Overview
Between April 5 and April 17, 2022, the US government took several steps to ratchet up economic sanctions, export controls, and other restrictive trade measures targeting Russia and Belarus.
President Biden issued a new Executive Order prohibiting US persons from engaging in new investment in Russia, and also establishing a framework through which US persons could in the future be prohibited from providing certain services to any person in Russia.
The US Treasury Department’s Office of Foreign Assets Control (OFAC) designated a darknet market and cryptocurrency exchange, several Russian banks and their subsidiaries, and a number of companies allegedly assisting the Russian military by adding them to the Specially Designated Nationals and Blocked Persons (SDN) List pursuant to Executive Orders (EOs) 14024 and 13694. OFAC also published seven new and amended general licenses, including authorizations related to the recent designations of Public Joint Stock Company Sberbank of Russia (Sberbank), Joint Stock Company Alfa-Bank (Alfa-Bank), and Public Joint Stock Company Alrosa (Alrosa).
Separately, the US Commerce Department’s Bureau of Industry and Security (BIS) announced new, stringent export controls so that all items subject to the US Export Administration Regulations, except items designated “EAR99,” require a license for export, reexport, or transfer (in country) to or in the Russian Federation and Belarus.
New Executive Order
On April 6, 2022, President Biden signed new Executive Order 14071, which prohibits:
- new investments in Russia by US persons;
- the export, reexport, sale, or supply, directly or indirectly, from the US or by a US person, of any category of services as may be determined by the Secretary of the Treasury to any person located in Russia;
- approval, financing, facilitation, or guarantee by a US person of a transaction by a foreign person where the transaction would be prohibited under the Order if performed by a US person or within the United States.
- General License 8B authorizes energy-related transactions otherwise prohibited by EO 14024 involving one or more of the banks identified in the general license (which now include Alfa-Bank) through 12:01 a.m. eastern daylight time (EDT), June 24, 2022.
- General License 9C continues to authorize through May 25, 2022 12:01 a.m. EDT transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587 (RuHSR) that are ordinarily incident and necessary to dealings in debt or equity issued prior to February 24, 2022 of State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), Public Joint Stock Company Bank Financial Corporation Otkritie (Otkritie), Sovcombank Open Joint Stock Company (Sovcombank), Public Joint Stock Company Sberbank of Russia (Sberbank), VTB Bank Public Joint Stock Company (VTB), or any entity in which one or more of the above entities own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest. Also, GL 9C now authorizes all transactions through 12:01 a.m. eastern daylight time, June 30, 2022, otherwise prohibited by the RuHSR that are ordinarily incident and necessary to dealings in debt or equity of Alfa-Bank or any entity in which Alfa-Bank owns, directly or indirectly, a 50 percent or greater interest, issued prior to April 6, 2022. Finally GL 9C now authorizes all transactions through 12:01 a.m. eastern daylight time, July 1, 2022 otherwise prohibited by the RuHSR that are ordinarily incident and necessary to dealings in debt or equity of Alrosa or any entity in which Alrosa owns, directly or indirectly, a 50 percent or greater interest, issued prior to April 7, 2022. Any divestment or transfer of, or facilitation of divestment or transfer of, debt or equity pursuant to GL 9C must be to a non-US person.
- General License 10C continues to authorize through May 25, 2022 12:01 a.m. EDT all transactions otherwise prohibited by the RuHSR that are ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. EST, February 24, 2022, that (i) include VEB, Otkritie, Sovcombank, Sberbank, VTB or any entity in which one or more of the above entities own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest as a counterparty or (ii) are linked to debt or equity of such entities. Also, GL 10C now authorizes all transactions through 12:01 a.m. EDT, June 30, 2022 otherwise prohibited by the RuHSR that are ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. eastern daylight time, April 6, 2022, that include Alfa-Bank or any entity in which Alfa-Bank owns, directly or indirectly, a 50 percent or greater interest as a counterparty or are linked to debt or equity of an Alfa-Bank entity. Finally, GL 10C now authorizes all transactions through 12:01 a.m. EDT, July 1, 2022 otherwise prohibited by the RuHSR that are ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. eastern daylight time, April 7, 2022, that include Alrosa, or any entity in which Alrosa owns, directly or indirectly, a 50 percent or greater interest as a counterparty or are linked to debt or equity of an Alrosa entity. Any payments to a blocked person pursuant to GL 10C must be made into a blocked account.
- General License 21A authorizes US persons to engage in all transactions ordinarily incident and necessary to the wind down of Sberbank CIB USA, Inc., Alrosa USA, Inc., or any entity in which either of those entities owns, directly or indirectly, a 50 percent or greater interest, that are otherwise prohibited by the RuHSR, 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, June 7, 2022.
- General License 22authorizedall transactions ordinarily incident and necessary to the wind down of transactions involving Sberbank or any entity in which Sberbank owns, directly or indirectly, a 50 percent or greater interest that are otherwise prohibited by EO 14024 through 12:01 a.m. EDT, April 13, 2022.This license has expired.
- General License 23 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Alfa-Bank or any entity in which Alfa-Bank owns, directly or indirectly, a 50 percent or greater interest that are otherwise prohibited by Executive Order 14024 through 12:01 a.m. EDT, May 6, 2022.
- General License 24 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Alrosa or any entity in which Alrosa owns, directly or indirectly, a 50 percent or greater interest that are otherwise prohibited by Executive Order 14024 through 12:01 a.m. EDT, May 7, 2022.
- General License 25 authorizes all transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving the Russian Federation that are prohibited by the RuHSR. It also authorizes the exportation (where otherwise prohibited by the RuHSR) of certain services, software, hardware, or technology incident to the exchange of communications over the internet.
- General License 26 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Joint Stock Company SB Sberbank Kazakhstan or Sberbank Europe AG or any entity in which these specifically blocked Sberbank subsidiaries own, directly or indirectly, a 50 percent or greater interest, that are otherwise prohibited by Executive Order (E.O.) 14024 through 12:01 a.m. EDT, July 12, 2022.
- Expand the export license requirement for exports to Russia and Belarus, under § 746.8(a)(1), to include items classified under any ECCN in Categories 0-2 of the Commerce Control List (CCL). A savings clause does apply to items with such Category 0, 1, and 2 ECCNs pursuant to actual orders that are in-transit as exports, reexports, or transfers (in country) until May 9, 2022 that may proceed as No License Required. We note that a February 24, 2022 amendment to the EAR already had imposed license requirements on exports to Russia and Belarus of items falling within any ECCNs specified in Categories 3-9, among other significant restrictions. Accordingly, all items subject to the EAR, other than those designated “EAR99,” e., not elsewhere specified on the CCL, require an export license for export, reexport, or transfer (in country) to or in Russia or Belarus unless a license exception applies. Very limited export license exceptions are available to Russia and Belarus.
- As a result of the foregoing controls, the amendments expand restrictions applicable to foreign-produced items made or derived from US software and technology ECCNs in Categories 0 through 2, or from a foreign plant or major equipment of such controlled US software or technology, so that now all Categories of ECCNs on the CCL are subject to export, reexport, and transfer (in country) license requirements under the “Russia/Belarus FDP rule” at § 734.9(f). These restrictions pulling non-US items into EAR control do not apply if the non-US origin items are exported or reexported to or from the Global Export Control Coalition referenced above (as those countries are considered to have their own similar applicable controls for items produced in those countries).
- Finally, the amendment restricts the availability of parts of License Exception Aircraft, Vessels, and Spacecraft (AVS) in § 740.15 for aircraft registered in, owned, or controlled by, or under charter or lease by, Belarus or Russia, or by a Belarusian or Russian national.