Today, the United States announced new sanctions on Russia in response to a widespread hacking campaign targeting the United States, alleged interference in U.S. elections, and other “malign” actions carried out by the Russian government. Today’s actions include sanctions on transactions in the primary market for Russian sovereign debt, Russian technology firms, parties involved in election interference, and parties involved in the Russian administration of the Crimea region. Importantly, the new measures include an Executive Order (E.O.) that authorizes OFAC and other U.S. government agencies to impose additional significant sanctions on Russia in the future, if found to be necessary. The E.O. is designed, in part, to deter future actions by the Russian government that are inimical to U.S. interests.
New Executive Order
Today’s E.O. provides OFAC with broad authority to impose substantial new sanctions on Russia in the future, should relations between the United States and Russia continue to deteriorate. The E.O. allows OFAC, in consultation with the Secretary of State, to impose sanctions on a wide range of persons and sectors of the Russian economy, including:
- Parties that operate in the Russian technology sector;
- Parties that operate in the Russian defense or related materiel sector;
- Parties that operate in any other sector of the Russian economy identified by the Secretary of the Treasury in the future;
- Parties that are involved in Russian government activities related to:
- Interference in U.S. or foreign government elections;
- Actions that undermine democratic process in the United States or abroad;
- Transactional corruption;
- The assassination or targeting of U.S. persons or the nationals of U.S. allies and partners;
- Undermining the peace, security, stability or territorial integrity of the U.S., its allies, or partners; or
- Deceptive or structured transactions, including through the use of digital currency or other assets, to circumvent U.S. sanctions;
- Leaders, officials, senior executive officers, or members of the board of directors of the Russian government, or entities engaged in the activities above, or other sanctioned entities;
- Political subdivisions, agencies, or instrumentalities of the Russian government;
- Any party owned or controlled by, or that has acted on behalf of, the Russian government or any party subject to sanctions under the new E.O.;
- Any Russian citizen, national, or company, that has materially supported governments that are subject to U.S. blocking sanctions; and
- Russian persons that disrupt natural gas supplies to Europe, the Caucasus, or Asia.
Additions to the SDN List: Technology companies, Crimea, and election interference
Pursuant to the new E.O. and existing sanctions authorities, OFAC added a number of individuals and entities to its List of Specially Designated Nationals (SDN List). U.S. persons are broadly prohibited from conducting business with the sanctioned parties and with any entities owned 50 percent or more, directly or indirectly, by the SDNs. In addition, any property or interests in property within the possession or control of U.S. persons must be formally “blocked” and reported to OFAC.
Today’s designations included:
- Six technology companies that support Russian government intelligence operations;
- Eight parties involved in the construction of the bridge connecting Crimea with the Russian mainland and/or involved for asserting Russian governmental authority over the region; and
- 16 parties involved in election interference.
Sanctions on the primary Russian sovereign debt market
Today OFAC also issued a directive that prohibits U.S. financial institutions from participating in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by Russia’s central bank, finance ministry, or sovereign wealth fund. The directive also prohibits U.S. financial institutions from lending ruble or non-ruble funds to those entities. These sanctions expand existing sovereign debt restrictions imposed in 2019 under the Chemical and Biological Weapons Act.
Notably, the prohibitions do not apply to any entity that is owned, directly or indirectly, 50 percent or more by the three named Russian entities and do not apply to dealings in the secondary bond market.
What does it mean?
Companies with operations in or exposure to the Russian market should continue to carefully watch this space. Today’s action, while significant in its own right, is a calibrated move designed to signal that the United States has tools available to escalate sanctions on the Russian government and economy. Further developments are likely during this period of heightened tensions between the two countries.