US Imposes New Sanctions on Russian Sovereign Wealth
On February 28, 2022, acting pursuant to Executive Order 14024, “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation,” the Treasury Department’s Office of Foreign Assets Control (OFAC) issued Directive 4 adding 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 (NS-MBS List). As of February 28, 2022, US persons are prohibited from engaging in any transaction involving these three entities, including the transfer of assets or any foreign exchange for or on behalf of the three entities.
The announcement comes just days after a coalition of Western allies, including the United States, agreed to remove certain Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a messaging service provider for more than 11,000 financial institutions around the world. The exclusion of certain Russian banks from SWIFT means that they cannot communicate over the network with banks outside of Russia, severely limiting its access in the global financial system.
OFAC also added three entities and one individual tied to Russia’s sovereign wealth funds to its Specially Designated Nationals (SDN) List. US persons, including US financial institutions, are prohibited generally from engaging in any transactions with SDNs and are required to block (i.e., freeze) any property or interests in property belonging to SDNs. Under OFAC’s 50% rule, entities that are owned 50% or more, directly or indirectly, by one or more SDNs (individually or in the aggregate) also are deemed to be SDNs by operation of law and are subject to the same sanctions—even if OFAC does not specifically list those entities on the SDN list.
The latest additions to the SDN List include:
- The Russian Direct Investment Fund (RDIF), a Russian sovereign wealth fund
- Joint Stock Company Management Company of the Russian Direct Investment Fund (JSC RDIF), RDIF’s management company
- Limited Liability Company RVC Management Company (LLC RVC), a subsidiary of JSC RDIF
- Kirill Aleksandrovich Dmitriev, CEO of RDIF and JSC RDIF
The Treasury Department also issued General License (GL) No. 8A, replacing and superseding GL No. 8. Under GL No. 8A, US persons may continue transacting, through June 24, 2022, with the following entities (and their subsidiaries that are deemed to be SDNs under the 50% rule) if the transactions are related to energy:
- State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank;
- Public Joint Stock Company Bank Financial Corporation Otkritie;
- Sovcombank Open Joint Stock Company;
- Public Joint Stock Company Sberbank of Russia;
- VTB Bank Public Joint Stock Company; and
- The Central Bank of the Russian Federation.
Energy is defined as “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.”
The GL does not permit opening or maintaining correspondent bank accounts for any entity subject to Directive 2 under E.O. 14024, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions,” which currently includes Sberbank and its 25 subsidiaries. The GL also does not allow any debt to an account on the books of a US financial institution of the Central Bank of the Russian Federation or any transaction to a blocked entity or individual not outlined in the GL.
This is just the latest of sanctions imposed against Russia by the United States and its allies. Significant sanctions and export control restrictions have already been issued by the United States against Russia, including restrictions on major Russian financial institutions, state-owned enterprises, and several of Russia’s critical industries and sectors.
We will continue to monitor the sanctions and export control restrictions as they emerge.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This blog post 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.