We wanted to share an update on Russia sanctions developments in the United States, United Kingdom, and European Union that occurred between March 24 and April 8, 2022. Following new reports of atrocities committed by the Russian military as it withdrew from areas surrounding Kyiv, the jurisdictions have announced a series of wide-ranging sanctions including restrictions on new investment in Russia, exports of services to Russia, and financial transactions involving key Russian financial institutions. They are also taking steps to further curtail energy imports from Russia, although the European Union has continued to exempt nearly all oil and gas trade from sanctions.

US Sanctions Activity

Prohibitions on New Investment in and Provision of Certain Services to Russia

On April 6, 2022, President Biden signed an Executive Order (E.O.), titled “Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression.” The E.O. of April 6 imposes three new restrictions on US business activity in Russia.

First, it prohibits all “new investment” in the Russian Federation by US persons, wherever located. This is an expansion on the restrictions on new investment in the Russian energy sector that have been in place since March 8. Although the E.O. of April 6 does not clarify what constitutes “new investment” in Russia, OFAC has previously defined the term in the context of the energy investment ban. FAQ 1019 defines “new investment in the energy sector in the Russian Federation” as “a transaction that constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities (not including maintenance or repair) located or occurring in the Russian Federation beginning on or after March 8, 2022,” the day the prohibition was enacted. OFAC will likely issue comparable interpretive guidance in the coming days. A senior Biden Administration official suggested that the ban “will make sure that the mass exodus from Russia that we’re seeing from the private sector, which is now over 600 multinational companies and growing – that it will endure.”

Second, the E.O. of April 6 authorizes the Secretary of the Treasury to designate certain services sectors that would become subject to a prohibition when exported, sold, or supplied to any person located in the Russian Federation. Treasury has not yet identified any service sectors that will be subject to these restrictions.

Third, the E.O. of April 6 prohibits the facilitation of a transaction by a foreign person where the transaction would be prohibited if performed by a US person.

Congress Passes New Legislation to Further Isolate Russia

On Thursday, April 7, both houses of Congress passed a bill suspending Permanent Normal Trade Relations (PNTR) with Russia and revoking the current waiver Belarus uses to benefit from most favorable nation (MFN) status. The White House has supported the measure. Once signed into law by President Biden, the new law will increase tariffs on imports of Russian goods to the higher “Column 2” rates applied to countries with whom the United States does not have normal trade relationships, currently only Cuba and North Korea. The bill also authorizes the President to increase tariffs on Russia and Belarus beyond the “Column 2” rates, provided that the President consults with Congress in advance. The President is allowed to restore favorable tariff treatment only if the President can specifically certify that Russia and/or Belarus (1) has ceased aggression against Ukraine, (2) presents no immediate threat to NATO; and (3) recognizes a free and independent Ukraine, including the ability to choose its own government. This certification is subject to a congressional disapproval resolution.

Congress also passed a bill prohibiting the import of Russian energy products (defined by those classified under Chapter 27 of the Harmonized Tariff Schedule), such as oil, gas, and coal. It codifies the ban that President Biden issued through E.O. 14066 on March 8, 2022, limiting the flexibility of the Executive Branch to lift the ban.

New Blocking Sanctions

Technology Companies: On Thursday, March 31, 2022, the United States designated 21 entities and 13 individuals as Specially Designated Nationals (SDNs). The sanctioned parties included technology companies, malicious cyber actors, and parties engaged in activities designed to evade US sanctions and export controls.

Treasury also expanded the scope of its authority to apply sanctions to persons in the aerospace, marine, and electronics sectors of the Russian Federation economy. This determination puts those operating in these sectors on notice that they are at risk of being sanctioned at a future date. Treasury had previously made this determination regarding the financial services, technology, and defense and related materiel sectors of the Russian economy.

Crypto Markets: On Tuesday, April 5, 2022, the United States added Garantex Europe OÜ, a crypto assets financial service provider, and Hydra market, a prominent Russian darknet market, to its list of SDNs. However, in Congressional testimony the following day, Secretary Yellen said that “we haven’t seen significant evasion [of sanctions against Russia] through crypto so far.”

Russian Banks: On April 6, 2022, the United States imposed blocking sanctions on Russia’s largest bank, Sberbank, and its largest private bank, Alfa-Bank. OFAC had previously imposed more targeted sanctions against each entity. At the same time, OFAC issued General Licenses (GLs) that authorized wind-down transactions with Sberbank CIB USA through June 7, 2022, PJSC Sberbank of Russia through April 13, 2022, and Alfa-Bank through May 6, 2022. OFAC also extended GL 8B (which authorizes certain energy-related transactions), GL 9B (which authorizes certain divestments of debt or equity), and GL 10B (which authorizes certain divestments of derivative contracts) to cover Alfa-Bank.

The United States has not yet joined the EU and UK in sanctioning Mikhail Fridman, Peter Aven, and German Khan, the three oligarchs who had led Alfa-Bank before stepping down in response to EU sanctions. Herman Gref, the CEO of Sberbank, has been subject to sanctions since March 24, 2022.

Russian Elites and Their Family Members: On April 6, 2022, the United States sanctioned certain members of Russia’s Security Council. The United States had previously designated 11 members of the Security Council on February 25, 2022; with these new designations the entire Security Council has been designated. The United States also designated the adult daughters of President Vladimir Putin and Foreign Minister Sergey Lavrov.

Critical Russian State-Owned Enterprises: On April 7, 2022, the United States announced blocking sanctions targeting additional Russian state-owned enterprises, including Alrosa (the world’s largest diamond mining company) and defense firm United Shipbuilding Corporation. It also extended several wind-down and divestment licenses to cover Alrosa. These sanctions follow earlier US measures targeting each company in more limited ways. The designation of United Shipbuilding Corporation includes 28 subsidiaries and 8 board members of the company.

Commerce Expands the Entity List

On April 7, 2022, the US Department of Commerce’s Bureau of Industry and Security (BIS) published a final rule that added 120 entities to its Entity List. No goods, software, or technology subject to the Export Administration Regulations (EAR) may be exported to parties on the Entity List without a license from BIS, which is unlikely to be granted. The new additions include 24 Belarusian military end-users, 71 Russian military end-users, and 25 entities that attempted to acquire export controlled items in support of Russia’s military modernization efforts. The Belarusian and Russian military end-users will also be subject to the Foreign Direct Product Rule, which expands US export control jurisdictions to certain articles produced in foreign countries using controlled US-origin software, technology, or equipment.

Russian Bond Payments

On Monday, April 4, 2022, the US Treasury Department reportedly restricted the Russian government from making a $552.3 million principal payment on a sovereign bond that came due. On April 6, 2022, the White House clarified that, although Russia is authorized under US sanctions to make payments on sovereign debt, it must use funds outside of US jurisdiction. The White House clarification was not accompanied by any new legal authority or interpretive guidance. General License 9 (as amended, as recently as April 7) has authorized, among other activities, transactions “ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with” Russian sovereign debt through May 25, 2022. In fact, since the new sanctions were imposed, Russia had reportedly already successfully issued several payments on its outstanding sovereign debt.

BIS Takes Enforcement Actions Against Violators of Russian Export Controls

On April 7, 2022, BIS announced orders denying export privileges to three Russian airlines – Aeroflot, Azur Air, and UTair – due to ongoing violations of US export controls. These three Temporary Denial Orders (TDOs) terminate the airlines’ right to participate in transactions involving any goods, software, or technology subject to the EAR. The TDOs have been issued for 180 days but are renewable. The airlines allegedly violated US export laws by operating controlled aircrafts subject to the EAR on international flights without the required export or reexport licenses from BIS. This is the first action BIS has taking to enforce the sweeping export controls recently imposed on Russia.

UK Sanctions Activity

New Designations

On Wednesday April 6, the UK imposed asset freezes on Sberbank and Credit Bank of Moscow. The UK also designated eight oligarchs active in key strategic industries in Russia, including Andrey Akimov (the CEO of Gazprombank) and Leonid Mikhelson (CEO of Novatek, the leading Russian natural gas producer). This followed the designation on Thursday, March 31, of a further 17 persons, including Russian propagandists, military personnel, and media organizations.

General Licences

Alongside the asset freeze on Credit Bank of Moscow announced on April 6, the Office of Financial Sanctions Implementation (OFSI) issued a general licence permitting the wind down of any transactions involving Credit Bank of Moscow (or a subsidiary), including the closing out of any positions. This licence expires on May 6, 2022. OFSI has also amended the general licence in respect of Sberbank, originally issued on March 1, to ensure that it will continue to apply after the bank was made subject to a full asset freeze. The licence provides an exemption to financial institutions (until June 24, 2022) in relation to the processing of sterling payments for the purposes of making crude oil, petroleum products or gas available for use in the UK.

On Friday, April 1, OFSI also issued a general licence in respect of the Central Bank of Russia, the National Wealth Fund, and the Ministry of Finance. This license allows these entities to provide financial services for the purposes of the receipt and onward transfer of non-rouble denominated interest/coupon or maturity/principal payments in connection with debt issued by them before March 1, 2022. The licence expires on June 30, 2022.

Extension of Territorial Restrictions in Ukraine

On March 30, the UK extended existing restrictions in respect of Crimea to the Donestsk and Luhansk regions (defined as “non-government controlled Ukrainian territory”). This includes restrictions on investment, trade, the provision of technical assistance to aircraft and ships, and other shipping sanctions. This restriction comprises prohibitions on: (i) acquiring any ownership interest in land or an entity in the territories; (ii) granting any loan or credit, or otherwise providing funds, for the purposes of financing an entity located in the territories; (iii) establishing any joint venture in the territories or with an entity located in the territories; and (iv) providing investment services in relation to any of the above.

Proposed Sanctions on Investment and Strategic Industries

Also on April 6, the UK announced a wave of proposed new sanctions, which have not yet been implemented. The government plans to introduce an outright ban on new outward investment to Russia. The government has not yet tabled legislation detailing how this ban would take effect. However, the terms of the restriction may be informed by the existing ban on investment in relation to non-government-controlled territories in Ukraine.

The UK also announced that, by the end of 2022, it will end all dependency on Russian coal and oil, and end imports of gas as soon as possible thereafter. As of next week, the export of key oil refining equipment and catalysts will also be banned, in an effort to hamper Russia’s ability to produce and export oil. The UK will also issue a ban on imports of iron and steel products, a key source of revenue of Russia. Furthermore, it said it would thwart Russia’s military ambitions by restricting its ability to acquire British quantum and advanced material technologies. The UK is expected to issue additional details about how these prohibitions will be implemented at a later date.

EU Sanctions Activity

New Sanctions

On Friday, April 8, 2022, the EU formally adopted a new sanctions package in response to the news of massacres in Bucha, Ukraine. The new package includes:

• An import ban on coal and other solid fossil fuels from Russia or originating in Russia;
• A full transaction ban on four key Russian banks, representing 23% of market share in the Russian banking sector, including VTB Bank. After being de-SWIFTed, these banks will now be subject to an asset freeze, thereby being completely cut off from EU markets;
• A ban on Russian vessels and Russian-operated vessels from accessing EU ports;
• New export controls targeting Russia’s technological base and industrial capacity, including controls on quantum computing, advanced semiconductors, software, and sensitive machinery and transportation equipment;
• New import bans on certain Russian products, including cement, wood, seafood, and liquor;
• A ban on any Russian and Belarusian road transport undertaking (trucking company) preventing them from transporting goods by road within the EU, including in transit (derogations are granted for various products including agricultural products, food and pharmaceuticals);
• A general EU ban on participation of Russian companies in public procurement in Member States;
• Exclusion of all financial support from the EU or its Member States to Russian public bodies;
• An extended prohibition on deposits to crypto-wallets and on the sale of banknotes and transferrable securities denominated in any official currencies of the EU member states to Russia and Belarus, or to any natural or legal person in these two countries; and
• Additional asset freezes on natural persons, including relatives of previously sanctioned persons.

The text of the measures are expected to be published in the EU’s Official Journal on Friday, April 8.

Recent Sanctions-Related Litigation

On March 30, 2022, the EU General Court annulled regulations that kept Viktor Yanukovych, the former President of Ukraine who presided during the 2014 Euromaidan protests, on the sanctions list. When issuing the relevant sanctions, the Council of the European Union had relied on Ukrainian judicial decisions and findings but failed to confirm that Yanukovych had received effective judicial protection during the criminal proceedings. As a result, the Court ruled that the Council made an error of assessment in deciding to maintain Yanukovych’s name on the list of sanctioned parties.

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We will continue to monitor developments.