On February 24, 2022, the U.S. imposed sweeping sanctions and export controls actions in response to the Russian Federation’s (“Russia”) “war of choice” against Ukraine. (Husch Blackwell summarized the February 24, 2022 actions in a Client Alert published here, as well as more limited actions on February 21-22 here and here.) The past ten (10) days have featured a flurry of new sanctions and rapidly evolving regulations and executive orders imposed by the U.S. President, the Department of State, the Department of Commerce, and the Department of the Treasury addressing the ongoing Russian invasion of Ukraine. Below are the latest updates in chronological order.
February 25, 2022
On Friday, February 25, 2022, the Office of Foreign Assets Control (“OFAC”) announced that it would add the following high-ranking Russian government officials (including Vladimir Putin) to the Specially Designated Nationals & Blocked Persons List (“SDN List”):
- Valery Gerasimov (Chief of the General Staff of the Armed Forces);
- Sergei Lavrov (Minister of Foreign Affairs);
- Vladimir Putin (President); and
- Sergei Shoigu (Minster of Defence).
February 26, 2022
On Saturday, February 26, 2022, the White House, along with the leaders of the European Commission, France, Germany, Italy, the UK, and Canada, issued a joint statement condemning the war on Ukraine and outlining further commitments to sanctions on Russia including:
- Removing certain Russian banks from the international bank messaging service run by the Society for Worldwide Interbank Financial Telecommunications known as SWIFT;
- Restricting transactions with Russia’s Central Bank;
- Restricting sales of citizenship to Russian citizens who may have the means to buy citizenship in foreign countries;
- Launching a “transatlantic task force” to jointly implement and monitor sanctions by the various allied countries; and
- Coordinating efforts to stop disinformation and other forms of hybrid warfare.
February 28, 2022
On Monday, February 28, 2022, OFAC codified the new “Russian Harmful Foreign Activities Sanctions Regulations” (“RHFASR”). The new sanctions are authorized by Executive Order (“EO”) 14024 of April 15, 2021, and are thus limited to the scope of EO 14024. OFAC stated that it intends to supplement the RHFASR at a future date with a more comprehensive set of regulations.
Also on February 28, 2022, OFAC published the designations of certain Russian state-owned financial institutions to the SDN List (subject to full blocking sanctions) and the Non-SDN Menu-Based Sanctions List (“NS-MBS List”). These new NS-MBS List additions are under a newly created Directive 4 under Executive Order 14024 (“Directive 4”), which took effect on February 28, 2022.
- SDN List
- The Russian Direct Investment Fund
- RVC Management Company (Russian Venture Company)
- NS-MBS List
- Central Bank of the Russian Federation
- Ministry of Finance of the Russian Federation
- National Wealth Fund of the Russian Federation
Directive 4 prohibits “any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.” OFAC also revised General License (“GL”) 8 (now titled GL 8A) when it published Directive 4. As amended, GL 8A now permits transactions “related to energy” involving the Central Bank of Russia to the same extent that General License 8 previously authorized such transactions that involved VEB, Otkritie, Sovcombank, Sberbank, VTB and their 50%-or-greater-owned subsidiaries.
March 2, 2022
On Wednesday, March 2, 2022, the White House announced new export controls and sanctions to be implemented by the Bureau of Industry and Security (“BIS”) and OFAC. At a high level, these new restrictions cover the following areas:
- Additional restrictions on exports and reexports to Belarus of technical goods in response to its support for Russia’s invasion of Ukraine;
- Full blocking sanctions on Russian Defense entities;
- New export controls targeting the oil and gas industry in Russia;
- BIS Entity List designations of entities supporting the Russian and Belarusian militaries and defense sectors; and
- A ban on Russian aircraft use of U.S. air space.
Following-up on the White House’s announcement, BIS implemented new export controls to restrict exports, reexports and transfers (in-country) to Belarus in the same manner that BIS’s recently-enacted Russian export controls restrict the same transactions with Russia. BIS stressed that the U.S. government warned Belarus not to assist with the Russian invasion of Ukraine and that the new export controls are imposed in response to Belarus’ support of the Russian invasion. This BIS Imposition of Sanctions Against Belarus Final Rule is the same as the February 24, 2022 Final Rule imposed against Russia in that it:
- Imposes new Commerce Control List (“CCL”) destination-based licensing requirements on items falling under Export Control Classification Numbers (“ECCNs”) in CCL Categories 3-9 which are exported, reexported or transferred (in-country) to Belarus;
- Adds Belarus as the only other destination other than Russia subject to the two (2) new Foreign-Produced Direct Product (“FDP”);
- Imposes a license review policy of denial applicable to almost all license applications submitted under the new Belarus rules;
- Adds the Ministry of Defence of the Republic of Belarus to the Entity List.
- Adds Belarus as a country subject to the general MEU and military-intelligence end-user (“MIEU”) rules under the U.S. Export Administration Regulations (“EAR”); and
- Removes Belarus from Country Group A:4 and adds Belarus to Country Groups D:2 and D:4.
Notably, the March 2, 2022 Final Rule also deviates from the February 24, 2022 Final Rule by:
- Narrowing the availability of License Exception ENC for exports, reexports, or in-country transfers to both Belarus and Russia by limiting ENC’s use to certain categories of civil end-users who must be qualifying subsidiaries of or joint ventures between U.S. parent companies and/or companies headquartered in Country Group A:5 or A:6 countries; and
- Removing an exclusion (consistent with the above bullet point) that was previously available under the February 24, 2022 Final Rule for eight (8) Russia MEUs for mass market encryption items and software listed under ECCNs 5A992.c and 5D992.c users that were not Russian “government end users” or state-owned enterprises.
Additionally, OFAC issued two (2) amended general licenses and two (2) new general licenses. GLs 9 and 10 are superseded by GLs 9A and 10A, respectively, and GLs 13 and 14 were newly issued:
- General License 9A: Changed original GL 9 by adding subsection (c) authorizing transactions that are ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with debt or equity of designated entities under Directive 4 (Central Bank of Russia, National Wealth Fund of the Russian Federation, and Ministry of Finance of Russia) (the “Directive 4 entities”) until 12:01 a.m. eastern daylight time on May 25, 2022.
- General License 10A: Changed original GL 10 by adding subsection (b) authorizing the wind down of transactions entered into prior to March 1, 2022 with the Directive 4 entities until 12:01 a.m. eastern daylight time on May 25, 2022.
- General License 13: GL 13 authorizes U.S. persons to pay taxes, fees, or import duties to, and purchase or receive payments, licenses, registrations, or certificates from the Directive 4 entities, provided that such transactions are ordinarily incident and necessary to day-to-day operations in Russia, through 12:01 a.m. eastern daylight time on June 24, 2022.
- General License 14: GL 14 authorizes U.S. persons to undertake transactions where the Directive 4 entity’s sole function is to act as an operator of a clearing and settlement system, provided that: (i) there is no transfer of assets to or from any Directive 4 entity, unless separately authorized; and (ii) no Directive 4 entity is either a counterparty or a beneficiary to the transaction, unless separately authorized. GL 14 does not authorize a debit to an account on the books of a U.S. financial institution of any Directive 4 entity.
Also on March 2, 2022, the European Union announced the specific banks it now excludes from the SWIFT international bank messaging service (as previously announced in the February 26, 2022 joint announcement described above):
- Bank Otkritie;
- Bank Rossiya;
- VNESHECONOMBANK (VEB); and
- VTB BANK
March 3, 2022
On Thursday, March 3, 2022, BIS (i) targeted Russia’s defense contracting sector by adding 91 new entities to the Entity list under the destinations of Belize, Estonia, Kazakhstan, Latvia, Malta, Russia, Singapore, Slovakia, Spain, and United Kingdom, and (ii) imposed additional restrictions on export activities to the Russian oil and gas sector under BIS’ 15 C.F.R. § 746.5 Russian industry sector sanctions. BIS stated that these actions further restrict Russia’s “access to U.S. commodities, software, and technology as part of our ongoing efforts to degrade Russia’s ability to acquire the items it needs to sustain its military aggression.” As with all export activities to Russia, transactions subject to the newly modified Russia industry sector sanctions are also subject to the entire EAR Russia policy, including the new FDP Rule.
OFAC also added approximately 89 combined individuals and entities to the SDN List. The designated individuals and entities represented a mix of elites associated with President Vladimir Putin, their family members and disinformation purveyors. In addition to blocking sanctions against the named entities and individuals (and their close family members), OFAC also blocked a yacht and Airbus A340-300 aircraft owned by Russian oligarch Alisher Burhanovich Usmanov. Newly issued General License 15 exempts any businesses owned or controlled by Usmanov from the 50% ownership rule.
Additionally, U.S. Attorney General Merrick B. Garland announced the creation of a new “KleptoCapture” interagency task force to enforce sanctions against Russia.
March 4, 2022
On Friday, March 4, 2022, OFAC released three new FAQs attempting to clarify to industry that Russian energy-related transactions may continue despite the sweeping new sanctions imposed since February 21, 2022.
Also on March 4, 2022, BIS added South Korea to the list of countries excluded from the new Belarus and Russia FDP Rules because South Korea has committed to “committed to implementing substantially similar new export controls on Russia and Belarus . . . .”
The U.S. regulatory posture toward export and reexport activities to Russia and Belarus is changing rapidly. Husch Blackwell’s Export Controls and Economic Sanctions Team continues to closely monitor all sanctions and export controls developments concerning Russia, Belarus, and Ukraine and will provide further updates as conditions change. Should you have any questions or concerns, please contact Cortney Morgan, Grant Leach or Tony Busch of our Export Controls and Economic Sanctions Team.