The United States and the United Kingdom Issue New Prohibitions on Metal Imports to Russia

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In late 2023 and early 2024, G7 Leaders stated their intent to reduce Russia’s revenues from trading metals.

On April 12, 2024, the United States Treasury, in coordination with the United Kingdom, issued two determinations that prohibit the import of aluminum, copper, or nickel of Russian Federation-origin (the “covered Russian metals”) produced on or after April 13, 2024. The first determination, pursuant to Executive Order (“E.O.”) 14068, as amended by E.O. 14114, pertains to the importation of metals, while the second determination, pursuant to E.O. 14071, pertains to certain services involving these metals. Complementary to these new determinations, the Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has issued five new Russian-related Frequently Asked Questions (FAQs 1168 – 1172), while amending two previous Russian-related Frequently Asked Questions (FAQs 1019 and 1128). The main purpose of this joint action by the US and the UK is to target Russia’s revenue from the international metals trading market, and, in turn, help impede its military campaign in Ukraine.

In a separate action related to Russia, OFAC has published a General License that authorizes certain administrative transactions that had been prohibited by Directive 4 under E.O. 14024.

Metals Import Determination

The first determination (the “Metals Import Determination”) “prohibits the importation and entry into the United States, including importation for admission into a foreign trade zone located in the United States, of aluminum, copper, and nickel of Russian Federation origin.” This new determination indicates that the prohibitions in section 1(a)(i)(A) of E.O. 14068 now also apply to the “covered Russian metals.” However, it excludes the covered Russian metals produced in Russia prior to April 13, 2024.

Metals Service Determination

The second determination (the “Metals Service Determination”) prohibits the exportation, reexportation, sale, or supply, directly or indirectly, of certain services from the United States, or by a US person, wherever located, to any person located in Russia (“covered metals acquisition services”). OFAC defines “covered metals acquisition services” to include warranting services for aluminum, copper, or nickel of Russian Federation origin on a global metal exchange and services to acquire aluminum, copper, or nickel of Russian Federation origin as part of the physical settlement of a derivative contract. In this instance, a “warrant,” which is created or issued in accordance with the rules of a global metal exchange, means an electronic record or physical document of title to, possession of, or rights in respect of a specified lot of metal, which includes metal held in a third country within a global metal exchange-approved warehouse. Furthermore, “warranting services” refers to issuing, registering, accepting, or acquiring a warrant or the underlying metal on a global metal exchange. The Metals Services Determination does not impose any prohibitions on services pertaining to the covered Russian metals prior to April 13, 2024.

The Covered Metals Acquisition Services

As noted above, “covered metals acquisition services” refers to warranting services for covered Russian metals on a global metal exchange, and services to acquire covered Russian metals as part of the physical settlement of a derivative contract.

The Metals Services Determination first prohibits US global metal exchanges from accepting covered Russian metals produced on or after April 13, 2024. US global metal exchanges must halt the warranting of covered Russian metals on the exchange; remove brands that produce covered Russian metals from their list of accepted brands; abstain from adding additional brands of covered Russian metals to their list of accepted brands; cease providing clearing services for covered Russian metals; and halt acting as a central counterparty to the trade of covered Russian metals.

Since this action was taken in coordination with the UK, Russian metal producers are obstructed from generating revenue not only from the Chicago Metal Exchange in the US, but also from the London Metal Exchange in the UK. Both metal exchanges will no longer trade new aluminum, copper, and nickel produced by Russia. Metals are the second-most exported commodity for Russia after energy. However, the value of metals has fallen after Russia invaded Ukraine. In 2023, due to the G7 and allies’ efforts to constrain the Russian market, the value of metals decreased to $15 billion, down from $25 billion in the prior year. The Chicago Metal Exchange and the London Metal Exchange are the two largest metal exchanges in the world and are an important part of the global industrial metal trading market.

Services already warranted as of April 13, 2024 may continue being traded on a global metal exchange because the Metals Services Determination does not impose any prohibitions on covered metals acquisition services prior to that date. Furthermore, new warranting and trading may continue for the covered Russian metals that were produced prior to April 13, 2024, including through new derivatives contracts. While market participants and traders may reasonably rely on documentation available to them in the ordinary course of business, such as a Certificate of Analysis or Certificate of Origin, with respect to the date of production of the relevant Russian metal, caution must be exercised if there is a reasonable belief that such documentation has been falsified in any way.

Warranting services for covered Russian metals that include the physical settlement of a derivative contract may pertain to “the expiration of the contract results in a transfer of ownership of the physical commodity, as opposed to a cash settled derivatives contract in which the derivative expires directly into cash on the maturity date of the trade.” It is important to note that “a US trader that is a counterparty to a derivative contract cannot take physical delivery of covered Russian metals when it comes time to settle that contract, even if the importation of the metal would not be into the United States.”

US Banks

A US bank may process, clear, or send payments related to Russian metals on behalf of non-US persons under certain conditions. These conditions include when a US bank (1) operates only as an intermediary; and (2) does not have any direct relationship with the person providing a service that is related to the relevant transaction covered by the Metals Services Determination. However, US banks may not themselves indirectly or directly provide prohibited services related to the covered Russian metals to a person located in Russia.

General License No. 13I

Additionally, on April 12, 2024, OFAC issued Russia-related General License No. 13I (“GL 13I” or the “General License”), which completely replaces General License No. 13H issued on January 18, 2024. The General License authorizes US persons, or entities owned or controlled, directly or indirectly, by a US person, to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, certifications, or tax refunds if these transactions are prohibited by Directive 4 under E.O. 14024.

Directive 4 contains two prohibitions on “the provision, exportation, or reexportation of goods, services (except for financial services), or technology for certain activities involving persons subject to Directive 4, their property, or their interests in property, operating in the energy sector of the Russian Federation.”

The first prohibition of Directive 4 bans “the direct or indirect provision, exportation, or reexportation of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to Directive 4 or such person’s property or interests in property.”

The second prohibition, pursuant to section 223(d) of Title II of CAATSA, of Directive 4 bans the direct or indirect provision, exportation, or reexportation of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects regardless of the location should they meet specific criteria. The criteria includes (1) the project was initiated on or after January 29, 2018; (2) the project has the potential to produce oil in any location; and (3) any person determined to be subject to Directive 4 or any earlier version thereof, including their property or interests in property, either has a 33 percent or greater ownership interest in the project or owns a majority of the voting interests in the project.

The transactions permitted by GL 13I must be ordinarily incident and necessary to the day-to-day operations of such US persons or entities, and they are authorized through 12:01 a.m. Eastern Daylight Time, July 11, 2024. GL 13I does not authorize any debit to an account on the books of a US financial institution of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; or transactions involving any person blocked pursuant to the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”) unless separately authorized, and any other transaction prohibited by RuHSR.

It is expected that the US will continue imposing sanctions on Russia as the military conflict unfolds. Curtis is closely monitoring any regulatory and enforcement developments in relation to sanctions imposed against Russia. Curtis’ team of experts is committed to provide the best advice to its clients on how to navigate the complex regulatory environment.