In the past several days, the US Government has issued a slew of sanctions measures targeting Russia. These represent the first major escalation of sanctions against Russia under the Biden Administration and, according to a White House Fact Sheet, are stated to be in response to Russia’s “harmful foreign activities,” including efforts to undermine free and fair democratic elections and institutions, malicious cyber activities (including the recent SolarWinds incident), transnational corruption, targeting of dissidents and journalists, undermining national security and violating the territorial integrity of states.

The latest measures include:

  1. A new Executive Order 14024, “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation” (“New Russia EO”);
  2. The addition of several new parties to the OFAC Specially Designated Nationals and Blocked Persons List (“SDN List”), including six Russian technology companies under the New Russia EO and 40 others under pre-existing authorities; and
  3. A related new Directive prohibiting US financial institutions from participating in the primary market for certain ruble, as well as non-ruble, denominated Russian sovereign bonds and loans.

Separately, on April 12, 2021 the US State Department issued a fact sheet and FAQs on the recent addition of Russia to the list of countries subject to arms embargoes under the International Traffic in Arms Regulations (ITAR), and on April 9, 2021 updated clarifying public guidance and FAQs on the scope of the “Protecting Europe’s Energy Security Act of 2019” as amended on January 1, 2021 by the National Defense Authorization Act for FY 2021.

These measures, as further described below, have already prompted certain retaliatory sanctions from Russia, including against senior US officials.

New Russia EO 14024

Section (a) of the New Russia EO provides various new authorities for the imposition of blocking sanctions against any person identified by the Secretary of the Treasury, in consultation with the Secretary of State (and in some cases by the Attorney General), to:

  • (a)(i) Operate in the technology and defense and related materiel sectors of the Russian Federation economy, and in any additional sectors of the Russian Federation economy as may be determined;
  • (a)(ii) Be responsible for, complicit in, or have directly or indirectly engaged or attempted to engage in the below activities for the benefit of the Government of the Russian Federation:
    • malicious cyber-enabled activities,
      • interference in a United States or other foreign government election,
      • actions or policies that undermine democratic processes or institutions in the United States or abroad,
      • transnational corruption,
      • assassination, murder, or other unlawful killing of, or infliction of other bodily harm against, a United States person or a citizen or national of a United States ally or partner,
      • activities that undermine the peace, security, political stability, or territorial integrity of the United States, its allies, or its partners, or
      • deceptive or structured transactions or dealings to circumvent any United States sanctions, including through the use of digital currencies or assets or the use of physical assets;
  • (a)(iii) be leaders, officials, senior executives, or members of the board of directors of the Russian Government, an entity that has engaged in activities described in (a)(ii), or an entity otherwise blocked pursuant to the New Russian EO;
  • (a)(iv) and (a)(v) be a political subdivision, agency, or instrumentality of the Russian Government, or is a spouse or adult child of any person blocked pursuant to (a)(ii) or (a)(iii);
  • (a)(vi) have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of any activity described in (a)(ii) or any person blocked pursuant to the New Russia EO; or
  • (a)(vii) be owned or controlled by, or to have acted or purported to act for or on behalf of the Russian Government or any person blocked pursuant to the New Russia EO.

The above authorities could be used to target both Russian and non-Russian parties. Note that the blocking authority in (a)(i) for operating in the defense and related materiel sector does not automatically block parties already subject to the separate OFAC Directive 3 under EO 13662.

Separately, Sections (b) and (c) of the New Russia EO provide additional authority to block and sanction specifically Russian parties, i.e., Russian citizens, entities organized under the laws of Russia (including foreign branches of such entities), and for Section (b), also persons ordinarily resident in the Russian Federation, who are determined to:

  • (b) Have materially assisted, sponsored, or provided financial, material, or technology support in support any government whose property and interests in property are blocked under US sanctions regulations (i.e., currently Cuba, Iran, North Korea, Syria and Venezuela); or
  • (c) Be responsible for or complicit in, or to have directly or indirectly engaged in or attempted to engage in, cutting or disrupting gas or energy supplies to Europe, the Caucasus, or Asia.

OFAC SDN Designations

In conjunction with the New Russia EO, OFAC also added several new parties to the SDN List. The new additions include six Russian technology companies sanctioned under the New Russia EO for operating in the Russian technology sector: AST AO; Pasit AO; JSC Positive Technologies; ERA Military Innovation Technopolis/FGAU VIT ERA; FGANU NII Specvuzavtomatika; Neobit, OOO (including various aliases).

OFAC also added to the OFAC SDN List several additional individuals and entities under pre-existing sanctions authorities, including the cyber-related sanctions, WMD non-proliferation sanctions, electoral interference sanctions, and the Ukraine-related sanctions.

As a result of these designations, US persons are generally prohibited from transacting with these newly-designated SDN parties, as well as any entities that are owned 50 percent or more by one or more of these SDNs.  Non-US persons can also be liable for causing violations by US persons involving these SDNs, and can also be subject to secondary sanctions risks in some cases (which would include in particular, the risk of designation as an SDN themselves).   

OFAC Directive 1 Prohibiting Participation in Russian Sovereign Debt/Loans

On April 15, 2021, OFAC also issued a Directive pursuant to the New Russia EO generally prohibiting US financial institutions from (1) participating in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, and (2) lending ruble or non-ruble denominated funds to these three entities. “US financial institution” is broadly defined to include, inter alia, securities brokers and dealers, foreign exchange merchants, clearing corporations, investment companies and employee benefit plans, amongst others, including their US holding, affiliate or subsidiary companies. This Directive is independent from, but expands upon existing prohibitions on certain dealings in Russian non-ruble sovereign debt that have been in place since August 2019 under EO 13883 and the Chemical and Biological Weapons Act Directive. These restrictions do not apply to participation in the secondary market for such bonds, nor do they flow down to entities that are 50% or more owned by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.

OFAC New/Updated FAQs

To provide further guidance on the Directive and the New Russia EO, OFAC also published six new FAQs: 886887888889890891, and updated existing FAQs: 673674675676, to conform with these developments.

DDTC FAQs Regarding the Addition of Russia to the ITAR

On April 12, 2021, the US State Department’s Directorate of Defense Trade Controls (DDTC)  published a fact sheet and FAQs on the March 18, 2021 final rule adding Russia to the list of countries subject to arms embargoes under §126.1 of the ITAR.  These materials provide guidance on the status of pending and issued license applications, temporary imports, and brokering activities. Our previous blog post regarding the identification of Russia as subject to an arms embargo is available here.

State Department Issues PEESA Guidance and FAQs Relating to Nord Stream 2 and TurkStream Projects

On April 9, 2021, the State Department issued updated guidance and FAQs to provide notice of the range of activities now covered by the “Protecting Europe’s Energy Security Act of 2019” (“PEESA”) as amended and expanded in January 2021 via Section 1242 of the National Defense Authorization Act for Fiscal Year 2021 (NDAA). Those amendments were outlined in our previous blog post and included expansion of sanctions to target vessels engaging in “pipe-laying activities” for the construction of the Nord Stream 2 and Turkstream pipeline projects, as well as certain additional targeted activities.

The updated FAQs provide further detail on: (1) covered activities under PEESA; (2) PEESA exceptions; and (3) the time period for non-US parties to wind-down activities considered sanctionable under PEESA, which expired on January 31, 2021. 

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We are continuing to monitor developments and possible countermeasures. Notably, the White House Fact Sheet on these developments issued a warning about possible future actions under Executive Order 13873 with respect to “the risks of using information and communications technology and services (ICTS) supplied by companies that operate or store user data in Russia or rely on software development or remote technical support by personnel in Russia.”

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Ms Stafford Powell advises on all aspects of outbound trade compliance, including compliance planning, risk assessments, licensing, regulatory interpretations, voluntary disclosures, enforcement actions, internal investigations and audits, mergers and acquisitions and other cross-border activities. She develops compliance training, codes of conduct, compliance procedures and policies. She has particular experience in the financial services, technology/IT services, travel/hospitality, telecommunications, and manufacturing sectors.

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