Russian Sanctions Update
In reaction to Russia’s invasion of Ukraine, the United States has steadily intensified sanctions focused on Russia and certain regions of Ukraine (referred to in this advisory as the Russian Sanctions). The Russian Sanctions are intended to affect Russia’s largest banks, politically connected individuals in Russia and Russia’s access to U.S. products and technology. The sanctions impact a wide range of transactions involving Russia and Russian banks, Belarus and certain Russian-controlled regions in Ukraine.
This update is intended to alert clients regarding the latest sanctions environment and the type of transactions and activities that are affected. The latest sanctions are detailed, regularly increasing in scope, and also coordinated with independent sanctions programs of many other countries. For specific legal advice, we recommend that you consult us if you have concerns whether a particular business activity or transaction may be impacted by the Russian Sanctions or sanctions imposed by other countries.
Starting in 2014, the U.S. enacted specific programs targeting Russia and Ukraine. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) administers programs targeted at Russian banks and officials. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) administers requirements targeting technology provided by U.S. companies and individuals to regions affected by the Russian Sanctions as part of the Export Administration Regulations (EAR).
OFAC Restrictions Regarding Dealings with Blocked Persons
OFAC maintains lists of “blocked persons” who are subject to various provisions of the Russian Sanctions. The OFAC Russian Sanctions also affect any entity owned 50 percent or more by blocked persons, including subsidiaries of blocked entities.
“U.S. persons” may not engage in dealings with blocked persons, and they must block and report to OFAC any property in their possession, custody, or control in which a blocked party has an interest (including contingent interests). Narrower restrictions also relate to debt, equity, goods, services, technology, correspondent and intermediary accounts and other transactions. For purposes of the OFAC Russian Sanctions, “U.S. persons” are defined as U.S. citizens and lawful permanent residents, even if they are located overseas, entities organized under the laws of the United States or a U.S. jurisdiction (including any foreign branches and offices); and any person physically present in the United States.
Non-U.S. persons are generally not subject to U.S. civil and criminal liability (except in relation to transactions and activities with a U.S. nexus, where conspiracy, aiding and abetting and causing a violation of U.S. sanctions are sources of liability). However, they may be subject to being added to a list of sanctions targets for engaging in certain dealings with U.S. sanctions targets or other targeted Russian activities. As listed persons they may become subject to U.S.-related restrictions, including financial transactions subject to U.S. jurisdiction, denial of U.S. export control licenses, denial of U.S. visas, and even full blocking of property subject to U.S. jurisdiction and U.S. person dealings.
OFAC Restrictions Regarding Dealings with Listed Russian Banks and “Oligarchs”
OFAC has imposed correspondent and intermediary account restrictions on, and prohibiting the processing of transactions involving, Sberbank and 25 subsidiaries beginning March 26, 2022. Other entities may be designated in the future. These restrictions require all U.S. financial institutions to close correspondent and payable-through accounts and to reject transactions involving named entities.
On February 22 and 24, 2022, the United States announced new blocking sanctions designations, including against several Russian financial institutions, Nord Stream 2 AG, named Russian government officials and “oligarchs.” OFAC also issued guidance allowing a number of general licenses for otherwise prohibited transactions and activities, which are subject to specific terms and conditions contained in the general licenses.
BIS Export Restrictions
BIS maintains export control lists and Russian country controls, including an Entity List of persons who cannot be exported items subject to the EAR without a license. Prior to the recent expansion of Russia-related sanctions and export controls, these sanctions and export controls had already included typical blocking sanctions on individuals and entities; narrower “sectoral” sanctions on various debt, equity, goods, services and technology (depending on the sector) that relate to named entities in the Russian financial services, energy, and defense and related material sectors; and broad, territory-wide restrictions on the Crimean region previously annexed by Russia from Ukraine.
Sanctions Imposed on Luhansk and Donetsk People’s Republics
The United States has imposed comprehensive sanctions on the so-called Luhansk and Donetsk People’s Republics in eastern Ukraine (the Covered Regions), which were invaded by Russia earlier this year. These sanctions are very similar to the U.S. sanctions targeting Crimea. U.S. persons are prohibited from making new investments in the Covered Regions, and they also are not permitted to: (a) export or supply goods and services or technology to the Covered Regions; (b) import into the United States any goods, services or technology from the Covered Regions; or (c) otherwise facilitate dealings by non-U.S. persons with the Covered Regions that a U.S. person could not undertake. Non-U.S. persons who OFAC determines to “operate” in the Covered Regions can be added to the SDN List. There are numerous limited general licenses authorizing activities by U.S. persons involving the Covered Regions, the terms and conditions of which should be carefully examined.
Most recently, the U.S. has enacted additional sanctions against Russia as follows:
- The Federal Aviation Administration has joined the EU and UK in banning Russian flights
- Prohibition of the import of oil and natural gas from Russia into the US and investment in Russian energy sector by persons and entities in or related to the US
- Prohibition of the import of Russian food products and non-industrial diamonds
- Prohibition of the export of luxury goods to Russia
- Prohibition of the transfer of US banknotes to Russia
- Prohibition of financial or approval support to a foreign person when the transaction would be prohibited if done by a US person or entity under the Russian Sanctions
Please note that these provisions are detailed and complex, including the many general licenses and exceptions. In addition, this is an area subject to weekly, if not daily, change, so do not hesitate to contact Fredrikson if you have any questions.