New U.S. sanctions targeting Russia and Belarus

SDN Designations

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury designated on the List of Specially Designated Nationals and Blocked Persons (SDN List, and persons thereon, SDNs) 10 Russian individuals and 60 entities pursuant to Executive Order 14024 (EO 14024), and 8 Belarusian individuals and 16 entities pursuant to Executive Order 14038 (EO 14038).

The Russian individuals and entities designated under EO 14024 include:

• Sergei Borisovich Ivanov, the SpecialPresidential Representative for Environmental Protection, Ecology, and Transport and a permanent member of the Security Council of the Russian Federation, who was previously designated in March 2014 under Executive Order 13661;
• Sergei Borisovich Ivanov’s son, Sergei Sergeevich Ivanov, who is the current CEO of Russian state-owned diamond mining company Alrosa and a board member of Gazprombank;
• Nikolai Patrushev, the Secretary of the Russian Federation Security Council who was previously designated in March 2014 under Executive Order 13661;
• Nikolai Patrushev’s son, Andrey Patrushev, who has served in leadership roles at Gazprom Neft and is employed in the Russian energy sector;
• Igor Sechin, the CEO, Chairman of the Management Board, and Deputy Chairman of the Board of Directors of Rosneft, who was previously designated in March 2014 under Executive Order 13661;
• Igor Sechin’s son, Ivan Sechin, who is reportedly a deputy head of a department at Rosneft;
• Alexander Vedyakhin, First Deputy Chairman of the Executive Board of Sberbank;
• Andrey Puchkov and Yuriy Soloviev, two high-ranking VTB Bank executives;
• Yuriy Soloviev’s wife, Galina Ulyutina;
• VTB Bank (VTB), Russia’s second largest financial institution, and 20 of its subsidiaries;
• Bank Otkritie, a Russian state-owned credit institution, and 12 of its subsidiaries;
• Sovcombank, the third largest privately-owned financial institution in Russia by total assets, and 22 of its subsidiaries; and
• Novikombank, which operates primarily in the Russian defense sector and is owned by the Russian defense company Rostec.

The Belarusian individuals and entities designated under EO 14038 include:

• Belinvestbank and Bank Dabrabyt, two state-owned banks;
• Minsk Wheeled Tractor Plant, a state-owned enterprise active in the defense and security industries, and two of its senior executives;
• State Authority for Military Industry of the Republic of Belarus, the agency that oversees the creation and coordination of Belarusian defense products, and its Chairman and a Deputy Chairman;
• State Owned Foreign Trade Unitary Enterprise Belspetsvneshtechnika, an exporter of high-tech products and military technologies;
• OJSC KB Radar-Managing Company Holding Radar System, a producer of radar systems and electronic warfare equipment;
• JSC 558 Aircraft Repair Plant, a defense company that develops and manufactures aircraft protection systems;
• Public Joint Stock Company Integral, a state-owned producer of semiconductors for military end-users;
• Industrial-Commercial Private Unitary Enterprise Minotor-Service, a defense firm that produces armored vehicles used by the Belarusian army;
• OOO Oboronnye Initsiativy, a defense company specializing in electric warfare equipment;
• OKB TSP Scientific Production Limited Liability Company, a producer of surface-to-air missile systems and other defense products;
• LLC Synesis, a security company that produces a video surveillance system used by Russian and Belarusian authorities, its owner and CEO, and a former LLC Synesis subsidiary and operator of the system;
• Viktor Khrenin, the Belarusian Minister of Defense;
• Aleksandr Volfovich, the State Secretary of the Security Council of Belarus; and
• Aliaksandr Zaitsau, the owner of OOO Sokhra, an entity engaged in wholesale, gold mining, and the promotion of Belarusian industrial products in Africa and the Middle East.

All property and interests in property of these individuals and entities that are in, or later come within, the U.S. or the possession or control of a U.S. Person,^[1] are blocked and cannot be transferred, paid, exported, withdrawn, or otherwise dealt in without a license from OFAC. U.S. Persons are also prohibited from engaging in any transaction or dealing with or for the benefit of these individuals and entities, their property, or their interests in property, unless otherwise authorized by OFAC. Although these prohibitions do not apply to non-U.S. Persons, non-U.S. Persons may nonetheless breach U.S. sanctions by engaging in transactions or dealings with or for the benefit of an SDN and involving a nexus to the U.S., such as payment denominated in U.S. dollars.

These restrictions also apply to any entity that is directly or indirectly owned 50 percent or more, in the aggregate, by one or more of these individuals or entities or other SDNs, regardless of whether it is itself identified on the SDN List (the 50 Percent Rule). Further, OFAC may target a non-U.S. Person with sanctions for providing material support or assistance to any of these individuals or entities or other SDNs.

Correspondent and Payable-Through Account Restrictions on Sberbank

In addition to the SDN designations, OFAC issued Directive 2 under EO 14024 (the Russia-related CAPTA Directive), which imposes correspondent and payable-through account sanctions on Sberbank and its subsidiaries. Directive 2 prohibits U.S. financial institutions from: (i) opening or maintaining a correspondent account or payable-through account for or on behalf of non-U.S. financial institutions determined to be subject to the prohibitions of the Russia-related CAPTA Directive, or their property or interests in property;and (ii) processing transactions involving non-U.S. financial institutions determined to be subject to the Russia-related CAPTA Directive, or their property or interests in property. U.S. financial institutions must reject such transactions unless exempt or authorized by OFAC. Thus far, only Sberbank and its subsidiaries are targeted by the Russia-related CAPTA Directive.

In issuing Directive 2, OFAC determined that Sberbank and 25 non-U.S. financial institutions that are owned 50 percent or more, directly or indirectly, by Sberbank are subject to its prohibitions. These subsidiaries, which include banks, trusts, insurance companies, and other financial institutions located in Russia and six other countries, were added to OFAC’s List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (CAPTA List). Further, all non-U.S. financial institutions that are owned 50 percent or more, directly or indirectly, by Sberbank or any of the 25 listed subsidiaries are covered by the prohibitions of the Russia-related CAPTA Directive, even if not identified on OFAC’s CAPTA List.

The prohibitions under Directive 2 take effect with respect to Sberbank and its listed subsidiaries at midnight EDT on March 26, 2022. With respect to any non-U.S. financial institutions that are later determined to be subject to Directive 2, the prohibitions take effect 30 days after the date of such determination.

Directive 2 will restrict the ability of Sberbank and its subsidiaries to clear payments in U.S. dollars and generally prevent these entities from using the U.S. financial system.

Debt and Equity Restrictions

OFAC also issued Directive 3 under EO 14024 (the Russia-related Entities Directive), which imposes new debt and equity restrictions on certain Russian entities. Directive 3 prohibits all transactions and dealings by U.S. Persons or within the U.S. in new debt of longer than 14 days maturity or new equity of entities determined to be subject to the prohibitions of the directive. OFAC determined that the following 13 Russian companies and financial institutions are subject to these restrictions:

• Sberbank;
• Gazprombank Joint Stock Company;
• Joint Stock Company Russian Agricultural Bank;
• Public Joint Stock Company Gazprom;
• Public Joint Stock Company Gazprom Neft;
• Public Joint Stock Company Transneft;
• Public Joint Stock Company Rostelecom;
• Public Joint Stock Company RusHydro;
• Public Joint Stock Company Alrosa;
• Joint Stock Company Sovcomflot;
• Open Joint Stock Company Russian Railways;
• Joint Stock Company Alfa-Bank; and
• Credit Bank of Moscow Public Joint Stock Company.

For the entities listed above, the prohibitions apply to new debt or new equity issued after midnight EDT on March 26, 2022. For any entities later determined to be subject to Directive 3, the prohibitions apply to new debt or equity issued 30 days after the date of such determination. In FAQs 984, 988, and 989, OFAC noted that some of the entities listed are subject to more than one directive. For a transaction involving a person subject to multiple directives, a U.S. Person engaging in that transaction must comply with all directives that apply. FAQ 985 also states that the 50 Percent Rule applies to entities targeted by Directive 3.

As a result, entities targeted by Directive 3 will be heavily restricted from raising capital in the U.S. market.

General Licenses

In connection with the SDN designations and publication of Directive 2 and Directive 3, the Treasury department issued eight Russia-related GLs. OFAC’s stated purpose for these licenses is “[to] ensure that these sanctions and prohibitions have an impact on the intended targets and to minimize unintended consequences on third parties.” They cover a variety of sectors, including international humanitarian aid, agricultural and medical commodities, and energy, among others.

General License 5 authorizes transactions connected to official business of: (1) the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA); (2) the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank Group (IDB Group); and (3) the Red Cross.

General License 6 authorizes transactions ordinarily incident and necessary to the export of agricultural commodities, medicine, medical devices, and the prevention, diagnosis, or treatment of COVID-19. It does not authorize the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 under EO 14024.

General License 7 authorizes transactions that are ordinarily incident and necessary: (i) to the receipt of, and payment of charges for, services rendered in connection with overflights of the Russian Federation or emergency landings in the Russian Federation by U.S.-registered aircraft or aircraft owned or controlled by, or chartered to, U.S. Persons; or (ii) to provide air ambulance and related medical services, including medical evacuation, to individuals in the Russian Federation. General License 7 does not authorize the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2. As a result, in order for a U.S. financial institution to engage in transactions authorized under General License 7, all such funds transfers must be processed indirectly through a non-sanctioned, non-U.S. financial institution (FAQ 978). 

General License 8 authorizes energy-related transactions involving one or more of State Corporation Bank for Development Vnesheconombank (VEB), Bank Otkritie, Sovcombank, Sberbank, or VTB. General License 8 does not authorize the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 or any transactions involving any blocked persons other than the specified entities. As a result, in order for a U.S. financial institution to engage in transactions authorized under General License 8, all such funds transfers must be processed indirectly through a non-sanctioned, non-U.S. financial institution (FAQ 978). For purposes of assessing whether certain transactions are authorized under General License 8, U.S. Persons may rely upon the information available to them in the ordinary course of business, including reasonable reliance on information about the underlying transaction provided by the parties thereto (FAQ 976). General License 8 will expire on June 24, 2022, unless otherwise renewed.

General License 9 authorizes, until midnight EDT on May 25, 2022, transactions that are ordinarily incident and necessary to dealings in debt or equity of one or more of VEB, Bank Otkritie, Sovcombank, Sberbank, or VTB issued prior to February 24, 2022 (“covered debt or equity”), provided that any divestment or transfer of, or facilitation of divestment or transfer of, covered debt or equity (Authorized Divestments and Transfers) must be to a non-U.S. Person. Such authorized transactions include facilitating, clearing, and settling transactions to divest covered debt or equity to a non-U.S. Person, including on behalf of U.S. Persons. As part of a divestment transaction to a non-U.S. Person, U.S. Persons may engage in purchases of or investment in covered debt or equity if ordinarily incident and necessary to buy to cover a short position in such holdings (FAQ 981).

Further, General License 9 authorizes all transactions otherwise prohibited by EO 14024 that are ordinarily incident and necessary to facilitating, clearing, and settling trades of covered debt or equity (Trade Transactions) through midnight EDT on May 25, 2022, provided such trades were placed prior to 4 PM EDT on February 24, 2022, including debits to accounts on the books of a U.S. financial institution of the specified entities.

General License 9 does not authorize U.S. Persons to sell, or to facilitate the sale of, covered debt or equity to, directly or indirectly, any blocked person, nor does General License 9 authorize U.S. Persons to purchase or invest in, or to facilitate the purchase of or investment by U.S. Persons in, directly or indirectly, covered debt or equity, other than purchases of or investments in covered debt or equity that are ordinarily incident and necessary to Authorized Divestments and Transfers. Moreover, General License 9 does not authorize the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 or any transactions involving any blocked persons other than the specified entities.

For purposes of assessing whether certain transactions are authorized under General License 9, U.S. Persons may rely upon the information available to them in the ordinary course of business, including reasonable reliance on information about the underlying transaction provided by the parties to the transaction (FAQ 981).

General License 10 authorizes: (a) transactions that are ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4 PM EDT on February 24, 2022 that (i) include one of VEB, Bank Otkritie, Sovcombank, Sberbank, or VTB, or any entity in which one or more of these financial institutions own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest (Covered Entities), as a counterparty, or (ii) are linked to debt or equity of a Covered Entity (Derivative Transactions), through midnight EDT on May 25, 2022, provided that any payments to a blocked person are made into a blocked account; and (b) debits to accounts on the books of a U.S. financial institution of the specified entities to the extent ordinarily incident and necessary to effect the Derivative Transactions. General License 10 does not authorize the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 or any transactions involving any blocked persons other than the specified entities.

For purposes of assessing whether certain transactions are authorized under General License 10, U.S. Persons may rely upon the information available to them in the ordinary course of business, including reasonable reliance on information about the underlying transaction provided by the parties to the transaction (FAQ 981).

General License 11 authorizes transactions that are ordinarily incident and necessary to the wind-down of transactions involving one or more of Bank Otkritie, Sovcombank, or VTB, or any entity in which one or more of these financial institutions own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, through midnight EDT on March 26, 2022, provided that such transactions do not involve a debit to a blocked account on the books of a U.S. financial institution (FAQ 975). General License 11 does not authorize any transactions involving any blocked persons other than those listed in the license.

General License 12 authorizes U.S. Persons to reject prohibited transactions involving one or more of Bank Otkritie, Sovcombank, or VTB, or any entity in which one or more of these financial institutions own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, through midnight EDT on March 26, 2022. General License 12 does not authorize U.S. Persons to reject any transaction involving any blocked persons other than those listed in the license.

_{^[1]U.S. Person means (i) U.S. citizens and permanent residents, (ii) entities organized under the laws of the U.S. or any jurisdictions therein, and (iii) any persons located in the U.S.}