[co-author: Isabella Peek]
This blog post covers several new sanctions and export controls that the U.S. government imposed on Russia and Belarus in the time period occurring between March 31, 2022 and April 21, 2022. As regular readers are aware, these restrictions are subject to frequent and sudden change. For summaries of previously imposed sanctions and coverage on any future sanctions announcements concerning Russia, Belarus and Ukraine, we recommend that you visit the Husch Blackwell Russia Sanctions Resource Library.
Presidential Proclamation on April 21, 2022 Banning Russian-Affiliated Vessels from U.S. Ports
On April 21, 2022, U.S. President Joseph R. Biden, Jr. issued a Proclamation to ban all Russian-affiliated vessels from entering U.S. ports effective as of 12:01 am eastern daylight time on April 28, 2022. The Proclamation defines “Russian-affiliated vessels” as follows:
(i) vessels of Russian registry (i.e., the vessel is Russian flagged);
(ii) vessels that are Russian owned (i.e., the legal title of ownership of the vessel that appears on the ship’s registration documents is the Government of the Russian Federation or a Russian company, citizen, or permanent resident); or
(iii) vessels that are Russian operated (i.e., a Russian company, citizen, or permanent resident is responsible for the commercial decisions concerning the employment of a ship and decides how and where that asset is employed).
However, the Proclamation does provide exceptions which allow Russian-affiliated vessels to enter U.S. ports: (i) when used in the transport of source material, special nuclear material and nuclear byproduct material that cannot be sourced without transport by Russian-affiliated vessels (as determined by the U.S. Secretary of Energy in consultation with the U.S. Secretary of Commerce), and (ii) due to force majeure, solely to allow seafarers of any nationality to disembark or embark for purposes of conducting crew changes, emergency medical care or for other humanitarian need.
Imposition of Blocking Sanctions on More Russian Financial Institutions and Oligarch-affiliated Companies on April 20, 2022
On April 20, 2022 the U.S. Department of the Treasury’s (“Treasury”) Office of Foreign Assets Control (“OFAC”) imposed blocking sanctions on a network of approximately seventy (70) Russian sanctions evaders by adding them to its Specially Designated Nationals and Blocked Persons List (the “SDN List”). The designated SDNs include:
- Privately owned commercial bank Public Joint Stock Company Transkapitalbank (“TKB”) and its subsidiary Joint Stock Company Investtradebank (“ITB”), who were sanctioned because OFAC determined that “TKB representatives have offered services to several banks in Asia, including within China, and the Middle East, and suggested options to evade international sanctions.” Among other things, TKB had provided its TKB Business Intenet-based banking system which it offered as “an alternative communication channel to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network” and used to process U.S. dollar denominated payments for sanctioned individuals.
- Russian oligarch Konstantin Malofeyev, who was previously designated as a SDN in 2014 but was redesignated under Executive Order 14024 to provide OFAC with broader authority to impose sanctions on his family members and other associates. Using that additional authority, OFAC also sanctioned Malofeyev’s son Kirill Konstantinovich Malofeyev as well as several companies used by the elder Malofeyev to evade sanctions and to spread propaganda and disinformation on behalf of the Russian government along with multiple executives associated with those companies.
- Virtual currency mining company Bitriver and ten of its subsidiaries. OFAC explained that it imposed these sanctions because “By operating vast server farms that sell virtual currency mining capacity internationally, these companies help Russia monetize its natural resources”.
OFAC also issued two new General Licenses related to the winddown of transactions with TKB, ITB and other subsidiaries in which TKB hold an ownership interest of 50% or more:
BIS Updates List of Russian and Belrusian Aircraft in Likely Violation of U.S. Export Controls on April 14, 2022
On April 14, 2022, U.S. Department of Commerce’s (“Commerce”) Bureau of Industry and Security (“BIS”) updated a list of Russian-Controlled Aircraft that BIS knows or suspects to have flown into Russia in apparent violation of the Export Administration Regulations (“EAR”) by expanding the list to apply to Belarusian-Controlled Aircraft known or suspected to have violated the EAR. This list triggers the EAR’s General Prohibition Ten with respect to the named aircraft. (We more thoroughly discussed the implications of this list here and described a previous update to the list here.) As detailed in the Commerce Press Release, the modified and expanded list adds 10 additional Boeing-manufactured aircraft (including 7 Belarusian-Controlled Aircraft owned or operated by Belavia) and modifies tail and/or serial number information for 32 aircraft previously listed. Under General Prohibition Ten, this list is not exhaustive and any person – who has EAR-defined “knowledge” that an EAR violation has occurred, is about to occur, or is intended to occur in connection with an aircraft or any other item that is “subject to the EAR” – may not perform virtually any action relating to that aircraft or item without violating General Prohibition Ten.
BIS’ investigations into the Russian-Controlled Aircraft listed in the above-described aircraft-related General Prohibition Ten list have also yielded 180-day temporary denial orders (“TDOs”). The TDOs prohibit (i) the temporarily denied person or entity as well as their successors or assigns, agents, or employees from undertaking any export privileges, directly or indirectly, that are “subject to the EAR,” including reexports or transfers abroad; and (ii) any other person from engaging in transactions or other activities (such as facilitations or services) that are “subject to the EAR” and that involve the temporarily denied person or entity unless directly related to safety of flight and authorized by BIS pursuant to procedure described at 15 C.F.R. § 764.3(a)(2). BIS has issued 180-day TDOs covering the following Russian entities:
Issuance of General License 26 on April 12, 2022 to Authorize Limited Transactions With Sberbank Subsidiaries
On April 12, 2022, OFAC issued General License 26, which authorizes the wind town of transactions for Sberbank entities: Sberbank Europe AG and Joint Stock Company SB Sberbank Kazakhstan through 12:01am eastern daylight time, July 12, 2022. This longer winddown period is only authorized for Sberbank Europe AG and Joint Stock Company SB Sberbank Kazakhstan. Notably, the winddown authorization period for most other 50%-or-greater-owned Sberbank subsidiaries under General License 22 expired on April 13, 2022.
Enactment of Legislation on April 8, 2022 to Restrict Import Transactions With Russia and Belarus
On April 8, 2022, the President signed into law two (2) Russia-related bills, the Suspending Normal Trade Relations with Russia and Belarus Act (H.R. 7108) and the Suspending Energy Imports from Russia Act (H.R. 6968). H.R. 7108 authorizes, among other things, the President to proclaim increases in duty rates applicable to products in column two of the harmonized tariff schedule. H.R. 6968 prohibits importation of any products under chapter 27 of the harmonized tariff schedule, including mineral fuels, mineral oils and products of their distillation, bituminous substances, and mineral waxes.
Issuance of Final Rule on April 8, 2022 to Restrict Exports, Reexports and Transfers (In-Country) of All ECCN-Classified Items to Russia and Belarus
In a Final Rule effective April 8, 2022, BIS expanded the EAR’s license requirements imposed on Russia and Belarus to prohibit export of any item listed under an Export Control Classification Number (“ECCN”) and curtailed the use of License Exception Aircraft, vessels and spacecraft (“AVS”) for Belarusian owned or controlled aircraft. These expansions of export controls against Russia and Belarus are yet another incremental increase on Russia imposed by the U.S. designed to impose escalating consequences on Russia and its enablers in response to Russia’s further invasion of Ukraine.
Effective February 24, 2022 for Russia and March 2, 2022 for Belarus, BIS prohibited the export of items classified under ECCNs in Categories 3 through 9 of the Commerce Control List (“CCL”). Under the Final Rule, items classified under any ECCN – now including Categories 0 through 2 of the CCL – are no longer permitted for export, reexport, or in-country transfer to or within Russia or Belarus (to the extent they were permitted prior to the Final Rule). Additionally, License Exception AVS is now completely unavailable for aircraft that are “subject to the EAR” and are registered in, owned, or controlled by, or under charter or lease by Belarus or a national of Belarus (hereafter, “Belarusian-Controlled Aircraft”). A parallel restriction on the use of License Exception AVS already applies to such Russian-Controlled Aircraft since March 2, 2022. The Final Rule states these measures are necessary to respond to “Belarus’s substantial enabling” of Russia’s February 2022 further invasion of Ukraine.
Imposition of Blocking Sanctions on Russian Diamond Industry and Shipbuilding Industry on April 7, 2022
On April 7, 2022 OFAC imposed blocking sanctions on Russian state-owned enterprise Public Joint Stock Company Alrosa (“Alrosa”), the largest diamond-mining company in the world and re-sanctioned Joint Stock Company United Shipbuilding Company (“USC”), the shipbuilding company that produces the majority of Russian warships. In a coordinated action, the U.S. Department of State took action to impose blocking sanctions on twenty-eight (28) USC subsidiaries and eight (8) individuals who are or have been leaders, officials, senior executive officers or members of the board of directors of USC. OFAC has also added those subsidiaries and individuals to the SDN List.
In the same announcement, OFAC also updated several General Licenses and issued two new General Licenses:
- General License 24 (Authorizing the Wind Down of Transactions Involving Public Joint Stock Company Alrosa) – GL 24A authorizes any transactions not already authorized by GL 21A, 9C, or 10C (discussed below) which are ordinarily incident and necessary to the wind down of transactions involving Alrosa or one of its 50%-or-greater-owned subsidiaries through 12:01am eastern daylight time, May 7, 2022.
- General License 21A (Wind-Down of Sberbank CIB USA, Inc.) – GL 21A authorizes U.S. persons to engage in all transactions ordinarily incident and necessary to the wind down of Sberbank CIB USA, Inc. and Alrosa USA, Inc., or any entity in which Sberbank CIB USA, Inc. or Alrosa USA, Inc. owns, directly or indirectly, a 50 percent or greater interest, that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”), including the processing and payment of salaries, severance, and expenses; payments to vendors and landlords; and closing of accounts, through 12:01 a.m. eastern daylight time, June 7, 2022.
- General License 9C (Expands Debt/Equity Dealings Authorization to Include Alfa-Bank and Alrosa) – GL 9C keeps the May 25, 2022 deadline for dealings in specific other banks’ so-called “Tranche 1 debt or equity” issued prior to 4:00 p.m. eastern standard time, February 24, 2022, and adds two new authorizations: one authorizes dealings in “Alfa-Bank debt or equity” issued prior to 4:00 p.m. eastern daylight time, April 6, 2022, through 12:01 am eastern daylight time, June 30, 2022 and the other authorizes dealings in “Alrosa debt or equity” issued prior to April 7, 2022, through 12:01 am eastern daylight time, July 1, 2022.
- General License 10C (Expands Derivative Contracts Wind Down Authorization to Include Alfa-Bank and Alrosa) – GL 10C keeps the May 25, 2022 deadline for winding down derivative contracts involving specified other banks and adds two new authorizations for winding down derivative contracts: first, derivative contracts that include Alfa-Bank or its subsidiaries or that are otherwise linked to Alfa-Bank debt or equity and which are entered into prior to 4:00 pm eastern daylight time, April 6, 2022, through 12:01 am eastern daylight time, June 30, 2022 and second, derivative contracts that include Alrosa or its subsidiaries or that are otherwise linked to Alrosa debt or equity and which are entered into prior to April 7, 2022, through 12:01 am eastern daylight time, July 1, 2022
Issuance of Executive Order on April 6, 2022 to Prohibit New Investments in and Exports of Certain Services to Russia
On April 6, 2022, U.S. President Joseph R. Biden, Jr. issued an executive order (“EO”) banning (i) all new investments in the Russian Federation (“Russia”) by “U.S. persons” (both individuals and entities), wherever located; and (ii) all approvals, financing, facilitation, or guarantees by U.S. persons, wherever located, of investment transactions undertaken by non-U.S. persons that would be prohibited under the EO if those investments were undertaken by U.S. persons. The EO also grants the Secretary of the Treasury, in consultation with the Secretary of State, the authority to prohibit U.S. persons from exporting, reexporting, selling, or supplying, directly or indirectly, certain services to any persons in Russia. The Secretary of the Treasury and the Secretary of State have not yet designated any services for prohibition under the EO, but they have the ability to do so going forward.
Imposition of Blocking Sanctions on Various Russian Officials, Their Family Members, Sberbank and Alfa-Bank on April 6, 2022
Also on April 6, 2022, OFAC imposed blocking sanctions on two of Russian President Vladimir Putin’s daughters, family members of Russian Foreign Minister Sergey Lavrov, members of the Russian Security Council, Russia’s largest state-owned bank Sberbank and 42 of its subsidiaries, and Russia’s largest privately-held bank Joint Stock Company Alfa-Bank and six of its subsidiaries pursuant to Executive Order 14024 for operating in the financial services sector of the Russian economy. OFAC has listed the full list of these designations here and here. OFAC clarified that it has not sanctioned Alfa-Bank (Ukraine), which is a distinct entity from Joint Stock Company Alfa-Bank.
Sberbank was previously designated on the Sectoral Sanctions Identifications List (“SSI List”) and Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (“CAPTA List”) pursuant to EOs 13662 (Directive 1) and 14024 (Directive 2). Alfa-Bank was previously designated on the Non-SDN Menu-Based Sanctions List (“NS-MBS List”) pursuant to EO 14024, Directive 3. OFAC has now imposed full blocking sanctions on Sberbank and Alfa-Bank by placing them on the SDN List. U.S. persons previously engaging in transactions involving Alfa-Bank, Sberbank, or any of their respective subsidiaries that were not prohibited by the SSI List, CAPTA List, or NS-MBS List designations prior to April 6, 2022 are now – as of April 6 – prohibited from engaging in any previously permissible transactions. However, OFAC did amend several existing General Licenses and issue other new General Licenses to authorize certain limited transactions with each of Sberbank, Alfa-Bank and their subsidiaries::
- General License 21 (Wind-Down of Sberbank CIB USA, Inc.) – GL 21 authorizes U.S. persons to engage in all transactions ordinarily incident and necessary to the wind down of Sberbank CIB USA, Inc., or any entity in which Sberbank CIB USA, Inc. owns, directly or indirectly, a 50 percent or greater interest, that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”), including the processing and payment of salaries, severance, and expenses; payments to vendors and landlords; and closing of accounts, through 12:01 a.m. eastern daylight time, June 7, 2022. Please note that 21 has been superseded by 21A as explained above but the Alfa-Bank authorization remains the same.
- General License 22 (Wind Down of Transactions with Public Joint Stock Company Sberbank of Russia) – GL 22 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Sberbank or any entity in which Sberbank owns, directly or indirectly, a 50 percent or greater interest that are prohibited by EO 14024 through 12:01 a.m. eastern daylight time, April 13, 2022 except (i) transactions prohibited by Directive 2 under EO 14024 and (ii) transactions otherwise prohibited by the RuHSR.
- General License 23 (Wind Down of Transactions with Joint Stock Company Alfa-Bank) – GL 23 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Alfa-Bank or any entity in which Alfa-Bank owns, directly or indirectly, a 50 percent or greater interest that are prohibited by EO 14024 through 12:01 a.m. eastern daylight time, May 6, 2022.
- General License 8B (Expands Energy-Related Authorization to Include Alfa-Bank) – This authorization, which includes other banks, is valid until June 24, 2022.
- General License 9B (Expands Debt/Equity Dealings Authorization to Include Alfa-Bank) – GL 9B keeps the May 25, 2022 deadline for dealings in specific other banks’ so-called “Tranche 1 debt or equity” issued prior to 4:00 p.m. eastern standard time, February 24, 2022, and adds an authorization for dealings in “Alfa-Bank debt or equity” issued prior to 4:00 p.m. eastern daylight time, April 6, 2022, through 12:01 am eastern daylight time, June 30, 2022. Please note that 9B has been superseded by 10C as explained above but the Alfa-Bank authorization remains the same.
- General License 10B (Expands Derivative Contracts Wind Down Authorization to Include Alfa-Bank) – GL 10B keeps the May 25, 2022 deadline for winding down derivative contracts involving specified other banks and adds an authorization for winding down derivative contracts that include Alfa-Bank or its subsidiaries or that is otherwise linked to Alfa-Bank debt or equity and which are entered into prior to 4:00 pm eastern daylight time, April 6, 2022, through 12:01 am eastern daylight time, June 30, 2022. Please note that 10B has been superseded by 10C as explained above but the Alfa-Bank authorization remains the same.
Issuance of Final Rule to Add 120 Entities to the Entity List Effective April 1, 2022
Under a Final Rule effective April 1, 2022, BIS added 120 entities to the Entity List. BIS also included “footnote 3” notations for 95 of those newly listed entities, which imposed Russia/Belarus Military End-User (“MEU”) Foreign Direct Product (“FDP”) Rule designations on those footnoted entities. The Russia/Belarus MEU FDP Rule potentially applies to any items produced outside the U.S. (even EAR99 items) and causes such items to become “subject to the EAR” and prohibited for export, reexport or transfer (in-country) to any footnote 3 Russia/Belarus MEUs if those items are the direct product of U.S.-origin technology or software classified under any ECCN within any CCL category, unless reexported from or transferred within select countries with aligned export controls regimes. License exceptions are not available for transactions involving either the 95 newly designated “footnote 3” entities or the 25 newly designated non-“footnote 3” entities, and BIS will review license applications involving all 120 entities under a policy of denial. (See our prior posts on the Russia/Belarus MEU FDP Rule here and here.) The full list of MEU FDP Rule “footnote 3” entity designations includes scientific research institutions, aircraft repair and other similar repair plants, and other technology companies and plants.
Additional OFAC SDN List Designations Occurring on March 31, 2022
On March 31, 2022, OFAC designated 21 entities and 13 individuals to the SDN List and removed Ozon Bank, LLC from the SDN List. OFAC stated these designations are part of its efforts to “impose severe costs on the Russian Federation for its unprovoked and unjustified war against Ukraine by targeting operators in the Russian technology sector to prevent it from evading unprecedented multilateral sanctions and procure [sic] critical western technology.” The new designations within the technology sector include JSC Mikron, a Russian manufacturer and exporter of microelectronics that OFAC asserts is responsible for exports of more than 50% of Russian microelectronics and is Russia’s largest chipmaker. OFAC’s designations demonstrate the international reach of Russia’s sanctions evasion networks (and the need for persons subject to U.S. sanctions to screen transaction participants in all destinations). In addition to Russian entities, the March 31 SDN designations include entities registered in Finland, France, Malta, Singapore, Spain, and the United Kingdom.
Issuance of Treasury Department Determination on March 31, 2022 to Designate the Aerospace, Electronics and Marine Sectors of the Russian Economy as Sanctionable under Executive Order 14024
On March 31, 2022, Secretary of the Treasury Janet L. Yellen, issued a Determination under Executive Order 14024 (“EO 14024”) that Section (1)(a)(i) of that EO shall now apply to the aerospace, electronics, and marine sectors of the Russian Federation (“Russia”) economy. Section (1)(a)(i) of EO 14024 gives the Secretaries of the Treasury and State, in consultation with one another, the authority to determine that their respective agencies have authority to impose blocking sanctions on entities operating in whole sectors of the Russian economy. The three (3) new sector designation authorities issued on March 31 are in addition to already existing authorities under EO 14024 Section (1)(a)(i) to designate persons determined “to operate or have operated in the technology sector or the defense and related materiel sector[s] of the Russian Federation economy . . . ,” as we detailed in our April 20, 2021 blog post (here), Importantly, while the March 31 Determination will allow OFAC and the U.S. Department of State to swiftly designate any individual or entity working in any of the newly named aerospace, electronics, and marine sectors of the Russian economy, the Determination does not automatically sanction all individuals and persons working in those sectors.
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