On March 11, 2022, the U.S. Government issued Executive Order 14068 prohibiting certain imports, exports and new investment with Russia. The following transactions by U.S. Persons are prohibited:
- the importation into the United States of Russian-origin fish and seafood (defined below), and preparations thereof, alcoholic beverages (defined below), and non-industrial diamonds;
- the exportation, reexportation, sale, or supply, directly or indirectly, of luxury goods (see below) as determined by the Department of Commerce from the United States or by a U.S. Person to any person located in Russia;
- new investments by U.S. Persons in any sector of the Russian economy as to be determined by the Secretary of the Treasury;
- exportation, reexportation, sale, or supply, directly or indirectly, of U.S. dollar-denominated banknotes from the United States or by a U.S. Person, to the Government of Russia or any person located in Russia;
- any approval, financing, facilitation, or guarantee by a U.S. Person of a transaction by a foreign person where such a transaction would be prohibited if performed by a U.S. Person (for example, payment in U.S. dollars or using a U.S. bank to facilitate any of the above prohibited transactions).
Several new Frequently Asked Questions (“FAQs”) related to the Executive Order can be found here.
Clarification of Prohibition Action 1
- General License 17: Transactions related to Action 1 are allowed through 12:01 am EST on March 25, 2022, that were ordinarily incident and necessary and pursuant to written contracts entered into prior to March 11, 2022.
- FAQ 1,027: The term Russian “fish, seafood, and preparations thereof” and “alcohol beverages” is anticipated to be defined under the U.S. Harmonized Tariff Schedule.
- FAQ 1,024: While the Executive Order prohibits the importation of fish, seafood, and preparations thereof, alcohol beverages, and non-industrial diamonds of Russia they will not prohibit U.S. persons from engagement in transaction to sell or re-direct shipments outside of the United States that were previously destined for the United States.
Clarification of Prohibition Action 2
FAQ 1,027: The determination of luxury goods refers to the Department of Commerce and Bureau of Industry and Security for guidance. A list of luxury goods subject to this export ban, along with their Schedule B number and descriptions, can be found on page 15 of the following document. The list includes various types of alcoholic beverages, tobacco and tobacco products, perfumes and cosmetics, handbags, artworks, clothing, sporting equipment, passenger vehicles, jewels, watches, etc. There is concern that while the FAQs link back to the Department of Commerce list, it does not appear to be limited to that list. Careful evaluation will be needed when analyzing the term luxury goods.
Warning Regarding Use of Virtual Currency
FAQ 1,021 made clear that the Russia-related sanctions will apply regardless of if the transaction is conducted in traditional fiat currency or virtual currency. It warns that U.S. persons, wherever located, including firms that process virtual currency transactions, must be vigilant against attempts to circumvent regulations and must take risk-based steps to ensure they do not engage in prohibited transactions. U.S. persons, including virtual currency exchanges, virtual wallet hosts, and other service providers, such as those that provide nested services for foreign exchanges, are generally prohibited from engaging in or facilitating prohibited transactions. U.S. Persons are also generally prohibited from engaging in or facilitating prohibited transactions, including virtual currency transactions involving the Central Bank of Russia, the Russian National Wealth Fund, and/or the Russian Ministry of Finance.
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For questions or further discussion on how this may impact you and your business please contact a member of Withum’s Federal Tax Services Team.
