New wave of US sanctions on Russia targets services, broadcasting, banking, and US exports
As a result of Russia’s invasion of Ukraine, now in its fourth month, the US and its allies have implemented a broad array of sanctions and other economic measures intended to impose costs on Russia and its allies. The US government implemented these measures just days after the initial invasion in February 2022, has since expanded their scope considerably and continues to announce new measures.
This alert provides an overview of the significant new sanctions and export controls on Russia and Belarus in the last month, including the following:
- Blocking sanctions against Russian international bank executives and a Russian weapons manufacturer
- Blocking sanctions against three Russian state-owned television stations: Channel One Russia, Television Station Russia-1 and NTV Broadcasting Company
- Prohibition of accounting, trust and corporate formation, and management consulting services to any person located in the Russian Federation by US persons
- New export controls targeting Russia’s industrial sector, including a broad range of inputs and products including wood products, industrial engines, boilers, motors, fans and ventilation equipment, bulldozers and many other items with industrial and commercial applications
- Blocking sanctions and visa restrictions on individuals and entities for human rights abuse and sanctions evasion
- Blocking sanctions on Russian maritime companies and vessels and prohibition on Russian vessels entering US ports
- Regulations codifying sanctions, new general licenses and additional clarifying FAQs and
- Prohibition on the import of energy products from Russia and suspension of normal trade relations.
Treasury and OFAC announce new blocking sanctions against Russian international bank executives, among others, and broad new prohibitions on services
The White House, Department of State, Department of the Treasury and OFAC announced new blocking sanctions against Moscow Industrial Bank as well as the board members of Sberbank and Gazprombank, two of Russia’s largest international banks; a Russian weapons manufacturer, Promtekhnologiya; and three Russian state-owned television stations: Joint Stock Company Channel One Russia, Joint Stock Company NTV Broadcasting Company and Television Station Russia-1. In conjunction with these announcements, the White House released a Joint Statement of the leaders of the G7 Nations, a Background Press Briefing regarding these new actions and a Fact Sheet.
OFAC also issued a determination pursuant to section 1(a)(ii) of Executive Order 14071 prohibiting the exportation, re-exportation, sale or supply, directly or indirectly, from the US or by a US person, wherever located, of accounting, trust and corporate formation, and management consulting services to any person located in the Russian Federation. This broad new prohibition becomes effective on June 7, 2022. In parallel with this action, OFAC also identified the accounting, trust and corporate formation services, and management consulting sectors of the Russian economy pursuant to section 1(a)(i) of E.O. 14024. On May 11, 2022, OFAC issued additional Frequently Asked Questions defining the scope of each of these service sectors.
In connection with these new sanctions, OFAC also issued, inter alia, the following new wind-down general licenses:
- General License 33: Authorizing the wind-down of operations or existing contracts involving certain blocked entities, including Joint Stock Company Channel One Russia, Joint Stock Company NTV Broadcasting Company and Television Station Russia-1 through 12:01 am EDT on June 7, 2022, provided that any payment to a blocked person must be made into a blocked account located in the US
- General License 34: Authorizing the wind down of accounting, trust and corporate formation, and management consulting services through 12:01 am EDT on July 7, 2022 and
- General License 35: Authorizing transactions involving credit rating and auditing services through 12:01 am EDT on August 20, 2022.
On April 20, the State Department and OFAC designated Russian commercial bank Transkapitalbank and more than 40 individuals and entities led by Russian oligarch Konstantin Malofeyev for sanctions evasion, as well as companies operating in Russia’s virtual currency mining industry, reportedly the third largest in the world.
Department of Commerce announces broad new restrictions on exports to Russia
On May 11, 2022, the Bureau of Industry and Security (BIS) of the Department of Commerce issued a final rule imposing a broad range of new industry sector sanctions, which the White House announced will cover “wood products, industrial engines, boilers, motors, fans, and ventilation equipment, bulldozers, and many other items with industrial and commercial applications.” Examples of items requiring an export license for Russia include industrial boilers, steam turbines, heat exchangers, hydraulic motors, hydraulic power engines, pneumatic power engines, engines and motors, trucks, auto air conditioners, icemaking machines, chilling machines, water purification equipment, fire extinguishers, conveyor belts, pulley tackle and hoists, winches, bulldozers and other heavy machinery, printing equipment, power looms, ironing machines, sewing machine needles, boring machines, batteries, transformers, electrical panels, and many other industrial items that previously were not subject to licensing requirements.
The general policy for export license requests is denial, except that items that may be necessary for health and safety reasons and items that meet humanitarian needs will be reviewed under a case-by-case license review policy. These new BIS licensing requirements took effect on May 9, 2022. Items that were en route aboard a carrier to a port of export, re-export, or transfer (in-country) on May 9, 2022, pursuant to actual orders for export, re-export, or transfer (in-country) to or within a foreign destination, may proceed to that destination under the previous eligibility for a license exception or export, re-export or transfer (in-country) without a license (NLR).
New sanctions and visa restrictions for human rights abuse and sanctions evasion
On April 20, 2022, the State Department and OFAC announced new blocking sanctions and visa restrictions on over 600 individuals and entities in Russia and Belarus for human rights abuses, including repressing independent media, repression of human rights defenders, abuses at Russian-controlled detention facilities and suppressing peaceful pro-democracy protestors. On May 9, 2022, the State Department announced visa restrictions on over 2,600 Russian and Belarusian military officials “who are believed to have been involved in actions that threaten or violate the sovereignty, territorial integrity, or political independence of Ukraine.”
Measures targeting the Russian maritime sector
On April 21, 2022, President Joe Biden issued a proclamation prohibiting Russian vessels from entering US ports. This proclamation restricts all vessels that are of Russian registry or that are owned or operated by Russian companies, citizens or permanent residents. It provides exceptions only for vessels transporting nuclear materials or byproducts in certain circumstances and vessels seeking entry to US ports due to force majeure, including emergency medical care or humanitarian needs.
On May 8, 2022, the State Department announced additional blocking sanctions against eight Russian maritime companies and 69 of their vessels.
New OFAC-issued FAQs are a warning to non-US persons transacting with Russia
FAQs 541 through 546 under the Ukraine-/Russia-Related Sanctions provide significant new guidance regarding foreign persons who engage in “significant transactions” with sanctioned persons. Through these FAQs, OFAC is sending an important warning to non-US persons engaging in transactions with Russia.
Although the recent Executive Orders imposing sanctions on Russia and Belarus do not include “secondary sanctions,” section 228 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) mandates that the president must impose sanctions against non-US persons if the president determines that the non-US person (i) knowingly and materially violates or conspires or attempts to violate any covered Executive Order, CAATSA or the Ukraine Freedom Support Act of 2014 or (ii) “facilitates a significant transaction or transactions for or on behalf any person subject to sanctions imposed by the United States with respect to the Russian Federation.”
FAQ 545 clarifies that transactions with persons on the Sectoral Sanctions Identifications (SSI) List or the Non-SDN Menu-Based Sanctions (NS-MBS) List may qualify as “significant transactions” if (i) the transaction involves deceptive practices (ie, attempts to obscure or conceal the actual parties or true nature of the transaction(s) or to evade sanctions) and (ii) the person is “subject to sanctions imposed by the United States with respect to the Russian Federation” or a child, spouse, parent or sibling of such an individual, as described in § 589.413(d)(1) (see also FAQ 546).
As outlined in our prior alerts on February 25 and February 28, the US government’s sanctions on Russia include numerous important entities on the SSI and NS-MBS lists, including Gazprom, Gazprombank, Transneft, Rushydro and others. As a result of this announcement, foreign financial institutions may be subject to secondary sanctions if they engage in the conduct described above.
President signs legislation prohibiting the import of energy products from Russia and suspending normal trade relations
On April 8, 2022, the president signed into law H.R. 6968, the “Ending Importation of Russian Oil Act,” which statutorily prohibits the importation of energy products from Russia, and H.R. 7108, the “Suspending Normal Trade Relations with Russia and Belarus Act,” which suspends normal trade relations with Russia and Belarus and seeks to further leverage trade and human rights sanctions. President Biden previously issued an Executive Order banning the importation of certain energy products from Russia (Executive Order 14066 of March 8, 2022).
Specifically, the Suspending Normal Trade Relations with Russia and Belarus Act provides that “[n]otwithstanding any other provision of law, beginning on the day after the date of the enactment of this Act, the rates of duty set forth in column 2 of the Harmonized Tariff Schedule of the United States (HTSUS) shall apply to all products of the Russian Federation and of the Republic of Belarus.” As a result, Russia and Belarus are now included in the list of countries that currently includes Cuba and North Korea that are subject to the higher rates of duty established in column 2 of the HTSUS.
Summary of new and updated general licenses
Authorizing all transactions ordinarily incident and necessary to the receipt of, and payment of charges for, services rendered in connection with overflights of the Russian Federation or emergency landings in the Russian Federation by aircraft registered in the United States or owned or controlled by, or chartered to, US persons that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations
Authorizing the wind-down of certain transactions necessary to divest or transfer debt, equity or other holdings in GAZ Group
Authorizing the wind down of transactions involving GAZ Group
Authorizing transactions related to telecommunications and certain internet-based communications
Authorizing the Wind Down of Transactions Involving Joint Stock Company SB Sberbank Kazakhstan, Sberbank Europe AG or Sberbank (Switzerland) AG
Authorizing transactions in support of nongovernmental organizations activities, including activities supporting humanitarian projects, democracy building, education, non-commercial developments, and environmental and natural resource protection
Authorizing transactions involving Transkapitalbank or any entity in which it owns, directly or indirectly, a 50-percent or greater interest, that are ultimately destined for or originating from Afghanistan through 12:01 am EDT on October 20, 2022
Authorizing the wind-down of transactions involving Transkapitalbank
Authorizing transactions involving Gazprom Germania GmbH prohibited by Directive 3 under Executive Order 14024 through 12:01 am EDT on September 30, 2022
Authorizing certain transactions related to patents, trademarks and copyrights
Authorizing the wind down of transactions involving Amsterdam Trade Bank NV
Our global team continues to monitor developments as they arise and will update this alert as changes take place. To learn more about these developments, please contact any of the authors or your usual DLA Piper relationship attorney.