Trade Matters – March 9, 2022 | Lowenstein Sandler LLP

1. The United States hits Russia with sanctions and extensive export controls

In what remains a rapidly changing environment, in recent weeks the U.S. government has imposed significant additional sanctions on Russia, including the following:

  • A new ban on the direct or indirect import or export of goods, services or technology from or to the regions of the Donetsk People’s Republic (DNR) or the Luhansk People’s Republic (LNR) in Ukraine, as well as any new investments in these regions, subject to a liquidation period of existing activities ending on March 23, 2022
  • A ban on:
    • Primary market participation in ruble and non-ruble denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation Russia
    • Lending ruble-denominated or non-ruble funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation after June 14, 2021
    • Trading Russian sovereign debt on the secondary market for bonds issued after March 1, 2022
  • Adding additional entities to the Specially Designated Nationals and Blocked Persons (SDN), Non-SDN Menu Based Sanctions (NS-MBS) and Corresponding Accounts or Accounts Payable Through (CAPTA) lists
  • A new directive prohibiting U.S. financial institutions from engaging in certain transactions with specified foreign financial institutions, including the state-owned Sberbank of Russia and its 50% or more-owned subsidiaries. This ban will come into effect on March 26, 2022 or, for any new facility designated under Directive 2, within 30 days of designation. Another new directive prohibits U.S. persons from trading, providing financing or other dealings in new debt older than 14 days or new equity for designated entities
  • Limited General Licenses i) authorizing prohibited activities usually incidental and necessary for overflight payments, emergency landings and air ambulance services; (ii) provide for liquidation periods for certain transactions related to energy (June 24, 2022), debt or equity (May 25, 2022), derivative contracts (May 25, 2022) and certain blocked persons (March 26, 2022). 2022); and iii) allowing the rejection of transactions with certain people blocked until March 26, 2022
  • The designation of Russian President Vladimir Putin, Foreign Minister Sergei Lavrov and others as SDN; such designations of a sitting president are extremely rare

The US government has appointed Federal Prosecutor Andrew Adams to head the KleptoCapture Task Force, an interagency group set up to enforce US sanctions against Russia.

The U.S. Department of Commerce, Bureau of Industry and Security (BIS), is expected to revise U.S. commercial export controls during the first week of March to:

  1. Extend export controls to all commercial items of U.S. origin intended for military end use or military end users in Russia (including those that do not normally require a license for export to Russia), with limited exceptions;
  2. Increase licensing requirements for exports to Russia and Designated Russian Entities;
  3. Restrict the use of license exceptions for exports, re-exports and transfers to Russia;
  4. Further restrict the export to Russia and Russian military end-users of foreign direct products of i) certain US-origin software or technology and ii) certain factories or their major components that are themselves the direct product of certain US-origin software or technology;
  5. Impose a policy of refusing export license applications related to the above restrictions, with limited exceptions (such as exports related to flight safety, maritime security, humanitarian needs, government space cooperation, telecommunications infrastructure and government-to-government activities, and those supporting limited operations of partner country companies in Russia); and
  6. Add more Russian entities to the Entity List (which limits the export of US commercial goods to listed parties).

2. The White House releases an updated list of emerging technologies

On February 7, the White House released an updated list identifying critical and emerging technologies important to US national security. The list named 19 categories of technologies: advanced computing; advanced engineering materials; advanced gas turbine engine technologies; advanced manufacturing; advanced and networked detection and signature management; advanced nuclear energy technologies; artificial intelligence; autonomous systems and robotics; biotechnologies; communication and networking technologies; directed energy; fintech; man-machine interfaces; hypersonic; networked sensors and detection; quantum information technologies; generation and storage of renewable energy; semiconductors and microelectronics; and space technologies and systems. Technologies in these categories will likely be reflected in export controls issued by the Bureau of Industry and Security (BIS) and reviewed by the Committee on Foreign Investment in the United States (CFIUS) when they are involved in investments in American companies.

3. DDTC proposes to align ITAR foreign nationality rules with EAR

On February 2, the Defense Trade Controls Directorate (DDTC) released a proposed rule that would make several revisions to the International Traffic in Arms Regulations (ITAR), including a revision to the definition of foreign persons in the ITAR framework. The significant change would only consider and define nationality by a person’s current citizenship or permanent residency, rather than also considering previously held citizenships. This definition more closely aligns with how the Export Administration Regulations (EAR) define nationality.

4. Values-Based Compliance Program Can Help Avoid Sanctions Double Bounds

The decision of the Court of Justice of the European Union in Bank Melli Iran v Telekom Deutschland GmbH provides companies with a compliance strategy to mitigate the risks arising from navigating between one country’s sanctions regulations and another country’s blocking regimes. Strong compliance continues to be key to mitigating risk. Companies can establish in their corporate compliance procedures the reasons for not doing business with a sanctioned entity, regardless of compliance with foreign sanctions, such as human rights.

5. National Security Systems Contractors Must Anticipate New Cybersecurity Requirements

President Biden’s recent national security memorandum on cybersecurity will impact government contractors. Federal agencies must identify their national security systems and report cyber incidents to the National Security Agency (NSA) and must secure cross-domain solutions. Additionally, the NSA can create binding operational guidelines, requiring agencies to take specific actions against cybersecurity threats and vulnerabilities. Although these requirements currently only apply to government agencies, as we have seen previously with such policies and processes, the requirements often end up trickling down to contractors.

BUSINESS TIP OF THE MONTH: Lowenstein Sandler launched G-BRIDGE (Generating business relationships in the defense and government environment). G-BRIDGE is designed to connect innovative companies to government opportunities and legal support by determining government needs and presenting companies with potential pathways to create or grow business with government entities.

Additional Resources

  • Customer alert: “Notable U.S. Sanctions and Export Controls Imposed on Russia and Belarus in Response to the Ongoing Conflict in Ukraine”
    February 28, 2022
    Global Trade and National Security Client Alert
    Doreen M. Edelman, Abbey E. Baker, Christian C. Contardo
  • Customer alert: “Western Sanctions Targeting Russia Increase Commercial Risks for Companies”
    February 25, 2022
    Global Trade and National Security Client Alert
    Doreen M. Edelman, Zarema A. Jaramillo, Abbey E. Baker, Christian C. Contardo
  • Item: “Interview with Brian Murphy, Former Chief of Intelligence, Department of Homeland Security”
    February 2, 2022
    World Trade and Customs Journal
    Laura Fraedrich

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