New U.S. Sanctions on Russia and Belarus Impose Trade and Investment Restrictions on Luxury Goods Sector

As an update to K&L Gates’ previous alerts of 24 February and 25 February, U.S. President Joe Biden issued executive orders (EOs) last week imposing additional sanctions against Russia.

The order, EO 14068, issued on 11 March 2022, restricts:

1. exports of luxury goods to Russia and Belarus,
2. U.S. imports of Russian alcohol, seafood, and diamonds, and
3. the supply of U.S. dollar-denominated banknotes to Russia and the Russian Government worldwide.

This alert describes these new developments in more detail.

LUXURY EXPORTS, RUSSIAN IMPORTS, AND RESTRICTIONS ON U.S. BANKNOTES
EO 14068 contains the following import and export restrictions for luxury goods, seafood, diamonds, and U.S. banknotes.

a) Luxury Exports to Russia and Belarus
The EO bars the exportation, reexportation, sale, or supply (directly or indirectly) from the United States, or by a U.S. person (wherever located), of “luxury goods” to Russia or Belarus, unless licensed. This prohibition is implemented by a new final rule, issued by the Bureau of Industry and Security, which identifies the significant number of goods subject to this restriction, listed by Schedule B number. In addition to barring the export of listed luxury goods to Russia and Belarus, the final rule restricts exports to certain Russian and Belarusian oligarchs and other individuals worldwide.

While the EO’s restrictions on luxury good exports became effective immediately, the EO contains a limited savings clause. The savings clause permits covered exports that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on 11 March 2022, to proceed to their destination, provided that they were shipped pursuant to existing orders for export, reexport, or transfer to that destination.

It is important to note that these export restrictions apply to more than just U.S.-origin luxury goods. First, the restrictions apply to all goods listed under the final rule that are subject to the Export Administration Regulations (EAR). This includes products that are:

1. U.S.-origin (wherever they are located);
2. located in the United States (whatever their origin);
3. produced outside the United States with more than 25% (by value) U.S. controlled content; and
4. produced outside the United States and covered by the special “foreign direct product rules” for Russia, which is discussed in our prior alert.

Second, even with regard to products that are not subject to the EAR, the text of the EO indicates that U.S. persons, wherever they are located, are barred from the exportation, reexportation, sale, or supply of covered luxury goods to Russia, Belarus, and designated parties, although further clarification on this point may be forthcoming.

b) Seafood, Alcohol, and Diamond Imports
Additionally, the EO prohibits the importation into the United States of Russian-origin fish, seafood, seafood preparations, alcoholic beverages, and non-industrial diamonds. To aid in identifying goods subject to this import ban, OFAC issued guidance identifying specific codes in the Harmonized Tariff System of the United States, which can be found here. OFAC has made clear that non-U.S. persons are not prohibited under the EO from importing covered Russian goods into jurisdictions outside the United States. OFAC also issued General License 17, which authorizes the wind down of transactions related to the above prohibited imports if they are pursuant to existing contracts and concluded by 25 March at 12:01 am EST. In addition, U.S. importers are permitted to sell or re-direct shipments previously destined for U.S. ports to parties outside the United States.

c) U.S. Banknote Restrictions
Finally, the EO prohibits the exportation, reexportation, sale, or supply (directly or indirectly) from the United States, or by a U.S. person (wherever located) of U.S. dollar-denominated banknotes (i.e., paper currency) to Russia and to the Government of the Russian Federation worldwide. The “Government of the Russian Federation” is defined broadly to include any subdivision, agency, instrumentality, or party owned, controlled, directed by, or acting on behalf of the Russian government. OFAC issued General License 18 to authorize transactions necessary for the transfer of U.S. dollar-denominated banknotes for noncommercial, personal remittances from:

1. the United States or a U.S. person, wherever located, to an individual located in the Russian Federation, or
2. a U.S. person who is an individual located in the Russian Federation.

Signaling additional sanctions to come, the EO authorizes the Department of Commerce to impose import restrictions on additional goods as well as authorizes the Department of the Treasury to impose restrictions on new investment in other sectors of the Russian economy.

CONCLUSION
K&L Gates will continue to follow the impact and changes to the United States’ imposition of economic sanctions with respect to Russia. If you have any questions regarding the sanctions discussed in this alert, please do not hesitate to contact the K&L Gates International Trade team.

By Jeffrey Orenstein, Steven Hill, Stacy Ettinger, Erica Bakies, Jerome Zaucha and Donald Smith