On March 2, 2022, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued two new Russia-related general licenses, reissued two existing general licenses, and published and updated several frequently asked questions (“FAQs”) clarifying various aspects of the Russia-related sanctions imposed over the past weeks. In addition, on March 3, 2022, OFAC issued another new Russia-related general license and designated additional parties to the Specially Designated Nationals and Blocked Persons List (“SDN List”). We summarize these developments below.
New and Revised General Licenses
OFAC issued three new general licenses, as follows:
- General License No. 13 authorizes US Persons to pay taxes, fees, or import duties and to purchase or receive permits, licenses, registrations, or certifications, to the extent such transactions would otherwise be prohibited as involving Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of Russia (the “Directive 4 Entities”) under Directive 4 issued under Executive Order 14024 (“EO 14024”), and provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in Russia. This authorization only extends through 12:01 am ET on June 24, 2022, but does go some way to addressing immediate concerns over various administrative and regulatory fees, taxes, etc. having to be made into accounts in the name of the Central Bank of Russia. Our blog post on Directive 4 is available here.
- General License No. 14 authorizes US Persons to engage in all transactions otherwise prohibited under Directive 4 with a Directive 4 Entity provided the Directive 4 Entity’s s sole function in the transaction is to act as an operator of a clearing and settlement system. The authorization is only valid if (i) there is no transfer of assets to or from a Directive 4 Entity and (ii) no Directive 4 Entity is either a counterparty or a beneficiary to the transaction, in either case unless separately authorized. The general license does not authorize any debit to an account on the books of a US financial institution of any Directive 4 Entity. In order to use this General License 14, companies will need to satisfy themselves that the actual Directive 4 Entity (e.g. the Central Bank of Russia) is acting “solely” as an “operator” of a clearing and settlement system. There is no expiration date for this general license.
- General License No. 15 authorizes all otherwise prohibited transactions with any entity owned 50% or more, directly or indirectly, by Alisher Burhanovich Usmanov (the “Blocked Usamov Entities”), provided that such entities are not themselves identified on the SDN List. This general license was issued on March 3, 2022, the same day that Usmanov was designated as an SDN. The general license provides that all property and interests in property of the Blocked Usmanov Entities are unblocked, and that debits to accounts on the books of a US financial institution of the Blocked Usmanov Entities are authorized. There is no expiration date for this general license.
In addition, OFAC reissued General Licenses 9A and 10A related to EO 14024:
- General License No. 9A amends the former General License 9. It still authorizes all transactions through 12:01 am on May 25, 2022 that are ordinarily incident and necessary to dealings in debt or equity involving (i) State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (i.e., “VEB Bank”); (ii) Otkritie; (iii) Sovcombank; (iv) Sberbank; (v) VTB Bank; or (vi) any entity in which one or more owns 50% or more individually or in the aggregate (collectively “Covered Entities”), provided that any divestment or transfer is to a non-US person, as previously discussed here.
The reissued version of the general license also authorizes all otherwise prohibited transactions that are ordinarily incident and necessary to the receipt of interest, dividend, or maturity payments in connection with debt or equity of the Directive 4 Entities issued before March 1, 2022.
This authorization does not authorize (i) the opening or maintaining of a correspondent account or payable-through account for or on behalf of an entity subject to Directive 2; (ii) any debit to an account on the books of a US financial institution of a Directive 4 Entity; or (iii) any transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations. Our blog post on the correspondent and payable-through account sanctions set out in Directive 2 is available here.
- General License No. 10A amends the former General License 10. It still authorizes all transactions through 12:01 am on May 25, 2022 ordinarily incident and necessary to the wind down of derivative contracts entered into prior to February 24, 2022 involving a Covered Entity, or that are linked to debt or equity of a Covered Entity, provided that any payments to an SDN are made into a blocked account, as previously discussed here.
The reissued version of the general license additionally authorizes all transactions otherwise prohibited by Directive 4 that are ordinarily incident and necessary to the wind down of derivative contracts, repurchase agreements, or reverse repurchase agreements entered into prior to March 1, 2022 that include a Directive 4 Entity as a counterparty.
New and Revised FAQs
The following points in OFAC’s new and revised Russia sanctions FAQs are particularly noteworthy:
- FAQ 1001 clarifies that the “50 Percent Rule” does not apply to Directive 4. For example, entities owned by the Central Bank of Russia are not subject to Directive 4 unless otherwise explicitly named.
- FAQ 1002 clarifies that US Persons may not engage in indirect transactions with Directive 4 Entities unless those transactions are exempt or authorized by OFAC. The FAQ also states that US Persons should be on alert for non-routine foreign exchange transactions that may indirectly involve the Directive 4 Entities, and that they should exercise caution in engaging in foreign exchange transactions on the Moscow Exchange given the current heightened risk that the Central Bank of Russia could be a counterparty.
- FAQ 1004 clarifies that Directive 4 does not “block” the Directive 4 Entities as SDNs, but does require that US Persons reject transactions involving the Directive 4 Entities unless those transactions are exempt or authorized by OFAC.
- FAQ 1005 clarifies that Directive 4 does not prohibit trading in the secondary markets for debt or equity of the Directive 4 Entities, provided that no Directive 4 Entity is a counterparty to such a transaction. It also notes, however, that Directive 1A issued under EO 14024 prohibits US financial institutions from participation in the secondary market for ruble or non-ruble denominated bonds issued after March 1, 2022 by the Directive 4 Entities. Please see our blog post on Directive 1A here.
- FAQ 1009 importantly clarifies that Executive Order 14065 (“EO 14065”) imposing comprehensive sanctions on the Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LNR”) does not sanction the entire Donetsk or Luhansk oblasts. However, the FAQ does not clearly indicate which areas are and are not covered by EO 14065. Please see our blog post on EO 14065 here.
- FAQ 967 was updated to clarify that after the effective date of the Directive 2 correspondent and payable-through account sanctions, US financial institutions’ obligation to reject transactions from targeted non-US financial institutions includes rejecting transactions related to securities (including depository receipts) issued by such institutions, including secondary market trading. The FAQ also clarifies that Directive 2 prohibits US financial institutions from engaging in transactions with targeted non-US financial institutions in connection with their role as a local custodian for depository receipt issuances.
- FAQ 981 was updated to include a warning that, notwithstanding the authorizations set out in General License Nos. 9A and 10A, US Persons should exercise caution in engaging in foreign exchange transactions given the heightened risks that the Central Bank of Russia could be a counterparty to such transactions.
Additional Parties to the SDN List
Finally, OFAC added additional parties to the SDN List, a list of whom is available here, and whom are described in a Treasury Department press release as “Russian elites” and “Russian intelligence-directed disinformation outlets.” As a result of these designations, US Persons are generally prohibited from dealing directly or indirectly with SDNs, entities that are owned 50% or more by one or more SDNs, and their property or property interests. Non-US persons can be held liable for “causing” violations by US Persons involving transactions with SDNs and can also be subject to secondary sanctions risks (which would include, in particular, the risk of designation as an SDN themselves) for providing “material support” to SDNs.
