On Monday, August 8, 2021, the US President issued, as part of the sanction programme with respect to the Republic of Belarus, a new edict (Executive order on Blocking Property of Additional Persons Contributing to the Situation in Belarus)Moreover, 23 more natural persons have been added to the sanctions list, including businessmen and public officials, alongside with 21 legal entities including BelNefteGaz, BelarusKaliy, Dana Holdings and AbsolutBank. On the same day, the Office of Foreign Asset Control of the US Department of the Treasury (OFAC) published general license No. 4 and additional explanations on the procedure of construing and executing the sanctions.
In this connection, we have prepared a brief review of the basic alterations in the sanctions regime imposed by the USA with respect to the Republic of Belarus.
Briefly on US sanctions with respect to the Republic of Belarus
The following are the basic acts imposing US sanctions with respect to Belarus:
- International Emergency Economic Powers Act (IEEPA), 50 U.S.C. §§ 1701-1706
- National Emergencies Act (NEA), 50 U.S.C. §§ 1601-1651
- The regulations on US sanctions against Belarus (Belarus Sanctions Regulations) are grouped in section 548 of the Code of Federal Regulations
US economic sanctions with respect to Belarus have been in effect since 2006 on the basis of:
- Edict of 19.06.2006 №13405
- the new Edict
US President, OFAC and the Bureau of Industry and Security (BIS) are the main bodies contributing to the elaboration, introduction and execution control with respect to the sanctions. OFAC is the key body preparing the sanctions lists.
At present, US sanctions tend to be primarily blocking, that is they are applied to particular persons and entities under their control. Unlike Great Britain and the European Union, that have imposed sectoral sanctions with respect to Belarus, US sanctions are not sectoral. That said, the new Edict indicates that an entity being affiliated with a certain sector of economy is an eligible criterion for the imposition of blocking sanctions.
Blocking sanctions with respect to designated persons provide the following restrictions:
- blocking of assets located in the territory of the USA or owned/controlled by a US person
- prohibition to US persons for transfer of, payment for, export of, offsetting for, and other actions with respect to assets of such persons
US sanctions are binding upon US persons: USA citizens; persons entitled to permanent residency in the USA; legal entities incorporated under the laws of the USA, including their foreign branches; any persons residing in the USA.
Designated persons are specified by decisions of the Treasury, while the specially designated nationals list (SDN List) is managed by OFAC. Apart from the SDN List, there is also the Non-SDN List that comprises entities subject to particular restrictions of the sanctions programme. The mechanism is not used with respect to the Republic of Belarus; however, three Belarusian banks have been entered in the Non-SDN list as part of sanctions against Russia.
You can check the current status of the sanctions lists on OFAC's official website or in the Sanctions Search special resource.
US sanctions are 'umbrella' policies, that is they apply to companies under control of designated persons, even if such companies are not specified directly by the sanctions list. However, the mechanism to define 'control' differs greatly from both British and European approaches.
The key criterion of 'control' is designated person's ownership (direct or indirect) of at least 50% of company's shares/stocks. Such controlled companies are subject to the same restrictions that the respective designated person itself is.
- a designated person owns 60% in a Russian company - the company will be subject to US sanctions
- a designated person owns 50% in a Cypriote A that owns 50% in a Ukrainian company B - the both companies will be subject to US sanctions
- a designated person owns 50% in a Belarusian company A that owns 25% in a Ukrainian company B - US sanctions will be imposed on company A only
The principal differences from the British and European approaches are that:
- ownership of at least 50% of stocks/shares in a company suffices (the EU/GB's policies require over 50%)
- no other criteria to qualify control, once a designated person owns less than 50% stocks/shares in a company
Formally, US sanctions will not be imposed on a company in which a designated person owns 49% of stocks, however there is more to it. As OFAC notes, such company may be:
- a candidate for inclusion into the sanctions list
- such company may be acting for the benefit of a designated person (as a mediator), and such transaction will be prohibited
In case of violation of US sanctions, a rule-breaker may face criminal responsibility in the form of a fine of up to 1,000,000 US dollars and/or imprisonment for up to 20 years. Such severe measures often impel foreign companies to ensure overcompliance of interactions, that is to refuse a transaction even where there are no sanction risks, even up to blanket rejection of activities in a certain region.
Primary/secondary US sanctions
Primary sanctions are rather conventional and must be complied by US persons only. Sanctions of this type are in effect with respect to Belarus.
Secondary sanctions are extra-territorial. The essence of secondary sanctions is that US President imposes sanctions with respect to residents of third countries (other than the USA and designated person's country) that actively collaborate with designated persons. The most famous example, art. 226 of the Countering America's Adversaries Through Sanctions Act (CAATSA), that amends the Ukrainian sanctions programme against Russia and establishes the US President's obligation to introduce sanctions against foreign financial institutions conducting essential transactions for the benefit of designated persons.
There are no similar rules on secondary sanctions with respect to Belarus.
Additional grounds for introducing US sanctions
The Edict's main purpose is augmenting the categories of persons that may be subject to sanctions' restrictions.
In particular, the Edict establishes that the sanctions may be introduced with respect to persons engaged in the following sectors:
- defense sector, or any similar security sector
- energy sector
- potash fertilisers sector
- tobacco goods sector
- construction/building sector
- transportation sector
- other sectors of economy of the Republic of Belarus defined by USA's competent bodies
The Edict has not introduced sectoral sanctions with respect to the Republic of Belarus, unlike recent Britain's and EU's sanctions. The specification of the sectors of economy only means that companies from these sectors may be subject to blocking sanctions. A similar mechanism is applied to Russia.
Accordingly, sanctions will not be applied automatically to all persons engaged in the mentioned sectors; however, any activity in any of the above sectors will entail an increased risk of being subject to the following expansion of sanctions.
License №4 dated August 9, 2021
Due to the inclusion of "BelarusKaliy" OJSC into the sanctions list, OFAC issued a general license for USA residents allowing them to accomplish current transactions with BelarusKaliy and its subordinated entities by December 8, 2021.
Normally, restrictions for designated persons and their respective subordinated entities come into effect forthwith, and any transactions with them require a license from OFAC. In certain cases, OFAC may issue a general license (covering all persons/entities involved) to enable accomplishment of current transactions.
A similar license №2H dated 19.04.2021 was issued to enable accomplishment of transactions by June 3, 2021 with certain Belarusian companies in the area of petroleum refining and chemical industry.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.