The Month in International Trade – March 2022

In this issue:

• Top Trade Developments
  • Latest Russia Sanctions/Export Highlights
  • Biden Administration Considers Imposing Sanctions on Kaspersky Labs
  • President Joe Biden Outlines 2023 White House Priorities in Budget Request to Congress
  • Key Takeaways from Crowell’s 2022 Transportation & Logistics Industry Workshop
  • EU Competition Authorities Respond to Ukraine Crisis: More Flexibility for State Aid and Cooperation Among Companies
  • Russia and Ukraine: The Next Wave of International Disputes
  • Customs Rulings of the Week
• Crowell & Moring Media Speaks

This news bulletin is provided by the International Trade Group of Crowell & Moring. If you have questions or need assistance on trade law matters, please contact Jeff Snyder or any member of the International Trade Group.

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Top Trade Developments

Latest Russia Sanctions/Export Highlights

Russia Sanctions: The U.S. (BIS) added a number of entities to the Entity List citing their support of the Russian and Belarusian militaries. Over the April 1 weekend, the world began to learn of the atrocities in Bucha. The U.S., UK, and EU have since responded with a number of new sanctions and restrictions.

New U.S. Prohibitions and Expanded Authority: On April 6, 2022, President Biden signed an Executive Order (EO) that prohibits all “new investment in the Russian Federation by a United States person, wherever located.” The EO also permits the U.S. Department of the Treasury (“Treasury”) to prohibit the provision of “any category of services,” as determined by the Secretary of the Treasury, to persons located in Russia. Treasury has not provided any guidance about categories of services subject to this prohibition.

U.S. Entity List Designations: On April 1, 2022, the U.S. (BIS) added 120 entities to the Entity List for supporting the Russian and Belarusian militaries. A “footnote 3” designation was added to 95 of the entities that were determined to be “military end users.” The footnote 3 designation subjects those entities to the Foreign Direct Product Rule (FDP Rule). As discussed in our March 3, 2022 update, the FDP Rule restricts the export to Russia and Belarus of most foreign manufactured goods that use U.S.-origin software or technology as part of their manufacturing processes.

Financial Sector Restrictions: This week, the U.S. fully blocked Russia’s largest financial institution, Public Joint Stock Company Sberbank of Russia (“Sberbank”), and Russia’s largest privately-owned financial institution, Joint Stock Company Alfa-Bank (“Alfa-Bank”). Both banks were previously subject to more limited sectoral sanctions, but are now both Specially Designated Nationals (SDNs). 42 Sberbank subsidiaries, six Alfa-Bank subsidiaries, and five vessels owned by one of Alfa-Bank’s subsidiaries were also added to the SDN List. The U.S. clarified that Alfa-Bank (Ukraine) is not subject to sanctions, because it is a distinct legal entity from Alfa-Bank. Separately, the UK designated Credit Bank of Moscow, and Sberbank.

U.S. Sanctions on Russian State-Owned Enterprises: The U.S. designated two state-owned enterprises: (1) Alrosa, the world’s largest diamond company; (2) Joint Stock Company United Shipbuilding Corporation (“USC”), which manufactures Russian military warships, as well as the subsidiaries and board members of each.

Sanctioned Oligarchs and Other Individuals: The UK identified eight new oligarchs as subject to an asset freeze including: Leonid Mikhelson, who is associated with SIBUR, a petrochemical company; Viatcheslav Kantor, the Chair of Acron, a fertilizer company; Andrey Guryev, former Deputy Chair at PhosAgro, a phosphate-based fertilizer company; and several leaders of already designated entities.

The U.S. added the remaining members of Russia’s Security Council, including former president Dmitri Medvedev, to the SDN List. It also designated family members of Russian officials. Both the U.S. and UK placed sanctions on President Putin’s adult daughters.

Additional EU Sanctions: Media reports indicate that the EU has approved a fifth round of sanctions; however, the legislation has not been published. We expect the official record to be released as early as April 8, 2022.

For more information, contact: Jeff Snyder, Carlton Greene, Dj Wolff, Michelle Linderman, Caroline Brown, Nicole Succar, Anand Sithian, Brian McGrath, Laurel Saito, Rachel Schumacher

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Biden Administration Considers Imposing Sanctions on Kaspersky Labs

As the U.S. government continues to ratchet up sanctions in response to the Russian invasion of Ukraine, public reporting suggests there may be a new target in the sites of U.S. sanctions authorities: Kaspersky Labs (Kaspersky), the popular Russian cybersecurity and antivirus company. Any sanctions imposed by the Department of Treasury’s Office of Foreign Assets Control (OFAC) would come on the heels of other recent government action against Kaspersky. On March 25, 2022, the Federal Communications Commission (FCC) added Kaspersky to its list of communications equipment and services that are deemed to pose an unacceptable risk to the national security of the United States, as well as the safety and security of the American people. Kaspersky, which is headquartered in Moscow, is the first non-Chinese company added to the list that includes Shenzhen-based Huawei Technologies Company and ZTE Corporation, among others. Kaspersky has publicly disagreed with the decision.

For more, please click here.

For more information, contact: Caroline Brown, Kate Growley, Robert Holleyman, Jeff Snyder, Evan Wolff, Alexander Urbelis, Christopher Hebdon, Paul Mathis

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President Joe Biden Outlines 2023 White House Priorities in Budget Request to Congress

Just days following the enactment of the omnibus appropriations law for the remainder of the current fiscal year ending on September 30, President Biden released a $5.7 trillion budget proposal for the 2023 fiscal year. The President is seeking from Congress $1.64 trillion in funding for discretionary programs, a nine percent increase from current funding levels. Of that amount, the proposed budget seeks $813 billion in defense spending and $829 billion for non-defense programs.

In contrast, almost two-thirds of the proposed budget – $3.65 trillion – is earmarked for mandatory spending including Social Security, Medicare, and Medicaid. The White House projects the proposal would result in a $1.3 trillion decline in the federal deficit due in large part to new proposed taxes, including a 15 percent minimum tax on corporate profits and a new minimum tax on households worth more than $100 million.

The release of the President’s budget is just the first step in a prolonged budget and appropriations process. The President’s budget reflects White House priorities for the upcoming fiscal year and serves as a starting point for Congress as it drafts appropriations measures to keep the government funded. Congress kicked off its appropriations and budget processes for the 2023 fiscal year on Tuesday, March 29. The House Budget Committee hosted White House Budget Director Shalanda Young, who defended the President’s budget proposal and argued it will help the economy continue the strongest period of growth in nearly 40 years while paying down the deficit. House and Senate committees are expected to hold numerous hearings with individual department and agency heads in the coming weeks to consider the President’s request and will begin drafting and negotiating various components of the appropriations package following the April Congressional Recess.

Congress is supposed to advance spending measures ahead of the conclusion of the previous fiscal year, though in recent years it has become common practice for Congress to pass short-term funding measures to offer lawmakers more time to negotiate the broader package. In fact, Congress only recently finalized legislation to fund the government for the remainder of the 2022 fiscal year weeks ago. It is anticipated that given the upcoming midterm elections and a number of additional competing legislative priorities that Congress could once again rely on continuing resolutions to keep the government funded beyond the end of the current fiscal year on September 30.

For a non-exhaustive summary highlighting each section of the President’s budget proposal, please click here.

For more information, contact: James G. Flood, Byron R. Brown, Kate Beale, W. Scott Douglas, Stacie Heller, Tim Shadyac, Thomas Mottur

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Key Takeaways from Crowell’s 2022 Transportation & Logistics Industry Workshop

Crowell & Moring held its Transportation & Logistics workshop on Thursday, March 10, 2022 in Dana Point, California. The conference featured key developments and trends in the transportation sector and legal strategies to support supply chain resiliency in the midst of industry uncertainty, evolving regulatory regimes, and unprecedented workforce challenges. Conference participants included transportation leaders and decision-makers across retail, food & beverage, hospitality, telecommunications, healthcare, rail, automotive, aviation, surface, maritime, mobility, shipping, logistics, and beyond. Topics included:

• The Evolution: Issues and Opportunities for EV Users, Fleet Operators, and Manufacturers as the Transition Accelerates
• Positioning Your Transportation Disputes In A Supply-Constrained Era: Emerging Strategies In Force Majeure And Allocation
• Airports of the Future: Legal Considerations for Sustainable and Safe Mobility of People and Goods

For a look at Crowell’s Transportation leaders key takeaways from the conference, please click here.

For more information, contact: Meagan T. Bachman, Lorraine M. Campos, Rebecca Baden Chaney, S. Starling Marshall, Chahira Solh, Byron R. Brown, Mary-Caitlin Ray

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EU Competition Authorities Respond to Ukraine Crisis: More Flexibility For State Aid And Cooperation Among Companies

Two recent initiatives have been adopted by EU competition authorities in response to the current crisis in Ukraine. On March 23, 2022, the European Commission adopted a new Temporary Crisis Framework for State aid measures to support the EU economy following Russia’s attack on Ukraine. The goal is to allow EU countries to support companies and sectors that are severely affected by the economic impact of the war or the sanctions imposed against Russia. The Framework will be in place until December 31, 2022. This initiative comes shortly after the European Competition Network issued a Joint Statement, allowing companies to cooperate to address severe disruptions caused by the Ukraine crisis.

Many businesses in the EU have been directly or indirectly affected by the war, the sanctions imposed and the countermeasures taken. The negative impact may result in loss of turn-over and/or sharp input cost increases, because of shrinking demand, interruption of existing contracts and projects, or disruptions to supply chains. In addition, high energy prices have impacted several economic sectors, including agriculture, food processing and all energy-intensive businesses.

For more information, please click here.

For more information, contact: Karel Bourgeois, Flavie Van Maldegem

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Russia And Ukraine: The Next Wave of International Disputes

With the geopolitical and economic crisis in Russia and Ukraine growing rapidly from recent events, international commercial operations in the region will be severely impacted in some manner, and many such impacts will result in disputes. The events surrounding the peso crisis in Argentina in early 2000s, as well as those in Venezuela from the actions of Hugo Chavez, and others arising out of the Arab spring, all resulted in dozens of international disputes. We may see the same from current events, and there will be dispute options available to numerous companies with operations in either country who are experiencing severe disruptions of operations, loss of profit, or destruction of property, including, potentially: investor-State arbitration, domestic litigation, or claims tribunal recovery.

For more on this important topic, please click here.

For more information, contact: Ian A. Laird, John L. Murino, Eduardo Mathison, Leslie Castello

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Customs Rulings of The Week

• Country of Origin of Pin Pad Device
• Classification of Solar Powered Condenser Units
• Classification of “Deal or No Deal” Game
• Classification of a Bio-Bag

For more information, contact: Frances Hadfield, Martín Yerovi

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Crowell & Moring Speaks

March 31, 2022 – Law.com* speaks with senior counsel Clif Burns about the challenges companies are facing when closing down branches in Russia with a considerable number of American employees. According to Burns, companies don’t want to start closing down operations while Americans are there and risk their arrest, and several strategies have been developed for paying Russia-based employees (“Labor of Law: How Can Companies Pay Employees in Russia?”). *subscription required

March 29, 2022 – The Am Law Litigation Daily* features a Q&A with partner Ian Laird, co-chair of the International Dispute Resolution Group. Laird discusses how events unfurling on a daily basis will form the foundation for what evolves and develops over the next five-to-ten years, and the need for those affected by the invasion to determine where they fit into the developing landscape of legal disputes (“Q&A: 'It's All Starting Now': Crowell's Ian Laird on the Commercial Disputes Likely to Result from Russia's Invasion of Ukraine”). *subscription required

March 28, 2022 – Business of Fashion* quotes partner Caroline Brown on the importance of establishing robust sanctions screening on end customers, as well as other steps companies should consider taking in the current environment (“What Russian Sanctions Mean For Fashion”). *subscription required 

March 28, 2022 – The Block* features partner Caroline Brown on the Policy Scoop With Aislinn Keely: Legal And Crypto Exchange Experts Weigh In On How To Navigate Sanctions. *subscription required

March 24, 2022 – Insurance Maritime News* quotes partner Michelle Linderman discussing how people and businesses in Europe in particular were so closely tied up with the Russian economy that when a large and ever-expanding package of sanctions are brought in within a few weeks, it was “completely unprecedented.” (“Russia Sanctions Are On A Completely Different Level From Iran, North Korea, Venezuela”). *subscription required 

March 22, 2022 – Roll Call quotes partner Carlton Greene, former chief counsel of the Financial Crimes Enforcement Network (FinCEN), who says the U.S. is in the second wave of crypto enforcement. Greene observes there are now efforts to go after those who are not necessarily attempting to do anything illegal, but don’t want the burden of complying with the law and registering under securities rules (“States Often First in Crypto Enforcement, Leaving Feds to Follow”).

March 17, 2022 – Reuters quotes partner Caroline Brown who said there have been a lot of questions about what kind of activities companies can engage in during wind-down periods. (“U.S. Sanctions Lawyers Are Busier Than Ever. Here's What Clients Want To Know”).

March 15, 2022 – Politico* quoted partner Dj Wolff in an article titled “Confiscating A Russian Oligarch’s Luxury Condo Requires Much More Than Political Bluster”. *subscription required 

March 10, 2022 – Global Investigations Review* speaks with New York counsel Anand Sithian, a former trial attorney in DOJ’s Criminal Division’s money laundering and recovery section, regarding the timing of the charges. Sithian says the DOJ at its highest levels is looking very closely at the activities of those connected to the Russian regime (“Former Fox Director Indictment Illustrates DOJ's Tough Approach to Russia Sanctions”). *subscription required

March 9, 2022 – Partner Dj Wolff speaks with Al Jazeera regarding the daily global groundswell of more and more people getting behind the opposition to the invasion of Ukraine. Wolff says the strength in numbers has made it politically easier for companies to step up and withdraw now (“From McDonald's to TikTok, Why Are Big Brands Bailing on Russia?”).

March 5, 2022 – The Block* quotes partner Caroline Brown in an article titled “Crypto Exchange Executives Respond to Sanctions ‘Misinformation’”. * subscription required 

March 3, 2022 – Export Compliance Daily* highlights the firm’s March 2 webinar—Russia-Related Sanctions Developments—which discusses the current state of a rapidly changing Russia-related sanctions landscape, including new measures both implemented and expected from the United States, United Kingdom, and European Union. *subscription required

March 2, 2022 – American Banker* speaks with partner Caroline Brown about Russia and other entities looking for ways that they can access the U.S. dollar as sanctions begin to have their effects. Brown says the likelihood of Russian entities getting caught using cryptocurrency to skirt sanctions will depend on the jurisdiction where the cryptocurrency companies they use are operating (“Could Russian Banks and Oligarchs Use Crypto to Evade Sanctions?”). *subscription required

March 1, 2022 – Inc. quotes New York counsel Nicole Succar regarding the need for companies that want to stay in Russia to invest in compliance (“Businesses Pull Russian Products in Response to the Invasion of Ukraine. Should You Do the Same?”).