Since February 21, 2022, the United States has joined a coalition of countries imposing sanctions in response to Russia’s invasion of Ukraine. New US sanctions and export controls are wide ranging and complex, significantly impacting trade and related financial transactions between the US and Russia, as well as Belarus. They also affect transactions and exports from outside the United States in many areas of commerce. The following is a high-level overview of recent US legal developments as of March 8, 2022.
Additional resources can be found on Steptoe’s “Sanctions against Russia: Implications for Business and International Trade” page.
New Executive Order Targeting Russian Energy Imports and Investment
Today, March 8, 2022, President Biden issued a new Executive Order prohibiting:
- the importation into the United States of the following products of Russian Federation origin: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;
- new investment in the energy sector in the Russian Federation by a United States person, wherever located; 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.
The new order effectively stops the flow of Russian petroleum and coal products into the United States. Also today, the US Office of Foreign Assets Control (OFAC) issued a new General License 16 related to the EO. GL 16 authorizes the importation of petroleum and coal products through 12:01 a.m. eastern daylight time, April 22, 2022 if such imports are pursuant to written contracts or written agreements entered prior to March 8, 2022. OFAC also issued FAQs related to the new order.
New Economic Sanctions against Russia and Belarus
The following is a summary of the major US financial sanctions imposed against Russian and Belarusian targets. Some, but not all, of these measures are subject to General Licenses (GLs) authorizing US persons to engage in certain activities such as transactions ordinarily incident and necessary to winding down business with newly sanctioned counterparties for a limited period of time.
Directives 1A, 2, 3, and 4 under EO 14024
On February 22, 2022, OFAC issued Directive 1A under Executive Order (EO) 14024 prohibiting US financial institutions from participating in the secondary market for bonds issued by Russia’s Central Bank, National Wealth Fund, or Ministry of Finance after March 1, 2022, unless licensed or otherwise authorized by OFAC.
For a summary of Directive 1A under EO 14024, see this Steptoe blog post.
On February 24, 2022, OFAC issued Directive 2 under EO 14024 imposing correspondent and payable-through account sanctions, and sanctions related to the processing of transactions by US financial institutions, on state-owned Sberbank, Russia’s largest financial institution. These sanctions take effect on March 26, 2022, with respect to Sberbank. For foreign financial institutions not listed on Annex 1, but “otherwise determined to be subject to the prohibitions of this Directive,” the wind-down period extends to 12:01am 30 days following the date of such determination.
For a summary of Directive 2 under EO 14024, see this Steptoe blog post.
On February 24, 2022, OFAC issued Directive 3 under EO 14024 prohibiting all transactions in, provision of financing for, and other dealings by US persons or within the United States in new debt with a maturity of greater than 14 days or new equity of 13 major Russian state-owned enterprises and large privately-owned financial institutions listed in Annex 1 to the directive, where such new debt or new equity is issued on or after March 26, 2022.
For a summary of Directive 3 under EO 14024, see this Steptoe blog post.
On February 28, 2022, OFAC issued Directive 4 under EO 14024, prohibiting US persons from engaging in “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 has clarified that Directive 4 does not impose blocking sanctions requiring the freezing of the entities’ property (see FAQ 1004). However, it effectively locks up the assets of these entities in the United States or within the possession or control of US persons globally, unless licensed. OFAC has also clarified that the so-called “50 Percent Rule” does not apply to Directive 4 (see FAQ 1001).
OFAC issued updated GL-8A to authorize the involvement of Russia’s Central Bank (in addition to certain other specified financial institutions) in certain transactions related to energy until June 24, 2022. OFAC also issued updated GL-9A to authorize transactions until May 25, 2022, involving the Central Bank, National Wealth Fund, or Ministry of Finance that are ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments on Russian sovereign debt; and GL-10A to authorize until May 25, 2022, the wind-down of derivative contracts, repurchase agreements, and reverse repurchase agreements where one of these entities is a counterparty. New GL 13 authorizes US persons to “pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications” otherwise prohibited by Directive 4, until June 24, 2022, “provided such transactions are ordinarily incident and necessary” for day-to-day operations in Russia. GL 14 authorizes transactions related to clearing and settlement systems operated by the three entities, subject to conditions described in the license.
Additional FAQs regarding Directive 4 are available on OFAC’s website at this link.
Blocking sanctions on SDNs
In February 2022, the White House, OFAC, and the US State Department announced that blocking sanctions would be imposed on hundreds of individuals and entities designated as SDNs for activities related to Russia’s and Belarus’s defense, intelligence, and misinformation sectors, as well as persons engaging in other malign activities to support their government’s invasion of Ukraine, as well as legal entities owned 50 percent or more by them (together, blocked persons). All property and interests in property of blocked persons must be frozen if within the United States or in the possession or control of a US person. Additionally, there is a broad prohibition on dealing directly or indirectly with the blocked persons and their property to the extent US persons are involved.
Some of the noteworthy designations include:
- Russian financial institutions including Bank Otkritie, Novikombank, Promsvyazbank, Sovcombank, VEB, and VTB Bank
- Russian President Vladimir Putin and Foreign Minister Sergei Lavrov
- The Russian Direct Investment Fund, its CEO and management company
- Certain Russian financial elites and members of Vladimir Putin’s inner circle
- Certain Russian “oligarchs,” family members, associated companies, and property including superyachts and private jets
- Russia- and Ukraine-based individuals and Russian entities connected to “Russian intelligence-directed disinformation outlets”
- Belarusian individuals and entities designated under EO 14038, including Belinvestbank, Bank Dabrabyt, and other targets
- Persons providing support to Russia’s defense sector announced by the US State Department
The blocking sanctions add to any prior sanctions imposed before February 21, 2022, including restrictions on US persons dealing in debt or equity of financial, energy, or defense companies on OFAC’s List of Sectoral Sanctions Identifications (SSI List).
For full lists of persons added to OFAC’s SDN List, see OFAC’s recent actions page at this link.
Comprehensive Sanctions on Areas within Ukraine’s Donetsk and Luhansk Regions
On February 21, 2022, the White House issued EO 14065 imposing comprehensive sanctions on the disputed Donetsk and Luhansk regions of Ukraine following President Vladimir Putin’s announcement that Russia would recognize the independence of the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) and place Russian military forces in those territories for purported peacekeeping operations. OFAC issued FAQ 1009 on March 2, 2022, to clarify that these comprehensive sanctions do not apply to the entirety of the Donetsk and Luhansk oblasts (regions) of Ukraine.
For a summary of US comprehensive sanctions adopted on February 21, 2022, see this Steptoe blog post.
Nord Stream 2
For a summary of US blocking sanctions against Nord Stream 2 AG and its managing director, see this Steptoe blog post.
New Export Controls on Russia and Belarus
The Commerce Department’s Bureau of Industry and Security (BIS) has published several updates to the Export Administration Regulations (EAR) imposing wide-ranging new restrictions on the export, reexport, or in-country transfer of items subject to the EAR to Russia and Belarus and for designated end users or end uses. For a summary of US export controls targeting Russia issued on February 24, 2022, see this Steptoe blog post.
On March 2, 2022, BIS issued a final rule that extended the recently-strengthened Russia export controls to Belarus, including by imposing a new licensing requirement for Belarus on items subject to the EAR and classified under ECCNs in Categories 3-9, and by applying the new Russia Foreign Direct Product (FDP) Rule and the Russia ‘Military End User’ (MEU) FDP rule to Belarus. The rule also imposes a license requirement for nuclear nonproliferation items for exports and reexports to Belarus. As a conforming change, the final rule revises § 742.3(b)(4) to specify there is a policy of denial for license review except for U.S.-Russia civil space cooperation activities or in support of Russian manufactured nuclear power plants in Russia or other destinations, which will be reviewed on a case-by-case basis.
On March 3, 2022, BIS published two final rules expanding export controls on Russia to target oil refining activities and to add 91 entities alleged to support Russian military activities to the Entity List.
The first final rule amends the EAR to impose export controls targeting Russia’s oil and natural gas refining sector. The rule adds part (a)(1)(ii) to § 746.5 of the EAR (Russian Industry Sector Sanctions), imposing a license requirement for the “export, reexport, or transfer (in-country) of any item subject to the EAR listed in new Supplement no. 4 to this part to or within Russia.” The items are identified by Harmonized Tariff System of the United States codes (for U.S. importation purposes) and Schedule B numbers (for export declaration purposes), which may have previously been designated as EAR99 and not identified on the Commerce Control List, as well as items previously assigned ECCNs pursuant to 746.5. Items listed in supplement No. 4 include, for example, oil and gas field wire line and downhole equipment, gas separation equipment, and other materials used in the oil and natural gas industry. There is no “knowledge” requirement for applicable licensing controls to apply.
License applications will be reviewed under a policy of denial, with limited case-by-case review for the export, reexport, or transfer (in-country) of “items that may be necessary for health and safety reasons.”
BIS issued a second final rule on March 3 adding 91 entities, in Belize, Estonia, Kazakhstan, Latvia, Malta, Russia, Singapore, Slovakia, Spain, and the United Kingdom, to the Entity List for being involved in, contributing to, or otherwise supporting the Russian security services, military and defense sectors, and military and/or defense research and development efforts.
The Entity List imposes a license requirement for the export, reexport, or in-country transfer of all items subject to the EAR to the 91 entities. The entities are also ineligible for License Exceptions under the EAR.
For 86 of the 91 entities, BIS will review license applications under a policy of denial. For five entities (Elara; JSC Element; Radioavtomatika; Russian Space Systems; and Scientific Research Institute NII Submikron), BIS will review license applications under a policy of denial, except on a case-by-case basis for US Government supported space programs.
License Exceptions for Encryption and Civil End Users
BIS further restricted the use of License Exceptions related to encryption products to civil end-users that are subsidiaries or joint ventures of US companies or US allies. Specifically, License Exceptions ENC and TSU can be used for Russia only for civil end-users who are wholly-owned US subsidiaries, foreign subsidiaries of US companies that are joint ventures with other US companies, joint ventures of US companies with companies headquartered in countries from Country Group A:5 and A:6 in Supplement No. 1 to Part 740 of the EAR, wholly-owned subsidiaries of companies headquartered in countries in Country Group A:5 or A:6, or joint ventures of companies headquartered in countries from Country Group A:5 or A:6 with other companies headquartered in a country from Country Group A:5 or A:6.
For mass market items, the final rule also restricts the export of all items classified under ECCNs 5A992 and 5D992 to the same end users as those eligible to receive ENC-related items. Mass market encryption products may be eligible for export, reexport, and in-country transfers under license exception CCD to individuals and independent non-government organizations in Russia and Belarus, but the rules exclude the Russian government, the Belarusian government, organizations controlled by the Russian government or the Belarusian government, including government-owned media organizations, and certain Russian and Belarusian government officials from obtaining items under License Exception CCD. CCD is available for a limited list of enumerated items, including computers and laptops, printers, modems, mobile phones, and memory devices.
The restriction on the use of the ENC license exception and export of mass market encryption hardware and software is a significant change, limiting the export and in-country transfer of a wide range of consumer and business electronics items and software to and within Russia and Belarus. These changes are more restrictive than initial changes to the use of the ENC license exception that had been instituted only a few days prior.
BIS also revised § 746.8(c)(5) to exclude any aircraft registered in, owned, or controlled by, or under charter or lease by Russia or a national of Russia from using License Exception
AVS under § 740.15(a) and (b) of the EAR. BIS took this measure concurrently with the US Federal Aviation Administration orders blocking Russian aircraft and airlines from entering and using all domestic US airspace.
Belarus: Export Controls on Defense, Aerospace, and Maritime Sectors
On March 2, 2022, BIS issued a final rule amending the EAR to impose new export controls on Belarus “[i]n response to Belarus’s substantial enabling of the Russian Federation’s (Russia)’s further invasion of Ukraine.” The rule adds new license requirements and review policies for Belarus to the EAR to render Belarus subject to the same sanctions imposed on Russia under the EAR effective February 24, 2022.
These new export controls primarily target the Belarusian defense, aerospace, and maritime sectors by revising licensing requirements and the availability of licensing exceptions, expanding the two new foreign “direct product” rules (FDP) to cover Belarus and Belarusian “military end users,” and adding two Belarusian entities to the Entity List.
New Belarus Licensing Requirements
The final rule imposes a new license requirement under § 746.8(a)(1) (Russia and Belarus sanctions) in part 746 of the EAR (Embargoes and Other Special Controls) for items subject to the EAR and classified under any Export Control Classification Number (ECCN) in Categories 3 through 9 of the Commerce Control List. As with Russia, license applications will be subject to a policy of denial, with case-by-case review for the same categories of activities. The same military end use and military end user controls under §§ 744.21 and 22 apply, as do the new Foreign Direct Product Rules under § 734.9. For a detailed discussion of the FDP rules, please see our blog post from February 27, 2022.
Additionally, a license is now required for exports and reexports of nuclear nonproliferation items to Belarus, as Belarus was removed from Country Group A:4 under the EAR.
Belarus: Additions to the Entity list
BIS added two Belarusian entities—JSC Integral and The Ministry of Defence of the Republic of Belarus, including the Reserve Forces (Army and Air Force), as well as the national guard and national police, government intelligence or reconnaissance organizations of the Republic of Belarus—to the Entity List pursuant to the final rule with a license requirement for the export, reexport, and transfer (in-country) of all items subject to the EAR, with a presumption of denial.