On 22 December 2023, the Biden administration issued Executive Order 14114, “Taking Additional Steps with Respect to the Russian Federation’s Harmful Activities” (EO 14114), thereby amending EOs 14024 and 14068.[1] The new EO significantly expands the authority granted to the Department of the Treasury’s Office of Foreign Assets Control (OFAC) to designate foreign financial institutions (FFIs) for certain Russia-related activity, even in the absence of a nexus to the United States. It also expands the scope of the import ban of certain Russian products into the United States.
Introducing the Authority to Impose Sanctions Against FFIs
Section 1 of EO 14114 amends EO 14024 by adding a new section—section 11—that authorizes OFAC to impose (i) blocking sanctions or (ii) restrictions on maintaining correspondent accounts in the United States (i.e., “CAPTA” type of sanctions) on FFIs that:
- Conducted or facilitated any significant transaction or transactions for or on behalf of any person designated under EO 14024 for operating in the technology, defense and related material, construction, aerospace, or manufacturing sectors of the Russian economy (Specified Sectors), or
- Conducted or facilitated any significant transaction or transactions, or provided any service, involving Russia’s military-industrial base, including the sale, supply, or transfer, directly or indirectly, to the Russian Federation of so-called “Specified Items” used by Russia to pursue its military goals.
- OFAC published a determination that included several items or classes of items that are considered Specified Items.[2] These include:
- Certain machine tools and manufacturing equipment such as semiconductor manufacturing equipment;
- Certain manufacturing materials for semiconductors and related electronics such as materials;
- Certain electronic test equipment such as pulse generators and signal generators; and
- Other items as listed in the annex to the determination.
The EO also authorizes OFAC to designate additional Specified Sectors and identify additional Specified Items in the future.
The new EO is an example of U.S. secondary sanctions. This means the U.S. government reserves the right to penalize FFIs that engage in certain proscribed activities, even if such activities do not involve any U.S. such as U.S. correspondent banks or U.S. persons, and occur entirely outside the United States.
On the same day that President Biden signed EO 14114, OFAC issued guidance to FFIs that further outlines its expectations regarding the new EO.[3] OFAC also published a series of new FAQs (FAQs 1146–1157) with further clarifications.[4]
Per OFAC Guidance, examples of proscribed activities include:
- Maintaining accounts, transferring funds, or providing other financial services (e.g., insurance) for (i) any persons designated under EO 14024 for operating in the Specified Sectors such as State Corporation Rostec, AESTC Soyuz, OOO Mayak, and many others; or (ii) any persons, no matter where located, that support Russia’s military-industrial base, including those that operate in the Specified Sectors (note that prior designation as a Specially Designated National is not a requirement for the second prong);
- Facilitating the sale, supply, or transfer, directly or indirectly, of the Specified Items to Russian importers or companies shipping the items to Russia; or
- Helping persons evade U.S. sanctions on Russia’s military-industrial base, including instances of non-transparency in payments.
Expansion of the Import Ban on Russian Products
Section 2 of EO 14114 amends EO 14068 by expanding the types of Russia-related products that are prohibited for import into the United States. Previously, EO 14068 had prohibited for import into the United States Russian-origin fish, seafood, and their derivatives; alcoholic beverages; and non-industrial diamonds. EO 14068 also had provided the Secretary of the Treasury the authority to add additional categories.[5] EO 14114 expands this authority by (i) allowing the Secretary of the Treasury to target certain products that have been manufactured in third countries, but with Russian-origin components; (ii) expanding the scope of what is considered “Russian origin” by including Russian territorial waters and Russian vessels operating worldwide; and (iii) clarifying that the importation into the United States includes importation to a foreign trade zone located in the United States.
The expanded scope prohibits the importation of the following types of products to the United States, upon the Secretary of the Treasury’s determination:
- All products previously targeted under EO 14068, including Russian-origin gold;
- Products in the following categories that were mined, extracted, produced, or manufactured wholly or in part in Russia, or harvested in waters under Russian jurisdiction or by Russia-flagged vessels, even if such products have been incorporated or substantially transformed into other products outside of the Russian Federation: fish, seafood, and preparations thereof; diamonds; and any future categories of such products that may be targeted by the Secretary of the Treasury;
- Immediately after the issuance of the new EO, OFAC determined that salmon, cod, pollock, and crab are subject to the restrictions under this bullet point. [6]
- Products containing any of the above-mentioned prohibited products; and
- Prohibited products that transited through or were exported from or by the Russian Federation.
New General Licenses
In order to minimize the unintended effects of the new restrictions, OFAC issued two general licenses to authorize transactions related to closing a correspondent or payable-through account following any future designation of an FFI under EO 14114; and authorized, through 21 February 2024, certain transactions related to imports of specific categories of fish, seafood, and preparations thereof prohibited by the newly amended EO 14068.[7]
Key Implications of the New EO
EO 14114 significantly expands the scope of secondary sanctions that target Russia-related activity or activity with certain Russian or third-country companies active in the Specified Sectors. In the context of sanctions against Russia, both OFAC and the U.S. Department of State, via numerous rounds of designations, have signaled their strong determination to target anyone assisting Russia in its military campaign or in the evasion of sanctions. Accordingly, FFIs should take immediate steps to identify, assess, and mitigate their exposure under the new secondary sanctions. These steps include
- Assess exposure to Russian clients or foreign clients with significant Russia exposure to understand whether any such clients are active in the Specified Sectors and/or known by the bank to be companies supporting Russia’s military capabilities.
- Assess exposure to any clients or counterparties designated under EO 14024 and determine if any such persons were sanctioned for operating or having operated in Russia’s military-industrial base. Reviewing and utilizing the information in press releases from OFAC and the Department of State accompanying designations pursuant to EO 14024 can help FFIs identify such persons.
- Review internal screening solutions in order to strengthen capabilities to identify Specified Items.
- Conduct enhanced periodic due diligence for all clients known to the bank to have Russia exposure.
- Implement additional training to remind employees about their responsibility to identify potential sanctions evasion, raise awareness of red flags, and equip personnel with the knowledge to identify instances of nontransparency, if encountered during the operations.
Should you have any questions about the new sanctions and their impact, please contact our team of sanctions experts.
[1] Executive Order 14114 of 22 December 2023, “Taking Additional Steps with Respect to the Russian Federation’s Harmful Activities,” https://ofac.treasury.gov/media/932441/download?inline.
[2] Determination Pursuant to Section 11(a)(ii) of Executive Order 14024, 22 December 2023, https://ofac.treasury.gov/media/932446/download?inline.
[3] Sanctions Advisory, “Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base,” 22 December 2023, https://ofac.treasury.gov/media/932436/download?inline.
[4] OFAC Frequently Asked Questions, https://ofac.treasury.gov/faqs/added/2023-12-22.
[5] Executive Order 14068 of 11 March 2022, “Prohibiting Certain Imports, Exports, and New Investment With Respect to Continued Russian Federation Aggression,” https://www.govinfo.gov/content/pkg/FR-2022-03-15/pdf/2022-05554.pdf.
[6] Determination Pursuant to Section 1(a)(i)(B) of Executive Order 14068, “Prohibitions Related to Imports of Certain Categories of Fish, Seafood, and Preparations Thereof,” 22 December 2023, https://ofac.treasury.gov/media/932451/download?inline.
[7] See Russia-Related General License 84, “Authorizing Transactions Related to Closing a Correspondent or Payable-Through Account,” https://ofac.treasury.gov/media/932476/download?inline; and Russia-Related General License 83, “Authorizing Certain Transactions Related to Imports of Certain Categories of Fish, Seafood, and Preparations Thereof Prohibited by Executive Order 14068,” https://ofac.treasury.gov/media/932471/download?inline.
