Add a bookmark to get started

Abstract view of canyon
16 March 20229 minute read

US announces new trade restrictions against Russia as well as a new round of sanctions against Russian political elites

On March 11, 2022, the White House announced a series of new measures that escalate the economic measures and sanctions that have been imposed on Russia over the last three weeks since the beginning of the Ukraine crisis.

The most recent measures include prohibiting exportation, directly or indirectly, from the United States, or by a United States person, wherever located, of US dollar-denominated banknotes; granting authority to the Treasury and State Departments to sanction new investments in economic sectors they identify; new trade restrictions intended to prohibit trade between the US and Russia in a broad range of goods, including certain of Russia’s primary exports, such as seafood and alcoholic beverages; new guidance from the Department of Treasury on virtual currencies; and new blocking sanctions against Russian elites.

The President also announced that he would request that Congress enact legislation revoking Russia’s most favored nation status. 

We described the additional measures previously announced by the US government in our prior client alerts published on February 23,  February 25February 28, March 4, and March 9, 2022.   

New Executive Order prohibiting trade in numerous goods and new investments with Russia, blocking exports of US dollar-denominated banknotes, and granting authority to sanction new economic sectors

The White House issued a new Executive Order on “Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression,” as a result of which the following commercial activities with Russia are prohibited effective immediately:

  • the importation into the US of fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian Federation origin as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State and the Secretary of Commerce
  • the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of luxury goods, and any other items as may be determined by the Secretary of Commerce, in consultation with the Secretary of State and the Secretary of the Treasury, to any person located in the Russian Federation
  • new investment in any sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, by a United States person, wherever located (see additional comments below on this important point)

  • the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of US dollar-denominated banknotes to the Government of the Russian Federation or any person located in the Russian Federation and

  • any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

As a result of the prohibition of the direct or indirect sending of dollar-denominated banknotes to anyone in Russia at Section 1(a)(iv) of the Executive Order, US financial institutions cannot process transactions involving the delivery of US-dollar physical currency (as opposed to wire transfers, for example) to foreign financial institutions for further distribution or supply to the Government of the Russian Federation or any person located in the Russian Federation. In the absence of further guidance from the US Treasury, we envision increased complexity and confusion with financial transactions from the US or EU to Russia. US entities with subsidiaries and employees in Russia may need to look to other options to continue to fund their operations if they wish to stay in Russia.

Notably, subject to certain exceptions, the EU also has prohibited the supply of euro banknotes to Russia. In connection with this prohibition, OFAC also issued the following two general licenses:

  • General License 18 authorizes transactions “that are ordinarily incident and necessary to the transfer of US dollar-denominated banknote noncommercial, personal remittances from: (i) the United States or a US person, wherever located, to an individual located in the Russian Federation; or (ii) a US person who is an individual located in the Russian Federation.  US persons in Russia can withdraw dollars from ATMs.  
  • General License 19 authorizes US persons in Russia to engage in all transactions that are ordinarily incident and necessary to their personal maintenance within the Russian Federation, including payment of housing expenses, acquisition of goods or services for personal use, payment of taxes or fees, and purchase or receipt of permits, licenses, or public utility services. 

As noted above, Section 1(a)(iii) of the Executive Order grants authority to the Secretary of Treasury, in consultation with the Secretary of State, to prohibit new investment in any sector of the Russian Federation economy as they may determine. Such granting authority can result in immediate sanctions against new economic sectors in Russia, further sending a chilling effect throughout the global private sector community to anticipate such risk and respond accordingly within their risk appetite.

The Executive Order took effect immediately and separately prohibited any effort to evade or avoid the prohibitions imposed. The President reported these measures to Congress consistent with his obligations under the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code.

US to seek to revoke Russia’s most favored nation status and impose additional trade restrictions

Concurrent with the Executive Order issued on March 11, the President also announced an additional series of trade measures coordinated with the European Union and the G7. The White House issued a Fact Sheet regarding these measures as well.

Significantly, among these newly announced measures, the President stated that he would formally request that Congress withdraw permanent normal trade relations (PNRT) treatment with the Russian federation, which would have the effect of revoking most favored nation trade status to Russia. Such a step would require legislative action.  At least one bill has already been filed in the United States Senate. If the status is revoked, it would require a new act of Congress to reinstate.

Additional related measures announced by the President include:

  • Collaborating with the G7 leadership to deny Russia borrowing privileges at multilateral financial institutions, such as the IMF and the World Bank
  • Issuing new guidance from the Department of Treasury to make clear that measures announced against Russia apply to virtual currencies as well as traditional fiat currencies
  • Establishing the legal authority for future investment restrictions in any sector of the Russian economy, as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, by a United States person.

OFAC imposes new blocking sanctions against Russian and Belarusian elites and their families and issues new guidance and general licenses

In addition to these measures, on March 11, 2022, OFAC announced a new series of blocking sanctions against members of the Russian elite, including 10 members of the Board of Directors of VTB Bank, 12 members of the Russian Duma who sponsored legislation, Russian oligarch Viktor Vekselberg, including his yacht and one aircraft, and members of the family of Dmitriy Peskov, the Kremlin spokesman.

According to the White House Fact Sheet, these new blocking sanctions are intended to “target Russian elites and their family members who are profiting from this war of choice, and cut[] them off from the US financial system, freezes any assets they hold in the United States and blocks their travel to the United States.”

On the same day, OFAC announced the following new General Licenses:

  • General License 17 authorizes until 12:01 AM (EDT) on March 25, 2022 all transactions prohibited by section 1(a)(i) of Executive Order of March 11, 2022, including transactions “that are ordinarily incident and necessary to the importation into the United States of fish, seafood, and preparations thereof; alcoholic beverages; or non-industrial diamonds of Russian Federation origin,” which are pursuant to written contracts or written agreements entered into prior to March 11, 2022.
  • Ukraine-related General License 23 authorizes all transactions that are ordinarily incident and necessary to activities by nongovernmental organizations, including humanitarian and education projects, democracy-building activities, non-commercial development projects (eg, related to health, food security, water and sanitation), and environmental and natural resource protection.

OFAC also issued several new Frequently Asked Questions to provide clarity on a number of issues under the newly imposed sanctions, including regarding the application of sanctions to virtual currencies, the time in which aspects of the new Executive Order will take effect, the effects of the Executive Order on non-US persons, definitions of several of the terms used in the Executive Order, and the effect of the Executive Order on personal remittances in US Dollars to Russia.

On March 15, 2022, the Treasury Department and OFAC announced additional sanctions against Russians “connected to gross human rights violations” and corruption in Belarus. The 15 individuals added to the OFAC SDN list include Halina Radzivonawna Lukashenka, the wife of Belarusian President Alexander Lukashenko. The State Department also announced that Mr. Lukashenko and his immediate family members would be ineligible for entry into the United States.

Going forward

As noted above, many of the newly announced measures will require Congressional action, which we will continue to monitor. To learn more about these developments, please contact any of the authors or your usual DLA Piper relationship attorney.

 

Print