Sanctions Tracker – Further U.S. Responses to the Conflict in Ukraine

Economic restrictions applicable to dealings with Russia continue to tighten on the basis of events in the Ukraine conflict, and the U.S. Justice Department has announced a new task force to prosecute violations of Russia sanctions. We previously discussed sanctions measures that have been enacted in several jurisdictions as a response to the conflict on February 4, February 23, February 25, and February 28. This post provides an update regarding further Russia-related sanctions measures in the United States.

Suspension of Russian Flights to and/or From the United States

On March 2, 2022, the U.S. Department of Transportation (“DOT”) and the Federal Aviation Administration (“FAA”) issued orders “blocking Russian aircraft and airlines from entering and using all domestic U.S. airspace.”

According to the FAA, the Notice to Air Missions and related regulatory orders will “suspend operations of all aircraft owned, certified, operated, registered, chartered, leased, or controlled by, for, or for the benefit of, a person who is a citizen of Russia. This includes passenger and cargo flights, and scheduled as well as charter flights, effectively closing U.S. air space to all Russian commercial air carriers and other Russian civil aircraft.” A press release is available here.

On the same day, the DOT issued an order, which:

• disapproves all of the existing and proposed schedules for combination and all-cargo services filed by Public Joint Stock Company Aeroflot Airlines, AirBridgeCargo Airlines Limited, Joint Stock Company Aircompany Yakutia, LLC Nord Wind, and Azur Air, L.L.C.;
• disapproves all prospective proposed schedules that may be subsequently filed by the aforementioned foreign air carriers; and
• suspends the authority of all Russian foreign civil aircraft operators to navigate aircraft in the United States.

The DOT noted that “[c]arriers and/or operators with aircraft on the ground in the United States may request authority from the Department to conduct the non-revenue ferry operation that will be necessary for their aircraft to depart the United States.” To do so, the DOT directs affected carriers and/or operators to file a request for non-revenue ferry, humanitarian, and/or search and rescue operations.

New General Licenses

On the same day, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued the following General Licenses (“GLs”):

• GL 9A replaces and supersedes GL 9, and authorizes transactions related to dealings in certain debt or equity, until May 25, 2022, with the following entities: (i) State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”); (ii) Public Joint Stock Company Bank Financial Corporation Otkritie (“Otkritie”); (iii) Sovcombank Open Joint Stock Company (“Sovcombank”); (iv) Public Joint Stock Company Sberbank of Russia (“Sberbank”); (v) VTB Bank Public Joint Stock Company (“VTB”); or (vi) any entity owned, directly or indirectly, 50% or more by one of the aforementioned entities.
• GL 10A replaces and supersedes GL 10, and authorizes certain transactions related to derivative contracts, until May 25, 2022, with the following entities: (i) VEB; (ii) Otkritie; (iii) Sovcombank; (iv) Sberbank; (v) VTB; or (vi) any entity owned, directly or indirectly, 50% or more by one of the aforementioned entities.
• GL 13 authorizes U.S. persons to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications, to the extent such transactions are, otherwise, are prohibited by Directive 4.
• GL 14 authorizes all transactions prohibited by Directive 4, where the Directive 4 entity’s “sole function in the transaction is to act as an operator of a clearing and settlement system, are authorized.” However, to be authorized by GL 14, there must be no transfer of assets to or from any Directive 4 entity, and no Directive 4 entity can be a counterparty or a beneficiary to the transaction, unless separately authorized.

Additional Guidance and Clarifications

OFAC also issued substantial guidance related to the sanctions measures previously announced by the U.S. government. In particular, OFAC updated several Frequently Asked Questions (“FAQs”) and issued the following new FAQs.

• FAQ 998 clarifies that Directive 4 prohibits U.S. persons from engaging in any transaction involving the Central Bank of the Russian Federation (“Russian Central Bank”), the National Wealth Fund of the Russian Federation (the “NWF”), or the Ministry of Finance of the Russian Federation (“Russian Ministry of Finance”), including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.
• FAQ 999 states that OFAC issued certain authorizations for entities subject to Directive 4, including GL 8A, GL 9A, GL 10A, GL 13, and GL 14.
• FAQ 1,000 explains that the Russian Central Bank, the NWF, and the Russian Ministry of Finance are subject to several sanctions restrictions, including Directive 4, Directive 1A, as well as the CBW Act Directive of August 1, 2019.
• FAQ 1,001 provides that OFAC’s 50% rule does not apply to Directive 4 restrictions, meaning that subsidiaries of Directive 4 entities are not covered.
• FAQ 1,002 clarifies that U.S. persons are prohibited from engaging in indirect transactions with persons subject to Directive 4 restrictions.
• FAQ 1,003 explains that transactions where the Russian Central Bank, the NWF, or the Russian Ministry of Finance serve solely as the operator of a clearing and settlement system are authorized by GL 14.
• FAQ 1,004 clarifies that Directive 4 does not impose blocking sanctions. Rather, U.S. persons must reject transactions involving the Directive 4 entities, unless exempt or authorized by OFAC.
• FAQ 1,005 explains that Directive 4 does not prohibit trading in the secondary markets for debt or equity of Directive 4 entities, including the Russian Central Bank, the NWF, or the Russian Ministry of Finance, as long as no Directive 4 entity is a counterparty to such a transaction. However, Directive 1A prohibits U.S. financial institutions from participation in the secondary market for ruble or non-ruble denominated bonds, issued after March 1, 2022, by the Directive 4 entities.
• FAQ 1,006 clarifies the particular activities in the Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LNR”) regions of Ukraine that are prohibited by E.O. 14065.
• FAQ 1,007 provides that U.S. persons are authorized to engage in certain activities in the DNR and LNR regions of Ukraine, pursuant to GL 18, GL 19, GL 20, GL 21, and GL 22.
• FAQ 1,008 explains that GL 17 authorizes a wind-down period, until March 23, 2022, of transactions that are ordinarily incident and necessary to the wind-down of transactions involving the DNR and LNR regions of Ukraine.
• FAQ 1,009 clarifies E.O. 14065 does not block the entire DNR and LNR regions of Ukraine.

OFAC emphasized that “energy payments can and should continue.” OFAC also clarified that “General License 8A permits what are commonly known as ‘U-turn transactions,’ where payments related to energy are processed through non-sanctioned, third-country financial institutions, enabling the continuation of transactions that support the flow of energy to the market.” A press release is available here.

New Export Control Restrictions 

In a further tightening of U.S. export-related restrictions on Russia, the White House issued a “Fact Sheet” entitled “The United States Continues to Impose Costs on Russia and Belarus for Putin’s War of Choice” on March 2, 2022. The Fact Sheet summarizes new measures that will be implemented by coordinated action in the relevant US federal agencies, including the Bureau of Industry and Security of the U.S. Department of Commerce, the office primarily responsible for the enforcement of U.S. export controls.

The Fact Sheet announces two export controls-related measures targeting Russia:

• “Oil Refining” controls. The United States will issue new export controls “on oil and gas extraction equipment,” including “restrictions on technology exports that would support Russia’s refining capacity over the long term.” It is not clear from the Fact Sheet whether the United States will be targeting upstream extraction activities as well as refining. The Fact Sheet states generally that the new measures will contribute to “degrading Russia’s status as a leading energy supplier over time.” To date, U.S. authorities have not released further details on the new “oil refining” controls.
• Defense sector controls. The United States will designate additional entities to the so-called Entity List, a list of persons and entities that are subjected to enhanced licensing requirements for purposes of US export controls. See 15 C.F.R. Supplement No. 4 to Part 744. The targets of the new designations will be “entities that have been involved in, contributed to, or otherwise supported the Russian and Belarusian security services, military and defense sectors, and/or military and defense research and development efforts . . . .” The measures are designed to deprive Russia’s military, aerospace, maritime and high-technology sectors from US-origin technology “that can be used to support Russian technical maintenance and innovation.” To date, U.S. authorities have not released further information on the new measures or the names of the entities that will be designated.

New Department of Justice Task Force

On the same day, the U.S. Department of Justice (“DOJ”) announced the launch of Task Force KleptoCapture, which is “an interagency law enforcement task force dedicated to enforcing the sweeping sanctions, export restrictions, and economic countermeasures that the United States has imposed, along with allies and partners” (“Task Force KleptoCapture”). Task Force KleptoCapture will be run out of the Office of the Deputy Attorney General and will be staffed with DOJ prosecutors, agents, analysts, and professional staff. Its mission includes the following:

• Investigating and prosecuting violations of new and future sanctions imposed in response to “instances of Russian aggression and corruption”;
• Combating “unlawful efforts to undermine restrictions taken against Russian financial institutions”;
• Targeting efforts to “use cryptocurrency to evade U.S. sanctions, launder proceeds of foreign corruption, or evade U.S. responses to Russian military aggression”; and
• Using “civil and criminal asset forfeiture authorities to seize assets belonging to sanctioned individuals or assets identified as the proceeds of unlawful conduct.”

According to the DOJ, Task Force KleptoCapture “will be fully empowered to use the most cutting-edge investigative techniques — including data analytics, cryptocurrency tracing, foreign intelligence sources, and information from financial regulators and private sector partners — to identify sanctions evasion and related criminal misconduct.”

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