On March 3, 2022, President Joseph Biden announced that the United States was sanctioning an extensive list of “Russian elites” and their family members. In a White House press release, the president stated that, “[t]hese individuals and their family members will be cut off from the U.S. financial system, their assets in the United States will be frozen and their property will be blocked from use.” These sanctions also include the designation of several aircraft and vessels belonging to these individuals. In addition, the United States has also sanctioned a number of Russian “intelligence-directed disinformation outlets” for “enabling the Government of the Russian Federation’s efforts to spread disinformation and influence perceptions as a part of their invasion of Ukraine.”

These sanctions were implemented by the Department of the Treasury’s Office of Foreign Assets Control (OFAC) and the extensive list of these Russian elites, their family members and disinformation outlets were placed on OFAC’s Specifically Designated Nationals (SDN) List. The full list of these persons and entities is available here. With these designations to the SDN List, all property and interests in property of these persons that are in the United States or in the possession or control of U.S. persons (or their foreign branches) are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license issued by OFAC, or exempt, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked persons are generally prohibited.

OFAC also issued Russia General License 15 to clarify that the sanctioning and designation of one Russian individual does not impact a U.S. person’s ability to engage in transactions with companies owned and controlled by that individual so long as such a company is not also designated by OFAC.

Furthermore, the Department of the Treasury and the Department of Justice stated that the United States will continue to work with international partners and allies to target assets in various jurisdictions, as committed to in the joint statement by leaders on February 26, 2022.

On March 2, 2022, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a Final Rule that has added new license requirements and review policies for Belarus to the Export Administration Regulations (EAR) which now subject Belarus to the same sanctions that were imposed on Russia under the EAR effective February 24, 2022. See Update of February 25, 2022. The Department of Commerce indicated that application of these controls on Belarus “will help to prevent the diversion of items, including technology and software, in the defense, aerospace, and maritime sectors to Russia through Belarus, and degrade both nations’ ability to sustain military aggression.” In summary, these sanctions include:

  • Commerce Control List Requirements – The final rule adds new license requirements for Belarus. These license requirements apply to export, reexport or transfer (in-country) to or within Belarus of any item subject to the EAR and specified in an Export Control Classification Number (ECCN) in Categories 3-9 of the CCL, excluding deemed exports and deemed reexports. This includes items, equipment, software and technology for microelectronics, telecommunications, sensors, navigation, avionics, marine, and aircraft.
  • Foreign Direct Product (FDP) Rules – The final rule adds two FDP rules specific to Belarus and Belarusian military end-users. Under the FDP rules, the U.S asserts jurisdiction over the export, re-export and in-country transfer of certain foreign-produced items located outside the United States that are produced using U.S.-origin technology. The rule also adds Belarus to the Russia military end-users FDP rule and the applicability of Footnote 3 of the Entity List for Belarusian military end-users.
  • New License Review Policy of Denial – The final rule adjusts BIS’ licensing review policy for Belarus to a general “policy of denial.” The following types of license applications will be reviewed on a case-by-case basis to determine whether the transaction in question would benefit the Belarus government or defense sector: applications related to safety of flight, maritime safety, humanitarian needs, government space cooperation, civil telecommunication infrastructure, government-to-government activities, items destined to wholly owned U.S. subsidiaries, foreign subsidiaries of U.S. companies that are joint ventures with other U.S. companies, or wholly owned subsidiaries and joint ventures of companies from partner countries identified in Country Groups A:5 and A:6 in supplement no. 1 to part 740.
  • Additional Restrictions on License Exceptions – The final rule adds significant restrictions on license exceptions available for exports, reexports and transfers (in-country) for Russia.
  • Expansion of the Scope of Military End-Use and Military End-User Restrictions – The final rule expands the scope of military end-use and military end-user restrictions to Russia to encompass all items subject to EAR except for food or medicine designated as EAR99. The rule also adds Belarus to the countries subject to the “military-intelligence end use” and “military-intelligence end user” (MIEU) restrictions.
  • Entity List Additions – The final rule adds JSC Integral and The Ministry of Defence of the Republic of Belarus (including the Armed Forces of Belarus and all operating units wherever located) to the Entity List.

In addition, this final rule makes revisions to the licensing scope for telecommunications/information security to note that “commodities and software classified under ECCNs 5A992 or 5D992 do not require a license to or within Russia or Belarus for civil end-users that are wholly-owned U.S. subsidiaries, foreign subsidiaries of U.S. companies that are joint ventures with other U.S. companies, joint ventures of U.S. companies with companies headquartered in countries from Country Group A:5 and A:6 [see Supplement No.1 to Part 740 of the EAR], the wholly-owned subsidiaries of companies headquartered in countries from Country Group A:5 and A:6, or joint ventures of companies headquartered in Country Group A:5 and A:6 with other companies headquartered in Country Groups A:5 and A:6.”

This Final Rule will become effective on March 8, 2022. BIS, however, has stated that exports of items impacted by this rule that were en route aboard a carrier to a port of export, reexport, or transfer (in-country) on March 26, 2022, pursuant to actual orders for reexport, or transfer (in-country) to or within a foreign destination, may proceed to that destination under any previous eligibility for a License Exception or reexport or transfer (in-country) without a license (NLR).

On March 2, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) provided clarifying guidance on the implementation of several of its sanctions involving Russia.  In doing so, OFAC noted that since implementation of the sanctions, “Russia has taken steps to use exporters to act as their agents and help them raise resources to prop up their currency and fund their priorities. [This additional] guidance makes clear that such actions on behalf of Russia’s Central Bank are prohibited, closing off attempts to access the U.S. financial system.”  The clarifications and guidance focus on interpretation of transactions authorized by Directive 4 under Executive Order (E.O). 14024, “Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation, involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation” (collectively, “Directive 4 entities”).

In a press release, OFAC stated that, “Treasury remains committed to permitting energy-related payments — ranging from production to consumption for a wide array of energy sources — involving specified sanctioned Russian banks. To help protect Americans, partners, and allies from higher energy prices that would drive more resources to Russia, Treasury swiftly issued and updated Russia-related guidance to allow U.S. financial institutions to continue processing these transactions and underscore that such activity is not prohibited by sanctions. While current circumstances and the dangers from Russia’s war in Ukraine may lead entities and individuals to make their own risk assessments and business decisions, Treasury is making clear that sanctions will not block energy payments.”

OFAC issued a number of General Licenses (GLs) in furtherance of the Russia sanctions.  GLs 9A authorizes all transactions prohibited by the Russia-related Sovereign Transactions Directive that are ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with debt or equity of the Directive 4 entities.  GL 10A authorizes all transactions prohibited by the Russia-related Sovereign Transactions Directive that are ordinarily incident and necessary to the wind down of derivative contracts, repurchase agreements, or reverse repurchase agreements entered into prior to 12:01 a.m. eastern standard time, March 1, 2022, that include a Directive 4 entity as a counterparty.  OFAC has highlighted that neither GL 9A nor GL 10A authorize any debit to an account on the books of a U.S. financial institution of a Directive 4 entity.  These GLs authorize transactions related to dealings in certain debt or equity, and certain derivative contracts involving (i) State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank; (ii) Public Joint Stock Company Bank Financial Corporation Otkritie; (iii) Sovcombank Open Joint Stock Company; (iv) Public Joint Stock Company Sberbank of Russia; and, (v) VTB Bank Public Joint Stock Company.

OFAC issued GL 13, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024,” to clarify that U.S. persons are authorized to pay taxes, fees, or import duties and purchase or receive permits, licenses, registrations, or certifications, to the extent such transactions are prohibited by the Russia-related Sovereign Transactions Directive, provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation.  This GL expire on June 24, 2022.

OFAC also issued GL 14, “Authorizing Certain Clearing and Settlement Transactions Prohibited by Directive 4 under Executive Order 14024,” to clarify and authorize certain transactions involving any Directive 4 entity where the Directive 4 entity’s sole function in the transaction is to act as an operator of a clearing and settlement system.  GL 14 does not authorize any transfer of assets to or from any Directive 4 entity, or any transaction where a Directive 4 entity is either a counterparty or beneficiary to the transaction.  In addition, GL 14 does not authorize any debit to an account on the books of a U.S. financial institution of any Directive 4 entity.

To further assist in the understanding and application of these, and other General Licenses, OFAC has published new Frequently Asked Questions and updated several Frequently Asked Questions.

The Department of State’s Directorate of Defense Trade Controls (DDTC) announced on February 25, 2022, that effective immediately, DDTC has implemented a policy of denial for any licenses or other approvals under the International Traffic in Arms Regulations (ITAR) for exports, reexports, retransfers, temporary imports of, and brokering activities related to defense articles and defense services, destined for or originating in the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine (collectively, the “Covered Regions”). Only limited ITAR exemptions will apply for transfers in furtherance of the conduct of the official business of the U.S. government.

On February 25, the Office of Foreign Assets Control (OFAC) placed on the Specially Designated Nationals (SDN) List Russian President Vladimir Putin, Foreign Minister Sergei Lavrov, Minister of Defense Sergei Shoigu and Chief of the General Staff of the Russian Armed Forces, First Deputy Minister of Defense, and General of the Army Valery Gerasimov.  Specific detail on these designations is available here.

On February 28, 2022, OFAC took further steps to restrict Russia’s access to the world’s financial markets by sanctioning the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. In addition, OFAC placed on the SDN List the Russian Direct Investment Fund (RDIF) and its Chief Executive Officer, Kirill Dmitriev.  These actions restrict or, in certain circumstances, terminate these entities access to the U.S. financial system.  With this announcement OFAC issued Directive 4 under Executive Order 14024 prohibiting U.S. persons from engaging in any transactions with these Russian financial entities, including any transfer of assets to such entities or any foreign exchange transactions.  General License No. 8A, however, will allow for limited continued transactions “related to energy” until June 24, 2022 with the Central Bank of Russia as well as certain other Russian financial institutions.  Specific detail on these designations is available here.

With these designations to the SDN List, all property and interests in property of these persons that are in the United States or in the possession or control of U.S. persons (or their foreign branches) are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked.  Unless authorized by a general or specific license issued by OFAC, or exempt, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked persons are generally prohibited. Dealings with blocked persons may also trigger reporting requirements pursuant to 31 C.F.R. §§ 501.603 and 501.604.

 

On February 24, 2022, the Department of Treasury’s Office of Foreign Assets Control (OFAC) again expanded sanctions against Russia in response to its invasion of Ukraine by designating numerous Russian and Belarusian financial institutions to the Specially Designated Nationals and Blocked Persons (SDN) List, and Russian financial institutions to the Non-SDN Menu-Based Sanctions (MBS) List and the Correspondent Account or Payable-Through Account (CAPTA) Sanctions List, pursuant to Executive Orders (EO) 13662, 14024 and 14038.

OFAC has issued Russia-related Directive 2 and Directive 3 pursuant to EO 14024 in connection with CAPTA and MBS List designations, which become effective on March 26, 2022. OFAC also issued Russia-related General Licenses (GL) 5, 6, 7, 8, 9, 10, 11, and 12 authorizing activities prohibited by EO 14024 and Belarus-related GLs 5 and 6 authorizing activities prohibited by EO 14038.

Designations of Major Russian and Belarussian Financial Institutions to the SDN List

OFAC designated several banks to the SDN List which prohibits nearly all transactions with the SDNs and requires U.S. persons to block or freeze all of their assets and property interests and report them to OFAC.

One of Russia’s largest financial institutions, VTB Bank Public Joint Stock Company (VTB Bank), was designated to the SDN List pursuant to EO 14024. Three other significant Russian banks were also designated to the SDN List pursuant to EO 14024: Public Joint Stock Company Bank Financial Corporation Otkritie (Otkritie), Open Joint Stock Company Sovcombank (Sovcombank) and Joint Stock Commercial Bank Novikombank (Novikombank).

Similarly, OFAC designated two large state-owned banks in Belarus, Belarussian Bank of Development and Reconstruction Belinvestbank Joint Stock Company  and Bank Dabrabyt Joint-Stock Company pursuant to EO 14038.

Additional individuals and companies in Russia and Belarus were also added to the SDN List.

Effective immediately, all property and interests in property of these SDNs, including all entities owned 50% or greater, directly or indirectly, individually or in the aggregate by them, are blocked and cannot be dealt in by any U.S. persons. As discussed below, OFAC issued Russia-related GLs 8-12 authorizing certain transaction and activities with the Russian banks. No GLs have been issued related to the Belarussian banks.

Directive 2 Designation of Sberbank to the Russia CAPTA List

Public Joint Stock Company Sberbank of Russia (Sberbank) and 25 of its subsidiaries were designated to Annex 1 of EO 14024 ‘s Directive 2, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions.” Sberbank subsidiaries on Annex 1 include banks, trusts, insurance companies, and other financial companies located in Russia and six other countries.

EO 14024 Directive 2, which becomes effective on March 26, 2022, will prohibit U.S. financial institutions from:

  • opening or maintaining a correspondent account or payable-through account for or on behalf of any entity determined to be subject to Directive 2, or their property or interests in property; and
  • processing transactions involving any entities subject to Directive 2, or their property or interests in property.

Consequently, U.S. financial institutions must reject such transactions unless exempt or authorized by OFAC. OFAC has also issued Frequently Asked Questions (FAQs) 967, 968, 969, 970, 971, 972 and 973 related to Directive 2. FAQ 969 provides that OFAC’s 50% rule applies to Directive 2 entities, meaning that entities not listed in Annex 1 that are owned 50% or greater, directly or indirectly, individually or in the aggregate, by one or more by any of the designated entities are subject to the Directive’s prohibitions.

Directive 3 Designation of Entities to the Russia MBS List

Thirteen Russian entities including Gazprombank Joint Stock Company and Public Joint Stock Company Gazprom Neft, were designated to Annex 1 of EO 14024’s Directive 3, “Prohibitions Related to New Debt and Equity of Certain Russia-related Entities.” Most of the entities were found to be owned or controlled by the Russian government.

EO 14024 Directive 3 prohibits U.S. persons from engaging in “all transactions in, provision of financing for, and other dealings in new debt of longer than 14 days maturity or new equity where such new debt or new equity” that is:

  • issued after March 26, 2022, for new debt or new equity of entities listed in Annex 1 of Directive 3 or their property or interests in property; and
  • issued 30 days after an entity is determined to be subject to the Directive 3 or their property or interests, for new debt or new equity of such designated entities or their property or interests in property.

Directive 3’s prohibitions related to the entities on Annex 1 also become effective on March 26, 2022.  OFAC has issued FAQs 984, 985, 986, 987, 988, and 989 related to Directive 3. Similar to Directive 2, FAQ 985 provides that OFAC’s 50% rule applies to Directive 3 entities.

General Licenses

Given these sanctions, OFAC has issued six Russian-related GLs and two Belarussian GLs authorizing certain transactions otherwise prohibited by the EOs, including transactions related to official government or NGO activities as well as wind-down and energy-related activities with otherwise blocked banks.

Russia-related:

  • GL 5 (NGO activity) authorizes all transactions prohibited by EO 14024 conducted for official business of certain international organizations, including the United Nations, the ICSID, the MIGA, certain international development banks, the International Committee of the Red Cross and the International Federation of Red Cross and Red Crescent Societies, and the Organization for Security and Co-operation in Europe by their employees, grantees, or contractors.
  • GL 6 (export of agricultural products, medicine, and medical devices) authorizes all transactions ordinarily incident and necessary to: (i) the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices to Russia, or to persons in third countries purchasing specifically for resale to Russia; or (ii) the prevention, diagnosis, or treatment of COVID-19 (including research or clinical studies relating to COVID-19) in Russia.
  • GL 7 (overflight payments, emergency landings, air ambulance services) authorizes all transactions ordinarily incident and necessary to: payment of charges for, services rendered in connection with overflights of Russia or emergency landings in Russia by U.S. registered aircrafts, or owned or controlled by, or chartered to, U.S. persons.
  • GL 8 (related to energy) authorizes all transactions related to energy (as defined therein) involving one or more of the following entities: State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (Vnesheconombank); Otkritie; Sovcombank; Sberbank; VTB Bank; or any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50% or greater interest.
  • GL 9 (certain debt or equity) all transactions ordinarily incident and necessary to dealings in debt or equity of one or more of the following entities issued prior to February 24, 2022 (4 p.m. EST): Vnesheconombank; Otkritie; Sovcombank; Sberbank; VTB Bank; or any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50% or greater interest.
  • GL 10 (wind down of derivative contracts) authorizes all transactions ordinarily incident and necessary to the wind down of derivative contracts entered into prior to February 24, 2022 (4 p.m. EST) that (i) include one of the following entities (together, the “Covered Entities”) as a counterparty or (ii) are linked to debt or equity of a Covered Entity, provided that any payments to a blocked person are made into a blocked account: Vnesheconombank; Otkritie; Sovcombank; Sberbank; VTB Bank; or any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50% or greater interest.
  • GL 11 (wind down of all transactions) authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving Vnesheconombank; Otkritie; Sovcombank; Sberbank; VTB Bank; or any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50% or greater interest.
  • GL 12 (rejecting transactions) authorizes U.S. persons to reject all transactions prohibited by EO 14024 involving Otkritie; Sovcombank; VTB Bank; or any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50% or greater interest.

Belarus-related:

  • GL 6 (official business of the U.S. government) authorizes transactions prohibited by 31 CFR Part 548, that are for the conduct of the official business of the U.S. government.
  • GL 7 (government and NGO activity) authorizes all transactions prohibited by 31 CFR Part 548 and EO 14038  conducted for official business of certain international organizations, including the United Nations, the ICSID, the MIGA, certain international development banks, the International Committee of the Red Cross and the International Federation of Red Cross and Red Crescent Societies, and the Organization for Security and Co-operation in Europe by their employees, grantees, or contractors.

On February 24, 2022, in response to Russia’s invasion of Ukraine, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued a final rule, “Implementation of Sanctions Against Russia Under the Export Administration Regulations (EAR),” adding new Russia export license requirements and making licensing policies more stringent. The final rule is effective as of February 24.

These export restrictions are expansive. Companies should review the products they export directly and indirectly to Russia to determine if the exports now require a license. Both the products themselves and the end-users may activate the restrictions under the expanded export controls.

The new measures introduced with the final rule include but are not limited to:

  1. Making all items listed in Categories 3-9 of the Commerce Control List (CCL) subject to a license requirement for Russia;
  2. Creating two new foreign “direct product” rules (FDP Rules) specific to Russia and Russian military end-users;
  3. Making the license review policies generally more stringent for Russia, with certain limited exceptions;
  4. Imposing significant restrictions on the use of EAR license exceptions;
  5. Expanding the existing Russia military end-use and military end-user scope to all items subject to the EAR, with limited exceptions;
  6. Moving several MEUs to the Entity List; and
  7. Imposing comprehensive export, reexport and transfer (in-country) restrictions for the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine (“Covered Regions of Ukraine”).

Commerce Control List Requirements

The final rule adds new license requirements for Russia. These license requirements apply to export, reexport or transfer (in-country) to or within Russia of any item subject to the EAR and specified in an Export Control Classification Number (ECCN) in Categories 3-9 of the CCL, excluding deemed exports and deemed reexports. Some of these items that were not previously controlled to Russia include microelectronics, telecommunications items, sensors, navigation equipment, avionics, marine equipment and aircraft components.

Foreign Direct Product Rules

The final rule adds two FDP Rules specific to Russia and Russian military end users. Under the FDP Rules, the U.S asserts jurisdiction over the export, re-export and in-country transfer of certain foreign made items that are produced using U.S.-origin technology.

Russia FDP Rule: The new Russia-specific FDP Rule makes the following items subject to the EAR if they meet the product and destination tests described: (1) foreign-produced items that are the “direct product” of any ECCN in product groups D or E in Categories 3-9 of the CCL, or items produced by a complete plant or “major component” of a plant that itself is the “direct product” of such U.S.-origin technology or software, and (2) foreign-produced items that are known to be destined to Russia or intended to be incorporated into or used in the production or development of any part, component or equipment produced in or destined to Russia.

Russia MEU FDP Rule: The Russia Military-End User FDP Rule (Russia MEU FDP Rule) establishes a license requirement for foreign-produced items that are (1) the “direct product” of any ECCN in product groups D or E of the CCL, or items produced by a plant or major component of a plant that itself is the direct product of such U.S.-origin technology or software, and (2) known to be intended to be incorporated into or used in the production or development of any part, component or equipment produced, purchased or ordered by any entity with a footnote 3 designation in the license requirement column of the Entity List. The new footnote 3 identifies each Russian military end-user that is being removed from the MEU list and added to the Entity List. Note that in addition to a broader scope of covered products, the Russia MEU FDP Rule has a broader impact as fewer license exceptions may be used for exports to Russian government end-users and SOEs.

Partner Country Exclusions: In both the Russia FDP Rule and Russia MEU FDP Rule, certain partner countries that are adopting or have expressed intent to adopt similar measures will not be subject to the license requirements. These partner countries are currently Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Netherlands, New Zealand, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and United Kingdom.

New Review Policy of Denial

The final rule added a new section § 746.8(b) in the EAR addressing the new licensing review policy for Russia. Under the new licensing review policy, applications for the export, reexport or transfer (in-country) of most items that require a license for Russia will be reviewed under a policy of denial. The following types of license applications will be reviewed on a case-by-case basis to determine whether the transaction in question would benefit the Russian government or defense sector: applications related to safety of flight, maritime safety, humanitarian needs, government space cooperation, civil telecommunication infrastructure, government-to-government activities, items destined to wholly owned U.S. subsidiaries, foreign subsidiaries of U.S. companies that are joint ventures with other U.S. companies, or wholly owned subsidiaries and joint ventures of companies from partner countries identified in Country Groups A:5 and A:6 in supplement no. 1 to part 740.

Additional Restrictions on License Exceptions

The final rule also adds significant restrictions on license exceptions available for exports, reexports and transfers (in-country) for Russia. The available license exceptions will be limited to:

  • TMP (Temporary Imports, Exports, Reexports, and Transfers in Country), for items for use by the news media;
  • GOV, for certain government activities;
  • TSU (Technology and Software Unrestricted), for software updates to civil end-users that are subsidiaries of, or joint ventures with, companies headquartered in the United States or partner countries;
  • BAG (Baggage), for baggage, excluding firearms and ammunition;
  • AVS (Aircraft, Vessels, and Spacecraft), for aircraft flying into and out of Russia;
  • ENC (Encryption Commodities, Software, and Technology), for encryption items, but not if they are destined for Russian “government end users” and Russian state-owned enterprises; and
  • CCD (Consumer Communication Devices), for consumer communication devices, but not if they are destined for government end-users or certain individuals associated with the government.

Expansion of the Scope of Military End-Use and Military End-User Restrictions

The final rule also expands the scope of military end-use and military end-user restrictions to Russia to encompass all items subject to EAR except for food or medicine designated as EAR99, or ECCN 5A992.c and 5D992.c, unless they are for Russian “government end users” and Russian SOEs.

Entity List Expansion (New Footnote 3 Designations)

The final rule also added a new footnote 3 to the Entity List. Forty-seven entities are being transferred from the MEU List to the Entity List and two new entities designated with footnote 3. The new footnote 3 also applies to the Russian Ministry of Defense, including the Armed Forces of Russia, wherever located.

Under footnote 3, licenses will be required for all exports, reexports or transfers (in-country) of all items subject to the EAR (including foreign-produced items under the Russia MEU FDP Rule) to these entities, with limited exceptions. License applications will be reviewed under a policy of denial.

Comprehensive Export Restrictions for the Covered Regions of Ukraine

The final rule also expanded the restrictions in § 746.6 of the EAR, to apply to export, reexport and in-country transfer transactions involving the Covered Regions of Ukraine, i.e., the so-called Donetsk People’s Republic and Luhansk People’s Republic, consistent with Executive Order 14065 issued on February 21. The new rule requires licenses for the export or reexport to the Covered Regions and transfer within the Covered Regions of all items subject to the EAR, other than food and medicine designated as EAR99 and certain software for internet-based personal communications. The final rule also establishes a policy of denial for all such license applications.

On February 23, 2022, President Joseph Biden released a statement announcing that the United States was imposing sanctions on Nord Stream 2 AG and its corporate officers.  Effectively immediately, Nord Stream 2 AG has been designated and placed on the Department of Treasury’s Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List.

  • NORD STREAM 2 AG (a.k.a. NEW EUROPEAN PIPELINE AG), Baarerstrasse 52, Zug 6300, Switzerland; Gotthardstrasse 2, Zug 6300, Switzerland; Bahnhofstrasse 10, Zug 6301, Switzerland; Identification Number CHE-444.239.548 (Switzerland); Business Registration Number CH-170.3.039.850-1 (Switzerland)

In addition, one Nord Stream 2 AG official has been added to the SDN List.  See OFAC SDN List Update.  With these designations to the SDN List, all property and interests in property of persons and entities identified above that are in the United States or in the possession or control of U.S. persons (or their foreign branches) are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked.

Unless authorized by a general or specific license issued by OFAC, or exempt, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked persons are generally prohibited.  For the purposes of winding down any ongoing transactions, OFAC has issued General License No. 4 which authorizes all transactions that are ordinarily incident and necessary to wind down transactions involving Nord Stream 2 AG, or any entity in which Nord Stream 2 AG owns, directly or indirectly, a 50 percent or greater interest, through March 2, 2022.

On February 22, 2022, the Office of Foreign Assets Control (OFAC) expanded sanctions against Russia through blocking sanctions against two major Russian state-owned financial institutions, additional restrictions on Russian sovereign debt, sanctions on five Putin/Kremlin-connected elites, and the designation of several vessels. This follows the issuance of comprehensive sanctions on the territory recognized by Russia as the “independent states” of Donetsk People’s Republic (DNR) and the Luhansk People’s Republic (LNR) (see Update of February 22, 2022) and the movement of Russian troops into these regions of Ukraine.

Designation of Russian Financial Institutions

OFAC has designated the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries, and placed them on the Specially Designated Nationals (SDN) List. OFAC stated that VEB is crucial to Russia’s ability to raise funds and PSB is critical to Russia’s defense sector. The OFAC press release also provided the following on these entities:

  • VEB is one of Russia’s top five financial institutions and finances most of Russia’s domestic development projects. In partnership with commercial banks, VEB provides financing for large-scale projects to develop the country’s infrastructure and industrial production. OFAC also sanctioned 25 of VEB’s subsidiaries which represent a wide range of businesses. VEB’s designated affiliates include the Eximbank of Russia.
  • PSB is Russia’s eighth largest financial institution and is an important Russian state-owned financial institution. According to OFAC, Russia nationalized PSB in 2018 and “repurposed it to finance the defense industry and service large defense contracts as part of a scheme to assist the government in avoiding new sanctions.” OFAC notes that PSB currently services nearly 70% of state contracts signed by the Russian Ministry of Defense. OFAC also sanctioned 17 of PSB’s subsidiaries, including a variety of companies in the financial, technology, and real estate-related sectors.

Designation of Russian Elites

OFAC has also designated and placed on the SDN List certain members of Putin’s inner circle “believed to be participating in the Russian regime’s kleptocracy.” These individuals include:

  • Denis Aleksandrovich Bortnikov, a Deputy President of Russian-state owned financial institution VTB Bank Public Joint Stock Company (VTB Bank), and the son of previously designated and SDN-Listed Aleksandr Vasilievich Bortnikov, who is the Director of the Federal Security Service (FSB).
  • Petr Mikhailovich Fradkov, the Chairman and CEO of PSB, and the son of Mikhail Efimovich Fradkov, former Prime Minister of Russia and former Director of the Russian Foreign Intelligence Service (SVR).
  • Vladimir Sergeevich Kiriyenko, CEO of VK Group (the parent company of Russia’s top social media platform, VKontakte), and the son of Sergei Vladilenovich Kiriyenko, who is the First Deputy Chief of Staff of the Presidential Office.

In addition, the aforementioned Aleksandr Vasilievich Bortnikov and Sergei Vladilenovich Kiriyenko have been redesignated pursuant to President Biden’s recent Executive Order 14065. OFAC further designated five vessels connected to PSB.

A full list with further identifying details of VEB, PSB and each SDN-listed subsidiary as well as additional personal identifying information on the listed individuals from Putin’s inner circle is available here. With these designations to the SDN List, all property and interests in property of persons and entities identified above that are in the United States or in the possession or control of U.S. persons (or their foreign branches) are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons are also blocked.

Unless authorized by a general or specific license issued by OFAC, or exempt, all transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of blocked persons are generally prohibited. Dealings with blocked persons may also trigger reporting requirements pursuant to 31 C.F.R. §§ 501.603 and 501.604.

Sovereign Debt Restrictions

OFAC has also placed restrictions on dealings in Russia’s sovereign debt in order to further cut off Russia off from sources of revenue to fund its government or President Putin’s priorities. According to OFAC, these restrictions “significantly cut off a core way for Russia to raise money. This kind of measure creates a strain on resources for the Russian state and greater risk for its ability to manage its finances.” Specifically, OFAC has issued Russia-related Directive 1A under EO 14024, “Prohibitions Related to Certain Sovereign Debt of the Russian Federation,” which amends and supersedes a prior Directive 1 under EO 14024 issued on April 15, 2021. This superseding Directive extends existing sovereign debt prohibitions to cover participation in the secondary market for bonds issued after March 1, 2022 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 General Licenses

Finally, OFAC has issued two general licenses (GLs) to address aspects of these new sanctions and designations. General License 2 authorizes certain servicing of bonds involving VEB that are issued prior to March 1, 2022. General License 3 authorizes the winding down of transactions involving VEB for transactions prohibited under these new sanctions; all transactions now prohibited that are ordinarily incident and necessary to wind down are authorized until March 24, 2022. No general licenses were issued related to PSB.

OFAC has also issued related FAQs to assist the financial serves sector in compliance matters – see FAQ 964 and FAQ 965. And, as necessary, other Ukraine/Russia-related FAQs have been updated.

On February 21, 2022, in response to Russia’s recognition of the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine as “independent states,” President Biden issued Executive Order (EO) 14065 prohibiting certain transactions with respect to the DNR or LNR or such other regions of Ukraine (collectively, “Covered Regions”) as may be determined and authorizing sanctions on certain persons. The EO prohibits U.S. persons from engaging in nearly all activity related to the DNR and LNR, much as the 2014 EOs prohibit such activity related to Crimea.

The new EO prohibits:

  • New investments in the Covered Regions by U.S. persons;
  • The importation into the U.S., directly or indirectly, of any goods, services, or technology from the Covered Regions;
  • The exportation, reexportation, sale, or supply, directly or indirectly, from the U.S. by a U.S. person of any goods, services, or technology to the Covered Regions; and
  • Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a U.S. person or within the U.S.

The EO also provides authority to impose sanctions on persons determined:

  • To operate or have operated since the date of the order in the Covered Regions;
  • To be or have been since the date of the order a leader, official, senior executive officer, or member of the board of directors of an entity operating in the Covered Regions;
  • To be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to this order; or
  • To have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to this order.

It is expected that the Department of the Treasury’s Office of Foreign Assets Control (OFAC) will soon identify and place numerous Russian, DNR and LNR officials, persons and entities on the Specially Designated Nationals (SDN) List, thus blocking all property and interests in property of these entities and persons that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. Unless authorized by a general or specific license issued by OFAC or otherwise exempt, OFAC’s regulations generally prohibit all dealings by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons.

Given these sanctions, OFAC has issued six Ukrainian General Licenses (GLs) authorizing certain transactions otherwise prohibited by the EO, including transactions related to wind-down activities and the work performed by humanitarian or other international organizations in the Covered Regions.

  • GL 17 (wind-down) authorizes all transactions that are ordinarily incident and necessary to the wind down of transactions involving the Covered Regions, including the divestiture or transfer to a non-U.S. person of a U.S. person’s share of ownership in any pre-February 21, 2022 investment located in the Covered Regions, and the winding down of operations, contracts, or other agreements in effect prior to February 21, 2022 involving the exportation, reexportation, sale, or supply of goods, services, or technology to, or importation of any goods, services, or technology from, the Covered Regions through 12:01 a.m. eastern daylight time, March 23, 2022.
  • GL 18 (export of agricultural products, medicine, and medical devices) authorizes all transactions ordinarily incident and necessary to: (i) the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices to the Covered Regions, or to persons in third countries purchasing specifically for resale to the Covered Regions; or (ii) the prevention, diagnosis, or treatment of COVID-19 (including research or clinical studies relating to COVID-19) in the Covered Regions.
  • GL 19 (telecommunications) authorizes all transactions that are ordinarily incident and necessary to the receipt or transmission of telecommunications, except: (1) the provision, sale, or lease of telecommunications equipment or technology; or (2) the provision, sale, or lease of capacity on telecommunications transmission facilities (such as satellite or terrestrial network activity).
  • GL 20 (government and NGO activity) authorizes all transactions that are for the conduct of the official business of certain international organizations, including the United Nations, the ICSID, the MIGA, certain international development banks, the International Committee of the Red Cross and the International Federation of Red Cross and Red Crescent Societies, and the Organization for Security and Co-operation in Europe by their employees, grantees, or contractors.
  • GL 21 (personal remittances) authorizes all transactions that are ordinarily incident and necessary to the transfer of noncommercial, personal remittances to or from the Covered Regions or for or on behalf of an individual ordinarily resident in the Covered Regions, provided the transfer is not by, to, or through any person whose property and interests in property are blocked pursuant to the EO.
  • GL 22 (personal internet communications) authorizes all transactions that are ordinarily incident and necessary to the exportation or reexportation, directly or indirectly, from the U.S. or by U.S. persons, wherever located, to persons in the Covered Regions of: (1) services incident to the exchange of personal communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging, and (2) software necessary to enable these services, provided that such software is designated EAR99 under the Export Administration Regulations, is classified as a mass market software under 5D992.c, or is not listed under any multilateral export control regime.

A review of each GL is necessary in order to determine the full scope of the general license and the applicability to any specific transaction being contemplated in the Covered Regions under the EO.

Additional sanctions are reportedly being considered by the Biden administration in coordination with the European Union (EU) and the United Kingdom. Secretary of State Antony Blinken stated, “States have an obligation not to recognize a new ‘state’ created through the threat or use of force, as well as an obligation not to disrupt another state’s borders. Russia’s decision is yet another example of President Putin’s flagrant disrespect for international law and norms.”