Most of us are keenly aware of the ongoing fallout from the Russian Federation’s invasion of Ukraine. As the conflict continues, the U.S. government has taken action to support Ukraine, while at the same time, punishing the Russia Federation for its violation of international law and norms. Consistent with this strategy, on March 11, President Biden issued an executive order on prohibiting certain imports, exports, and new investment with respect to continued Russian Federation aggression (the EO), prohibiting the following:
- U.S. importation of the following products of Russian Federation origin: fish, seafood, and preparations thereof; alcoholic beverages; nonindustrial diamonds; and any other products of Russian Federation origin as may be determined by the secretary of the treasury, in consultation with the secretary of state and the secretary of commerce;
- Exportation, re-exportation, sale, or supply (directly or indirectly) from the United States, or by a U.S. person, wherever located, of luxury goods and any other items as may be determined by the secretary of commerce, in consultation with the secretary of state and the secretary of the treasury, to any person located in the Russian Federation;
- New investments in any sector of the Russian Federation economy as may be determined by the secretary of the treasury, in consultation with the secretary of state, by a U.S. person, wherever located;
- Exportation, re-exportation, sale, or supply (directly or indirectly) from the United States, or by a U.S. person, wherever located, of U.S. dollar-denominated banknotes to the government of the Russian Federation or any person located in the Russian Federation; and
- Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a U.S. person or within the United States.
On the same day President Biden issued the EO, the Department of Treasury released frequently asked questions, and the Alcohol and Tobacco Tax and Trade Bureau released frequently asked questions G12, G13, and T27 (collectively, the Guidance), all of which provide further guidance on the prohibitions.
The EO and the Guidance make clear that U.S. businesses may not import alcoholic beverages from the Russian Federation and that they may not export alcoholic beverages or “tobacco and manufactured tobacco substitutes” to the Russian Federation, Belarus, or Belarusian individuals on the Office of Foreign Assets Control’s “Specially Designated Nationals and Blocked Persons List,” subject to further guidance by the secretary of commerce. See 87 Fed. Reg. 14785 (Mar. 16, 2022) (final rule issued by the Bureau of Industry and Security, Department of Commerce imposing further restrictions on the export to or within Russia or Belarus of luxury goods and creating new licensing requirements with regard to the same).
Specifically, with respect to alcohol, the Treasury Department defines “alcoholic beverages,” referencing the Harmonized Tariff Schedule. As such, the EO bans the importation of the following types of alcoholic beverages from the Russian Federation: beer made from malt; wine of fresh grapes, including fortified wines; vermouth; other fermented beverages (e.g., cider, perry, mead, sake); ethyl alcohol of an alcoholic strength; and spirits, liqueurs, or other spirituous beverages.
Despite the broad prohibition on importing alcoholic beverages of all kinds, there is a period of time during which U.S. businesses can continue to import them. Under Russia-related General License (GL) 17, U.S. businesses may continue to import alcoholic beverages that are “ordinarily incident and necessary to the importation in the United States of … alcoholic beverages … pursuant to written contracts or written agreements entered into prior to March 11” through March 25. GL 17 does not authorize U.S. businesses to enter into new contracts after March 11.
Furthermore, the Guidance states that the EO does not ban transactions, such as unwinding of contracts by U.S. businesses to comply with the import ban. Nor does the EO prohibit U.S. businesses from selling or redirecting shipments outside the U.S. of prohibited alcoholic beverages previously destined for the U.S.
Given the EO and the Guidance, U.S. alcohol importers/exporters and tobacco product exporters should immediately take action to comply. Alcohol importers should cease importation of all alcoholic beverages from the Russian Federation to the extent they are not the subject of existing contracts. Because the “sell through” period is relatively short for alcoholic beverages that must be imported under contracts entered into prior to March 11, U.S. businesses should take immediate action to get those products in the country prior to March 25. U.S. alcohol and tobacco product exporters should carefully consider the EO and recently promulgated Department of Commerce rules to determine whether exports of their products to the Russian Federation, Belarus, or Belarusian individuals would be authorized and, if so, under what conditions. It is unclear how long the EO will remain in effect, but it would be prudent for U.S. businesses to plan to comply with the new restrictions for the foreseeable future.