in these sectors of the Russian economy are likely to see additional restrictions in the coming weeks and months.

Additional measures and action against sanctions evaders

The US, in collaboration with other countries around the world, has already taken significant steps to curtail sanctions evasion. The Treasury and State Departments announced new sanctions against additional actors in the Russian defense and technology sectors, including individuals and entities “responsible for backfilling Russian stocks of sanctioned items or enabling Russian sanctions evasion.” OFAC also announced several actions against Belarusian individuals and entities under the Belarus Sanctions Program.

These measures highlight the powerful tools available to OFAC to target persons wherever in the world located who would assist in sanctions evasion activities. In this case, many of the parties targeted for sanctions evasion are located outside of Russia, in countries including China, Switzerland, Cyprus, Malta, Italy and the United Arab Emirates, among others.

Broad new sanctions against Russian political figures

The US imposed blocking sanctions against numerous additional Russian government officials, including provincial governors for recruiting conscripts to fight in Ukraine, additional Duma members and other national political leaders. OFAC also has targeted individuals closely associated with Russian political leaders. For example, OFAC announced a wide range of sanctions against Aleksandr Udodov, the former brother-in-law of Russian Prime Minister Mikhail Mishustin and numerous entities associated with Udodov, including many entities outside Russia.

New export controls

In coordination with OFAC and the White House, the US Commerce Department, Bureau of Industry and Security (BIS) has added over 85 new entities to the Export Administration Regulations (EAR) Entity List based on findings that the entities are providing material support for Russia’s war efforts in Ukraine or otherwise assisting in evasion of current export controls and sanctions on Russia and Belarus. As a result, it is now prohibited to provide goods, software and technology subject to the EAR to the listed entities without a US export license. The additions to the Entity List include various electronics and semiconductor-related companies outside of Russia, including in Canada, China, EU countries and elsewhere.

BIS also has imposed new license requirements on exports, reexports and transfers to Russia and Belarus of a very wide range of industrial and luxury goods such as chemicals, manufacturing equipment, parts and components of machinery and vehicles, scientific and testing equipment, automobiles, jewelry, watches and similar items.

These items are not normally subject to US national security-related export controls and are typically classified under the basket category of “EAR99” on the EAR’s Commerce Control List. To identify the covered items more precisely, therefore, BIS has utilized the Harmonized Tariff System (HTS) six-digit subheading structure adopted by the US and other members of the World Customs Organization. Use of the HTS six-digit system and other changes announced by BIS as part of the new rule bring the export controls on these items into closer alignment with similar controls adopted by the rest of the G-7 and other US allies and partners. 

In response to Iran’s provision of drones and other unmanned aerial vehicles (UAVs) to the Russian war effort, BIS has issued new controls on exports, reexports and transfers of EAR99 items used in UAV development, production, and maintenance directly or indirectly to Iran, Belarus and Russia. As with the other EAR99-related controls on Russia, BIS is using the HTS six-digit classification system to identify the items covered by these controls.

Further, to prevent Iran’s use of such items from sources outside the US, BIS has implemented a new Iran-specific “foreign direct product rule” that gives BIS licensing jurisdiction over a range of non-US-made items that are the direct product of US-origin software, technology or production equipment. Major categories of items caught by this new rule include electronics, motors, avionics and semiconductors made in China and elsewhere outside the US using US technology, software or equipment.

The scope of the new export controls is extremely broad. They will require a wide range of companies – including especially manufacturers and distributors outside the US – to carefully review their product lines and customer bases to ensure they do not now require new US export licenses.

Greatly increased tariffs on imports of Russian metal and metal products, chemicals and minerals

Pursuant to the Suspending Normal Trade Relations with Russia and Belarus Act, President Biden increased tariffs on imports for most Russian metal and metal products from 35 percent to 70 percent and increased tariffs on many Russian chemicals and minerals to 35 percent. According to the White House, the additional tariffs will affect more 100 products with a value of approximately $2.8 billion.

Similarly, on February 24, 2023, President Biden announced large duty increases for imports of aluminum and aluminum derivative articles under Section 232 of the Trade Expansion Act of 1962. As explained by the White House, the Russian aluminum industry is a key part of Russia’s defense industrial base and has played a major role in supplying Russia with weapons and ammunition used in Russia’s war against Ukraine. The war has triggered increases in global energy prices, causing direct harm to the US aluminum industry. Against this background, the tariff increase is being imposed to reduce US imports of aluminum articles and increase domestic aluminum industry capacity utilization.

Beginning on March 10, 2023, Russian aluminum articles and derivative aluminum articles will be subject to a 200 percent ad valorem tariff. Beginning on April 10, 2023, this additional 200 percent tariff also will apply to (1) aluminum articles and derivative aluminum articles where any amount of primary aluminum used in the manufacturing process is smelted in Russia, and (2) aluminum articles and derivative aluminum articles that are cast in Russia.[1] To encourage multilateral restrictions, the US will exempt from these additional tariffs imports from a country that itself imposes a tariff of 200 percent or more on its imports of Russian aluminum articles.

Importers will need to provide to US Customs and Border Protection (CBP) information necessary to identify (1) the countries where the primary aluminum used in the manufacture of aluminum articles and derivative aluminum articles imports are smelted and (2) the countries where the aluminum articles and derivative aluminum articles are cast. The proclamation instructs CBP to implement the smelt and cast information requirements as soon as practicable.

Key takeaways for Israeli companies

  • The United States is expanding the use of “secondary sanctions” on individuals and entities believed to be supporting the Russian government and Russian war efforts in Ukraine.  A number of non-Russian persons, include at least one with ties to Israel, have been added to the U.S. sanctioned persons lists, thereby denying them access to the U.S. market, most international banking institutions, and goods, software, technology and services of U.S. origin.
  • The United States and its G-7 allies have also sanctioned a further 14 Russian financial institutions to their sanctions lists, further restricting the ability of third-country parties to conduct business in or with Russia.
  • US enforcement agencies continue to increase their focus on companies in third countries believed to be aiding Belarus and Russia. We are likely to see further penalty actions and additions to the sanctions lists in the coming weeks.

Going forward

Our global team continues to monitor developments as they arise and will update this alert as changes take place. To learn more about these developments, please contact any of the authors or your usual DLA Piper relationship attorney.

[1] The term “primary aluminum” is defined as new aluminum metal that is produced from alumina (or aluminum oxide) by the electrolytic Hall-Heroult process.