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Poking the Russian Bear: New Developments in the U.S. Sanctions Policy Targeting Russia

Posted By Administration, Thursday, February 8, 2018
Updated: Thursday, February 8, 2018


by Melissa Proctor, Miller Proctor Law PLLC


The first month of 2018 ushered in a flurry of new developments on the U.S. sanctions front which will impact U.S. companies doing business in Russia. On January 29, 2018, the U.S. Treasury Department submitted a series of reports1 to Congress as required by Section 241 of the Countering America's Adversaries Through Sanctions Act ("CAATSA")2, including a list identifying senior Russian political figures, oligarchs and entities that play a significant role in the Russian economy and Vladimir Putin's inner circle – it is possible that such parties may be targeted by U.S. sanctions in the near future under the CCATSA. The Treasury Department's reports also coincided with President Trump's recent decision not to impose retaliatory sanctions against parties dealing with Russian defense or intelligence sector entities, as well as the entry into force of expanded Directive 4 under Executive Order 13662 as mandated by the CAATSA.3 This article summarizes these key events and urges U.S. companies and their foreign affiliates doing business in Russia to stay vigilant as new developments arise.

1. Section 241 of the CAATSA & the Treasury Department's Report
Per Section 241 of the CAATSA, the Treasury Department was required to submit a report ("Section 241 Report") to Congress, no later than January 29, 2018, identifying Russian oligarchs, significant senior Russian political figures, and Russian parastatal entities based on their associations with the Russian government, their net worth, indications of any corrupt activities, and their involvement in the Russian economy. The Section 241 Report lists over 200 individuals, including the Russian Prime Minister and other senior members of the government who have an estimate net worth of at least $1 billion. The identified parastatal entities, which were included in a classified section of the report that was not made publicly available, include those that are at least 25% owned by the Russian government and were determined to have had revenues of at least $2 billion in 2016. The Section 241 Report also identified the U.S. economic and industry sectors that could be exposed to the identified Russian actors, the potential impact of future sanctions against the Russian actors (e.g., restrictions on dealings in new debt and equity involving these parties, adding them to the Specially Designated Nationals Lists, etc.), and the likely impact of secondary sanctions targeting non-U.S. entities that deal with them.

The key take-away? The Section 241 Report is not a sanctions list. Granted, some of the identified Russian actors are already listed in the Specially Designated Nationals List ("SDN List") enforced by the Treasury Department's Office of Foreign Assets Control ("OFAC") for reasons not relating to the Section 241 Report, and the Report identifies those preexisting SDNs by placing an asterisk by their names. U.S. persons are of course prohibited from dealing with those SDNs without prior authorization from OFAC. However, the remaining individuals and entities in the Section 241 Report have not been added to the SDN List or the Sectoral Sanctions Identification List, and they are not currently subject to other U.S. sanctions – this means that U.S. persons are not yet prohibited from dealing with these parties. Nonetheless, it is possible that they may be targeted by U.S. sanctions in the near future, such as under the Global Magnitsky Sanctions,4 the Magnitsky Sanctions,5 or the Ukraine-Related Sanctions.6

2. President Trump Decides Not to Withhold Sanctions on the Russian Defense or Intelligence Sectors
By way of background, on October 27, 2017, the U.S. State Department published a list of 39 Russian entities that are known to be part of (or that operate on behalf of) the Russian defense or intelligence sector, as well as formal guidance about the forthcoming sanctions anticipated in early 2018.7 Section 231 of the CAATSA requires the President, on or after January 29, 2018, to impose retaliatory sanctions to punish U.S. or non-U.S. parties that knowingly engage in a significant transaction with the Russian entities identified on the State Department's list. However, on January 29th, the Trump Administration announced that it would not impose the sanctions as it believed that the mere threat of the imposition of sanctions would serve as a sufficient deterrent.8

The key take-away? The State Department's List of Russian Defense and Intelligence Sector Entities under Section 231 of the CAATSA is not a sanctions list. Like the Section 241 List discussed above, some of the entities identified in the State Department's list are already included in OFAC's SDN List for reasons separate and apart from CAATSA. However, the remaining individuals and entities in the State Department's list are not currently on the SDN List or Sectoral Sanctions Identification List, and they are not currently subject to other U.S. sanctions – this means that U.S. persons are not yet prohibited from dealing with these parties. Keep in mind that these parties have the potential for being added to U.S. sanctions programs in the future, such as the Global Magnitsky Sanctions, the Magnitsky Sanctions, or the Ukraine-Related Sanctions.

3. Enhanced Directive 4 Prohibitions Are Now in Effect
On January 29th, the enhanced Directive 4 prohibitions on certain activities involving Russian energy companies and oil and gas projects formally took effect. The enactment of CAATSA required OFAC to amend and reissue the various directives9 that were made under Executive Order 13662.10 As originally written, Directive 4 previously prohibited U.S. persons from providing, exporting or reexporting (directly or indirectly) goods, certain services or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that: (1) have the potential to produce oil in the Russian Federation, maritime claimed by the Russian Federation and extending from its territory; and, (2) involve parties designated on the Sectoral Sanctions Identification List that are subject to the mandates of Directive 4.

However, the amended Directive 4 now prohibits U.S. persons from providing, exporting or reexporting (directly or indirectly), goods, certain services or technology in support of the exploration or production for deepwater, Arctic offshore or shale projects that: (1) are commenced on or after January 29, 2018; (2) have the potential to produce oil anywhere in the world (not just in Russia); and, (3) involve SSIL parties subject to Directive 4, entities 33% or more owned by SSIL parties, or entities in which a SSIL party owns a majority of voting interests.

4. Conclusion
U.S. companies and their foreign affiliates doing business in Russia or testing the waters there should closely monitor the U.S. sanctions and policy posture towards Russia – especially with respect to certain activities involving the key sectors of the Russian Federation such as the financial, energy, defense and intelligence sectors. Companies should adopt a wait-and-see approach as to whether the U.S. government will continue its aggressive stance towards the Russian bear. And only time will tell if the Russian government will decide to retaliate against these measures.

[1] https://home.treasury.gov/news/press-releases/sm0271
[2] Pub. L. 115-44, August 2, 2017
[3] https://www.treasury.gov/resource-center/sanctions/Programs/Documents/eo13662_directive4_20171031.pdf
[4] https://www.treasury.gov/resource-center/sanctions/Programs/pages/glomag.aspx
[5] https://www.treasury.gov/resource-center/sanctions/Programs/pages/magnitsky.aspx
[6] https://www.treasury.gov/resource-center/sanctions/Programs/pages/ukraine.aspx
[7] https://www.state.gov/t/isn/caatsa/
[8] https://www.state.gov/r/pa/prs/ps/2018/01/277775.htm
[9] Directives 1 and 2 were amended and reissued by OFAC, as required by CAATSA, on September 29, 2017. Their prohibitions against engaging in certain new debts involving Russian parties designated on the Sectoral Sanctions Identification List were expanded and became effective on November 28, 2017.
[10] https://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo3.pdf


Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or melissa@millerproctorlaw.com.

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Tags:  Economic Sanctions 

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U.S. Import Shipments Targeted by Customs and Border Protection for Suspected North Korean Forced Labor

Posted By Administration, Thursday, December 7, 2017
Updated: Thursday, December 7, 2017


by Melissa Proctor, Miller Proctor Law PLLC


U.S. importers should be aware that U.S. Customs and Border Protection ("CBP") has begun scrutinizing imported goods suspected of being made with North Korean forced labor, as required by the recently enacted Countering America's Adversaries Through Sanctions Act ("CAATSA"). CBP appears to be focusing on import shipments from areas in China and Russia bordering on North Korea, and has seized several shipments and issued Requests for Information ("CF-28s") to U.S. importers asking for documentation that proves that no forced North Korean labor was involved in the production of the goods. CBP has also been encouraging parties, who have information about the use of North Korean or forced labor, to submit tips via its online eAllegation portal – such parties may be eligible to receive compensation of up to $250,000. Therefore, U.S. importers should take stock of their current corporate social responsibility policies and procedures with respect to prohibiting the use of forced labor, review the CAATSA requirements, and consider implementing the recommendations for enhanced due diligence by CBP, the U.S. Department of Labor Department, and the International Labour Organization.

CAATSA (H.R. 115-44), which was enacted in August 2017, gave expanded authority to CBP to enforce economic sanctions against North Korea and prevent the entry of goods made with North Korean forced labor into the United States. There have been many reports in the media as of late describing how many manufacturers in China and Russia are using North Korean workers to produce their goods, many of which are being exported to the United States. Based on a report by Military.com1, it is estimated that North Korean slave labor (to the tune of approximately 200,000 persons) is being used in over 45 countries around the world, and that the North Korean government earns an estimated $3 billion annually for supplying slave labor to these countries. All of the wages of foreign workers are paid directly to the North Korean government (or to the companies that they control). The average wage actually received by a North Korean worker, which again is payable to the North Korean government, is reportedly around $400 per month; however, the workers themselves only receive roughly 10% to 20% of that amount. North Korea's export of slave labor around in the world is in addition to the forced labor occurring in the numerous prison labor camps inside North Korea.

By way of background, the Foreign Assets Control Regulations (31 C.F.R. Part 500 et seq), which are enforced by the Treasury Department's Office of Foreign Assets Control ("OFAC") have for decades prohibited virtually all dealings by U.S. persons with North Korea, and the U.S. Customs Regulations have also long prohibited imports of North Korean-originating goods into the United States – specifically, imported merchandise that contains any amount of North Korean content. In addition, CBP has also denied entry to goods produced, in whole or in part, by prison, forced, child or indentured labor under the Tariff Act of 1930 (19 U.S.C. Section 1307). The Trade Facilitation and Trade Enforcement Act ("TFTEA"), which was enacted in 2016, further solidified CBP's enforcement authority in this area, allowing CBP to prohibit the entry of imported goods where there is evidence of forced labor. However, the burden of proving that forced labor was involved in the production of imported goods fell squarely on CBP.

CAATSA, however, changed the rules of the game. Now, when forced labor is suspected, the burden of proof now falls on U.S. importers to show by clear and convincing evidence that North Korean forced labor was not used in the manufacture of their goods. If forced labor is suspected, CBP may issue CF-28s and detain the entry of merchandise. If there is evidence of forced labor, CBP may deny entry and seize the imported goods, subject the goods to forfeiture, assess civil penalties, and even refer the issue for a criminal investigation. U.S. importers caught up in violations of CAATSA should also expect to have their future import shipments scrutinized to much a greater degree, such as through increased examinations and detentions, as well as negative publicity.

In response to a CF-28, U.S. importers may be required to submit documents and records that include certificates of origin, supplier certifications stating that no forced labor was used, supplier daily production records (including subcontractor production records), finishing and packing records, employee timecards and wage records, employee lists, purchase orders and delivery documents for raw materials, inputs and components used, inventory records, bills of material, commercial invoices, packing lists, proof of payment, factory visit reports and photographs, inline and final inspection reports, factory utility bills and payments, etc.

To assist U.S. importers in their increased supply chain due diligence efforts, CBP published guidance on its website recommending the adoption of additional internal controls for compliance, and updated its Reasonable Care Checklist. For example, recommended measures include:

  • Fully understanding the sourcing, manufacturing and finishing processes for their imported goods, identifying all of the companies involved, knowing where such operations are performed, and keeping abreast of the labor conditions in each of the production facilities;
  • Reviewing the information contained on CBP's website relating to Forced Labor, such as fact sheets and recent investigations conducted by CBP;
  • Reviewing the U.S. Labor Department's "List of Goods Produced by Child Labor or Forced Labor" and "Reducing Child Labor and Forced Labor Toolkit," as well as the International Labor Organization's ("ILO's") publication "Indicators of Forced Labour," with respect to high-risk countries, high-risk commodities, and red flags;
  • Performing regular risk assessments and internal audits of their supply chains to confirm that their imported goods are both "forced labor free" and "North Korea free";
  • Implementing a formal, robust process for vetting foreign suppliers and vendors in high-risk areas, and incorporating prohibitions against the use of forced labor in purchase order terms and conditions, supplier agreements and codes of conduct; and,
  • Implementing a formal social corporate responsibility compliance program.

U.S. importers are urged to review the CAATSA requirements and the recommendations of CBP, the Labor Department and the ILO for enhanced internal controls and supply chain due diligence, enhance their written agreements with international supply chain partners (e.g., to include strict prohibitions against the use of forced labor, requirements for maintaining records substantiating that no forced labor is used in the production of goods sold to the U.S. company, agreement to submit to internal audits by the U.S. company, etc.), and expand their current internal audit processes to address potential forced labor issues.

[1] http://www.military.com/daily-news/2017/07/10/how-north-korea-uses-slave-labor-exports-to-circumvent-sanctions.html


Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or melissa@millerproctorlaw.com.

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Tags:  Economic Sanctions  North Korea 

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U.S. Revokes Sanctions on Sudan, Gives Companies a Surer Footing for Pursuing Opportunities with Sudanese Goods and Services

Posted By Administration, Thursday, October 19, 2017
Updated: Wednesday, October 18, 2017


by Melissa Proctor, Miller Proctor Law PLLC


A significant development on the U.S. economic sanctions front took place this past week: effective as of October 12, 2017, the economic sanctions on Sudan under Executive Orders 13067 and 13412, as well as the Sudanese Sanctions Regulations ("SSR") in 31 C.F.R. Part 538 are officially revoked. The Treasury Department's Office of Foreign Assets Control ("OFAC") intends to remove the SSR altogether from the Foreign Assets Control Regulations in the near future. So, what does this mean for U.S. companies?

First, as background, the sanctions on Sudan were temporarily waived by President Obama just a few days before he left office back in January 2017. The decision to temporarily waive the sanctions was due in large part to Sudan's cessation of hostilities in the region, its improvement in humanitarian access throughout the country, and its cooperation with the United States in addressing regional conflicts and threats of terrorism. OFAC implemented this temporary waiver by issuing a General License that suspended the SSR. Thus, under that General License, U.S. companies, beginning in January 2017, were allowed to: (1) import Sudanese origin goods and services into the United States; (2) export and reexport EAR99 goods, technology and services to Sudan (with certain exceptions); and, (3) export and reexport non-EAR99 items per the requirements of the Export Administration Regulations ("EAR"). Thus, while many companies have been importing from and exporting to Sudan since the beginning of the year, many others chose to stay away because of the fear that the waiver and the General License could be upended at any time. The formal revocation of the sanctions this week will therefore give more certainty to businesses that have in interest in exploring sourcing and marketing opportunities in Sudan.

That's not to say that all dealings with Sudan are now lawful and authorized under U.S. law. For example –

  • Sudan is still designated as a State Sponsor of Terrorism by the U.S. Department of State. Because of this, exports and reexports of certain agricultural commodities, medicines or medical devices to Sudan are still subject to the licensing requirements of the Trade Sanctions Reform Act of 2000 ("TSRA"), and will remain so until the legislation is superseded or repealed by Congress. To address this, OFAC issued new General License A on October 12, 2017, which authorizes all exports and reexports of these items to Sudan without the need for a one-year TSRA authorization. In addition, because Sudan is still a State Sponsor of Terrorism, U.S. persons are prohibited from engaging in transfers from the Government of Sudan that would be considered a donation to a U.S. person or where there is knowledge or reason to know that such transactions pose a risk of furthering terrorist acts in the United States; however, this prohibition chiefly applies to financial institutions.
  • Products, software and technology may still require licenses for export or reexport to Sudan under the EAR and the International Traffic in Arms Regulations ("ITAR"). Under the EAR, a license is required for exports and reexports of most non-EAR99 items to the Sudan; however, there are favorable licensing policies in place for many items, and there are several license exceptions available for transactions involving Sudan in Part 740 of the EAR. The ITAR, on the other hand, implements an arms embargo against Sudan, which is considered a Section 126.1 proscribed country; therefore, U.S. persons are prohibited from engaging in dealings with Sudan involving defense articles and services designated on the U.S. Munitions List, and license applications for such transactions are subject to a policy of denial by the State Department's Directorate of Defense Trade Controls ("DDTC").
  • OFAC's sanctions associated with the ongoing conflict in Darfur remain firmly in place. U.S. persons are still prohibited from dealing with any individuals or entities that are identified on OFAC's Specially Designated National List ("SDN List") under the [DARFUR] flag – this includes entities that are owned 50% or more by restricted parties.
  • OFAC's sanctions against certain Sudanese individuals and entities for activities related to South Sudan and terrorism-related activities are still in effect as well. Again, U.S. persons are prohibited from dealing with individual or entities designated under those sanctions programs, as well as with any entity that is owned 50% or more by those SDNs.
  • Absent further Presidential action, U.S. state and local governments are likely to continue divesting from companies that are directly invested in Sudan.
  • Finally, federal contractors are still required to certify that they are not engaging in certain business activities involving Sudan.

The formal revocation of this sanctions program will undoubtedly give a surer footing to businesses that have in interest in exploring sourcing and marketing opportunities in Sudan. But of course, nothing in the realm of embargoes or economic sanctions is truly permanent or issued in stone – after all, embargoes and sanctions are not like death or taxes. We could again see the snap-back of sanctions down the road. Given that Sudan is still a State Sponsor of Terrorism, and the fact that certain export controls and restricted parties list prohibitions remain in place, U.S. companies and their foreign affiliates will need to remain vigilant and approach any new opportunities with Sudan with continued due diligence.


Melissa Proctor is the founder of Miller Proctor Law PLLC, an international trade law firm located in Scottsdale, Arizona. For more than twenty years, she has advised companies on the full of array of international trade issues, including export controls, embargoes and economic sanctions, customs laws, anti-corruption compliance, and other agency requirements that impact the cross-border movement of goods, information and services. She may be reached at 480-447-8986 or melissa@millerproctorlaw.com.

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Tags:  Economic Sanctions  Sudan 

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Newest Round of Sanctions on Russia Will Not Likely Impact Consumer Product Companies, but Continued Vigilance and Monitoring Is Key

Posted By Administration, Thursday, October 9, 2014
Updated: Tuesday, October 7, 2014

by Melissa Miller Proctor, Esq., Sandler, Travis and Rosenberg, P.A.


Last month, both the United States and the European Union continued their pressure on Russia by expanding the scope of existing economic sanctions and imposing new trade restrictions. Questions galore have been pouring in from retailers, manufacturers, importers and exporters as to the impact that these new requirements will have on their current dealings with Russia and the Ukraine. In line with previous articles on this topic, the following provides an overview of the latest trade restrictions and will hopefully dispel the myth that U.S. and European companies may no longer deal in or with Russia.

As of September 12, 2014, with regard to the sanctions imposed by the United States, the following trade restrictions are currently in place:

  • The U.S. Commerce Department's Bureau of Industry and Security ("BIS") amended the Export Administration Regulations ("EAR") by adding ten new Russian firms to its Entity List. Designation on the Entity List generally triggers a license requirement for the export, reexport or foreign transfer of all items subject to the EAR (including items classified as EAR99) to designated Russian entities – applications for such licenses will be subjected to a policy of denial by the BIS. Five of the newly added Russian firms are defense companies. The remaining five firms operate in Russia's energy sector; however, the BIS narrowed the licensing requirements for these energy firms such that an export or reexport license is required only when the shipper knows or has reason to know that the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet), Arctic offshore locations, or shale formations in Russia that have the potential to produce oil. It is unlikely that U.S. companies marketing consumer products are dealing with these newest additions to the Entity List. More importantly, provided that U.S. companies are actively screening their customers, orders, and supply chain partners against the various U.S. restricted parties lists, any inadvertent dealings with designated Entity List firms should already be blocked.
  • The BIS also amended the EAR by imposing export and reexport license requirements on certain items destined to Russia when those items are intended for a military end use or military end users (i.e., the shipper at the time of export knows or has reason to know that their products will be received by such end users or put to a military end use in Russia). The only items that are subject to this restriction are identified in Supplement No. 2 to Part 744 of the EAR, which includes certain: numerically controlled machine tools; oscilloscopes and transient recorders; computers and telecommunications equipment; sensors and lasers; etc. Most U.S. companies marketing consumer products (rather than those covered by this restriction) will not be impacted by this new restriction.
  • The EAR was amended to prohibit the export, reexport or transfer of certain integrated circuits for spacecraft and related items, as well as items classified in a 600-Series Export Control Classification Numbers ("ECCNs"), which consist of Wassenaar Arrangement items and other munitions items that do not warrant control as defense articles under the International Traffic in Arms Regulations ("ITAR") – clearly these are not the types products with which most U.S. companies operating in consumer goods markets are concerned.
  • As reported earlier this summer, the BIS rolled out what it refers to as the Russian Industry Sector Sanctions in Part 746.5 of the EAR. These sanctions prohibit the export or reexport of certain items where the shipper knows (i.e., has actual or constructive knowledge) or has been informed by the BIS that they will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet), Arctic offshore locations, or shale formations in Russia that have the potential to produce oil. The specific items that are covered by the new sanctions are identified by their Harmonized System classifications in Supplement No. 2 to Part 746.5 or are classified in certain ECCNs. Again, this restriction should not be relevant for U.S. consumer goods companies unless they are marketing these specific items and know (or have reason to know) that the end user in Russia will be putting these products to the above described oil and gas activities.
  • Like the BIS, the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC") also implemented new restrictions on Russia. OFAC added five Russian defense companies to its Specially Designated Nationals (SDN) Lists. U.S. persons are prohibited from dealing with SDNs without prior authorization from OFAC as well as with any firm that is owned or controlled by designated SDNs (i.e., 50% or more owned by one or more SDNs in the aggregate). However, companies that have implemented sound restricted parties list screening processes should already be blocking potential dealings with SDNs and other prohibited parties.
  • In addition, OFAC also published a series of Directives that prohibit U.S. persons from providing financing or otherwise dealing in certain new debt or equity with Russian companies designated on the Sectoral Sanctions Identification List ("SSIL"). U.S. persons are also prohibited from providing, exporting or reexporting any U.S. origin or non-U.S. origin goods, services, or technology to designated SSIL energy sector firms in Russia in support of exploration or production of deepwater, Arctic offshore, or shale projects in Russia or maritime areas claimed by Russia. Prohibited parties here include firms that are 50% or more owned by one or more designated SSIL firms in the aggregate. It should be noted that designated SSIL firms are not SDNS and OFAC does not prohibit or restrict other transactions with these targets, such as normal trade related activities that fall outside the scope of the proscribed oil exploration or production activities referenced above. Thus, U.S. companies that do not engage in these activities will not likely feel any impact by these restrictions with regard to their dealings with Russia – unless, of course, an SDN is somehow involved.

Jumping across the pond, the European Union announced a new round of sanctions against Russia that also became effective on September 12, 2014. Under the current EU trade restrictions on Russia, EU companies may not:

  • Sell, supply, transfer, or export dual-use items (or provide related technical assistance, financing, financial assistance, and brokering services) to any Russian party listed in Annex IV of Council Regulation 960/204
  • Provide certain services that are necessary for deepwater oil exploration and production, arctic oil exploration and production, or shale oil projects in Russia
  • Provide financing and financial assistance regarding the supply of items described on the EU Common Military List
  • Sell, supply, transfer, or export dual-use goods and technology if they are destined for a military end use or military end user in Russia
  • Sell, supply, transfer or export technologies to Russia (or provide technical assistance, brokering or financial assistance) relating to certain oil and gas exploration and production commodities – the covered technologies are identified by their Harmonized Systems tariff classifications
  • Sell, supply, transfer or export arms to Russia
  • Deal in certain new loans or equity involving designated Russian financial and energy firms
  • Import products into the EU from Crimea or Sevastopol

The latest EU restrictions on Russia should have little or no impact at all on most European retailers and manufacturers. First, these companies are not likely dealing in the types of proscribed goods and activities described above. Plus, European companies, like their U.S. counterparts, should already be blocking potential dealings with prohibited Russian individuals and firms as part of their customer, order and supply chain partner screening processes. With regard to the restriction on imports of goods from Crimea or Sevastopol into the EU, this prohibition will not apply to goods that are accompanied by a valid certificate of origin from a recognized Ukrainian government authority.

Thus, both U.S. and European companies that deal in Russian consumer markets will largely be unaffected by the latest round of sanctions, provided that they are screening and are not otherwise engaging in the narrow scope of goods and activities described above. As a best practice and safety precaution, many companies have started requesting end use certifications from their Russian customers and distributors to substantiate that their products will not be used by any prohibited end users or in any prohibited end uses described above. As advised previously, companies should continue their vigilance in monitoring the situation with Russia and the Ukraine and keeping abreast of new developments as they arise.


Melissa Miller Proctor is a Partner with Sandler, Travis and Rosenberg, P.A., resident in the firm's Arizona office. With significant experience in export controls, customs laws and regulations, and international trade, Melissa works closely with clients to expand their markets while ensuring their regulatory compliance. She may be reached at (480) 305-2110 or via e-mail at mproctor@strtrade.com.

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Tags:  Economic Sanctions  Russia  Ukraine 

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U.S. and EU Economic Sanctions against Russia Continue to Heat Up

Posted By Administration, Thursday, August 14, 2014
Updated: Tuesday, August 12, 2014

by Melissa A. Miller Proctor, Esq., Sandler, Travis and Rosenberg, P.A.


As reported in previous issues of this newsletter, more sanctions against Russia have been rolled out by the United States and the European Union in response to Russia's continued support of separatists in the Ukraine. The latest news reports indicate that Russia has amassed roughly 20,000 troops on the eastern border with the Ukraine and NATO Secretary-General Anders Rogh Rasmussen has stated that there is a high probability that Russia will soon invade the Ukraine under the pretext of delivering humanitarian aid. Companies operating in the Ukraine and Russia are urged to closely monitor this volatile situation as even more sanctions against Russia are likely to be put into place by the U.S. and EU as tensions continue to rise.

Sanctions were first imposed against certain entities and individuals in the Ukraine and Russia back in March 2014. Since that time, especially in late July and August, the U.S. and the EU ratcheted up their respective sanctions programs. For concerned companies that may be dealing with the Ukraine and Russia, it is important to keep in mind that the current U.S. sanctions against Russia only prohibit:

  • Dealings with individuals and firms identified on OFAC's SDN Lists and BIS's Entity List
  • Dealings in certain loans and equity with designated Russian firms
  • Exports, reexports and transfers of items for certain oil exploration or production activities in Russia
The EU sanctions against Russia currently restrict only the following:
  • Trade in arms and related material with Russia
  • Exports of dual-use items for military end-use or end-users in Russia
  • Exports of equipment and technology for oil exploration or production activities in Russia
  • Dealings in certain loans and equity with Russian financial and energy firms
For those companies who are keeping a close eye on the developments in the economic sanctions on Russia, the following provides an updated timeline of events:
  • March 5, 2014: EU Council Decision 2014/119/CFSP froze the assets of persons identified as being responsible for the misappropriation of Ukrainian state funds and the commission of human rights violations, prohibited transfers of funds or economic resources to those individuals and initiated travel bans on such persons to the EU.
  • March 6, 2014: President Obama issued Executive Order 13660 calling for the freezing of assets of parties undermining democracy in the Ukraine, threatening the sovereignty of the Ukraine, and/or misappropriating Ukrainian assets. Entities found to be providing support to the foregoing, or that are owned or controlled by those entities were also blocked as well. U.S. persons are prohibited from dealing with blocked individuals and entities (e.g., imports, exports, reexports purchases, sales, transportation, brokering, financing, facilitating, guaranteeing, financing, investing, etc.), and blocked parties will also be denied entry into the United States. Blocked parties were added to the Specially Designated Nationals Lists (SDN Lists) administered by the Office of Foreign Assets Control (OFAC).
  • March 17, 2014: President Obama issued a second Executive Order (E.O. 13661) which froze the assets of an additional seven (7) Russian officials, as well as firms owned or controlled by the foregoing. Again, those individuals were added to OFAC's SDN Lists.
  • March 17, 2014: The EU issued Regulation No. 269/2014, sanctioning 21 persons involved in activities that undermine or threaten the territorial integrity, sovereignty and independence of the Ukraine.
  • March 20, 2014: President Obama issued a third Executive Order (E.O. 13662) expanding sanctions targets to include individuals and entities that provide material support to Russian officials. Identified targets were added to OFAC's SDN Lists.
  • March 21, 2014: The EU issued Regulation 284/2014, sanctioning additional Russian and Ukrainian government officials. The EU also announced that it would temporarily refrain from assessing customs duties on imports of Ukrainian goods into the EU, while continuing to move forward with formalizing the proposed Free Trade Area between the EU and the Ukraine.
  • March 27, 2014: Both the U.S. Commerce Department's Bureau of Industry and Security (BIS) and U.S. State Department's Directorate of Defenses Trade Controls (DDTC) announced a suspension of the processing of license applications for the export and reexport of commercial/dual-use items subject to the Export Administration Regulations (EAR) and defense articles subject to the International Traffic in Arms Regulations (ITAR) to Russia.
  • March 27, 2014: The Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (P.L. 113-095) was enacted by the U.S. Congress. The law mirrors the three E.O.'s described above, but prohibits the Obama Administration from imposing restrictions on the importation of items into the United States from Russia.
  • May 8, 2014: OFAC published its new Ukraine-Related Sanctions Regulations which implement the three E.O's identified above. As noted above, the names of individuals and entities identified in all of the E.O.'s are published on the SDN Lists.
  • July 16, 2014: OFAC published Directives 1 and 2 pursuant to the mandates of E.O. 13662. These directives prohibit U.S. persons from providing financing or otherwise dealing in new debt of longer than 90 day's maturity or new equity involving certain Russian financial lenders and energy firms. OFAC also created a new Sectoral Sanctions Identification List (SSIL) which identified four financial and energy sector entities, as well as any firm that is 50% or more owned by those firms. Note that these firms are not included on OFAC's SDN Lists, and the Directives do not prohibit or restrict other transactions with SSIL targets, such as normal trade-related activities. The new sanctions are intended to prevent SSIL targets from obtaining new medium and long-term financing from U.S. sources.
  • July 22, 2014: The U.S. Commerce Department's BIS added eleven (11) parties to its Entity List. Designation on the Entity List triggers a license requirement for the export, reexport or foreign transfer of items to designated parties. The BIS has also implemented a policy of denying applications for such exports, reexports and foreign transfers.
  • July 29, 2014: OFAC added a new Russian entity (OJSC United Shipbuilding Corporation) to the SDN Lists, as well as three new entities to the SSIL as follows: Bank of Moscow; Russian Agricultural Bank; and, VTB Bank OAO.
  • July 29, 2014: The BIS announced its new policy of denying exports, reexports or foreign transfers of certain items to Russia that may be used in oil exploration or production activities. OJSC United Shipbuilding Corporation was also added to the Entity List.
  • July 31, 2014: The EU issued Council Decision 2014/512/CFSP and Council Regulation 833/2014 restricting dealings in loans and equity with certain Russian financial and energy firms, imposing an arms embargo on the Russian Federation, restricting exports of all dual-use goods and technology intended for a military end-user or military end-use in Russia and restricting exports of certain energy-related equipment and technology to Russia.
  • August 1, 2014: The BIS published new Russian Industry Sector Sanctions in the Export Administration Regulations. Licensing requirements are triggered when a U.S. exporter, reexporter or foreign transferor knows (or is informed by the BIS) that its goods or technology will be used in Russia's energy sector for certain oil exploration or production activities. Applications for such licenses will be subject to a policy of denial by the BIS.
Companies operating in or dealing with firms in Russia and the Ukraine are urged to continue monitoring the situation closely, and assess how additional sanctions in the future may affect their operations. 
 
Melissa Miller Proctor is a Partner with Sandler, Travis and Rosenberg, P.A., resident in the firm's Arizona office. With significant experience in export controls, customs laws and regulations, and international trade, Melissa works closely with clients to expand their markets while ensuring their regulatory compliance. She may be reached at (480) 305-2110 or via e-mail at mproctor@strtrade.com.

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Tags:  Economic Sanctions  EU  Russia  Ukraine 

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