Summary of Regulatory Updates, April – June 2022

OFAC sanctioned five entities for providing support for weapons of mass destruction (WMD) and ballistic missile programs development to the Democratic People’s Republic of Korea. The following were designated SDNs.

• DPRK Ministry of Rocket Industry (MoRI)
• Hapjanggang Trading Corporation
• Korea Rounsan Trading Corporation
• Sungnisan Trading Corporation
• Unchon Trading Corporation

In response to Russia’s further invasion of Ukraine the Department of Commerce amended the Export Administration Regulations (EAR) added 120 entities to the Entity List determined by the U.S. Government to be acting contrary to the national security interests or foreign policy of the United States and will be listed on the Entity List under the destinations of Belarus and Russia.

OFAC sanctioned the world’s largest and most prominent darknet market, Hydra Market (Hydra).

In addition to sanctioning Hydra, OFAC identified over 100 virtual currency addresses associated with the entity’s operations that have been used to conduct illicit transactions.

OFAC designated seven individuals and one entity across four countries in the Western Balkans pursuant to Executive Order (E.O.) 14033 for destabilizing and corrupt behavior.

In response to the Russian Federation’s (Russia’s) further invasion of Ukraine and to protect U.S. national security and foreign policy interests, the Department of Commerce established highly restrictive license requirements for certain transactions involving Russia and Belarus under the Export Administration Regulations (EAR). To recognize partner countries implementing similar export controls on Russia and Belarus, the Department of Commerce published a list of countries excluded from certain U.S. export controls related to foreign-produced items. 

In this rule, the Department of Commerce added Iceland, Liechtenstein, Norway, and Switzerland to the list of excluded countries.

In response to the Russian Federation’s ongoing aggression in Ukraine and as substantially enabled by Belarus, this rule expanded license requirements for Russia and Belarus to all items on the Commerce Control List (CCL).

OFAC issued a “Fact Sheet: Preserving Agricultural Trade, Access to Communication, and Other Support to Those Impacted by Russia’s War Against Ukraine”.

OFAC issued a new FAQ regarding credit card system operators and the Russia and Belarus sanctions:

1030. What obligations do operators of credit card systems have under the Russian Harmful Foreign Activities Sanctions Regulations, 31 C.F.R. part 587 (RuHSR), and the Belarus Sanctions Regulations, 31 C.F.R. part 548 (BSR), with regard to payment cards issued by sanctioned Russian financial institutions?

Answer

Pursuant to the RuHSR and BSR, U.S. persons, including U.S. operators of credit card systems and U.S. acquirers, are prohibited from processing transactions involving certain sanctioned foreign financial institutions, unless exempt or authorized by OFAC. Non-U.S. operators of credit card systems whose payment cards are issued by sanctioned foreign financial institutions may also be in violation of OFAC-administered sanctions regulations if they allow those cards to be used in the United States.

OFAC encourages U.S. persons, including U.S. operators of credit card systems and U.S. acquirers, to exercise caution and due diligence in dealing with non-U.S. operators of credit card systems that are known to host payment cards issued by sanctioned foreign financial institutions and whose payment cards are accepted in the United States. Examples of due diligence measures may include requesting Bank Identification Numbers (BINs) associated with sanctioned foreign financial institutions, disabling those BINs from operation in the United States, and requesting that non-U.S. operators of credit card systems prevent the use of payment cards issued by sanctioned foreign financial institutions in the United States at the network level.

OFAC designated Russian commercial bank Transkapitalbank for allegedly offering its clients the ability to conduct transactions via its proprietary banking system for the purpose of processing USD transactions for sanctioned clients.

OFAC also imposed blocking sanctions on a network of more than 40 individuals and entities for being involved in efforts to evade sanctions for the benefit of a U.S.-designated Russian oligarch, Konstantin Malofeyev, originally designated under E.O. 13660.

OFAC blocked companies in Russia’s virtual currency mining industry, representing the first time OFAC has designated a virtual currency mining company.

OFAC amended and reissued, the Ukraine-Related Sanctions Regulations, 31 C.F.R. part 589, and renaming the regulations the Ukraine-/Russia-Related Sanctions Regulations. This administrative action replaces the regulations that were published in abbreviated form on May 8, 2014 with a more comprehensive set of regulations that includes additional interpretive and definitional guidance, general licenses, and other regulatory provisions.

OFAC also revised several FAQs for the Ukraine-/Russia-Related Sanctions Regulations.

OFAC issued General License 31 authorizing certain transactions related to Patents, Trademarks, and Copyrights including (1) the filing and prosecution of IP applications; (2) the receipt of IP protection; (3) the renewal or maintenance of IP protection; and (4) the filing and prosecution of any opposition or infringement proceeding with respect to IP, and entrance of a defense to any such proceeding.

OFAC also issued FAQ 1009.

1009. Does Executive Order (E.O.) 14065 block the entire Donetsk and Luhansk oblasts?

Answer

No. E.O. 14065 targets the so-called Donetsk People’s Republic and Luhansk People’s Republic regions of Ukraine or such other regions of Ukraine as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State (collectively, the “Covered Regions”). In determining whether a location is within the regions subject to sanctions, U.S. persons may reasonably rely on vetted information from reliable third parties, such as postal codes and maps.

U.S. persons engaging in activity that does not involve the Covered Regions are not subject to the prohibitions in E.O. 14065. Please see FAQ 1006 for what prohibitions apply to the Covered Regions. 

OFAC designated the following entities pursuant to Executive Order (E.O.) 14024:

• Sberbank Executives (8 current and former);
• Gazprombank Executives (27);
• Joint Stock Company Moscow Industrial Bank (MIB) and 10 of its subsidiaries;
• Limited Liability Company Promtekhnologiya a private defense company and weapons manufacturer; and
• Russian state-controlled television stations Joint Stock Company Channel One Russia, Television Station Russia-1 and Joint Stock Company NTV Broadcasting Company.

OFAC designated certain services to Russia as subject to sectoral sanctions pursuant to E.O. 14024 Section 1(a)(i). These services have been used by Russian Federation and Russian elites to evade sanctions. Specifically, the designated services are accounting services, trust, and corporate formation and management consulting services. See this determination and new Frequently Asked Questions.

In March 2022 BIS created the Supplement No. 4 list in Part 736, to prohibit the export, reexport, or in-country transfer to or within Russia of specified items included on the list. Effective May 9, BIS added hundreds of new items to the Supplement No. 4 list through the addition of 478 ten-digit Schedule B codes and 205 six-digit Harmonized Tariff Schedule (“HTS”) codes.

The HTS and Schedule B codes “are only intended to assist exporters with their AES filing responsibilities and does not indicate that all items classified under those HTS Codes or Schedule B numbers are subject to § 746.5(a)(1)(ii)’s restrictions.” Rather, only those items described under the “HTS Description” column are controlled by the strict liability provisions of the Russian Industry Sector Sanctions.

BIS noted this approach is consistent with comparable controls imposed by the European Union.

Additions to the list include, but are not limited to, building materials, machinery, engines, industrial tooling, cooling and ventilation equipment and a variety of other items. All license applications for exports, reexports or transfers (in-country) of items “subject to the EAR” and listed on the Supplement No. 4 list will be reviewed by BIS under a presumption of denial license review policy.

OFAC issued Syria General License 22, which authorizes “transactions prohibited by § 542.206 or 542.207 of the Syrian Sanctions Regulations, 31 CFR part 542 (SySR), that are ordinarily incident and necessary to” for example, Education, in the northern non-regime held areas of Syria. The specific Syria sectors and activities are outlined in the GL.

OFAC published several new Frequently Asked Questions, and amended FAQ 884.

U.S. Departments of State and Treasury, and the Federal Bureau of Investigation, issued an advisory and a fact sheet on attempts by the Democratic People’s Republic of Korea (DPRK) and DPRK IT workers to obtain employment while posing as non-DPRK nationals. The advisory provides detailed information on how DPRK IT workers operate and identifies red flags to help companies avoid hiring DPRK freelance developers.

U.S. Departments of State, Treasury, Commerce, and Labor issued an advisory “Risks and Considerations for U.S. Businesses Operating in Sudan” to highlight growing risks to American businesses and individuals associated with conducting business with Sudanese State-Owned Enterprises which includes all companies under military control.

This rule requested public comments on proposed amendments to the EAR that would add four marine toxins (i.e., brevetoxin, gonyautoxin, nodularin and palytoxin) to Export Control Classification Number (ECCN) 1C351 on the Commerce Control List (CCL).

This final rule revised, corrected, and clarified certain provisions of the EAR that were either amended by recent Russia and Belarus-related rules or added to the EAR in parallel with such rules.

Additionally, this final rule amended the EAR to allow for export enforcement case charging letters to be made available to the public prior to the final administrative disposition of such cases.

In response to the Russian’s further invasion of Ukraine BIS amended the Export Administration Regulations (EAR) by adding 71 entities under 71 entries to the Entity List.

OFAC amended the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR) to further implement portions of the President’s foreign policy toward Cuba.

OFAC also published a number of new and updated Frequently Asked Questions.

NEW FAQ – Cuban Assets Control Regulations

1056. What does the June 9, 2022 amendment to the Cuban Assets Control Regulations (CACR) do?

Answer

Effective June 9, 2022, in consultation with the Department of State, OFAC amended the CACR to implement elements of policy changes announced by the Administration on May 16, 2022 to increase support for the Cuban people.

Professional meetings and conferences in Cuba: Effective June 9, 2022, OFAC amended 31 CFR § 515.564(a) to include a general license authorizing, subject to conditions, travel-related and other transactions incident to attending or organizing professional meetings or conferences in Cuba, such as professional meetings or conferences to support expanded internet access and remittance processing and to provide additional support and training to independent Cuban entrepreneurs. OFAC also amended and added cross-references to § 515.564(a) in notes to §§ 515.534, 515.542, 515.547, 515.572, 515.577, and 515.591.

Group people-to-people and other academic educational activities: Effective June 9, 2022, OFAC amended § 515.565(a) to remove certain restrictions on authorized academic educational activities. OFAC also amended § 515.565(b) to authorize group people-to-people educational travel conducted under the auspices of an organization that is subject to U.S. jurisdiction and that sponsors such exchanges to promote people-to-people contact, provided such travelers are accompanied by an employee, paid consultant, or agent of the sponsoring organization. Travel-related transactions authorized pursuant to § 515.565(b) must be for the purpose of engaging, while in Cuba, in a full-time schedule of activities that are intended to enhance contact with the Cuban people, support civil society in Cuba, or promote the Cuban people’s independence from Cuban authorities; and will result in meaningful interactions with individuals in Cuba. This amendment does not authorize individual people-to-people travel. Travel for tourist activities is not permitted.

Remittances: Effective June 9, 2022, OFAC amended § 515.570(a) to remove the $1,000 quarterly limit on family remittances to Cuban nationals who are close relatives. OFAC also added § 515.570(b) to authorize donative remittances to Cuban nationals who are not prohibited officials of the Government of Cuba, prohibited members of the Cuban Communist Party, or close relatives of a prohibited official of the Government of Cuba or prohibited member of the Cuban Communist Party. Finally, OFAC added a general license in § 515.570(h) authorizing the unblocking and return of previously blocked remittances, provided they would be authorized under the revised § 515.570(a) or (b).

Updated FAQS – Cuban Assets Control Regulations

695. What are the general travel authorizations in the Cuba program?

701. What constitutes generally authorized travel-related transactions for “professional research and professional meetings” in Cuba?

702. What constitutes “educational activities” for generally authorized travel and other transactions?

704. Can travelers engage in “people-to-people travel” to Cuba on an individual basis or as a part of a group?

770. What types of goods and services produced by independent Cuban entrepreneurs are authorized for importation into the United States from Cuba pursuant to 31 CFR § 515.582?

732. What types of remittances are allowed to be made by persons subject to U.S. jurisdiction to persons in Cuba?  What are the applicable conditions and requirements?

OFAC published new Frequently Asked Questions.

Russian Harmful Foreign Activities Sanctions

1067. Do the prohibitions imposed by the determination made pursuant to Executive Order (E.O.) 14071 on May 8, 2022, “Prohibitions Related to Certain Accounting, Trust and Corporate Formation, and Management Consulting Services” (“the determination”), prohibit U.S. persons from providing software related to accounting, management consulting, or trust and corporate formation to persons located in the Russian Federation? 

Answer

The determination does not prohibit U.S. persons from exporting, reexporting, selling, or supplying, directly or indirectly, software to the Russian Federation, nor does the determination prohibit U.S. persons from providing services associated with the export of such software, such as software design and engineering, provided that such associated services do not fall within the categories of management consulting, accounting, or trust and corporate formation. 

For example, the following scenario describes activities that would not be prohibited under the determination:

• A U.S. software company signs a contract with a company located in the Russian Federation (“Russian company”) for design, engineering, licensing, and delivery of software that the Russian company uses to perform its internal accounting. As part of the contract, the U.S. company provides continuing updates and technical support services related to the software (setting up new users, troubleshooting errors, etc.).

The following scenarios illustrate activities that would be prohibited under the determination:

• A U.S. management consulting company signs a contract with a Russian company to assist the Russian company in selecting a new enterprise application software. This contract includes assessing the needs of the Russian company, providing a list of possible software choices to the company, and providing continuing advisory services on the implementation and use of the software to optimize the Russian company’s profits.

Russian Harmful Foreign Activities Sanctions

1066. Do the prohibitions imposed by the determination made pursuant to Executive Order (E.O.) 14071 on May 8, 2022, “Prohibitions Related to Certain Accounting, Trust and Corporate Formation, and Management Consulting Services,” prohibit the provision of educational services, such as online university courses, on the subjects of accounting, management consulting, or trust and corporate formation to persons located in the Russian Federation?

Answer

No, provided such services do not evade or avoid the prohibition on providing the underlying services to persons located in the Russian Federation. 

Russian Harmful Foreign Activities Sanctions

1058. For the purposes of section 1(a)(ii) of Executive Order (E.O.) 14071, what is meant by the term “person located in the Russian Federation”?

Answer

For the purposes of section 1(a)(ii) of E.O. 14071, OFAC interprets “person located in the Russian Federation” to include persons in the Russian Federation, individuals ordinarily resident in the Russian Federation, and entities incorporated or organized under the laws of the Russian Federation or any jurisdiction within the Russian Federation.

Please note that section 1(a)(ii) of E.O. 14071 prohibits the direct or indirect exportation, reexportation, sale, or supply from the United States, or by a United States person, wherever located, of such services determined pursuant to E.O. 14071. For the purposes of E.O. 14071, OFAC interprets the “indirect” provision of such services to include when the benefit of the services is ultimately received by a “person located in the Russian Federation.” Please see FAQ 1059 for more information.

OFAC issued Syria General License 21A, Venezuela General License 39A, and Iran General License N-1, “Authorizing Certain Activities to Respond to the Coronavirus Disease 2019 (COVID-19) Pandemic.” In addition, OFAC published a number of updated Frequently Asked Questions.

OFAC issued Russia-related General License 8C, “Authorizing Transactions Related to Energy.”  In addition, OFAC has published amended Frequently Asked Questions.

Treasury FinCEN and BIS Issued a Joint Alert on Potential Russian and Belarusian Export Control Evasion Attempts.

OFAC listed 70 entities, including State Corporation Rostec. Many of the entities listed are said to be critical to Russia’s defense industrial base and/or operating in the Russian aerospace, defense and related materiel sector, financial services or technology sectors.

OFAC also designated 29 Russian nationals, including 16 officials of the Interregional Social Organization Union of Donbas Volunteers, 3 people linked to the FSB and 7 government officials of the so-called Donetsk People’s Republic and Luhansk People’s Republic.

BIS added 36 entities under 41 entries to the Entity List under the destinations of the People’s Republic of China (China), Lithuania, Pakistan, the Russian Federation (Russia), Singapore, the United Arab Emirates (UAE), the United Kingdom, Uzbekistan, and Vietnam.

These 36 entities have been determined by the U.S. Government to be acting contrary to the national security or foreign policy interests of the United States.