US imposes further sanctions and export controls against Russia

President Biden announced a new round of sanctions on February 24, 2022, following Russia’s attacks and invasion of Ukraine.  The sanctions target Russia’s financial sector, energy sector, state-owned enterprises, associates of President Putin and their families, and Belarus. These actions affect Russia’s ten largest financial institutions, which hold nearly 80 percent of Russian banking sector assets, with varying sanctions, including full blocking sanctions, correspondent and payable-through account sanctions, and debt and equity restrictions.   The US also issued significant export restrictions of US technologies to Russia.  

However, several General Licenses were issued that at least currently permit certain activity by US persons, including some with Russia’s largest bank, Sberbank. Today’s sanctions supplement recent sanctions explained in a previous client alert.

Financial and energy sector sanctions

The US targeted five major Russian banks and their subsidiaries with measures intended to sever these institutions from the US financial system and from access to and use of the US dollar.

• VTB Bank, Russia’s second largest, as well as Bank Otkritie, Sovcombank, and Novikombank have been added to OFAC’s Specially Designated Nationals List, prohibiting US persons from engaging in transactions or conducting business with these institutions and freezing their assets in the US.
• Directive 2 under Executive Order 14024 applies to Sberbank, Russia’s largest financial institution, and its subsidiaries as of the publication of this alert, but other institutions can be added. Effective 12:01 a.m. eastern daylight time on March 26, 2022, US financial institutions are prohibited from opening or maintaining a correspondent account or payable-through account, or processing transactions involving Sberbank and its 50 percent or more owned subsidiaries.If other Russian banks are designated under Directive 2, US financial institutions have a 30-day wind-down period from the date of the determination to cease opening or maintaining correspondent accounts or payable-through accounts or processing transactions for such institutions.

The US also issued General License 8 which authorizes through 12:01 a.m. Eastern Daylight Time, June 24, 2022, all transactions “related to energy” with Vnesheconombank, Otkritie, Sovcombank, Sberbank, and VTB Bank, and their subsidiaries.  “Related to energy” is defined very broadly.  This General License does not allow for the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2. 

As explained in a previous client alert, the US has also targeted Russia’s energy sector by designating Nord Stream 2 AG and its German CEO Matthias Warnig.  General License 4, provides for a wind-down period for transactions involving Nord Stream AG that expires at 12:01 am Eastern Daylight Time, March 2, 2022.

Restrictions on new debt and equity of Russian state-owned enterprises

Directive 3 under Executive Order 14024 prohibits US persons from engaging in transactions for new debt of longer than 14 days maturity or new equity, issued on or after 12:01 a.m. eastern daylight time on March 26, 2022.  As of the publication of this alert, 13 Russian entities have been designated under Directive 3 and added to the Non-SDN Menu-Based Sanctions List (NS-MBS List):

• Sberbank
• Alfa Bank
• Credit Bank of Moscow
• Gazprom
• Gazprombank
• Gazpromneft
• Transneft
• Rostelcom
• Rushydro
• Alrosa
• Sovcomflot
• Russian Railways
• Russian Agricultural Bank

The prohibitions in Directive 3 also apply to any designated entity’s 50 percent or more owned subsidiaries.

Full blocking sanctions imposed on Russian elites

In addition to targeting major Russian financial institutions and enterprises, the US also imposed full blocking sanctions against Russian elites, including the following individuals:

• Sergei Sergeevich Ivanov (son of Sergei Borisovich Ivanov)
• Andrey Patrushev (son of Nikolai Platonovich Patrushev)
• Andrey Sergevich Puchkov
• Ivan Igorevich Sechin (son of Igor Ivanovich Sechin)
• Yuriy Alekseyevich Soloviev
• Galina Olegovna Ulyutina
• Alexander Aleksandrovich Vedyakhin

Full blocking sanctions against Belarusian elites and enterprises

The US also imposed sanctions on significant elites and enterprises of Russian ally Belarus pursuant to Executive Order 14038. The targets of these full blocking sanctions include:

• Nine defense firms
• Two state-owned banks
  • Belinvestbank
  • Bank Dabrabyt
• Seven regime-connected individuals

A complete list of the individuals sanctioned in connection with these new Belarus sanctions is available on the OFAC website. In connection with these new Belarus sanctions, OFAC also issued General License 6, which pertains to official business of the United States Government, and General License 7, which addresses official business of international organizations, including the United Nations, World Bank Group, and others.

Coordinated sanctions anticipated from US allies and partners

Today’s announcement by the White House emphasized that these newly announced sanctions and related export controls will be complemented with similar measures imposed by US allies and partners, including Australia, Canada, the European Union, Japan, and the United Kingdom.  On February 24, 2022 the EU agreed on further sanctions against Russia that target the financial sector, the energy and transport sectors, dual-use goods, export control and export financing, visa policy, and additional sanctions against Russian individuals.  However, as of the time of publication of this alert, specifics have not been announced.       

Dramatically expanded export controls on Russia and Russian state-owned companies

The Department of Commerce’s Bureau of Industry and Security (BIS) has expanded export controls to significantly restrict most exports, reexports, and transfers of US goods, software, and technology (collectively, “Items”) to Russia. The full text of the BIS rule is available here.

These changes became effective immediately upon their publication on February 24, 2022 with no provision for a sunset or wind-down period.  Among the most important changes announced by BIS are:

• Greatly expanded export license requirements for exports, reexports, and transfers to Russia and Russian companies of a broad cross-section of Items subject to the Export Administration Regulations (EAR), including Items described under Categories 3 through 9 of the Commerce Control List (CCL) – a list of Items that includes products for the semiconductor, IT, data processing, telecommunications, healthcare, motor vehicle, marine, and aviation sectors.^[1]  BIS will apply a licensing policy of denial to such license applications except in limited cases involving safety of flight, maritime safety, humanitarian needs, government space cooperation, civil telecommunications infrastructure, government-to-government activities and to support limited operations of partner companies in Russia.
• Additional restrictions on transactions with “military end users” and state-owned enterprises in Russia.
• Elimination of most license exceptions for exports and retransfers of Items subject to the EAR to Russia.
• New restrictions on key Russian state-owned enterprises and aerospace and defense companies that have been added to the EAR’s Entity List.  Licenses are now required to export, reexport, or transfer virtually all Items subject to US export controls to such Entity List entities.
• Application of the EAR’s Foreign Direct Product Rule (FDPR) to Russia and Russian military end users inside and outside Russia.  This change – which mirrors FDPR restrictions previously imposed only on specific companies – is highly significant because it means that the products of R&D facilities and factories in third countries may now require a license to send to customers in Russia if the products are based on or made with US technology, software, or equipment.  In most cases, a license will also be required to sell or transfer such foreign-made items to Russian military end-users inside or outside Russia.
• A near-total ban on exports to the Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) except for food and medicine designated as EAR99 or software necessary to enable the exchange of personal communications over the Internet.

The new EAR requirements also signal that US allies will shortly be implementing similar controls on exports from their own jurisdictions.  This is evident from the new rule’s exemption of export licensing requirements for exports from a list of US allies that are expected to impose equivalent controls.

The specific countries identified by BIS as eligible for such an exemption are Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom.  This list introduces a “Western bloc” group of countries somewhat reminiscent of the Cold-War era Coordinating Committee for Multilateral Export Controls (CoCom) group of countries that cooperated on export control policy vis-à-vis the Soviet Union.

Going forward

There is a strong possibility that Russia may announce sanctions and other countermeasures in response to the US and other sanctions that have been imposed in recent days. Multinational companies and other businesses with a presence or operations in Russia and whose interests in Russia may be significantly affected by such measures are well-advised to plan for this possibility.

Our global team continues to monitor developments as they arise and will update this alert as changes take place.

If you have any questions regarding these sanctions and their implications, please contact any of the authors or your DLA Piper relationship attorney.

[1] Notably, exemptions from license requirements are available for non-sanctioned Russian nationals – such as authorized employees of US firms operating in Russia – to permit those personnel to continue to receive or access EAR technology and software that were not otherwise subject to preexisting license requirements prior to the new rule.