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July 8, 2022

OFAC Designates Nearly 100 Russia-Related Parties; Prohibits US Import of Russian Gold

Advisory

On June 28, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions measures and trade restrictions in response to Russia’s ongoing military aggression in Ukraine. The latest actions from the Treasury Department, taken pursuant to Executive Order (EO) 14024 and EO 14065, specifically target the Russian Federation’s defense, industrial, technology, and manufacturing sectors. The US government’s latest measures occurred on the last day of the G7 Summit last week and follow similar multilateral commitments made by G7 members to target Russia’s defense industrial base. Also on June 28, both the Commerce and State Departments announced new measures against Russian entities and individuals involved in Russia’s defense industry.

The Treasury Department’s June 28, 2022 measures include the designation of 70 Russian defense-related businesses and 29 Russian individuals; the issuance of several Russia-related General Licenses; and the issuance of one new Frequently Asked Question (FAQ) and one amended FAQ. Additionally, OFAC determined that the prohibitions in section 1(a)(i) of EO 14068 apply to gold of Russian Federation origin, prohibiting the importation of Russian gold into the United States effective immediately.

New SDN Designations

OFAC’s latest measures targeting Russia’s defense industrial base include the designation of 70 Russian defense-related businesses and 29 Russian individuals to its Specially Designated Nationals (SDN) List. US persons, including US financial institutions, are prohibited generally from engaging in any transaction with SDNs and are required to block (i.e., freeze) any property or interests in property belonging to SDNs. Under OFAC’s 50 percent ownership rule, entities that are owned 50 percent or more, directly or indirectly, by one or more SDNs in the aggregate are also subject to OFAC’s sanctions by operation of law, even if OFAC does not publicly designate those entities as SDNs.

OFAC’s June 28 designations primarily target entities and individuals critical to the Russian Federation’s defense industrial base, including sanctions aimed at defense manufacturing and aerospace entities. Notably, OFAC designated State Corporation Rostec (Rostec), which OFAC described as a “massive Russian state-owned enterprise formed to consolidate Russia’s technological, aerospace, and military-industrial expertise,” whose “management umbrella includes more than 800 entities across a wide range of sectors.” OFAC designated Rostec for having operated in the defense and related materiel sector of the Russian Federation economy.

OFAC also designated several entities involved in the aviation and aerospace industries, aimed at “weaken[ing] Russia’s ability to continue its aerial assault on Ukraine.” These include Public Joint Stock Company United Aircraft Corporation (UAC), a Rostec subsidiary, and Tupolev Public Joint Stock Company, Limited Liability Company KAPO-Avtotrans, Limited Liability Company KAPO-Zhilbitservis, Irkut Corporation Joint Stock Company, among others. OFAC also designated Russia’s largest truck manufacturer, KAMAZ Publicly Traded Company, a supplier of armored vehicles to Russia’s military.

OFAC added 29 Russian individuals to its SDN List, many of whom are affiliated with the newly sanctioned entities and work in Russia’s defense, aerospace and intelligence industries. A complete list of the newly sanctioned individuals and entities is available here.

Concurrent with its designations, OFAC issued several General Licenses (GL) related to these newly sanctioned entities, including:

  • Russia-related GL No. 39—authorizing the wind-down of transactions involving Rostec and its subsidiaries until August 11, 2022, provided that payment is made into a blocked account.
  • Russia-related GL No. 40—authorizing certain transactions related to the provision, exportation, or re-exportation of goods, technology or services to ensure the safety of civil aviation involving one or more of several of the blocked entities designated by EO 14024, so long as the aircraft is registered in a jurisdiction solely outside of the Russian Federation and the goods, technology or services are for solely civilian aviation purposes.
  • Russia-related GL No. 41—authorizing certain transactions involving agricultural equipment, components and spare parts produced by Nefaz Publicly Traded Company or Public Joint Stock Company Tutaev Motor Plant, or any of their subsidiaries, until December 22, 2022, provided that payment is made into a blocked account.
  • Russia-related GL No. 42—authorizing certain transactions related to licenses, permits, certifications, or notifications issued or registered by the Federal Security Service for the importation, distribution or use of information technology products in the Russian Federation.
  • Russia-related GL No. 43—authorizing certain transactions involving the divestment or transfer of debt or equity of Public Joint Stock Company Severstal (Severstal) or Nord Gold (Nord Gold) PLC, and their subsidiaries, until August 31, 2022, provided that any divestment or transfer must be to a non-US person; and authorizing the wind-down of derivative contracts entered into prior to June 2, 2022 with those entities, until August 31, 2022, provided that payment is made into a blocked account.

> Access the newly issued GLs.

Prohibition on Russian Gold

Along with its designations, the Treasury Department prohibited the importation of Russian gold into the United States. According to OFAC, Russian gold is the Russian Federation’s biggest non-energy export. The Treasury Department’s actions with respect to Russian gold follow similar commitments made at the G7 Summit by the United States, the United Kingdom, Canada, and Japan to target this important sector of Russia’s economy.

The Director of OFAC, in consultation with the State and Commerce Departments, determined that the prohibitions in section 1(a)(i) of EO 14068 apply to gold of Russian Federation origin. Per OFAC FAQ 1019, Russian Federation origin gold includes gold “produced, manufactured, extracted or processed in the Russian Federation, excluding any Russian Federation origin good that has been incorporated or substantially transformed into a foreign-made product.”

Accordingly, the importation of Russian gold into the United States is prohibited effective immediately, except to the extent provided by law or unless licensed or otherwise authorized by OFAC. OFAC’s Determination excludes gold of Russian origin that was located outside of the Russian Federation prior to June 28, 2022. OFAC concurrently issued new FAQ 1070, which restates the prohibition contained in OFAC’s Determination.

> Read the full text of OFAC’s Determination.

Certain transactions involving Russian gold were previously sanctionable under EO 14024 or other related sanctions authorities. Existing FAQ 1029 clarified such restrictions and was amended by OFAC on June 28, 2022 to add the Determination’s prohibition on the importation of Russian gold.

Additional Treasury, State and Commerce Department Measures of June 28, 2022

The State Department on June 28 also imposed sanctions on an additional 45 entities and 29 individuals pursuant to EO 14024. The State Department’s designations include the Russian Federation military units and the re-designation of Russia’s Federal Security Service (FSB), which according to the State Department has been “credibly implicated in human rights abuses or violations of international humanitarian law[.]” The State Department also announced steps to impose visa restrictions on 511 Russian military officers and 18 Russian nationals.

Finally, BIS issued a new rule adding a total of 36 entities in nine countries to the Entity List. The additions include six entities added specifically for their continued support of Russia’s military efforts. According to BIS, these entities are subject to “severe restrictions on access to US technologies and items for having contracted to continue to supply Russian military end users since February 24, 2022, when the current restrictions were put into place.” BIS also publicly identified two Chinese parties, already on the Entity List, as continuing to support Russia’s military since the imposition of the current restrictions.

Conclusion

The US government’s latest punitive actions against Russia come in the wake of last week’s G7 Summit in Germany, at which G7 members vowed to maintain and increase economic and political measures to combat Russia’s aggression against Ukraine. The new measures, according to OFAC, “strike at the heart of Russia’s ability to develop and deploy weapons and technology used for Vladimir Putin’s brutal war of aggression against Ukraine.”

We will continue to monitor the sanctions and export control restrictions as they emerge.

© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.