Latest sanctions block Russia’s largest banks, cyber actors and more; Biden’s executive order prohibits investments in Russia by US persons

On April 6, 2022, the White House announced a new Executive Order banning new investment in the Russian Federation and an array of additional blocking sanctions targeting Russian financial institutions, elites and cyber actors. Notably, as a result of these new measures, new investments in Russia by US persons have been prohibited and two of Russia’s largest banks, Sberbank and Alfa-Bank, which had previously been subject to narrower restrictions, have now been blocked.

These new measures supplement the extensive measures previously announced by the US government and described in our prior client alerts published on February 23, February 25, February 28, March 4, March 9, March 16, March 29 and April 5, 2022.    

New executive order prohibits investment in the Russian Federation by US persons

The White House issued a new executive order titled “Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression,” which prohibits “new investment in the Russian Federation by a United States person, wherever located,” and the “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation.” We anticipate further guidance from OFAC regarding new investment and the categories of services covered by the executive order. However, the term “new investment” was defined previously by OFAC in connection with the energy sector to include “a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities (not including maintenance or repair) located or occurring in the Russian Federation…”

In a background press briefing held as the executive order was announced, a senior Biden administration official stated that the purpose of this executive order is to ensure that “the mass exodus from Russia that we’re seeing from the private sector, which is now over 600 multinational companies and growing … will endure.”

Full blocking sanctions imposed on major Russian financial institutions Sberbank and Alfa-Bank, additional Russian elites and cyber actors

The Treasury Department and OFAC also announced a significant escalation of the economic measures imposed on the Russian financial sector, including the imposition of full blocking sanctions on Sberbank and 42 subsidiaries, Alfa-Bank and 6 subsidiaries, and 5 Alfa-Bank-owned maritime vessels. Blocking sanctions were also imposed on numerous Russian elites and cyber actors.

Sberbank, Russia’s largest bank, previously was subject to more targeted sanctions pursuant to Directive 2 under Executive Order 14024, and Alfa-Bank, Russia’s fourth largest bank, previously was subject to sanctions pursuant to Directive 3 under the same executive order. Both institutions have now been added to OFAC’s Specially Designated Nationals (SDN) List.

In connection with these new blocking sanctions, OFAC revised or issued the following general licenses:

• General License 8B: Adding Alfa-Bank to the list of entities, which already included Sberbank, in connection with the authorization of transactions related to energy through 12:01 a.m. (EDT) on June 24, 2022.
• General License 22: Authorizing the wind down of transactions involving PJSC Sberbank through 12:01 a.m. (EDT) on April 13, 2022.
• General License 23: Authorizing the wind down of transactions involving Alfa-Bank through 12:01 a.m. (EDT) on May 6, 2022.

General Licenses 9B, 10B and 21, which were included among the General Licenses issued on April 6, were superseded on April 7 following the issuance of General Licenses 9C, 10C and 21A, which are described below.

Also on April 6, 2022, blocking sanctions were imposed on additional Russian elites, members of the Russian Security Council and their family members, including President Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and former President and Prime Minister of Russia Dmitry Medvedev and Prime Minister Mikhail Mishustin.

On April 5, 2022, the Department of the Treasury and OFAC also announced blocking sanctions on major Russia-based cyber actors, including Hydra Market, the world’s largest darknet market, and Garantex Europe OU, a virtual currency exchange.

Full blocking sanctions imposed on two major Russian state-owned enterprises, United Shipbuilding Corporation and Alrosa

On April 7, 2022, the Department of the Treasury, Department of State and OFAC announced blocking sanctions targeting two Russian state-owned entities, Public Joint Stock Company Alrosa, the world’s largest diamond mining company, and United Shipbuilding Corporation, Russia’s largest shipbuilder, and their sprawling network of subsidiaries. The members of United Shipbuilding Corporations’ board of directors were also subject to these new sanctions.

With these new sanctions, OFAC revised or issued the following general licenses:

• General License 9C: Authorizing all transactions prohibited by the Russian Harmful Foreign Activities Sanctions Regulations that are ordinarily incident and necessary to dealings in debt or equity of Sberbank, Alfa-Bank or Alrosa, or any entity in which they own, directly or indirectly, a 50 percent or greater interest, provided that any divestment or transfer of, or facilitation of divestment or transfer of the debt or equity must be to a non-US person. Note that the date of the issuance of the debt and the length of the authorization varies for each of the three entities.
• General License 10C: Authorizing transactions that are ordinarily incident and necessary to the wind down of derivative contracts that include Sberbank, Alfa-Bank or Alrosa as a counterparty or are linked to debt or equity of those companies, provided that any payments to a blocked person are made into a blocked account. Note that the date of the underlying derivative contracts and the length of the authorization varies for each of the three entities.
• General License 21A: Authorizing US 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 they own, directly or indirectly, a 50 percent or greater interest, including the processing and payment of salaries, severance and expenses; payments to vendors and landlords; and closing of accounts through 12:01 a.m. (EDT) on June 7, 2022.
• General License 24: Authorizing the wind down of transactions involving Alrosa through 12:01 a.m. (EDT) on May 7, 2022.
• General License 25: Authorizing all transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving the Russian Federation, as well as the exportation or reexportation, sale, or supply, directly or indirectly, from the United States or by US persons, wherever located, to the Russian Federation of services, software, hardware, or technology incident to the exchange of communications over the internet, such as instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting and domain name registration services.

Department of Commerce identifies additional restricted entities and private and commercial aircraft; adds major Russian airlines to Denied Persons List

On March 30, 2022, BIS added 73 more private and commercial aircraft to its list of aircraft that have allegedly violated the Export Administration Regulations (EAR) for flying into Russia or Belarus from other countries and removed 12 aircraft that it has authorized to return to the owners.  The current non-exhaustive list of aircraft in violation of the EAR, for which any subsequent actions taken with regard to any of the listed aircraft by any person worldwide, including, but not limited to, refueling, maintenance, repair or the provision of spare parts or services, are prohibited can be found on the BIS website.

Effective April 1, 2022, BIS has also added 120 Russian entities to its restricted Entity List.  The designated entities include major Russian transportation, electronics and aerospace companies as well as various research institutions.  As a result of the designations, virtually all exports, reexports and transfers of goods, technology and software subject to the EAR to the listed entities, as well as sales or transfers to the listed entities of the non-US made products of US technology, software and equipment (ie, so-called “foreign direct products”) are effectively banned.

On April 7, 2022, BIS issued orders (initially for six months) denying the export privileges of three Russian Airlines – Aeroflot, Azur Air and UTair – due to ongoing export violations related to the new comprehensive export controls on Russia.  The denial orders prohibit any person anywhere from exporting, reexporting, transferring (in-country), servicing or taking any action that facilitates the acquisition or attempted acquisition of the ownership, possession or control of any item subject to the EAR to or on behalf of these airlines.  This effectively puts global Maintenance, Repair and Operation (MRO) vendors on notice that they will be in violation of the EAR if they service or support these aircraft no matter where they are located. Items directly related to the safety of flight may be authorized by BIS.  BIS noted that “[c]ompanies that violate the expansive export controls we have imposed on Russia will find themselves the target of Commerce Department enforcement action.”

Going forward

Our global team continues to monitor developments as they arise and will update this alert as changes take place. To learn more about these developments, please contact any of the authors or your usual DLA Piper relationship attorney.