OFAC Latest Steps: Blocking Putin and Senior Officers, Further Targeting Sovereign Russian Financial Entities, and Publishing Implementing Regulations 

Arent Fox

On February 25 and 28, 2022, the US Treasury Department, Office of Foreign Assets Control (OFAC) issued its fifth and sixth actions against Russia, blocking the assets of President Vladimir Putin and three other high-ranking officials; imposing restrictive measures on the Central Bank of Russia, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation; and blocking key Russian sovereign wealth fund entities and a related individual, as allied nations continued to impose crippling economic measures in response to Russia’s military invasion of Ukraine.

OFAC also released the Russian Harmful Foreign Activities Sanctions Regulations to more fully implement these Russia sanctions authorities, which will be published on March 1, 2022. These steps follow several OFAC and US Commerce Department actions over the last few days explained in our prior alerts on territorial sanctions on the breakaway provinces in eastern Ukraine, increased sovereign debt-related sanctions, Nord Stream 2 sanctions, and blocking and correspondent account sanctions on certain Russian banks and government elites.

  1. Designation/Blocking of Russian President Putin and Other High-Level Russian Government Officials

On February 25, 2022, OFAC announced the addition of the Russian President and three high-ranking officials to OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List. Specifically, OFAC designated/blocked:

  • Russian President Vladimir Putin;

  • Russian Minister of Foreign Affairs Sergei Lavrov;

  • Valery Gerasimov, Chief of Staff of the Russian Armed Forces, First Deputy Minister of Defense, and General of the Army; and

  • Russian Minister of Defense Sergei Shoigu.

What to do: While these designations may be more symbolic in nature because most US persons would not run the risk of transacting with these individuals, US persons should still screen their suppliers, customers, third-party business partners, and their ultimate beneficial owners against the updated SDN List. Perhaps more impactful, foreign persons engaging in US dollar-denominated transactions also should screen their customers to avoid violating US sanctions and having their funds transfers blocked as they pass through US financial institutions.

  1. Restrictions on the Central Bank of Russia and Other Sovereign Russian Entities

Effective February 28, 2022, OFAC issued Directive 4 under Executive Order 14024 (“Directive 4”), which prohibits:

  • Any transaction by a US person 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.

Directive 4 clarifies that this prohibition includes any transfer of assets to the above entities or any foreign exchange transaction for or on behalf of them and prohibits “any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions” of the Directive as well as “any conspiracy formed to violate any of the prohibitions of” the Directive. To provide additional notice regarding these new sanctions, OFAC also added the Central Bank of Russia, the National Wealth Fund of Russia, and the Ministry of Finance of Russia to its Non-SDN Menu-Based Sanctions (“NS-MBS”) List.

What does this mean: While these new measures are not technically full blocking sanctions like those that would apply had OFAC placed these three entities on the SDN List, they all but cut the Central Bank of Russia, the National Wealth Fund of Russia, and the Ministry of Finance of Russia out of US markets and prevent any of the entities from taking part in any transactions with US individuals or businesses or that otherwise involve the US financial system. When combined with similar measures that are expected to be imposed by the European Union (EU), United Kingdom (UK), Canada, and other allied nations, the measures will prevent the Russian Government from utilizing billions of rubles that it has in reserve. As OFAC stated in the press release accompanying this action, Directive 4 “will disrupt Russia’s attempts to prop up its rapidly depreciating currency by restricting global supplies of the ruble and access to reserve that Russia may try to exchange to support the ruble.” Indeed, the Central Bank increased its key policy rate by more than double on February 28, 2022.

  • A) General License for Central Bank of Russia Transactions Related to Russian Energy

Concurrent with the February 28 restrictions against the Central Bank of Russia, OFAC also issued General License 8A (“GL8A”), “Authorizing Transactions Related to Energy,” which amends General License 8 to add the Central Bank of Russia to the list of entities with which certain transactions “related to energy” are authorized until June 24, 2022. Interestingly, although GL8A authorizes those transactions for all entities owned 50 percent or more (in aggregate) by the other entities listed in GL8A, it does not do so for entities in which the Central Bank of Russia has a 50 percent or greater interest in, meaning that any such transactions are still prohibited. GL8A also broadens the exceptions to its authorization and does not authorize:

  • Transactions prohibited by Directive 1A under EO 14024, which we covered in our February 22, 2022 alert (certain lending and certain participation in the primary or secondary bond market related to Russian sovereign wealth); or

What to do: If you are a US company, then you need to screen your current accounts and transactions against the newly updated NS-MBS List to ensure you do not engage in any transactions with the Central Bank of Russia, the National Wealth Fund of Russia, and the Ministry of Finance of Russia. You should also ensure you are screening against the NS-MBS List before entering into transactions involving Russian entities. Foreign companies engaging in US dollar-denominated transactions should also screen against the NS-MBS List to avoid having their transactions rejected by US financial institutions.

  1. Designation/Blocking Sanctions of Russian Sovereign Investment Vehicles

OFAC also announced the designation/blocking of “three [Russian] entities critical to managing one of Russia’s key sovereign wealth funds:”

  • The Russian Direct Investment Fund (“RDIF”);

  • Joint Stock Company Management Company of the Russian Direct Investment Fund (“JSC RDIF”); and

OFAC also concurrently designated the CEO of RDIF and JSC RDIF, Kirill Aleksandrovich Dmitriev, under EO 14024.

Any entity directly or indirectly owned 50 percent or more, whether individually or in the aggregate, by any of these entities or by Dmitriev is also blocked.

What to do: These designations are effective immediately. All US persons should screen their suppliers, customers, and third-party business partners – in addition to their ultimate beneficial owners – against the new SDN List containing the above entities and individuals. Foreign persons engaging in US dollar-denominated transactions also should screen their customers to avoid violating US sanctions and having their funds transfers blocked as they pass through US financial institutions.

  1. Issuance of Russian Harmful Foreign Activities Sanctions Regulations

OFAC is expected to publish on Tuesday, March 1, 2022, the Russian Harmful Foreign Sanctions Regulations, which will further implement the Executive Orders pursuant to which a majority of the recent sanctions actions against Russia have been taken and which has been placed on file for public inspection at the US Federal Register. The regulations do not make any significant substantive changes, but they add several common definitions, interpretations, and general licenses, such as licenses for the provision of certain legal services and emergency medical services.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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