Washington, D.C. (May 14, 2024) – The Office of Foreign Asset Control (OFAC) issued on April 12, 2024 a Determination for Prohibitions Related to Imports of Aluminum, Copper, and Nickel of Russian Federation Origin, and a Determination for Prohibitions on Certain Services for the Acquisition of Aluminum, Copper, or Nickel of Russian Federation Origin (the "Determinations"), which prohibits the importation, exportation, sale, and other service activities involving aluminum, copper, and nickel of Russian Federation origin.
OFAC Determination Import Restrictions
On April 12, 2024, OFAC Director Bradley T. Smith issued a determination under §§ 1(a)(i), 1(b), and 5 of Executive Order (E.O.) 14068 of March 11, 2022 ("Prohibiting Certain Imports, Exports, and New Investment With Respect to Continued Russian Federation Aggression") to prohibit the importation of Russian aluminum, copper, and nickel.
The International Economic Powers Act, 50 U.S.C. §§ 1701 et seq., authorizes the President to "declare[] a national emergency with respect to" an "unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States." 50 U.S.C. § 1701(a). Under such a declaration, the President may "block...or prohibit any, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in...any property in which any foreign country or a national thereof has any interest 50 U.S.C. § 1702(a)(1)(B).
E.O. 14068 prohibits "the importation into the United States of the following products of Russian Federation origin: fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian Federation origin." E.O. 14068 § 1(a)(i). E.O. 14068 directly prohibited importation of non-industrial diamonds. OFAC expanded the diamond category on February 8, 2024 (See Lewis Brisbois' alert from February 23, 2024).
Aluminum, copper, and nickel cannot be imported into the United States or imported for admission to a foreign zone (if the zone is located in the United States). This does not apply in situations licensed or authorized by OFAC or to any aluminum, copper, and nickel of Russian Federation origin produced prior to April 13, 2024.
These latest sanctions pose downstream cost hurdles for auto-makers, airline manufacturers, construction equipment producers, electrical consumer goods such as smartphones, tablets, TVs, and PCs, and core electrical infrastructure, all of which rely heavily on aluminum, copper and nickel for their production. The electric energy industry looks to be the most impacted due to the role these metals play in key functions of electrical energy production. For example, nickel plays a major role in electric vehicle (EV) batteries. Aluminum has been increasingly replacing steel in automobiles to reduce vehicle weight and therefore increase gas mileage. Finally, copper's immense electrical conductivity properties and abundance as a raw material make it the most efficient and cost-effective metal for electronic products. It is also the third most-used industrial metal in the world.
The U.K., in coordination with the U.S., has also prohibited metal-trading exchanges from accepting new aluminum, copper and nickel produced by Russia, and barred the import of the metals into Britain. This joint effort follows Japanese export bans placed on a variety of products, including iron, steel, nickel, copper and aluminum.
Russian exports of these metals account for 5.5% of global aluminum supply, 4.0% of copper supply and 6.0% of nickel. While some financial experts expect markets to adjust to these latest restrictions (particularly in the United States, where dependence on Russian metals has remained low), others forecast significant global price hikes, particularly those on the London Metal Exchange (LME) which serves as a baseline for global trade contracts. Nickel in particular is at risk for major price hikes. To combat this the LME has placed daily price increase limits of 12% for aluminum and copper and 15% for nickel.
OFAC Determination Investment and Services Restrictions
In a parallel determination, OFAC announced the prohibition on warranting services for aluminum, copper, and 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 physical settlement of a derivative contract (collectively, "Covered Metals Acquisition Services").
OFAC Director Smith issued a determination under §§ 1(a)(ii), 1(b), and 5 of E.O. 14071 of April 6, 2022 ("Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression") to prohibit the following activities: export, reexport, sale, or supply (directly or indirectly) from the United States or by a United States person (wherever located) of any of the Covered Metals Acquisition Services to any person located in the Russian Federation.
E.O. 14071 allows the President to prohibit "the
exportation, re-exportation, sale, or supply, directly or
indirectly, from the United States, or by a United States person,
wherever located, of any category of services as may be determined
by the Secretary of the Treasury, in consultation with the
Secretary of State, to any person located in the Russian
Federation." E.O. 14071 § 1(a)(ii).
Covered Metals Acquisition Services related to aluminum, copper, or
nickel may still occur if these metals were produced prior to April
13, 2024.
Takeaway
Due to OFAC's recent additions of aluminum, copper, and nickel to the list of Covered Metals and Covered Metals Acquisition Services continued oversight on compliance with sanctions laws and regulations by U.S. persons, entities, and individuals continues to remain vital for business operations and transactions.
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