U.S. President Biden Imposes Sixth Tranche of Economic Sanctions Against Russia

The full alert is available for download with footnotes here

Introduction

On April 6, 2022, President Biden issued an executive order titled “Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression” (hereafter, “E.O. 14071”).

In addition, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) released the following updates: (1) added two of Russia’s largest banks and a Russian state-owned mining company to the Specially Designated Nationals and Blocked Persons List (“SDN List”), (2) issued new and amended General Licenses related to the Russian banks and mining company, (3) added several other parties to the SDN List, and (4) issued a General License related to telecommunications.

New Investment Ban Under E.O. 14071

E.O. 14071 expands upon prior restrictions on new investment in the Russian energy sector (see Curtis Client Alert) by banning all new investments in Russia—regardless of sector. Specifically, E.O. 14071 prohibits the following:

• “new investment in the Russian Federation by a United States person, wherever located”;
• “the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation”; and
• “any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.”

The term “new investment” is not defined in the Executive Order. An FAQ published by OFAC in connection with related E.O. 14066 of March 8, 2022 defines “investment” as a “transaction that constitutes a commitment or contribution of funds or other assets for, or a loan or other extension of credit.”

It remains to be seen whether OFAC will apply the same interpretation to E.O. 14071. Curtis will monitor OFAC’s implementation of the sanctions.

Russian Banks and Russian Mining Company Added to the SDN List

Relying on the authorization granted by E.O. 14024 of April 15, 2021, OFAC added the following entities to the SDN List: Public Joint Stock Company Sberbank of Russia (“Sberbank”) and 42 of its subsidiaries, and Joint Stock Company Alfa-Bank (“Alfa-Bank”) and six of its subsidiaries.

All entities owned 50 percent or more, directly or indirectly, by Sberbank or Alfa-Bank will be blocked under E.O. 14024, even if not explicitly designated by OFAC.

Note that while certain transactions with Sberbank and Alfa-Bank were already prohibited by U.S. sanctions (i.e., pursuant to Directive 2 under E.O. 14024 for Sberbank, and pursuant to Directive 3 under E.O. 14024 for Alfa-Bank), they had not been designated on the SDN List.

In addition, OFAC has added Public Joint Stock Company Alrosa (“Alrosa”), a Russian state-owned enterprise, to the SDN List. Alrosa is the world’s largest diamond mining company, which is also responsible for 90 percent of Russia’s diamond mining capacity.

Furthermore, OFAC added United Shipbuilding Corporation, a major Russian shipbuilder, and its subsidiaries to the SDN List as well.

General Licenses Related to the Russian Banks and Russian Mining Company

Related to the addition of Sberbank, Alfa-Bank, and Alrosa to the SDN List, OFAC has also issued new General Licenses and amended General Licenses to cover certain transactions with Sberbank, Alfa-Bank, and Alrosa.

• General License 8B:
  • Authorizes all transactions “related to energy” prohibited by E.O. 14024, including those involving Sberbank and Alfa-Bank, through June 24, 2022.
  • This replaces the prior General License 8A.
• General License 9C:
  • Authorizes transactions that are “ordinarily incident and necessary to dealings in the debt or equity” of identified sanctioned entities.
  • Transactions involving dealing in Sberbank’s debt or equity issued prior to February 24, 2022 are authorized through May 25, 2022.
  • Transactions involving dealing in Alfa-Bank’s debt or equity issued prior to April 6, 2022 are authorized through June 30, 2022.
  • Transactions involving dealing in Alrosa debt or equity issued prior to April 7, 2022 are authorized through July 1, 2022.
  • This replaces the prior General License 9B.
• General License 10C:
  • Authorizes certain transactions that are “ordinarily incident and necessary to the wind down of derivative contracts” with identified sanctioned entities.
  • For Sberbank, wind down transactions involving derivative contracts entered into prior to February 24, 2022 are authorized through May 25, 2022.
  • For Alfa-Bank, wind down transactions involving derivative contracts entered into prior to April 6, 2022 are authorized through June 30, 2022.
  • For Alrosa, wind down transactions involving derivative contracts entered into prior to April 7, 2022 are authorized through July 1, 2022.
  • This replaces the prior General License 10B.
• General License 21A:
  • Authorizes the wind down of Sberbank CIB USA, Inc and Alrosa USA, Inc.
  • Wind down period ends 12:01 a.m. Eastern Daylight Time (EDT), June 7, 2022.
  • This replaces the prior General License 21.
• General License 22:
  • Authorizes the wind down of transactions involving Sberbank.
  • Wind down period ends 12:01 a.m. EDT, April 13, 2022.
  • Note that General License 22 does not authorize transactions prohibited by Directive 2 under Executive Order 14024.
• General License 23:
  • Authorizes the wind down of transactions involving Alfa-Bank.
  • Wind down period ends 12:01 a.m. EDT, May 6, 2022.
• General License 24:
  • Authorizes the wind down of transactions involving Alrosa
  • Wind down period ends 12:01 a.m. EDT, May 7, 2022.
• General License 26:
  • Authorizes the wind down of transactions involving Joint Stock Company SB and Sberbank Kazakhstan or Sberbank Europe AG.
  • Wind down period ends 12:01 a.m. EDT, July 12, 2022.

Government Officials and Family Members Added to the SDN List

On April 5, 2022, OFAC added Garantex Europe OU (“Garantex”) and Hydra Market, along with over 100 of its associated virtual currency addresses, to the SDN List. Garantex is a virtual currency exchange founded in 2019, and Hydra is a Russian darknet market launched in 2015.

Furthermore, OFAC added several family members of Russian government officials, most notably President Vladimir Putin’s two daughters, Katerina Vladimirovna Tikhonova and Maria Vladimirovna Vorontsova.

Additionally, all members of the Russian Security Council have now been added to the SDN List pursuant to E.O. 14024.

General License Related to Telecommunications

On April 7, 2022, OFAC issued General License 25 authorizing certain transactions “ordinarily incident and necessary to the receipt or transmission of telecommunications involving the Russian Federation.”

In addition, General License 25 authorizes the “exportation or reexportation, sale, or supply, directly or indirectly, from the United States or by U.S. persons, wherever located, to the Russian Federation of services, software, hardware, or technology incident to the exchange of communications over the internet, such as instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services, that is prohibited by the [Russian Harmful Foreign Activities Sanctions Regulations].”

Curtis will continue to monitor developments in this rapidly changing area.