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New US Sanctions on Russian Banks and Elites, Expanded Export Controls and Other Updates | Wilson Sonsini Goodrich and Rosati

The US Treasury Department’s Office of Foreign Assets Control (OFAC or Treasury) released a new wave of targeted sanctions against Russia, Russian entities, and Russian individuals during the week of April 4, in response to Russia’s continued aggression in Ukraine. On April 8, the US Department of Commerce also expanded its licensing requirements for Russia and Belarus to include all items on the Trade Control List (CCL). These actions come on the heels of a third tranche of sanctions imposed last month, which implemented new trade restrictions on Russia and Belarus and offered clarification on previous actions taken by the Biden administration. As in previous rounds, these sanctions were coordinated with the European Union and other G7 countries to present a united front and prevent the emergence of any safe haven for Russia.

These latest sanctions specifically target Russian financial institutions, state-owned companies and elites, foreign direct investment into Russia, and debt payments using funds subject to US jurisdiction. While the pace of activity of sanctions has eased somewhat, these sanctions are based on dozens of announcements spanning the last six weeks and targeting the Russian aerospace and defense sector, Russian elites, and Russian state-owned companies. The Treasury also issued new General Licenses authorizing settlement periods and certain limited activities with Russian financial institutions.

Extended export controls on CCL items

On April 8, the US Department of Commerce’s Bureau of Industry and Security (BIS) expanded its previously implemented licensing requirements for Russia and Belarus from CCL categories 3-9 to now include all items in the CCL . The new license requirement will affect certain composite materials, medical products containing certain toxins or genetically modified organisms, hydraulic fluids, pumps, valves, and lower-tier machine tools, among other items. The recently expanded requirements also apply to the Foreign Direct Products Rule, which requires a BIS license for items produced outside the US with US-origin software or technology. Similar to the export control regulations affecting Russia and Belarus described in our previous alerts here and here, these new export control measures specify a license review denial policy. This means that unless the regulations specifically allow for a case-by-case review, all new license applications to export, re-export, or transfer items (within the country) will be denied.

Full block sanctions targeting Sberbank, Alfa-Bank

Sberbank is the largest public bank and owns about a third of all banking assets in Russia. Originally subject to sanctions dating back to 2014 (Executive Order (EO) 13662), in February OFAC identified Sberbank as subject to new prohibitions pursuant to Directive 2 under EO 14024 (regarding certain correspondent accounts and payable accounts, or CAPTA ), also called the “Russia Related CAPTA Directive”, and pursuant to Directive 3 under EO 14024, the Russia Related Entities Directive. Effective April 6, OFAC expanded President Biden’s February sanctions by designating Sberbank pursuant to EO 14024, meaning that Sberbank and 42 of its subsidiaries are now subject to full blocking sanctions; all assets of Sberbank and designated Sberbank subsidiaries that have contact with a US financial institution will be frozen and US persons are prohibited from doing business with Sberbank and designated subsidiaries.

Alfa-Bank is the largest private bank in Russia. The announcement imposed total blocking sanctions on Alfa-Bank, six of its subsidiaries and five related vessels, also froze any Alfa-Bank assets touching the US and prohibited US persons from doing business with the bank or its subsidiaries. designated.

OFAC’s 50 percent rule continues to apply, meaning that all property and interests in property of entities that are 50 percent or more owned, directly or indirectly, by Sberbank, Alfa-Bank, or any listed subsidiary are blocked under EO 14024, even if they are not designated by OFAC.

In addition, the Treasury clarified that Russia is now prohibited from making debt payments with funds subject to US jurisdiction. Sanctions do not prevent Russian sovereign debt payments, as long as Russia uses funds outside US jurisdiction.

Russian state-owned companies, aerospace and defense companies in the crosshairs

On April 7, full blocking sanctions were imposed on the Russian state-owned Public Joint Stock Company (SoE) Alrosa, the world’s largest diamond mining company, and the United Shipbuilding Corporation, the entity responsible for the construction of almost all Russian warships, including those used by the Russian Army against Ukraine. The designation of United Shipbuilding Corporation by the US Department of State includes sanctions imposed not only against the shipbuilding company itself, but also against eight members of its board of directors and 28 related subsidiaries. These sanctions against Alrosa Public Limited Company and United Shipbuilding Corporation will prohibit any US person from doing business with these entities and will freeze any of their assets subject to US jurisdiction. These are based on the announced sanctions to 48 Russian aerospace and defense companies just weeks earlier, which OFAC explained will cut them off from Western financial and technological resources, causing “a profound and lasting effect on Russia’s defense industrial base and its supply chain.”

New sanctions targeting Russian elites and government officials

OFAC continues to amend its Specially Designated Nationals List (SDN List), most recently adding the two adult daughters of Russian President Vladimir Putin, the wife and daughter of Russian Foreign Minister Sergei Lavrov, former Russian President Dmitry Medvedev, the Russian Prime Minister Mikhail Mishustin, Justice Minister Konstantin Chuychenko and other senior members of the Russian Security Council. These additions to the SDN list expand on previous designations of Russian government officials from recent weeks, including 328 of the members of the State Duma of the Federal Assembly of the Russian Federation, the State Duma itself, and financial elites such as members of the board of Sovcombank and the CEO of Sberbank. This action denies these individuals access to the US financial system and freezes any assets they have in the US.

Investment ban

Last week, President Biden issued a new executive order, EO 14071, which prohibits new investments in Russia and the provision of certain services to persons located in Russia by US persons. The new order prohibits investment by US companies in their Russian facilities or in new companies located in Russia. OFAC has not yet published guidance on the interpretation of the term “new investment” or the services that will be affected by the ban.

New General Licenses

OFAC issued six new general licenses on April 6 and five on April 7 that authorize certain types of transactions and implement liquidation periods with Russian publicly traded banks for activities that would otherwise be prohibited by the Russian Activity Sanctions Regulations. harmful foreign (RuHSR), as detailed in the graph below. This table is intended to summarize the financial institutions and relevant transactions covered; consult the general licenses to confirm the specifications and any relevant exceptions.

Other interim measures taken since our last alert include an export ban on luxury goods of US origin and an import ban on certain products of Russian origin.

Expanded export controls on luxury goods of US origin

On March 11, the new BIS final rule imposed restrictions on the export of luxury goods of US origin (high-end jewelry and clothing, yachts, automobiles, antiques, liquor and other related goods) to all end users in Russia. and Belarus and certain designated countries. Russian and Belarusian oligarchs and evil actors, regardless of their location. The final rule significantly limits the access of financially elite individuals and organizations to luxury items. Specifies that a BIS license is now required for the export, re-export, or transfer (within the country) of luxury goods subject to the new § 746.10 of the Export Administration Regulations (EAR) for:

  1. Russia or Belarus, regardless of the end user or end use involved; Y
  2. Russian and Belarusian oligarchs and malign actors, defined to include persons designated as Specially Designated Nationals by the US Treasury Department’s Office of Foreign Assets Control (OFAC), regardless of location.

A complete list of luxury goods subject to the export ban is found in Supplement 5 to EAR Part 746. As with the other new export control measures, any new export license application for luxury goods from United States origin is subject to a license review policy of denial. . In connection with these additional export prohibitions, BIS authorized two EAR license exceptions (AVS and BAG) to cover otherwise prohibited exports.

Import ban on products of Russian origin

President Biden announced EO 14066 on March 8one, which prohibits all imports into the US of products of Russian origin, including fish, shellfish, alcohol, non-industrial diamonds, and other specified products of Russian origin. OFAC issued FAQ 1019 clarifying that goods are considered “of Russian Federation origin” if they are “goods produced, manufactured, mined, or processed in the Russian Federation, excluding any goods of Russian Federation origin.” incorporated or substantially transformed in a foreign country”. elaborate product.” Finally, OFAC issued general license 17 to authorize the importation of said products until March 25, 2022 for contracts entered into before March 11, 2022.

[1] The EO was announced on March 8, 2022 and signed on March 11, 2022.