In response to the invasion of Ukraine, the United States dramatically expanded sanctions against the Russian financial services sector, creating risks for making payments for otherwise legal business involving Russia.
The U.S. Department of Commerce Security Office has announced significant export control restrictions on the transfer of certain U.S. products, software, and technology to Russia and Belarus
Companies should consider assessing any existing or potential business activity involving Russia, Belarus and Ukraine to determine legal, practical and reputational risks.
In response to Russia’s large-scale military invasion of Ukraine, the United States took a series of actions, including: significantly expanding sanctions against the Russian financial services sector; the introduction of new, extensive export controls on US products; and targeting Russian President Vladimir Putin, other Russian elites and certain banks, defense and security industries and individuals in Belarus.
These new sanctions build on previous sanctions related to Russia.
There is an urgent need for companies to consider reviewing and assessing all activities they conduct in and around Russia and Belarus to determine legal, practical and reputational risks.
Extended financial sector sanctions
On February 24 and 28, the Biden administration announced various sanctions targeting Russia’s major financial institutions and its Central Bank, among other measures. Specifically, the new sanctions targeting the financial sector include:
Full blocking sanctions such as restrictions on transactions and freezing of assets for VTB Bank (the second largest bank in Russia) and 20 of its subsidiaries, as well as three other major Russian financial institutions, Otkritie, Sovcombank and Novikombank, and 34 of their subsidiaries
Restrict access to U.S. dollar transactions for Russia’s largest bank, Sberbank, and 25 of its subsidiaries, imposing sanctions on correspondents and transit accounts
Alrosa, the largest diamond mining company in the world
Gazprom, the largest natural gas company in the world
Gazprom Neft, one of Russia’s largest oil producers and refiners
Rostelecom, Russia’s largest telecommunications company
Russian Railways, one of the largest railway companies in the world
Sovcomflot, Russia’s largest shipping and cargo company
Prohibit US persons from engaging in any transaction involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.
The United States also sanctioned the Russian Direct Investment Fund, a key sovereign wealth fund, its management company and one of the management company’s subsidiaries.
For financial sector sanctions, the U.S. Treasury Department’s Office of Foreign Assets Control also issued eight general licenses to ensure that sanctions and prohibitions have an impact on intended targets and to minimize unintended consequences. on third parties.
The United States has coordinated with its allies on these sanctions and many are being replicated by other countries. These new sanctions will make it difficult for companies to make or receive payments for otherwise legal business with Russia, so these companies should consider these details before engaging in any other Russia-related transactions.
New export controls
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued new export controls on February 24, imposing restrictions on the export of certain U.S. items (goods, software, and technology) to Russia, including certain goods produced abroad. using US controlled technology. All U.S. businesses — and all non-U.S. businesses working with U.S. products, software, or technology — should carefully consider these strict new measures.
These export control measures include:
New licensing requirements for the export, re-export or in-country transfer to or within Russia of all Export Control Classification Numbers (ECCN) of categories 3-9 of the list of Commerce Control (CCL), including electronics, computers, telecommunications and information security, sensors and lasers, navigation and avionics, marine, aerospace and propulsion technologies
A general review policy of refusing license applications for exports, re-exports to or transfers within Russia
An expansion of the types of items requiring licensing for military end uses and end users in Russia, now covering EAR99 items
Two new rules on “direct foreign products”, one for all of Russia and one for specified Russian military end users. Under these rules, items produced in countries other than the United States may be subject to BIS jurisdiction if they are the direct product of certain US-origin software or technology or major factories or components. related.
For Belarus’ substantial support for the Russian invasion, on March 2, the BRI imposed the same export licensing restrictions against Belarus.
Putin, other Russian elites and Belarus sanctioned
The United States imposed sanctions on Putin, as well as Russian Foreign Minister Sergei Lavrov and Russian Defense Minister Sergei Shoigu. Putin joins a select group of US-sanctioned foreign heads of state, including North Korean leader Kim Jong Un. The US has also targeted 10 members of Russia’s Kremlin-linked business elite, including five sons senior Russian officials (who have themselves been subject to sanctions).
In addition, due to Belarusian support and facilitation of the Russian invasion, the United States sanctioned 24 Belarusian individuals and entities in the financial and defense sectors, including Belinvestbank (the fourth largest financial institution in Belarus) and Minsk Wheeled Tractor Plant (MZKT) (a major Belarusian military company).
Impact on American companies
Due to new sanctions and export controls, as well as developments in the region, companies should consider reviewing their existing business activities involving Russia, Belarus and Ukraine. Specifically, companies should consider taking the following actions:
Review the classifications of all of their products, software, and technology (including non-U.S. entities that import or export such items), not only to identify controlled items in CCL Categories 3 through 9, but also to identify products potential foreign direct rules issues
Ensure that their transaction and export control procedures are adequate in light of new sanctions and export controls, including whether they flag major cities and ports of entry into regions subject to restrictions. trade embargoes (Crimea and breakaway regions of Donetsk and the Luhansk People’s Republic)
The United States and its allies have promised to continue to impose costs on Russia, if and as the conflict escalates. Thus, companies must continue to prepare for rapid changes in US sanctions and export controls.