SANCTIONS UPDATE – U.S. cracks down on Russia following Ukrainian Invasion – What you need to know to stay compliant
March 7, 2022
In the last two weeks, the United States, in coordination with its allies including the U.K., Canada and the European Union, has imposed a series of economic sanctions against Russia. The U.S. first imposed sanctions against Russia in 2014 in response to the Russian annexation of Crimea, however, the latest round of sanctions have been the most significant to date with an aim towards penalizing Russia economically and weakening its power in response to Russia’s recent invasion of Ukraine.
As announced by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), on February 24, 2022, the U.S. imposed its first round of “full blocking” sanctions to target Russia’s largest financial institutions with the intention of affecting these entities’ (which include state-owned and private entities) ability to raise capital and participate in the global financial system. Specifically, the sanctions targeted nearly 80% of banking assets in Russia, Russia’s Central Bank, Russia’s two largest banks, Public Joint Stock Company Sberbank of Russia (Sberbank) and VTB Bank Public Joint Stock Company (VTB Bank), several other major Russian financial institutions including Public Joint Stock Company Bank Financial Corporation Otkritie (“Otkritie”), Open Joint Stock Company Sovcombank (“Sovcombank”), and Joint Stock Commercial Bank Novikombank (“Novikombank”), and almost 90 financial institution subsidiaries around the world. The U.S. and allies have also moved to remove several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”), which is a Belgium-based interbank messaging service. According to OFAC, Russia’s financial system is heavily dominated by state-owned actors who rely on the U.S. financial system to conduct their business activities both in Russia and internationally, and therefore, it believed by sanctioning these entities primarily, the Russian financial system and economy would be largely cut off from important financial infrastructure, the U.S. dollar, and participating in the world financial system. The only caveat appears to be related to the energy sector. To limit the degree to which the above-referenced financial services sector sanctions may inhibit energy-related transactions, OFAC issued Russia-related General License (GL) 8A, which authorizes U.S. persons to process energy-related transactions involving the sanctioned Russian financial institutions identified in GL 8A.
Following this, on March 3, 2022, the U.S. Department of the Treasury announced that the U.S. Department of State would also impose additional and substantial sanctions on Russia’s defense enterprises including sanctioning 22 defense-related firms. These new far-reaching sanctions are meant to target a wide range of Russian defense enterprises, including entities that develop and produce fighter aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military.
As well as the sanctions imposed against Russian financial institutions and related subsidiaries, the U.S. has also imposed sanctions against many Russian oligarchs, elites and their families. For example, several Russian politicians, oligarchs, and officials, including President Vladimir Putin, have had their foreign-held assets frozen by the U.S. as well as the EU, U.K., Switzerland, Canada, and Japan. Some have even been banned from traveling to and from these countries as well. OFAC’s press releases announcing the imposition of sanctions against Russian financial institutions and individuals which includes the full list of companies and Russian politicians, oligarchs, and elites sanctioned can be found here and here. Additionally, OFAC’s full updated Specially Designated Nationals list can be found here.
In addition to OFAC’s sanctions, the U.S. Commerce Department has also restricted exports of high-tech products such as computers, computer chips, and semiconductors to Russia with the goal of restricting its military capabilities. The export restrictions extend to goods produced in other countries using American technology. Finally, as I am sure you saw, DOT has effectively prohibited Russian airlines from operating to/from/within U.S. airspace.
In response to the vast array of sanctions imposed on Russian entities and individuals in and connected to the Russian government, many companies are considering what they should do to avoid interaction with sanctioned entities and individuals and limit, as much as possible, any potential disruption or risk to their own business. As such, taking some or all of the following actions may be beneficial in this endeavor: (1) immediately conduct a thorough review of business agreements and arrangements to ensure you have no dealings directly or indirectly with designated sanctioned individuals or entities, and if there is any connection to sanctioned entities or people, promptly seek out legal advice, (2) ensure you have robust sanctions compliance measures in place in order to screen third parties which may be subject to OFAC sanctions or other governmental restrictions; and (3) monitor the developing situation and seek out legal advice if you become concerned about potential breaches.
As the Russian invasion of Ukraine continues, the U.S. has indicated that more sanctions against Russian entities, politicians, oligarchs, and elites may be announced in the coming days and weeks. We will provide any further updates on Russia-related sanctions as soon as possible after they are announced. And, if your internal review flags any business arrangements as being potentially problematic, we are happy to review the SDN list and provide more targeted advice on compliance.
If you have any questions, please contact Evelyn Sahr (esahr@eckertseamans.com 202-659-6622) or Drew Derco (dderco@eckertseamans.com 202-659-6665).
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