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Trade Matters – International Law – United States

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1. United States Hits Russia With Expanded Sanctions and
Export Controls

In what remains a rapidly changing environment, in the last
several weeks, the U.S. government imposed significant additional
sanctions on Russia, including the following:

  • A new prohibition on the direct or indirect importation or
    exportation of goods, services, or technology from or to the
    Donetsk People’s Republic (DNR) or Luhansk People’s
    Republic (LNR) regions of Ukraine, as well as any new investment in
    these regions, subject to a wind-down period for existing
    activities ending on March 23, 2022
  • A prohibition against:
    • Participating in the primary market for ruble- or
      non-ruble-denominated bonds issued after June 14, 2021, by the
      Central Bank of the Russian Federation, the National Wealth Fund of
      the Russian Federation, or the Ministry of Finance of the Russian
      Federation
    • Lending ruble- or non-ruble-denominated funds to the Central
      Bank of the Russian Federation, the National Wealth Fund of the
      Russian Federation, or the Ministry of Finance of the Russian
      Federation after June 14, 2021
    • Dealing in Russian sovereign debt to the secondary market for
      bonds issued after March 1, 2022
  • The addition of more entities to the Specially Designated
    Nationals and Blocked Persons (SDN), Non-SDN Menu-Based Sanction
    (NS-MBS), and Correspondent Account or Payable-Through Account
    (CAPTA) lists
  • A new directive restricting U.S. financial institutions from
    undertaking certain transactions with designated foreign financial
    institutions, including Public Joint Stock Company Sberbank of
    Russia and its 50 percent or more owned subsidiaries. This
    prohibition will go into effect on March 26, 2022, or, for any new
    institution designated under Directive 2, within 30 days of the
    designation. Another new directive prohibits U.S. persons from
    transactions in, provision of financing for, or other dealings in
    new debt of longer than 14 days or new equity for designated
    entities
  • Limited general licenses i) authorizing prohibited activities
    ordinarily incident and necessary to overflight payments, emergency
    landings, and air ambulance services; ii) providing wind-down
    periods for certain transactions related to energy (June 24, 2022),
    debt or equity (May 25, 2022), derivative contracts (May 25, 2022),
    and certain blocked persons (March 26, 2022); and iii) authorizing
    the rejection of transactions with certain blocked persons through
    March 26, 2022
  • The designation of Russian President Vladimir Putin, Foreign
    Minister Sergey Lavrov, and others as SDNs; such designations of a
    sitting president are extremely rare

The U.S. government has named federal prosecutor Andrew Adams to
lead Task Force KleptoCapture, an interagency group set up to
enforce U.S. sanctions against Russia.The U.S. Department of
Commerce, Bureau of Industry and Security (BIS), is scheduled to
revise U.S. commercial export controls in the first week of March
to:

  1. Extend export controls to all U.S.-origin commercial items
    destined for a military end use or military end users in Russia
    (including those not normally requiring a license for export to
    Russia), with limited exceptions;
  2. Increase licensing requirements for exports to Russia and
    designated Russian entities;
  3. Restrict the use of license exceptions for exports, reexports,
    and transfers to Russia;
  4. Further restrict the export to Russia and Russian military end
    users of foreign direct products of i) certain U.S.-origin software
    or technologies and ii) certain plants or major components thereof
    that are themselves the direct product of certain U.S.-origin
    software or technology;
  5. Impose a policy of denial of export license applications
    related to the above restrictions, with limited exceptions (such as
    exports related to safety of flight, maritime safety, humanitarian
    needs, government space cooperation, civil telecommunications
    infrastructure, and government-to-government activities, and those
    supporting limited operations of partner country companies in
    Russia); and
  6. Add more Russian entities to the Entity List (which restricts
    the export of U.S. commercial goods to listed parties).

2. White House Releases Updated Emerging Tech
List

On Feb. 7, the White House published an updated list identifying critical and
emerging technologies that are significant to U.S. national
security. The list named 19 technology categories: advanced
computing; advanced engineering materials; advanced gas turbine
engine technologies; advanced manufacturing; advanced and networked
sensing and signature management; advanced nuclear energy
technologies; artificial intelligence; autonomous systems and
robotics; biotechnologies; communication and networking
technologies; directed energy; financial technologies;
human-machine interfaces; hypersonics; networked sensors and
sensing; quantum information technologies; renewable energy
generation and storage; semiconductors and microelectronics; and
space technologies and systems. The technologies in these
categories likely will be reflected in export controls issued by
the Bureau of Industry and Security (BIS) and scrutinized by the
Committee on Foreign Investment in the United States (CFIUS) when
involved in investments in U.S. businesses.

3. DDTC Proposes to Align ITAR Foreign Nationality Rules
With EAR

On Feb. 2, the Directorate of Defense Trade Controls (DDTC)
issued a proposed rule that would make several
revisions to the International Traffic in Arms Regulations (ITAR),
including a revision to how foreign persons are defined under the
ITAR. The significant change would only consider and define
nationality by a person’s current citizenship or permanent
residence, rather than also consider previously held citizenships.
This definition more closely aligns to how the Export
Administration Regulations (EAR) defines nationality.

4. Corporate Values-Based Compliance Program Can Help
Avoid Sanctions Double Binds

The decision by the Court of Justice of the European Union
in Bank Melli Iran v. Telekom Deutschland
GmbH
 
provides businesses a compliance strategy to
mitigate the risks arising from navigating one country’s
sanctions regulations and another country’s blocking regimes.
Robust compliance continues to be essential when mitigating risk.
Companies can establish in their corporate compliance procedures
reasons for not doing business with a sanctioned entity,
independent of compliance with foreign sanctions, such as human
rights.

5. National Security Systems Contractors Should
Anticipate New Cybersecurity Requirements

President Biden’s recent national security memorandum on
cybersecurity will impact government contractors. Federal agencies
must identify their national security systems and report cyber
incidents to the National Security Agency (NSA) and must secure
cross-domain solutions. In addition, the NSA may create binding
operational directives, requiring agencies to take specific actions
against cybersecurity threats and vulnerabilities. While these
requirements currently only apply to government agencies, as
we’ve previously seen with such policies and processes, the
requirements often ultimately flow down to the contractors.

TRADE TIP OF THE MONTH: Lowenstein Sandler
has launched G-BRIDGE (Generating Business
Relationships in the Defense and Government Environment). G-BRIDGE
is designed to link innovative companies to
government opportunities and legal support through determining
government needs and introducing companies to potential avenues for
creating or expanding business with government entities.

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