US continues to escalate sanctions against Russia and Belarus

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Global Sanctions Alert

International Trade Alert

By:

A new series of sanctions against Russia and Belarus announced by the White House  targets Russian oligarchs close to Putin and their family members, those spreading disinformation, and Russian defense-related firms, while putting in place extensive new export control measures against Russia and Belarus and closing US airspace to Russian aircraft. 

 

The Department of Justice (DOJ) also announced a new task force to prosecute sanctions evasion and seize assets from designated oligarchs and sanctions evasion schemes. The Office of Foreign Asset control (OFAC) also issued new public guidance regarding the sanctions previously imposed on the Russian Central Bank, National Wealth Fund, and Ministry of Finance.

 

These measures are in addition to the extensive sanctions and export controls announced by the US government in recent days, which we described in prior client alerts published on February 23February 25, and February 28

 

OFAC and the State Department target Russian elites and their families, defense industry-related entities, and disinformation outlets

 

On March 3, 2022, OFAC announced new blocking sanctions and the State Department announced its own concurrent sanctions against Russian oligarchs, their wives, children, companies, aircraft and a superyacht.  The State Department and Treasury also designated persons in Russia’s defense enterprise that design, develop, and produce weaponry. In addition, OFAC designated individuals and entities in connection with Russian disinformation campaigns.  In sum, 47 individuals, 42 companies, 1 vessel, and 2 aircraft were designated.

 

New OFAC guidance regarding the Russian Central Bank, National Wealth Fund, and Ministry of Finance

 

OFAC also issued new public guidance in an effort to close what the Department of the Treasury called “loopholes for Russia to evade the unprecedented prohibitions” imposed by the United States. The US is clearly focusing on front-companies and agents of designated persons attempting to evade sanctions. 

 

At the same time, the Treasury Department stressed that energy-related payments with designated Russian banks can continue unhindered.  The US says it is protecting Russian energy interests “to help protect Americans, partners, and allies from higher energy prices that would drive more resources to Russia.” 

 

OFAC issued the following five new General Licenses related to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation, and permitting transactions involving certain entities owned by oligarch Alisher Burhanovich Usmanov:

 

  • General License 9A authorizes all prohibited transactions that are “ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with debt or equity of the Central Bank, the National Wealth Fund, or the Ministry of Finance.”
  • General License 10A authorizes all prohibited transactions that are “ordinarily incident and necessary to the wind down of derivative contracts, repurchase agreements, or reverse repurchase agreements” entered into prior to 12:01 a.m. (EST) on March 1, 2022, that include the Central Bank, the National Wealth Fund, or the Ministry of Finance as a counterparty. General Licenses 9A and 10A expire at 12:01 a.m. (EDT) on May 25, 2022.
  • General License 13 authorizes US persons to pay taxes, fees, or import duties and purchase or receive permits, licenses, registrations, or certifications, to the extent such transactions are prohibited, provided that such transactions are ordinarily incident and necessary to day-to-day operations as related to the Central Bank, the National Wealth Fund, or the Ministry of Finance. General License 13 expires at 12:01 am (EDT) on June 24, 2022.
  • General License 14 authorizes transactions in which the Central Bank, the National Wealth Fund, or the Ministry of Finance act solely as an operator of a clearing and settlement system. This General License does not authorize any transfer of assets to or from, or in which the Central Bank, the National Wealth Fund, or the Ministry of Finance are counterparties or beneficiaries.
  • General License 15 authorizes all transactions involving any entity owned 50 percent or more, directly or indirectly, by Alisher Burhanovich Usmanov that is not listed on the SDN List.

OFAC has confirmed that the 50 percent ownership rule does not apply to the Central Bank, the National Wealth Fund, or the Ministry of Finance pursuant to Directive 4 under Executive Order 14024.

 

OFAC also published new Frequently asked Questions and updated several previously published Frequently Asked Questions.

 

Department of Justice launches enforcement task force

 

Yesterday, the DOJ announced the creation of Task Force KleptoCapture, which will expand and intensify the US government’s whole-of-government approach to sanctions and anti-corruption enforcement. 

 

While the department’s announcement emphasized that resources will be focused on holding “corrupt Russian oligarchs” accountable and enforcing recent sanctions imposed in response to Russia’s invasion of Ukraine, the Task Force’s mandate, staffing and resources give the Task Force a wide and long investigative and prosecutorial reach.  The Task Force will be staffed with experts “in sanctions and export control enforcement, anticorruption, asset forfeiture, anti-money laundering, tax enforcement, national security investigations, and foreign evidence collection.” 

 

The Department’s announcement made clear that it “will complement the work of the transatlantic task force” announced on February 26, which “has a mission to identify and seize the assets of sanctioned individuals and companies around the world.”  The Task Force has also been empowered to obtain information from a number of sources, including foreign intelligence and data analytics. 

 

Further, the Task Force announced it will leverage both criminal and civil forfeiture tools, which is consistent with recent actions taken by the Department to enforce other sanctions programs (eg, North Korea and Iran)

 

BIS expands Russia-related export controls to cover Belarus

 

Effective March 2, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) has further expanded export controls to significantly restrict most exports, reexports, and transfers of US goods, software, and technology to Belarus.  Essentially, the March 2 rule imposes the same export licensing requirements and policy to deny most license requests on Belarus that it did on Russia on February 24, 2022.  The latest action also applies the same foreign direct product rules to Belarus and imposes a near total ban on Belarusian military end-users.  This rule aims to prevent the diversion of items from Belarus to Russia and targets the defense, aerospace, and maritime sectors in both countries.

 

No sanctions on Russian oil, but export controls on oil refining and petroleum industry entities

 

Instead of OFAC sanctions on energy payments to Russia, effective March 3, 2022, BIS is targeting technology exports that support Russian oil refining capacity.  US exports of oil and gas extraction equipment, and other oil refining technologies are restricted from export, re-export, or transfer to Russia. 

 

Additional technologies used in or with oil refining in Russia have been added to Russia-specific end use controls in Supplement No. 2 to EAR Part 746—The Russian Industry Sector Sanction List, as well as ECCNs included in EAR Section 746.5.  The new rule is available here.

 

BIS Entity List additions

 

To prevent the flow of US technology to aerospace, maritime, and high-technology sectors in Russia and Belarus, BIS has added 91 new entities to its Entity List.  These entities are located in Belize, Estonia, Kazakhstan, Latvia, Malta, Russia, Singapore, Slovakia, Spain, and United Kingdom. The new Entity List restrictions are effective March 3, 2022.

 

According to BIS, these entities are responsible for supporting the Russian and Belarusian military with, among other things, technical maintenance, and innovation associated with military research and development.  Any attempts to provide technological support to these entities will now require pre-approval from BIS and its interagency partners.

 

US airspace closed to Russian aircraft

 

As announced by President Biden in the State of the Union address, the Federal Aviation Administration has joined similar actions by the UK and EU governments to ban from US airspace all aircraft owned, certified, operated, registered, chartered, leased, or controlled by, for, or for the benefit of, a person who is a citizen of Russia. This includes passenger and cargo flights, and scheduled as well as charter flights, effectively closing US air space to all Russian commercial air carriers and other Russian civil aircraft.  The FAA order is effective on March 2, 2022. 

 

Going forward

 

Our global team continues to monitor developments as they arise and will update this alert as changes take place. If you have any questions regarding these sanctions and their implications, please contact any of the authors or your DLA Piper relationship attorney.