Western sanctions against Russia have continued to broaden substantially into new areas of trade, especially in the energy sector. Policymakers in Washington DC, Brussels, London and other allied capitals also continue to maintain significant coordination in rolling out new measures to increase the economic costs of Russia’s war against Ukraine.
For example, on Friday, March 11, the G-7 countries announced a coordinated set of new economic measures against Russia. In particular, all G-7 countries agreed to (1) revoke Most-Favored-Nation (MFN) treatment for Russia; (2) aim to prevent Russia from obtaining financing from the International Monetary Fund or World Bank; (3) continue to pressure Russian elites and oligarchs close to Russian President Vladimir Putin; (4) crack down on evasion by extending sanctions to, among other things, cover digital assets; (5) combat Russian disinformation; (6) impose additional import and export restrictions on Russia; and (7) prevent Russian entities that support the war from making new debt and equity investments. Soon after the issuance of this statement, several G-7 nations—including the United States, UK and EU—announced measures intended to implement these commitments.
As summarized below, key jurisdictions have issued the following types of new measures since March 7: new import restrictions on Russian energy and luxury items; an investment ban for the Russian energy sector and additional yet-to-be determined Russian industrial sectors; new restrictions on the export to Russia of certain luxury items; new blocking sanctions against Russian oligarchs and officials; initial implementation of the revocation of Russia’s MFN status; and new enforcement mechanisms. As global companies that maintain Russian business confront a rapidly expanding and complex set of compliance expectations, others are finding that even exiting the country presents costly and difficult challenges due to Russia’s accelerating retaliatory actions against Western firms.
United States
New restrictions on the Russian energy sector, including a ban on oil imports. On March 8, President Joe Biden signed E.O. 14066, titled “Prohibiting Certain Imports and New Investments With Respect to Continued Russian Federation Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine.” Most notably, E.O. 14066 imposes a ban on all imports of Russian “crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products.” E.O. 14066 also prohibits all new investment in Russia’s energy sector by any US person, wherever located.
The Office of Foreign Assets Control (OFAC) has also issued General License 16, which authorizes parties to continue transactions that are pursuant to existing written contracts or agreements entered into before March 8, 2022, until April 22, 2022. However, it does not authorize entry into new contracts. Unsurprisingly, given the EU’s continued reliance on Russian energy, OFAC has clarified that non-US parties will not face secondary sanctions risks when importing Russian energy products to non-US jurisdictions, as long as no Specially Designated Nationals (SDNs) are involved. E.O. 14066 also does not prohibit dealing in the crude oil of the Caspian Pipeline Consortium.
New restrictions on exports from, imports to and investments in Russia. On March 11, President Biden also signed E.O. 14068, titled “Russian Federation; Prohibiting Certain Imports, Exports, and New Investment With Respect to Continued Aggression.” E.O. 14068 prohibits, among other things, imports of Russian-origin seafood, alcoholic beverages and non-industrial diamonds. Imports of such items pursuant to existing contracts are allowed through March 25, 2022. Parties are not allowed to enter into any new contracts.
E.O. 14068 also prohibits “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of luxury goods…” On March 11, soon after E.O. 14068 was signed, the Department of Commerce’s Bureau of Industry and Security (BIS) announced additional export controls prohibiting the export of luxury goods to Russia or Belarus without a license. The list of luxury goods includes, among other things, wine, tobacco, yacht parts, leather bags, jewelry, clothing, furs, silk and carpets. It also prohibits sending luxury goods to sanctioned oligarchs, wherever they are located. These restrictions are very similar to the ban on exports of luxury goods to North Korea that has been in place since 2006.
President Biden also authorized the Treasury Department to prohibit new investment in any sector of the Russian economy, laying the legal foundation for broader restrictions for new foreign investment in other strategic sectors. Treasury has not yet announced which Russian sectors (beyond the oil and gas sector) will be subject to additional restrictions.
Blocking sanctions against oligarchs and officials. On March 11, OFAC also designated the 12 members of the Russian State Duma who signed a letter lobbying for Putin’s recognition of the two Ukrainian separatist regions, the so-called Luhansk People’s Republic and Donetsk People’s Republic. This action was taken by the United States to better align with its international partners.
On Tuesday, March 15, OFAC designated new individuals and entities connected to gross human rights violations and corruption. The new designees include individuals and entities involved in the deaths of anti-corruption crusader Sergei Magnitsky and Chechen human rights advocate Oyub Titiev, and also include Belarussian President Alyaksandr Lukashenka and his wife.
Treasury issues guidance to curb sanctions evasion through the use of cryptocurrency and other digital assets. The United States has also issued guidance clarifying that US sanctions against Russia require all US persons to comply with sanctions regulations, regardless of whether a transaction is denominated in traditional fiat currency or virtual currency. OFAC has warned that it is closely monitoring any efforts to circumvent or violate Russia-related sanctions through the use of virtual currency.
This guidance follows an alert from Treasury’s Financial Crimes Enforcement Network (FinCEN), advising all financial institutions to be vigilant against potential efforts to evade the sanctions and restrictions on Russia. The alert identifies important red flags to assist in identifying potential sanctions violations.
Revoking Permanent Normal Trade Relations (PNTR) with Russia. On Friday, March 11, President Biden announced his support for revoking PNTR (the US domestic legal term for MFN status) with Russia, which would result in tariffs being increased from the MFN rates negotiated at the World Trade Organization (WTO) to the higher “Column 2” rates. The President cannot make this move unilaterally; it requires legislation.
Congress is currently considering bills introduced by Ron Wyden (D-OR) and Mike Crapo (R-ID) in the Senate and Richard Neal (D-MA) and Kevin Brady (R-TX) in the House that would revoke PNTR for both Russia and Belarus. Both bills would also authorize the President to raise tariffs even higher than Column 2 rates for imports from Russia and Belarus.
United Kingdom
Economics Crime (Transparency and Enforcement) Act. On Tuesday, March 15, royal assent was granted for the Economics Crime (Transparency and Enforcement) Act. The new law, which was fast-tracked through Parliament, introduces three key changes:
- Creation of a public register of beneficial owners of non-UK entities that buy or own land in the UK;
- Strengthening the Unexplained Wealth Orders, a type of investigatory order an English court can issue to force a party to explain the origin of unexplained wealth; and
- Strengthening sanctions, which includes: (1) the imposition of a new strict liability test for imposing fines for sanctions breaches; (2) a new urgent procedure for designating persons who have been designated by a specified body (including the United States, the EU, Australia and Canada) where the designation is in the public interest; and (3) a new power for the government to name and shame persons who it believes, on the balance of probabilities, have breached sanctions, even where a fine has not been imposed.
The Act was passed with the intention of targeting Russian oligarchs who moved their assets to the UK, but the regime established by it is of general application.
New sanctions on oligarchs and politicians. On Thursday, March 10, the UK announced full blocking sanctions on seven oligarchs, including Oleg Deripaska, a leading industrialist in Russia; Igor Sechin, CEO of Rosneft; and Roman Abramovich, owner of the Chelsea Football Club. The UK also imposed asset freezes on over 350 Russian politicians who voted to recognize the Luhansk People’s Republic and Donetsk People’s Republic. At the same time, HM Treasury issued a license that allows a number of football-related activities necessary for the football club to continue playing matches. The license does not allow any entity to conduct new business with Chelsea FC, including purchasing new tickets for fixtures.
On Tuesday, March 15, the UK announced full blocking sanctions on more than 350 additional parties. The list of newly designated parties includes high-profile allies of Putin, like Russian Prime Minister Mikhail Mishustin and Defense Minister Sergei Shoigu; oligarchs, like Mikhail Fridman and Alexander Ponomarenko; and internet troll farms, like the Internet Research Agency. The new designations came soon after the passage of the Economics Crime Act, which, as noted above, allows the UK to sanction those who have already had their assets frozen by the EU, the United States or Canada.
Denial of MFN treatment. The UK will deny MFN treatment to Russia beginning the week of March 20. The UK intends to increase tariffs 35 points above existing rates for the following imports: iron, steel, fertilizers, wood, tires, railway containers, cement, copper, aluminum, silver, lead, iron ore, residue/food waste products, beverages, spirits and vinegar (including vodka), glass and glassware, cereals, oil seeds, paper and paperboard, machinery, works of art, antiques, fur skins and artificial fur, ships, and white fish.
Ban on luxury good exports. The UK has announced that it will issue a ban on exports to Russia of high-end luxury goods, including high-end fashion, works of art and luxury vehicles. The UK is expected to issue additional details at a later date on how the ban will be implemented.
Expanded responsibility of UK banks in sanctions enforcement. The Financial Conduct Authority (FCA) has reportedly told banks that they will be expected to play a wider role in helping enforce sanctions, beyond simply refusing to do business with sanctioned parties. In particular, the FCA is looking for further insight into how those subject to sanctions are behaving, including any attempts to avoid sanctions. Any banks found to have withheld such information would be judged as not having the “open and transparent relationship” they are required to have with their regulators under the terms of their operating licenses.
European Union
Prohibition on new investment in the Russian energy sector. On Tuesday, March 15, the EU issued a new Regulation banning investment in the energy sector in Russia. Specifically, EU persons are prohibited from (1) acquiring any new or extending any existing participation in an entity operating in the energy sector in Russia, (2) providing any new financing to an entity operating in the energy sector in Russia; (3) creating a new joint venture with an entity operating in the energy sector in Russia; and (4) providing investment services related to the activities described in (1), (2) and (3). The EU may authorize exceptions to this prohibition if the investment is necessary for ensuring critical energy supply within the EU or if the entity operating in Russia is constituted under the laws of an EU Member.
New import and export restrictions. Also on Tuesday, March 15, the EU announced an import ban on key goods in the iron and steel sectors from Russia. The new rules also prohibit the transport of certain iron and steel products from Russia to any other country.
The EU also imposed two new restrictions on exports. First, the EU banned the export to Russia of luxury goods with a value greater than €300. This prohibition includes horses, caviar, truffles, alcohol, cigars, perfumes and cosmetics, leather bags, clothing, jewelry, coins, electronics, cars and many other goods. Second, the EU issued a comprehensive export restriction on equipment, technology and services for the energy industry in Russia.
New sanctions targeting Russian individuals and entities. On March 9, the EU announced that it would apply blocking sanctions on an additional 160 individuals. The new sanctions apply to Russian oligarchs involved in key economic sectors, such as the metallurgical, agriculture, pharmaceutical, telecom and digital industries, as well as their family members. The EU also designated the 146 members of the Russian Federation Council, who ratified the government treaties concerning the two Ukrainian separatist regions, the so-called Luhansk People’s Republic and Donetsk People’s Republic.
On March 15, the EU announced that it would impose full blocking sanctions against additional oligarchs, lobbyists and propagandists as well as key entities in the aviation, military and dual use, shipbuilding and machine building sectors. The EU also prohibited all transactions with state-owned companies that are already subject to refinancing restrictions.
Additional sanctions on Belarus. On March 9, the EU announced additional sanctions targeting Belarus in response to its involvement in Russia’s invasion of Ukraine. In particular, the EU banned three Belarussian banks—Belagroprombank, Bank Dabrabyt and the Development Bank of the Republic of Belarus—from the SWIFT financial messaging system; barred certain transactions with the Central Bank of Belarus; banned deposits exceeding €100,000 by Belarussian nationals or residents; and prohibited the provision of euro-denominated banknotes to Belarus. Beginning April 12, the EU will also prohibit providing services in relation to shares of Belarussian state-owned enterprises listed on EU trading venues. The EU had already implemented many of these restrictions on Russian banks and state-owned entities.
Suspension of MFN treatment to Russia and Belarus. The EU’s Executive Vice-President Valdis Dombrovskis announced that, as of March 15, it will stop treating Russia as an MFN within the framework of the WTO. The EU also will suspend the accession of Belarus to the WTO. According to the EU, in addition to the other G-7 countries, Albania, Australia, Iceland, Republic of Korea, Moldova, Montenegro, New Zealand, North Macedonia and Norway will also suspend MFN treatment of Russia. The EU has not yet announced what new tariffs will apply to Russian and Belarussian imports once the suspension goes into effect.
We will continue to monitor developments.
