U.S. companies with business in Russia — even those not engaged in chemical or biological exports — should understand the sanctions to avoid compliance exposure, export compliance experts say.
While a recently announced second round of U.S. sanctions against Russia is expected to have little impact on most exports to Russia, compliance experts warn that any company with commercial activities in Russia should understand the sanctions to avoid running afoul of them.
In a notice published in the Federal Register on Aug. 26, the State Department’s Bureau of International Security and Nonproliferation has taken steps to implement sanctions against Russian state-owned or funded enterprises and organizations involved in the manufacture of chemical and biological weapons.
The Commerce Department’s Bureau of Industry and Security (BIS) and the Treasury Department’s Office of Foreign Assets Control (OFAC) are expected to implement and enforce the new sanctions.
Once the sanctions are implemented, the State Department said licenses for exports and reexports of goods and technology controlled for chemical and biological weapons (CB) purposes, which are destined Russian state-owned and state-funded enterprises, will be reviewed by BIS on a “case-by-case basis,” with a “presumption of denial.”
The sanctions also will require OFAC to prohibit U.S. banks from handling non-ruble-denominated bonds issued by the Russian government or providing non-ruble-denominated loans to Russian state enterprises.
A potential challenge for some U.S. companies with chemical and biological export business to Russia is determining with certainty whether they are dealing with an entity that is Russian state-owned or funded, said Nnedi Ifudu Nweke, a partner in the international trade group of law firm Akin Gump.
She said, however, that the sanctions shouldn’t stop U.S. companies from applying for export licenses if they can provide details that demonstrate to the best of their knowledge that a Russian enterprise is not state-owned or funded or works on behalf of the Russian military.
It also will be important for these U.S. companies to explain in their license applications that their exports pose no harm to U.S. national security or foreign policy interests, she added.
“You also have to think about how this change will affect your license application process and communicate those changes to anyone involved in the transactions,” Ifudu Nweke said.
Nevertheless, the U.S. government will continue to closely scrutinize all licensable exports to Russia. “BIS, working with its interagency partners and the intelligence agencies, will do its homework,” she said.
Further details related to the Commerce and Treasury departments’ imposition of the sanctions remain forthcoming.
Paul DiVecchio, a 40-year export compliance consultant based in Boston, said it is important for BIS and OFAC to quickly publish on their websites frequently asked questions and a statement of guidance regarding the new sanctions for the industry.
Since the Aug. 16 effective date for the new Russian sanctions, there still has been no reference to the change in policy from either agency, he said.
Earlier this month, the State, Commerce and Treasury departments committed to implementing President Donald Trump’s Aug. 1 executive order imposing a second round of sanctions against Russia. The sanctions were established to further punish Russia for its alleged involvement in the use of a poison nerve agent to kill a former Russian spy living in the U.K.
Regardless of the export classification, all U.S. goods and technology exports are still subject to the scrutiny of the Enhanced Proliferation Control Initiative (EPCI) for direct or indirect end use in chemical and biological weapons development, DiVecchio said.
EPCI, which was implemented in the early 1990s as the result of international investigators discovering evidence of an Iraqi weapons of mass destruction program, is an end-use verification to ensure that exports of goods and technologies are not being used for nuclear, long-range missile, and chemical and biological weapons development.