US imposes heightened sanctions and trade restrictions on Russia

On February 24, 2023, the United States, in coordination with allies and G7 partners, announced a new set of sanctions, export controls and tariffs targeting key, revenue-generating sectors of the Russian economy and restricting trade with over 200 persons, including both Russian and third-country actors across Europe, Asia and the Middle East. These new measures, taken by the US Department of the Treasury's Office of Foreign Assets Control (OFAC), US Department of Commerce's Bureau of Industry and Security (BIS), Office of the US Trade Representative (USTR) and US Department of State, mark the one-year anniversary of Russia's war against Ukraine. These measures include the following:

• OFAC: (1) announced a new determination targeting the metals and mining sector of the Russian Federation economy under Executive Order 14024; (2) added 83 entities and 22 individuals to the Specially Designated Nationals and Blocked Persons List (SDN List), including over 30 third-country individuals and entities, resulting in the freezing of their assets within US jurisdiction and prohibitions on transactions by US persons or within the US that involve such persons and their 50 percent or more owned entities; and (3) made additions and revisions to several existing general licenses (GLs).
• BIS: (1) announced four new rules targeting Russia's defense-industrial base and military and third countries supporting Russia; (2) expanded export controls under the Export Administration Regulations (EAR), including licensing requirements on several commercial and industrial items; and (3) added 86 entities to the Entity List determined to have engaged in sanctions evasion and backfill activities in support of Russia's defense-industrial sector, prohibiting the targeted companies from purchasing items, such as semiconductors, whether made in the US or with certain US technology or software abroad.
• USTR announced additional tariff increases, primarily targeting metals, minerals and chemical products.

These sanctions, export controls and tariffs are part of the US's ongoing efforts, detailed in our previous briefing, to impose economic costs on Russia in response to its actions in Ukraine. 

OFAC expands sanctions to target key sectors, evasion efforts, and financial institutions

The Treasury announced it is targeting the metals and mining sector of the Russian economy pursuant to Executive Order (E.O.) 14024. It also announced the imposition of sanctions on 83 entities and 22 individuals, including over 30 third-country individuals and entities. These designations target certain Russian financial institutions, wealth-management entities and others in the Russian financial services sector; Russian sanctions evasion; Russia's military supply chains, including Russian entities that produce carbon fiber and related advanced materials, and that operate in Russia's aerospace and technology and electronics sectors; persons supporting Russia's war against Ukraine; and persons operating in Russia's metals and mining sectors. This list of newly designated individuals and entities can be found here.

Financial institutions

OFAC added over a dozen financial institutions in Russia to the SDN List, including one of the top-ten largest banks by asset value, noting that sanctions evasion and other illicit financial activity often involve support from accountants, investment advisors, wealth management and private equity firms, lawyers and other financial services providers.¹  

In conjunction with its designations of certain financial institutions, OFAC issued and amended certain general licenses authorizing otherwise prohibited activity:

• GL 8F, authorizing certain energy-related transactions involving certain Russian financial institutions;
• GL 13D, authorizing certain administrative transactions prohibited by Directive 4 under E.O. 14024 (e.g., the payment of taxes, fees, or import duties and the purchase or receipt of permits, licenses, registrations or certifications involving Central Bank of Russia, the National Wealth Fund of Russia or the Ministry of Finance of Russia) ordinarily incident and necessary to day-to-day operations in Russia;
• GL 60, authorizing the wind down and rejection of transactions involving certain entities blocked on February 24, 2023; and
• GL 61, authorizing transactions related to debt or equity of, or derivative contracts involving, certain entities blocked on February 24, 2023.

In related guidance, OFAC addressed whether GL 13D authorizes transactions that involvement the payment of a so-called "exit tax, " which the Russian government may require prior to the divestment of assets located in Russia, and which may potentially require transactions involving the Central Bank of the Russian Federation or the Ministry of Finance of the Russian Federation. OFAC explained this so-called "exit tax" is not considered ordinarily incident and necessary to day-to-day operations in the Russian Federation and, thus, not authorized under GL 13D; therefore, US persons whose divestment will involve an "exit tax" payment may require a license from OFAC.²  

Metals and mining sector

OFAC expanded sanctions to target the Russian metals and mining sector. More specifically, OFAC, in consultation with the State Department, issued a sectoral determination pursuant to E.O. 14024 that authorizes the imposition of sanctions on any person determined to operate or have operated in the metals and mining sector of the Russian Federation economy (the Metals and Mining Determination). This sectoral determination is effective February 24, 2023. Also on February 24, 2023, OFAC designated four entities for operating in the metals and mining sector of the Russian Federation economy. The US government may, as appropriate, impose sanctions on additional persons determined pursuant to E.O. 14024 to operate or to have operated in this sector.

OFAC explained in guidance that the "metals and mining sector" is defined as including "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."³ Importantly, while E.O. 14024 and the Metals and Mining Determination expose all parties that have operated or do operate in the Russian metals and mining sector to potential sanctions, parties operating in that sector are not automatically sanctioned; a determination must first be made.⁴ OFAC also cautions that additional sanctions may be imposed on persons operating in the metal and mining sector through new investment bans under E.O. 14071 and through the prohibition on importing certain Russian goods produced by the metals and mining sector under E.O. 14068.

OFAC also explained that non-US parties may be exposed to sanctions for engaging in activities related to the Russian metals and mining sector, but OFAC does not intend to target persons operating in the metals and mining sector where goods and services are solely for the safety and care of personnel, protection of human life, prevention of accidents or injuries, or for the maintenance or repair necessary to avoid environmental or other significant damage, or for activities related to environmental mitigation or remediation. Examples of goods that OFAC does not intend to target 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. Further, OFAC underscored that non-US persons are not at risk of designation for engaging in activities that would not require a specific license if engaged in by a US person.⁵

Military supply chains

Treasury designated certain Russian producers of carbon fiber, noting that Russia's military-industrial complex is the greatest consumer of advanced materials like carbon fiber. Additionally, Treasury designated certain Russian aerospace sector entities, as well as certain persons involved in the Russian technology and electronics sector.

BIS revises export controls relating to Russia, Belarus, and Iran

On February 24, 2023, BIS released four final rules targeting Russia's defense industrial complex and military, as well as third countries supporting Russia, including China and Iran. BIS expanded the scope of the EAR's Russian and Belarusian industry sector sanctions – including oil and gas production, commercial and industrial items and chemical and biological precursors – and "luxury goods" export controls contained in EAR Part 746.

BIS also announced new export restrictions relating to Iran to prevent US components found in Iranian drones from being used in the ongoing armed conflict in Ukraine. The restriction imposes license requirements on a subset of generally low-technology (EAR99) items, including semiconductors, that are destined for Iran, irrespective of whether a US person is involved in the transaction. These changes were made to coordinate with the restrictions imposed by US allies and G7 partners.

Further, BIS offered several clarifications to existing controls on Russia and Belarus and adopted a policy to review license applications on a case-by-case basis for the disposition of items by companies limiting or closing all operations in Russia and Belarus.

Lastly, BIS added 86 entities to the Entity List for activities in support of Russia's defense-industrial sector and invasion of Ukraine, including ten third-country entities based in China, France, Luxembourg Netherlands. 76 of these entities are also being designated as "Russian/Belarusian Military End Users," which will curb them from acquiring certain US-origin items, such as foreign-produced items integrating US-origin components. The lists of entities added to the BIS Entity List can be found in two final rules available here and here.

Tariff rate increases

In an effort to curtail Russia's profits and reduce US reliance on Russia, President Biden signed proclamations to raise tariffs on certain Russian products imported into the United States. Specifically, pursuant to President Biden's authority under the Suspending Normal Trade Relations with Russia and Belarus Act, the USTR is expected to double tariff rates from 35 percent to 70 percent on most of the metal and mining products with Russian origin. The increase in tariff rates is expected to impact hundreds of Russian metals, minerals, and chemical products worth approximately US$2.8 billion.

These measures are further supplemented by the 200 percent tariff announced on Russian aluminum and derivative articles that is expected to come into effect pursuant to Section 232 of the Trade Expansion Act of 1962 on March 10, 2023. Further, a 200 percent tariff is expected to be imposed on aluminum and derivative articles where any amount of primary aluminum is used to manufacture articles smelted or cast in Russia beginning on or after 12:01 am eastern standard time on April 10, 2023.

According to the White House, this action will result in increased tariffs on more than 100 Russian metals, minerals and chemical products worth approximately US$2.8 billion to Russia. It will also significantly increase costs for aluminum that was smelted or cast in Russia to enter the US market in order to counter harm to the domestic aluminum industry.

Practical considerations

These new measures emphasize the ongoing efforts of the US, its allies, and G7 nations to hinder Russia's economy and military-industrial complex and debilitate Russia's capabilities to maintain its ongoing invasion of Ukraine. Companies should evaluate if and how the new determination targeting the Russian mining and metals industry may affect their business and stay up to date on upcoming developments and designations in this sector. Similarly, companies should remain cognizant of the increased targeting of third-country individuals and entities that provide weapons and technology assistance to Russia and/or assist Russia in evading sanctions. Companies should also consider the regulatory risk in dealing with certain low-technology items, including certain semiconductors, and ensure that their sanctions and export control compliance programs, including due diligence and screening processes, are sufficiently robust to address these evolving risks.

Special thanks to law clerk Daniella Torrealba for assisting in the preparation of this publication.