New US Sanctions and Export Control Restrictions Target Russian Military Capabilities
On May 8 and May 9, 2022, the Biden Administration announced new sanctions measures and trade restrictions against Russia for its ongoing aggression against Ukraine. The latest measures from both the Commerce Department and the Treasury Department specifically target Russian financial executives, weapons manufacturers, industrial engines, ventilation equipment, and other industrial and commercial items.
Each of the actions by the Departments of Treasury and Commerce are described in the sections below.
Treasury Department Enacts Additional Sanctions
The Treasury Department’s Office of Foreign Assets Control (OFAC), acting pursuant to Executive Order 14024 (EO) and EO 14071, implemented several economic sanctions measures, including expanding its exercise of sanctions authority and designating new entities to its Specially Designated Nationals (SDN) list.
New Sanction Sectors
In an attempt to cut off Russia’s access to key US services, OFAC has identified accounting, trust and corporate formation, and management consulting services as prohibited services pursuant to EO 14071. Therefore, beginning on June 7, 2022, the export, reexport, sale, or supply, directly or indirectly from the US, or by a US person wherever located of these services to any person within the Russian Federation will be prohibited.
Additionally, the Secretary of the Treasury, acting in concert with the Secretary of State, determined sanctions may now apply to those sectors pursuant to section 1(a)(i) of EO 14024. By expanding the sanctions authority to cover these new sectors, the US may impose sanctions on any individual or entity determined to operate or have operated in these sectors in violation of applicable sanctions.
OFAC published a new Frequently Asked Question (FAQ) defining the services as followed:
- Accounting—“measurement, processing and transfer of financial data about economic entities.”
- Trust and corporate formation—“assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for another person to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts.”
- Management consulting—“strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.”
These measures come as an attempt to further constrict Russia’s economy and ability to circumvent existing sanctions. “Preventing Russia from accessing the United States’ valuable professional services increases the pressure on the Kremlin and cuts off its ability to evade sanctions imposed by the United States and our partners,” said Secretary of the Treasury Janet L. Yellen. “We are also targeting Putin’s ability to generate revenue that enables his aggression, as well as entities and their leaders who support his destructive actions.”
New SDN Designations
In addition to exercising its authority to sanction new industries, the Treasury Department announced new designations to the OFAC’s SDN list. US persons, including US financial institutions, are prohibited generally from engaging in any transaction with SDNs and are required to block (i.e., freeze) any property or interests in property belonging to SDNs.
In particular, several executives and board members from two of the largest banks in Russia, Sberbank and Gazprombank, were added to the SDN list, pursuant to EO 14024, for operating or having operated in Russia’s financial sector.
- Natalya Andreevna Alymova, Sberbank Executive
- Alexandra Yurevna Buriko, Sberbank Executive
- Olga Yuryevna Golodets, Sberbank Executive
- Stanislav Konstantinovich Kuznetsov, Sberbank Executive
- Sergey Aleksandrovich Maltsev, Sberbank Executive
- Anatoliy Leonidovich Popov, Sberbank Executive
- Kirill Aleksandrovich Tsarev, Sberbank Executive
- Bella Ilyinichna Zlatkis, Sberbank Executive
- Andrey Igorevich Akimov, member of Gazprombank’s Board of Directors
- Mikhail Leonidovich Sereda, member of Gazprombank’s Board of Directors
- Yurii Nikolaevich Shamalov, member of Gazprombank’s Board of Directors
- Yuriy Garunovich Gazaryan, member of Gazprombank’s Board of Directors
- Aleksei Petrovich Belous, member of Gazprombank’s Board of Directors
- Elena Adolfovna Borisenko, member of Gazprombank’s Board of Directors
- Ilya Vladimirovich Yeliseyev, member of Gazprombank’s Board of Directors
- Dmitrii Vladimirovich Zauers, member of Gazprombank’s Board of Directors
- Viktor Alekseevich Komanov, member of Gazprombank’s Board of Directors
- Aleksei Anatolievich Matveev, member of Gazprombank’s Board of Directors
- Aleksander Yurievich Muranov, member of Gazprombank’s Board of Directors
- Igor Valerievich Rusanov, member of Gazprombank’s Board of Directors
- Vladimir Markovich Ryskin, member of Gazprombank’s Board of Directors
- Alexander Ivanovich Sobol, member of Gazprombank’s Board of Directors
- Aleksandr Mikhailovich Stepanov, member of Gazprombank’s Board of Directors
- Tigran Garikovich Khachaturov, member of Gazprombank’s Board of Directors
- Vladimir Nikolaevich Vinokurov, member of Gazprombank’s Board of Directors
- Denis Valentinovich Kamyshev, member of Gazprombank’s Board of Directors
- Irina Aleksandrovna Kaplunnik, member of Gazprombank’s Board of Directors
- Aleksey Valerievich Popovich, member of Gazprombank’s Board of Directors
- Natalya Vladislavovna Puzyrnikova, member of Gazprombank’s Board of Directors
- Anatolii Anatolyevich Gavrilenko, member of Gazprombank’s Board of Directors
- Mikhail Nikolaevich Rosseev, member of Gazprombank’s Board of Directors
- Vyacheslav Aleksandrovich Tyurin, member of Gazprombank’s Board of Directors
- Famil Kamil Ogly Sadygov, member of Gazprombank’s Board of Directors
- Vladimir Aleksandrovich Dmitriev, member of Gazprombank’s Board of Directors
- Alexey Borisovich Miller, member of Gazprombank’s Board of Directors
This action follows earlier sanctions imposed by the US against the named financial institutions and their executives. In particular, Sberbank, its First Deputy Chairman of the Executive Board, and its CEO were all added to the SDN List on April 6, 2022, February 24, 2022, and March 24, 2022, respectively. On February 24, 2022, OFAC identified Gazprombank as subject to Directive 3 prohibitions under EO 14204.
The Joint Stock Company Moscow Industrial Bank (MIB) was also designated pursuant to EO 14024 for facilitating financial transactions on behalf of SDN entities and Russian intelligence services. Additionally, under OFAC’s 50% ownership rule, entities that are owned 50% or more, directly or indirectly, by one or more SDNs in the aggregate are also subject to OFAC’s sanctions, even if OFAC does not publicly list those entities as SDNs.
Therefore, the following ten of MIB’s subsidiaries were also added to the list.
- Agropromyshlenny Kompleks Voronezhski OOO
- Anninskii Elevator OOO
- Auditkonsalt OOO
- Belinveststroi OOO
- Dve Stolitsy OOO
- Kontrakt OOO
- Ladoga OOO
- Nekommercheskaya Organizatsiya Fond Khimicheskoe Razoruzhenie I Konversiya
- Azovskaya Zernovaya Kompaniya OOO
- Ekspluatiruyushchaya Kompaniya Tsentr OOO
Finally, one defense company and three state-owned television stations were added to the list alongside the above-mentioned financial institutions and executives.
- Limited Liability Company Promtekhnologiya (Promtekhnologiya)
- Joint Stock Company Channel One Russia
- Television Station Russia-1
- Joint Stock Company NTV Broadcasting Company
OFAC issued several General Licenses (GL) related to these new sanctioned sectors and designations including:
- Russia-related GL No. 25A—authorizing receipt or transmission of services incident to internet communications, such as email, web browsing, and domain name registration services. However, the GL explicitly excludes the three television stations listed above.
- Russia-related GL No. 33—authorizing the winddown of the operations, contracts, or other agreements involving the three television companies and its subsidiaries through May 25, 2022, if those agreements were in effect before May 8, 2022, and so long as payment is made into a blocked account located in the US.
- Russia-related GL No. 34—authorizing accounting, trust and corporate formation, or management consulting services to any person in Russia until July 7, 2022.
- Russia-related GL No. 35—authorizing credit rating or auditing services from the US or by a US person to any person in Russia through August 20, 2022.
OFAC FAQ 1035 defines credit rating services and auditing services.
Commerce Department Issues New Export Controls
The Commerce Department’s Bureau of Industry and Security (BIS) imposed new restrictions on US exports to further restrict Russia’s access to items needed to support its military operations.
A new rule released on May 9, 2022 amends Russian industry sector sanctions to add additional HTS codes and Schedule B Numbers to Supp. No. 4 to Part 746 of the Export Administration Regulations (EAR). Items under these codes include wood products, industrial engines, boilers, motors, fans, ventilation equipment, bulldozers, and other industrial and commercial items. As of May 9, 2022, any item listed in this supplement requires a license, regardless of the exporter’s knowledge, if destined to or within Russia. All of these licenses will be reviewed under a policy of denial, except for items that may be necessary for health and safety or humanitarian reasons which will be reviewed on a case-by-case basis.
There is a limited “savings clause” available for shipments of items removed from eligibility for a License Exception or for reexports or transfers (in-country) without a license (NLR) as a result of this regulatory action if they were enroute aboard a carrier to a port of export, reexport, or transfer (in-country), on May 9, 2022, pursuant to actual orders for reexport, or transfer (in-country) to or within a foreign destination. Items that fall within this clause may proceed to that destination under the previous eligibility for a License Exception or reexport or transfer (in-country) without a license (NLR).
The new sanctions measures came after President Biden and other leaders of the G7 member nations met with Ukrainian President Volodymyr Zelenskyy in Brussels. While the US has already banned the import of Russian oil, gas, and coal, the remaining G7 countries—the United Kingdom, Canada, France, Germany, Italy, and Japan—each pledged to phase out or ban Russian oil imports. Meanwhile, the European Union is moving closer to issuing its sixth sanctions package against Russia as member states debate how it will address Russian energy dependence.
We will continue to monitor the sanctions and export control restrictions as they emerge.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.