OFAC Targets Russia’s Foundational Financial Infrastructure

On June 12, 2024, the Office of Foreign Assets Control of the United States Department of the Treasure (“OFAC”) imposed new Russia-related sanctions restrictions, in coordination with the Group of Seven (“G7”). According to a press release, these new sanctions “rachet up the risk of secondary sanctions for foreign financial institutions that deal with Russia’s war economy; restrict the ability of Russian military-industrial base to take advantage of certain U.S. software and IT services; and, together with the Department of State, target more than 300 individuals and entities both in Russia and outside its borders.”

New Russia-Related Sanctions Restrictions

Below is a summary of the new sanctions restrictions.

• Expands secondary sanctions for non-U.S. financial institutions. Pursuant to executive order (“E.O.”) 14114, non-U.S. financial institutions that conduct or facilitate significant transactions or provide any service involving “Russia’s military-industrial base” risk U.S. secondary sanctions liability. OFAC expanded the definition of “Russia’s military-industrial base” to include all persons blocked pursuant to E.O. 14024, including designated Russian banks, such as VTB Bank Public Joint Stock Company (“VTB”) and Public Joint Stock Company Sberbank of Russia (“Sberbank”).
• Expressly clarifies that foreign branches of SDN Russian banks are subject to blocking sanctions. OFAC updated the information on its Specially Designated Nationals (“SDNs”) and Blocked Persons list for five sanctioned Russian financial institutions to include the addresses and aliases of their foreign locations. These Russian financial institutions include Promsvyazbank Public Joint Stock Company, State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank, Sberbank, VTB, and VTB Capital Holdings Closed Joint Stock Company.
• Prohibits the provision of software and IT-related services by U.S. persons to persons located in Russia. OFAC issued a Determination, pursuant to E.O. 14071, which prohibits the provision of the following categories of services to any person located in Russia, by U.S. persons: (i) information technology (“IT”) consultancy and design services; and (ii) IT support services and cloud-based services for enterprise management software and design and manufacturing software (“Covered Software”). The Determination will take effect on September 12, 2024.

Substantial SDN Designations

Below is a summary of the designated individuals and entities.

• Key Russian financial institutions. OFAC designated the following Russian financial institutions as SDNs:
  • The Moscow Exchange (“MOEX”) – MOEX operates Russia’s largest public trading markets for equity, fixed income, derivative, foreign exchange, and money market products, Russia’s central securities depository, and Russia’s largest clearing service provider.
  • The National Clearing Center (“NCC”) – NCC is the central counterparty and clearing agent for, and a subsidiary of, MOEX.
  • The Non-Bank Credit Institution Joint Stock Company National Settlement Depository (“NSD”) – NSD is Russia’s central securities depository and provides bank account services, registration of over-the-counter trades, and liquidity management services.
  • Gas Industry Insurance Company Sogaz (“Sogaz”) – Sogaz is an insurance company that provides insurance to Russian military personnel and personnel of leading defense entities.
  • Joint Stock Company Russian National Reinsurance Company (“RNRC”) – RNRC is a Russian state-owned reinsurance provider.
• Sanctions evasion networks. OFAC designated more than 90 persons across Russia, Belarus, the British Virgin Islands, Bulgaria, Kazakhstan, the Kyrgyz Republic, China, Serbia, South Africa, Türkiye, and the United Arab Emirates, for their involvement with sanctions evasion networks, which contributed to Russia’s military supply chains. For example, OFAC designated two individuals for allegedly arranging and overseeing the execution of a training program on survival techniques for the Wagner Group (an SDN). In addition, OFAC designated the Russia-based Silk Way Rally Association for allegedly holding an annual off-road rally race that Russia’s Main Intelligence Directorate (an SDN) allegedly uses as a front for intelligence operations.
• Persons operating in sanctioned sectors of the Russian economy. OFAC designated more than 100 persons that operated in Russia’s defense and related materiel, manufacturing, technology, transportation, or financial services sectors.
• Entities involved with Russian natural gas-related projects. OFAC designated three entities involved in either construction of natural gas-related projects or manufacturing specialized equipment for LNG transportation, and certain related vessels.

As a result of these designations, all property and interests in property of these SDNs that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more of these SDNs are also blocked. Furthermore, non-U.S. persons could risk secondary sanctions liability by engaging in certain transactions with these SDNs.

General Licenses

On the same day, OFAC issued the following six general licenses (“GLs”).

• GL 6D authorizes transactions related to certain agricultural commodities, medicine, medical devices, replacement parts and components, or software updates, the COVID-19 pandemic, and clinical trials.
• GL 8J authorizes certain transactions related to energy through November 1, 2024.
• GL 25D authorizes transactions related to telecommunications and certain internet-based communications.
• GL 98 authorizes the wind down of transactions involving certain designated entities through July 24, 2024.
• GL 99 authorizes the wind down of transactions and certain transactions related to debt or equity of, or derivative contracts involving MOEX, NCC, or NSD through August 13, 2024.
• GL 100 authorizes certain transactions related to debt or equity or the conversion of currencies involving MOEX, NCC, or NSD through August 13, 2024.

Despite the substantial number of new designations, it is possible that a transaction involving one of the newly designated SDNs could be temporarily authorized by a GL. Accordingly, companies seeking to wind-down pre-existing activities with one or more of these newly designated SDNs should confirm whether such wind-down activities would be authorized by one of the aforementioned GLs or other OFAC authorization.

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