Banking, Exports & Navy Use Restrictions

As an replace to Ok&L Gates’ earlier alerts of 24 February and 25 February, U.S. President Joe Biden issued two govt orders (EOs) final week imposing extra sanctions towards Russia. The primary order, EO 14066, issued on 8 March 2022, prohibits: (1) U.S. imports of Russian oil and different vitality merchandise, and (2) new investments by U.S. individuals in Russia’s vitality sector. The second order, EO 14068, issued on 11 March 2022, restricts: (1) exports of luxurious items to Russia and Belarus, (2) U.S. imports of Russian alcohol, seafood, and diamonds, and (3) the availability of U.S. dollar-denominated banknotes to Russia and the Russian Authorities worldwide. This alert describes these new developments in additional element.

I.    ENERGY IMPORTS & INVESTMENT

EO 14066 has two principal prohibitions. First, it bans all importation into the US of Russian-origin crude oil, petroleum, petroleum fuels, oils, and merchandise of their distillation, liquefied pure gasoline, coal, and coal merchandise. Together with the EO, the Workplace of Overseas Belongings Management (OFAC) issued Normal License 16, which offers a “wind down” interval authorizing transactions “ordinarily incident and essential to” the prohibited imports if they’re “pursuant to written contracts or written agreements entered prior to eight March 2022,” and accomplished by 12:01 am EST on 22 April 2022.

Second, the EO prohibits U.S. individuals, wherever they’re situated, from “new funding within the vitality sector within the Russian Federation.” The time period “vitality sector” will not be outlined within the EO; nonetheless, primarily based on the language of Normal License 8A, during which OFAC approved sure transactions “associated to vitality,” it’s probably OFAC will interpret “vitality sector” to embody, at the least, the entire following: 

• The extraction, manufacturing, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or buy of petroleum, crude oil, lease condensates, unfinished oils, pure gasoline liquids, petroleum merchandise, pure gasoline, coal, biofuels, uranium (in any kind), and different merchandise able to producing vitality; and
• The event, manufacturing, era, transmission, or trade of energy, by way of any means, together with nuclear, thermal, and renewable vitality sources.

Equally, the EO doesn’t outline the time period “funding,” however, in different contexts, OFAC has interpreted the time period “funding” broadly to incorporate any transaction that constitutes a dedication or contribution of funds or different property or a mortgage or different extension of credit score to an enterprise. This would come with, amongst different issues, loans, extensions of credit score, assumptions or ensures, overdrafts, foreign money swaps, purchases of debt securities, mortgage purchases, gross sales of monetary property topic to an settlement to repurchase, renewals or refinancings whereby funds or credit are transferred or prolonged, and drawdowns on present traces of credit score.

This ban on funding, which is efficient instantly, applies solely to “new” investments by U.S. individuals and, due to this fact, doesn’t immediately have an effect on present vitality investments in Russia’s vitality sector. It’s probably, though not solely clear, that the funding ban covers new investments in corporations and initiatives exterior of Russia which can be owned or managed by individuals in Russia. OFAC is more likely to concern interpretive steerage on this and different points within the coming days.

You will need to be aware that U.S. individuals are prohibited, not solely from participating within the above vitality imports and investments immediately, but in addition not directly, or by facilitating any facet of a non-U.S. individual’s engagement in prohibited imports or investments (e.g., offering approval, financing, ensures, or different assist). U.S. individuals should not prohibited, nonetheless, from transactions associated to the importation of Russian vitality commodities into jurisdictions exterior the US. For functions of those new guidelines, U.S. individuals are outlined to incorporate authorized entities established beneath U.S. legislation and their overseas department workplaces, U.S. residents and everlasting residents (i.e., inexperienced card holders) wherever situated or employed globally, and different individuals whereas in the US. 

II.    LUXURY EXPORTS, RUSSIAN IMPORTS, AND RESTRICTIONS ON U.S. BANKNOTES

EO 14068 accommodates the next import and export restrictions for luxurious items, seafood, diamonds, and U.S. banknotes.  

A.    Luxurious Exports to Russia and Belarus

The EO bars the exportation, reexportation, sale, or provide (immediately or not directly) from the US, or by a U.S. individual (wherever situated), of “luxurious items” to Russia or Belarus, until licensed. This prohibition is carried out by a brand new closing rule, issued by the Bureau of Trade and Safety, which identifies the numerous variety of items topic to this restriction, listed by Schedule B quantity. Along with barring the export of listed luxurious items to Russia and Belarus, the ultimate rule restricts exports to sure Russian and Belarusian oligarchs and different people worldwide.

Whereas the EO’s restrictions on luxurious good exports grew to become efficient instantly, the EO accommodates a restricted financial savings clause. The financial savings clause permits lined exports that have been en route aboard a provider to a port of export, reexport, or switch (in-country) on 11 March 2022, to proceed to their vacation spot, offered that they have been shipped pursuant to present orders for export, reexport, or switch to that vacation spot.

You will need to be aware that these export restrictions apply to extra than simply U.S.-origin luxurious items. First, the restrictions apply to all items listed beneath the ultimate rule which can be topic to the Export Administration Laws (EAR). This contains merchandise which can be: (1) U.S.-origin (wherever they’re situated); (2) situated in the US (no matter their origin); (3) produced exterior the US with greater than 25% (by worth) U.S. managed content material; and (4) produced exterior the US and lined by the particular “overseas direct product guidelines” for Russia, which is mentioned in our prior alert. Second, even with regard to merchandise that aren’t topic to the EAR, the textual content of the EO signifies that U.S. individuals, wherever they’re situated, are barred from the exportation, reexportation, sale, or provide of lined luxurious items to Russia, Belarus, and designated events, though additional clarification on this level could also be forthcoming.  

B.    Seafood, Alcohol, and Diamond Imports

Moreover, the EO prohibits the importation into the US of Russian-origin fish, seafood, seafood preparations, alcoholic drinks, and non-industrial diamonds. To assist in figuring out items topic to this import ban, OFAC issued steerage figuring out particular codes within the Harmonized Tariff System of the US, which may be discovered right here. OFAC has made clear that non-U.S. individuals should not prohibited beneath the EO from importing lined Russian items into jurisdictions exterior the US. OFAC additionally issued Normal License 17, which authorizes the wind down of transactions associated to the above prohibited imports if they’re pursuant to present contracts and concluded by 25 March at 12:01 am EST. As well as, U.S. importers are permitted to promote or re-direct shipments beforehand destined for U.S. ports to events exterior the US.

C.    U.S. Banknote Restrictions

Lastly, the EO prohibits the exportation, reexportation, sale, or provide (immediately or not directly) from the US, or by a U.S. individual (wherever situated) of U.S. dollar-denominated banknotes (i.e., paper foreign money) to Russia and to the Authorities of the Russian Federation worldwide. The “Authorities of the Russian Federation” is outlined broadly to incorporate any subdivision, company, instrumentality, or celebration owned, managed, directed by, or appearing on behalf of the Russian authorities. OFAC issued Normal License 18 to authorize transactions obligatory for the switch of U.S. dollar-denominated banknotes for noncommercial, private remittances from: (1) the US or a U.S. individual, wherever situated, to a person situated within the Russian Federation, or (2) a U.S. one that is a person situated within the Russian Federation.

Signaling extra sanctions to come back, the EO authorizes the Division of Commerce to impose import restrictions on extra items in addition to authorizes the Division of the Treasury to impose restrictions on new funding in different sectors of the Russian economic system. 

III.    CONCLUSION

Ok&L Gates will proceed to comply with the impression and modifications to the US’ imposition of financial sanctions with respect to Russia.