On Wednesday, April 6, 2022, the Biden Administration announced its most severe and wide-ranging economic sanctions measures against Russia to date, banning new investment in the Country and cutting off its largest banks and state-owned enterprises from the world financial markets. According to the White House, these efforts, in conjunction with sanctions measures levied against Russia by over 30 U.S. partners and allies around the world, are predicted to contract Russia's GDP by up to 15%. With more than 600 private companies having left the Russian market and U.S. exports to Russia of items subject to new export controls falling by 99% in value, Russia's economic and financial isolation from the world market is likely to continue for the foreseeable future.
In addition to the crippling economic impacts on Russia's economy, the new restrictions on Russia's economic and financial sectors place increased compliance responsibilities on U.S. companies and individuals who continue to conduct business with or in Russia. To assist companies and their officers in complying with the escalating sanctions and economic measures taken against Russia, we've provided a summary of the White House's April 6, 2022 announcement below.
Full Blocking Sanctions Against Sberbank and Alfa Bank
Increasing the severity of the sanctions levied against certain Russian financial institutions, the White House announced full blocking sanctions against Sberbank and Alfa Bank, Russia's largest financial institution and private bank, respectively, having previously issued blocking sanctions against Bank Otkritie, Sovcombank OJSC, and Novikombank. Blocking sanctions freeze any of these institutions' assets touching the U.S. financial systems and prohibit U.S. companies and persons from conducting business with these organizations. Given the size of these institutions, and their place in Russia's financial system, these measures will undoubtedly have a devastating impact on the Russian economy.
It is incumbent on any U.S. company or organization which conducts business with or makes payments through Russian financial institutions to be aware of the current OFAC sanctions and bans related to Russian financial institutions and their potential impact on the permissibility of payments to and or from individuals utilizing the same.
Full Blocking Sanctions Against Russian State-Owned Enterprises
Building on the sanctions against Russian financial institutions, the Biden Administration also announced full blocking sanctions against certain critical Russian state-owned enterprises, prohibiting any U.S. person from conducting business with these entities and freezing any of their assets subject to U.S. jurisdiction. On Thursday, April 7, the U.S. Department of Treasury announced its preliminary list of Russian state-owned enterprises subject to full blocking sanctions, and which includes: Public Joint Stock Company Alrosa, the world's largest diamond mining company, and United Shipbuilding Corporation, a major Russian shipbuilding entity responsible for developing and building the Russian Navy's warships.
Full Blocking Sanctions Against Russian Elites and their Families
Adding to the growing list of Russian oligarchs which are currently the subject of U.S. sanctions, the White House announced full blocking sanctions against certain Russian elites, including: President Putin's adult children, Foreign Minister Lavrov's wife and daughter, and members of Russia's Security Council including former President and Prime Minster Dmitry Medvedev and Prime Minster Mikhail Mishustin. With these sanctions, the identified individuals have been effectively cut off from the U.S. financial system and any assets they hold in the United States have been frozen.
New Investment in the Russian Federation is Prohibited
In addition to the blocking sanctions levied against Russian financial institutions, state-owned enterprises, and individuals, on Wednesday, President Biden signed an Executive Order (EO) Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression. This EO prohibits: (1) new investment in the Russian Federation by U.S. persons wherever located; (2) the exportation, reexportation, sale, or supply, directly or indirectly of certain categories of services to any person located in the Russian Federation; and (3) the approval, financing, facilitation, or guarantee by any U.S. person of a transaction by a foreign party which would be prohibited by the EO.
Russian Debt Payments Subject to U.S. Jurisdiction
While U.S. sanctions do not currently preclude payments on Russian sovereign debt, the U.S. Treasury has prohibited Russia from making any debt payments with funds subject to U.S. jurisdiction.
While the White House and the world continue to increase the scope and severity of the sanctions and economic bans and measures taken against Russia as a result of its invasion of Ukraine, the Biden Administration reiterated its support for certain exemptions related to essential humanitarian relief. These humanitarian measures include: ensuring availability of basic agricultural commodities, safeguarding access to medicine and medical devices, and enabling telecommunications to support the flow of information to the Russian people. These specific activities are not the target of U.S. efforts against Russia and, where appropriate, the relevant U.S. agencies and/or departments will issue exemptions to ensure such activities may continue.
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.
