This alert provides an overview of the general licenses and FAQs issued by the Office of Foreign Assets Control (OFAC) through March 4, 2022, and the expansion of the Specially Designated Nationals List on March 3, 2022. It builds upon our alerts of February 22, 2022; February 23, 2022; and March 2, 2022.
On March 2, 2022, OFAC issued four general licenses (GLs) that authorize certain transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. As explained in our previous alert, Directive 4 (also referred to as the Russia-related Sovereign Transactions Directive) prohibits U.S. persons from engaging in any transactions with these entities. In addition, OFAC added new FAQs and updated existing FAQs to explain recent sanctions.
On March 3, 2022, OFAC added a number of individuals and entities to the Specially Designated Nationals (SDN) List. The sanctions are aimed at Russian elites and their families, individuals and entities connected to Russia's efforts to spread disinformation, and Russian defense enterprises.
On March 4, 2022, OFAC issued three new FAQs clarifying GL 8A, which authorizes energy-related transactions.
1. General Licenses 9A and 10
GL 9A ("Authorizing Transactions Related to Dealings in Certain Debt or Equity") and GL 10A ("Authorizing Certain Transactions Related to Derivative Contracts") replace previously issued GL 9 and GL 10. GL 9A and GL 10A preserve the authorizations of GL 9 and GL 10, described in our previous alert (March 2, 2022), and add authorizations for transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation (the Directive 4 entities).
Specifically, GL 9A authorizes all transactions prohibited under 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 Directive 4 entities until May 25, 2022 at 12:01 a.m. E.D.T. See FAQs 981 and 999.
GL 10A authorizes all transactions prohibited by Directive 4 that are ordinarily incident and necessary to the winding down of derivative contracts, repurchase agreements, or reverse repurchase agreements entered into before March 1, 2022 at 12:01 a.m. E.S.T. that include a Directive 4 entity as a counterparty until May 25, 2022 at 12:01 a.m. E.D.T. See FAQ 999.
It is important to note, however, that GL 9A and GL 10A do not authorize any debit to an account on the books of a U.S. financial institution of a Directive 4 entity. Like GL 9 and GL 10, GL 9A and GL 10A do not authorize the opening of any correspondent or payable-through accounts.
2. General License 13
GL 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 that such transactions are ordinarily incident and necessary to such persons' day-to-day operations in the Russian Federation until June 24, 2022 at 12:01 a.m. E.D.T. See FAQ 999. GL 13 does not authorize any debit to an account on the books of a U.S. financial institution of the Directive 4 entities.
3. General License 14
GL 14 authorizes transactions involving a Directive 4 entity where the Directive 4 entity's sole function in the transaction is to act as an operator of a clearing and settlement system. See FAQs 999 and 1,003. GL 14 does not authorize any transfer of assets to or from any Directive 4 entity or any transaction where a Directive 4 entity is either a counterparty or beneficiary to the transaction, unless separately authorized. Like GL 9A, GL 10A, and GL 13, GL 14 does not authorize any debit to an account on the books of a U.S. financial institution of a Directive 4 entity.
OFAC issued a raft of new FAQs clarifying Directive 4. Most critically, OFAC clarified that Directive 4 requires U.S. persons to reject, rather than block, transactions involving the Directive 4 entities and that the 50 percent rule does not apply to Directive 4. See FAQs 1,004 and 1,001. (This is important for several reasons, one of which is that Sberbank is 50 percent plus 1 share owned by the Ministry of Finance, a Directive 4 entity.) OFAC also warned U.S. persons to be on the alert for nonroutine foreign exchange transactions involving Directive 4 entities (such as the Central Bank of the Russian Federation using import or export companies to engage in foreign transactions on its behalf) and exercise caution in engaging in foreign exchange transactions on the Moscow Exchange because of the risk that the Central Bank could be a counterparty. See FAQ 1,002. In addition, OFAC summarized the full slate of sanctions applicable to Directive 4 entities in FAQ 1,000.
On March 2, OFAC updated previously issued FAQs with references to Directive 4, the new General Licenses, and the Russian Harmful Foreign Activities Sanctions Regulations. In a press release, OFAC highlighted FAQ 978, which explains how U.S. persons can engage in transactions under GL 6 (agricultural and medical), GL 7 (overflights, emergency landings, and air ambulances), and GL 8A (energy), using U-turn transactions where payments are processed through non-sanctioned, third-country financial institutions. Furthermore, OFAC announced energy-related FAQs (GL 8A) on March 4, 2022, clarifying wind-down times and payment issues.
Finally, OFAC added new FAQs that address the first round of sanctions that applied to the Donetsk People's Republic and Luhansk People's Republic in Ukraine, clarifying what Executive Order 14065 does, the geographic area covered, the applicable wind-down period, and exemptions via general license.
5. Sanctions Against Russian Elites, Disinformation Outlets, and Defense Enterprises
On March 3, OFAC announced further sanctions against individuals and entities linked to and profiting from President Putin's regime and the war in Ukraine. OFAC sanctioned Russian elites and their families in coordination with Canada and the European Union. These sanctions will extend to entities owned (50 percent or more) by these individuals, except for entities owned by one sanctioned individual, Alisher Burhanovich Usmanov, one of Russia's wealthiest billionaires. Concurrently issued GL 15 authorizes transactions involving any entity that Usmanov owns 50 percent or more of that is not named on the SDN list. In addition, OFAC sanctioned 26 Russia- or Ukraine-based individuals and 7 entities associated with Russian disinformation outlets. Last, OFAC announced sanctions on 29 Russian defense enterprises, including entities that develop and produce fighter aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia's military. These individuals and entities are now effectively cut off from dollar-denominated markets and U.S. financial institutions: any of their assets that come within the possession of a U.S. person are blocked and subject to OFAC reporting requirements.
We will update this release as the sanction regimes develop and as the U.S. and other allied governments provide more guidance. Please do not hesitate to contact the authors if you have any questions.