Between March 24 and April 1, 2022, the US Treasury Department’s Office of Foreign Assets Control (OFAC) designated over 400 Russian elites, Duma members, and defense companies as Specially Designated Nationals (SDNs) pursuant to Executive Order (EO). 14024. OFAC also published four new, limited General Licenses regarding certain humanitarian, import-related, diplomatic, and journalistic activities, added one new FAQ, and published a determination for EO 14024. Separately, the White House has indicated that the United States is seriously considering imposing secondary sanctions against companies engaged in evasive activities with Russia or in business that otherwise undermines sanctions.
Additionally, on April 1, the Commerce Department’s Bureau of Industry and Security (BIS) added 120 entities in Russia and Belarus to the Entity List.
New Russia-Related Blocking Sanctions and other Designations
On March 24, the White House announced wide-ranging sanctions targeting over 400 Russian politicians, business elites, and defense companies. Specifically, pursuant to EO 14024, Treasury designated the Russian Duma and 328 of its members, 48 companies central to Russia’s defense-industrial base (including aviation and maritime state-owned enterprises such as KTRV, High Precision Systems, and Russian Helicopters), and Herman Gref, the head of Sberbank, which was recently sanctioned under Directives 2 and 3 of EO 14024. Also on March 24, the US State Department re-designated Gennady Timchenko and his companies Volga Group and Transoil, and designated Transoil executive Ksenia Frank and her husband, certain Timchenko family members, and Timchenko’s yacht Lena for blocking sanctions under EO 14024. In addition, State designated 17 board members of Sovcombank as SDNs; Sovcombank was already subject to blocking sanctions under EO 14024. All the foregoing are now included on the OFAC Specially Designated Nationals and Blocked Persons List (SDN List), which means their property and interests in property within US jurisdiction are frozen and US persons are generally prohibited from engaging in any transactions or dealings with them. The sanctions extend to any legal entity owned 50 percent or more by SDNs. Also, foreign persons, at the discretion of the US Government under applicable EOs, can be sanctioned as SDNs if determined to be providing financial, technological, or material support to, or furnishing goods or services to, such SDNs.
On March 31, OFAC added 21 entities and 13 individuals to the SDN List pursuant to the Countering America’s Adversaries Through Sanctions Act (CAATSA) and EO 14024. According to a Treasury Department press release, these designations target Russian sanctions evasion networks and key Russian technology companies. Among the newly designated entities are OOO Serniya Engineering and OOO Sertal, Moscow-based companies that allegedly procure dual-use equipment and technology for Russia’s defense sector, and Joint Stock Company Mikron, Russia’s largest chip-maker.
Among those individuals designated on March 31, pursuant to CAATSA section 224(a)(1)(B), were key employees of the State Research Center of the Russian Federation (FGUP) Central Scientific Research Institute of Chemistry and Mechanics (TsNIIKhM). TsNIIKhM was previously designated in October 2020, also pursuant to CAATSA, for allegedly conducting malware attacks against US partners in the Middle East, and for scanning and probing US critical infrastructure facilities. The March 31 designations target key TsNIIKhM employees for their involvement in an August 2017 malware-based phishing attack against a Middle East petrochemical facility, and in computer intrusions targeting energy facilities in the United States and elsewhere.
New General Licenses
Treasury also published four new, limited General Licenses regarding certain humanitarian, import-related, diplomatic, and journalistic activities. Specifically, the General Licenses authorize the following activities:
- General License 6A authorizes transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations that are ordinarily incident and necessary to (1) the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts, or software updates for medical devices to, from, or transiting Russia; (2) the prevention, diagnosis, or treatment of COVID-19; or (3) ongoing clinical trials and other medical research activities that were in effect prior to March 24, 2022.
- General License 17A authorizes transactions otherwise prohibited by EO 14068 that are ordinarily incident and necessary to the importation into the United States of alcoholic beverages, non-industrial diamonds, fish, seafood, and preparations thereof of Russian Federation origin under written contracts or written agreements entered into prior to March 11, 2022. Transactions related to the importation of alcoholic beverages and non-industrial diamonds were authorized through March 25, 2022, and transactions related to the importation of fish, seafood, and preparations thereof are authorized through June 23, 2022.
- General License 20 authorizes US persons to engage in all transactions ordinarily incident and necessary to the official business of third-country diplomatic or consular missions located in the Russian Federation that are prohibited by EO 14024 or that involve the exportation, reexportation, sale, or supply of US dollar banknotes prohibited by EO 14068.
- General License 25 authorizes news reporting organizations that are United States persons, and individuals who are US persons regularly employed by a news reporting organization, either as journalists (including photojournalists) or as supporting broadcast or technical personnel, to engage in certain transactions otherwise prohibited by EO 13685 or EO 14065 that are ordinarily incident and necessary to their journalistic activities in the Crimea region of Ukraine, the so-called Donetsk People’s Republic or Luhansk People’s Republic regions of Ukraine, or other Covered Regions, as may be determined by the Secretary of Treasury and Secretary of State.
Notably, the foregoing General Licenses do not authorize transactions or transfers with or involving SDNs, unless explicitly covered in a provision of these or other General Licenses published by OFAC.
Separately from the issuance of the new General Licenses, OFAC published a new FAQ which notes in part that “[g]old-related transactions involving the Russian Federation may be sanctionable under EO 14024”. The FAQ explains that any person determined by the US Government to be engaging in deceptive or structured transactions to evade US sanctions, operating in the financial sector of the Russian economy, or materially assisting, sponsoring, or providing support, goods, or services to SDNs, including through the use of gold and other precious metals, could face an elevated risk of being named an SDN.
OFAC also published a new determination under section 1(a)(i) of EO 14024 that provides authority for US sanctions on any individual or entity determined to operate or have operated in the aerospace, electronics, or marine sectors of the Russian Federation economy. The meaning of “operating in” a given sector can be broadly construed. Consequently, any person found to be contributing to or otherwise operating in the aerospace, electronics, or marine sectors of the Russian economy can be added to the OFAC SDN List, at the discretion of the US Government.
The Possibility of Secondary Sanctions
The Biden Administration is reportedly considering the use of secondary sanctions as a further accountability and enforcement mechanism for companies engaged in evasive activities with Russia or business that otherwise undermines US sanctions. Specifically, on March 25, US National Security Advisor Jake Sullivan called sanctions enforcement “central” to the US sanctions strategy, and went on to caution that “we have a number of tools to ensure compliance, and one of those tools is the designation of individuals or entities in third-party jurisdictions who are not complying with U.S. sanctions or who are undertaking systematic efforts to weaken or evade them. And those tools are, at this point, well understood by companies and countries around the world. And…we’re prepared to use them if it becomes necessary to do so.”
The Washington Post has also reported that while no final decision has been made, the Biden Administration is considering more aggressive use of secondary sanctions with the goal of cutting off parts of Russia’s economy from the rest of its international trading partners, including China, India, and the Persian Gulf states. Similarly, US Treasury Secretary Janet Yellen reportedly told CNBC that the United States has no immediate plans to sanction China because Beijing has not so far provided military support to Russia, but noted that “[s]enior administration officials are talking privately and quietly with China to make sure that they understand our position.”
These developments follow the February 15th introduction in the US House and Senate of the Never Yielding Europe’s Territory (NYET) Act of 2022. The NYET Act of 2022 would, among other things, mandate that the President impose secondary sanctions upon any foreign financial institution that is found to have knowingly engaged in a significant financial transaction with sanctioned Russian banks. Under the proposed legislation, the secondary sanctions that could be imposed include SDN designations and restrictions on correspondent and payable-through accounts.
Additions of Russian and Belarusian Entities to the Entity List
On April 1, the Commerce Department announced the addition of 120 Russian and Belarusian entities to the BIS Entity List, imposing a license requirement with a policy of denial for all items subject to the EAR. Of the 120 entities, 95 are so-called ‘military end users’ designated with Footnote 3, which subjects them to the additional, expansive controls of the new Russian/Belarusian Military End User foreign-produced “direct product” rule.
A list of entities added to the Entity List is available here.