03-4-2022 |
On February 21, 2022, Russian President Vladamir Putin recognized the independence and sovereignty of two breakaway regions in eastern Ukraine, the Donetsk People’s Republic (DPR) and the Luhansk People’s Republic (LPR). Russian military forces mobilized to the DPR and LPR.
The same day, February 21, 2022, President Biden issued Executive Order 14065, imposing sanctions related to the DPR and LPR, which the Executive Order collectively refers to as the “Covered Regions.” Executive Order 14065 prohibits:
- New investment in the Covered Regions by a U.S. person.
- Direct or indirect import of goods, services, or technology from the Covered Regions to the United States.
- Direct or indirect export, reexport, sale, or supply from the U.S. or by a U.S. person (wherever located) of any goods, services, or technology to the Covered Regions.
- Approval, financing, facilitation, or guarantee by a U.S. person (wherever located) of a transaction or other business dealings by a foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person.
On February 22, 2022, the Secretary of the Treasury issued a determination that authorizes sanctions against persons operating in the financial services sector of the Russian economy. This action allowed for the imposition of sanctions but did not itself impose sanctions. The Treasury’s Office of Foreign Assets Control (“OFAC”) immediately took that step, however, adding two major Russian-owned financial institutions (and 42 of those institutions’ subsidiaries), five vessels, and several individuals to its Specially Designated Nationals and Blocked Persons List (the “SDN List”). U.S. persons are generally prohibited from dealing with any person or entity on the SDN List, and any assets of those on the SDN List are blocked by the U.S.
On February 23, 2022, OFAC added one individual and one entity (NORD STREAM 2 AG) to the SDN List, and on February 24, 2022, Russia commenced its invasion of Ukraine.
The Department of Commerce’s Bureau of Industry and Security (“BIS”), on February 24, instituted strict licensing requirements on many exports to Russia, including electronics, computers, telecommunications and information security systems, lasers and sensors, navigation and avionics, marine items, and aerospace and propulsion items. BIS adopted a policy of denial, meaning most applications for a license to export such goods will be denied. BIS imposed broader sanctions on items destined for Russian military end users and military end uses. OFAC added several major Russian financial institutions (and their subsidiaries), several Russian oligarchs (and their families), and two state-owned Belarusian banks (and their subsidiaries) to the SDN List.
Then, on February 25, 2022, the State Department’s Directorate of Defense Trade Controls adopted a policy to deny licenses or other approvals for exports, reexports, retransfers, temporary imports of, and brokering activities related to defense articles and defense services destined for or originating in the DNR or LNR regions of Ukraine. OFAC added Putin and Russian Foreign Minister Sergei Lavrov, Minister of Defense Sergei Shoigu, and General Valery Gerasimov to the SDN List.
On February 26, 2022, the U.S., UK, France, Germany, Italy, Canada, and the European Commission issued a joint statement saying they are taking steps to remove certain Russian banks from the SWIFT messaging system.
On February 28, 2022, OFAC prohibited U.S. persons from engaging in transactions with the Central Bank of Russia, the National Wealth Fund of Russia, and Russia’s Ministry of Finance, which froze any U.S.-based assets of those organizations, or any assets of those organizations held by U.S. persons. OFAC added additional names to the SDN List.
Finally, on March 1, 2022, the Federal Register published OFAC’s “Russian Harmful Foreign Activities Sanctions Regulations,” an abbreviated set of regulations that implement the prohibitions of Executive Order 14024, including a prohibition on dealing with any person who is determined to “operate or have operated in the technology sector or the defense and related materiel sector of the Russian Federation economy, or any other sector of the Russian Federation economy,” or who has engaged in harmful conduct for the benefit of the government of the Russian Federation.
What does it mean for Iowa businesses?
MIND THE SDN LIST. Iowa companies and individuals conducting international business should ensure they are not engaged in transactions of any kind with persons (individuals or entities) appearing on the SDN List. The SDN List is a primary means of freezing, isolating, and restricting the financial capability of targeted persons. The SDN List is publicly available and OFAC provides a user-friendly search tool. Given the pace of OFAC’s additions and changes to the SDN List, our clients should conduct a check against the SDN List for every international transaction or other business dealing that could involve Russian participants. Contact an attorney if you have any questions or concerns regarding your compliance obligations.
KNOW YOUR BANKS. In addition to entities contained on the SDN List, OFAC has prohibited U.S. persons from engaging in transactions with the Central Bank of Russia, the National Wealth Fund of Russia, and Russia’s Ministry of Finance. If these banks (or their subsidiaries) are or may be involved in a transaction, additional scrutiny is necessary, and you should contact an attorney for assistance.
ANALYZE POTENTIAL TRANSACTIONS IN OR INVOLVING THE DPR AND LPR. EO 14065 established exceptionally restrictive sanctions impacting the DPR and LPR. Iowa companies and individuals doing or seeking to do business in those regions, or with businesses based in those regions, should seek legal advice on the application of EO 14065 to their existing operations or potential transactions.
ANALYZE POTENTIAL EXPORTS TO RUSSIA. The trade sanctions imposed to date primarily target the export of goods to Russia. BIS’ export sanctions cover all of Russia, Russian-owned companies, and the DPR and LPR. Iowa companies that intend to export goods, software, or technology to Russia, the DPR or LPR, or to Russian-owned companies, including goods made outside the U.S. with U.S. components or technology, should expect their export to be subject to BIS’ new license requirement and BIS’ policy of denial as its starting point. You may benefit from seeking out legal counsel before attempting to navigate the licensing system on your own.