US imposes additional investment restrictions, other sanctions and export controls on Russia

In early April 2022, the United States imposed additional sanctions and export control 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 debt. The U.S. also expanded export control restrictions on Russia and Belarus, added countries to the Foreign Direct Rule exclusion list, and updated the list of aircraft in violation of U.S. regulations. Export Administration (“EAR”).

Sanctions Updates

Prohibition of new investments and certain services

On April 6, 2022, U.S. President Biden signed Executive Order 14071 (“EO 14071”), which prohibits further investment in the Russian Federation by U.S. nationals, wherever located.1 EO 14071 also prohibits the export, re-export, sale or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any class of services that must 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 decisions regarding any category of services under this authority.

  • Additional Sanction Designations

On April 5, 2022, the United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) designated virtual currency exchange Garantex along with several associated digital wallet addresses, and Hydra, a Russian marketplace for darknet associated with stolen virtual currency and ransomware. , to the Specially Designated Nationals and Blocked Persons List (“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 belonging to an Alfa Bank subsidiary to the SDN list.3 Previously, these entities were subject to more limited sanctions. Several people have also been named to the SDN list, including former Prime Minister Dmitry Medvedev and several members of the Russian Security Council.

On April 7, 2022, OFAC also designated as SDNs several Russian state-owned enterprises linked to United Shipbuilding Corporation and Alrosa (a major diamond mining company) and individuals associated with these entities.4

All property and interests in property of SDN Listed Persons that are located in the United States or under the possession or control of a US Person, wherever located, are blocked, and US Persons will not may engage in any transaction, directly or indirectly, with them, absent an applicable license or exemption. Any entity in which one or more blocked persons holds in aggregate, directly or indirectly, a participation of 50% or more is automatically blocked and its property and interests are also blocked.

Changes in sovereign debt payments

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

General license updates

On April 6 and 7, 2022, OFAC issued several new general and (“GL”) licenses:

  • GL 8B allows (with conditions) energy-related transactions involving certain Russian financial institutions until June 24, 2022 at 12:01 a.m. EDT.6 This GL replaces the GL 8A of February 28, 2022.
  • GL 9C allows (with conditions) transactions related to certain debt or equity transactions involving certain Russian financial institutions until May 25, 2022 at 12:01 a.m. EDT.7 This GL also allows (under conditions) the same transactions specifically with Alfa-Bank until 12:01 a.m. EDT, June 30, 2022. GL 9C replaces GL 9B.
  • GL 10C authorizes (with conditions) certain transactions related to the liquidation of derivative contracts involving certain Russian financial institutions until May 25, 2022 at 12:01 a.m. EDT.8 This GL replaces the GL 10B.
  • GL 21A authorizes (with conditions) the liquidation of transactions involving Sberbank CIB USA, Inc. until 12:01 a.m. EDT, June 7, 2022.9 This GL replaces the GL 21.
  • GL 22 authorizes (with conditions) the liquidation of transactions involving PJSC Sberbank of Russia until 12:01 a.m. EDT, April 13, 2022.ten
  • GL 23 authorizes (with conditions) the liquidation of transactions involving JSC Alfa-Bank until 12:01 a.m. EDT, May 6, 2022.11
  • GL 24 authorizes (with conditions) the liquidation of transactions involving the public joint-stock company Alrosa until May 7, 2022 at 12:01 a.m. EDT.12
  • GL 25 permits (with conditions) transactions usually incidental and necessary to the receipt or transmission of telecommunications involving Russia that are otherwise prohibited by Russia’s Harmful Activities Foreign Sanctions Regulations.13 This GL also authorizes the export, re-export or supply to Russia of software, hardware and technology related to such telecommunications transmissions.

Export controls

Extension of controls to all Trade Control List (“CCL”) items

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

Under the April 8 Rule, any foreign-produced item classified in an ECCN (other than EAR99) that is the direct product of US-origin software or technology classified in an ECCN in the group D or E products of any category 0-9 on the CCL will now be subject to EAR under the Russian/Belarusian Direct Foreign Product Rule (“FDPR”).

No changes have been made to the current Russia/Belarus Military End User FDPR, which states that any item produced overseas, even if rated EAR99, which 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 to 9 on the CCL requires a license if an entity on the list of entities that BIS has determined as a military end user is a party to the transaction.

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

For items removed from license exception or export, re-export, or transfer (in-country) eligibility due to these new rules, a savings clause applies that allows items to continue to their destination under the previously applicable license exception or no license required status. This savings clause applies to these 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 s applies until April 14, 2022.

Extension of the exclusion list

BIS has expanded the exclusion list for Russia/Belarus FDPR by adding Iceland, Liechtenstein, Norway and Switzerland, effective April 8, 2022. These countries have committed to implement controls at the equally stringent export to Russia and Belarus.

Entity List Additional Designations

On April 1, 2022, the BRI 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 whom additional restrictions under the EAR may apply.

Aviation Order Updates

The BIS has expanded the limitation of the AVS license exception to exclude aircraft registered, owned or controlled by, or under charter or lease by Belarus or a national of Belarus. This exclusion of the possibility of using License Exception AVS now applies to both Russia and Belarus.

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

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

James V. Hayes