The Week in Review delivers the impact and analysis for the public, private, and non-profit sectors from our daily reporting of the evolving global sanctions campaign against Russia.
This week, we reviewed the recent developments since our last update on 18 March as the United States (U.S.), the European Union (EU), and the United Kingdom (UK) continue to lead a global coalition in this sanctions campaign, which has been unprecedented in its complexity, impact, and speed in responding to Russia’s ongoing war against Ukraine.
Recent Developments Related to Sanctions Against Russia
Since the last update, numerous authorities have undertaken sanctions-related actions against Russia.
EU actions include:
- On 17 March, the European Commission announced the creation of a “Freeze and Seize” task force (the Freeze and Seize Task Force), which was set up to ensure the implementation of EU sanctions against designated Russian and Belarussian oligarchs.1 The Freeze and Seize Task Force will work alongside the previously announced “Russian Elites, Proxies, and Oligarchs” task force, under which the EU operates with Canada, France, Germany, Italy, Japan, the UK, the U.S., and Australia. The Freeze and Seize Task Force will help to coordinate actions by EU member states to seize and confiscate assets of listed Russian and Belarussian oligarchs.
UK actions include:
- On 24 March, the UK’s Office of Financial Sanctions Implementation (OFSI) announced new blocking sanctions targeting strategic Russian industries, banks, and business elites for aiding Russia’s invasion of Ukraine.2 The sanctions target companies operating in key Russian industries and include Russian Railways; Kronshtadt, a major producer of drones; and the Wagner Group, a mercenary organization. The sanctions also target major Russian financial institutions, including Alfa-Bank and Gazprombank as well as Alrosa, the world’s largest diamond producer. Targeted Russian business elites include Oleg Tinkov, founder of Tinkoff Bank, and Herman Gref, the Chief Executive Officer of Sberbank.
- On 22 March, OFSI published general license INT/2022/1381276, which permits the winding down of derivatives, repurchase, and reverse repurchase transactions entered into prior to 1 March 2022 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.3 The license permits people and companies to provide financial services for the purposes of winding down such transactions and also permits carrying out any activity “reasonably necessary” to effect the wind down. The license expires on 2 May 2022.
U.S. actions include:
- On 24 March, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new blocking sanctions targeting key Russian defense companies, businessmen, and 328 lawmakers for enabling Russia’s invasion of Ukraine.4 Among others, OFAC sanctioned Tactical Missiles Corporation JSC (KTRV), a Russian state-owned defense company that produces materiel in support of Russia’s defense industrial base, as well as several entities owned or controlled by KTRV. OFAC also sanctioned Russian Helicopters, a state-owned company that produces civilian and military helicopters, and Kronshtadt. OFAC also designated Herman Gref. OFAC designated these entities under Executive Order 14024, which gives OFAC the authority to target entities operating in the defense and related materiel sector of the Russian economy.
- In addition, on 24 March OFAC released a new Frequently Asked Question (FAQ) indicating that transactions with the Central Bank of Russia involving gold may be sanctionable under E.O. 14024, which authorizes sanctions against persons using deceptive practices to circumvent sanctions, as well as persons operating in the financial sector of the Russian economy.5 This FAQ is intended to provide the public with guidance to ensure that the Russian Central Bank is not able to use its reserves of gold to evade U.S. sanctions and prop up Russia’s economy.
- On 18 March, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) identified 100 commercial and private aircraft that have flown into Russia in apparent violation of the Export Administration Regulations (EAR).6 This identification builds on prior export controls on aviation-related items destined for Russia and Belarus7 that require a license to export to Russia, reexport to Russia, or transfer within Russia any aircraft manufactured in the U.S. or that uses 25 percent or more U.S.-origin controlled content. As a result of the 18 March announcement, any service provided to the listed aircraft by any person, regardless of location, may constitute a violation of the EAR.
- On 18 March, U.S. Undersecretary of the Treasury for Domestic Finance, Nellie Liang, said she has seen an increase in the use of digital assets that enable illegal transactions since Russia’s invasion of Ukraine, but that the transaction volume is too small to help Russia evade sanctions.8 She added that the U.S. Department of the Treasury has been studying the potential use of cryptocurrency in money laundering and noted that the Group of Seven economies and other countries have also raised concerns about the issue.
Key Implications (Public, Private, and Non-Profit Sectors)
- Three general licenses (GLs) issued by OFAC are set to expire in the coming days. GL 3, authorizing the winddown of transactions involving Vnesheconombank (VEB) or any entity in which VEB directly or indirectly owns a 50 percent or greater interest, expires on 24 March 2022. GL 11, authorizing the winddown of transactions involving Bank Otkritie, Sovcombank, and VTB Bank, as well as entities that are 50 percent or more owned by those banks, is set to expire on 26 March 2022. GL 12, authorizing U.S. persons to reject transactions by those three banks, is set to expire on 26 March 2022. GL 17, authorizing transactions that are ordinarily incident and necessary to certain prohibited import transactions, was replaced by GL 17A on 24 March. GL 17A extends the winddown period for Russian seafood imports through 23 June 2022 but maintains the 25 March winddown period for Russian alcoholic beverages and non-industrial diamonds.
- To the extent that U.S. persons want to continue engaging in otherwise prohibited transactions that are not authorized by a GL, those U.S. persons should apply to OFAC for a specific license. If a GL expires before parties can obtain a specific license to carry out the sanctioned activity, parties must apply the full weight of the relevant prohibition.
- While OFAC and OFSI have issued GLs to winddown activity with sanctioned targets, companies trying to exit relationships or divest may face significant challenges. Risk appetites of many global financial institutions in light of a rapidly changing regulatory environment limits Russia-related activity. In the meantime, the value of Russian assets has plummeted given limited opportunity for sale and low to no demand.
- The aviation and financial sectors, among others, should carefully review their business dealings to ensure that they do not engage in any transaction with any of the commercial and private aircraft identified by BIS. Given the breadth of the prohibitions, nearly all activities associated with the identified aircraft may violate U.S. export control rules.
- While the U.S., EU, and UK have coordinated their sanctions against Russia to a large extent, there continue to be differences in the specific prohibitions and authorizations related to the Russia sanctions regimes implemented by those countries. Persons subject to EU, UK, and U.S. jurisdiction should conduct thorough due diligence on Russia-related transactions and customer relationships to assess the related risk and permissibility under each relevant regime.
1 Enforcing sanctions against listed Russian and Belarussian oligarchs: Commission’s “Freeze and Seize” Task Force steps up work with international partners. (March 17, 2022) https://ec.europa.eu/commission/presscorner/detail/en/IP_22_1828
2 Foreign Secretary announces 65 new Russian sanctions to cut off vital industries fuelling Putin’s war machine. (March 24, 2022) https://www.gov.uk/government/news/foreign-secretary-announces-65-new-russian-sanctions-to-cut-off-vital-industries-fuelling-putins-war-machine?utm_medium=email&utm_campaign=govuk-notifications-topic&utm_source=b846a703-1f52-41ac-9f72-c7306cff1074&utm_content=immediately
3 General Licence – Wind down of derivatives, repurchase, and reverse repurchase transactions with the Central Bank of the Russian Federation, National Wealth Fund of the Russian Federation and Ministry of Finance of the Russian Federation. (March 22, 2022) https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1062349/GENERAL_LICENCE_.pdf
4 U.S. Treasury Sanctions Russia’s Defense-Industrial Base, the Russian Duma and Its Members, and Sberbank CEO. (March 24, 2022) https://home.treasury.gov/news/press-releases/jy0677
5 U.S. Department of the Treasury’s Office of Foreign Assets Control Frequently Asked Question #1,029. How do the prohibitions of Executive Order (E.O.) 14024 and other Russia-related sanctions impact gold-related transactions or persons participating in the gold market? (March 24, 2022) https://home.treasury.gov/policy-issues/financial-sanctions/faqs/1029
6 Commerce Department Identifies Commercial and Private Aircraft Exported to Russia in Apparent Violation of U.S. Export Controls. (March 18, 2022) https://www.commerce.gov/news/press-releases/2022/03/commerce-department-identifies-commercial-and-private-aircraft-exported
7 Imposition of Sanctions Against Belarus Under the Export Administration Regulations (EAR). (March 3, 2022) https://public-inspection.federalregister.gov/2022-04819.pdf
8 Illegal Crypto Transactions Rise a Little. (March 18, 2022) https://www.pymnts.com/cryptocurrency/2022/us-treasury-undersecretary-small-rise-in-illegal-crypto-transactions/