Severely limited ENC license exception for exports to Russia and Belarus, Belarus targeted by Biden’s third tranche of controls, OFAC clarifies prior restrictions in Russia-Ukraine crisis


The Biden administration took further steps this week to downgrade the ability of Belarus and Russia to support a military campaign against Ukraine. These measures are the latest in a series of restrictions imposed by the United States in coordination with its European allies. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has expanded the hardware, software, and technology controls it had imposed on exports to Russia to include exports to Belarus and severely limited the use of certain license exceptions, including the ENC and AVS license exception. In addition, the US Treasury Department’s Office of Foreign Asset Control (OFAC) clarified the scope of its Russia-related sanctions and issued key general licenses, including for payment of taxes through the Central Bank of Russia (Central Bank).

Controls imposed on Russia extended to Belarus

On March 3, the BIS issued a final rule “Implementation of sanctions against Belarus under the Export Administration Regulations (EAR)”, subjecting Belarus to the same EAR license restrictions imposed on Russia last year. last week. The export control measures aim to restrict Belarus’ access to items it needs to support its military capabilities and to prevent these items from being diverted through Belarus to Russia. The final rule notes that with these additional checks, the BIS primarily targets the Belarusian defence, aerospace and navy sectors, and that the checks “will cover a wide range of items that Belarus seeks to advance. its military capabilities or to supply to the Russian government”. to enable the latter to project its power and achieve its strategic ambitions. »

Checks on items in categories 3 to 9: Consistent with controls on Russia, controls targeting Belarus impose new licensing requirements for all EAR Trade Control List (CCL) categories 3-9 items and specify a no-trade policy. licensing review, with a few exceptions. – case review. This new restriction prevents US companies from exporting, re-exporting or transferring most technology and software to Belarus and also prevents foreign companies using US software or technology from sending certain sensitive items to Belarus.

Direct foreign product rule: In addition, the two foreign direct product rules specific to re-exports and transfers involving Russia and Russian military end-users announced last week have been revised to include Belarusian and Belarusian military end-users and end-uses. These new restrictions generally prohibit exports of items to end users and military uses in Belarus. The BRI also added two Belarusian entities to the entity list as “military end users”, preventing the transfer of items subject to EAR to listed parties.

The EU has also approved new penalties on exports to Belarus on March 2, as well as the additional designations of 22 Belarusian military and defense officials for the freezing of assets. On March 2, the UK also imposed an asset freeze on Belarusian military officials and defense companies.

New restrictions on the use of key license exceptions, including for encryption products

The latest final rule significantly limits the availability of licensing exceptions for export business to Russia and Belarus. Last week, BIS limited the use of the ENC license exception to only end users who are not government entities or public companies. On March 3, BIS further restricted the use of the ENC license exception so that it can now only be used for civilian end users who are subsidiaries or joint ventures of US companies or our allies. Specifically, License Exception ENC can be used to:

  • wholly owned US subsidiaries1;
  • foreign subsidiaries of US companies that are joint ventures with other US companies;
  • joint ventures of U.S. corporations with corporations headquartered in countries in Country Groups A:5 and A:6 in EAR Part 740 Supplement No. 1 (Allied Countries)2;
  • wholly-owned subsidiaries of companies headquartered in allied countries; Where
  • joint ventures of companies headquartered in allied countries with other companies headquartered in allied countries.

We hope the BIS will clarify whether the ENC license exception can still be used for employees and individual contractors of a US company located in Russia and Belarus.

This rollback applies similarly to the license exception TSU used for software updates that can only be used for the same set of end users.

For consumer items, the changes also allow the export of all items classified under ECCN numbers 5A992 and 5D992 without a license required (NLR) to the same end users as those eligible to receive ENC-related items. Mass market encryption products may be eligible for export, re-export, and in-country transfer under the CCD license exception to individuals and independent non-governmental organizations in Belarus, Cuba, and Russia. The rules specifically exclude the following entities from obtaining items under License Exception CCD:

  1. The Russian government;
  2. The Belarusian government;
  3. Organizations administered or controlled by the Russian government or the Belarusian government;
  4. Some Russian government officials; and
  5. Some Belarusian government officials.

Finally, BRI clarified that items eligible for the CCD license exception do not include non-consumer servers, but include consumer servers, a move that seeks to challenge the Russian government’s ability to control messaging at its population.

OFAC clarifies Russia Directive 4 and transactions with Sberbank

In FAQ 1101, OFAC noted that the 50% rule does not apply to Directive 4 – the restriction imposed on all transactions of US financial institutions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation. Thus, companies owned (50% or more) or controlled by an entity designated in Directive 4, such as Sberbank, are not themselves subject to this restriction on all transactions.

Although Sberbank is outside the scope of Directive 4, it is still subject to Directive 2. OFAC clarified that the restrictions on Sberbank included in this directive apply only to the activities of US financial institutions. US individuals and companies that are not “US Financial Institutions”, as defined in the CAPTA Directive for Russia, are not prohibited from processing transactions involving Sberbank.

OFAC adds four new general licenses for transactions in Russia

As part of these additional penalties, OFAC yesterday issued new blanket licenses authorizing activities otherwise prohibited under Executive Order 14024:

  • General License 13: Transactions necessary for U.S. Persons to pay taxes, fees, or import duties, and receive permits, licenses, registrations, or certifications from Directive 4 entities; and
  • General License 14: Certain Clearing and Settlement Transactions by Directive 4 Entities.

Both blanket licenses exclude debits from a Directive 4 entity to a US bank.

OFAC has also issued blanket licenses clarifying the applicability of sanctions to transactions by U.S. persons involving certain Russian financial institutions:

  • General License 9A: Transactions relating to transactions in certain debts or shares;
  • General License 10A: Transactions in Certain Derivative Contracts; and
  • General License 15: Transactions with any entity 50% or more owned, directly or indirectly, by Alisher Burhanovich Usmanov that is not itself listed.

These general licenses supplement those issued by OFAC last week regarding a 30-day liquidation period for most designated Russian financial entities, certain energy transaction payments, specific bond and debt transactions, and related transactions. agricultural products, medicines and medical equipment. exported to Russia.

We will continue to monitor regulatory developments closely and invite you to contact us with any questions. Do not hesitate to contact Josephine Aiello LeBeau, Mike Casey, Anne Seymour, Jahna Hartwig, Kara McDonough, or another member of Wilson Sonsini’s national security practice.

[1] Please note: The standard required to meet the definition of a wholly-owned subsidiary is not the same as that included for the purposes of the ENC license exception.

[2] Country group A: 5 includes: Argentina, Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Italy, Japan, South Korea, Latvia, Lithuania, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey and United Kingdom; Country group A: 6 includes: Albania, Cyprus, Israel, Malta, Mexico, Singapore, South Africa and Taiwan.


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