On 28 June, 2022, the U.S. Government imposed a new tranche of sanctions and other punitive measures against Russia in response to Russia’s actions in Ukraine. At a high level, the actions prohibit gold imports into the United States, while targeting Russia’s defense industrial base, its military and intelligence units, and alleged sanctions evaders. There are new Specially Designated National (“SDN”) and Entity List designations of Russian parties, especially in the defense sector. The full list of new U.S. Department of Treasury Office of Foreign Assets Control (“OFAC”) designations is available here. These actions build upon the existing foundation of extensive U.S. sanctions and export control measures in effect against Russia and Belarus. The highlights are summarized below:
Sanctions Designations Targeting Russian Military Production and Supply Chains: According to a White House Fact Sheet, the U.S. Departments of State and Treasury have targeted “defense supply chains by imposing blocking sanctions on major state-owned defense enterprises, in addition to defense research organizations, and dozens of other defense-related entities”.
- OFAC designated 70 entities on the SDN List, many of which the Treasury Department alleges are critical to Russia’s defense industrial base. This includes State Corporation Rostec, which the Treasury Department describes as the “cornerstone of Russia’s defense, aerospace, industrial, technology, and manufacturing sectors,” as well as several of its affiliates. OFAC also designated several aircraft industry/aviation companies as SDNs, including United Aircraft Corporation, Ilyushin, Irkut, and some research institutes as well. OFAC also designated 29 Russian individuals accused of supporting Russia’s military intervention in Ukraine.
- In conjunction with the 28 June SDN designations, OFAC also issued new general licenses authorizing certain activities/transactions with sanctioned parties, as follows:
- General License 39 (“Authorizing the Wind Down of Transactions Involving State Corporation Rostec”): GL 39 authorizes all transactions ordinarily incident and necessary to the wind down of any transaction involving State Corporation Rostec, or any entity blocked not earlier than 28 June 2022 in which State Corporation Rostec owns, directly or indirectly, a 50 percent or greater interest, that are prohibited by E.O. 14024, through 12:01 a.m. eastern daylight time, 11 August 2022, provided that any payment to a blocked person must be made into a blocked account in accordance with the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587 (“RuHSR”).
- General License 40 (“Civil Aviation Safety”): GL 40 authorizes all transactions ordinarily incident and necessary to the provision, exportation, or re-exportation of goods, technology, or services to ensure the safety of civil aviation involving one or more of the blocked entities listed in the Annex to GL 40 and that are prohibited by E.O. 14024, subject to conditions. Specifically, that (1) the aircraft is registered in a jurisdiction solely outside of the Russian Federation; and (2) the goods, technology, or services that are provided, exported, or reexported are for use on aircraft operated solely for civil aviation purposes. Separate authorization from the Commerce Department’s Bureau of Industry and Security (“BIS”) would still be required the transaction involves items subject to the Export Administration Regulations (“EAR”).
- General License 41 (“Authorizing Certain Transactions Related to Agricultural Equipment”): GL 41 authorizes all transactions ordinarily incident and necessary to the manufacture, sale, and maintenance, including the provision and receipt of warranty and maintenance services, of agricultural equipment, components, and spare parts produced by Nefaz Publicly Traded Company (“Nefaz”) or Public Joint Stock Company Tutaev Motor Plant (“Tutaev Motor Plant”), or any entity in which Nefaz or Tutaev Motor Plant owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, that are prohibited by the RuHSR, through 12:01 a.m. eastern standard time, 22 December 2022, provided that any payment to a blocked person must be made into a blocked account in accordance with the RuHSR.
- General License 42 (“Authorizing Certain Transactions with the Federal Security Service”): GL 42 authorizes certain transactions involving the Federal Security Service, or FSB, otherwise prohibited by E.O. 14024.
- General License 43 (“Divestment or Transfer of Debt or Equity of, and Wind Down of Derivative Contracts Involving, Public Joint Stock Company Severstal or Nord Gold PLC”): GL 43 authorizes all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to the divestment or transfer of debt or equity of Public Joint Stock Company Severstal (“Severstal”) or Nord Gold PLC (“Nord Gold”), or any entity in which Severstal or Nord Gold owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, purchased prior to 2 June 2022 (“covered debt or equity”), through 12:01 a.m. eastern daylight time, 31 August 2022, provided that any divestment or transfer, or facilitation of divestment or transfer, of covered debt or equity must be to a non-U.S. person. GL 43 also authorizes all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to the wind down of derivative contracts entered into prior to June 2, 2022 that (i) include Severstal, Nord Gold, or their affiliates, as a counterparty or (ii) are linked to covered debt or equity, through 12:01 a.m. eastern daylight time, 31 August 2022, provided that any payments to a blocked person are made into a blocked account in accordance with the RuHSR.
- The State Department imposed sanctions on an additional 45 defense-related entities and 29 individuals under E.O. 14024 (all of which are now SDNs, as the designations were conducted in conjunction with Treasury). Included in the State Department’s action is the designation of Russian Federation military units and the re-designation of the FSB, which have been accused of human rights abuses or violations of international humanitarian law in Ukraine. Of the 29 individuals, the State Department designated 19 members of the Rostec board of directors and nine of their spouses or adult children. The Department of State further announced steps to impose visa restrictions on officials believed to have threatened or violated Ukraine’s sovereignty, territorial integrity, or political independence, including on more than 500 Russian military officers and on Russian officials involved in suppressing dissent.
SDN listings under E.O. 14024 have implications under both primary and secondary sanctions. From a primary sanctions perspective, U.S. persons are prohibited from transacting or dealing with these SDNs, as well as any entities owned 50% or more, directly or indirectly, by any of these SDNs. U.S. persons must also block the property and interests in property of the designated persons of such SDNs and report such blocked property to OFAC. From a secondary sanctions perspective, non-U.S. persons can be targeted by OFAC for providing “material support” to any of the listed SDNs, as well as entities owned 50% or more, directly or indirectly, by all of the listed SDNs, even if not identified by OFAC.
Prohibitions Relates to Imports of Gold of Russian Federation Origin into the United States: OFAC issued a determination prohibiting the importation into the United States of gold of Russian Federation origin pursuant to section 1(a)(i) of E.O. 14068. Notably, this determination excludes gold of Russian Federation origin that was located outside of the Russian Federation prior to the date of the determination. Per FAQ 1029, there are a variety of gold-related transactions involving Russia or the Russian Federation may be sanctionable under E.O. 14024 or other Russia-related sanctions authorities.
FinCEN/BIS Joint Alert Urging Increased Vigilance for Potential Export Control Evasion Attempts: The Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) and the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) issued a joint alert regarding potential evasion of U.S. export controls. The joint alert urges financial institutions to remain vigilant for possible attempts by individuals and entities to evade U.S. export controls related to Russia. The joint alert provides financial institutions with an overview of BIS’s current export restrictions; a list of commodities of concern for possible export control evasion; and select transactional and behavioral red flags to assist financial institutions in identifying related suspicious transactions. The joint alert further reminds financial institutions of their Bank Secrecy Act (“BSA”) reporting obligations and details how suspected export control evasion activity may also be reported to BIS enforcement authorities.
New Additions to BIS Entity List for Support of Russian Military Activities: BIS added several entities to the Entity List for continuing to contract to supply for Russia after its further invasion of Ukraine. BIS issued a new rule adding a total of 36 entities in nine countries to the Entity List, including six specifically for their continued support of Russia’s military efforts since imposition of export controls in response to Russia’s invasion of Ukraine. The six entities are subject to severe restrictions on access to U.S.-origin goods and technologies for allegedly having contracted to continue to supply Russian military end users.
Proclamation on Increasing Duties on Certain Articles from the Russian Federation: On 27 June, President Biden issued a proclamation, pursuant to the US Congress’s revocation of Russia’s trade status in the U.S., to raise tariffs on over 570 groups of Russian products worth approximately $2.3 billion to Russia.
The Russia sanctions landscape continues to expand. Companies should continue to review their business activities and compliance procedures regularly to ensure they comply with applicable new restrictions. Hogan Lovells lawyers can assist you with assessing the potential impact of these and other trade restrictions on your company.
In the current rapidly changing landscape, keeping on top of international sanctions regimes is more challenging than ever. Our comprehensive Sanctions Navigator collates sanctions regimes from the European Union, France, the United Kingdom, United Nations, and United States in one place, to help our clients answer any questions or address any sanctions-related issues they may have. Explore the Sanctions Navigator here.
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Authored by Ari Fridman, Aleksandar Dukic, Anthony Capobianco, Beth Peters, Ajay Kuntamukkala, and Andrea Fraser-Reid.