As Russia's brutal invasion of Ukraine stretches on into its second month, the United States, European Union, United Kingdom, and other global allies have continued to pour additional funding and arms into Ukraine while escalating economic sanctions targeting Russia to truly historic and unprecedented levels. Since our previous client alert, these jurisdictions have worked together to significantly increase sanctions and export controls targeting the Putin regime, connected Russian elites, and critical sectors of the Russian economy. As part of the continued multi-lateral approach, many of these responsive measures mirror actions taken in other jurisdictions, including sanctions on many of the same targets and export restrictions on similar goods, such as critical oil refining equipment and luxury items. At the same time, many of the new restrictions differ slightly or significantly among jurisdictions, causing compliance headaches as companies around the globe scramble to comply with the changing landscape.
This alert summarizes the latest responsive measures in the United States, European Union, and United Kingdom.
New U.S. Sanctions and Export Controls
Recent U.S. sanctions and export controls target the vital Russian energy sector, prohibit imports and exports of luxury goods, and create the authority to prohibit U.S. investments in any sector of the Russian economy (as determined by the Secretary of the Treasury).
- Energy Sector: On March 8, 2022, President Biden issued Executive Order (E.O.) 14066 banning the importation into the United States of Russian energy products including crude oil, petroleum fuels, liquefied natural gas, and coal from Russia. The E.O. also prohibits new investments by U.S. persons, wherever located, in the Russian energy sector, and prohibits U.S. persons from approving, financing, or facilitating such activities by non-U.S. persons. Imports of banned energy products under written agreements executed before March 8, 2022, are authorized through April 21, 2022.
- Luxury Goods: On March 11, 2022, President Biden issued E.O. 14068 prohibiting U.S. imports of seafood, spirits, and non-industrial diamonds. E.O. 14068 also prohibits exports and sales with a U.S. nexus to Russia of luxury goods and U.S. dollar-denominated banknotes. Related general licenses, including an authorization for the exportation of banknotes for personal remittances, and updated FAQs.
- Sanctions on Additional Sectors: E.O. 14068 authorizes the Secretary of the Treasury to prohibit new investments by U.S. persons in further sectors of the Russian economy without further presidential action. This authority is currently unused.
- Disinformation Outlets: On March 3, 2022, the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) designated 26 individuals and seven entities associated with Russian disinformation campaigns, particularly those backed by Russian intelligence services.
- Military and Defense: On March 3, 2022, the U.S. Department of State designated 22 defense-related firms supporting Russian military and defense enterprises. The sanctioned entities develop and produce fighter aircraft and vehicles, missiles, and unmanned aerial vehicles for the Russian military.
- Designated Persons: Continuing U.S. sanctions designations are focused on Russian elites connected to the Putin regime, including one of Russia's richest oligarchs, business magnate Alisher Usmanov, executives of sanctioned Russian banks, Duma members, and close family members of sanctioned individuals. The most up-to-date list of sanctioned entities and individuals can be found here, and the press releases describing these recent designations can be found here and here.
- Trade: President Biden and other leaders of the Group of Seven (G7) countries announced their intent to revoke Russia's most favored nation status (called "permanent normal trade relations" in the United States). The House of Representatives approved a bipartisan bill to end normal trade relations with Russia and Belarus on March 17, 2022. If passed by the Senate and signed into law, Russian and Belarusian imports will face higher U.S. tariffs.
- Export Controls: The U.S. Commerce Department's Bureau of Industry and Security (BIS) applied the sweeping export controls already in force against Russia to Belarus and increased export transfer restrictions on critical oil refining equipment. As a result of the changes, a BIS license will be required for the export, re-export, or in-country transfer of certain items needed for oil refining to and within Russia, with a policy of denial.
- Aircraft: Russian aircraft are prohibited from entering and using U.S. airspace. This follows a similar move made by the EU which was covered in our previous client alert.
New EU Sanctions and Export Controls
Recent EU sanctions significantly expand the initial EU sanctions package and target Belarus along with Russia. The EU is determined to show Russia and Belarus that the unprovoked and unjustified military aggression waged against Ukraine comes at a high price.
- SWIFT Ban: The EU excluded seven Russian banks (Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, Vnesheconombank (VEB), and VTB Bank, from March 12, 2022) and three Belarusian banks (Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, from March 20, 2022) from the provision of financial messaging services, among them SWIFT.
- Financial Restrictions - Russia: The EU banned investing or participating in or contributing to future projects co-financed by the Russian Direct Investment Fund and providing euro-denominated banknotes to Russia. The EU also prohibited providing any credit rating services, including access to any subscription services in relation to credit rating activities, to any Russian individual or entity.
- Financial Restrictions - Belarus: The EU prohibited transactions with the Central Bank of Belarus and listing or providing services relating to shares in Belarusian state-owned entities on EU trading venues. The EU also significantly limited the financial inflows from Belarus to the EU and prohibited providing euro-denominated banknotes to Belarus.
- Energy Sector: The EU prohibited new investments in the Russian energy sector, with limited exceptions for civil nuclear energy and the transport of certain energy products back to the EU. The EU also introduced comprehensive export restrictions on equipment, technology, and services for the energy industry.
- Trade in Iron and Steel Products, Maritime Navigation Goods, and Radio Technology: The EU imposed an import ban on iron and steel products, including certain railway materials, tubes, and pipes. Moreover, the EU introduced further trade restrictions with regard to the export of maritime navigation goods and radio communication technology to Russia.
- Dual-Use Goods: The EU imposed a prohibition on the sale, supply, transfer, or export, directly or indirectly, of dual-use goods and technology to a broad list of Russian companies.
- Luxury Goods: The EU further prohibited the sale, supply, transfer, or export, directly or indirectly, of certain luxury goods exceeding EUR 300 per item. Examples of affected goods are caviar, clothes, electronic items for domestic use, handbags, horses, jewelry, musical instruments, truffles, vehicles, watches, and wine.
- State-owned Russian Media Outlets: The EU broadcasting activities of Russian outlets Sputnik and Russia Today were suspended until the aggression against Ukraine is brought to an end and until the Russian Federation and its associated outlets cease conducting disinformation and information manipulation actions against the EU and its Member States.
- Russian State-Owned Entities: The EU prohibited all transactions with state-owned enterprises across different sectors (referred to as the "Kremlin's military-industrial complex"), namely with OPK Oboronprom, United Aircraft Corporation, Uralvagonzavod, Rosneft, Transneft, Gazprom Neft, Almaz-Antey, Kamaz, Rostec (Russian Technologies State Corporation), JSC PO Sevmash, Sovcomflot, and United Shipbuilding Corporation.
- Designated Persons: EU sanctions designations have focused on oligarchs and business elites linked to the Kremlin and members of the Russian Federation Council, as well as companies active in the military and defense sectors and in promoting disinformation. The current list of "blocked" persons comprises a total of 892 individuals and 71 entities (in addition to the individuals and entities designated under the sanctions against Belarus).
- Enforcement: The European Commission set up a "Freeze and Seize" Task Force to ensure efficient implementation of EU sanctions against listed Russian and Belarusian oligarchs across the EU. It is composed of the EU Commission, national contact points from each EU Member State, Eurojust, and Europol as well as other EU agencies and bodies as necessary. It will coordinate actions by EU Member States, Eurojust, Europol, and other agencies to seize and, where national law allows it, confiscate assets of Russian and Belarusian oligarchs. This task force will also work alongside the newly established "Russian Elites, Proxies, and Oligarchs (REPO)" Task Force, which the EU operates with the G7 countries as well as Australia.
- Trade and Export Controls: Following the G7 announcement on March 11, 2022, the EU agreed to deny Russian products and services most favored nation treatment in EU markets, ending Russia's benefits as a World Trade Organization member for EU markets.
New UK Sanctions and Export Controls
Recent UK sanctions and export controls have been strengthened by the passing of new legislation covering a wide range of sectors, goods, and activities, including key Russian and Belarusian products, key Russian institutions, critical industry goods and technology, aircraft, ships, and aviation and space goods and technology.
- Financial Restrictions: New prohibitions on correspondent banking relationships and the processing of sterling payments to, from, or via key financial institutions have been introduced. Existing prohibitions relating to the granting of certain types of credit and loans, and dealing with certain types of security and financial instruments, have been extended.
- Trade Restrictions: Trade restrictions which previously applied to military goods and dual-use goods and technology for military use have been extended to critical-industry goods and technology (which include, but are not limited to, certain electronic devices, lasers, sensors, telecommunications equipment, and information security systems and equipment), dual-use goods and technology beyond military use, and aviation and space goods and technology. Among other prohibitions, the export of such goods or technologies to, or for use in, Russia is now prohibited, as is the direct or indirect supply or delivery of such goods from a third country to a place in Russia.
- Luxury Goods and Key Products: The UK government announced that exports of high-end luxury goods to Russia, which are likely to include luxury vehicles, high-end fashion, and works of art, will be banned (although such a ban is not yet in force). It also plans, during the week commencing March 21, 2022, to introduce additional tariffs of 35% on imports of key Russian and Belarusian products, including iron ores, fertilizers, cereals, oil seeds, wood, copper, and aluminum (among others).
- New Legislation: A bill proposing new measures to combat economic crime has been fast-tracked through Parliament in response to the Russian invasion of Ukraine, resulting in the passing of the Economic Crime (Transparency and Enforcement) Act 2022. The Act imposes a strict liability test to impose financial penalties for breaches of sanctions (removing the previous "knew or had reasonable cause to suspect" requirement, once implemented), streamlines the process for issuing sanctions, and allows for urgent sanctions designations.
- Designated Persons: UK sanctions designations have predominantly focused on Russian oligarchs and their family members, members of the Russian Duma, Putin's political allies, and propagandists. The UK has also designated a small number of individuals and companies associated with the Belarusian military and defense sector.
- Aircraft and Ships: Russian aircraft are prohibited from flying over or landing in the UK, and Russian ships are banned from entering UK ports. The Secretary of State has been given various new powers in relation to aircraft and ships, including to direct that they be detained.
While Russia and Belarus continue their bloody invasion of Ukraine, governments around the world will continue to increase pressure on the Putin regime through new and unprecedented restrictive sanctions. As more sanctions and export controls are imposed in the days and weeks to come, Morrison & Foerster's National Security Practice stands ready to assist you in navigating this complex and ever-changing landscape.
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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