Biden Administration Continues Use of Export Control Reform Act to Seek Forfeiture of Russian Foreign-Based Assets
The United States Department of Justice (DOJ) continues its efforts to seize and forfeit high-profile foreign-based assets owned by Russian companies and individuals in response to Russia’s actions in the Ukraine conflict.
Washington, D.C. (March 13, 2023) – The United States Department of Justice (DOJ) continues its efforts to seize and forfeit high-profile foreign-based assets owned by Russian companies and individuals in response to Russia’s actions in the Ukraine conflict. (See Lewis Brisbois’ alert from March 7, 2023.) DOJ has already used the Export Control Reform Act of 2018 (ERCA), 50 U.S.C. §§ 4811, et seq., in seeking the seizure and forfeiture of luxury aircraft located outside the United States. (See Lewis Brisbois’ alert from August 5, 2022.) Now, DOJ is seeking the seizure of a Boeing 737–7JU aircraft owned by PJSC Rosneft Oil Company (Rosneft), a Russian state-owned energy company headquartered in Moscow and headed by Igor Ivanovich Sechin.
ECRA Authorizes DOJ to Seize and Seek Forfeiture of Any Property Used to Facilitate an Export Control Violation, Which Includes All Aircraft and Aircraft Components to or Within Russia
The ECRA grants the President of the United States the authority to “control… the export, reexport, and in-country transfer of items subject to the jurisdiction of the United States, whether by United States persons or by foreign persons… relating to” specific categories of items and information. 50 U.S.C. § 4812(a). Congress granted the Department of Commerce, under the direction of the President authority, to establish the applicable regulatory framework. 50 U.S.C. §§ 4813–4815. The Commerce Department’s Bureau of Industry and Security (BIS) administers the expert licensing and enforcement functions of the dual-use export control system through by the Export Administration Regulations (EAR), 15 CFR Subchapter C, parts 730–774. 15 C.F.R. § 730.1.
The ECRA provides BIS with broad authority to “detain, seize, or issue temporary denial orders with respect to items, in any form, that are subject to controls.” 50 U.S.C. § 4820(a)(5). Such items also includes “conveyances on which it is believed that there are items that have been, are being, or are about to be exported, reexported, or in-country transferred,” and extends to “any regulations, order, license, or other authorization issued” under the ECRA. Id. “Any property, real or personal, seized under subsection (a) [of 50 U.S.C. § 4820]” is subject to civil forfeiture “carried out in accordance with the procedures set forth in section 981 of title 18,” 50 U.S.C. § 4820(j).
In turn, 18 U.S.C. § 981 is the federal civil forfeiture statute for which “property used to facilitate such an offense” may be civilly forfeited. 18 U.S.C. § 981(a)(1)(B). Among the violations incorporated is “any other conduct described in section 1956(c)(7)(B),” which prohibits export control violations involving “an item controlled under [the EAR].” 18 U.S.C. § 1956(c)(7)(B)(v)(II).
Through the EAR, BIS restricts the export of items that could contribute to the military potential of other nations by placing these items on the Commerce Control List (CCL) – published at 15 C.F.R. part 774, Supp. No. 1. BIS categorizes items on the CCL by Export Control Classification Number (ECCN), each of which has export controls requirements depending on destination, end use, and end user. Aircraft and aircraft component parts are denominated ECCN 9A991.
After Russia invaded Ukraine, BIS implemented further sanctions against Russia under the EAR. 87 Fed. Reg. 12,226 (Mar. 3, 2022). BIS imposed “broad transfer (in-country) requirements on an entire country, reflecting the significance of the U.S. national security and foreign policy concerns, resulting from the Russian further invasion of Ukraine.” 87 Fed. Reg. at 12,227. BIS extended the “EAR license requirements to many items that did not previously require a license to Russia on the basis of their CCL classification alone, such as the parts and components used in civil aircraft controlled under ECCN 9A991.d.” Id. On April 11, 2022, BIS further amended 15 C.F.R. § 746.8(a)(1) to include all items on the CCL. See 87 Fed. Reg. 22,130 (Apr. 14, 2022).
Under 15 C.F.R. § 740.1(a), a “License Exception” allows export or reexport of items otherwise requiring an EAR license to export or reexport. Relevant here, the aircraft, vessels and spacecraft (AVS) License Exception allows for the reexport of a U.S.-manufactured, foreign-flagged vessel on a temporary sojourn in and out of countries not in Country Groups E:1 and E:2 – state sponsors of terrorism and Cuba. See 15 C.F.R. § 740.15 & 15 C.F.R. part 740, App’x Supp. No. 1. On March 2, 2022, BIS amended the EAR to prohibit the use of the AVS License Exception to export or reexport to Russia any aircraft under a Russian national’s control. 87 Fed. Reg. 13,048, 13,053 (Mar. 8, 2022).
Asserting Violations of ECRA, DOJ Obtains Seizure Warrant for Rosneft Company Aircraft
While both Rosneft and Igor Ivanovich Sechin appear on the Office of Foreign Asset Control’s Specially Designated Nationals and Blocked Persons list (SDN List), DOJ obtained a seizure warrant under the ECRA for a foreign-based asset rather than its authority under the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq. See Seizure Warrant, In re: Boeing 737–7JU Aircraft Bearing Tail Number RA-73455 (Formerly OE-IRF) and Manufacturer Serial Number 38855, No. 23-MAG-00174 (E.D.N.Y. Feb. 24, 2023).
Despite BIS’s March 2, 2022 cancelation of the AVS License Exception to exclude “aircraft registered in, owned, or controlled by, or under charter or lease” by a Russian national, 87 Fed. Reg. at 13,053, Rosneft purportedly reexported these aircraft after March 2, 2023, without obtaining a license from BIS. Id. DOJ alleges the 737–7JU flew on multiple roundtrips from Abu Dhabi, United Arab Emirates to Moscow, Russia, and from Doha, Qatar, to Moscow, Russia. Id. Additionally and more specifically, between August 12, 2022, and August 18, 2022, the Boeing flew to and from several locations in South Africa, ferrying passenger Svetlana Medvedeva – wife of former prime minister and president of Russia Dmitry Medvedev. Id. DOJ alleges the Boeing returned to Moscow on February 8, 2023, and has remained there since. Id.
If true, the Boeing was reexported in contravention of BIS orders. If DOJ proves the allegations by the preponderance of the evidence (and, more crucially, obtains custody over the Moscow-based Boeing), DOJ could forfeit Rosneft’s ownership of the Boeing, worth more than $25 million. See 18 U.S.C. § 981(b) & 50 U.S.C. § 4820(j).
The seizure warrant for Rosneft’s luxury airplane exemplifies the potential global reach of U.S.-imposed sanctions in the wake of Russia’s invasion of Ukraine. In the aerospace sector alone, BIS could – under principles of unlawful assistance (see 50 U.S.C. § 4819(a)(2)(B)) – initiate enforcement actions, and DOJ could initiate forfeiture and criminal proceedings against any person or entity providing any form of service to an aircraft subject to the now-broadened EAR prohibitions. Further, the prohibition against export, reexport, and transfer to or within Russia for all items on the CCL makes the threat of an enforcement action a reality across all sectors reliant on CCL-listed dual-use goods and technologies.
Lewis Brisbois’s attorneys are actively engaged in the wide range of legal issues in this area, and are advising clients on managing legal and business risk as events continue to develop at an accelerated pace. For more information, contact the author or editors of this alert. Visit our Ukraine Conflict Response Practice page for additional alerts in this area.
Justin Carl Pfeiffer, Partner
Jane C. Luxton, Managing Partner - Washington, D.C.
Andrew Pidgirsky, Partner