New US Sanctions Target Russian Economy with Prohibitions on Imports, Exports, and New Investments

What Happened:

On March 11, 2022, President Biden issued an Executive Order (the “March 11 Executive Order”)¹ prohibiting the importation of products from certain sectors of Russia’s economy, including seafood, spirits, non-industrial diamonds, and other products identified by the US Department of the Treasury, as well as the exportation of luxury goods and other items to be identified by the US Department of Commerce, and US dollar-denominated banknotes to Russia or any person located in Russia.  The March 11 Executive Order also prohibits US persons from making new investments in any sector of the Russian economy designated by the US Department of the Treasury.  The March 11 Executive Order also prohibits US persons from providing any approval, financing, facilitation, or guarantee to a foreign person seeking to engage in any transaction prohibited by the March 11 Executive Order.

In connection with the March 11 Executive Order, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued four general licenses and published new and amended Frequently Asked Questions (“FAQs”).²  OFAC also added to and updated its list of Specially Designated Nationals (“SDNs”).

These actions follow on a series of significant US sanctions against Russia in recent weeks in response to Russia’s invasion of Ukraine.  Our team’s coverage of the earlier US sanctions is available here: February 21, 2022, February 24, 2022, February 28, 2022, and March 8, 2022.

The Bottom Line:

US sanctions on Russia continue to escalate in response to Russia’s ongoing invasion and occupation of Ukraine.  The March 11 Executive Order includes new prohibitions on the importation of products from certain sectors of the Russian economy and prohibitions on exports of luxury goods and other items and US dollar-denominated banknotes from the United States or by a US person to Russia.  It also establishes the broad legal authority for OFAC to implement prohibitions on new investment in any sector of the Russian economy, which sets the legal framework for a further ratcheting of sanctions by OFAC.  The stated goal of the March 11 Executive Order is to “deny Russia more than $1 billion in export revenues and ensure that US citizens are not underwriting Putin’s war.”³  This action follows on a series of significant US sanctions against Russia and a growing list of sanctions designations.

The Full Story:

The United States continues to announce new economic sanctions against Russia in response to Russia’s war on Ukraine.  On February 21, 2022, the United States responded to Russia’s recognition of break-away regions in Eastern Ukraine with a number of economic sanctions on Russia’s financial sector and regional embargoes on Russia-controlled parts of Ukraine.  Then, on February 24 and 28, OFAC announced more expansive sanctions on Russia in response to Russia’s invasion and occupation of Ukraine.  Finally on March 8, President Biden issued an Executive Order targeting Russia’s energy sector and banning imports of Russian-origin oil, liquified natural gas, and coal into the United States and prohibiting US persons from making new investments in Russia’s energy sector.  In the meantime, OFAC has continued to designate additional Russian individuals and entities as SDNs subject to blocking sanctions. 

Ban on Russian Imports

The March 11 Executive Order expands the Russian Harmful Foreign Activities Sanctions Program to prohibit the importation into the United States of fish, seafood, and preparations thereof; alcoholic beverages; non-industrial diamonds; and any other products of Russian Federation origin as may be designated by the US Department of the Treasury.  To date, the Department of the Treasury has not made any such designation.  OFAC has issued guidance clarifying that “Russian Federation Origin” for the purposes of the March 11 Executive Order means “goods produced, manufactured, extracted, or processed in the Russian Federation, excluding any Russian Federation origin good that has been incorporated or substantially transformed into a foreign-made product.”⁴  OFAC has also issued General License 17 that permits the import of such goods through March 25, 2022, for any contracts or written agreements entered into prior to March 11, 2022.

Prohibitions on Exports of Luxury Goods and US Dollars and Other Items

The March 11 Executive Order also prohibits US persons from exporting, reexporting, selling, or supplying, directly or indirectly, luxury goods, US dollar-denominated banknotes, and any other items as may be designated by the US Department of Commerce, in consultation with the US Department of State and the US Department of the Treasury, to the Russian Government or any person located in Russia.  The Department of Commerce has since issued a rule providing the sanctioned list of US-origin luxury goods, which includes certain spirits, tobacco products, clothing items, jewelry, vehicles, and antique goods.⁵   OFAC has issued General License 18 authorizing certain transactions that are ordinarily incident and necessary to the transfer of US dollar denominated banknotes for “noncommercial, personal remittances” from the United States or a US person to individuals in Russia where such transaction is not otherwise prohibited by blocking or other sanctions.⁶  So long as the transaction is not prohibited, General License 18 authorizes the withdrawal of US currency via ATMs and the hand carrying of US currency.

Potential Further Restrictions on New Investment in Designated Sectors

Effective immediately, the March 11 Executive Order establishes the legal authority for the Department of the Treasury to implement investment restrictions prohibiting new investment in any sector of the Russian economy.  To date, the Department of the Treasury has not designated any sectors of the Russian economy under this new authority.

Prohibition on Financing or Facilitating Sanctioned Activities

Lastly, the March 11 Executive Order prohibits US persons from participating in any approval, financing, facilitation, or guarantee of a transaction by a foreign person where the transaction by that foreign person would be prohibited by the Order if performed by a US person or within the United States.

Additional Designations of Sanctioned Persons

In conjunction with the March 11 Executive Order, OFAC also issued a new round of sanctions designations targeting additional Russian oligarchs, political elites, and national security leaders.⁷  Those designated as SDNs include Dmitriy Sergeevich Peskov, the lead propagandist and spokesperson of the Russian Federation; ten individuals making up VTB Bank’s management board; and twelve members of the Duma, one of two chambers of Russia’s legislature.

Updated OFAC Guidance and FAQs

Simultaneous with the issuance of the March 11 Executive Order, OFAC published eight new FAQs and updated one FAQ.⁸  The new FAQs provide clarification regarding the new prohibitions imposed by the March 11 Executive Order as well as the scope of authorized activities under the new General Licenses issued by OFAC.  

In addition, OFAC issued guidance on an earlier prohibition under Executive Order 14024 and other Russia-related sanctions to virtual currency.  OFAC clarified that US persons are prohibited from engaging in or facilitating prohibited transactions regardless of whether the transaction is denominated in fiat or virtual currency.  This extends to any transaction by a non-US person that would be prohibited if performed by a US person.

US persons doing business, directly or indirectly, with Russia or involving designated sectors of Russia’s economy should consider the mounting sanctions exposure presented by these business lines carefully and take steps to mitigate risk.  Non-US individuals and companies should also be aware of the sanctions regimes, and OFAC’s authority to sanction non-US persons engaged in certain prohibited activities or take enforcement action against non-US persons who cause or conspire to cause a US person to violate US sanctions.  Violations of US sanctions may result in significant civil or criminal penalties as well as reputational harm.

Hunton Andrews Kurth LLP will continue to monitor closely the development of this and other US sanctions matters.  Please contact us if you have any questions or would like further information regarding these new developments or other questions related to US sanctions programs.

¹ Executive Order on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression (Mar. 11, 2022), https://home.treasury.gov/system/files/126/russia_eo_20220311.pdf.

² OFAC Press Release, Issuance of new Russia-related Executive Order and related General Licenses; Publication of new and amended Frequently Asked Questions; Russia-related Designations; North Korea Designations (Mar. 11, 2022), https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220311.

³ White House Statements and Releases, Fact Sheet: United States, European Union, and G7 to Announce Further Economic Costs on Russia (Mar. 11, 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/11/fact-sheet-united-states-european-union-and-g7-to-announce-further-economic-costs-on-russia/.

⁴ OFAC, FAQs #1,019, #1,027.

⁵ US Department of Commerce, Press Release, Commerce Restricts the Export of Luxury Goods to Russia and Belarus and to Russian and Belarusian Oligarchs and Malign Actors in Latest Response to Aggression Against Ukraine (Mar. 11, 2022), https://www.commerce.gov/news/press-releases/2022/03/commerce-restricts-export-luxury-goods-russia-and-belarus-and-russian.

⁶ Russia-Related General License No. 18 (Mar. 11, 2022), https://home.treasury.gov/system/files/126/russia_gl18.pdf.

⁷ OFAC Press Release, Treasury Sanctions Kremlin Elites, Leaders, Oligarchs, and Family for Enabling Putin’s War Against Ukraine (Mar. 11, 2022), https://home.treasury.gov/news/press-releases/jy0650.

⁸ Frequently Asked Questions – Newly Added.