U.S. Prohibits New Investment in Russia and Imposes Further Sanctions and Export Controls in Response to Russia/Ukraine War

The U.S. government recently announced further sanctions and export controls against individuals and entities operating in Russia and Belarus, including the following:

• An executive order banning new investments in Russia and the authority to ban the export of services to Russia;
• An expansion of authority to impose sanctions on individuals and entities operating in Russia’s aerospace, electronics, or marine sectors;
• Full blocking sanctions on Russian financial institutions and other Russian elites and entities; and
• The issuance of new and updated general licenses.

These restrictions and licenses are further explained below.

Ban on New Investments in Russia

President Biden signed Executive Order (E.O.) 14071 on April 6, 2022, prohibiting the following:

(i)    new investment in Russia by a U.S. person, wherever located;

(ii)   the exportation, reexportation, sale, or supply, directly or indirectly from the United States, or by a U.S. 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 Russia; and

(iii)  any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person that would be prohibited if performed by a U.S. person or within the United States.

According to the White House, this E.O. builds on the decision made by more than 600 multinational businesses to exit Russia and will further isolate Russia from the global economy.  Furthermore, E.O. 14071 provides authority to the Treasury Department’s Office of Foreign Assets Control (OFAC) to identify categories of services that will be prohibited or restricted in the future.  No categories of services have been targeted yet, but are likely forthcoming.

OFAC Expands Sanctions Authority and Makes Additions to the SDN List

On March 31, 2022, the Treasury Department’s Office of Foreign Assets Control (OFAC) expanded its sanctions authority pursuant to Section 1(a)(i) of E.O. 14024 of April 15, 2021 (“Blocking Property With Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation”) to apply to the aerospace, electronics, and marine sectors of the Russian economy.  This determination allows OFAC to impose full blocking sanctions against companies and individuals that operate or have operated in these sectors of the Russian economy by adding them to the Specially Designated Nationals List (SDN List).

In addition, OFAC added numerous individuals and entities to the SDN List.  On March 31, 2022, OFAC added 21 entities and 13 individuals to the SDN List, targeting malicious cyber actors of the Russian government and operators in the Russian technology sector such as Joint Stock Company Mikron, the largest Russian manufacturer and exporter of microelectronics.  OFAC also sanctioned Sberbank, Russia’s largest financial institution, and 42 Sberbank subsidiaries; Alfa-Bank, Russia’s largest private bank, and 6 Alfa-Bank subsidiaries; Russian state-owned enterprises Alrosa, the world’s largest diamond mining company, and Joint Stock Company United Shipbuilding Corporation (as well as its subsidiaries and board members), which constructs most of the Russian military’s warships; and numerous Russian elites and their family members, such as President Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and members of Russia’s Security Council, including former President and Prime Minister Dmitry Medvedev and Prime Minister Mikhail Mishustin.  OFAC clarified that Alfa-Bank (Ukraine) is a distinct entity from Alfa-Bank, and that Alfa-Bank (Ukraine) is not subject to U.S. sanctions.

As a result of OFAC’s actions, all property and interests in property of designated individuals and entities, as well as any entities owned 50 percent or more by one or more of these blocked persons, that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC.  All transactions with these SDNs by U.S. persons, wherever located, or persons within the United States are generally prohibited unless otherwise authorized by a general or specific license issued by OFAC.  See below for information on general licenses relating to certain transactions involving these SDNs.

New and Updated OFAC General Licenses

OFAC issued the following new and updated Russia-related general licenses:

• General License 8B (replacing and superseding General License 8A, dated February 28, 2022) authorizes transactions involving one or more of the following entities that are related to energy, through 12:01 a.m. EDT, June 24, 2022:

1. 1. State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”);
   2. Public Joint Stock Company Bank Financial Corporation Otkritie (“Bank Otkritie”);
   3. Sovcombank Open Joint Stock Company (“Sovcombank”);
   4. Public Joint Stock Company Sberbank of Russia (“Sberbank”);
   5. VTB Bank Public Joint Stock Company (“VTB Bank”);
   6. Joint Stock Company Alfa-Bank (“Alfa-Bank”);
   7. Any entity owned 50 percent or more by one or more of the above entities; or
   8. the Central Bank of Russia.

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 9C (replacing and superseding General License 9A, dated March 2, 2022 and General License 9B, dated April 6, 2022) authorizes the following:
  • Transactions ordinarily incident and necessary to dealings in debt or equity of VEB; Bank Otkritie; Sovcombank; Sberbank; VTB Bank; or any entity owned 50 percent or more by one of the foregoing banks (collectively, “Russian financial institution debt or equity”) issued prior to February 24, 2022, through 12:01 a.m. EDT, May 25, 2022, provided that any divestment or transfer of, or facilitation of divestment or transfer of, Russian financial institution debt or equity must be to a non-U.S. person;
  • Transactions ordinarily incident and necessary to dealings in debt or equity of Alfa-Bank or any entity owned 50 percent or more by Alfa-Bank issued prior to April 6, 2022, through 12:01 a.m. EDT, June 30, 2022, provided that any divestment or transfer of, or facilitation of divestment or transfer of, Alfa-Bank debt or equity must be to a non-U.S. person; 
  • Transactions ordinarily incident and necessary to dealings in debt or equity of Alrosa or any entity owned 50 percent or more by Alrosa issued prior to April 7, 2022, through 12:01 a.m. EDT, July 1, 2022, provided that any divestment or transfer of, or facilitation of divestment or transfer of, Alrosa debt or equity must be to a non-U.S. person; 
  • Transactions ordinarily incident and necessary to the facilitating, clearing, and settling of trades (i) for Russian financial institution debt or equity, through 12:01 a.m. EDT, May 25, 2022 (provided such trades were placed prior to 4:00 p.m. EST, February 24, 2022), (ii) for Alfa-Bank debt or equity, through 12:01 a.m. EDT, June 30, 2022 (provided such trades were placed prior to 4:00 p.m. EDT, April 6, 2022), and (iii) for Alrosa debt or equity through 12:01 a.m. EDT, July 1, 2022 (provided such trades were placed prior to 4:00 p.m. EDT, April 7, 2022);  
  • Transactions prohibited by Directive 4 of E.O. 14024, that are ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with debt or equity of the Russian Central Bank, the Russian National Wealth Fund, or the Russian Ministry of Finance issued before March 1, 2022, through 12:01 a.m. EDT, May 25, 2022; and
  • Debits to accounts on the books of a U.S. financial institution of the blocked entities subject to the general license.

• General License 10C (replacing and superseding General License 10A, dated March 2, 2022, and General License 10B, dated April 6, 2022) authorizes the following:
  • Transactions ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. EST, February 24, 2022, that (i) include VEB; Bank Otkritie; Sovcombank; Sberbank; VTB Bank; or any entity owned 50 percent or more by one of the foregoing bank (collectively, “Russian financial institution entities”) as a counterparty, or (ii) are linked to the debt or equity of a Russian financial institution entity, through 12:01 a.m. EDT, May 25, 2022, provided that any payments to a blocked person are made into a blocked account;
  • Transactions ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. EDT, April 6, 2022, that (i) include Alfa-Bank or any entity owned 50 percent or more by Alfa-Bank as a counterparty, or (ii) are linked to debt or equity of an Alfa-Bank entity, through 12:01 a.m. EDT, June 30, 2022, provided that any payments to a blocked person are made into a blocked account; and
  • Transactions ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. EDT, April 7, 2022, that (i) include Alrosa or any entity owned 50 percent or more by Alrosa as a counterparty, or (ii) are linked to debt or equity of an Alrosa entity, through 12:01 a.m. EDT, July 1, 2022, provided that any payments to a blocked person are made into a blocked account; and
  • Transactions prohibited by Directive 4 of E.O. 14024, 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 Central Bank of Russia, the Russian National Wealth Fund, or the Russian Ministry of Finance as a counterparty, through 12:01 a.m. EDT, May 25, 2022.

• General License 21A (replacing and superseding General License 21, dated April 6, 2022) authorizes U.S. persons to engage in all transactions ordinarily incident and necessary to the wind down of Sberbank CIB USA, Inc. or Alrosa USA, Inc., or any entity in which the blocked entities own, directly or indirectly, a 50 percent or greater interest, including the processing of salaries, severance, and expenses; payments to vendors and landlords; and closing of accounts, through 12:01 a.m. EDT, June 7, 2022.
• General License 22 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Sberbank or any entity in which Sberbank owns, directly or indirectly, a 50 percent or greater interest through 12:01 a.m. EDT, April 13, 2022.
• General License 23 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Alfa-Bank or any entity in which Alfa-Bank owns, directly or indirectly, a 50 percent or greater interest through 12:01 a.m. EDT, May 6, 2022.
• General License 24 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Alrosa or any entity in which Alrosa owns, directly or indirectly, a 50 percent or greater interest through 12:01 a.m. EDT, May 7, 2022.
• General License 25 authorizes all transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving the Russian Federation that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, including the exportation or reexportation, sale, or supply, directly or indirectly, from the United States or by U.S. persons, wherever located, to the Russian Federation of services, software, hardware, or technology incident to the exchange of communications over the internet, such as instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services.  Such transaction may be subject to additional BIS requirements.  This general license does not authorize the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 under E.O. 14024, nor does it authorize any debit to an account on the books of a U.S. financial institution of Russia’s Central Bank, National Wealth Fund, or Ministry of Finance.
• General License 26 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Joint Stock Company SB Sberbank Kazakhstan or Sberbank Europe AG (collectively, “the blocked Sberbank subsidiaries”), or any entity in which the blocked Sberbank subsidiaries own, directly or indirectly, a 50 percent or greater interest, that are prohibited by E.O. 14024 through 12:01 a.m. EDT, July 12, 2022.

U.S. individuals and companies should carefully review the requirements, limitations, and restrictions of these general license to ensure proper compliance.

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The sanctions and restrictions described above supplement sanctions announced in recent weeks by the U.S. government.  Companies should carefully review any current or future dealings in Russia and Belarus, 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.

U.S. sanctions with respect to Russia, Ukraine, and Belarus 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.