US government announces sweeping sanctions against Russia

Moscow city skyline

International Trade Alert

By:

On April 15, 2021, President Joe Biden signed a new Executive Order, “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation,” which authorizes new sanctions against Russia. The newly imposed sanctions represent a significant escalation and addition to the sanctions architecture put in place by the Obama and Trump Administrations (including Executive Orders 13660, 13661, 13662, and 13685).

 

According to the Fact Sheet issued by the White House concerning the sanctions, the Executive Order is intended to “impose costs in a strategic and economically impactful manner on Russia if it continues or escalates its destabilizing international actions,” including Russia’s efforts to “undermine the conduct of free and fair democratic elections and democratic institutions in the United States and its allies and partners; engage in and facilitate malicious cyber activities against the United States and its allies and partners; foster and use transnational corruption to influence foreign governments; pursue extraterritorial activities targeting dissidents or journalists; undermine security in countries and regions important to United States national security; and violate well-established principles of international law, including respect for the territorial integrity of states.”

 

What’s in the new Executive Order?

 

The Executive Order, first, includes new authority for the imposition of blocking sanctions on any person determined by the Secretary of the Treasury or the Secretary of State:

 

  • To operate in the technology or the defense and related materiel sector of the Russian economy, or any other sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State. This provision authorizes the Secretary of the Treasury to impose broad, Iran-like sanctions on any sector of the Russian economy, including banking and energy
  • To be responsible for or complicit in, or to have engaged in, any of the malign activities listed above
  • To be or have been a leader, official, senior executive officer, or board of directors member of the Government of the Russian Federation, any entity that has (or whose members have) engaged in any of the malign activities listed above, or any entity whose property and interests in property are blocked pursuant to the Executive Order. This provision authorizes the imposition of blocking sanctions on any Russian government official, from the provincial to national levels
  • To be a spouse or adult child of any person whose property and interests in property are blocked pursuant to the authorities described in the foregoing two bullets
  • To be a political subdivision, agency, or instrumentality of the Government of the Russian Federation. This provision authorizes the blocking of any part of the Russian government, including Russian government-owned entities operating in the oil, gas, and banking sectors or
  • To have materially assisted any of the malign activities listed above or any person whose property and interests in property are blocked pursuant to the Executive Order.

 

Second, the Executive Order contains two unique new sanctions authorities:

 

  1. Section 1(b) of the Executive Order authorizes the imposition of blocking sanctions on any Russian citizen or national, corporation organized under the laws of the Russian Federation or any jurisdiction within the Russian Federation, or person ordinarily resident in the Russian Federation that is determined by the Secretary of the Treasury to have materially assisted any government whose property and interests in property are blocked pursuant to OFAC regulations or another Executive order (ie, at this time the Governments of Iran, Cuba, North Korea, Syria, and Venezuela).
  2. Section 1(c) authorizes the imposition of blocking sanctions on any Russian citizen or national, or corporation organized under the laws of the Russian Federation or any jurisdiction within the Russian Federation, that is determined by the Secretary of State to be responsible for or complicit in, or to have directly or indirectly engaged or attempted to engage in, cutting or disrupting gas or energy supplies to Europe, the Caucasus, or Asia.

 

Third, the Executive Order provides for the suspension of entry into the United States as immigrants or non-immigrants of, and the denial of visas to, non-US citizens determined to meet one or more of the criteria set forth in section 1 of the Executive Order.

 

Limitations on dealing in Russian sovereign debt

 

The second important document issued is OFAC’s Directive 1 under Executive Order of April 15, 2021. The Directive prohibits US financial institutions, as of June 14, 2021, from participating in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. It also prohibits US financial institutions, as of June 14, 2021, from lending ruble or non-ruble denominated funds to these three entities.

 

The Directive does not prohibit US financial institutions from participating in the secondary market for bonds issued by these entities. This directive expands upon existing prohibitions on certain dealings in Russian sovereign debt that have been in place since August 2019. As noted by Secretary of State Anthony Blinken in his press statement, the Executive Order also provides authority for the US government to expand sovereign debt sanctions on Russia as appropriate.

 

Addition of Russian persons and entities to the OFAC SDN List

 

In addition to the new sanctions, OFAC also announced numerous designations of Russian persons under existing authorities, as well as several designations under the new Executive Order targeting companies operating in the technology sector in Russia.  In close cooperation with our allies, OFAC separately designated under existing authorities five individuals and three entities related to Russia’s occupation of the Crimea region of Ukraine.

 

In addition to the White House Fact Sheet, OFAC also has issued numerous FAQs providing guidance concerning the new Russia sanctions. The Departments of State and the Treasury have each issued press releases, which provide further guidance concerning the new actions, including the following:

 

 

*            *            *

The Executive Order and Directive are complex and may raise interpretive questions in the future. We will continue to stay abreast of new developments and will provide further guidance on key elements of the new actions as well as any future related actions taken by the US government.

 

If you have any questions regarding these new requirements and their implications, please contact any of the authors or your DLA Piper relationship attorney.