On April 15, 2021, the U.S. Government announced broad new sanctions authorities that can be used to target Russia and implemented limitations on dealings in Russian sovereign debt. These measures were imposed pursuant to a newly issued Executive Order in response to Russia’s alleged election inference, the SolarWinds cyberattack, and Russia’s ongoing occupation of the Crimea region of Ukraine.
- President Biden issued an executive order that authorizes asset freezes and visa restrictions against a broad array of Russian-affiliated persons, including (i) persons operating in Russia’s technology or defense sectors and future to-be-determined sectors of the Russian economy; (ii) persons involved in harmful foreign activities for the benefit of the Russian government, such as cyber activities, U.S. election interference, etc.; (iii) Russian persons providing support for a government whose property and interests in property are blocked; and (iv) Russian persons who are engaged in or attempting to engage in disrupting energy supplies to Europe, the Caucasus, or Asia. Implementation of this executive order will require future policy decisions to issue such sanctions designations and visa restrictions.
- The Treasury Department’s Office of Foreign Assets Control (OFAC) issued a directive that expands prior financial restrictions by prohibiting “U.S. financial institutions” from participating in the primary market for sovereign debt involving ruble-denominated funds. Existing U.S. sanctions already had restricted dealing in new non-ruble sovereign debt.
- OFAC added several individuals and entities to OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) for their alleged involvement in specified foreign activities of the Government of Russia.
On April 15, 2021, President Biden issued an Executive Order on Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation (E.O. 14024). E.O. 14024 authorizes asset freezes and visa restrictions against a broad array of Russian-affiliated persons. Although E.O. 14024 authorizes OFAC to designate a wide array of persons, only persons subsequently added to the SDN List (and entities owned 50 percent or more, directly or indirectly by SDNs) are subject to sanctions.
Pursuant to E.O. 14024 OFAC issued a new Directive 1  which expands prior financial restrictions by adding new sovereign debt and bond prohibitions involving ruble-denominated funds. Prior sanctions imposed pursuant to the Chemical and Biological Weapons and Warfare Elimination Act of 1991 Act (CBW Act) restricted similar transactions involving non-ruble-denominated funds. Directive 1 expands the restriction under the CBW Act to prohibit participating in the primary market for ruble- or non-ruble-denominated bonds, or the lending of ruble– or non-ruble-denominated funds. Directive 1 applies to “U.S. financial institutions,” which includes branches, offices and agencies of foreign financial institutions that are located in the United States, but not such institutions’ foreign branches, offices, or agencies.
Pursuant to E.O. 14024, the U.S. government is authorized to impose asset freezes and visa restrictions against persons determined by the Secretary of Treasury, or at times the Secretary of State, to have engaged in the following activities or considered to be any of the following person:
- Targeted Sectors: Russia’s technology sector, the defense and related materiel sector of the Russian economy, or any other sector of the Russian economy;
- Harmful Interference: Engaged or attempted to engage in certain harmful foreign activities for the benefit of the Russian government, such as cyber activities, U.S. election interference, assassination attempts etc.;
- High Level Officials: Past or current leader, official, senior executive officer or board member of the Russian Government or other entities described in (2) above;
- Government Agency: Political subdivision, agency, or instrumentality of the Government of the Russian Federation;
- Family Members: Spouse or adult child of any person whose property and interest in property are blocked pursuant to (2) or (3) above;
- Material Support: Persons who provide material support for any activity described in (2) above or any person blocked pursuant to this E.O.;
- Owned or Controlled: Owned or controlled by, or directly or indirectly acting on behalf of the Russian Government or any person blocked pursuant to this E.O.;
- Material Assistance to Blocked Governments: Russian persons who provide support for a government whose property and interests in property are blocked;
- Disrupting Gas or Energy Supplies: Russian persons who are engaged in or attempted to engage in, cutting or disrupting gas or energy supplies to Europe, the Caucasus or Asia.
The identification of the various sectors of the Russian economy in E.O. 14024 provides notice that persons operating in such sectors are exposed to sanctions risk. Such identification, however, does not automatically block all persons operating in the identified sectors. Only persons subsequently added to the SDN List pursuant to E.O. 14024 (and entities owned 50 percent or more, directly or indirectly by blocked persons) are subject to sanctions.
For example, Directive 3 issued pursuant to E.O. 13662 imposed narrow “sectoral sanctions” against certain persons determined to operate in Russia’s defense and materiel sector. OFAC published guidance in conjunction with the issuance of E.O. 14024 that clarifies that a person on the Sectoral Sanctions Identification List (SSI List) is not considered blocked unless they are separately designated pursuant to E.O. 14024.
Similarly, although Russian Government related persons and entities are not necessarily automatically blocked, E.O. 14024’s authorization to do so is broad and unqualified. For example, companies doing business with any entity “owned or controlled by” or that acts on behalf of the Russian Government, need to account for the potential risk that their counterparty could become blocked in the future.
Directive 1 under E.O. 14024
Under the authority of E.O. 14024, OFAC also issued Directive 1.
Directive 1 prohibits the following activities by “U.S. financial institutions” beginning June 14, 2021:
(1) participation in the primary market for ruble- or non-ruble-denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation; and
(2) lending ruble- or non-ruble-denominated funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation.
E.O. 13883 issued on August 3, 2019 pursuant to the CBW Act already prohibited “U.S. banks” from participating in the primary market for non-ruble-denominated bonds and from lending non-ruble-denominated bonds. Beginning June 14, 2021 “U.S. financial institutions” will now be prohibited from participating in the primary market for ruble- or non-ruble-denominated bonds issued by, or the lending of ruble- or non-ruble-denominated funds to, the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation.
A “U.S. financial institution” as used in Directive 1 refers to any U.S. entity (including its foreign branches) that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or other extensions of credit, or purchasing or selling foreign exchange, securities, commodity futures or options, or procuring purchasers and sellers thereof, as principal or agent. Notably, this term includes branches, offices, and agencies of foreign financial institutions that are located in the United States, but not such institutions’ non-U.S. branches, offices, or agencies—an exclusion that limits Directive 1’s practical impact. Further limiting the practical impact, the definition of U.S. financial institution does not include separately organized non-U.S. subsidiaries of a U.S. financial institution.
Directive 1 does not prohibit “U.S. financial institutions” from participating in the secondary market for bonds issued by the three Russian banking institutions. Additionally, the prohibitions in Directive 1 do not apply to any entity that is owned, directly or indirectly, 50 percent or more by one or more of these three entities.
Individual SDN Designations
OFAC also added a number of individuals and entities to the SDN List on April 15, 2021, determining such persons were involved in the following activities deemed contrary to U.S. interests:
- Cyber Attacks: Six Russian technology companies, including Positive Technologies, were designated for operating in the technology sector of the Russian Federation economy and supporting malicious cyber activities;
- Election Interference: Thirty-Two entities and individuals were designated in relation to alleged efforts by the Russian government to influence the U.S. 2020 Presidential Election through government disseminated disinformation pursuant to pre-existing authorities authorizing sanctions for election interference; and
- Coordinated Ukraine-Related Sanctions: In coordination with the EU, the UK, Australia and Canada, eight individuals and entities were designated for their involvement in Russia’s occupation of Crimea and aggression against Ukraine.
The above listed individuals and entities were added to OFAC’s SDN List. Accordingly, all property and interests in property of the designated persons that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more sanctioned person(s) are also blocked.
The sanctions above stand not only to impact U.S. companies, but can also increase secondary sanctions risk for foreign companies doing business with Russia. Depending on their activities, such entities could themselves become subject to blocking or various other sanctions as authorized by other laws, such as the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA), the Ukraine Freedom Support Act of 2014, as amended by CAATSA, or the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act, as amended by CAATSA.
 Note that this is wholly separate and unrelated to Directive 1 under Executive Order 13662, which applies to sectoral sanctions.