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Recent US sanctions on Russia — Financier Worldwide


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In an unprecedented, multilateral response to Russia’s 24 February 2022 invasion of Ukraine, the US, along with its allies around the world, implemented a series of severe and successive trade sanctions and export controls against Russia. These actions targeted a wide range of persons, entities and sectors, including Russian government officials, oligarchs, financial institutions and major companies. This article summarises the key actions taken, and then assesses potential future actions that may follow should Russia continue its war on Ukraine.

Russia-related actions

The US implemented its initial framework of sanctions authorities targeting Russia in response to its invasion and annexation of Crimea in 2014, and subsequently expanded these authorities in response to Russia’s other hostile activities. While the US has maintained significant sanctions and export controls on Russia since 2014, these authorities were materially expanded and supplemented throughout the early months of 2022 in response to Russia’s invasion of Ukraine.

On 21 February 2022, President Biden issued Executive Order 14065, which imposed comprehensive sanctions on the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) breakaway regions of Ukraine. This Executive Order prohibits US persons from exporting, reexporting, selling or supplying certain goods, services or technology to the identified regions, engaging in new investments in the regions, importing goods, services or technology into the US from the regions, and engaging in certain related facilitation activities. This economic embargo on the DNR and LNR regions of Ukraine is identical to the embargo that the US imposed on Crimea in 2014.

Following this action, on 22 February 2022, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) – the US agency tasked with administering and enforcing economic and trade sanctions – added several persons to OFAC’s Specially Designated and Blocked Persons List (SDN List), including State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank) and Promsvyazbank Public Joint Stock Company, as well as 42 of their subsidiaries, that are crucial to financing the Russian defence industry. OFAC also increased restrictions on dealings in Russia’s sovereign debt by issuing Russia-related Directive 1A under Executive Order 14024, which extends existing sovereign debt prohibitions to cover participation in the secondary market for bonds issued after 1 March 2022, by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation.

On 24 February, OFAC further expanded its Russia sanctions programme by issuing Russia-related Directive 2 and Directive 3 under Executive Order 14024 and sanctioning several other financial institutions. These actions targeted the core infrastructure of the Russian financial system, including Russia’s largest financial institutions, and sought to restrict the ability of state-owned and private entities to raise capital, impacting nearly 80 percent of all banking assets in Russia. Specifically, via Directive 2, OFAC imposed correspondent and payable-through account sanctions on Sberbank. Additionally, via Directive 3, OFAC expanded Russia-related debt and equity restrictions to additional key aspects of Russia’s economy by prohibiting transactions and dealings by US persons or occurring within the US in new debt of longer than 14 days maturity and new equity of Russian state-owned enterprises and entities that operate in the financial services sector of the Russian Federation economy. OFAC also imposed full blocking sanctions on VTB Bank, Russia’s second-largest financial institution, which holds nearly 20 percent of banking assets in Russia, as well as 20 VTB Bank subsidiaries. OFAC further imposed blocking sanctions on three additional major Russian financial institutions: Otkritie, Novikom and Sovcom.

Also on 24 February 2022, the US Department of Commerce’s Bureau of Industry and Security (BIS) – the US agency responsible for regulating dual-use export controls – issued a final rule to implement new significant export controls on Russia. The rule essentially imposed a soft embargo by imposing a new, wide-ranging destination-based licence requirement for any item subject to the Export Administration Regulations (EAR) and classified under any Export Control Classification Number (ECCN) in categories three to nine of the Commerce Control List (CCL). Furthermore, the BIS imposed limitations on the licence exceptions that are available for exports, reexports and in-country transfers involving Russia. BIS also expanded the foreign direct product (FDP) rule to make non-US-origin items subject to the EAR when they are the direct product of US-origin software or technology classified in categories three to nine of the CCL and destined for Russia. On 2 March, BIS imposed substantively identical export controls on Belarus. On 9 April 2022, BIS expanded these controls to include all items on the CCL, not just categories three to nine of the CCL. With limited exception, BIS considers licence applications involving all such CCL items under a policy of denial.

On 28 February 2022, OFAC added Russian President Vladimir Putin and other prominent Russian politicians to OFAC’s SDN List and issued Directive 4 under Executive Order 14024, which prohibits US persons from engaging in any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.

On 8 March 2022, the President signed Executive Order 14066, imposing new prohibitions on Russia, including banning the import of Russian oil, liquefied natural gas and coal to the US. The President followed up this action on 11 March 2022, by signing Executive Order 14068, which imposed additional prohibitions on Russia, including on the importation into the US of certain products from Russia, such as fish, seafood and alcoholic beverages, the exportation of luxury goods to Russia, and new investment in any sectors of the Russian economy that are determined to be subject to the restriction by the Secretary of the Treasury in consultation with the Secretary of State.

On 31 March 2022, the Secretary of the Treasury, in consultation with the Secretary of State, determined that asset-blocking sanctions under Executive Order 14024 apply to the aerospace, marine and electronics sectors of the Russian economy. This determination allows for sanctions to be imposed on any individual or entity determined to operate or have operated in any of those sectors.

On 6 April 2022, the Treasury expanded its previous sanctions by imposing full blocking sanctions on Sberbank, Russia’s largest state-owned bank, and Alfa-Bank, Russia’s largest private bank. In addition, the President issued Executive Order 14071 on 6 April 2022, which bans new investment in the Russian Federation as well as the exportation, reexportation, sale or supply, directly or indirectly, from the US, or by a US person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation. On 8 May 2022, OFAC issued its first determination pursuant to Executive Order 14071, stating that accounting, trust and corporate formation, or management consulting services are subject to the restriction. This determination allows for sanctions to be imposed on any individual or entity determined to operate or have operated in any of those sectors.

Subsequently, on 10 April 2022, OFAC designated a number of entities and individuals involved in attempts to evade sanctions imposed by the US and its international partners on Russia. Specifically, OFAC designated Russian commercial bank Transkapitalbank – which was intended to serve as an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network – and a global network of more than 40 individuals and entities led by US-designated Russian oligarch Konstantin Malofeyev, including organisations whose primary aim was to facilitate sanctions evasion for Russian entities. OFAC also designated companies operating in Russia’s virtual currency mining industry, reportedly the third largest in the world. This was the first time the Treasury had designated a virtual currency mining company.

The effect of these measures has been to cause most Western companies to winddown or cease their operations in Russia and look for divestment opportunities. Even for activities that remain permissible as a matter of law, the reputational risks and threat of further rapid escalation has resulted in a mass exodus from Russia of companies from the US and its allies.

US sanctions on Russia – next steps

The US government and its allies have imposed severe and broad sanctions in response to Russia’s most recent invasion of Ukraine. While the sanctions have been extensive to date, the US government has additional options and related authorities it may choose to deploy in the coming weeks or months to escalate the pressure on Russia. These actions could include additional trade sanctions, including prohibitions on importing from or exporting certain items to Russia, an expansion of the ‘soft embargo’ to all items subject to the EAR, including items classified EAR99, such as certain low-technology consumer goods not subject to increased controls in comparison to those categorised on the CCL, restrictions on additional sectors of the Russian economy, prohibitions on additional categories of services, potential Russia-related sanctions legislation from Congress, and, as one of the most severe sanctions, designating the government of Russia as an SDN, similar to OFAC’s 2019 designation of the government of Venezuela. If the US sanctions the government of Russia, blocking sanctions restrictions would apply to all of the government of Russia’s state-owned entities that are owned, directly or indirectly, 50 percent or more, in the aggregate by the government of Russia or any other SDNs.

The Russian invasion of Ukraine has resulted in an unprecedented, rapid imposition of severe sanctions and export controls by the US. These actions have been notable not only in their restrictiveness but also in their jurisdictional reach. Further actions could similarly be quickly deployed. Companies with potential exposure to Russia should closely monitor US sanctions developments to ensure continued compliance with US law.

Ryan Fayhee is a partner, Tyler Grove is a counsel and Anna Hamati is an associate at Hughes Hubbard & Reed LLP. Mr Fayhee can be contacted on +1 (202) 721 4691 or by email: ryan.fayhee@hugheshubbard.com. Mr Grove can be contacted on +1 (202) 721 4625 or by email: tyler.grove@hugheshubbard.com. Ms Hamati can be contacted on +1 (202) 721 4605 or by email: anna.hamati@hugheshubbard.com.

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