OFAC Issues Two Determinations Prohibiting Dealings In Certain Metals Of Russian Origin; Extends General License Allowing Payment Of Taxes And Fees To Russian Government – Export Controls & Trade & Investment Sanctions

Key Takeaways:

• OFAC announced two new Determinations. One bans the import into
  the U.S. of aluminum, copper, and nickel originating in Russia,
  while the other outlaws the provision of certain services related
  to the acquisition of such metals.




• Additionally, OFAC issued General License (“GL”) 13I,
  which further extends the time period for U.S. persons to make
  payments of taxes and fees to the Russian government.

On April 12, 2024, in coordination with the United Kingdom, the
Department of the Treasury’s Office of Foreign Assets Control
(“OFAC”) issued two new Determinations (collectively,
the “Determinations”) that together prohibit imports into
the U.S. of aluminum, copper, and nickel of Russian origin and ban
the provision of certain services in connection with the
acquisition of aluminum, copper, or nickel of Russian origin. OFAC
also issued new and revised FAQs providing additional guidance
regarding these Determinations.

Russia is a significant producer of such metals for the global
market, although imports into the U.S. were already limited. These
new Determinations are intended to decrease Russia’s
significant revenue from the export of these metals, constraining
its ability to fund its war machine.

Separately, OFAC issued GL 13I—replacing and superseding GL 13H—temporarily authorizing specified
administrative transactions, including paying taxes and fees owed
to the Russian government that would otherwise be barred by
Directive 4 under E.O. 14024.

Determinations Prohibiting Specified Dealings in Aluminum,
Copper, or Nickel of Russian Origin

In its Determination Pursuant to Section 1(a)(i)(A) of Executive
Order (“E.O.”) 14068 (“14068 Determination”), OFAC prohibited the
importation (or entry) of aluminum, copper, or nickel of Russian
origin (“Russian Metals”) into the U.S. by adding these
items to section 1(a)(i) of E.O. 14068.

On the other hand, OFAC’s Determination Pursuant to Section
1(a)(ii) of E.O. 14071 (“14071 Determination”) expands the
prohibitions in Section 1(a)(ii) of E.O. 14071 to two categories of
services (“Covered Services”):

• Warranting services for Russian Metals on an international
  metal exchange.




• Services to acquire Russian Metals as part of physical
  settlement of a derivative contract.

The 14071 Determination bans “[t]he exportation,
reexportation, sale, or supply, directly or indirectly, from the
United States, or by a United States person, wherever located, of
any of the [Covered Services] to any person located in”
Russia.

Notably, Russian Metals that were produced prior to April 13,
2024 are not covered by the either of the Determinations.

New and Revised FAQs Provide Guidance Regarding the
Determinations

OFAC released five new FAQs (1168-1172) and modified two existing FAQs (1019
and 1128), to provide guidance with respect to the
Determinations. An outline of the critical points from each new FAQ
can be found below:

• FAQ 1168: summarizes the actions the U.S.
  Department of the Treasury took on April 12, 2024, including the
  Determinations.




• FAQ 1169: describes what is prohibited by the
  14071 Determination and provides additional guidance with respect
  to compliance, such as:
  

  • U.S. global metal exchanges are expected to comply with the
    14071 Determination by “halting the warranting of covered
    Russian metals on the exchange; removing brands that produce
    covered Russian metals from their list of accepted brands;
    abstaining from adding additional brands of covered Russian metals
    to their list of accepted brands; ceasing providing clearing
    services for covered Russian metals; and halting acting as a
    central counterparty to the trade of covered Russian
    metals.”

  
  

  • A U.S. trader acting as a counterparty to a derivative contract
    is prohibited from taking physical delivery of the Russian Metals,
    pursuant to settlement of that contract, regardless of whether or
    not the metal is being imported into the U.S.

  
  

  • To determine the date of production for a particular Russian
    metal, market participants are allowed to depend on the
    “Certificate of Analysis and Certificate of Origin of the
    relevant Russian metal, or other documentation available to them in
    the ordinary course of business.”




• FAQ 1170: explains that OFAC, for purposes of
  the Determinations, expects to issue regulations that define
  “aluminum,” “copper,” and “nickel” to
  include items defined in the Harmonized Tariff Schedule of the
  United States (“HTSUS”) chapter headings as follows:
  

  • “Aluminum”: defined at HTSUS Chapter 76.

  
  

  • “Nickel”: defined at HTSUS Chapter 75.

  
  

  • “Copper”: defined at HTSUS Chapter 74.




• FAQ 1171: confirms the Determinations
  do not “apply to aluminum, copper, or nickel
  that has been incorporated or substantially transformed into other
  products outside of” Russia.




• FAQ 1172: clarifies that the 14071
  Determination does not “impose new
  prohibitions on banks acting as intermediaries for payments related
  to” the Russian Metals, if the bank is:
  

  • acting strictly as an intermediary; and

  
  

  • has no direct relationship with the individual or entity
    providing a service covered by the 14071 Determination, in
    connection with the relevant transaction.

GL 13I Temporarily Authorizes Certain Administrative
Transactions Barred Under Directive 4

According to GL 13I, U.S. persons, or entities owned or
controlled—directly or indirectly—by such persons, are
allowed to “pay taxes, fees, or import duties, and purchase or
receive permits, licenses, registrations, certifications, or tax
refunds,” even when such transactions are barred by Directive
4 of E.O. 14024. GL 13I replaces and supersedes GL 13H, permitting
these transactions until July 11, 2024, at 12:01 AM (EST), as
opposed to April 17, 2024 at 12:01 AM (EST).

Recommendations for Those Dealing in Russian Metals

Participants in the markets for aluminum, nickel, and copper
must take concrete steps to implement due diligence procedures
designed to identify the presence of Russian Metals in their supply
chains and proposed transactions. Generally, persons operating in
this space should consider tailoring their compliance programs to
account for the Determinations and the related guidance described
above.