I. Sanctions Target Russian Elites, Disinformation Outlets, and Defense Industry

As the conflict in Ukraine continues, the U.S. launched an additional wave of sanctions, with more expected to follow in the coming days. On March 3, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) added the following individuals, entities, and vehicles to the Specially Designated Nationals and Blocked Persons List (“SDN List”):

On the same day, the U.S. Department of State also took action against inner-circle elites by designating the following individuals for being leaders, officials, senior executive officers, or members of the board of directors of the government of Russia, pursuant to Executive Order (“E.O”) 14024, along with many of their family members and companies. As a result of these designations, these persons and entities were added by OFAC to the SDN List. The designated persons include:

In addition to the above actions taken against oligarchs, the State Department also designated 22 Russian defense-related entities, which OFAC added to the SDN List. These sanctions are intended to “strike at the core of Putin’s war machine” by targeting a broad range of entities in the defense and aerospace sector that develop and produce fighter aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles for Russia’s military. This batch of designations expands the focus of earlier U.S. sanctions, which primarily targeted banks and other financial institutions. As the conflict in Ukraine continues to escalate, additional sanctions targeting the defense sector are anticipated.

U.S. persons are generally prohibited from engaging in most transactions with SDNs, absent a specific or general license, and all U.S. assets of SDNs are “blocked” and must be reported to OFAC. Designated natural persons are also subject to a travel ban, and all entities 50% or more owned by an SDN are generally treated as if they were also on the SDN List (known as the “50% Rule”).

In addition, any person, including a non-U.S. person, may be designated for materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, these SDNs.

II. New General Licenses and FAQs

On March 2, 2022, OFAC issued four new Russia-related general licenses to authorize transactions that would otherwise be prohibited:

On March 3, 2022, OFAC issued a new General License 15, which authorizes transactions involving any entity owned 50% or more, directly or indirectly, by Russian billionaire and Putin affiliate Alisher Usmanov, that is not listed on the SDN List. The General License is notable because it functionally exempts entities that are owned by Mr. Usmanov - and not otherwise separately sanctioned (such as the yacht and plane described above) - from OFAC's 50% rule (as explained above).

OFAC also published new Frequently Asked Questions (“FAQs”), which include clarifications related to Directive 4, which was issued on February 28, 2022 and as reported in our earlier Client Alert, prohibits “all transactions” between U.S. persons and Directive 4 Entities. The FAQs clarify that U.S. persons must reject transactions involving Directive 4 Entities (unless exempt or authorized by OFAC), but that Directive 4 does not impose blocking sanctions as an SDN List designation would. The “50% Rule” also does not apply to Directive 4 Entities.

III. SWIFT Access Denied to Seven Russian Banks and Subsidiaries

On March 2, 2022, the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) announced that it would comply with a new EU regulation and disconnect seven Russian banks, along with their subsidiaries, from access to its messaging platform on March 12, 2022. SWIFT is a secure messaging system used by banks and other financial institutions to exchange information, such as details regarding money transfers. Without access to SWIFT, these Russian banks are effectively cut off from participating in the global economy. To date, Iran is the only country that has been completely barred from SWIFT.

Following a joint statement issued by the U.S., the European Commission, France, Germany, Italy, the UK, and Canada, on March 1, 2022, the EU issued Council Regulation (EU) 2022/345, which requires SWIFT to disconnect identified Russian banks from its services. The initial list of banks which will be barred from the SWIFT messaging platform are:

1. Otkritie; 2. Novikombank; 3. Promsvyazbank; 4. Bank Rossiya; 5. Sovcombank; 6. VEB; and 7. VTB, along with their subsidiaries.

These banks are all already subject to sanctions by the EU and U.S., and many have been sanctioned by the UK, Canada, and Japan as well.

On March 2, 2022, the Bureau of Industry and Security (“BIS”) of the U.S. Department of Commerce amended the Export Administration Regulations (“EAR”) to extend to Belarus the restrictions on exports to Russia announced on February 24, 2022. The main features of the new controls are:

Changes to the Entity List. Two Belarusian entities have been added to the Entity List, which prohibits the export of all items subject to the EAR (with very limited exceptions) to these entities:

BIS also significantly limited the export of items that contain encryption technology. Items classified under ECCNs 5A992.c or 5D992.c as well as items eligible for License Exception ENC, now require a license to all end-users in Belarus and Russia except:

In addition, BIS announced new export controls targeting the oil refinery sector in Russia that are effective March 8, 2022. A license is now required to export, re-export or transfer (in-country) any item subject to the EAR listed in supplement no. 2 to Part 746 of the EAR as well as items specified in ECCNs 0A998, 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, and 8D999 when you “know” that the item will be used directly or indirectly in exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet) or Arctic offshore locations or shale formations in Russia, or are unable to determine whether the item will be used in such projects. Such items include, but are not limited to, drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Arctic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing, high-pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers. BIS further expanded the scope of the Russian industry sector sanctions by adding a new general prohibition that will apply to additional Harmonized Tariff Schedule (HTS)-6 codes and Schedule B numbers for all exports, re-exports, and transfers (in-country) to or within Russia.

These new export controls are effective March 8, 2022.

Foley Hoag will continue to provide updates as the situation develops. For information on earlier Russia-related actions, see our prior Client Alerts issued on March 1, February 28, and February 17.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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