US Imposes Additional Investment Restrictions, Other Sanctions, and Export Controls on Russia

Alert

12 April 2022

7 min read

Authored by our Global Sanctions, Export Controls and Customs Teams

In early April 2022, the US imposed additional sanctions and export-controls restrictions on Russia. The restrictions include a new Executive Order prohibiting new investment in the Russian Federation, the designation of major Russian financial institutions and state-owned enterprises, and a restriction on certain US dollar payments on Russian sovereign debts. The US also expanded export control restrictions on Russia and Belarus, added countries to the Exclusion List for the Foreign Direct Product Rule, and updated the list of aircraft in violation of the Export Administration Regulations ("EAR").

Sanctions Updates

Ban on New Investment and Certain Services

On April 6, 2022, US President Biden signed Executive Order 14071 ("EO 14071"), which prohibits all new investment in the Russian Federation by US persons, wherever located.¹ EO 14071 also bans the exportation, reexportation, sale, or supply, directly or indirectly, from the US, or by a US person, wherever located, of any category of services that is to be determined by the Secretary of the Treasury, to any person located in the Russian Federation. As of April 9, 2022, the Secretary of the Treasury has not made any determination as to any category of services under this authority.

Additional Sanctions Designations

On April 5, 2022, the US Department of the Treasury's Office of Foreign Assets Control ("OFAC") designated the virtual currency exchange Garantex along with several associated digital wallet addresses, and Hydra, a Russian darknet market associated with stolen virtual currency and ransomware, to the List of Specially Designated Nationals and Blocked Persons ("SDN List").²

On April 6, 2022, OFAC designated Sberbank and 42 of its subsidiaries, Alfa Bank and six of its subsidiaries, and five vessels owned by an Alfa Bank subsidiary to the SDN List.³ Previously, these entities had been subject to more limited sanctions measures. Several individuals were also designated to the SDN List, including former Prime Minister Dmitry Medvedev and several members of Russia's Security Council.

On April 7, 2022, OFAC also designated as SDNs several Russian State-Owned Enterprises related to United Shipbuilding Corporation and Alrosa (a major diamond mining company) and individuals associated with those entities.⁴

All property and interests in property of persons on the SDN List that are located in the United States or within the possession or control of a US person, wherever located, are blocked, and US persons may not engage in any dealings, directly or indirectly, with them, absent an applicable license or exemption. Any entity in which one or more blocked persons owns in the aggregate, directly or indirectly, a 50 percent or greater interest is automatically blocked and its property and interests are also blocked.

Changes to Sovereign Debt Payments

On April 6, 2022, the US Department of the Treasury announced that it had decided not to permit Russia to make payments on its sovereign debt with funds that are subject to US jurisdiction.⁵US sanctions currently do not prohibit payments on Russian debt provided that Russia uses funds outside of US jurisdiction.

Updates to General Licenses

On April 6 & 7, 2022, OFAC issued several new and superseding general licenses and ("GLs"):

GL 8B authorizes (with conditions) transactions related to energy involving certain Russian financial institutions through 12:01 a.m. EDT, June 24, 2022.⁶ This GL supersedes GL 8A of February 28, 2022.
GL 9C authorizes (with conditions) transactions related to dealings in certain debt or equity involving certain Russian financial institutions through 12:01 a.m. EDT, May 25, 2022.⁷ This GL also authorizes (with conditions) the same transactions specifically with Alfa-Bank through 12:01 a.m. EDT, June 30, 2022. GL 9C supersedes GL 9B.
GL 10C authorizes (with conditions) certain transactions related to the wind-down of derivative contracts involving certain Russian financial institutions through 12:01 a.m. EDT, May 25, 2022.⁸ This GL supersedes GL 10B.
GL 21A authorizes (with conditions) the wind-down of transactions involving Sberbank CIB USA, Inc. through 12:01 a.m. EDT, June 7, 2022.⁹ This GL supersedes GL 21.
GL 22 authorizes (with conditions) the wind-down of transactions involving PJSC Sberbank of Russia through 12:01 a.m. EDT, April 13, 2022.¹⁰
GL 23 authorizes (with conditions) the wind-down of transactions involving JSC Alfa-Bank through 12:01 a.m. EDT, May 6, 2022.¹¹
GL 24 authorizes (with conditions) the wind-down of transactions involving Public Joint Stock Company Alrosa through 12:01 a.m. EDT, May 7, 2022.¹²
GL 25 authorizes (with conditions) transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving Russia that are otherwise prohibited by the Russian Harmful Activities Foreign Sanctions Regulations.¹³ This GL also authorizes the exportation, reexportation, or supply to Russia of software, hardware, and technology incident to such telecommunications transmissions.

Export Controls

Expansion of Controls to All Items on the Commerce Control List ("CCL")

On April 8, 2022, the US Department of Commerce Bureau of Industry and Security ("BIS") released expanded export controls on Russia and Belarus.¹⁴ The licensing requirement now applies to all items classified under any Export Control Classification Number ("ECCN") on the CCL. Previously, the controls only applied to items in Categories 3-9 of the CCL.

Under the April 8 rule, any foreign-produced item classified in any ECCN (other than EAR99) that is the direct product of US origin software or technology classified in any ECCN in Product Group D or E of any Category 0 through 9 on the CCL will now be subject to the EAR under the Russia/Belarus Foreign Direct Product Rule ("FDPR").

No change was made to the existing Russia/Belarus Military End User FDPR, which states that any foreign-producted item, even if classified EAR99, that is the direct product of any software or technology subject to the EAR classified in any ECCN in Product Group D or E of any Category 0 through 9 on the CCL requires a license if an entity on the Entity List that BIS has determined is a Military End User is a party to the transaction .

The policy for all of the Russia/Belarus license requirements in Section 746.8 is a policy of denial

For items removed from eligibility for a license exception or export, reexport, or transfer (in-country) as a result of these new rules, a savings clause applies that allows items to proceed to their destination under the previously applicable license exception or no license required status. This savings clause applies to such items if they are en route pursuant to an actual order to their destination on/before May 9, 2022. A separate savings clause applies to items subject to the new FDPR and applies through April 14, 2022.

Expansion of Exclusion List

BIS expanded the Exclusion List for the Russia/Belarus FDPRs by adding Iceland, Liechtenstein, Norway, and Switzerland, effective April 8, 2022. These countries have committed to implementation of similarly stringent export controls on Russia and Belarus.

Additional Entity List Designations

On April 1, 2022, BIS added 120 entities from the Russian and Belarusian aerospace, maritime, and defense sectors to the Entity List.¹⁵ Ninety-five (95) of these entities are designated as Russian or Belarusian Military End Users, to which additional restrictions under the EAR may apply.

Updates to Aviation Controls

BIS expanded the limitation of License Exception AVS to exclude aircraft registered in, owned or controlled by, or under charter or lease by Belarus or a national of Belarus. This exclusion from being able to use License Exception AVS now applies to both Russia and Belarus.

BIS further issued denial orders denying the export privileges of three Russian airlines – Aeroflot, Azur Air, and UTair – due to alleged export violations.¹⁶ The denial orders represent the first enforcement actions taken by BIS since the implementation of its new Russian export-controls measures on February 24, 2022. These three denial orders terminate the right of these airlines to participate in transactions subject to the EAR.

In addition, BIS updated the list of aircraft determined to be in violation of the EAR on April 8, 2022 to reflect updated registration information and a removal of a handful of aircraft from the list.

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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