Posts Tagged ‘Russia’

How Do We Measure Up?: U.S. Versus Russia and CIS Classification

Wednesday, July 16th, 2014 by Brooke Driver

2014/07/16

By: Jay Nash

Your company exports dual-use items (goods or technologies) from Russia and other Commonwealth of Independent State (CIS) countries (including Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Ukraine, and Uzbekistan). Your items already have been classified according to the U.S. Commerce Control List (CCL) (or the 2012 EU “List of Dual-Use Items”), and you want to know, in general, whether those ECCNs/classifications would be the same in those CIS countries, and if they could be used to determine when you would need a license to export those items.

A U.S. ECCN or a classification in accordance with the EU “List of Dual-Use Items” for a given item may provide an indication that the item is subject to control in CIS countries in some cases, but in many cases it cannot. Several CIS countries, including Russia, Belarus, and Kyrgyzstan, employ a unique classification numbering system for export controlled items, while others pattern their national control lists after (or have adopted wholesale) the European Union’s (EU) “List of Dual-Use Items.” Even the CIS countries that pattern their control lists after the EU may have discrepancies with the U.S. CCL, the EU “List of Dual-Use Items” and amongst each other.

In the case of CIS countries that pattern their control lists after the EU “List of Dual-Use Items”-such as Kazakhstan, Azerbaijan, and Armenia-it is possible that a U.S. ECCN or EU classification for a given item will be close to the item classification number for the same item in those countries. Even then, however, one would need to account for any discrepancies that may still exist between entries in the U.S. CCL and the 2012 EU “List of Dual-Use Items” (the technical parameters of entries on the U.S. CCL may be more detailed or altogether different than corresponding entries on the 2012 EU “List of Dual-Use Items”) and between the control lists of those countries and the 2012 EU “List of Dual-Use Items.” The control lists of Ukraine, Kazakhstan, Azerbaijan, and Armenia each have unique characteristics that may lead to discrepancies between them and the U.S. CCL and 2012 version of the EU “List of Dual-Use Items.” For example, Ukraine separates its listings of dual-use items into five distinct control lists (conventional dual-use, chemical-related, biological-related, missile dual-use and nuclear-related), does not assign five-digit alpha numeric classification codes to all of the items on all of its lists and updates its lists at different times so that some of the five lists are less current than the current EU “List of Dual-Use Items”, while others (such as the Missile Dual-Use List) have been updated more recently than the EU list. Kazakhstan’s control list was last updated in 2008, whereby the entries on that list do not completely correspond with those of the EU 2012 “List of Dual-Use Items” or the current U.S. CCL. Azerbaijan’s control list employs a five-digit alpha numeric classification coding system that is similar to that of the EU “List of Dual-Use Items”; however, it does not appear to have been updated since it was issued in 2006. Finally, Armenia’s control list was last updated in 2011, and it includes some categories of unilaterally-controlled items.

The following is one example that demonstrates some of the similarities and differences between the classification of an item according to the U.S. CCL and the EU “List of Dual-Use Items” and the control lists of Ukraine, Kazakhstan, Azerbaijan, and Armenia:


Even though the control lists of Russia, Belarus, and Kyrgyzstan cover many of the same goods and technologies as the U.S. CCL and the EU “List of Dual-Use Items,” the item classification numbering systems utilized in those lists are quite different, making it more difficult to correlate U.S./EU item classifications with classifications in those three CIS countries. To date, Russia, Belarus, and Kyrgyzstan have used item classification codes largely derived from the six (1. biological, 2. chemical, 3. nuclear, 4. nuclear dual-use, 5. missile-related and 6. conventional dual-use) Eurasian Economic Community (EurAsEC) “Model Lists” of goods and technologies subject to export control. Each of those lists employs a simple numerical categorization and classification system (e.g. 1.1.1., 2.3.2, etc.). Together those six lists cover many of the same items as the U.S. CCL and the EU “List of Dual-Use Goods,” because they are drawn from the control lists published by the four major multilateral export control regimes (Nuclear Suppliers Group, Australia Group, Missile Technology Control Regime and the Wassenaar Arrangement), which the U.S. and EU lists are based on as well. Russia’s and Belarus’ lists are the most similar and comprehensive among the CIS countries following the EurAsEC “Model Lists” (as a result of their Customs Union relationship); Kyrgyzstan’s current control list (last updated in 2010) does not include all of the items that are on Russia’s and Belarus’ lists. Uzbekistan has a very simple list that only includes a handful of categories of controlled items, identified by their Foreign Economic Activity Commodity Nomenclature (FEACN – the customs commodity classification coding system employed by the Customs Union and several other CIS countries), and it bears no real semblance to the U.S./EU, or even Russia, etc. control lists.

The following example demonstrates the differences between the classification of an item according to the U.S./EU control lists and those of Russia/Belarus/Kyrgyzstan/Uzbekistan:

Summary Points and Looking Ahead

The above example comparing the classifications of a machine tool/lathe across the U.S., EU, and CIS country export control systems is just one of hundreds, and each one might produce a different combination of results. In this case (U.S. ECCN 2B001.a), we find:

• Kazakhstan, Armenia, and Azerbaijan having the same item classification number and technical specifications as the 2012 EU “List of Dual-Use Items,” but, as a result, a lower technical threshold than the comparable U.S. CCL entry;
• Russia, Ukraine, and Belarus having the same technical specifications for their respective machine tool/lathe control lists entries (with a technical threshold that is lower than that of the comparable U.S. CCL entry, but higher than that of the EU “List of Dual-Use Items”), but different item classification numbers-with Russia and Belarus using the EurAsEC-based numbering system and Ukraine using a U.S./EU-based numbering-and
• Kyrgyzstan and Uzbekistan currently not listing the item.

The technical specifications of comparable entries may be closer or the same across the control lists of the countries discussed herein (but for Uzbekistan) in the case of other items, particularly those on the Nuclear Suppliers Group lists given. Moreover, they may become more similar going forward as more countries work to align the items on their national control lists entries more precisely with those of the multilateral export control regime lists. However, the differences in item classification numbers between the U.S./EU and CIS countries (and even among CIS countries) may increase going forward, as some CIS countries (such as Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) look to streamline their export control systems with the expansion of the Customs Union and formation of the Eurasian Economic Union, while others (such as Ukraine and Azerbaijan) continue to lean more towards the West, both in terms of economics and export controls. Whatever the case, it may be very beneficial for companies dealing in potentially controlled items in or with CIS countries to classify their items in accordance with the control lists of each country they are operating and monitor developments in CIS country control lists going forward.

Cold War II: The Economic Battle Against Russia Continues

Friday, May 23rd, 2014 by Brooke Driver

2014/05/23

By: Brooke Driver

In alignment with his goal of creating economic instability in Russia by cutting off American support, President Obama released a list of denied persons, mainly consisting of high-ranking officials in President Vladimir Putin’s inner circle. The president recently added to that list, and both the State and Commerce Departments have responded accordingly.

Expanding the scope of the first round of sanctions, this round of sanctions against Moscow will target not only a number of additional parties and companies closely related to Putin, but Russia’s defense industry as a whole. According to President Obama,

“It is important for us to take further steps sending a message to Russia that these kinds of destabilizing activities taking place in Ukraine have to stop.” And, while Obama has continued to withhold direct military support to Ukraine by refusing to meet the country’s demand for weapons, according to deputy national security advisor Tony Blinken, the United States will offer substantial monetary aid to the country. The president will coordinate with his allies and the World Bank to gather an estimated $37 billion to support Ukraine in its fight against Russia.

For their part, the State department has executed Obama’s order to cut off licensure for Russian entities, as stated by State Department spokeswoman Jen Psaki:

“Effective immediately, the Department’s Directorate of Defense Trade Controls (DDTC) will deny pending applications for export or re-export of any high technology defense articles or services regulated under the U.S. Munitions List to Russia or occupied Crimea that contribute to Russia’s military capabilities…In addition, the Department is taking actions to revoke any existing export licenses which meet these conditions.”

Likewise, the Commerce Department has promised to deny any applications for the export/re-export to Russia of any high technology products that could contribute to the country’s militant efforts and stated its intent to revoke relevant existing licenses. In addition, BIS has added 13 Russian and Crimean companies suspected of aiding the Russian military to its denied parties list.

US Stops Approving Export Licenses for Russia and Adds Russians and Ukrainians to US Prohibited Parties Lists

Tuesday, May 6th, 2014 by Brooke Driver

2014/05/06

By: Brooke Driver

Executive Summary:

1)     Both the State Department and the Commerce Department have stopped approving export and reexport license applications for products and technologies destined to Russia.  This is in response to Russian actions related to the Ukraine and Crimea.

2)    The Treasury Department has implemented US smart sanctions that prohibit involvement in transactions with listed Russian and Ukrainian persons/entities.  The prohibition applies to entities that are more than 50% owned by a listed person.

3)    There are no other changes in the export/reexport licensing requirements for sending things to Russia or Ukraine.

Expanding the scope of the executive order he signed March 6, President Obama has signed two new executive orders in response to the political situation in Ukraine. The first order, signed March 17, allows the US the right to block the property of certain Russian individuals if it is in the US, comes into the US or comes into the possession of a person in the US. The order is meant to block officials of the Government of the Russian Federation or those who choose to assist the Russian Federation. So far, the list includes high ranking Russian government officials, financial institutions, and Crimea-based separatist leaders, including former Ukrainian president Viktor Yanukovich, presidential aide Vladislav Surkov and advisor Sergei Glazyev, to name a few.

For the latest updates to the list, go to http://www.treasury.gov/ofac/downloads/t11sdnew.pdf

Three days after signing this order, President Obama released another, this one enabling the US to impose economic sanctions against Russia for its use of force and annexation of the Ukranian region of Crimea. Specifically, this executive order allows the Treasury Department the ability to designate any or all of these sectors of the Russian economy for additional sanctions: metals and mining, energy, financial services, engineering and defense and related material. Essentially, by signing this order, Obama has threatened to significantly damage the Russian economy by cutting off trade with the US. However, Treasury officials claim that the president must handle the execution of the new order “with care, given the fact that that could also impact the global economy.”  Importantly, so far the Treasury Department has not yet imposed these available sanctions against any of the sectors.

US and EU Impose Economic Sanctions in Response to the Crisis in Ukraine

Tuesday, May 6th, 2014 by Brooke Driver

2014/05/06

By: A. Esslinger, L. Grove & L. Van Buren
(Source: Anita Esslinger, anita.esslinger@bryancave.com)

As part of the broad and ongoing international response to the crisis in Ukraine, the United States, the European Union and other countries have imposed or announced economic sanctions against persons involved in the crisis. While not explicit, the US sanctions include measures that will allow the United States to impose sanctions on persons that threaten peace and security in Ukraine, including those who are asserting governmental authority in the Crimean region. As yet, however, no person has been identified as a target of the sanctions. In contrast, the European Union’s sanctions specifically target former Ukrainian President Viktor Yanukovych and seventeen other members of his former regime, but at this time avoid targeting the Russian Federation.

Persons and entities that are engaging in business involving Ukraine and Russia should keep a close eye on these sanctions and future developments in order to comply with the law.

United States:

On March 6, President Obama signed an Executive Order imposing sanctions against and prohibiting entry into the United States by persons determined to be involved in the Ukrainian crisis. Persons targeted by these sanctions include those who (a) are involved in the breakdown of or threats to democratic processes or institutions, peace, security, stability, sovereignty, territorial integrity, or the proper disposition of assets in Ukraine; (b) have been determined “to have asserted governmental authority over any part or region of Ukraine without the authorization of the Government of Ukraine;” or (c) are either leaders of entities involved in such activities, have provided assistance or support for such activities or for a person sanctioned for such activities, or are owned or controlled by or acting on behalf of a person sanctioned for such activities.

Among other things, the Executive Order freezes sanctioned persons’ property and interests in property in, or that come into, the United States or that are in the control or possession of US persons (including persons in the United States, US citizens and permanent resident aliens, and US entities and their foreign branches). The Executive Order also prohibits the contribution or provision of funds, goods, or services by, to, or for the benefit of any sanctioned person-including donations of humanitarian articles-and the receipt of any funds, goods, or services from any sanctioned person.

The Executive Order does not yet list any person designated as a target of the sanctions. Administration officials have said that about a dozen persons are now subject to the travel ban although the list is being withheld for privacy reasons. Officials also have said that more people would be added to the travel ban over the coming days.

The United States had previously taken softer actions to protest Russia’s involvement with Ukraine, such as suspending trade, military, and multilateral engagement with Russia (including the G-8 summit). By including those asserting governmental authority over any part of Ukraine without the authority of the Ukrainian government the U.S. sanctions also target officials of Crimea who are cooperating with the Russian invasion. The Executive Order also provides the US Government sufficient latitude to designate officials of the Russian Federation who, in the US Government’s view, engage in such actions, threaten the peace or territorial integrity of Ukraine or provide material assistance for such activities.

US Secretary of State John Kerry has reportedly characterized the Executive Order as merely providing a tool. The US Congress is also considering legislation to deal with the crisis.

European Union:

On March 5, the Council of the European Union adopted a Regulation directly applicable in all the EU Member States, imposing sanctions against former Ukrainian president Viktor Yanukovych and seventeen other members of his former regime. Notably, these sanctions did not include any Russian nationals or entities. The former Ukrainian leaders are under investigation by the new Ukrainian government for embezzlement of state funds and the illegal transfer of those funds outside of Ukraine.

The Regulation applies with immediate effect. With limited exceptions, it requires funds and economic resources of the designated persons to be frozen and prohibits making available, directly or indirectly, funds or economic resources to or for the benefit of the designated persons. The term “economic resources” means all kinds of assets, including goods. Thus, supply of goods to designated persons is prohibited. The Regulation also requires certain reporting to competent authorities in the relevant EU Member States, such as with respect to information on accounts and amounts frozen in accordance with the Regulation.

The reach of the Regulation is broad, applying: 1) within the EU; 2) to individuals who are nationals of an EU member state, wherever located; 3) to all EU legal persons (companies and organizations incorporated or constituted under the laws of an EU member state), wherever they are in the world; and 4) to any legal person in respect of any business done in whole or in part within the EU.

Notably, while talk of travel and visa restrictions against the former regime was mentioned in previous European Council talks, no official announcement of such restrictions has yet been made, although they may be applied without public notice.

Meanwhile, the Council continued to meet in emergency session on March 6 and voted to suspend talks with Russia on a wide-ranging economic pact and a visa agreement. Further sanctions in line with the US asset freeze and travel ban aimed directly at Moscow will be held in reserve pending the outcome of diplomatic efforts.

Other Nations:

So far, the US remains the only nation to announce that it may impose sanctions against Russia. Several non-EU European nations, including Switzerland, Lichtenstein and Norway, have also announced asset freezes and travel bans on former Yanukovych regime members, but stopped short of sanctions on Russia. US neighbor Canada has also moved swiftly to follow the sanctions on the former Ukrainian president; but, although it has suspended participation in the Russian-Canadian Intergovernmental Economic Commission and recalled its ambassador to Russia, it too has taken no further steps against Russia.

Events in Ukraine continue to move quickly. Great vigilance is the order of the day.