Russia/Ukraine Crisis: US Imposes Significant New Sanctions in Response to Russian Atrocities in Ukraine
On April 6-7, the Biden administration announced a new round of sanctions and export restrictions targeting Russia in response to its ongoing invasion and alleged atrocities in Ukraine. The applicable restrictions still do not technically constitute a full embargo, globally prohibiting all transactions involving Russia or Russian parties. However, the new sanctions and export controls, together with previously announced restrictions, represent the most extensive trade restrictions the United States has ever imposed on a country under non-comprehensive sanctions.
Overview of the new restrictions
On April 6-7, the Biden administration announced the following actions:
Ban on New Investments in Russia: President Biden signed an executive order titled “Ban on New Investments and Certain Services in the Russian Federation in Response to Continued Aggression by the Russian Federation” (the “EO”). The OE prohibits any new investment in the Russian Federation by US nationals, wherever located. This restriction builds on the ban announced on March 8 under Executive Order 14066, which banned new investment in the energy sector in the Russian Federation. It is important to note that the EA does not define the term “new investment”. However, as discussed in our March 14 alertthe U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) has interpreted the term “investment” broadly in the context of prior sanctions authorities:
- For example, as used in Section 233 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), OFAC “interprets[s] the term “investment” broadly as a transaction which constitutes a commitment or contribution of funds or other assets or a loan or other extension of credit to a company. » FAQ 540
- Similarly, under EO 14066, the OFAC guidelines define “a new investment in the energy sector in the Russian Federation” as “a transaction that constitutes a commitment or contribution of funds or ‘other assets for, or a loan or extension of credit to the new energy sector’. Activities[.]” FAQ 1019
The White House said the new investment ban aims to “build over the decision of more than 600 multinational companies to leave Russia”, suggesting that the American government seeks to encourage “[t]The exodus of the private sector” from the Russian economy. Notably, the EO also prohibits the export, re-export, sale, or provision, directly or indirectly, of “any class of services” as determined by the Secretary of the Treasury, in consultation with the Secretary of State. This authority provides the US government with another mechanism to increase economic pressure on the Russian government, pending developments in Ukraine.
In addition, on April 7, OFAC issued General License No. 25, which authorizes, subject to exceptions, (1) all transactions usually incidental and necessary to the reception and transmission of telecommunications involving the Russian Federation; and (2) the export, re-export, sale or supply to the Russian Federation of services, software, hardware or technology related to the exchange of communications on the Internet. This general license, which is analogous to licenses that allow limited subsets of transactions under full embargoes (for exampletargeting Cuba and Iran) – suggests that OFAC intends to interpret the new investment restriction broadly, and that US sanctions targeting Russia are approaching a de facto embargo.
Blocking designations of Sberbank and Alfa Bank: On February 24, OFAC imposed sweeping sanctions on several major Russian financial institutions. It should be noted that on April 5, OFAC designated the public joint-stock company Sberbank of Russia (“Sberbank”), the largest Russian financial institution, and the joint-stock company Alfa-Bank (“Alfa Bank”), the largest private bank in Russia and the fourth largest. as a whole, to the Specially Designated Nationals and Blocked Persons (“SDN”) list; therefore, both financial institutions are now subject to full blocking sanctions, as opposed to the more limited funding restrictions previously imposed.1 These designations mean that U.S. persons, anywhere, are generally prohibited from doing business with Sberbank or Alfa Bank, without OFAC authorization.
OFAC also amended three blanket licenses and issued three new blanket licenses to authorize time-limited liquidations of transactions involving Sberbank and Alfa Bank, as listed below:
- General License No. 8B authorizes energy-related transactions until June 24, 2022 that involve Sberbank and Alfa Bank (in addition to certain Russian financial institutions that were previously designated on the SDN list).
- General License No. 9C authorizes until June 30, 2022 transactions in debt or equity securities issued by Alfa Bank before April 6, 2022 (while the authorization of Sberbank and Russian financial institutions that have been designated on SDN listing in February retains previous restrictions, with permission until May 25, 2022 for any new debt or capital issued before February 24, 2022). In addition, in connection with the subsequent designation of Alrosa Public Joint Stock Company (“Alrosa”), OFAC has authorized until July 1, 2022 transactions in debt securities or shares issued by Alrosa before July 7, 2022. April 2022.
- General License No. 10C authorizes until June 30, 2022 transactions on derivative contracts involving Alfa Bank entered into before April 6, 2022 (while the authorization for Sberbank and Russian financial institutions that have been designated on the SDN list in February retains the previous restrictions, the authorization being valid until May 25, 2022 for derivative contracts entered into before February 24, 2022). As part of the designation of Alrosa, the OFAC authorized until July 1, 2022 the trading of derivative contracts entered into before April 7, 2022.
- General License No. 21A authorizes all transactions usually incidental and necessary to terminate transactions involving Sberbank CIB USA, Inc. (or entities 50% or more owned by Sberbank CIB USA, Inc.) and Alrosa USA, Inc. until June 7, 2022.
- General License No. 22 authorizes all transactions usually incidental and necessary to terminate transactions involving Sberbank (or entities 50% or more owned by Sberbank) until April 13, 2022.
- General License No. 23 authorizes all transactions usually incidental and necessary to terminate transactions involving Alfa Bank (or entities 50% or more owned by Alfa Bank) until May 6, 2022.
- Additional sanctions designations: OFAC listed SDN (1) adult children of Russian President Vladimir Putin, Katerina Tikhonova and Maria Vorontsova; (2) “Russian elites and their family members”, including Maria Aleksandrovna Lavrovna and Yekaterina Vinokurova (the wife and daughter of Foreign Minister Sergey Lavrov), and members of the Russian Security Council, including former President and Prime Minister Dmitry Medvedev and Prime Minister Mikhail Mishustin; and (3) “essential large Russian state-owned companies,” including Alrosa (Russia’s largest diamond mining company) and, under a U.S. State Department designation, United Shipbuilding Corporation (“USC ”) and USC’s subsidiaries and board members.
As part of Alrosa’s designation, OFAC has issued a number of general licenses, including General License No. 24, which authorizes all transactions usually incidental and necessary to terminate transactions involving Alrosa (or entities 50% or more owned by Alrosa) until May. 7, 2022.
At the same time, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) announced the Entity Listing of 98 Russian entities and 25 Belarusian entities associated with Defense and technology determined to have acquired or attempted to acquire items subject to Export Administration Regulations (“EAR”) in support of the Russian or Belarusian military. Because of these designations, U.S. and non-U.S. persons are prohibited from providing materials subject to EAR, including but not limited to materials of U.S. origin, to designated entities, and the policy of license is denial (meaning that, in practice, the BIS will not approve exports to these entities).
Take away food
The measures announced on April 6 and 7 represent a substantial new effort by the US government to increase economic pressure on Russia. In particular, the new investment ban – which on its face now applies to all sectors of the Russian economy – could significantly limit the ability of American persons to engage in financial transactions with Russian counterparties. in the future. Although OFAC has not defined the term “new investment”, this restriction – in conjunction with General License No. 25 (similar to telecommunications-related general licenses issued under comprehensive sanctions programs) – suggests that the American sanctions targeting Russia tend towards a de facto embargo.
At a minimum, the new restrictions underscore the imperative to conduct a full restricted party screening (and reselection) of all counterparties to Russia-related transactions and to review such transactions in light of the new prohibition on investment. For many U.S. parties, continued engagement with Russia is becoming increasingly operationally difficult – if not outright prohibited – and these and other developments require continued monitoring for further updates.
- OFAC also officially identified 42 Sberbank subsidiaries, six Alfa Bank subsidiaries (Alfa Capital Markets LTD, Alfa-Direct, Alfa-Forex LLC, Alfa-Lizing OOO, Amsterdam Trade Bank NV and Subsidiary Bank Alfa-Bank JSC) and five ships. belonging to Alfa-Lizing OOO (Lady Leila, Lady Rania, Lady Sevda, Sv Konstantin and Sv Nikolay) under the designations of Sberbank and Alfa Bank on the SDN list. However, the new designations – and resulting prohibitions – apply to any entity owned, directly or indirectly, 50% or more, individually or in aggregate, by one or more blocked parties, in accordance with the 50% rule. of OFAC.