Gazprom, Lukoil, Other Russian Energy and Defense Companies Targeted in Latest Round of U.S. Export Controls and Ukraine-related Sanctions

Last Friday, the U.S. Department of Commerce, Bureau of Industry and Security (BIS) dramatically increased targeted economic sanctions and export controls against several Russian energy and defense companies, including Gazprom OAO, the largest gas extraction company in the world, and privately-owned petroleum company, Lukoil.  The BIS action is in addition to the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) issuing new Ukraine-related economic sanctions against Russia’s financial services, energy, and defense sectors, also announced on Friday.

BIS added the following major energy sector companies to the Entity List:

  • Gazprom OAO; Gazpromneft; Lukoil, OAO; Rosneft; and Surgutneftegas.

BIS maintains the Entity List to impose a specific license requirement for the export, reexport or foreign transfer of items subject to the Export Administration Regulations (EAR) on those parties – businesses, research institutions, government and private organizations, and individuals – named on the list.  These license requirements are in addition to any other requirements and restrictions imposed elsewhere in the EAR.  Often, the stated License Review Policy for parties on the Entity List is “Presumption of denial,” although certain parties have a stated License Review Policy of determining a license application on a “Case-by-case” basis.  Currently, the License Review Policy for nearly every Russian party on the Entity List is Presumption of Denial.  This License Review Policy applies to the newly added parties.

The five (5) Russian energy sector companies added to the Entity List are subject to a license requirement when the exporter, reexporter or transferor knows those items will be used directly or indirectly in:

  • exploration for, or production from, deepwater, Arctic offshore, or shale projects in Russia. License applications for such transactions will be reviewed with a presumption of denial when for use directly or indirectly for exploration or production from deepwater, Arctic offshore, or shale projects in Russia that have the potential to produce oil.

Notably, it appears that licenses for natural gas projects will be reviewed on a case-by-case basis; therefore, exporters, reexporters, and parties seeking in-country transfers to the listed companies should be sure to obtain specific end-use information and document the stated end-use for potential licensing application purposes.   It should be further noted that this latest action is in addition to and does not replace export controls imposed by BIS on August 1 that designated certain items used in used in Russia’s energy sector, including exploration and production from deepwater, Artic offshore, and shale projects.  In its 1 August rule, BIS designated those items by specific Schedule B (export classification) numbers and other by the Export Commodity Control Number (ECCN).  A prior post explains those controls, http://bit.ly/1y4s9JN.

The Russian defense sector parties added to the Entity List include:

  • Almaz-Antey Air Defense Concern Main System Design Bureau, JSC; Tikhomirov Scientific Research Institute of Instrument Design; Mytishchinski Mashinostroitelny Zavod, OAO; Kalinin Machine Plant, JSC; and Dolgoprudny Research Production Enterprise.

Similar export controls as those imposed on the energy sector companies apply to the defense sector companies, with a License Review Policy of “Presumption of Denial.”

BIS and OFAC action continue to be largely coordinated.  OFAC updated the Sectoral Sanctions Identifications (SSI) List by adding Russian energy sector and financial services companies (and other names by which the companies operate or are known), AK Transneft OAO, Lukoil OAO, OJSC Gazprom Neft, Gazprom OAO, Rostec, Sberbank of Russia, Surgutneftgas, Bank of Moscow, as well as other financial services companies.  Additionally, OFAC added each of the defense sector parties to the SSI List that BIS placed on the Entity List.

For assistance with understanding and complying with the latest BIS action, Ukraine-related and other economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.269.5138 (mobile). 

Yormick to Discuss U.S. Economic Sanctions at October Global Conference in Baltimore

Buffalo, NY and Cleveland, OH (8 September 2014) – International business and trade attorney, Jon Yormick, will discuss U.S. economic sanctions at the 25th Annual FCIB Global Conference on 12-14 October 2014 in Baltimore, Maryland.  He will be joined for a panel discussion by a Special Agent, U.S. Department of Homeland Security Investigations, Counter-Proliferations Investigations, and a Vice President, Structured Trade Advisory, of JPMorgan Chase Bank, N.A.

Yormick’s presentation, “Navigating Economic Sanctions … Successfully,” will cover compliance with complex and ever-changing U.S. economic sanctions and Executive Orders, how they apply to U.S. and foreign parties, and how companies may find legitimate business opportunities available under sanctions programs.  He will also use recent civil penalty settlements to examine how companies can avoid violations and costly penalties.

The event will take place at the Sheraton Inner Harbor in downtown Baltimore.  More information about the conference, including how to register, can be found at http://bit.ly/1urehUS.

Yormick regularly advises and represents publicly-traded and privately-held companies on matters such as compliance programs, due diligence reviews, investigations, penalty proceedings, export licensing of defense and “dual use” items and technologies, economic sanctions and trade embargoes, export licensing of foods, medicine and medical devices under the Trade Sanctions Reform and Export Enhancement Act (TSRA), prior and voluntary self-disclosures of violations, and ruling requests.  His clients include those in the advanced manufacturing, advanced materials, aerospace and defense, distribution, electronics, energy, medical device, oil/gas, pharmaceuticals, professional services, steel, textiles and apparel, and transportation/logistics sectors.

With a membership of over 1,100 global credit and trade finance professionals in 55 countries around the world, FCIB is internationally recognized as the premier association of executives in finance, credit and international business, providing export credit and collections insight, practical advice, and intelligence to companies of all sizes – from Fortune 500 multinationals to medium and small private companies.

CBP Clarifies Post-Importation Claims under Trade Preference Programs

Last Friday, U.S. Customs and Border Protection (CBP) issued guidance regarding proper procedures for submitting claims for preferential tariff treatment under NAFTA, a host of other U.S. Free Trade Agreements, and other preference programs.  It is important that U.S. importers (as well as Canadian and other non-resident importers to the U.S.) know which procedures are available under these different programs in order to preserve their rights to make preferential claims and the timing of when those claims can be made.

In issuing its guidance, CBP noted that importers have historically used a variety of post-importation methods to submit an initial claim for preferential duty treatment, including Post-Entry Amendments (PEAs), Post Summary Corrections (PSCs), Protests filed under 19 U.S.C. § 1514 and post-importation claims submitted pursuant to 19 U.S.C. § 1520(d).

Citing to a pair of court decisions from the Court of Appeals for the Federal Circuit, CBP explained how not all trade preference programs are identical in allowing post-importation preference claims. The court has held that a Protest may not be used to make a preference claims because liquidation of an entry without a claim is not a “protestable decision”.  CBP also cited to Headquarters Ruling Letter (H193959, dated July 30, 2012) that also discussed the limitations on using Protests as a viable procedure to assert a duty preference claim.

CBP’s guidance noted, however, that the law implementing certain preference programs expressly provides for post-importation claims pursuant to 19 U.S.C. § 1520(d).  This allows for a post-importation claim to be made up to one (1) year after the entry date.  This method of submitting a post-import duty preference claim is limited to: NAFTA, CAFTA-DR, Chile FTA, Colombia FTA, Korea FTA, Oman FTA, Panama FTA, Peru FTA.  The guidance goes on to state that for these preference programs, post-importation preference claims can only be submitted under 19 U.S.C. § 1520(d).  PEAs and PSCs are not a valid procedure to submit an initial post-importation preference claim under these Free Trade Agreements.

Where a preference program does not have a post-importation provision under 19 U.S.C. § 1520(d), CBP will continue to accept PEAs and PSCs for initial post-importation preferential duty claims on unliquidated entries.  These procedures will apply to numerous preference programs, including: African Growth and Opportunity Act (AGOA), Australia FTA, Bahrain FTA, Civil Aircraft Agreement, Generalized System of Preferences (GSP), Insular Possessions, Israel FTA, Jordan FTA, Morocco FTA, Pharmaceutical Products Agreement, Singapore FTA, and others.

In reviewing which post-importation procedures can be used to submit an initial preferential duty claim under the different programs, CBP importantly noted in its guidance that the court decisions held “failure to claim preference timely does not give rise to a right to protest[,]” meaning Protests filed under 19 U.S.C. § 1514 as an initial claim for preferential duty treatment will be “rejected as non-protestable” by CBP.  Therefore, importers will need to submit preference claims prior to liquidation.

For assistance with understanding and complying with U.S. Customs laws and  regulations, due diligence support in merger and acquisitions and other strategic alliances, as well as representation before CBP on Protests, in investigations, civil penalties, prior disclosures and other matters, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.928.3474.

U.S. Imposes New Export Controls on Russia’s Energy Sector and Adds Russian Shipbuilder to Entity List

On 1 August, Under Secretary of Commerce for Industry and Security, Eric L. Hirschhorn, signed a rule amending the Export Administration Regulations (EAR) to “impose additional sanctions implementing U.S. policy toward Russia,” and address the ongoing developments in Ukraine. Under the rule, the Bureau of Industry and Security (BIS) imposes export controls on items used in Russia’s energy sector, including exploration and production from deepwater, Artic offshore, and shale projects. The rule also adds state-owned shipbuilder, United Shipbuilding Corporation, to the Entity List. On 31 July, the Office of Foreign Assets Control (OFAC) added United Shipbuilding Corporation, to the Specially Designated Nationals and Blocked Persons (SDN) List.

The new rule adds 15 CFR § 746.5 to the EAR, “Russian Industry Sector Sanctions,” and imposes export, reexport, and transfer controls on items classified under the following Export Control Commodity Numbers (ECCNs): 0A998 (Oil/gas exploration equipment, software, and data ), 1C992 (Commercial charges and devices containing energetic materials ), 3A229 (Firing sets and equivalent high-current generators), 3A231 (Neutron generator systems), 3A232 (Detonators and multipoint initiation systems), 6A991 (Marine or terrestrial acoustic equipment ), 8A992 (Vessels, marine systems or equipment, “specially designed” “parts” and “components” therefor), and 8D999 (“Software” “specially designed” for operation of unmanned submersible vehicles used in oil/gas industry). These new controls apply “when the exporter, reexporter or transferor knows or is informed that the items will be used directly or indirectly in Russia’s energy sector” for exploration and production from deepwater (more than 500 feet depth), Artic offshore, and shale oil/gas projects. The rule goes on to identify, without limitation, examples of items that are specifically covered by the new Russian Industry Sector Sanctions, as follows: drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Artic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing (“fracking”), high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers. The rule makes clear that “[n]o license exceptions may overcome the licensing requirements under new § 746.5,” except for license exception GOV, and that the license review policy is a presumption of denial.

The rule also adds Supplement No. 2 to Part 746, Russian Industry Sector Sanctions List. This new supplement includes the ECCNs referenced above, but also includes more than 50 “Schedule B” numbers. Schedule B numbers are a commodity classification number used for exports, administered by the U.S. Census Bureau and used for reporting foreign trade data. The following main Schedule B numbers and items are listed: 7304, 7305, and 7306 (line pipe, drill pipe, casing), 8207 (rock drilling or earth boring tools and bits), 8413 (oil well pumps and elevators), 8421 (industrial gas cleaning and separation equipment), 8430 (offshore drilling and production platforms and boring/sinking machinery), 8431 (oil/gas field machinery parts), 8479 (oil/gas field wire line and downhole equipment), 8705 (mobile drilling derricks), and 8905 (floating or submersible drilling or production platforms and floating docks).

For U.S. companies and foreign companies that are subject to U.S. export controls and the jurisdiction of BIS, these new Russian energy sector sanctions pose new compliance challenges and risks. As with any economic sanctions and export controls, but particularly with the progressing multilateral Ukraine-related sanctions, companies are urged to exercise enhanced due diligence in their compliance efforts. U.S. and foreign companies that currently export, reexport, or transfer commodities, technology, and software covered by the ECCNs and Schedule B, should be alerted to this new rule and its compliance requirements. U.S. companies and foreign companies that are subject to U.S. export controls that might only sell or transfer such items domestically should also undertake additional due diligence and not “self-blind” on determining whether Russia is the ultimate destination of the items.

The new rule can be found at this link, http://1.usa.gov/1okGBSH.

For assistance with understanding and complying with this new BIS rule, Ukraine-related and other economic sanctions laws, regulations, and Executive Orders, as well as representation before BIS and OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.269.5138 (mobile).

Yormick is Presenting on International Trade Issues this Month

International business and trade lawyer, Jon P. Yormick, will be giving 2 presentations this month on international trade issues. On June 10, at the National Association of Credit Management 118th Credit Congress & Expo in Orlando, he will present Navigating Economic Sanctions…Successfully.  Yormick’s presentation will be part of an Advanced level session, “International Export Compliance and Fraud Detection.”  Co-panelists include the Director of International Trade Compliance for DHL Express Americas Region, a Partner from Bingham Greenebaum Doll LLP, and the Senior Investigator at ConSec Investigations.

On June 19, at the 2014 Upstate New York Trade Conference & Expo in Rochester, Yormick will present on the “deemed export” rule, economic sanctions, FCPA/Antibribery, and antiboycott regulations as part of the Conference’s Export Controls (EAR/ITAR) Track.  He will join the U.S. Trade Compliance Manager from Idex Optics & Photonics to discuss these and other export control topics during the session, “Advanced Exporting Issues aka ‘A day in the Life of a Professional Exporter.’”  Yormick will then join with other panelists for the “ITAR & EAR Roundtable: Overview of Export Control Reform and Q&A/Forum.”  For more information and registration, visit http://bit.ly/LeKSuT.

Yormick is an experienced international business and trade attorney practicing in the areas Export Controls & Economic Sanctions, Customs & International Trade, and FCPA/Antibribery. He represents U.S. and foreign clients before the U.S. Department of Commerce, Bureau of Industry and Security (BIS), the U.S. Customs and Border Protection (CBP), the U.S. Department of Homeland Security, Immigration and Customs Enforcement (ICE), the U.S. Department of State, Directorate of Defense Trade Controls (DDTC), the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC), and the U.S. International Trade Commission (ITC) on import and export laws and regulations, including the Export Administration Regulations (EAR), and the International Traffic in Arms Regulations (ITAR).  His clients include those in the advanced manufacturing, advanced materials, aerospace and defense, distribution, electronics, energy, medical device, oil/gas, pharmaceuticals, professional services, steel, textiles and apparel, and transportation/logistics sectors.

In 2014, Mr. Yormick was appointed by the Secretary of the U.S. Department of Commerce as a member of the Northern Ohio District Export Council, and he was selected to serve on the LL.M. Advisory Board of Case Western Reserve University School of Law. He is also a member of the U.S. Small Business Administration International Trade Task Force – Buffalo District Office.  Since 2010, he has served as the Coordinator in Buffalo and Cleveland of the Export Legal Assistance Network, a nationwide network of attorney volunteers organized by the U.S. Department of Commerce, the SBA, and the Federal Bar Association to provide free initial consultations to identify key legal issues for exporting companies.

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