New US sanctions and export restrictions on Russia and Belarus

On September 15, 2022, the US Department of Commerce, Bureau of Industry and Security (BIS), US Department of Treasury, Office of Foreign Assets Control (OFAC) and the US Department of State, issued contemporaneous new sanctions and export restrictions on Russia and Belarus.  As detailed below, the new sanctions and export restrictions focus on quantum computing and advanced manufacturing technologies, but also restrict exports of certain EAR99 chemicals, biologics and industrial machinery and equipment to Russia or Belarus. The new restrictions collectively seek to further deny Russia access to services, products and technologies that have been deemed significant in sustaining its conflict with Ukraine. 

In addition, OFAC issued guidance warning that non-US financial institutions that enter into new or expanded agreements with the operator of Russia's Mir National Payment System will risk being designated to the Specially Designated Nationals or Blocked Persons List (SDN List) for supporting Russia's efforts to evade US sanctions. The Mir National Payment System is a Russian electronic payment system established by the Central Bank of Russia in response to sanctions imposed on Russia following its invasion of Crimea. 

BIS export restrictions

BIS issued a new final rule that applies additional restrictions on the export of industrial and commercial items that have been identified as supporting Russia in its conflict with Ukraine. In particular, the new rule:

• Restricts the export of certain quantum computing and advanced manufacturing related hardware, software and technology: BIS expanded the Russia Industry Sector Sanctions (15 C.F.R. 746.5) (RISS) by prohibiting, in paragraph (g) to a newly created Supplement No. 6 to Part 746 of the EAR (Supplement No. 6), the export of certain quantum computing and advanced manufacturing equipment and related assemblies or components to Russia or Belarus. 
  •  Newly restricted items include, even if classified as EAR99, specified: (i) quantum computers and specially designed assemblies and components: (ii) cryogenic refrigeration systems and specially designed cryogenic refrigeration equipment and components; (iii) Ultra-High Vacuum (UHV) equipment; (iv) high quantum efficiency photodetectors and sources; (v) advanced manufacturing equipment (e.g. certain additive manufacturing equipment); (vi) metal powders and alloy powders specially designed for certain additive manufacturing equipment; (vii) advanced microscopes; (viii) decapsulation equipment for semiconductor devices; and (ix) software and technology related to the development, production, or use of the foregoing. 
• Prohibits the export of certain EAR99 chemicals, biologics and fentanyl and its precursors to Russia or Belarus: BIS expanded the RISS by prohibiting, absent a license, the export or re-export of certain EAR99 items also identified in Supplement No. 6 to Russia or Belarus. 
  • Supplement No. 6 identifies particular chemicals, biologics, fentanyl and its precursors and related equipment that are now, absent a license, prohibited for export to Russia or Belarus.  Unlike the other RISS supplements, the products are not identified by HTS classification but, instead, are referred to by name, chemical concentration, and/or, where applicable, Chemical Abstract Numbers (CAS).
• Prohibits the export of certain industrial machinery and equipment to Russia or Belarus: BIS expanded the RISS by adding 57 additional items, identified by name and HTS classification, to Supplement No. 4 to Part 746 of the EAR, thereby prohibiting, absent a license, their export or re-export to Russia or Belarus. The additional items comprise a variety of industrial machinery, equipment and other items, including: (i) certain fork lifts; (ii) sawing or cutting off machines; (iii) electric storage heating radiators; and (iv) electric rail locomotives. 
• Includes Belarus within the scope of the Russia Industry Sector Sanctions (RISS): Belarus is now included within the scope of the RISS, which previously only applied to Russia. 
• Expands the 'military end user' and 'military-intelligence end user' controls to certain entities outside of Russia and Belarus: BIS expanded the military end user and military-intelligence end user foreign direct product rule to capture entities outside of Russia and Belarus that were previously added to the Entity List. 
• Refines and implements dollar-value thresholds for luxury goods: BIS lowered the existing US$1,000 dollar-value threshold exclusion for clothing and shoes to US$300 to better align the dollar-value exclusion with that of allied countries. BIS also implemented dollar-value exclusions for a variety of other products where no such exclusion previously existed

OFAC sanctions

OFAC, contemporaneous with BIS' announcement of new export restrictions, announced two new determinations related to quantum computing sanctions and also designated twenty-two individuals and two entities to the SDN List. 

The first determination, made pursuant to Executive Order 14071 (Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression), prohibits the exportation, re-exportation, sale or supply, directly or indirectly, from the US, or by a US person, wherever located, of quantum computing services to any person located in the Russian Federation.  This determination is not effective until 12:01 am EDT, October 15, 2022.

While the precise definition of "quantum computing services" will depend on the publication of the accompanying regulations, OFAC released guidance indicating that it intends to define the term to include any of the following services when related to quantum computing, quantum computers, electronic assemblies thereof or cryogenic refrigeration systems related to quantum computing: 

• Infrastructure, web hosting or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services and related services; repairing computer, computer peripherals, or communication equipment; other computer-related services; and
• Services related to the exportation, re-exportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof or cryogenic refrigeration systems related to quantum computing to any person located in the Russian Federation. 

The second determination, made pursuant to Executive Order 14024 (Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation), authorizes OFAC to impose sanctions on any person (including non-US persons) who is determined to operate in the quantum computing sector of the Russian economy. This determination is effective immediately.

OFAC issued related guidance in which it states that it interprets the term "quantum computing sector of the Russian Federation economy" to include:

• Activities related to products and services in or involving the Russian Federation in research, development, manufacturing, assembling, maintenance, repair, sale or supply of quantum computing, quantum computers, electronic assemblies thereof or cryogenic refrigeration systems related to quantum computing; and
• Any of the following services when related to quantum computing: infrastructure, web hosting or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services and related services; repairing computer, computer peripherals and communication equipment; other computer-related services; as well as the exportation, re-exportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof or cryogenic refrigeration systems related to quantum computing to or from the Russian Federation.

US Department of State sanctions

The US Department of State, contemporaneous with BIS and OFAC, announced sanctions on numerous Russian individuals and entities who were deemed to have supported Russia's military activities in Ukraine. In particular, the State Department sanctioned numerous entities in the defense, electronics and high technology sectors in Russia as well as individuals involved in theft of Ukrainian grain or operating on behalf of Russia in Ukraine.

Our team continues to monitor this space and will publish additional updates as appropriate.