As the conflict in Ukraine escalates, the United States and its allies continue to ramp up pressure against the Russian government with new, increasingly punitive sanctions and other economic measures. The latest wave of restrictions introduced over the last week by the Biden Administration significantly expand existing measures targeting Russian elites, major Russian banks, and other key players in the financial, technology, and military sectors, as noted in the below highlights.
This is part of a series of advisory alerts from Venable's International Trade and Logistics Group, published in response to the ongoing situation in Ukraine. Earlier alerts on Russia and Ukraine sanctions are available in sequential order here, here, here, here, here, and here.
Russian Banks and Putin's Inner Circle and a New Investment Ban on Russia are the Focus of Sanctions Issued April 6, 2022
On April 6, 2022, the Biden Administration and U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) introduced several major actions, including the following additions to the Specially Designated Nationals (SDN) List pursuant to Executive Order (EO) 14024:
- Sberbank, Russia's largest financial institution, and 42 of its subsidiaries. This action expands previous sanctions imposed pursuant to Directive 2 under EO 14024 ("Russia-related CAPTA Directive") and Directive 3 under EO 14024 ("Russian-related Entities Directive"), as explained in our previous alert. All entities owned 50 percent or more, directly or indirectly, by Sberbank are also covered by this designation.
- Alfa-Bank, Russia's largest private bank, six subsidiaries, and five related vessels added as SDNs. Alfa-Bank was previously subject to the prohibitions in Directive 3 under EO 14024. All entities owned 50 percent or more, directly or indirectly, by Alfa-Bank are also now SDNs.
- Key members of the Russian security council, including former President and Prime Minister Dmitry Medvedev, as well as close family members of President Putin and Foreign Minister Sergei Lavrov, who themselves have already been designated.
Persons and entities subject to U.S. jurisdiction are prohibited from transacting with SDN-listed persons or entities and must block all property and interests in property of SDNs, unless authorized. In addition to these restrictions, OFAC has released new and amended six General Licenses (GL) authorizing certain limited transactions with restricted Russian entities, noting in particular:
- GL No. 22 and No. 23. These authorize a general wind-down period for any transactions involving PJSC Sberbank of Russia (Sberbank), or any entity majority owned thereby, until April 13, 2022, and Alfa-Bank, until May 6, 2022.
- GL No. 8B. This replaces and supersedes GL No. 8A (Feb. 28, 2022) and authorizes certain limited transactions "related to energy" with Sberbank, Alfa-Bank, and other listed entities until June 24, 2022.
- GL No. 9B. This replaces and supersedes GL No. 9A (March 2, 2022) and authorizes until May 25, 2022 certain, limited transactions in debt or equity of Sberbank and other listed entities that were issued prior to February 24, 2022, provided that any divestment or transfer of, or facilitation thereof, is to a non-U.S. person. This GL authorizes the same for certain transactions in debt or equity issued prior to April 6, 2022 of Alfa-Bank (or its majority-owned entities) until June 30, 2022. Similarly, GL No. 10B authorizes certain, limited transactions for the wind-down of derivative contracts with listed entities, including Sberbank and Alfa Bank.
We anticipate OFAC will release additional guidance, in the form of FAQs, further clarifying the scope these licenses. Until then, it may be prudent to await such further guidance from OFAC before relying on these GLs to transact with entities designated under EO 14024.
Finally, on April 6, 2022, President Biden issued a sweeping new EO, entitled "Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression." Notably, this EO broadly prohibits:
- Any "new investment in the Russian Federation by a United States person, wherever located;"
- The export, reexport, sale, or supply, whether indirect or direct, from the U.S. or by a U.S. person, 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"; and,
- U.S. persons from facilitating, approving, financing, or guarantee any transaction by a foreign person, if such a transaction would be prohibited under the EO were it to be performed by a U.S. person or within the United States.
We anticipate federal agencies (namely, Treasury, State, or Commerce) to soon release additional guidance on the scope of this EO, including the types of "services" impacted.
New Restrictions and Guidance related to Virtual Currency Issued on April 5, 2022
On April 5, 2022, OFAC introduced new blocking sanctions against Hydra, a prominent Russian "darknet" market that relies on virtual currency, and Garantex, a virtual currency exchange with significant operations in Russia. Both entities have been targeted for allowing sanctioned persons and other actors to exploit virtual currencies for illicit purposes and for circumventing anti-money laundering obligations.
Relatedly, OFAC recently issued new FAQs and guidance emphasizing that virtual currency transactions may not be used to evade U.S. sanctions, noting that sanctions generally apply to transactions whether they are denominated in traditional fiat currency or virtual currency.
Russian "Evasion" Networks, Major Technology Companies, and Cyber Actors Targeted on March 31, 2022
On March 31, 2022, OFAC unveiled a package of sanctions focused primarily on preventing the Russian technology sector from evading Western sanctions and developing harmful technologies. Pursuant to its authority under EO 14024, OFAC announced full blocking sanctions against:
- 17 entities and 10 individuals for efforts to evade U.S. sanctions and procure restricted dual-use technology and equipment for the Russian government. Key among these designations are OOO Serniya Engineering and Sertal, two Russian companies with alleged close ties to the Russian intelligence and military; and,
- Four major Russian technology companies that reportedly produce software and components for the Russian defense sector, including Mikron, Russia's largest manufacturer and exporter of microchips.
The March 31st announcement also included an expansion of previous sanctions targeting the State Research Center of the Russian Federation (FGUP) Central Scientific Research Institute of Chemistry and Mechanics (TsNIIKhM) and its employees for their involvement in significant cyberattacks. These designations were made pursuant to Section 224(a) of the Countering America's Adversaries Through Sanctions Act (CAATSA), which authorizes sanctions against persons that undermine cybersecurity on behalf of the Russian government.
We continue to monitor events and the implementation of ever-increasing sanctions by the Biden administration, which appear to have been issued in coordination with many U.S. allies. Further, we anticipate these sanctions will continue as long the aggression in the Ukraine remains. If you have questions as to how these restrictions and prohibitions may impact your business activities, please feel free to reach out to our International Trade and Logistics Group for assistance.