U.S. Economic Sanctions and Export Controls on Russia and Belarus Expand, with Further Measures Likely

The United States has further expanded economic sanctions and export controls on Russia and Belarus in response to what President Biden called at the UN General Assembly Russia’s “brutal, needless war” against Ukraine. The Biden Administration’s newest round of sanctions includes actions by the Commerce, State, and Treasury Departments to prohibit dealings with Russian defense entities and technology firms supporting Russia’s defense industrial base, a ban on the provision of services related to quantum computing, and expanded restrictions on U.S.-origin commercial and industrial goods for export to both Russia and Belarus.

These new actions build upon earlier sanctions issued since the launch of Russia’s invasion in Ukraine in February 2022, discussed in our prior alerts: Biden Administration Further Expands Sanctions on Russia as War in Ukraine Continues, United States Expands Sanctions Against Russia’s Defense-Industrial Sector and Russian Elites, United States Adds New Sanctions Targeting Russia, United States Expands Sanctions on Russia to Target Energy Sector, Biden Administration Continues to Broaden Economic Sanctions on Russia in Response to Ongoing Aggression in Ukraine, Biden Administration Issues Second Set of Sanctions on Russia Broadly Targeting the Financial and High-Tech Sectors, and Biden Administration Issues Initial Set of Sanctions in Response to Russian Invasion of Eastern Ukraine.

Additional economic sanctions and other measures targeting Russia are likely to be forthcoming. As evidenced by President Putin’s announced mobilization of 300,000 military reservists this week, the conflict in Ukraine shows no sign of abating. While the Biden Administration has not signaled an intention to impose a comprehensive embargo, companies that continue to do business in Russia and Belarus will need to assess not only the impact of these new restrictions but also of additional future measures.

New Economic Sanctions

The newest round of sanctions principally targets 31 Russian defense, military space, advanced technology, and electronics entities with the goal to constrain support for Russia’s military.  

Most notably, the new round expands the scope of the ban on providing certain services to Russia to include a ban on quantum computing services. The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued a determination pursuant to E.O. 14071 identifying quantum computing services as subject to the E.O.’s prohibitions (“Services”). As a result, beginning on October 15, 2022, “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of quantum computing services to any person located in the Russian Federation” will be prohibited.

OFAC guidance defines Services to include the following related to quantum computing:

• infrastructure, web hosting, or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services, and related services; repairing computer, computer peripherals, or communication equipment; other computer-related services; as well as services related to the exportation, reexportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing to any person located in the Russian Federation. 

Importantly, the Services prohibition excludes Services to entities in Russia owned or controlled by U.S. persons and Services in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled by a Russian person.

Other new sanctions measures include blocking sanctions on individuals furthering Russia’s objectives in Ukraine, including individuals installed by Russia as authority figures in occupied areas of Ukraine, involved in the theft of Ukrainian grain on behalf of Russia, individuals connected to human rights abuses, and leaders of key Russian financial institutions.

New Export Controls

The Commerce Department’s Bureau of Industry and Security (“BIS”) has also expanded restrictions on business in Russia and Belarus through the imposition of various new export controls. These include: (1) additional restrictions on commercial and industrial items that are not generally controlled for export to Russia; (2) controls on quantum computing-related hardware, software, and technology; (3) efforts to limit Russian military end-user access to items subject to U.S. jurisdiction; and (4) refinements to align controls on the export of “luxury goods” with those implemented by U.S. allies.

• Industry Sector Export Controls: Earlier this year, BIS introduced new industry sector sanctions that imposed licensing requirements on exports to Russia of items that are not generally controlled. The items subject to these restrictions are generally for commercial and industrial use. The newly imposed export controls expand the scope of the industry sector sanctions in several ways:
  
  • Adding items useful for Russia’s chemical and biological weapons production and development capabilities identified by Chemical Abstract Numbers (CAS).
  • Adding quantum computing and advanced manufacturing items. 
  • Adding industrial items used in the Russian industrial base, such as forklifts and sawing machines.
  • Expanding the scope of the restrictions to components, parts, accessories, and attachments designed for the designated industrial items.
  • Imposing the controls applicable to Russia on Belarus to address concerns about diversion from Belarus to Russia.
• “Military end-user” and “Military-intelligence end-user”: Recognizing that military and military intelligence support and development activities may come from outside of the home country of designated military and military-intelligence end-users, the sanctions expand the scope of the military and military-intelligence end-user controls to allow BIS to identify such end-users located anywhere in the world.
• Luxury Goods: To better align with controls on luxury goods implemented by U.S. allies, namely in the European Union and United Kingdom, BIS added dollar value exclusion thresholds to certain entries on the list of luxury goods subject to restrictions on export to Russia and Belarus. Specifically, BIS added a $300 per-unit wholesale price for many items, including clothing and shoes, which were previously set at $1,000. This change aligns more closely with the EU threshold for many items of €300 (~$299) and the UK threshold for many items of £250 (~$285).

Potential Future Measures

As Russia’s military campaign in Ukraine continues, the United States has signaled that it will take further steps in coordination with its allies. Efforts are underway to target revenue streams on which Russia is dependent, including the G7’s recent agreement to implement a price cap with respect to Russian-origin crude oil and petroleum products. Recognizing the need to enforce the price cap, Congress is considering legislation to grant additional authority to the President to impose secondary sanctions on countries that increase their purchases of Russian oil, oil products, gas, and coal. While Russia’s actions will ultimately dictate whether further actions are taken to target the Russian economy and its defense capabilities, decreasing European dependence on Russian oil and gas will provide the United States and its allies greater leeway to decouple Russia from the Western economic system.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia and David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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