In recent weeks, the US Government has imposed a series of additional sanctions against Russia consisting of additional measures focused on the energy pipeline sector, as well as further measures in response to the alleged poisoning of Alexy Navalny. This latest escalation of sanctions against Russia builds upon the April 2021 sanctions imposed pursuant to Executive Order 14024, “Blocking Property With Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation.” Please see our previous blog regarding Executive Order 14024 here.
Russian Pipeline Projects Sanctions
On August 20, 2021, President Biden signed Executive Order 14039 “Blocking Property with Respect to Certain Russian Energy Export Pipelines” (“August 20 EO“), adding further sanctions against Russia under the Protecting Europe’s Energy Security Act of 2019, as amended (“PEESA”). Concurrently, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) blocked additional Russian parties and issued General License 1A to authorize certain transactions otherwise prohibited under the August 20 EO or PEESA, issued a new FAQ 921, and updated FAQ 894.
As a recap, PEESA, among other things, requires the imposition of sanctions with respect to the provision of vessels engaged in specified activities for the construction of certain Russian energy export pipelines, including the Nord Stream 2 pipeline project, the TurkStream pipeline project, or any project that is a successor to either project, and on foreign persons that engage in certain activities in support of such projects. The August 20 EO blocks property of persons identified by the Secretary of State, in consultation with the Secretary of the Treasury, in a report to the Congress pursuant to PEESA. The latest report lists one Russian vessel and two Russian persons involved in the Nord Stream 2 pipeline, and they are now sanctioned under PEESA. The only exception is for those parties covered by national security waivers under PEESA Section 7503(f), i.e., the other PEESA exceptions for the import of goods, for repairs or maintenance, or crew safety and security, etc. do not apply.
OFAC also designated these and certain additional parties as Specially Designated Nationals (“SDNs”). This brings to a total of 2 vessels sanctioned only under PEESA and subject to menu-based sanctions (with an exception for imports into the United States) and a total of 21 persons/vessels subject to full SDN blocking under the August 20 EO. Please see the OFAC press release for the full list of vessels and other parties, including the Federal State Budgetary Institution Marine Rescue Service (“MRS”), added to the OFAC Specially Designated Nationals and Blocked Persons List (“SDN List”) under the August 20 EO.
All property and interests in property of persons designated pursuant to the August 20 EO that are or come within the United States or the possession or control of US persons are blocked, and US persons are generally prohibited from engaging in transactions with them. Additionally, entities owned 50 percent or more, individually or in the aggregate, directly or indirectly, by one or more blocked persons are also blocked. See FAQ 921 for further information regarding the August 20 EO.
GL 1A, which replaces and supersedes the previous General License 1, generally authorizes certain transactions that are otherwise prohibited under the August 20 EO or PEESA. More specifically, GL 1A allows US persons to engage with the MRS, or any entity owned 50 percent or more by MRS, that are not related to the construction of Nord Stream 2 pipeline project, the TurkStream pipeline project, or any project that is a successor to either pipeline project. GL 1A does not authorize any transactions or activities with any vessels identified on the SDN List as blocked property of MRS, including vessels identified as blocked property of any entity in which MRS owns, directly or indirectly, a 50 percent or greater interest. Updated FAQ 894 offers further clarification on the scope of GL 1A.
New Russian Chemical Weapons Programs Sanctions
Also on August 20, 2021, OFAC imposed additional sanctions on nine Russian individuals and two Russian entities allegedly involved in the poisoning of Aleksey Navalny or in Russia’s chemical weapons program pursuant to Executive Order 13382 of June 28, 2005, a counter-proliferation authority.
In parallel, the US State Department separately sanctioned two Russian Ministry of Defense scientific laboratories determined to have engaged in chemical weapons research and testing activities pursuant to Executive Order 14024 of April 15, 2021, for operating in the defense and related material sector of Russia. Both of these scientific laboratories were already sanctioned by the State Department pursuant to Executive Order 13382.
In addition, the State Department issued a second round of sanctions against Russia over its alleged use of a Novichok nerve agent against its own nationals in August 2020. These sanctions were required under the US Chemical and Biological Control and Warfare Elimination Act of 1991 (“CBW Act”) absent a determination that Russia had met certain conditions under the CBW Act since the earlier round announced in March 2021. The new sanctions include:
- Additional export restrictions on nuclear and missile-related goods and technology pursuant to the Export Control Reform Act of 2018. The previous round of CBW Act sanctions imposed in March 2021 only restricted exports to Russia of items controlled for National Security (NS) reasons. While the State Department’s release focuses on “nuclear and missile-related” items, the associated Federal Register notice suggests a broader scope by reference to prohibiting exports to Russia under Section 6 of ECRA of “all other goods and technology (excluding food and other agricultural commodities and products).” However, consistent with the focus on “nuclear and missile-related” items, this is in fact subject to several waivers continued from the March 2021 round of sanctions (including continued License Exceptions GOV, ENC, BAG, TMP and AVS eligibility, deemed export licensing, etc.) and does not impose new licensing requirements, but only sets forth new licensing policies.
- Restrictions on permanent imports of certain Russian firearms. New and pending permit applications for the permanent importation of firearms and ammunition manufactured or located in Russia will be subject to a policy of denial.
- Prohibition on US bank ruble loans or credit to the Russian Government. US banks are to be prohibited from making any loan or providing credit to the Government of the Russian Federation, except for purposes of purchasing food or other agricultural commodities or products. A waiver limits this ban to participation in new ruble denominated bonds/loans. (This is also separate from OFAC Directive 1 issued in April 2021 under EO 14024 generally prohibiting US financial institutions from (1) participating in the primary market for ruble or non-ruble denominated bonds issued by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, and (2) lending ruble or non-ruble denominated funds to these three entities. )
The sanctions were formally imposed on September 7, 2021 and will be in place for a minimum of one year. For more information regarding these new restrictions under the CBW Act, please see the State Department’s fact sheet here. For more details regarding the CBW Act, including its restrictions and waivers, please see our most recent blogs on the CBW Act here and here.
The authors acknowledge the assistance of Ryan Orange on this blog post.