Notable US Sanctions and Export Controls Imposed on Russia and Belarus in Response to Ongoing Conflict in Ukraine | Lowenstein Sandler LLP

      Comments Off on Notable US Sanctions and Export Controls Imposed on Russia and Belarus in Response to Ongoing Conflict in Ukraine | Lowenstein Sandler LLP

Updated at 10 a.m. ET on February 28, 2022

I. Penalties

Effective February 21, 2022, the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) implemented a new ban on the direct or indirect import or export of goods, services, or technology from or to the People’s Republic of Donetsk (DNR) or the regions of the Luhansk People’s Republic (LNR) in Ukraine, as well as any new investments in these regions, subject to a downturn period for existing activities ending on March 23, 2022, with limited exemptions, including those for food, drugs and medical devices, personal non-commercial remittances, and communications and related software. Additionally, on February 22, OFAC extended a ban against:

  • Primary market participation in ruble and non-ruble denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation Russia
  • Lending ruble-denominated or non-ruble funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation after June 14, 2021
  • Trading Russian sovereign debt on the secondary market for bonds issued after March 1, 2022

In addition, OFAC sanctioned the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), 42 subsidiaries of PSB and VEB and five vessels belonging to PSB, and added the five persons following Russians to the SDN List:

  • Sergei Vladilenovich Kiriyenko (First Deputy Chief of Staff, Presidential Office [previously designated])
  • Vladimir Sergeevich Kiriyenko (son of S. Kiriyenko and CEO of VK Group, parent company of VKontakte)
  • Petr Mikhailovich Fradkov (CEO of PSB)
  • Denis Aleksandrovich Bortnikov (VTB Vice President and Chairman of the Board of VTB Bank)
  • Aleksandr Vasilievich Bortnikov (father of D. Bortnikov and director of the FSB and permanent member of the Security Council of the Russian Federation [previously designated])

On February 23, 2022, OFAC added Nord Stream 2 AG and its CEO to the SDN list, subject to a liquidation period ending March 2, 2022.

On February 24, 2022, OFAC added additional entities to the SDN, Non-SDN Menu-Based Sanction (NS-MBS) and Correspondent Account or Payable-Through Account (CAPTA) lists and issued two important guidelines. Directive 2 prohibits US financial institutions from engaging in certain transactions with specified foreign financial institutions, including the public joint stock company Sberbank of Russia and its 50% or more owned subsidiaries. This ban will come into effect on March 26, 2022 or, for any new facility designated under Directive 2, within 30 days of designation. Directive 3 prohibits U.S. persons from transacting, providing financing, or otherwise dealing in new debt older than 14 days or new equity for designated entities, including:

  • Credit Bank of the Moscow State Joint Stock Company
  • Gazprombank Joint Stock Company
  • Alfa-Bank Joint Stock Company
  • Joint Stock Company Russian Agricultural Bank
  • Sovcomflot Joint Stock Company
  • Open Joint-Stock Company Russian Railways
  • Public limited company Alrosa
  • Gazprom Public Joint Stock Company
  • Gazprom Neft Public Joint Stock Company
  • Public Joint Stock Company Rostelecom
  • Rushydro Public Joint Stock Company
  • Public Joint Stock Company Sberbank of Russia
  • Public Joint Stock Company Transneft

The prohibitions in Directive 3 will also come into effect on March 26, 2022 or, for any new institutions designated under Directive 3, within 30 days of designation.

By adding entities to its restricted party lists, OFAC sanctioned 24 Belarusian individuals and entities in response to supporting and facilitating Russia’s invasion of Ukraine. The designations included Belarusian state-owned banks, Belarusian defense and security industries entities, and Belarusian defense officials. Exceptions to these sanctions are extremely limited.

In addition to issuing prohibitions, OFAC has also issued limited blanket licenses i) authorizing prohibited activities usually incidental and necessary for overflight payments, emergency landings, and air ambulance services; (ii) provide for liquidation periods for certain transactions related to energy (June 24, 2022), debt or equity (May 25, 2022), derivative contracts (May 25, 2022) and certain blocked persons (March 26, 2022). 2022); and iii) allow the rejection of transactions with certain people blocked until March 26, 2022.

On February 25, 2022, OFAC designated Russian President Vladimir Putin, Foreign Minister Sergei Lavrov and others as SDN. Nominations of a sitting president are extremely rare, indicating that the United States is determined to impose maximum pressure on the Russian leadership using its sanctions regime.

On February 28, 2022, OFAC designated the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation and the Ministry of Finance of the Russian Federation. Transactions involving these entities, including any transfer of assets or any foreign exchange transaction for or on behalf of these entities, are prohibited.

II. Export controls

The U.S. Department of Commerce, Bureau of Industry and Security (BIS), is expected to revise U.S. commercial export controls during the first week of March to:

  • Extend export controls to all commercial items of U.S. origin intended for military end use or military end users in Russia (including those that do not normally require a license for export to Russia), with limited exceptions.
  • Increase licensing requirements for exports to Russia and Designated Russian Entities.
  • Restrict the use of license exceptions for exports, re-exports and transfers to Russia.
  • Further restrict the export to Russia and Russian military end-users of foreign direct products of i) certain US-origin software or technology and ii) certain factories or their major components that are themselves the direct product of certain software or technologies of American origin.
  • Impose a policy of refusing export license applications related to the above restrictions, with limited exceptions (such as exports related to flight safety, maritime security, humanitarian needs, government space cooperation, telecommunications infrastructure and government-to-government activities, and those supporting limited operations of partner country companies in Russia).
  • Add more Russian entities to the Entity List (which limits the export of US commercial goods to listed parties).