The Biden administration took further action this week to degrade the ability of Belarus and Russia to sustain a military campaign against Ukraine. The measures are the latest in a series of restrictions levied by the U.S. in coordination with European allies. The U.S. Department of Commerce's Bureau of Industry and Security (BIS) extended the controls on hardware, software, and technology that it had imposed on exports to Russia to include exports to Belarus and severely limited the use of certain License Exceptions including License Exception ENC and AVS. Additionally, the U.S. Department of Treasury's Office of Foreign Asset Control (OFAC) issued clarification of the reach of its Russia-related sanctions and issued key general licenses including for tax payments through the Central Bank of Russia (Central Bank).
Controls Imposed on Russia Extended to Belarus
On March 3, BIS published a final rule "Implementation of Sanctions Against Belarus Under the Export Administration Regulations (EAR)," subjecting Belarus to the same EAR licensing restrictions imposed on Russia last week. The export control measures are intended to restrict Belarus' access to items it needs to support its military capabilities and prevent such items from being diverted through Belarus to Russia. The final rule notes that with these additional controls BIS is primarily targeting the Belarusian defense, aerospace, and maritime sectors, and that the controls "will cover a broad scope of items that Belarus seeks to advance its military capabilities or to provide to the Russian government to enable the latter's projection of power and fulfillment of its strategic ambitions."
Controls on Items in Categories 3 Through 9: In line with the controls on Russia, the controls targeting Belarus impose new license requirements for all items in Categories 3 through 9 of the EAR's Commerce Control List (CCL) and specify a license review policy of denial, with some exceptions meriting case-by-case review. This new restriction prevents U.S. companies from the export, re-export, or transfer of most technology and software items to Belarus and also prevents foreign companies using U.S. software or technology from sending certain sensitive items to Belarus.
Foreign Direct Product Rule: Additionally, the two foreign direct product rules specific to reexports and transfers involving Russia and Russian military end users announced last week were revised to include Belarus and Belarusian military end users and end uses. These new restrictions broadly prohibit exports of items to military end users and uses in Belarus. BIS also added two Belarusian entities to the Entity List as "military end users," preventing the transfer of items subject to the EAR to the listed parties.
The EU similarly approved new sanctions on exports to Belarus on March 2, as well as the additional designations of 22 Belarusian military and defense officials for asset freezes. On March 2, the UK also imposed asset freezes on Belarusian military officials and defense companies.
New Restrictions on the Use of Key License Exceptions Including for Encryption Products
The latest final rule significantly curtails the availability of License Exceptions for export activities to Russia and Belarus. Last week, BIS limited the use of License Exception ENC to only end users who are not government entities or state-owned enterprises. On March 3, BIS further restricted the use of License Exception ENC so that it can now only be used for civil end-users that are subsidiaries or joint ventures of U.S. companies or our allies. Specifically, License Exception ENC can be used for:
- wholly-owned U.S. subsidiaries1;
- foreign subsidiaries of U.S. companies that are joint ventures with other U.S. companies;
- joint ventures of U.S. companies with companies headquartered in countries from Country Group A:5 and A:6 in Supplement No. 1 to Part 740 of the EAR countries (allied countries)2;
- wholly-owned subsidiaries of companies headquartered in allied countries; or
- joint ventures of companies headquartered in allied countries with other companies headquartered in allied countries.
We hope that BIS will clarify whether License Exception ENC can still be used for a U.S. company's employees and individual contractors located in Russia and Belarus.
This rollback similarly applies to License Exception TSU used for software updates which can only be used for the same set of end users.
For mass market items, the changes also allow the export of all items classified under ECCNs 5A992 and 5D992 no license required (NLR) to the same end users as those eligible to receive ENC-related items. Mass market encryption products may be eligible for export, reexport, and in-country transfers under license exception CCD to individuals and independent non-government organizations in Belarus, Cuba, and Russia. The rules specifically exclude the following entities from obtaining items under License Exception CCD:
- The Russian government;
- The Belarusian government;
- Organizations administered or controlled by the Russian government or the Belarusian government;
- Certain Russian government officials; and
- Certain Belarusian government officials.
Finally, BIS clarified that the items eligible for License Exception CCD do not include non-consumer servers, but do include consumer servers, a move which is intended to challenge the ability of the Russian government to control messaging to its population.
OFAC Clarifies Russia-Related Directive 4 and Transactions with Sberbank
In FAQ 1101, OFAC noted that the 50 percent rule does not apply to Directive 4—the restriction imposed on all transactions by U.S. financial institutions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. Thus, companies owned (50 percent or more) or controlled by an entity designated in Directive 4, such as Sberbank, are not themselves subject to this restriction on all transactions.
Although Sberbank is outside of the reach of Directive 4, it is still subject to Directive 2. OFAC clarified that the restrictions on Sberbank included in that Directive only apply to activities of U.S. financial institutions. U.S. individuals and companies that are not "U.S. financial institutions," as defined in the Russia-related CAPTA Directive, are not prohibited from processing transactions involving Sberbank.
OFAC Adds Four New General Licenses for Russia Transactions
In connection with these additional sanctions, OFAC issued new general licenses yesterday authorizing activities otherwise prohibited under Executive Order 14024:
- General License 13: Transactions necessary for U.S. persons to pay taxes, fees, or import duties, and receive permits, licenses, registrations, or certifications to Directive 4 entities; and
- General License 14: Certain clearing and settlement transactions by Directive 4 entities.
Both general licenses exclude debits by a Directive 4 entity to a U.S. bank.
OFAC also has issued general licenses clarifying the applicability of sanctions to transactions by U.S. persons involving certain Russian financial institutions:
- General License 9A: Transactions relating to dealings in certain debt or equity;
- General License 10A: Transactions relating to certain derivative contracts; and
- General License 15: Transactions with any entity owned 50 percent or more, directly or indirectly, by Alisher Burhanovich Usmanov that is not itself listed.
These general licenses supplement those issued by OFAC last week related to a 30-day wind-down period for most designated Russian financial entities, certain energy transactions payments, specific bonds and debt dealings, and transactions related to agricultural commodities, medicine, and medical equipment exported to Russia.
[1] Please note: The standard required to meet the definition of a wholly-owned subsidiaries is not the same as that included for purposes of License Exception ENC.
[2] Country Group A:5 includes: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, South Korea, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, and United Kingdom; Country Group A:6 includes: Albania, Cyprus, Israel, Malta, Mexico, Singapore, South Africa, and Taiwan.
