Sanctions Tracker – US imposes broad new restrictions on investment in Russia

In the latest in a series of post-Ukraine sanctions, the US unveils fresh measures against Russia

In the US Government’s latest response to the crisis in Ukraine, it imposed broad new investment and services restrictions in accordance with a new executive order, new sectoral restrictions and the designation of a substantial number of additional individuals and entities on the Office of Foreign Assets Control's (OFAC) Specially Designated Nationals and Blocked Persons (SDN) List, including two major Russian banks. These new restrictions will likely have a broad impact for US and international companies doing business with Russia.

We previously discussed a series of Russian-related sanctions imposed by the US through February and March, which are covered in-depth in our Sanctions Notes blog. We also discussed recent sanctions related to the Russian energy sector in our podcast. 

Prohibition on new investments and services to Russia

On 6 April 2022, President Biden issued an executive order (6 April 2022 EO) which broadly prohibits all “new investments” in Russia by US persons. The 6 April 2022 EO also prohibits transactions that “cause[] a violation” of the order, and prohibits US persons from directly or indirectly facilitating conduct by non-US persons which would be prohibited if engaged in directly by a US person. This means that US persons cannot facilitate new Russia investments by companies or persons outside of the US.

Moreover, a non-US person could be held liable for “causing” a US person to violate the order if the non-US person made a new investment in Russia in US dollars (USD) cleared through or transferred with the involvement of a US correspondent bank or other US person. The 6 April 2022 EO does not specify how investments by US persons in non-US 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 6 April 2022 EO prohibits the exportation, re-exportation, sale or supply from the US, or by a US person, of certain categories of services to any person in Russia. The order also prohibits US persons from approving, financing, facilitating or guaranteeing any new investment or provision of certain categories services by a non-US 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 US persons.

Sectoral sanctions on the Russian aerospace, electronics and marine sectors

On 31 March 2022, OFAC issued a “Determination Pursuant to Section 1(a)(i) of Executive Order 14024” (the Determination). EO 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. Under the Determination, the Treasury Secretary, in consultation with the Secretary of State, determined that EO 14024 now applies to the Russian aerospace, electronics and marine sectors. This means that non-US persons risk exposure to US secondary sanctions liability by operating in Russian aerospace, marine or electronics sectors.

Designation of Sberbank, Alfa-Bank and related entities as SDNs

On 6 April 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 all property and interests in property of these entities that are in the US or in possession or control of US 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 US persons or within (or transiting) the US that involve any property or interests in property of these entities are prohibited unless authorised by a general or specific licence 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 authorised until 24 June 2022.
• GL 9B supersedes and replaces the prior version of GL 9, and authorises certain transactions in debt or equity of Alfa-Bank (or any entity owed 50% or more by it), issued prior to 6 April 2022, until 30 June 2022. However, any divestment or transfer of, or facilitation of divestment or transfer of, Alfa-Bank debt or equity must be to a non-US person.
• GL 10B supersedes and replaces the prior version of GL 10, and authorises certain transactions related to derivative contracts involving Alfa-Bank, or any entity owed 50% or more by it, until 30 June 2022.
• GL 21 authorises a wind-down period for US persons to engage in transactions with Sberbank CIB USA, Inc, or any entity owed 50% or more by it, until 7 June 2022.
• GL 22 authorises a wind-down period for certain transactions involving Sberbank, or any entity owed 50% or more by it, until 13 April 2022. Notably, GL 22 does not authorise transactions that violate Directive 2 (in accordance with EO 14024).
• GL 23 authorises a wind-down period for transactions involving Alfa-Bank, or any entity owed 50% or more by it, until 6 May 2022.

Additional SDN designations

On 6 April 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, under EO 14024. Although OFAC previously sanctioned certain members of the Russian Security Council, the 6 April 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 US’s] international partners, including Canada, the European Union, Japan, New Zealand, Australia and the United Kingdom.”

Previously, on 31 March 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”.

This article first appeared in our dedicated Sanctions Notes blog, which is tracking the latest developments following the military action in Ukraine as they happen.