OFAC Adds Russian Harmful Foreign Activities Sanctions Regulations (RuHSR)
On February 28, 2022, the Department of Treasury’s Office of Foreign Assets Control (OFAC) added regulations to implement Executive Order (E.O.) 14024 of April 15, 2021, “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation.” These regulations can be found at 31 C.F.R. part 587.
E.O. 14024 established a national emergency under which sanctions may be imposed against individuals and entities found to further certain harmful foreign activities of the Russian Federation, including:
- Russia’s efforts to undermine the conduct of free and fair democratic elections and democratic institutions in the United States and its allies and partners;
- engaging in and facilitating malicious cyber-enabled activities against the United States and its allies and partners;
- fostering and using transnational corruption to influence foreign governments; pursuing extraterritorial activities targeting dissidents or journalists;
- undermining security in countries and regions important to the United States national security; and
- violating well-established principles of international law, including respect for the territorial integrity of states.
The United States has imposed numerous sanctions against Russian individuals and entities pursuant to E.O. 14024 in response to Russia’s recent recognition of Ukrainian separatist regions and subsequent invasion of Ukraine.
U.S. companies should carefully review these regulations and any further guidance from OFAC concerning the Russian Harmful Foreign Activities Sanctions.
OFAC Sanctions the Russian Central Bank and Other Entities
On February 28, 2022, the United States issued Directive 4 under E.O. 14024, which prohibits U.S. persons from engaging in any transaction involving the Central Bank of Russia, the Russian National Wealth Fund, or the Russian Ministry of Finance, including any transfer of assets to these entities or any foreign exchange transaction for or on behalf of such entities. Directive 4 is meant to disrupt Russia’s attempts to prop up the rapidly depreciating ruble by restricting global supplies of the ruble and access to reserves that Russia may try to exchange to support its currency.
OFAC has also issued several general licenses related to the entities subject to Directive 4:
- General License 8A – Authorizes certain transactions involving the Russian Central Bank that are “related to energy” through 12:01 a.m. EST on June 24, 2022. For purposes of this general license, the term “related to energy” means the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources. General License 8A supersedes General License 8, which was issued on February 24, 2022.
- General License 9A – Authorizes transactions prohibited by Directive 4 that are ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with debt or equity of the Central Bank of Russia, the Russian National Wealth Fund, or the Russian Ministry of Finance issued before March 1, 2022, through 12:01 a.m. EST, May 25, 2022. General License 9A supersedes General License 9, which was issued on February 24, 2022.
- General License 10A – Authorizes transactions prohibited by Directive 4 that are ordinarily incident and necessary to the wind down of derivative contracts, repurchase agreements, or reverse repurchase agreements entered into prior to 12:01 a.m. EST, March 1, 2022, that include the Russian Central Bank, the Russian National Wealth Fund, or the Russian Ministry of Finance as a counterparty, through 12:01 a.m. EST, May 25, 2022. General License 10A supersedes General License 10, which was issued on February 24, 2022.
- General License 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 prohibited by Directive 4, provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in Russia, through 12:01 a.m. EST, June 24, 2022.
- General License 14 – Authorizes transactions prohibited by Directive 4 involving the Russian Central Bank, the Russian National Wealth Fund, or the Russian Ministry of Finance, where the Directive 4 entity’s sole function in the transaction is to act as an operator of a clearing and settlement system, provided that: (i) there is no transfer of assets to or from any Directive 4 entity, unless separately authorized; and (ii) no Directive 4 entity is either a counterparty or a beneficiary to the transaction, unless separately authorized.
U.S. individuals and companies should carefully review the requirements, limitations, and restrictions of these general licenses to ensure proper compliance.
Addition of the Russian Direct Investment Fund and others to OFAC’s SDN List
On February 28, 2022, OFAC also sanctioned the Russian Direct Investment Fund (RDIF), a key Russian sovereign wealth fund, and its CEO Kirill Dmitriev, a known ally of Russian President Vladimir Putin, by adding them to the Specially Designated Nationals List (SDN List). In addition, OFAC added RDIF’s management company (Joint Stock Company Management Company of the RDIF) and a subsidiary of the management company (Limited Liability Company RVC Management Company) to the SDN List.
U.S. persons, including U.S. companies, financial institutions, U.S. citizens wherever located, permanent residents, and any other persons located in the United States are prohibited from conducting transactions with these listed entities, unless otherwise authorized by OFAC. Furthermore, any property or interests in property of these entities that are in the possession or control of U.S. persons must be formally blocked, i.e., frozen, and reported to OFAC within 10 days, unless a license applies. Any entities owned 50 percent or more by Dmitriev or these RDIF entities are also subject to full U.S. blocking sanctions.
On March 3, 2022, OFAC made further changes to the SDN list, adding multiple individuals and entities. OFAC also added General License 15, which authorizes all transactions prohibited by the Russian Harmful Foreign Activities Sanctions Regulations involving any entity owned 50 percent or more, directly or indirectly, by Alisher Burhanovich Usmanov, that is not listed on the SDN list. This effectively unblocks the property and interests of the blocked Usmanov entities, but does not authorize any transactions with Usmanov or other blocked persons unless separately authorized.
DDTC’s Policy of Denial Related to Ukraine Covered Regions and Sanctions on Russian Defense Entities
On February 25, 2022, the State Department’s Directorate of Defense Trade Controls (DDTC) issued a notice that, consistent with E.O. 14065, it is now the policy of DDTC to deny licenses or other approvals for exports, reexports, retransfers, temporary imports of, and brokering activities related to defense articles and defense services, destined for or originating in the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine (collectively, the “Covered Regions”). The policy of denial that has been in place with respect to Russia since March 18, 2021 continues to apply.
This notice prohibits the export, reexport, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any defense articles or defense services described on the U.S. Munitions List in Part 121 of the International Traffic in Arms Regulations (ITAR) to the Covered Regions. It also prohibits the temporary import, directly or indirectly, from the Covered Regions of any defense articles or defense services.
ITAR exemptions promulgated prior to February 21, 2022, and transfers in furtherance of the conduct of the official business of the U.S. Government by employees, grantees, or contractors thereof, are not prohibited at this time.
The White House also announced on March 2, 2022 that the Department of State will impose full blocking sanctions against 22 Russian defense-related entities. These entities include firms that make combat aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for the Russian military. These entities have not yet been added to the SDN List.
Restrictions on Russian Aircraft in U.S. Airspace
On March 2, 2022, the White House announced that the United States will close off American air space to all Russian flights. This restriction includes aircraft certified, operated, registered, or controlled by any person connected with Russia and revoking all Russian airlines’ – both passenger and cargo – ability to operate to and from U.S. destinations, as well as refusing entry of any Russian-operated aircraft into U.S. airspace. The Department of Transportation issued a notice on March 2, 2022 implementing these restrictions.
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The sanctions and restrictions described above supplement — and in some cases, modify — sanctions announced in recent weeks by the U.S. government. Companies should carefully review any current or future dealings in Russia and Ukraine, or with any of the above-listed individuals or entities, to determine if they are engaged in or plan to be engaged in any transactions covered by these or other applicable sanctions programs. Those that engage in the export or temporary import of defense articles and defense services should also review their business to determine if such activities involve the Covered Regions of Ukraine.
U.S. sanctions with respect to Russia and Ukraine are expected to continue changing in the coming days and weeks. Contact us if you have questions about these developments or their potential impact on your business.