On August 2, 2019, the US State Department announced targeted sanctions against Russia related to the March 2018 use of a “novichok” nerve agent in an attempt to assassinate UK citizen Sergei Skripal and his daughter Yulia Skripal in the United Kingdom. This was the second round of sanctions required under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the “CBW Act”) following the State Department’s determination on November 6, 2018 that Russia had failed to provide reliable assurances that it would not engage in future chemical weapons attacks. The US Government issued the first round of CBW Act sanctions on August 27, 2018. See our blog post on the first round of CBW Act sanctions here.
Overview of Sanctions
The CBW Act requires the imposition of a second round of at least three out of six potential sanctions if a foreign government that has used chemical or biological weapons in violation of international law or used lethal chemical or biological weapons against its own nationals does not meet certain conditions. Because the Russian Government did not meet those conditions, the State Department imposed three sanctions under the CBW Act. As described in a Fact Sheet issued by the State Department, the new sanctions will take effect following the publication of a Federal Register notice expected on or around August 19, 2019 and will remain in place for a minimum of 12 months. The new sanctions include the following:
- The United States will oppose the extension of any loan or financial or technical assistance to Russia by international financial institutions, such as the World Bank or International Monetary Fund.
- US banks will be prohibited from participating in the primary market for non-ruble denominated Russian sovereign debt and lending non-ruble denominated funds to the Russian government.
- Licenses for exports to Russia of dual-use chemical and biological items controlled by the US Commerce Department will be subject to a “presumption of denial” policy.
These new sanctions were announced a day after the President issued Executive Order 13883 providing the Treasury Department with the authority to implement Sanctions ## 1 and 2 (“EO 13883”). On August 3, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued a Russia-Related Directive implementing Sanction #2.
Sanction #2: Prohibiting Certain Transactions by US Banks
Under the Russia-Related Directive, which will take effect on August 26, 2019, US banks are prohibited from (1) participating in the primary market for non-ruble denominated bonds issued by any ministry, agency, or sovereign fund of the Russian Federation, including the Central Bank of Russia, the National Wealth Fund, and the Ministry of Finance of the Russian Federation (the “Russian Sovereign”) and (2) lending non-ruble denominated funds to the Russian Sovereign.
As explained in related FAQ issued by OFAC, the Russia-Related Directive does not prohibit US banks from participating in the secondary market for Russian sovereign debt. US banks are also not prohibited under the Russia-Related Directive from engaging in transactions with Russian state-owned enterprises.
For purposes of the Russia-Related Directive, “US bank” means any US entity, including its foreign branches, or any entity in the United States, that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, commodity futures, or options, or procuring purchasers and sellers thereof, as principal or agent. “US bank” includes but is not limited to: depository institutions, banks, savings banks, trust companies, securities brokers and dealers, commodity futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, and US holding companies, US affiliates, or US subsidiaries of any of the foregoing. “US bank” also includes branches, offices and agencies of foreign financial institutions that are located in the United States and otherwise meet the definition of “US bank.”
Sanction #3: Export Licensing
The Commerce Department has not yet announced how it will implement this round of CBW Act sanctions. However, the State Department Fact Sheet states that “exceptions to . . . export licensing requirements will continue to be available for U.S. firms fulfilling existing contracts with Russian customers. The following licenses will also continue to be considered for approval on a case-by-case basis:
- Exports needed for space flight activities, including those involving government space cooperation and commercial space launch;
- Exports needed to ensure the safe operation of commercial passenger aviation;
- Exports to commercial end-users in Russia for civil end-uses;
- Exports to wholly-owned subsidiaries of U.S. and other foreign companies in Russia; and
- Deemed export licenses for Russian nationals working in the United States.”
The initial CBW Act sanctions implemented in August 2018 remain in place, including the existing waivers discussed in our prior blog post.