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In coordination with the G7 and other international partners, the U.S. implemented new Russia-related sanctions and export controls on May 19, 2023. The U.S. also released an additional select list of potential export control evasion “red flags.”
Restrictive economic measures
The Office of Foreign Assets Control (OFAC):
- Sanctioned 22 individuals and 104 entities in more than 20 jurisdictions;
- Expanded the existing services prohibitions to include architecture or engineering services, effective June 18, 2023;
- Added a reporting requirement to Directive 4 under Executive Order 14024, which requires U.S. persons in possession or control of property in which an entity subject to Directive 4 has a direct or indirect interest to submit a report to OFAC by June 18, 2023 and then annually by June; and
- Expanded its sanctions authority to persons operating in the Russian architecture, engineering, construction, manufacturing, and transportation sectors.
The State Department designated or identified as blocked property almost 200 additional individuals, entities, vessels, and aircraft.
FAQ 1128 provides guidance on the scope of the new services prohibitions:
- Architecture services include advisory services; pre-design services; design services, including schematic design, design development, and final design; contract administration services; combined architectural design and contract administration services, including post construction services; and all other services requiring the expertise of architects. The prohibition applies to all types of architectural services from residential, commercial, and industrial to transportation infrastructure, land subdivisions, and urban planning.
- Engineering services include assistance, advisory, consultative, design, and recommendation services concerning engineering matters or during any phase of an engineering project. Engineering design services can be for structure, mechanical, electrical, construction, or industrial engineering, as well as other engineering designs, such as those for acoustics, vibration, traffic control systems, or prototype development for new products; geotechnical, groundwater, and corrosion engineering services; integrated engineering services, such as those for transportation infrastructure or other projects; engineering-related scientific and technical consulting services, including geological, geophysical, geochemical, surface or subsurface surveying, and map making services; testing and analysis services of chemical, biological, and physical properties of materials or of integrated mechanical and electrical systems; and technical inspection services.
OFAC also issued Russia-related General License 13E (“Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024”), General License 66 (“Authorizing the Wind Down of Transactions Involving Public Joint Stock Company Polyus”), General License 67 (“Authorizing Certain Transactions Related to Debt or Equity of, or Derivative Contracts Involving, Public Joint Stock Company Polyus”), and General License 68 (“Authorizing the Wind Down of Transactions Involving Certain Universities and Institutes”), as well as new FAQs on its actions.
Expanded export controls
The Bureau of Industry and Security (BIS) released a final rule implementing the following amendments to the Export Administration Regulations (EAR), effective May 19, 2023:
- The addition of 1,224 industrial items to Supplement No. 4 to Part 746 that will now require a license to export, reexport, or transfer (in-country) to or within Russia or Belarus, including all items classified under any Harmonized Tariff System (HTS) code in Chapters 84, 85, or 90;
- The replacement of the Schedule B numbers in Supplement No. 5 to Part 746 with HTS-6 codes, consistent with the other supplements in this Part;
- The addition of four new chemicals to Supplement No. 6 to Part 746 that will now require a license to export, reexport, or transfer (in-country) to or within Russia or Belarus;
- The addition of HTS-6 code 854800 (Electrical parts of machinery or apparatus, NESOI) to Supplement No. 7 to Part 746, expanding the list of foreign-produced items requiring a license when destined to Russia, Belarus, Iran, or the temporarily occupied Crimea region of Ukraine;
- The addition of the temporarily occupied Crimea region of Ukraine to the destination scope of the Russia/Belarus Foreign Direct Product (FDP) rule; and
- The exclusion of ECCN 5A991 from the “luxury” goods license requirement when exported, reexported, or transferred (in-country) to or within Russia or Belarus for the specified civil end-users outlined in 15 C.F.R. § 746.8(a), which is consistent with how ECCNs 5A992 and 5D992 are also treated under the EAR.
The final rule is scheduled to be published in the Federal Register on May 23. Additionally, BIS added 71 entities to the Entity List.
New export control evasion “red flags”
The Financial Crimes Enforcement Network (FinCEN) and BIS issued a supplemental alert urging U.S. financial institutions to continue being vigilant for potential Russian export control evasion. The alert contains the following new export control evasion “red flags”:
- Transactions related to payments for defense or dual-use products from a company incorporated after February 24, 2022 and based in a non-Global Export Control Coalition (GECC) country. The GECC countries are Australia, Canada, the 27 EU member states, Iceland, Japan, Liechtenstein, New Zealand, Norway, South Korea, Taiwan, the U.S., and the UK.
- A new customer whose line of business is in trade of products associated with the nine HTS codes listed in Supplement No. 7 to Part 746 of the EAR (identified by FinCEN as “High Priority Items”), is based in a non-GECC country, and was incorporated after February 24, 2022.
- An existing customer who did not receive exports associated with the High Priority Items, but who is receiving such items now.
- An existing customer, based outside the United States, received exports associated with one or more of the High Priority Items prior to February 24, 2022 and requested or received a significant increase in exports with those same items thereafter.
- A customer lacks or refuses to provide details to banks, shippers, or third parties, including about end users, intended end-use, or company ownership.
- Transactions involving smaller-volume payments from the same end user’s foreign bank account to multiple, similar suppliers of dual-use products.
- Parties to transactions listed as ultimate consignees or listed in the “consign to” field do not typically engage in business consistent with consuming or otherwise using commodities (e.g., other financial institutions, mail centers, or logistics companies).
- The customer is significantly overpaying for a commodity based on known market prices.
- The customer or its address is similar to one of the parties on a proscribed parties list, such as the BIS Entity List, the SDN List, or the U.S. Department of State’s Statutorily Debarred Parties List.