New U.S. Measures Targeting Russia

International Trade & Compliance Alert

As part of its continuing response to Russia’s ongoing hostilities in Ukraine, the United States recently imposed additional sanctions and export controls targeting Russia, expanding previous measures described in our prior alerts available here, here, here and here.

Key developments include:

  1. Blocking sanctions on: (a) a Russian state-owned financial institution (Joint Stock Company Moscow Industrial Bank (“MIB”)) and certain executives of previously sanctioned financial institutions, (b) a private defense company, (c) three Russian state-owned television stations and (d) eight maritime-related companies and 69 vessels;
  2. Prohibition on providing accounting, trust and corporate formation, and management consulting services to any person located in Russia;
  3. Expanded controls on exports of certain items to Russia; and
  4. Visa bans on certain Russian and Belarusian persons.

a. Blocking Sanctions Prohibitions.

On May 8, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed blocking sanctions on, and added to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List, pursuant to Executive Order 14,024 of April 15, 2021:

  • MIB, a Russian state-owned bank, and ten of its subsidiaries;
  • Certain senior executives of Public Joint Stock Company Sberbank of Russia (“Sberbank”), Russia’s largest state-owned financial institution. Sberbank was designated as an SDN on April 6, 2022;
  • Certain board members of Gazprombank, Russia’s third-largest bank and a key financial institution for Gazprom, Russia’s state-owned natural gas company;
  • Limited Liability Company Promtekhnologiya, a private defense company; and
  • Three Russian state-owned television stations—Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company—subject to a limited authorization by OFAC for certain wind down transactions involving operations or existing contracts with such stations for a limited time until June 7, 2022.[1]

On the same day, pursuant to Executive Order 14,024, the State Department designated eight Russian maritime-related companies for operating in, or having operated in, marine sector and/or defense and related material sector(s) of the Russian economy.[2] The State Department also identified as blocked property 69 vessels in which these maritime shipping companies have an interest.

As a result of the OFAC and State Department blocking sanctions, all property of these 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 the blocked parties, as well as 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. Non-U.S. persons may be exposed to sanctions risk in relation to activities with persons subject to blocking sanctions pursuant to Executive Order 14,024.

b. Prohibition on Certain Services; Expansion of Sanctions Authorities.

On May 8, 2022, pursuant to Executive Order 14,071, the Secretary of the Treasury issued a determination (the “14,071 Determination”) that prohibits, starting on June 7, 2022, the export, reexport, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in Russia. OFAC issued the following guidance (see OFAC Frequently Asked Question (“FAQ”) 1034):

  • “Accounting services” includes services related to the measurement, processing, and transfer of financial data about economic entities.

  • “Trust and corporate formation services” includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts.

  • “Management consulting services” includes services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.

OFAC noted that the 14,071 Determination does not prohibit providing such services to an entity in Russia that is owned or controlled, directly or indirectly, by a U.S. person. Nor does it prohibit any service in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled, directly or indirectly, by a Russian person.

In connection with the 14,071 Determination, to a limited extent, OFAC authorized:

  • transactions ordinarily incident and necessary to the wind down of transactions involving accounting, trust and corporate formation, or management consulting services to any person located in Russia (until July 7, 2022);[3] and
  • transactions ordinarily incident and necessary to credit rating or auditing services to any person located in Russia (until August 20, 2022).[4]“Credit rating services” means services related to assessments of a borrower’s ability to meet financial commitments, including analysis of general creditworthiness or with respect to a specific debt or financial obligation.“Auditing services” means examination or inspection of business records by an auditor, including checking and verifying accounts, statements, or other representation of the financial position or regulatory compliance of the auditee. (See OFAC FAQ 1035.)

On the same day, pursuant to Executive Order 14,024, the Treasury Secretary issued another determination (the “14,024 Determination”) that authorizes sanctions against persons that operate or have operated in the accounting, trust and corporate formation services, and management consulting sectors of the Russian economy. While such determination exposes persons operating in the named sectors to potential sanctions risk, only parties specifically designated by the U.S. government are sanctioned.

c. Export Control Restrictions.

On May 9, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) imposed a license requirement for exports, reexports, or transfers (in-country) to and within Russia for additional items subject to the Export Administration Regulations, including wood products, various industrial parts and industrial robots. Imposition of export controls on these items is intended to further restrict Russia’s access to items that it needs to support its military capabilities. This action moves U.S. trade policy substantially further in the direction of a full embargo of Russia. BIS has indicated that it will review export, reexport, and (in-country) transfer applications pertaining to these new items under a policy of denial.

d. Visa Restrictions.

On May 8, 2022, the State Department announced visa restrictions on Russian military officials, Russia-backed or Russia-installed purported authorities and three Belarusian officials who are believed to have been involved in human rights violations. Family members of those affected would also be ineligible for U.S. visas. The State Department also imposed visa restrictions on over 2,600 Russian and Belarusian military officials believed to have operated in Bucha, Ukraine.

e. New OFAC General Licenses.

OFAC issued general licenses on May 8, 2022, authorizing, subject to certain limitations set out in the relevant authorizations:

  • transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving Russia, that are otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations (the “RuHSR”);[5] and
  • exportation or re-exportation, as well as sale or supply, from the United States or by a U.S. persons, wherever located, to Russia of services, software, hardware, or technology[6] incident to the exchange of communications over the internet that are otherwise prohibited by the RuHSR.

[1]See OFAC General License No. 25A dated May 8, 2022 (“GL 25A”).

[2]The relevant companies are: Oboronlogistika OOO, the Russian Ministry of Defense’s shipping company; SC South LLC, a subsidiary of Oboronlogistika OOO; Joint Stock Company Northern Shipping Company; Transmorflot LLC; M Leasing LLC; Marine Trans Shipping LLC; Nord Project LLC Transport Company; and Obshchestvo S Ogranichennoi Otvetstvennostyu Fertoing.

[3] See OFAC General License No. 34 dated May 8, 2022.

[4] See OFAC General License No. 35 dated May 8, 2022.

[5] The authorization explicitly excludes any transactions involving Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company. See GL 25A.

[6] This includes, among other things, instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services. Id.