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Volume XII, Number 272

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

The war led to a rapid response from governments, who imposed sanctions that have had a significant impact on operations of fashion companies navigating the ever‑evolving rules that carry significant penalties. On 11 March 2022, United States President Joe Biden issued executive orders (EOs) imposing additional sanctions against Russia, which we provide an overview of below.

The order, EO 14068 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.

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.

Luxury Exports to Russia and Belarus

The EO bars the exportation, re-exportation, 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.

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 was discussed in a 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, re-exportation, sale, or supply of covered luxury goods to Russia, Belarus, and designated parties, although further clarification on this point may be forthcoming.

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 nonindustrial diamonds. To aid in identifying goods subject to this import ban, the Office of Foreign Assets Control (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 2022 at 12:01 AM EST. In addition, U.S. importers are permitted to sell or redirect shipments previously destined for U.S. ports to parties outside the United States.

U.S. Banknote Restrictions

Finally, the EO prohibits the exportation, re-exportation, 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.

2. A U.S. person who is an individual located in the Russian Federation.

Signaling additional sanctions to come, the EO authorizes the U.S. Department of Commerce to impose import restrictions on additional goods, and authorizes the U.S. Department of the Treasury to impose restrictions on new investments in other sectors of the Russian economy. 

Conclusion

The firm will continue to follow the impact and changes to the United States’ imposition of economic sanctions with respect to Russia. 

Copyright 2022 K & L GatesNational Law Review, Volume XII, Number 229
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About this Author

Jeffrey Orenstein Trade Lawyer KL Gates Law Firm
Counsel

Jeffrey Orenstein is a counsel in the firm’s Washington, D.C. office. He has over 12 years of experience handling international trade and transportation matters. He specializes in providing strategic counsel in the areas of U.S. sanctions, export controls, customs, maritime, and railroad regulation. He is a trusted advisor for trade-related compliance, investigations, due diligence, training programs, and representation in enforcement actions, including matters before the Office of Foreign Assets Control (OFAC), the Bureau of Industry and Security (BIS), the Directorate of Defense Trade...

202.778.9465
Steven F. Hill, KL Gates, enforcement matters lawyer, export controls attorney
Partner

Steven Hill is a partner in the firm’s Washington, D.C. office. He has nearly 20 years of experience in a broad array of international trade regulation compliance and enforcement matters, particularly export controls, including the Export Administration Regulations (EAR) and International Traffic in Arms Regulations (ITAR), sanctions laws enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), customs and other importation laws, anti-boycott laws, and anti-corruption laws, such as the Foreign Corrupt Practices Act (FCPA).

202-778-9384
Stacy Ettinger, KL Gates Law Firm, Public Policy and Financial Matters Attorney
Partner

Stacy J. Ettinger is a partner in the firm’s Washington, D.C. office and focuses her practice on public policy. She has over 20 years of experience working in Congress and the executive branch. Her experience spans a variety of fields, including international trade, intellectual property, and regulatory issues, as well as food and product standards, motor vehicle safety, and consumer financial services.

Ms. Ettinger has substantial experience working closely with senior U.S. and foreign government officials and Fortune 500 executives, navigating...

202-778-9072
Jerome J. Zaucha, KL Gates, customs lawyer, trade remedies attorney
Partner

Mr. Zaucha, a partner in K&L Gates’ Washington, D.C. office, concentrates his practice on international trade, representing a wide spectrum of multinational companies based both in and outside the U.S.  He has substantial experience in all areas of international trade law, including export controls, customs, and trade remedies and agreements.

Mr. Zaucha represents clients in every area of export regulation:  export control and trade embargo regulations administered by the Directorate of Defense Trade Controls (DDTC), the Bureau of Industry...

202-778-9013
Donald W. Smith Attorney Investment Management and Mutual Fund Lawyer KL Gates
Partner

Don Smith concentrates his practice on investment management and mutual fund law.  He serves as counsel to registered investment companies and their boards of directors, with a particular focus on bank-affiliated investment companies.  In addition to providing regulatory and compliance counseling on routine and complex operational issues, he advises registered investment company and investment adviser clients on the impact of the rapidly changing regulatory landscape.  His experience also extends to trust and investment management activities of banks and their affiliates...

202-778-9079
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