New Sanctions Targeting Russia

International Trade & Compliance Alert

The United States, the European Union and the United Kingdom recently imposed new Russia-related sanctions in response to Russia’s continued hostilities in Ukraine.  These new restrictions substantially expand the scope of previous measures (see our prior alerts here and here).

Key measures include: 

  1. United States: (a) blocking measures on Russia’s largest bank (Sberbank) and largest private bank (Alfa-Bank), two Russian state-owned enterprises (Alrosa and United Shipbuilding Corporation), as well as certain individuals; (b) a ban on new investments in, and authorization to ban the provision of certain services to, Russia; (c) authorization to impose sanctions on parties operating in Russia’s aerospace, electronics and marine sectors; and (d) imposing specific export license requirements for 120 Russian and Belarusian entities and taking the first enforcement action for violations of Russia-related export controls;
  2. EU: (a) import restrictions on certain Russian products, (b) a ban on transactions involving Russia’s four major banks, including VTB, Russia's second largest bank; (c) a prohibition on Russian companies participating in public tenders in EU countries; (d) a general ban on Russian and Belarusian road transport operators and vessels entering the European Union; (e) a ban on exports of jet fuel and other goods; and (f) a ban on crypto currency deposits and the sale of banknotes and transferable securities denominated in EU currencies to Russia and Belarus; and
  3. UK: (a) asset freeze measures on additional major banks (including Sberbank) and oligarchs; and (b) additional export and foreign direct investment restrictions.

In addition, the U.S. Congress passed legislation that would suspend normal trade relations with Russia and Belarus and prohibit U.S. imports of certain Russian energy products.  President Biden is expected to sign both bills. 

U.S. Measures

a. Blocking Sanctions Prohibitions

The U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) recently imposed blocking sanctions on, and added to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List:

  • Sberbank, Russia’s largest financial institution, and 42 of its subsidiaries, and Alfa-Bank, Russia’s largest privately-owned financial institution, as well as six of its subsidiaries and five affiliated vessels;[1]
  • Alrosa, a Russian state-owned enterprise and the world’s largest diamond mining company;[2]
  • 28 entities linked to, and eight board members of, United Shipbuilding Corporation, a major Russian state-owned enterprise responsible for developing and building the Russian Navy’s warships;[3]
  • Russia-based Hydra Market (Hydra), the world’s largest darknet market, and ransomware-enabling virtual currency exchange Garantex;[4]
  • Certain operators in the Russian technology sector, including Russia’s largest chipmaker;
  • Certain family members of the Russian President and the Foreign Minister; and
  • Members of the Russian Security Council.[5]

All property of “blocked” parties that comes within the possession of a U.S. person or within the United States must be frozen.  U.S. persons are generally prohibited from dealing, directly or indirectly, with blocked parties, or with entities that are directly or indirectly owned 50% or more by one or more blocked parties, whether or not such entities are included on the SDN List.  Prohibited activities include, among other things, terminating contracts and processing refunds, the making of any contribution or the provision of funds, goods, or services to, or for the benefit of, any blocked party, and the receipt of any funds, goods, or services from any such party.   

Non-U.S. persons may be exposed to sanctions risk in relation to activities with persons subject to blocking sanctions pursuant to E.O. 14,024.  OFAC has clarified, however, that non-U.S. persons generally do not risk exposure to such blocking sanctions for engaging in transactions with blocked parties where those transactions would not require a specific license if engaged in by a U.S. person.[6]

To a limited extent, and for a limited time, OFAC has authorized:

  • wind-down transactions involving Sberbank, Sberbank CIB USA, Inc., Alfa-Bank, Alrosa and Alrosa USA, Inc.;
  • certain transactions related to energy involving Alfa-Bank;
  • dealings in certain debt[7] or equity issued by Alfa-Bank or Alrosa; and
  • the wind-down of certain derivative contracts involving Alfa-Bank or Alrosa (as well as, in each case, their respective 50%-or-more owned affiliates).[8]

b. Ban on New Investments and Certain Services

On April 6, 2022, President Biden issued E.O. 14,071 generally banning all new investments in Russia and authorizing the Secretary of the Treasury to prohibit the provision of any category of services from the United States or by a U.S. person to any person located in Russia, as well as the facilitation by U.S. persons of such prohibited transactions.  These prohibitions follow recently issued E.O.s 14,066 and 14,068, which prohibit certain imports and exports involving Russia (described in our prior alert), and are consistent with commitments made by the G7 leaders.

c. Authorization to Impose Sanctions on Additional Russian Industrial Sectors. 

On March 31, 2022, pursuant to E.O. 14,024, the Secretary of the Treasury issued a determination that authorizes sanctions against persons that operate in the aerospace, electronics, and marine sectors of the Russian economy.  This measure is in addition to prior determinations by the Secretary of the Treasury authorizing sanctions against persons that operate or have operated in the Russian technology, defense and related material, and financial services sectors (see our prior alert).  While these determinations expose persons operating in the named sectors to potential sanctions risk, only parties specifically designated by the U.S. government are sanctioned.

d. Suspension of Normal Trade Relations and Ban on Import of Energy Products.

On April 7, 2022, the U.S. Congress passed legislation suspending normal trade relations with Russia and Belarus (through the Suspending Normal Trade Relations with Russia and Belarus Act) and prohibiting U.S. imports of Russian energy products (through the Suspending Energy Imports from Russia Act). 

The Suspending Normal Trade Relations with Russia and Belarus Act would increase duty rates above normal trade relations rates on U.S. imports of Russian and Belarusian goods, effective on the day after the statute’s enactment.  The President would also be authorized to further increase such rates.  This measure would be in addition to the recently imposed import bans targeting fish, seafood, and preparations thereof, alcoholic beverages, and non-industrial diamonds of Russian origin (see our prior alert).

The import ban pursuant to the Suspending Energy Imports from Russia Act would become effective 45 days after the statute’s enactment and would apply to Russian energy products classified under Chapter 27 of the Harmonized Tariff Schedule (which comprises mineral fuels, mineral oils and products of their distillation, bituminous substances, and mineral waxes).  This measure would significantly expand prior energy-related import restrictions imposed pursuant to E.O. 14,066 of March 8, 2022.[9]  Under the act, the President would have the authority to permit the importation of Russian energy products pursuant to certain pre-existing agreements.  Further, the act would also amend the Global Magnitsky Human Rights Accountability Act to expand the scope of individuals who could be subject to U.S. sanctions.

e. Export Control Measures.

On April 7, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added 120 Russian and Belarusian entities to the Entity List, imposing specific license requirements for the export, reexport, and in-country transfer of items subject to the U.S. Export Administration Regulations (“EAR”) to such entities.

In addition, on April 7, 2022, BIS took the first enforcement action in response to apparent violations of enhanced U.S. Russia-related export controls.  BIS issued orders temporarily denying the export privileges of three Russian airlines (Aeroflot, Azur Air, and UTair) for operating aircraft in violation of such controls.  As a result, these entities cannot participate in transactions subject to the EAR, including the reexport of U.S. origin items from outside the United States. 

EU Measures

On April 7 and 8, 2022, the EU member states agreed on and adopted a fifth package of sanctions in response to Russia’s ongoing hostilities in Ukraine.  The new measures include, inter alia, bans on:

  • imports of hard coal, wood, vodka, cement and rubber;
  • transacting with four major Russian banks, including VTB, Russia's second largest bank;
  • Russian vessels and vessels operated by Russia entering EU ports and Russian and Belarusian road transport operators entering the European Union (except for deliveries of certain humanitarian-related items and vessels delivering energy);
  • exports of jet fuel and other goods such as quantum computers and advanced semiconductors, high-end electronics, software, sensitive machinery, and transportation equipment;
  • Russian companies participating in public tenders in EU member states; and
  • deposits to crypto-wallets, as well as the sale of banknotes and transferrable securities denominated in any official currency of any EU member state, to Russia and Belarus, or to any person in Russia and Belarus.

Consistent with the U.S. approach, the European Union is expanding its asset freeze sanctions list to include people close to the Russian President and the Foreign Minister.

In addition, there is an increasingly intense discussion within the European Union about a possible complete gas and oil embargo on Russia.  It appears that a full-scale embargo on Russia is no longer completely ruled out.

UK Measures

The United Kingdom has continued to add individuals and entities to its list of those designated for asset freezing.  Most significantly, Sberbank is now subject to an asset freeze.  It had previously been banned from providing clearing services.

In addition, on April 6, 2022, additional measures were announced (the details of which have not yet been published):  (a) banning all new investment in Russia; (b) blocking the export of key oil refining equipment and catalysts; and (c) banning imports of iron and steel products.

[1] On February 24, 2022, OFAC imposed non-blocking sanctions on Sberbank and some of its affiliates, generally prohibiting U.S. financial institutions (including their foreign branches) from opening or maintaining any correspondent or payable-through accounts for or on behalf of, and from processing any transactions involving, Sberbank or its listed affiliates, and imposed sanctions on Sberbank and Alfa-Bank, generally prohibiting U.S. persons from dealing in “new” debt of longer than fourteen days’ maturity or equity of these entities (see our prior alert).  This recent action expands previous sanctions by imposing full “blocking” sanctions on Sberbank and Alfa-Bank pursuant to Executive Order (“E.O.”) 14,024 of April 15, 2021 for operating in Russia’s financial services sector. 

[2] On February 24, 2022, OFAC imposed non-blocking sanctions on Alrosa, generally prohibiting U.S. persons from dealing in “new” debt of longer than fourteen days’ maturity or equity of Alrosa (see our prior alert).  This recent action expands previous sanctions by imposing full “blocking” sanctions on Alrosa pursuant to E.O. 14,024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, the Government of Russia. 

[3] United Shipbuilding Corporation has been designated as an SDN since 2014, pursuant to E.O. 13,661 of March 16, 2014, and has now also been designated pursuant to E.O. 14,024.

[4] This action builds upon OFAC’s recent sanctions against Russia-based virtual currency exchanges Suex and Chatex (see our prior alert).

[5] Many of these individuals have also been sanctioned by allies of the United States, including Canada, the European Union, Japan, New Zealand, Australia, and the UK.

[6] E.O. 14,024 and the directives thereunder also prohibit any transaction that evades or avoids or causes a violation of any of the prohibitions of those directives, as well as any conspiracy to violate any such prohibitions.  OFAC stated that it will not view as “evading or avoiding” efforts by non-U.S. persons to comply with U.S. sanctions by replacing sanctioned suppliers or service providers (including financial institutions) with non-sanctioned persons.

[7] “Debt” includes bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper and “equity” includes, share issuances, depositary receipts, or any other evidence of title or ownership. Notably, OFAC treats receivables for sale as “debt.”

[8] As described in our prior alert, since February 24, 2022, similar limited authorizations related to energy, debt and equity, and derivative contracts already apply for a limited time with respect to Sberbank and its 50%-or-more owned affiliates.

[9] E.O. 14,066 bans the importation into the United States of oil and energy-related commodities (crude oil, petroleum, petroleum fuels, oils and products of their distillation, liquefied natural gas, coal, and coal products) of Russian origin (see our prior alert).