Archive for the ‘Russia’ Category

No More Oil from Yuzhno-Kirinskoye Field

Friday, September 11th, 2015 by Danielle McClellan

2015/09/11

By: Danielle McClellan

The Bureau of Industry and Security (BIS) has added the Russian oil and gas field, the Yuzhno-Kirinskoye Field to the Entity List. This field is located in the Sea of Okhotsk and has been reported to contain substantial reserves of gas and oil. Due to this information the US Government has decided that exports, reexports, and transfers (in-country) of items subject to the EAR to Yuzhno-Kirinskoye will require a BIS license.

This field will be listed on the Entity List under the destination of Russia effective August 7, 2015. The rule will also change the following:

Clarify the introductory text of the Entity List to specify that the embargoes and other special controls part of the EAR is also used to add entities to the Entity List

  • The first sentence of the introductory text of the Entity List to add a reference to part 746. This clarification to the introductory text will make it clear that this Supplement lists certain entities subject to license requirements for specified items under this part 744 and part 746 of the EAR.

Change the Russian industry sector sanctions by clarifying the additional prohibition on those informed by BIS also includes end-uses that are within the scope of the Russian Industry sector sanctions.

  • In § 746.5 (Russian industry sector sanctions), this final rule revises the second sentence of paragraph (a)(2) for the additional prohibition on those informed by BIS to add the term ‘‘end- use’’ after the term ‘‘end-user.’’ This change clarifies that the additional prohibition described in this paragraph (a)(2), as part of the BIS ‘‘is informed’’ process, may be based on an end-user or end-use when BIS determines there is an unacceptable risk of use in, or diversion to, the activities specified in paragraph (a)(1) of this section in Russia. This clarification does not change the scope of § 746.5, but rather clarifies the cases in which BIS will use the ‘‘is informed’’ process to assist exporters, reexporters, and transferors to ‘‘know’’ when an export, reexport, or transfer (in-country) is subject to the license requirements specified in § 746.5.

Federal Register Notice: http://www.gpo.gov/fdsys/pkg/FR-2015-08-07/pdf/2015-19274.pdf

Russia/Crimea Restrictions…You Are Responsible—You Can’t Say BIS Didn’t Officially Warn You

Tuesday, June 2nd, 2015 by Danielle McClellan

2015/06/02

By: Danielle McClellan and John Black

Without reading the details of this guidance, you should get this message:  You better be careful so you do not end up being the first one caught with a significant violation of the new, complicated US sanctions and export controls put in place in response to Russia’s actions in Ukraine and the situation in Crimea.

If you have not studied the complicated array of various new BIS and OFAC rules, you should do so immediately

If you do not understand that these BIS and OFAC rules can have a dramatic impact in your business activities in Russia, Ukraine, Crimea and nearly every other country in the world, you need to study the rules again and study the guidance from the departments of Commerce and Treasury regarding the scope of their respective rules.

The new rules have a remarkably broad potential scope when compared to other US sanctions and export controls.  The broad scope is at least partially due to the new, prohibited parties lists that target important and large Russian entities and the multitude of the unlisted affiliates of the listed parties that often are subject to the same restrictions as the listed parties.

Now, you add to that the BIS guidance that says if you are dealing with a company in Panama and that company’s website says or hints that it is related to a certain listed party, you may have a problem.

And don’t fail to notice that for purposes of these sanctions BIS says “Exporters.”

Finally, one purpose of the guidance may be to give exporters and reexporters friendly advice.  Another purpose may be to put exporters and reexports officially on notice regarding how to comply with the complex rules so as to remove the “we didn’t know BIS wanted us to do that” argument from the list of possible arguments to use to negotiate smaller penalties if you end up doing something BIS doesn’t like.

Anyway, enough of the warnings.  Here is the news:

BIS recently released guidance related to the current export restrictions imposed on Russia due to the “ongoing situation in Crimea.” In August 2014, BIS placed restrictions on exports of certain items to Russia and expanded some licensing requirements later in December 2014.

BIS is now providing additional guidance to US exporters in order to prevent unauthorized reexports to Russia, mainly those involving NS-controlled items or items listed in Supplement No. 2 to Part 744 of the EAR.  BIS advised that exporters should remember that when a party who is not going to use the item is listed as the final destination (e.g., a freight forwarder), exporters have an affirmative duty to inquire about the end use, end user, and ultimate destination of the item(s) to ensure their transaction fully complies with the EAR.  BIS is reminding exporters to do the following:

  • When inquiring into the ultimate destination of the item consider e-mail addresses, telephone number country codes and languages used in communications as well as the customers website
  • Research the intermediate and ultimate consignees and purchaser (addresses, business registers, company profiles, websites etc.)
  • Screen all customers using an export screening tool
  • Pay attention to the countries that freight forwarders serve
  • Look into industry sectors and distributors or non-end user customer supplies

If you have any concerns about suspicious inquires that come to your company, BIS encourages you to contact local BIS Export Enforcement Office or use BIS’s online tip form.  Of course, before you contact the BIS law enforcement agents, it would be prudent to discuss the situation you are considering and the related history with your management and legal counsel.

BIS Guidance: http://www.bis.doc.gov/index.php/compliance-a-training/export-management-a-compliance/russia-due-diligence-guidance

Potential Poster Child for Violating US Export Controls on Russia?: Flider Electronics’ Put on the U.S. Denial List for Shipments to Russia

Monday, April 27th, 2015 by Brooke Driver

2015/04/27

By: Brooke Driver

BIS recently issued a temporary denial order suspending Californian-based Flider Electronics, LLC’s export privileges for 180 days, due to two of its officers’ illegal activities, who are accused of smuggling and money laundering.

BIS claims that the company exported items subject to the EAR to Russia without a license by transshipment through third countries, listing in AES filings Estonian and Finnish end-users who, in reality, acted as freight forwarders. In addition, BIS discovered no licensing history from the company of controlled U.S.-origin electronics to Russia.

BIS chose to issue the temporary denial order due to its belief that a violation of the EAR was “imminent in both time and degree of likelihood.”  This temporary denial leaves the door open for BIS to impose further penalties.

Russia likely is joining China and Iran at the top of the list of countries that will get you in the most trouble for violating US export or reexport controls.  The US Government is certainly looking for a more well-known company to be the “Don’t Let This Happen to You” poster child for violations of US trade controls on Russia.

BIS Embargoes Crimea: No Vodka for You!

Wednesday, February 4th, 2015 by Brooke Driver

2015/02/04

By: John Black

In the January 29, 2015 Federal Register the Bureau of Industry and Security (BIS) amended the Export Administration Regulations to impose a comprehensive embargo on exports and reexports to, and transfers inside, “the Crimea region of Ukraine (CRU”).  The EAR now requires a license for all items destined to or moving inside CRU, except for medicine and food classified as EAR99.

In an unprecedented assault on a famous stereotypical hobby of Russians in Crimea and around the world, the EAR requires a license for exports and reexports to, and transfers inside, CRU of alcoholic beverages.  The EAR definition of food that does not require a license explicitly excludes alcoholic beverages from the definition of food, thus extending the US embargo to apply to any kind of booze, in addition to machine tools, military aircraft parts, and teflon-lined valves.

The EAR defines CRU to include “the land territory in that region as well as any maritime area over which sovereignty, sovereign rights, or jurisdiction is claimed based on purported sovereignty over that land territory.”

In addition to the new license requirement, the EAR prohibits the use of license exceptions except when the new 746.6 specifically authorizes license exceptions.  EAR 746.6(c) authorizes these license exceptions:

  • TMP for items for use by news media (including booze)
  • GOV for the US Government (but not to the other national governments typically GOV-eligible) , the International Atomic Energy Agency, or the European Atomic Energy Community (including booze)
  • GFT for gift parcels and humanitarian donations (not including booze)
  • TSU for operation technology and software (not including booze, but including instructions on how to open and consume booze previously lawfully exported or reexported to, or transferred within, CRU)
  • BAG for exports by people leaving the United States (including booze, but BAG requires the items be for use by the traveler, so don’t get any ideas)
  • AVS for civil aircraft and vessels (not including booze)

While generally speaking the EAR has imposed a comprehensive embargo on CRU, there are important differences between the long-standing EAR embargoes on Cuba, Iran, North Korea, Sudan and Syria and the new embargo on CRU.  For example, for CRU, there is a 25% US controlled content de minimis rule for foreign items with US content, compared to the 10% level for the long standing embargoed countries.
This new regulation partially implements the December 19, 2014 executive order in which President Obama targeted the Russian-occupied region of Ukraine, Crimea. In the first section of this order, Obama effectively shut down any trade or business relationship between the United States and Crimea, stating that imports, exports, new investments—any kind of business transaction—between the U.S. and Crimea is strictly prohibited. Likewise, the president froze all U.S. assets of entities operating in the Crimea region or associated with individuals or entities in that region. As an extra measure of precaution, Obama also prohibits these entities from entering the United States.

Canada Expands Sanctions against Russia to Target Russian Oil Industry

Wednesday, February 4th, 2015 by Brooke Driver

2015/02/04

By: Brooke Driver

In solidarity with U.S. and EU energy sector restrictions placed on Russia, Canada announced this December its decision to impose restrictions on the export of certain goods and services related to Artic shale oil exploration or production. The December order reflects the August 6, 2014 Harper government announcement that it would impose export restrictions on technologies used in Russian oil exploration activities. Specifically, the sanction prohibits entities located in Canada or Canadian entities located outside the country from exporting or supplying any listed goods that to a Russian entity that would be used in offshore oil exploration or production at a depth greater than 500 meters, in oil exploration or production in the Arctic or in shale oil exploration or production. Canada has also added 20 Russian and Ukrainian individuals to its lists of designated persons.

Senate Bill Extends U.S. Sanctions against Russia to Include Non-U.S. Persons

Tuesday, December 30th, 2014 by Brooke Driver

2014/12/30

By: Brooke Driver

On December 2, 2014, U.S. Senator Bob Corker introduced Senate Floor Amendment No. 3966 to S. 2828 Ukraine Freedom Support Act of 2014. If imposed, the amendment would significantly expand the scope of U.S. sanctions against Russia; the current sanctions only affect U.S. entities or shipments consisting of a certain amount of U.S. content, but the proposed amendment would alter them to impose severe sanctions on foreign persons if the President of the United States “determines that the foreign person knowingly makes a significant investment in a special Russian crude oil project.” The only comparable U.S. sanctions currently are those imposed against non-U.S. banks and companies participating in transactions with Iran.

The proposed amendment does not specify what “significant” or “investment” mean, and, if passed, would grant the President a great deal of control in determining the meaning of these terms and in doling out corresponding punishments, which could include:

  • Revocation of Export-Import Bank Assistance: The President could demand that the Export-Import Bank of the United States not approve any transaction with the foreign person.
  • Procurement Sanction: The President may prohibit the head of any executive agency from doing business with the foreign person.
  • Arms Export Prohibition: The President may prohibit the issuance of any export license or suspend any license for the foreign person.
  • Property Transactions: The President may prohibit the foreign person from
  1. acquiring, holding, withholding, using, transferring, withdrawing, transporting, or exporting any property that is subject to the jurisdiction of the United States and with respect to which the foreign person has any interest;
  2. dealing in or exercising any right, power, or privilege with respect to such property; or
  3. conducting any transaction involving such property.
  • Banking Transactions: The President may prohibit any transfers of credit or payments between financial institutions or by, through, or to any financial institution, to the extent that such transfers or payments are subject to the jurisdiction of the United States and involve any interest of the foreign person.
  • Prohibition on Investment in Equity or Debt of a Sanctioned Person: The President may  prohibit any U.S. person from transacting in, providing financing for or otherwise dealing in debt:
  1. of longer than 30 days’ maturity of a foreign person, with respect to which sanctions are imposed under subsection (a) or of longer than 90 days’ maturity of a foreign person, with respect to which sanctions are imposed under subsection (b); and
  2. issued on or after the date on which such sanctions are imposed with respect to the foreign person.
  3. equity of the foreign person issued on or after that date.
  • Exclusion from the United States and Revocation of Visa or Other Documentation: In the case of a foreign person who is an individual, the President may direct the Secretary of State to deny a visa to, and the Secretary of Homeland Security to exclude from the United States, the foreign person, subject to regulatory exceptions to permit the United States to comply with the agreement regarding the headquarters of the United Nations, signed at Lake Success on June 26, 1947 and entered into force on November 21, 1947, between the United Nations and the United States, or other applicable international obligations.
  • Sanctions on Principal Executive Officers: In the case of a foreign person that is an entity, the President may impose on the principal executive officer or officers of the foreign person, or on individuals performing similar functions and with similar authorities as such officer or officers, any of the sanctions described in this subsection applicable to individuals.

Currently, there is no scheduled vote for the amendment, but if the House and Senate do not vote on the proposed legislation before the lame duck session of Congress ends, it will likely be reintroduced for a vote in the new Republican-weighted Congress in January 2015.

U.S. Russia Sanctions—What You Need to Know and Do Now

Tuesday, October 7th, 2014 by Brooke Driver

2014/10/07

By: John Black

As U.S. trade sanctions on Russia continue to evolve and expand, they are beginning to have an increasingly significant impact on U.S. and non-U.S. exporters and financial institutions.  As the rules expand, their complexity increases a bit.  Nonetheless, the current rules remain focused on a small number of important Russian entities and on Russian military end uses and military end users.  It’s high time for a summary of where the rules stand today.

As a result of the Russian invasion and military actions in Ukraine, the U.S. imposed its first round of trade sanctions against Russia in March 2014.  As Russian military forces continue at least to stay in, if not be active in, Ukraine (depending on the state cease-fire at any given moment), the U.S. is continuing to expand its trade sanctions and export/reexport controls on Russia.  Canada, the European Union and other countries that have export controls also have imposed ever-expanding sanctions and export controls on Russia—in some cases, these other countries have restrictions that are broader than the U.S. restrictions.

While the initial round of U.S. actions might not have had a significant impact on exporters and reexporters, each subsequent expansion of U.S. restrictions is gradually and significantly expanding the impact.  At one level, the U.S. rules are complex, but before digging into the complex details (and in order to know if you should dig into the complex details), take a look at the following breakdown of current U.S. restrictions aimed at Russia.

1)  General Focus on Russia Defense, Financial and Energy Sectors:  The U.S., along with many other countries, is focusing its restrictions on the defense, financial and energy sectors in the Russian economy.  The U.S. has put some significant Russian entities in these sections on special restricted parties lists.

2) Export/Reexport License Review Policy:  The United States has a stricter license approval policy for Russia.  In short, if you apply for a license for a listed party or for activities involving the Russian defense, energy and financial sectors, you should expect that there is a good chance it will not be approved.  There certainly may be some cases where licenses will be approved, but those likely are the exceptions to the rule.  License applications for other exports/reexports to other sectors of the Russian economy will be reviewed on a case-by-case basis, which means that certain applications that were routinely approved in the past may not be approved now.

3) It Starts with Russian Parties Added to Restricted Parties Lists:  Both the Office of Foreign Assets Control and the Bureau of Industry and Security have added Russian entities that are primarily in the defense, energy and financial sectors to their respective restricted parties list.   OFAC new rules are largely focused on its new list known as the Sectoral Sanctions Identification (SSI) List.  BIS added Russian parties of concern to its Entities List.

While U.S. prohibited parties lists include a wide range of obscure persons, companies and entities around the world, the newly added Russian entities include leading Russia energy, defense and financial entities.  This means that the odds of you dealing with a newly listed Russia entity are significantly higher than the odds of you dealing with an obscure terrorist entity located in remote areas of Yemen.  If you are using a third party screening tool, such as mkdenial.com or a constantly updated internal prohibited parties list, you are already in a position to ensuring you are screening all known names of all known parties you do business with against the most up-to-date lists.  That is the critical first step.

The critical second step is to go to the OFAC and BIS websites and look at the names of the newly listed parties to see if they are parties with which you have done business or you may soon do business.  Share the lists of the new parties with other people in your organization that should know about the new listings.   Compare the lists to what you are doing in Russia, especially in light of OFAC’s rule that its restrictions apply to entities that are not listed if one or more listed entities owns a combined 50% or more of the unlisted entity.

If you find out you are dealing (or might soon deal or have dealt) with a new listed party, you need to know what the new rules are for those parties.

4) OFAC Rules for the SSI Parties:  The rules are not as simple as “you may not do business with a newly listed SSI.”  Operating under several executive orders OFAC has issued directives that describe its new, limited restrictions on dealing with these parties.  In short:

  • SSI Financial Services Entities:  You may not be involved in financing for debt longer than 30 days maturity or new equity to listed financial sector entities according to the July 16, 2014 amended Directive 1.  You may not be involved in activities prohibited by the prior version of Directive 1 which had a 90 day rule.
  • SSI Energy Entities:  You may not be involved in financing for debt longer than 90 days maturity to listed energy sector entities according to the July 16, 2014 amended Directive 2.  You may not be involved in activities prohibited by the prior Directive 2.In addition, Directive 4 says you may not export or reexport anything in support of exploration or production for deep water, Artic offshore, or shale projects that have the potential to produce oil in the Russian Federation when listed energy section entities are involved.
  • SSI Defense and Related Materiel Entities:  You may not provide financing for debt longer than 30 days maturity to listed defense and related material entities according to Directive 3.

As you see, the OFAC directives do not prohibit all exports or reexports.  In some cases, a problem would involve making an otherwise legitimate export with a problematic 90 day payment term that would exceed the 30 day limit.  In other cases, the comprehensive ban on exports and reexports to energy sector entities applies only when the activities involve deep water, Arctic offshore or shale projects.

5) BIS Rules for Parties on the Entities List:  BIS rules for its newly listed entities depend on the entity.  For many certain newly listed entities, all items subject to the EAR require an export/reexport license.  For other newly listed items, such as Gazprom OAO, a license is required only when items are destined for deep water, Arctic offshore, or shale oil or gas exploration or production operations in Russia as described in 746.5.  When you find a listed entity, the Entity List will give you the rules applicable to that entity.

6)  BIS Controls on Certain Items to Certain Energy Activities:  The EAR has new rules that prohibit the export, reexport or in-country transfer of items in ECCNs 0A988, 1C992, 3A229, 3A231, 6A991, 8A992 or 8D999, or items in the new Supplement No. 2 to 746 when those items are destined to either unknown end use or for use directly or indirectly related to the exploration or production of oil or gas in Russian deep water, Arctic offshore or shale formations.  Supplement No. 2 to 746 uses Schedule B Numbers to identify the items it controls.  Importantly, these new rules apply even when the items are not destined for a Russian energy entity on a BIS or OFAC list.

7)  BIS Imposes Military End-Use Export/Reexport Controls on Russia:  BIS now applies the long standing 744.21 China military end use rule to Russia.  As with China, this rule requires a license for normally NLR items in ECCNs in Supplement No. 2 to 744 when destined for certain limited “military end use” activities as defined in 744.21.  These uses include delivery to activities involving the production of military items, but do not include a complete ban on delivery to military entities, as it focuses on the nature of the end use, not on the end user.

BIS also created a military end user rule for Russia in 744.21 that does not apply to China.  This rule is a complete ban on delivery of the Supp. 4 ECCNs to military end users in Russia, which include national armed services (army, navy, marine, air force or coast guard), as well as the national guard and national police, government intelligence or reconnaissance organizations, or any person or entity whose actions or functions are intended to support “military end uses” as defined in 744.21.

Finally, a license is required for Russia, like China, for all items controlled in 9X515 and 600 series ECCNs including the y. paragraphs that are No License Required for most other countries.

8)   What Should You Do?  The first thing you need to do is make sure you take a close and thorough look at the new rules to determine the extent to which you are involved in activities with the listed parties or subject to the new energy sector end use restrictions, the military end-use restrictions, or the military end user restrictions.  Take immediate measures to comply with the current rules as they apply to your current activities.  This includes non-traditional export compliance issues, such as looking at payment terms when dealing with OFAC listed entities.

Next, take a look at your current and near future activities in Russia to see which things you are doing that might be hit by future expansions of U.S. restrictions.  I do not know what is next, but certain potential areas where we could see new restrictions come to mind.  For example, you might want to consider what you would do if future restrictions would apply to one or more of the following that you are currently engaged in:

  • Activities with currently unlisted parties in the defense, energy or financial sectors
  • Non-military business with Russian entities who are engaged in both military and non-military activities
  • Dealings with the Russian Government
  • Russian energy activities that are not currently the targeted activities
  • Russian entities that are not listed but are related to listed entities or are similar to listed entities

8)  The Future of U.S. Sanctions and Export/Reexport Controls on Russia:  It looks like Russia might be moving ahead of China on the list of U.S. export controls biggest concerns.  I don’t know what is next or who is next, but I did give some ideas about potential areas where the U.S. could expand restrictions.   Right now the U.S. and other countries seem to be ratcheting up trade sanctions as Russian forces continue to stay in, or be active in, Ukraine.  If Russia does not change its actions, it is reasonable to expect the United States to continue to expand its sanctions and export/reexport controls on Russia.  It is not likely that the United States will impose on Russia sanctions and export/reexport controls similar to U.S. rules for Cuba, Iran, North Korea, Sudan and Syria.

On the other hand, the United States very well could lift all of its sanctions and controls on Russia if Vladimir Putin and the leaders of the United States, Canada and the EU make amends and sit down around the campfire singing Kumbayah while President of the United States John Black plays accompaniment on guitar.