Expanding the grounds for sanctions
The US President signed a new Executive Order (“E.O. of 22 December”) amending Executive Order 14024 of 15 April 2021 (“E.O. 14024”), which is the key basis for imposing sanctions under the Russia sanctions programme.The E.O. of 22 December expands the criteria for imposing sanctions under E.O. 14024. The US Department of the Treasury/US Department of State may now impose sanctions on foreign financial institutionsThe term “foreign financial institution” means any foreign entity that is engaged in the business of accepting deposits; making, granting, transferring, holding, or brokering loans or credits; purchasing or selling foreign exchange, securities, futures or options; or procuring purchasers and sellers thereof, as principal or agent. It includes depository institutions; banks; savings banks; money services businesses; operators of credit card systems; trust companies; insurance companies; securities brokers and dealers; futures and options brokers and dealers; forward contract and foreign exchange merchants; securities and commodities exchanges; clearing corporations; investment companies; employee benefit plans; dealers in precious metals, stones, or jewels etc. (“FFIs”) that conduct or facilitate significant transactions:
- with designated persons operating in the technology, defence, construction, aerospace and manufacturing sectors of the Russian Federation economy; and
- related to the military-industrial base of the Russian Federation, including the sale, supply or transfer, directly or indirectly, of the specified items to the Russian Federation.
According to the US Department of the Treasury press release, the term “FFIs” means, first of all, financial institutions from third countries (primarily “friendly” countries) that conduct the abovementioned transactions. In our experience, financial institutions from friendly countries often comply with the sanctions voluntarily (as part of their sanctions compliance programmes).
The restrictions that may be imposed on FFIs include:
- the prohibition to open, or the imposition of strict conditions on the maintenance of, correspondent accounts or payable-through accounts in the United States; or
- the blocking of all assets and banning of any transactions with such assets.
Although the E.O. of 22 December does not contain a definition of the term “significant transaction”, according to OFAC’s new clarification, the following non-exhaustive factors (which have also been previously used in practice) may be taken into consideration in determining the “significance” of a transaction:
- the size, number and frequency of the transaction(s);
- the nature of the transaction(s);
- the level of awareness of the company’s management and whether the transactions are part of a pattern of the company’s conduct;
- the nexus of the transaction(s) to the sanctioned person;
- whether the transaction(s) involve deceptive practices;
- the impact of the transaction(s) on US national security objectives; and
- such other factors that OFAC deems relevant on a case-by-case basis.
Therefore, the list of risk factors is not exhaustive and the US authorities have broad discretion to impose sanctions.
OFAC notes, however, that FFIs can be sanctioned even if they engage in transactions in non-USD currencies.
New importation restrictions
The E.O. of 22 December also amends E.O. 14068 of 11 March 2022, which provides for import and export restrictions on Russia.The new importation restrictions provide for the prohibition of the importation into the United States of the following products of Russian Federation origin:
- non-industrial diamonds;
- fish;
- seafood; and
- alcoholic beverages.
The prohibition applies to any goods that were mined, extracted, produced, or manufactured wholly or in part in the Russian Federation, or harvested in waters under the jurisdiction of the Russian Federation or by Russia-flagged vessels.
Furthermore, OFAC is authorised to impose a prohibition on the importation into the United States of any other goods of Russian Federation origin not covered by the E.O. of 22 December.
Specifically, according to OFAC’s Determinations of 22 December 2023:
- fish and seafood prohibited for importation include salmon, cod, pollock and crab; and
- import restrictions also apply to gold of Russian Federation origin.
General Licenses
OFAC has issued three General Licences authorising certain transactions in connection with the new restrictions:- General License No. 83 authorises, until 21 February 2024, all transactions necessary to import seafood derivative products into the United States pursuant to contracts entered into before 22 December 2023;
- General License No. 84 authorises US financial institutions, during the 10-day period beginning on the effective date of the imposition of the prohibition on the particular FFI from maintaining correspondent accounts or payable-through accounts: (1) to process only those transactions that are necessary for closing the account; and (2) to transfer the funds remaining in the correspondent account or the payable-through account to an account of the FFI outside of the United States and close such account.
- General Licence No. 85 authorises, until 21 March 2024, all transactions necessary for the winding down of any transaction involving Expobank JSC or its subsidiaries, provided that any payment to the bank is made into a blocked account. The General Licence also authorises transactions necessary to close, and transfer funds from, the accounts of non-sanctioned customers of Expobank JSC.
