While the Biden Administration desires a “stable and predictable” relationship with Russia, it has now made it clear that it will take “actions to impose costs on Russia for actions by its government and intelligence services against US sovereignty and interests.”1 Thus, on April 15, 2021, the United States announced a series of sanctions actions against the Russian government and businesses on the basis of its finding that Russia had engaged in a series of “harmful foreign activities,” including, among others, interference in US elections and engagement in broad-scope malicious cyber activities against the United States and its allies.
As detailed below, the April 15, 2021 US actions are as follows:
- an Executive Order entitled “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation,” (the Executive Order or the Order), authorizing the imposition of wide-ranging sanctions that prohibit dealings by US persons with parties designated by the US Department of Treasury (Treasury) on the basis of their operation in the technology or defense sectors of the Russian economy (with the potential for additional sectors), or their participation in election interference, cyber activities, and a range of other activities, and that also carries a secondary sanctions risk.
- blocking sanctions on:
- six (6) Russian entities pursuant to the Order for providing support to the Russian Intelligence Agencies’ malicious cyber operations.
- thirty-two (32) entities and individuals for carrying out Russian government-directed attempts to influence the 2020 US presidential election.
- eight (8) entities and individuals associated with Russia’s ongoing occupation and repression in Crimea.
- expulsion of 10 officials from the Russian diplomatic mission in Washington, DC by the US Department of State, which Russia responded to by announcing that 10 US diplomats would be expelled in return.
- a Treasury Directive that prohibits US financial institutions from participation in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by certain Russian government entities.
In addition to expelling US diplomats, Russia has also retaliated against the US actions by adding eight (8) US officials to its sanctions list (including Attorney General Merrick Garland, FBI Director Christopher Wray, Director of National Intelligence Avril Haines, and Domestic Policy Adviser Susan Rice) and restricting US NGO activity in Russia. Meanwhile, it is anticipated that a US-Russian summit will be held, given President Biden’s initial offer and press reports suggesting a positive response to the US offer from Russia.
Sanctions imposed based on "Pernicious Activities"
The Executive Order authorizes Treasury, in consultation with the Secretary of State (State) and the Attorney General, to impose blocking sanctions against persons determined to:
- operate or have operated in the technology or defense (and related material) sectors of the Russian economy, or other sectors as determined by Treasury and State or
- engage in or have engaged in (directly or indirectly)
(A) “malicious cyber-enabled activities”
(B) election interference in the US or other foreign governments
(C) the undermining of democratic processes or institutions in the US or abroad
(D) “transnational corruption”
(E) assassination of or harm to US persons or nationals of US allies
(F) the undermining of peace and stability of the US and its allies and partners
(G) circumvention of US sanctions, including through digital currencies
The Executive Order also identifies a wide range of persons affiliated with the Russian government or entities designated for engaging in covered malicious activities, including:
- a leader, official, senior executive officer, or member of the board of directors of (A) the Russian government
(B) an entity that has, or whose members have engaged in any of the above described malign activities (e.g., malicious cyber-enabled activities, election interference, transnational corruption, etc.) or
(C) an entity that is blocked under the Executive Order
- a “political subdivision, agency, or instrumentality” of the Russian government
- a spouse or “adult child” of any person blocked for the activities described in (2) or (3) above
Sanctions may also be imposed against other individuals who have provided “material assistance” or otherwise acted in support of the objectionable conduct listed in the Executive Order, including by providing financial or technical support, or supplying goods and services to individuals designated under the Executive Order. Factors that may indicate sanctionable support include the nature, size, number, and frequency of the transaction(s); the impact of the transaction(s) on statutory objectives; whether the transaction(s) involve deceptive practices; and other factors considered on a case-by-case basis.
In addition to the named persons and entities, entities that are 50% or more owned – in the aggregate and directly or indirectly – by designated persons, are also considered to be blocked to the same extent as the designated persons. It is the responsibility of US persons to identify entities that are subject to 50% rule “auto-blocking,” aka sanctions “flow-down.”
Designation of Russian companies in the technology sector
Six Russian companies were designated for supporting the Russian Intelligence Service’s dangerous and disruptive cyber-attacks:
- ERA Technopolis, a research center and technology park funded and operated by the Russian Ministry of Defense
- Pasit, AO, an IT company that conducted research and development in support of Russia’s Foreign Intelligence Service’s (SVR) malicious cyber operations
- Federal State Autonomous Scientific Establishment Scientific Research Institute Specialized Security Computing Devices and Automation, a state-owned research institute specializing in advanced systems for information security
- Neobit, OOO, an IT security firm whose clients include the Russian Ministry of Defense, Russia’s Foreign Intelligence Service’s and Russia’s Federal Security Service (FSB). Neobit is also being designated under Executive Order 13694, WMD-related Executive Order 13382, and the Countering America’s Adversaries Through Sanctions Act (CAATSA) for providing material support to the GRU
- Advanced System Technology, AO, an IT security firm whose clients include the Russian Ministry of Defense, SVR and FSB, and which is also being designated under Executive Orders 13694 and 13382, and CAATSA for providing support to the FSB
- Pozitiv Teknolodzhiz, AO (Positive Technologies), an IT security firm that supports the FSB by providing computer network security solutions to Russian businesses, foreign governments, and international companies and hosting large-scale conventions used as recruiting events for the FSB and GRU. Positive Technologies is also designated pursuant to Executive Orders 13694 and 13382, and CAATSA for providing support to the FSB.
Additional restrictions targeting Russian sovereign debt
In a separate action, Directive 1 to the Executive Order expands on restrictions previously put in place by the Chemical and Biological Weapons Control and Warfare Elimination Act Directive (the CBW Directive), issued on August 2, 2019 under Executive Order 13883. The CBW Directive already prohibited US financial institutions from participating in the primary market for ruble-denominated bonds issued by, and the lending of ruble-denominated finds to, the Russian Sovereign Debt Entities. Directive 1 goes beyond that by now restricting US financial institutions from non-ruble-denominated bonds and loans involving the Russian Sovereign Debt Entities.
Directive 1 does not, however, prohibit US financial institutions from participating in the secondary market for bonds issued by the Russian Sovereign Debt Entities.2 Note that the traditional OFAC 50% Rule does not apply under Directive 1, and, as such, only bonds issued by, or loans made directly to, the Russian Sovereign Debt Entities are subject to its prohibitions, not including bonds issued by state-owned enterprises3
Designation of additional individuals and entities in connection with the Russian government’s attempt to influence US elections
In addition, OFAC designated 16 entities and 16 individuals under various Russia-related executive orders for attempting to influence the 2020 US presidential election, including media outlets used by the Russian government to spread disinformation as well as financial backers of such media outlets. The designated media outlets include:
- InforRos, a news agency covertly run by the Main Intelligence Directorate (GRU) and used to exploit the worldwide health crisis to sow confusion and discord regarding COVID-19
- Strategic Culture Foundation, an online journal registered in Russia and directed by the SVR that created false and unsubstantiated narratives concerning US officials involved in the 2020 US presidential election, including the publication of conspiracy theorists
- SouthFront, an online disinformation site registered in Russia and answering to the FSB, it appeals to US persons, including military enthusiasts, veterans and conspiracy theorists, and sought to promote perceptions of voter fraud following the 2020 US presidential election
- NewsFront, a Crimea-based disinformation and propaganda outlet that worked with FSB officers to coordinate a narrative that undermined the credibility of a news website advocating for human rights
OFAC also targeted persons and entities that are part of the network of Yevgeniy Prigozhin, the already-designated Russian financier behind Internet Research Agency, the Russian troll farm designated in 2018 for interfering in the 2016 US presidential election.
Designation of Russian persons in Crimea Region
Further, OFAC designated five (5) individuals and three (3) entities related to Russia’s ongoing presence in the Crimea Region. These designations, pursuant to Executive Order 13660 and Executive Order 13685, impose sanctions on individuals who have asserted governmental authority over the Crimea Region as well as target individuals and entities for operating in the Crimea Region. Among the eight (8) designated persons are:
- Leonid Kronidovich Ryzhenkin
- Joint-Stock Company The Berkakit-Tommot-Yakutsk Railway Line’s Construction Directorate
These persons were designated in response to their alleged involvement in the construction of the Kerch Strait Bridge that now links Russia directly to the Crimea Region.
Also designated is Simferopol SIZO-1, a pre-trial detention center in Simferopol, in the Crimea Region, which the US Government views as emblematic of the widespread human rights abuses perpetrated by the Russian government.
Recommendations and looking ahead
These new sanctions convey a message from the Biden Administration that Russian conduct in the areas described will entail costs on a sustained basis. In addition to the specific designation it includes, the Executive Order provides a framework for further actions in the months to come. Further actions will largely depend on the Russian response. As highlighted above, Russia immediately retaliated against the US measures by expelling US diplomats, sanctioning top US officials, and restricting US NGO operations. But President Biden’s proposed summit – a show of carrot and stick diplomacy – might lead to US-Russia negotiations. US and non-US companies alike therefore should continue to stay apprised of their obligations and potential risks in dealing in Russia’s financial, technology, and defense-related markets and sectors.