Between April 18 and May 2, 2022, the US government continued to ratchet up economic sanctions, export controls, and other restrictive trade measures targeting Russia. Most significantly, on April 21, President Biden issued a Proclamation prohibiting “Russian-affiliated vessels” from entering US ports. Otherwise, the US government has focused on utilizing its existing authorities to impose further costs on Russia.
Over the last two weeks of April, the US Treasury Department’s Office of Foreign Assets Control (OFAC) designated over 40 individuals and entities including Transkapitalbank (TKB), re-issued an expanded set of Ukraine- / Russia- Sanctions Regulations (URSR), and issued several new or revised general licenses, including one relating to the provision of assistance by nongovernmental organizations, and 8 Frequently Asked Questions (FAQs).
Separately, the Commerce Department’s Bureau of Industry and Security (BIS) continues to be focused on restricting the Russian aviation sector, issuing a temporary denial order (TDO) on the Russian cargo aircraft carrier, Aviastar, for operating aircraft on flights into and out of Russia without the BIS authorization required under the Export Administration Regulations (EAR), and providing weekly updates to its list of commercial and private aircraft operated in potential violation of the EAR.
Ban on Russian-affiliated vessels entering US ports
On April 21, President Biden issued a Proclamation pursuant to the Magnuson Act, 46 U.S.C. § 70051, prohibiting “Russian-affiliated vessels” from entering US ports. The Proclamation applies to all vessels that either: (1) sail under the Russian flag (i.e., are registered in Russia); (2) are Russian owned (i.e., the legal title of ownership of the vessel that appears on the ship’s registration documents is the government of the Russian Federation or a Russian company, citizen, or permanent resident); or (3) are Russian operated (i.e., a Russian company, citizen, or permanent resident is responsible for the commercial decisions concerning the employment of a ship and decides how and where that asset is employed).
The ban contains two modest carve-outs for vessels used “in the transport of source material, special nuclear material, and nuclear byproduct material” and for certain maritime emergencies. The Department of Homeland Security is authorized to issue additional regulations under the Proclamation but has not yet done so.
On April 20, OFAC announced, pursuant to Executive Order (EO) 14024, blocking sanctions on Russian commercial bank Public Joint Stock Company Transkapitalbank (TKB) and a global network of more than 40 individuals and entities led by US-designated Russian oligarch Konstantin Malofeyev. Malofeyev has already been the subject of criminal charges brought by the US Department of Justice for conspiring to violate US sanctions. OFAC also designated companies operating in Russia’s virtual currency mining industry.
Re-issuing of the Ukraine-Related Sanctions Regulations
On April 29, OFAC announced amendments to the Ukraine-Related Sanctions Regulations, renaming them the Ukraine-/Russia-Related Sanctions Regulations (URSR). The URSR were first promulgated in an abbreviated form on May 8, 2014 to implement Executive Orders 13660, 13661, and 13662 issued in response to Russia’s 2014 invasion of Crimea. The revised regulations now also officially implement EO 13685, provisions of the Ukraine Freedom Support Act of 2014 (UFSA), the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (SSIDES), and the Countering America’s Adversaries Through Sanctions Act (CAATSA), and Directives 1 – 4 issued pursuant to EO 13662.
For the most part, the updated and expanded sanctions regulations codify prior guidance and authorizations issued in FAQs or on OFAC’s website. A few aspects of the revised regulations are worth noting.
Specifically, § 589.406 provides that the prohibitions in § 589.201 on transactions or dealings involving blocked property apply to transactions by any U.S. person in a location outside the United States.
The revised regulations include six general licenses that had previously appeared only on OFAC’s website, as well as seven new general licenses. New sections 589.509, 589.510, and 589.511 incorporate general licenses authorizing certain transactions relating to investment and reinvestment of funds, official business of the US government, and official business of certain international organizations and entities. New sections 589.518, 589.519, and 589.520 authorize activities specific to the Crimea region of Ukraine: transactions ordinarily incident and necessary to publishing, emergency landings and air ambulance services, and the export of certain services in support of nongovernmental organizations’ activities. New section 589.521 authorizes transactions related to closing a correspondent or payable-through account. According to OFAC, the addition of these general licenses does not represent a significant alteration of the US foreign policy toward Russia. (Licensing actions that significantly alter US foreign policy toward Russia would trigger a Congressional review process pursuant to CAATSA.)
The revised URSR do not implement EO 14065 issued in February 2022, which imposes an embargo on the so-called “Donetsk People’s Republic” and “Luhansk People’s Republic” as described in our prior blog post. The prohibitions in EO 14065 are in effect but have not yet been reflected in implementing regulations. The revised URSR also do not implement the sanctions recently imposed on Russia under EO 14024; instead EO 14024 and other related Executive Orders are implemented through the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR), 31 CFR Part 587.
New General Licenses
Along with the new designations, OFAC published four new general licenses (GLs) for the RuHSR, including two wind down authorizations involving TKB, one wind down authorization involving Gazprom Germania GmbH, and one GL authorizing certain transactions related to NGO activities. OFAC also published two revised GLs under the URSR that authorize the wind down of transactions involving GAZ Group and transactions necessary to divest or transfer debt, equity, or other holdings in GAZ Group to a non-US person. Notably, one of the new GLs reflects a change in OFAC’s posture toward GAZ Group: previous versions of the GL had authorized (for more than four years) the maintenance or wind down of contracts with GAZ Group that were in place before April 2018, but the new GL authorizes only the wind down of transactions involving GAZ Group. Transactions for the maintenance of pre-April 2018 contracts with GAZ Group are no longer authorized. In FAQs that accompanied the new GAZ Group-related GLs, OFAC indicated that it does not intend to issue further GLs that would extend the period for authorized wind downs or divestments. The GLs are as follows:
- Russia-Related GL 27 authorizes all transactions otherwise prohibited by the RuHSR by NGOs that involve certain enumerated activities (such as humanitarian projects to meet basic human needs, democracy building, education, non-commercial development projects directly benefiting the people of Ukraine or the Russian Federation, and environmental and natural resource protection), provided that the only involvement of blocked persons is the processing of funds by financial institutions blocked pursuant to EO 14024.
- Russia-Related GL 28 authorizes all transactions involving TKB, or any entity in which TKB owns, directly or indirectly, a 50 percent or greater interest, that are ultimately destined for or originating from Afghanistan and prohibited by EO 14024 through 12:01 a.m. eastern daylight time, October 20, 2022. Also, US financial institutions are authorized to operate correspondent accounts on behalf of TKB, or any entity in which TKB owns, directly or indirectly, a 50 percent or greater interest, provided such accounts are used solely to effect transactions that are ultimately destined for or originating from Afghanistan and prohibited by EO 14024.
- Russia-Related GL 29 authorizes all transactions ordinarily incident and necessary to the wind down of transactions involving TKB, or any entity in which TKB owns, directly, or indirectly, a 50 percent or greater interest, that are prohibited by EO 14024, through 12:01 a.m. eastern daylight time, May 20, 2022.
- Russia-Related GL 30 authorizes all transactions involving Gazprom Germania GmbH, or any entity in which Gazprom Germania GmbH owns, directly or indirectly, a 50 percent or greater interest, that are prohibited by Directive 3 under E.O. 14024, through 12:01 a.m. eastern daylight time, September 30, 2022.
- Ukraine-Related GL 13R authorizes all transactions and activities that are ordinarily incident and necessary (1) to divest or transfer debt, equity, or other holdings in GAZ Group to a non-US person, or (2) to facilitate the transfer of debt, equity, or other holdings in GAZ Group by a non-US person to another non-US person, through 12:01 a.m. eastern daylight time, May 25, 2022. It also authorizes all transactions and activities otherwise prohibited by the URSR that are ordinarily incident and necessary to (1) divest or transfer debt, equity, or other holdings in GAZ Group, or in entities in which GAZ Group owns, directly or indirectly, a 50 percent or greater interest, that were issued by GAZ Auto Plant (hereinafter, “Other Issuer Holdings”), to a non-US person; or (2) facilitate the transfer of Other Issuer Holdings by a non-US person to another non-US person, through 12:01 a.m. eastern daylight time, May 25, 2022. Such transactions and activities authorized include facilitating, clearing, and settling transactions to divest to a non-US person debt, equity, or other holdings in GAZ Group, or Other Issuer Holdings including on behalf of US persons.
- Ukraine-Related 15L authorizes all transactions and activities that are ordinarily incident and necessary to the wind down of transactions involving GAZ Group, or any entity in which GAZ Group owns, directly or indirectly, a 50 percent or greater interest, through 12:01 a.m. eastern daylight time, May 25, 2022.
OFAC also published FAQs on implementation of GL 13R and GL 15L, which include an explanation that OFAC does not intend to authorize divestments of GAZ Group securities after the expiration of GL 13R, and does not intend to extend the wind down period for transactions involving the GAZ Group beyond the expiration date of GL 15L. OFAC also published a new FAQ on obligations of credit card systems operators under the RuHSR and the Belarus Sanctions Regulations with regard to payment cards issued by sanctioned financial institutions.
In addition, OFAC published a Fact Sheet to make clear that US sanctions issued in response to Russia’s further invasion of Ukraine do not stand in the way of agricultural and medical exports, NGO activities, Coronavirus Disease 2019 (COVID-19) relief, the free flow of information, humanitarian assistance, and other support to people impacted by Russia’s war. The Fact Sheet primarily reiterates existing authorizations, but also notes that OFAC considers specific license requests on a case-by-case basis and prioritizes license applications and other requests for guidance that are related to humanitarian activity.
BIS Continues to Target Russian Aircraft and Issues Temporary Denial Order
BIS has continued to focus on Russian-owned or -controlled aircraft that are subject to the EAR. By eliminating the availability of license exception AVS for such aircraft, a license is now required to fly such aircraft to Russia, Belarus, or any other country requiring an export license. In addition, all other aircraft subject to the EAR that are not classified as EAR 99 require a license or use of an available license exception to be flown to Russia or Belarus. It added six Utair aircraft to its list of commercial and private aircraft that have operated in potential violation of the Export Administration Regulations (EAR). BIS has provided weekly updates to its list available on its Russia/Belarus resource page.
Additionally, on April 21, BIS issued a temporary denial order (TDO) on Russian cargo aircraft carrier Aviastar, for “ongoing violations of the comprehensive export controls imposed on Russia.” The TDO prohibits all persons from generally engaging in transactions to provide Aviastar with items subject to the EAR, except items that are necessary to ensure the safety of civil aviation and that are authorized by BIS. It also prohibits persons from engaging in transactions to service Aviastar items either where the serviced item is subject to the EAR or where the service involves the use of items subject to the EAR that have been or will be exported from the United States, except for items necessary to ensure the safety of civil aviation and authorized by BIS. The TDO lasts for 180 days and may be renewed.