In the United States government’s latest response to the crisis in Ukraine, it imposed broad new investment and services restrictions pursuant to a new executive order, new sectoral restrictions, and the designation of a substantial number of additional individuals and entities on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List, including two major Russian banks. These new restrictions will likely have a broad impact for U.S. and non-U.S. companies doing business with Russia.
We previously discussed Russia-related sanctions measures imposed by the United States on March 25, March 15, March 14, March 9, March 8, March 3, February 28, February 25, February 23, and February 4. We also discussed recent sanctions measures related to the Russian energy sector in a podcast episode.
Prohibition on New Investments in, and Provision of Services to, Russia
On April 6, 2022, President Biden issued an executive order (the “April 6, 2022 E.O.”) which broadly prohibits all “new investments” in Russia by U.S. persons. The April 6, 2022 E.O. also prohibits transactions that “cause[] a violation” of the order, and prohibits U.S. persons from directly or indirectly facilitating conduct by non-U.S. persons which would be prohibited if engaged in directly by a U.S. person. This means that U.S. persons cannot facilitate new Russia investments by companies or persons outside of the U.S.
Moreover, a non-U.S. person could be held liable for “causing” a U.S. person to violate the order if the non-U.S. person made a new investment in Russia in U.S. dollars (“USD”) cleared through or transferred with the involvement of a U.S. correspondent bank or other U.S. person. The April 6, 2022 E.O. does not specify how investments by U.S. persons in non-U.S. companies which engage in new Russia investments would be treated, and OFAC may release further guidance explaining the parameters of this broad restriction on new investments.
In addition, the April 6, 2022 E.O. prohibits the exportation, reexportation, sale, or supply from the U.S., or by a U.S. person, of certain categories of services to any person in Russia. The April 6, 2022 E.O. also prohibits U.S. persons from approving, financing, facilitating, or guaranteeing any new investment or provision of certain categories services by a non-U.S. person.
The specific prohibited categories of services will be determined by the Secretary of the Treasury, in consultation with the Secretary of State. Depending on how these categories are defined, there is the potential for a broad prohibition on providing services to Russia, which would prohibit the bulk of Russia-related business transactions by U.S. persons.
Sectoral Sanctions on the Russian Aerospace, Electronics, and Marine Sectors
On March 31, 2022, OFAC issued a “Determination Pursuant to Section 1(a)(i) of Executive Order 14024” (the “Determination”). E.O. 14024 sets forth a framework to impose sanctions on any person determined by the Secretary of the Treasury to operate in certain sectors of the Russian economy. Pursuant to the Determination, the Secretary of the Treasury, in consultation with the Secretary of State, determined that E.O. 14024 now applies to the Russian aerospace, electronics, and marine sectors. This means that non-U.S. persons risk exposure to U.S. secondary sanctions liability by operating in Russian aerospace, marine, or electronics sectors.
Designation of Sberbank, Alfa-Bank, and Related Entities as SDNs
On April 6, 2022, OFAC designated Public Joint Stock Company Sberbank of Russia (“Sberbank”), 42 Sberbank subsidiaries, Joint Stock Company Alfa-Bank (“Alfa-Bank”), six Alfa-Bank subsidiaries, and five vessels owned by an Alfa-Bank subsidiary, as SDNs.
This means that all property and interests in property of these entities that are in the U.S. or in the possession or control of U.S. persons are blocked. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more of these entities are also blocked. Furthermore, all transactions by U.S. persons or within (or transiting) the U.S. that involve any property or interests in property of these entities are prohibited unless authorized by a general or specific license issued by OFAC.
On the same day, OFAC issued the following General Licenses (“GLs”):
- GL 8B supersedes and replaces the prior version of GL 8, and adds Alfa-Bank to a list of companies in which transactions “related to energy” are authorized until June 24, 2022.
- GL 9B supersedes and replaces the prior version of GL 9, and authorizes certain transactions in debt or equity of Alfa-Bank (or any entity owed 50% or more by it), issued prior to April 6, 2022, until June 30, 2022. However, any divestment or transfer of, or facilitation of divestment or transfer of, Alfa-Bank debt or equity must be to a non-U.S. person.
- GL 10B supersedes and replaces the prior version of GL 10, and authorizes certain transactions related to derivative contracts involving Alfa-Bank, or any entity owed 50% or more by it, until June 30, 2022.
- GL 21 authorizes a wind-down period for U.S. persons to engage in transactions with Sberbank CIB USA, Inc., or any entity owed 50% or more by it, until June 7, 2022.
- GL 22 authorizes a wind-down period for certain transactions involving Sberbank, or any entity owed 50% or more by it, until April 13, 2022. Notably, GL 22 does not authorize transactions that violate Directive 2 (pursuant to E.O. 14024).
- GL 23 authorizes a wind-down period for transactions involving Alfa-Bank, or any entity owed 50% or more by it, until May 6, 2022.
Additional SDN Designations
On April 6, 2022, OFAC designated 25 individuals as SDNs, including family members of Vladimir Putin and Russian Foreign Minister Sergey Lavrov, as well as Russian Security Council members, pursuant to E.O. 14024. Although OFAC previously sanctioned certain members of the Russian Security Council, the April 6, 2022 designations include “the remaining members of Russia’s Security Council.” In a press release, OFAC also noted that “[m]any of these individuals have also been sanctioned by [the U.S.’s] international partners, including Canada, the European Union (EU), Japan, New Zealand, Australia, and the United Kingdom (UK).”
Previously, on March 31, 2022, OFAC designated 21 entities and 13 individuals as SDNs, including “malicious cyber actors” and “Russia’s largest chipmaker.” According to a press release, OFAC designated these particular entities and individuals “as part of its crackdown on the Kremlin’s sanctions evasion networks and technology companies, which are instrumental to the Russian Federation’s war machine.”
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The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.