On August 23, 2024, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), the U.S. Department of State (State), and U.S. Department of Commerce's Bureau of Industry Security (BIS) announced coordinated actions in attempts to further disrupt Russia's international supply chain, counter evasion, and degrade Russia's wartime economy. 

• OFAC and State announced sanctions designations of nearly 400 individuals and entities (persons) located in Russia, Asia, Europe, and the Middle East. Outside of Russia, the primary locations of targets include China, Hong Kong, Turkey, the United Arab Emirates, Kyrgyz Republic, and Kazakhstan. The targets ranged from persons allegedly connected to the production and export of military materiel sensitive and critical items (e.g., advance tool machines, electronic components), including procurement and production networks, to financial technology (fintech) companies allegedly providing essential software and IT solutions for Russia's financial sector. OFAC also designated persons apparently involved in facilitating sanctions evasion through offshore trust and corporate formation services, Russian metals and mining revenue makers, and entities connected to Russian energy production.
• In conjunction with the designations, OFAC announced the issuance of several new general licenses (GLs). These authorizations relate to imports of certain otherwise prohibited Russian-origin diamond jewelry and diamonds into the U.S., limited safety and environmental transactions and unloading of cargo involving certain blocked persons or vessels, and winddown transactions with certain blocked persons.
• BIS also announced several actions including: 
  • Expansion of certain export controls for Russia (effective September 16)
    • The Russia/Belarus Military End User (MEU) Foreign Direct Product (FDP) Rule will be renamed to the "Russia/Belarus MEU and Procurement FDP Rule" and expanded to include not only MEUs but also entities that pose "significant risk of involvement in the supply or diversion of items subject to the Export Administration Regulations (EAR) to procurement networks for Russia's and Belarus's defense industry or intelligence services." The so-called "Russian or Belarusian Procurement Entities" are added to the BIS Entity List – all entities covered by the rule are identified in the Entity List with a footnote 3. The amended rule targets entities in third countries that may be multiple steps removed from military production but that supply restricted items such as those described on the Common High Priority List (CHPL).
    • The export controls for Russia/Belarus that were added June 18, 2024, concerning software for, inter alia, the operation of computer numerical control (CNC) machine tools will be amended to explicitly include EAR99 software updates for software identified in the provision that is subject to the EAR.
  • Entity List additions
    • BIS added 123 entities – about half of which were outside of Russia (e.g., in China, Turkey, Iran, Cyprus) – to the Entity List for supplying U.S. origin or "U.S. branded" items to Russia and engaging in activities contrary to U.S. national security and foreign policy interests. BIS also added several high-diversion risk addresses in Hong Kong and Turkey to the Entity List, which appear to be related to foreign corporate service providers. 
  • New guidance and recommendations published on BIS's Russia-Belarus Export Controls Resources site
    • BIS is now recommending contractual language that exporters may include in sales contracts or other export documents that are "designed to notify the buyer that items in the contract may be subject to the EAR and may require further authorization for reexport, export from board, or transfer (in country)" and thus protect the exporter "from liability should there be a failure to obtain required EAR authorization" in the future. The guidance particularly concerns diversion to Russia and Belarus, especially of items on the CHPL, and is raised in the context of the recently issued EU requirement, which requires EU persons to include clauses in sales contracts that prohibit certain reexports to Russia and reexports for use in Russia. BIS clarifies that, unlike the EU, the U.S. does not require the recommended contractual provisions, but the use of such language can help protect the seller from liability for a violation of the EAR.
    • BIS issued guidance for foreign corporate service providers who provide clients with a registered place of business (e.g., an address for billing or receiving goods). The guidance recommends measures that these service providers can take, such as sanctions screening and heightened due diligence, to avoid providing services to "bad actors" trying to mask their identities to divert goods to embargoed destinations or restricted parties. 

Key Takeaways

• The above measures indicate continuing close coordination between not only U.S. agencies with respect to Russia-related evasion and diversion issues, but also with the EU. In particular, the U.S. guidance and recommendation of the use of specific export-related language in sales contracts, issued right after the EU put in a similar requirement, is telling, as it seems evident that the Group of Seven (G7) is still committed to alignment on sanctions and export controls policy two years into the Russia/Ukraine war. 
• The U.S. continues to designate actors located outside of Russia in regions of the world it appears to deem as hubs of diversion risk. These include the United Arab Emirates, Turkey, China, Cyprus, and Kazakhstan, among others. Entities who do business in these regions should remain vigilant in countering diversion risk in these regions, in their own supply chains. At the same time, the U.S. continues to issue complementary guidance alongside its designation actions, making clear that compliance controls such as enhanced due diligence on downstream suppliers, inclusion of recommended sanctions and export controls clauses in contracts, and training to employees on diversion risk red flags are all highly recommended actions.

For more information, please contact: 
 
Timothy P. O'Toole, totoole@milchev.com, 202-626-5552 
 
Laura Deegan, ldeegan@milchev.com, 202-626-5942 
 
Caroline J. Watson, cwatson@milchev.com, 202-626-6083 
 
Melissa Burgess, mburgess@milchev.com, 202-626-5914 
 
Manuel Levitt, mlevitt@milchev.com, 202-626-5921 
 
Annie Cho, acho@milchev.com, 202-626-1570 

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