Starving the Bear: The United States Restricts Exports to Russia
The pressure on Russia continues to build. As we previously reported here and here, throughout March, the United States and other Western powers implemented a series of sanctions against individuals and entities deemed to be involved in the political destabilization of Ukraine. Those sanctions were restricted to specific parties, including high ranking Russian and Ukrainian officials and – notably – one Russian bank.
The United States has now gone further, implementing restrictions that restrict trade with the entire country of Russia. These sanctions are bound to have more bite.
Specifically, on March 26, the U.S. Department of Commerce announced that, since March 1, 2014 and until further notice, it had not and will not issue licenses for exports or re-exports to Russia. Commerce governs exports and re-exports of U.S.-origin commercial and “dual use” items. While not all such items require a license for Russia, many sensitive items do.
On March 27, the State Department followed suit: it announced that, until further notice, it will not issue any authorizations for exports of defense articles or services to Russia. This is essentially an absolute embargo on defense exports to Russia and Russian nationals: an export authorization is required for virtually any export of a defense article, technical data, or defense service to Russia (or any other country).
These two actions constitute a significant expansion of U.S. trade restrictions on Russia, particularly because the license restrictions apply to exports of both goods and technology. Moreover, the restrictions apply to all Russian individuals and entities, as opposed to the very targeted economic sanctions previously imposed by the Treasury Department.
While the United States has acted quickly, it is not alone, as the European Union has also taken action, introducing targeted sanctions, including an asset freeze and visa ban, against designated parties responsible for human rights violations, violence, and use of excessive force with respect to Ukraine. In addition, EU Member States have agreed to (i) suspend export licenses on equipment that might be used for internal repression and (ii) reconsider export licenses to Ukraine and Russia related to military technology and equipment.
Collectively, the sanctions imposed to date bring with them a host of practical challenges for companies conducting business in or with Russia. Western banks may scrutinize transactions with Russian banks and other parties especially carefully in light of the new restrictions. In some cases, a Western bank might hold up a legitimate transaction for further review if a Russian counterparty is involved.
Companies with current business ties in Russia must, therefore, consider the commercial and related risks of continuing that business. The United States in particular is implementing sanctions rapidly, piecemeal, and often without much warning. As the landscape of trade restrictions continues to change, companies must perform ongoing diligence with respect to their Russian business. For example, companies should perform periodic rescreening of Russian business partners to ensure they do not appear on any U.S. prohibited parties lists.