US Government Issues Escalated Sanctions and Trade Controls in Response to Russian Invasion of Ukraine

By: Melissa Duffy, Mark S. Ostrau, Sofia Chalat

The United States government, in partnership with allies and partners, issued new and expanded sanctions and trade controls in response to Russia’s continued invasion into Ukraine. These measures followed the sanctions that were announced on February 22, 2022 and February 23, 2022.

These measures, which target nearly 80% of all banking assets in Russia and specified Russian industry sectors, are effective February 24, 2022. On February 25, 2022, the White House also announced that it will issue new sanctions against Russian President Vladimir Putin, Foreign Secretary Sergei Lavrov and members of the Russian National Security Team, a move aligned with the United Kingdom and the European Union.

BIS Export Controls

The new rule released by the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) under the Export Administration Regulations (EAR) builds on existing restrictions on exports to Russia. It implements both tightened controls and a policy of denial on sensitive items relevant to the Russian defense, aerospace and maritime sectors. These items, many of which were not previously subject to controls when destined for Russia, include semiconductors, computers, telecommunications, information security equipment, lasers, sensors, maritime and aviation items.

Today’s rule also imposes export bans—subject to broader than normal jurisdictional reach —on 49 Russian military end users, which have been added to BIS’s Entity List and thus are subject to a comprehensive export ban.

The new export controls do the following:

  • Impose new license requirements for Russia for all Export Control Classification Numbers (ECCNs) in Categories 3-9 of the CCL (§746.8(a)(1)). Certain of these items were not previously controlled to Russia and include microelectronics, computers, telecommunications items, information security products, sensors, navigation equipment, avionics, marine equipment and aircraft components. Notably, EAR99 (non-controlled) items are generally excluded, as are materials in Category 1, processing equipment in Category 2 and miscellaneous items in Category 0.
  • Adds two new foreign “direct product” rules (FDP rules) specific to Russia and Russian military end users (§734.9). The new rules dramatically expand U.S. export jurisdiction to foreign made items destined to Russia.
    • The Russia FDP rule applies to foreign-produced items that are: (i) the direct product of certain U.S.-origin software or technology subject to the EAR; or (ii) produced by certain plants or major components thereof which are themselves the direct product of certain U.S.-origin software or technology subject to the EAR. The Russia FDP rule does not apply to foreign-produced items that would be designated as EAR99 (items not listed on the CCL).
    • The Russia-MEU FDP rule is more extensive than the Russia FDP rule and applies to foreign-produced items that are: (i) the direct product of any software or technology subject to the EAR that is on the CCL; or (ii) produced by certain plants or major components thereof which are themselves the direct product of any U.S.-origin software or technology on the CCL. These restrictions apply to all items, including those designated EAR99, with certain exceptions.
    • Certain partner countries that are adopting similar measures are not subject to the Russia and Russia-MEU FDP rules, for Anti-Terrorism controlled items and ECCN 9A991 (aviation parts): Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.
  • Applies a “policy of denial” to license applications for exports, reexports to or transfers within Russia. License review policy of denial applicable to all of the license requirements – but case-by-case basis review for license applications related to safety of flight, maritime safety, humanitarian needs, government space cooperation, civil telecommunications infrastructure, government-to-government activities and to support limited operations of partner country companies in Russia.
  • Expands restrictions on Russian ‘military end users’ and ‘military end uses.’ Expands the existing Russia ‘military end use’ and ‘military end user’ control scope to all items “subject to the EAR” other than food and medicine designated EAR99, or ECCN 5A992.c and 5D992.c unless for Russian “government end users” and Russian state-owned enterprises (SOEs).
  • Entity List Additions and Escalation. Transfers 45 Russian entities from the Military End-User (MEU) List to the Entity List with an expanded license requirement of all items subject to the EAR (including foreign-produced items subject to the Russia-MEU FDP rules) and adds two new Russia entities to the Entity List: International Center for Quantum Optics and Quantum Technologies LLC and SP Kvant.
  • Imposes comprehensive restrictions for the “so-called” Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions. Restriction includes all items subject to the EAR, other than food and medicine designated as EAR99 and certain software for Internet-based personal communications. This mirrors the Treasury Department’s sanctions released on February 22, 2022.
  • Some License Exceptions Available. The following license exceptions are available for exports to Russia, with narrowly tailored parameters:
    • TMP (Temporary Imports, Exports, Reexports and Transfers in Country) (§740.9(a)(9)), for items for use by the news media;
    • GOV (§740.11(b)), for certain government activities;
    • TSU (Technology and Software Unrestricted) (§740.13(c)), for software updates to civil end users that are subsidiaries of, or joint ventures with, companies headquartered in the U.S. or partner countries;
    • BAG (Baggage) (§740.14, excluding paragraph (e)), for baggage, excluding firearms and ammunition;
    • AVS (Aircraft, Vessels, and Spacecraft) (§740.15(a) and (b)), for aircraft flying into and out of Russia;
    • ENC (Encryption Commodities, Software, and Technology) (§740.17), for encryption items, but not if they are destined for Russian ‘government end users’ and Russian state-owned enterprises; and
    • CCD (Consumer Communication Devices) (§740.19), for consumer communication devices, but not if they are destined for government end users or certain individuals associated with the government.
  • Savings Clause. BIS also issued a savings clause, allowing re-exports and transfers of foreign-made items outside the U.S. that are newly subject to U.S. jurisdiction under the FDP for Russia through March 26, 2022. All other restrictions under these rules, including U.S. origin exports, are effective immediately.

OFAC Sanctions

The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) imposed expansive economic sanctions that target the core infrastructure of the Russian financial system in attempt to isolate Russia from the global financial system. The new sanctions include additions to the Correspondent Account or Payable-Through Account Sanctions (CAPTA List), Specially Designated Nationals and Blocked Persons List (SDN List) as well as the Non-SDN Menu-Based Sanctions List (NS-MBS List) for selective sanctions. Notably, these new sanctions include:

  • Correspondent Account or Payable-Through Account Sanctions (CAPTA List).
    • Public Joint Stock Company Sberbank of Russia (Sberbank) – Under EO 14024 Directive 2, Treasury is imposing correspondent and payable-through account sanctions on Sberbank. Within 30 days, OFAC is requiring all U.S. financial institutions to close any Sberbank correspondent or payable-through accounts and to reject any future transactions involving Sberbank or its foreign financial institution subsidiaries. Sberbank and 25 Sberbank foreign financial institution subsidiaries that are 50% or more owned, directly or indirectly, by Sberbank were identified.
  • OFAC Specially Designated Nationals (SDN) and Blocked Persons List. Consequently, their assets within U.S. jurisdiction are frozen and blocked, U.S. persons cannot deal in their property interests, which effectively prevents most transactions with these individuals and entities.
    • VTB Bank Public Joint Stock Company (VTB Bank) – In addition, 20 VTB Bank subsidiaries were designated pursuant to E.O. 14024 for being owned or controlled by, directly or indirectly, VTB Bank.
    • Public Joint Stock Company Bank Financial Corporation Otkritie (Otkritie) – In addition, 12 Otkritie subsidiaries were designated today pursuant to E.O. 14024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, Otkritie.
    • Open Joint Stock Company Sovcombank (Sovcombank) – In addition, 22 Sovcombank subsidiaries were designated today pursuant to E.O. 14024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, Sovcombank.
    • Joint Stock Commercial Bank Novikombank (Novikombank) – Novikombank primarily operates in the Russian defense sector and serves as the core financial institution for Russian defense company Rostec, which fully owns the bank. Rostec remains subject to certain debt-related restrictions pursuant to Directive 3 under E.O. 13662.

All entities owned 50% more, directly or indirectly, by SDN Banks are subject to blocking, even if not identified by OFAC.

  • More Oligarchs and Families Designated as SDNs. An additional 15 individuals, described as Russian elites and their family members, were added to the OFAC SDN List.
  • Sovereign Debt Restrictions.

OFAC expanded Russia-related debt and equity restrictions to additional key aspects of Russia’s economy. To implement this action, OFAC issued Directive 3 under E.O. 14024, “Prohibitions Related to New Debt and Equity of Certain Russia-related Entities” (the Russia-related Entities Directive). This prohibits transactions and dealings by U.S. persons or within the U.S. in new debt of longer than 14 days maturity and new equity of SOEs.

Pursuant to E.O. 14024, OFAC identified the following 11 Russian entities as being owned or controlled by, or having acted or purposed to act for or on behalf of, directly or indirectly, the Government of Russia:

  • Sberbank is Russia’s largest financial institution. On February 25, 2022, Sberbank was also identified as subject to the Russia-related CAPTA Directive.
  • Gazprombank Joint Stock Company is Russia’s third-largest financial institution and is closely affiliated with the energy sector.
  • Joint Stock Company Russian Agricultural Bank is Russia’s fifth-largest financial institution and closely affiliated with the agricultural sector.
  • Public Joint Stock Company Gazprom is the world’s largest natural gas company.
  • Public Joint Stock Company Gazprom Neft is one of Russia’s largest oil producers and refiners.
  • Public Joint Stock Company Transneft (Transneft) manages Russia’s network of petroleum-related pipelines.
  • Public Joint Stock Company Rostelecom is Russia’s largest telecommunications company.
  • Public Joint Stock Company RusHydro is a hydroelectricity company and one of Russia’s largest power companies.
  • Public Joint Stock Company Alrosa is the world’s largest diamond mining company, responsible for 90% of Russia’s diamond mining capacity, which accounts for 28% globally.
  • Joint Stock Company Sovcomflot is Russia’s largest maritime and freight shipping company.
  • Open Joint Stock Company Russian Railways is one of the world’s largest railroad companies.

Pursuant to E.O. 14024, OFAC identified the following three Russian entities for operating or having operated in the financial services sector of the Russian Federation economy:

  • Joint Stock Company Alfa-Bank is Russia’s largest privately owned financial institution, and Russia’s fourth-largest financial institution overall.
  • Credit Bank of Moscow Public Joint Stock Company is Russia’s largest non-state public bank and Russia’s sixth-largest financial institution.
  • Sberbank, which is described above.
  • General Licenses have been issued for certain transactions. OFAC issued eight general licenses authorizing certain transactions related to:

OFAC also published new and recently updated FAQs, which predominantly focus on E.O. 14024 regarding SOEs and financial services.

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