Economic Sanctions & Anti-Money Laundering
- Learn More
Our team advises U.S. and non-U.S. clients across industries on their most sensitive U.S. economic sanctions and Bank Secrecy Act/anti-money laundering (BSA/AML) issues. With our preeminent regulatory defense and white collar experience, we are uniquely positioned to assist clients in responding to regulator inquiries, examinations and subpoenas; conducting internal investigations; and handling matters that develop into multi-agency civil and criminal investigations. Our practice also encompasses regulatory advice, compliance counseling and transactional due diligence.
The Biden Administration’s First Two Weeks of Sweeping Sanctions and Export Controls on Russia/Ukraine
March 7, 2022 Download PDF
This memorandum updates the memoranda we originally published on February 23, 2022 and February 26, 2022.
For weeks, the Biden Administration has warned that Russian escalation in Ukraine would result in significant costs in the form of sanctions. Starting on Monday, February 21, 2022, the Administration put in place sweeping new sanctions and export controls relating to Russia/Ukraine. Specifically:
On Monday, February 21, 2022, in response to Russian President Putin’s announcement that Russia would be recognizing the so-called Donetsk and Luhansk People’s Republics (the “DNR” and “LNR” regions of Ukraine, respectively) as “independent,” President Biden issued an executive order, Executive Order 14065 ( “EO 14065”) targeting the DNR and LNR with comprehensive economic sanctions. The sanctions that EO 14065 imposes with regard to these regions are very similar to the 2014 sanctions imposed on the Crimea region and effectively create an embargo of these regions.
On Tuesday, February 22, 2022, in response to President Putin’s recognition of the DNR and LNR as well as his announcement that Russia would deploy troops to these regions, President Biden announced a “first tranche” of additional sanctions targeting Russia and stated that the United States and its allies are prepared to impose additional sanctions in response to further actions that may be taken by Russia in Ukraine. This first tranche of sanctions included: the imposition of blocking sanctions on two major Russian financial institutions (i.e., adding these entities to OFAC’s SDN List), expanded prohibitions on U.S. financial institutions’ ability to deal in Russian sovereign debt, and blocking sanctions targeting several prominent high-profile Russians and members of their families. President Biden also announced that the Secretary of the Treasury has determined that any institution in the financial services sector of the Russian economy is now a potential target for future tranches of sanctions.
Further, on Wednesday, February 23, 2022, OFAC added Nord Stream AG 2, the Swiss company building the Nord Stream 2 pipeline, and its Chief Executive Officer to the SDN List. The Biden Administration characterized these designations as “another piece” of the “initial tranche of sanctions” in response to Russia’s actions in Ukraine.
On Thursday, February 24, 2022, in response to Russia’s invasion of Ukraine, President Biden announced a sweeping package of sanctions and heightened export control restrictions targeting Russia and Belarus. This second tranche included prohibiting U.S. correspondent banking for Sberbank, Russia’s largest bank, and 25 of its subsidiaries; imposing blocking sanctions on VTB Bank and three other major Russian financial institutions and their subsidiaries; restricting the ability of U.S. persons to deal in new debt or equity of 13 major Russian companies; adding additional high-profile Russian individuals, as well as Belarusian individuals and entities, to the SDN List; adding a number of entities in the defense sector of Russia’s economy to the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) Entity List; and imposing a number of new export control restrictions prohibiting the export of a wide variety of U.S.-origin items (including software and technology) to Russia through, among other things, a licensing policy of denial for Russia for a number of export control classifications and the adoption of additional “foreign direct product” rules specific to Russia. Notably there are significant OFAC general licenses for, among other things, energy-related transactions involving certain designated financial institutions.
On Friday, February 25, 2022, in an extremely rare move for a country that is not the target of comprehensive sanctions, OFAC announced the designation of President Putin to the SDN List, along with Sergei Lavrov, the Minister of Foreign Affairs of Russia, Sergei Shoigu, the Minister of Defense of Russia, and Valery Gerasimov, the Russian General of the Army. OFAC noted that “[i]t is exceedingly rare for Treasury to designate a head of state” and that President Putin now joins Kim Jong Un of North Korea, Alyaksandr Lukashenka of Belarus, and Bashar al-Assad of Syria, as a head of state on the SDN List. As a result of this designation, all of their property and interests in property in the possession of U.S. persons must be blocked and virtually all U.S.-nexus transactions involving these persons are now prohibited by U.S. sanctions.
During the week of February 28, 2022, OFAC designated and added to the SDN List additional elite Russians and their families, as well as several Russian intelligence-directed disinformation outlets and associated individuals. OFAC also imposed new targeted sanctions against the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. As with other recent actions against Russia, these actions—including the sanctions against Russia’s Central Bank—were taken in close coordination with U.S. allies. Further, effective March 12, 2022, the European Union has taken action to remove seven Russian banks (including those recently added to the SDN List, but not Sberbank) from the SWIFT messaging system.
BIS also took several additional actions targeting Russia and Belarus during the week of February 28, 2022. First, on March 2, 2022, BIS issued a rule imposing a policy of denial on the export of higher-tech items to Belarus, particularly those related to the defense, aerospace, and maritime industries. The rule also expands the two new “foreign direct product” rules targeting Russia to also target Belarus. Finally, the rule added two entities, including the Ministry of Defense of Belarus (including all branches of the Belarussian Armed Forces) to the Entity List, broadly prohibiting their ability to receive U.S.-origin items.
On March 3, 2022, BIS issued two new rules with immediate effect targeting the Russian energy sector and adding almost 100 entities determined to support the defense and intelligence sectors of the Russian economy onto the Entity List. Specifically, the first rule BIS issued imposes a licensing policy of denial for a variety of items (i) related to deepwater or Arctic offshore exploration for, or production of, oil or gas in Russia and (ii) necessary for refining oil in Russia. The effect of the second rule BIS issued is that these identified entities are now broadly prohibited from receiving U.S.-origin items.
Below, we provide more detail on these U.S. government actions and their implications. The situation is rapidly evolving and additional sanctions may be forthcoming.
Sanctions Imposed by EO 14065
EO 14065 very closely follows the model of Executive Order 13685 of December 19, 2014, which imposed comprehensive sanctions on the Crimea region of Ukraine in response to Russia’s annexation of that region. EO 14065 likewise imposes comprehensive sanctions on the DNR and LNR regions of Ukraine, prohibiting virtually all U.S.-nexus transactions or dealings with these regions. A U.S.-nexus transaction can include transactions involving U.S. persons, the use of U.S. dollars (or other currencies) that flow through the U.S. financial system, and U.S.-origin products. Following EO 14065, the list of comprehensive U.S. sanctioned countries and regions is now as follows: Cuba, Iran, North Korea, Syria, and three regions of Ukraine (Crimea, DNR, and LNR).
On March 2, 2022, OFAC issued guidance clarifying that only the DNR and LNR are the target of these sanctions, not the entire Donetsk and Luhansk oblasts. In addition to targeting these regions, EO 14065 provides a framework for the expansion of regions targeted by these comprehensive sanctions if the Secretary of the Treasury, in consultation with the Secretary of State, deems that additional regions in Ukraine should be subject to the same prohibitions. As a practical matter, this will enable the U.S. government to quickly impose these same level of comprehensive sanctions on additional regions in Ukraine, should Russia recognize them as “independent” or send troops to occupy them.
OFAC has issued six general licenses, which permit the following activities notwithstanding the comprehensive sanctions on the DNR and LNR regions:
- Wind Down Transactions. General License 17 authorizes certain transactions ordinarily incident and necessary to the wind down of transactions involving the DNR and LNR regions, including the divestiture or transfer to a non-U.S. person of a U.S. person’s share of ownership in any pre-February 21, 2022 investment located in the DNR and LNR regions, and permitting the winding down of operations, contracts, or other agreements in effect prior to February 21, 2022 involving the exportation, reexportation, sale, or supply of goods, services, or technology to, or importation of any goods, services or technology from, the DNR or LNR regions of Ukraine through 12:01 am eastern daylight time on March 23, 2022.
- Agricultural Commodities, Medicine, Medical Devices, Replacement Parts and Components, or Software Updates. General License 18 authorizes the export and reexport to the DNR and LNR regions of certain agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices, as well as certain transactions related to the prevention, diagnosis, or treatment of COVID-19.
- Telecommunications, International Organizations, Non-Commercial Remittances, Internet-Based Communications. Consistent with authorizations in other comprehensive sanctions programs, OFAC issued general licenses authorizing certain telecommunications and mail transactions, certain official business of specified international humanitarian organizations,  certain non-commercial personal remittances and related operation of financial accounts, and the exportation of certain services and software incident to internet-based communications. 
Additionally, EO 14065 authorizes OFAC to impose blocking sanctions on persons that are determined to meet certain specified criteria. These criteria include, for example, operating or having operated since the date of EO 14065 in the DNR or LNR regions; being a leader, official, senior executive officer, or board member of an entity operating in the DNR or LNR regions; being owned or controlled or acting on behalf of a person blocked under EO 14065; or materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of any persons blocked under EO 14065.
The “First Tranche” of Sanctions Targeting Russia
Following President Biden’s speech announcing the “first tranche” of sanctions targeting Russia as a result of its recent activities in and around Ukraine, on February 22, 2022, OFAC announced the following additional sanctions:
- Pursuant to Executive Order 14024, “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation” (issued April 15, 2021; “EO 14024”), the Secretary of the Treasury, in consultation with the Secretary of State, determined that section 1(a)(i) of EO 14024 applies to the financial services sector of the Russian economy, and therefore persons determined to operate or have operated in this identified sector can be the target of U.S. sanctions. This action has no legal impact on the financial services sector as a whole, but instead authorizes OFAC to sanction any company or individual that operates or has operated in Russia’s financial services sector (including the two banks that were designated on the SDN List as a part of this tranche of sanctions).
- Adding two Russian banks, the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”), along with 42 of their subsidiaries, to the SDN List. The Biden Administration stated these financial institutions collectively “hold more than $80 billion in assets and finance the Russian defense sector and economic development,” and that these measures would, among other things,
“shut them out of the global financial system, and foreclose access to the U.S. dollar.”
- Adding several “elites and families close to Putin” to the SDN List (although some of these individuals had already been designated, such that their addition under this new basis is largely symbolic).
- Increasing restrictions on U.S. financial institutions’ dealings in Russia’s sovereign debt. Specifically, OFAC issued Russia-related Directive 1A under EO 14024, “Prohibitions Related to Certain Sovereign Debt of the Russian Federation” (the “Russia-related Sovereign Debt Directive”), amending and superseding Directive 1 under EO 14024. The prior Directive 1 imposed prohibitions on U.S. persons’ participation 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. Directive 1A expands upon the existing prohibitions to also prohibit, as of March 1, 2022, U.S. persons’ participation in the secondary market for ruble or non-ruble denominated bonds issued by these entities after March 1, 2022.
On February 23, 2022, the Biden Administration added Nord Stream AG 2, the Swiss company building the Nord Stream 2 pipeline and its Chief Executive Officer, Matthias Warning, to the SDN List pursuant to Executive Order 14039, “Blocking Property with Respect to Certain Russian Energy Export Pipelines.” OFAC issued related General License 4, authorizing the wind down of certain transactions involving Nord Stream AG 2 through 12:01 am eastern standard time, March 2, 2022. This action is consistent with Germany’s February 22, 2022 decertification of the Nord Stream 2 pipeline (which had previously been the target of sanctions bills in the U.S. Congress), an $11 billion pipeline which was completed in 2021 and which links Germany and Russia.
The “Second Tranche” of Sanctions Targeting Russia
- Prohibiting U.S. correspondent and payable-through account access for Sberbank, Russia’s largest financial institution, and 25 of its subsidiaries;
- Imposing blocking sanctions (i.e., designating on the SDN List) VTB Bank, Russia’s second largest financial institution, and 20 of its subsidiaries, as well as three other major Russian financial institutions (Bank Otkritie, Sovcombank OJSC, and Novikombank) and 34 of their subsidiaries;
- New restrictions on U.S. persons’ transactions and dealings in new debt and new equity of 13 major Russian companies;
- Imposing blocking sanctions on a number of high-profile Russians and their family members;
- Imposing blocking sanctions on 24 Belarusian individuals and entities, including two state-owned banks, nine defense firms, and seven individuals associated with the Belarusian government.
- Adding 47 Russian entities, including the entirety of the Russian Armed Forces, to the BIS Entity List, broadly restricting the ability of persons to export, reexport, or transfer any items subject to the U.S. Export Administration (“EAR”) to these entities without a BIS export license;
- Revamping and expanding a number of portions of the EAR to impose a “Russia-wide denial of exports of sensitive technology, primarily targeting the Russian defense, aviation, and maritime sectors.”
In the sections below, we discuss these actions in greater detail.
OFAC announced a range of actions as a part of the February 24, 2022 sanctions package targeting Russia. These included the second-ever use of the Correspondent and Payable-Through Account (“CAPTA”) sanctions program to target Sberbank, Russia’s largest financial institution, and the designation of four of Russia’s largest financial institutions to the SDN List.
CAPTA Sanctions Targeting Sberbank
OFAC issued Directive 2 under EO 14024 (“EO 14024 Directive 2”) targeting Sberbank and 25 of its subsidiaries. This directive prohibits U.S. financial institutions from (i) opening or maintaining a correspondent account or payable-through account for or on behalf of any Sberbank entity identified in EO 14024 Directive 2 and (ii) processing transactions involving the Sberbank entities identified in EO 14024 Directive 2. EO 14024 Directive 2 takes effect at 12:01 am eastern daylight time on March 26, 2022. OFAC noted in an FAQ that EO 14024 Directive 2 also applies to any entity owned 50 percent or more by Sberbank.
The CAPTA sanctions targeting Sberbank effectively prohibit its ability to deal in U.S. dollar denominated transactions; however, the CAPTA sanctions are not blocking sanctions and therefore the funds Sberbank may currently have in such U.S. financial institution correspondent or payable-through accounts will not be subject to blocking. OFAC also issued an FAQ clarifying that the CAPTA sanctions apply to U.S. financial institutions (including their non-U.S. branches) with respect to any currency, meaning that, for example, a non-U.S. branch of a U.S. financial institution is prohibited from opening or maintaining a correspondent account on behalf of an entity targeted by EO 14024 Directive 2 even if that account is denominated in a currency other than U.S. dollars, such as euros.
Additional non-U.S. financial institutions may be sanctioned by OFAC pursuant to EO 14024 Directive 2 in the future. In that instance, the directive’s prohibitions will apply to those entities 30 days after the date OFAC makes such a determination.
Blocking Sanctions on Four Major Russian Financial Institutions
Pursuant to EO 14024, OFAC designated VTB Bank, Russia’s second-largest bank, which, according to OFAC, holds nearly 20 percent of banking assets in Russia, on the SDN List. As a result, virtually all U.S.-nexus dealings with VTB Bank are prohibited and U.S. persons in possession of the property or interests in property of VTB Bank must block any such property in their possession. OFAC noted that VTB Bank is one of the largest financial institutions that has ever been added to the SDN List. OFAC also added 20 VTB Bank subsidiaries to the SDN List.
Pursuant to EO 14024, OFAC also added three other major Russian financial institutions (Bank Otkritie, Sovcombank OJSC, and Novikombank) and a combined total of 34 of their subsidiaries to the SDN List. Novikombank had previously been subject to certain debt-related sanctions restrictions pursuant to Directive 3 of OFAC’s sectoral sanctions program. OFAC noted that Novikombank’s parent company, Rostec, remains subject to the debt-related sanctions of Directive 3 of the sectoral sanctions program.
Under OFAC’s 50 percent rule, any other entities owned 50 percent or more by VTB Bank, Bank Otkritie, Sovcombank OJSC, and Novikombank are also subject to the same blocking sanctions, even if not identified on the SDN List by OFAC.
OFAC also issued General License 11, which permits transactions involving VTB Bank, Bank Otkritie, and Sovcombank OJSC, that are “ordinarily incident and necessary to the wind down of transactions” involving these entities until 12:01 am eastern daylight time on March 26, 2022. While this limitation is not included in General License 11 itself, OFAC noted in an FAQ that “wind down” activities do not include “the continued processing of funds transfers, securities trades, or other transactions involving a blocked person that were part of ongoing business activities prior to the imposition of sanctions, unless separately authorized.”
Restrictions on U.S. Persons’ Dealings in the New Debt or New Equity of 13 Major Russian Companies
OFAC issued Directive 3 under EO 14024 (“EO 14024 Directive 3”). This directive prohibits U.S. persons from engaging in any transactions or dealings in new debt of longer than 14 days maturity or new equity of the 13 Russian companies identified in EO 14024 Directive 3, where such new debt or new equity is issued on or after 12:01 am eastern daylight time on March 26, 2022. These 13 identified Russian companies are: Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Transneft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways. Similar to EO 14024 Directive 2, EO 14024 Directive 3 maintains a mechanism under which if OFAC identifies additional companies as being the target of EO 14024 Directive 3, the prohibitions of EO 14024 Directive 3 will take effect at 12:01 am eastern standard time on the date that is 30 days after the date of OFAC’s identification.
In an FAQ, OFAC clarified that for purposes of EO 14024 Directive 3: (i) the term “debt” includes “bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial paper,” and (ii) “equity” includes “stocks, share issuances, depositary receipts, or any other evidence of title or ownership.” In a separate FAQ, OFAC confirmed that its 50 percent rule applies to the entities targeted by EO 14024 Directive 3 and therefore U.S. persons are also prohibited from dealing in the new debt of longer than 14 days maturity or new equity of any entity that is owned 50 percent or more by any entity identified in EO 14024 Directive 3.
Additional High-Profile Russians Added to SDN List
Pursuant to EO 14024, OFAC also designated several high-profile Russians who OFAC determined to be close to President Putin or senior financial institution executives in Russia. As a result, virtually all U.S.-nexus transactions involving these persons are prohibited and U.S. persons are required to block any property or interests in property of these persons in their possession.
OFAC Guidance Regarding Risks of Non-U.S. Persons Being Sanctioned for Engaging in Activities with Newly Sanctioned Persons
OFAC issued an FAQ that discussed the risk of a non-U.S. person being sanctioned by OFAC for engaging in activities with persons sanctioned pursuant to EO 14024. OFAC noted that it evaluates a range of factors when developing sanctions targets, consistent with foreign policy and national security goals. OFAC stated that non-U.S. persons who engaged in activities with persons that are the target of blocking sanctions imposed under EO 14024 “may be exposed to sanctions risk” in relation to such activities. OFAC specifically referred to the basis for designation in EO 14024 for persons who have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods and services in support of, certain activities” involving persons blocked pursuant to EO 14024.
However, with regard to persons targeted for less broad sanctions under the directives of EO 14024, OFAC noted that non-U.S. persons “generally do not risk exposure to U.S. blocking sanctions under [EO 14024] for engaging in transactions with persons subject to the prohibitions of the directives” of EO 14024. OFAC also clarified that it will not view “efforts by non-U.S. persons to comply with U.S. sanctions by replacing sanctioned suppliers or service providers (including financial institutions) with non-sanctioned persons” as attempts to evade or avoid U.S. sanctions.
Additional General Licenses
OFAC also issued several additional general licenses regarding the sanctions imposed pursuant to EO 14024, some of which have been discussed in the sections above. We summarize some of the more notable general licenses below:
- General License 8A – Permits transactions that would otherwise be prohibited by EO 14024 with (i) VEB, (ii) Otkritie, (iii) Sovcombank, (iv) Sberbank, (v) VTB Bank, or (vi) any entity owned 50 percent or more by one or more of (i)-(v), so long as the transactions are “related to energy” through 12:01 EDT on June 24, 2022. As defined in the general license and a related FAQ, “related to energy” means “the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources.” Notably the General License does not extend to energy “exploration” and it is unclear whether that omission was intentional. OFAC clarified that General License 8A does not permit the opening or maintaining of a correspondent account or payable through account on behalf of any person that is the target of EO 14024 Directive 2. OFAC guidance also confirms that, absent the involvement of sanctioned parties, the purchase, sale, or transport of Russian-origin oil, gas, or other energy-related products by U.S. or non-U.S. persons remains permissible.
- General License 9A – Permits transactions that would otherwise be prohibited by EO 14024 with regard to dealings in the debt or equity of listed entities issued prior to February 24, 2022 (“covered debt or equity”), provided that “any divestment or transfer of, or facilitation of divestment or transfer of such covered debt or equity must be to a non-U.S. person.  The entities to which General License 9A applies are: (i) VEB, (ii) Otkritie, (iii) Sovcombank, (iv) Sberbank, (v) VTB Bank, and (vi) any entity owned 50 percent or more by one or more of (i)-(v). The license notes that it also permits all transactions “ordinarily incident and necessary to facilitating, clearing, and settling trades of covered debt or equity.” The transactions are permitted by General license 9A, so long as they occur prior to 12:01 eastern daylight time on May 25, 2022. OFAC clarified that General License 9A does not permit the opening or maintaining of a correspondent account or payable through account on behalf of any person that is the target of EO 14024 Directive 2.
- General License 10A – Permits all transactions that would otherwise be prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of derivative contracts entered into before 4:00pm eastern standard time February 24, 2022, that (i) include one of the following entities (the “Covered Entities”) as a counterparty or (ii) are linked to debt or equity of a Covered Entity, are authorized through 12:01am eastern daylight time on May 25, 2022, provided that any payments to a blocked person are made into a blocked account. The Covered Entities are: (i) VEB, (ii) Otkritie, (iii) Sovcombank, (iv) Sberbank, (v) VTB Bank, or (vi) any entity owned 50 percent or more by one or more of (i)-(v). General License 10 also authorizes debits to accounts on the books of U.S. financial institutions of the Covered Entities to the extent ordinarily incident and necessary to effect these authorized transactions. OFAC clarified that General License 10A does not permit the opening or maintaining of a correspondent account or payable through account on behalf of any person that is the target of EO 14024 Directive 2.
- General License 12 – Permits U.S. persons to reject (instead of blocking) any transaction prohibited by EO 14024 relating to the following blocked persons until 12:01 am eastern daylight time March 26, 2022: (i) Otkritie, (ii) Sovcombank, (iii) VTB Bank, or (iv) any entity owned 50 percent or more by one or more of (i)-(iii).
- Various Other General Licenses – OFAC also issued relatively standard general licenses permitting: (i) transactions related to the official business of certain international organizations; (ii) transactions related to the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components, software updates, or the prevention, diagnosis, or treatment of COVID-19; (iii) overflight payments, emergency landings, and air ambulance services.
- Belarus Sanctions
As a part of Thursday’s sweeping sanctions package, OFAC imposed blocking sanctions on 24 Belarusian individuals and entities due to “Belarus’s support for, and facilitation of, the invasion [of Ukraine].” These designations onto the SDN List targeted persons active in Belarus’s defense and financial sectors, which OFAC noted as sectors where Belarus has especially close ties with Russia. OFAC also described its expectation that the sanctions targeting Russia that were imposed as a part of this package will also have “significant downstream effects” in Belarus due to its close ties with the major Russian financial institutions designated pursuant to the package.
OFAC designated two state-owned banks, Belinvestback and Bank Dabrabyt (and certain of their subsidiaries), which OFAC described as two of the most significant banks in Belarus, pursuant to Executive Order 14038 (“EO 14038”), which authorized sanctions targeting entities that are owned or controlled by, or having acted or purported to act, on behalf of the government of Belarus. OFAC also added 13 individuals and entities in the Belarusian defense sector to the SDN List, pursuant to the separate authority in EO 14038 for OFAC to designated entities that are operating or have operated in the defense and related materiel and transportation sectors of the economy of Belarus. OFAC also added three Belarus government officials, including the Belarusian Minister of Defense, to the SDN List.
Export Control Actions
BIS announced a number of actions, which were implemented through changes to the EAR via a final rule effective February 24, 2022, to tighten U.S. export control restrictions for exports, reexports, and transfers (“exports”) of items subject to the EAR to Russia. These new measures targeting Russia include:
- New export license requirements for a wide variety of U.S.-origin items listed on the Commerce Control List (“CCL”), including a license requirement for the export of any items specified in an export control classification number (“ECCN”) in categories 3, 4, 5, 6, 7, 8, or 9 of the CCL;
- Adding two new “foreign direct product” rules specific to Russia and Russian “military end users;”
- Imposing a broad license review policy of denial with respect to applications for licenses pursuant to these newly implemented rules;
- A significant restriction on the use of EAR license exceptions with respect to Russia;
- Expanding export controls for Russian “military end use” or “military end user” exports to cover all items subject to the EAR (other than certain exceptions for food and medicine for such entities that are not Russian government entities);
- Transferring 45 Russian entities, including the entire Russian Armed Forces, from the Military End-User List (and adding two previously unlisted new entities) to the Entity List, which will broadly prohibit the ability of these listed entities to receive any items that are subject to the EAR; and
- Making corresponding changes to the EAR to effect the comprehensive embargo targeting the DNR and LNR regions.
A detailed discussion of all of the changes BIS has made to the EAR via this new rule is beyond the scope of this alert; however, the combined effect of these changes will make Russia a significantly restricted destination for most ECCNs. For ECCNs of higher control, particularly those with potential end uses in the defense, aviation, and maritime sectors of the Russian economy or those which relate to semiconductors or encryption security, the rule effectively makes Russia a prohibited destination. Notably, under the two new “foreign direct product” rules (and the EAR’s preexisting de minimis rule) a range of specified items created outside of the United States that are produced by a plant or a “major component” of a plant that is the “direct product” of U.S.-origin technology and software are also subject to significant export control restrictions “when it is known that the foreign-produced item is destined to Russia” or will be used in a part or component produced in or destined to Russia.
Additional Sanctions and Export Controls Imposed Between February 28 and March 6, 2022
In the second week, the U.S. government continued to impose a number of strong sanctions and export control measures, which are summarized below.
Directive 4 Targeting the Russian Central Bank, the National Wealth Fund of Russia, and the Ministry of Finance of Russia
On February 28, 2022, the United States issued Directive 4 under EO 14024, which prohibits any U.S.-nexus transaction, direct or indirect, involving the Central Bank of Russia, the National Wealth Fund of Russia (Russia’s sovereign wealth fund), or Russia’s Ministry of Finance, “including any transfer of assets to such entities or any foreign exchange transaction for or on behalf of such entities.” Notably, Directive 4 does not extend to entities majority owned by the Directive 4 entities. As the Directive 4 entities are not blocked, U.S. persons must reject (not freeze) any transaction involving a Directive 4 entity, absent authorization from OFAC. This action was part of an unprecedented coordinated action by the United States, European Commission, France, Germany, Italy, the United Kingdom, and Canada to impose measures to “prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of [these jurisdictions’] sanctions.” Other central banks sanctioned by the United States include Iran, Syria, North Korea, and Venezuela.
OFAC further expanded the authorizations in General Licenses 8A (authorizing certain energy-related transactions) to apply to the Central Bank of Russia, and expanded the authorizations in General License 9A, and 10A (authorizing certain debt and equity and derivatives-related transactions, respectively), to apply to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation, as described further above.
OFAC also issued new General License 13, authorizing certain administrative transactions ordinarily incident and necessary to day-to-day operations in Russia involving these entities through June 24, 2022 at 12:01 am EDT, and General License 14, authorizing certain clearing and settlement transactions with these entities where the Directive 4 entity’s sole function in the transaction is to act as an operator of a clearing and settlement system, provided that: (i) there is no transfer of assets to or from any Directive 4 entity, unless separately authorized; and (ii) no Directive 4 entity is either a counterparty or a beneficiary to the transaction, unless separately authorized.
OFAC issued guidance clarifying that Directive 4 does not prohibit trading in secondary markets for debt or equity of the Directive 4 entities, provided that no such party is a counterparty to such a transaction. However, Directive 1A, described above, continues to prohibit U.S. financial institutions from participation in the secondary market for ruble or non-ruble denominated bonds issued after March 1, 2022 by the Directive 4 entities. General License 9A, also authorizes the receipt of interest, dividend, or maturity payments made in connection with debt or equity of the Directive 4 entities.
Additional SDN List Designations
On February 28, 2022, OFAC designated and added to the SDN List three entities associated with the Russian Direct Investment Fund (the “RDIF”), including the RDIF itself. As explained by OFAC, “[w]hile officially a sovereign wealth fund, RDIF is widely considered a slush fund for President Vladimir Putin and is emblematic of Russia’s broader kleptocracy.” The other two RDIF-associated entities added to the SDN List are (i) Joint Stock Company Management Company of the Russian Direct Investment Fund and (ii) Limited Liability Company RVC Management Company. OFAC also designated the CEO of the RDIF, Kirill Dmitriev.
On March 3, 2022 OFAC designated and added to the SDN List three Russian elites or “oligarchs”, two of their spouses, three of their adult children, six of their companies, one of Russia’s largest privately-owned aircraft, and one of the world’s largest superyachts. The three oligarchs include Alisher Burhanovich Usmanov, who OFAC described as one of Russia’s wealthiest billionaires with vast holdings across multiple sectors of Russia as well as internationally, and as allegedly having financial ties to President Putin. OFAC also designated Usmanov’s superyacht, estimated to be worth between $600 and 735 million, and private jet. Concurrent with this designation, OFAC issued General License 15, authorizing all transactions and unblocking all property of any entity owned 50 percent or more, directly or indirectly, by Usmanov, that does not appear on OFAC’s SDN List. OFAC also designated Nikolay Petrovich Tokarev, a long-time associate of President Putin who served with Putin in the Soviet Union’s Committee for State Security (“KGB”), and Yevgeniy Prigozhin , the Russian financier of the Internet Research Agency (IRA). Prigozhin was previously designated pursuant to multiple sanctions authorities for facilitating attempts to interfere in U.S. elections and supporting the Government of Russia.
OFAC also designated and added to the SDN List 26 Russia- and Ukraine-based individuals and seven Russian entities in connection with Russia’s efforts to promulgate disinformation and influence perceptions regarding the events in Ukraine. The Department of State also designated under EO 14204 ,and OFAC added to the SDN List, 22 defense-related firms, including entities that develop and produce fighter aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military.
BIS Actions Targeting Belarus
On March 2, 2022, BIS issued a rule imposing heightened export controls on exports of U.S.-origin items to Belarus due to the determination that Belarus had engaged in “substantial enabling of the [Russian] invasion [of Ukraine] by supporting the staging of Russian military forces on Belarussian territory and supporting the invasion to proceed from such territory.” First, similar to the actions BIS took targeting Russia the week before, this rule imposes a license requirement for any items classified under an ECCN in Categories 3, 4, 5, 6, 7, 8, or 9 of the CCL for export to Belarus. Similar to the heightened export controls imposed targeting Russia, this rule also imposes a policy of denial for export license applications to Belarus and restricts the ability of exporters to rely on several license exceptions in the EAR for exports to Belarus.
This rule also expanded the two new “foreign direct product” rules imposed the week before targeting Russia to also target Belarus. The rule also added two Belarusian entities (JSC Integral and the Ministry of Defense of the Republic of Belarus (including all branches and operating units of the Armed Forces of Belarus wherever located)) to the Entity List. As a result of this addition, these entities will be broadly prohibited from receiving any U.S.-origin items.
Additional BIS Actions Targeting Russia
On March 3, 2022, BIS issued two rules imposing additional heightened export controls on Russia. The first rule expands existing export control restrictions to cover certain additional items related to (i) deepwater or Arctic offshore exploration for, or production of, oil or gas in Russia or (ii) the refining of oil in Russia. The rule also imposes a policy of denial for license applications related to the export of such items to Russia. Notably the prior export controls targeting these sectors of the Russia economy had prohibited such exports where the exporter had “knowledge” that such items to be exported would be used in these sectors in Russia, however, the new rule does not include a similar knowledge qualification.
The second rule BIS issued on March 3, 2022, adds 91 new entities located in 10 countries to the Entity List. While the majority (81) of these entities are located in Russia, this rule also added entities located in the United Kingdom, Spain, Malta, Kazakhstan, Latvia, Belize, Singapore, and Slovakia to the Entity list. BIS stated that these entities were added to the Entity List because they “have been involved in, contributed to, or otherwise supported the Russian security services, military and defense sectors, and military and/or defense research and development efforts.” As a result of this action, these 91 entities are broadly prohibited from receiving any U.S.-origin items.
Over a two-week period, the U.S. government has imposed a sweeping set of sanctions and export controls, which are unprecedented for an economy of Russia’s size and interconnection with the world economy. These measures take a variety of forms and create a complex tapestry, including comprehensive embargoes on certain regions of Ukraine; blocking or other broad sanctions on a number of significant Russian financial institutions, including Russia’s Central Bank; narrower, more targeted sanctions on a number of other Russian financial institutions and other companies; blocking sanctions against a number of Russian elites and their family members, including Putin himself; and a variety of new export controls. These measures have also been qualified by a number of wind-down periods and other exceptions, including in many cases exceptions for energy transactions. The U.S. government has frequently taken these measures in parallel with action by U.S. allies.
The sanctions have already caused significant disruption to the Russian financial system and economy, and media reports indicate that a number of U.S. and non-U.S. companies are ceasing or reducing their participation in the Russian economy even beyond what is required by the sanctions. The Biden Administration has continued to consider taking additional sanctions measures, which could potentially include: designating additional major Russian financial institutions and companies as SDNs or removing their ability to have correspondent banking relationships with U.S. banks; designating additional Russian oligarchs as SDNs; and potential expansion of recent sanctions to target aspects of the Russian energy sector (although this is particularly controversial). Additional sanctions are likely, and their nature and cadence will depend on the situation on the ground in Ukraine, which is highly dynamic and challenging to predict.
U.S. and non-U.S. companies with business in or exposure to Russia, Ukraine, and Belarus would be well advised to continue to closely monitor the situation on the ground. Non-U.S. companies should bear in mind that they can violate U.S. sanctions by engaging in U.S.-nexus transactions with sanctioned parties or regions; generally, these can include transactions involving U.S. persons, U.S. dollar or other transactions that transit the U.S. financial system, transactions involving U.S.-based servers or data centers; and transactions involving U.S.-origin items. Additionally, companies should consider the following:
- Companies should review and update their sanctions screening and IP or geolocation blocking procedures to ensure they reflect the new comprehensive sanctions targeting the DNR and LNR regions, similar to the approach taken with respect to the Crimea embargo.
- Sanctions filters should also of course be updated to reflect the newly sanctioned parties and their majority owned subsidiaries. Companies should also appropriately screen for the entities recently added to the BIS Entity List.
- Prior OFAC enforcement actions have shown that OFAC not only expects that companies will screen customers’ and counterparties’ names against lists of sanctioned persons, including the SDN List, but also that companies will perform screening of other information about customers and counterparties that companies receive during the normal course of their business, including information that would make a company aware of the country or region in which their customer or counterparty is located. As a result, companies should consider adding to their sanctions filters place names (such as cities, regions, ports, airports, and common alternative spellings of the same), as well as postal codes, associated with the DNR and LRN regions.
- As sanctions continue to intensify, companies should evaluate their potential touchpoints to Russia and Ukraine and whether any general licenses allow related business to continue and whether a wind down period applies. OFAC’s general licenses should be examined with care to determine if certain transactions are licensed; if so, steps should be taken to adhere to the terms of the applicable general license and maintaining appropriate documentation.
- Following the U.S. government’s embargo on Crimea, OFAC issued an advisory warning of practices to evade sanctions. These practices included the partial or complete omission from wire messages of address information of individuals or entitles located in Crimea. Also, trade documentation or agreements may list Crimea-located counterparties as being located in “Russia.” Companies should consider this advisory and its recommended actions with reference to the new DNR and LRN region sanctions.
- Non-U.S. companies should consider, even if engaged in only non-U.S.-nexus transactions, whether they may be dealing with companies that are the target of sanctions under the recent tranches of sanctions or otherwise dealing with sensitive sectors of the Russian economy (such as the defense or intelligence sector) that could potentially raise the risk of sanctions being imposed on such non-U.S. companies by the U.S. government or the government(s) of U.S. ally nations. As noted above, OFAC has specifically warned that non-U.S. persons who engaged in activities with persons that are the target of blocking sanctions imposed under EO 14024 “may be exposed to sanctions risk” in relation to such activities. OFAC specifically referred to the basis for designation in EO 14024 for persons who have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods and services in support of, certain activities” involving persons blocked pursuant to EO 14024.
- U.S. and non-U.S. companies selling U.S.-origin products should consider the ECCNs that are applicable to the items (including software and technology) in which they deal and, if they engage in any export, reexports, or transfers to Russia or Belarus (or Russian or Belarussian end users), whether the enhanced controls imposed as a part of these actions by BIS may affect the ability to continue to make such exports.
- Non-U.S. companies in particular, especially those operating in the global tech manufacturing sector, would be well-advised to consider whether any of their products may be within the scope of the new Russia- and Belarus-specific “foreign direct product” rules and therefore subject to export control restrictions with regard to exports, reexports, or transfers of such products to Russia or Belarus (or Russian or Belarussian) end users.
- In light of Directive 4, U.S. and non-U.S. persons should be alert to non-routine foreign exchange transactions that may indirectly involve Directive 4 entities, including transactions that are inconsistent with activity prior to issuance of Directive 4. For example, OFAC notes that “the Central Bank of the Russian Federation may seek to use import or export companies to engage in foreign exchange transactions on its behalf and obfuscate its involvement. U.S. persons should also exercise caution in engaging in foreign exchange transactions on the Moscow Exchange given the current heightened risk that the Central Bank of the Russia Federation could be a counterparty to such transactions.”
We will continue to monitor actions taken by the U.S. government with respect to the situation in and around Ukraine and provide further updates as appropriate.
* * *
 These sanctions were imposed pursuant to the Protecting Europe’s Energy Security Act (“PEESA”) passed in 2021.
 President Maduro of Venezuela, who the U.S. government does not recognize as the valid President of Venezuela is also included on the SDN List.
 BIS, “Expansion of Sanctions Against the Russian Industry Sector Under the Export Administration Regulations,” (Mar. 3, 2022), available here; BIS, “Further Imposition of Sanctions Against Russia with the Addition of Certain Entities to the Entity List,” (Mar. 3, 2022), available here.
 The EO prohibits the following, which taken together constitutes a comprehensive sanctions regime targeting the regions:
- New investment in the DNR or LNR region by a U.S. person, wherever located;
- The importation into the United States, directly or indirectly, of any goods, services, or technology from the DNR or LNR regions;
- The exportation, reexportation, sale, or supply, direct or indirectly, from the United States or by a U.S. person, wherever located, of any goods, services, or technology to the DNR or LNR regions; and
- Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a non-U.S. person where the transaction by that non-U.S. person would be covered by these prohibitions if performed by a U.S. person or within the United States.
 General Licenses authorize certain parties to engage in certain transactions which would otherwise be prohibited by OFAC’s sanctions without the need to apply to OFAC for a party specific license.
 To effect this prohibition, OFAC added the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation to its non-SDN Menu Based Sanctions List in connection with Directive 1A.
 OFAC, “Russia-related Designations; Belarus Designations; Issuance of Russia-related Directive 2 and 3; Issuance of Russia-related and Belarus General Licenses; Publication of new and updated Frequently Asked Questions,” (Feb. 24, 2022), available here.
 These entities are: Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Transneft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways.
 Previously the CAPTA sanctions had only been used to target the Bank of Kunlun and a number of its associated entities.
 OFAC noted that six of these entities were also targeted by directives of OFAC’s sectoral sanctions program.
 OFAC, “General License 9A,” (Feb. 24, 2022), available here. General License 9A also authorizes certain transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation, as described further below.
 OFAC, “General License 10A,” (Feb. 24, 2022), available here. General License 10A also authorizes certain transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation, as described further below.
 OFAC, “General License 5,” (Feb. 24, 2022), available here. Note that EO 14024 section 9 exempts transactions that are for the conduct of the official business of the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.
 There is a savings clause in the rule with regard to (i) the new license requirements imposed under § 748.8 of the EAR with regard to (a) new license requirements for items in categories 3, 4, 5, 6, 7, 8, or 9 of the CCL and (b) the two new “foreign direct product” rules that apply to Russia; and (ii) items removed from eligibility for an EAR license exception that “were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on March 26, 2022” can continue to their destination/end user. For all other changes in the rule, the savings clause only covers those that were en route on the date the rule was filed for public inspection, i.e., February 24, 2022.
 U.S. Dep’t of Commerce, “Commerce Implements Sweeping Restrictions on Exports to Russia in Response to Further Invasion of Ukraine,” (Feb. 24, 2022), available here; Commerce Dep’t, “Implementation of Sanctions Against Russia Under the Export Administration Regulations (Feb. 24, 2022), available here.
 The EAR’s de minimis rule states that items created outside of the United States which contain more than a de minimis amount of controlled U.S.-origin content are subject to the EAR. The threshold of what is a “de minimis” amount of content varies depending on the level of control of such content and, in some cases, the destination country or end user.
 See U.S. Dep’t of the Treasury, “Treasury Sanctions Russians Bankrolling Putin and Russia-Backed Influence Actors” (Mar. 3, 2022), available here.
 OFAC, General License 15, (March 3, 2022), available here. This license has the effect of suspending the operation of OFAC’s 50 Percent Rule for the Usmanov designation. As a result, only entities specifically listed on the SDN List in connection with his designation (e.g., the yacht and the jet) are subject to blocking sanctions.
 These 91 entities were added to the Entity List under a policy of denial, however a handful of these entities are subject to case-by-case license review policy for certain exports involving U.S. government sponsored space programs.
 See OFAC, “OFAC Settles with Amazon.com, Inc. with Respect to Potential Civil Liability for Apparent Violations of Multiple Sanctions Programs,” (Jul. 8, 2020), available here (OFAC faulted a screening filter that did not flag transactions involving, among other things, cities in Crimea or alternate spellings of Crimea such as “Krimea”).