Expanding the grounds for secondary sanctions
On 22 December 2023, the US President expanded the grounds for imposing sanctions under Executive Order 14024 of 15 April 2021 (“The US had not previously imposed secondary sanctions on FFIs for such transactions, but in practice, the risk of sanctions adversely impacted cross-border payments involving Russian entities.
On 12 June 2024, the US Department of the Treasury broadened the definition of the Russian MIB to include all entities designated under
US sanctions that can 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 US; or
- the blocking of all assets and banning of any transactions with such assets.
Restrictions on IT services
Pursuant to Executive Order 14071 of 6 April 2022, the OFAC published a determination (“Determination”) prohibiting US personsUS sanctions apply to:- US nationals or legal permanent residents, regardless of their location;
- Legal entities registered under the laws of the US or any jurisdiction within the US (including their branches and representative offices outside the US);
- Any persons located in the US (jointly, “US Persons”).
- information technology (“IT”) consultancy and design services;
- IT support services and cloud-based services for the following categories of softward: (i) enterprise management software and (ii) design and manufacturing software.
- to entities located in the Russian Federation that are owned or controlled, directly or indirectly, by a US Person;
- in connection with the wind down or divestiture of entities located in the Russian Federation that are not owned or controlled, directly or indirectly, by Russian persons; and
- subject to the Export Administration Regulations and for which the exportation, re-exportation, or transfer to the Russian Federation of such software is authorized by the US Department of Commerce.
In the light of these restrictions, the OFAC has also:
- updated its list of FAQs to clarify, among other things, the substance of the prohibited services and the meaning of terms employed in the Determination. The OFAC has also explained that such IT services may be provided to entities located outside of the Russian Federation that are owned or controlled by Russian entities, provided that the provision of services is not an indirect export to Russian persons;
- issued General Licence 25D (see below).
New blocking sanctions
The US has also imposed new blocking sanctions on more than 300 Russian and foreign entities listed in the OFAC press release.
The SDN list has been expanded to include, inter alia:
- financial institutions: the Moscow Exchange (“МOEX”), the National Clearing Centre (“NCC”), the National Settlement Depository (“NSD”) and Tochka Bank;
- insurance companies: SOGAZ and the Russian National Reinsurance Company;
- over 100 legal entities operating in the defence and related sectors of the Russian economy;
- a number of companies involved in the extraction, processing and liquefaction of natural gas as well as the design and construction of relevant facilities, including RusGazDobycha, Arctic LNG 1 and Arctic LNG 3;
- foreign natural and legal persons from Bulgaria, Kazakhstan, Kyrgyzstan, China, Serbia, Turkey, South Africa, the UAE and other countries for their involvement in evading US sanctions against Russia.
US blocking sanctions have the following consequences:
- all US-based property of SDNs held in the possession or under the control of US Persons shall be blocked; and
- US Persons are prohibited from engaging in any transactions with SDNs and providing to them or receiving from them any benefits.
Consequences of blocking sanctions against MOEX, NCC and NSD
In addition to the consequences above, the inclusion of MOEX, NCC and NSD in the SDN List means that:- they will be unable to make settlements and conduct operations in USD. In particular, trade in USD on MOEX has become impossible due to the new sanctions, as has already been officially announced;
- payments in USD made by or to these entities will be blocked by US correspondent banks; and
- securities and payments under them in any currency held through US brokers and depositories will be blocked if the chain of holding includes NSD.
Although the US sanctions against the NSD will likely not affect the issuance of individual licences by the Belgian Treasury and the Luxembourg Ministry of Finance, they will make the enforcement of the licences more difficult for applicants.
Thus, General Licence 99 issued by the OFAC authorises all transactions required to wind down legal relations with NSDs until 13 August 2024. After that date, if the General Licence is not extended:
- it will be possible to withdraw unblocked USD funds from Euroclear and Clearstream only if a licence is obtained from the OFAC, since USD operations involve US correspondent banks that must comply with US sanctions; and
- in addition, in practice, Euroclear and Clearstream generally comply with US sanctions regime in their business activity. They may thus require clarifications or a licence from the OFAC, in addition to a licence from a national regulator, to release unblocked assets held through NSD.
General Licences
The OFAC has issued six General Licences authorising certain transactions under new sanctions restrictions:- General Licence 6D authorises all transactions related to (i) the production, manufacturing, sale, transport, or provision of agricultural commodities, agricultural equipment, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices, (ii) the prevention, diagnosis or treatment of COVID-19 (including research or clinical studies relating to COVID-19) and (iii) clinical trials and other forms of medical research activities.
- General Licence 8J authorises, until 1 November 2024, transactions that are related to energy“Related to energy” means the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources. involving VEB.RF, Sovcombank, Otkrytie Bank, Sberbank, VTB, Alpha Bank, Rosbank, Zenit Bank, Bank Saint Petersburg, the NCC and their subsidiaries (50% or more) as well as the Russian Central Bank.
- General Licence 25D authorises (i) all transactions incident and necessary to the receipt or transmission of telecommunications involving the Russian Federation, (ii) provision of services incident to the exchange of communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, blogging, social media platforms, collaboration platforms, video conferencing,
e-gaming ,e-learning platforms , automated translation, web maps, user authentication services, web hosting, and domain name registration services, and (iii) the export of software, hardware and technology incident to the exchange of communications over the internet. - General Licence 98 authorises, until 27 July 2024, all transactions necessary to wind down legal relations with entities included in the SDN list on 12 June 2024 and their subsidiaries (50% or more), provided that any payment to them is made into a blocked account.
- General Licence 99 authorises, until 13 August 2024, all transactions necessary (i) to the wind down of legal relations with MOEX, NCC, NSD and their subsidiaries (50% or more), provided that any payment to them is made into a blocked account, (ii) to the divestment or transfer, or the facilitation of the divestment or transfer, of debt or equity issued or guaranteed by these entities (“Covered Debt and Equity”) to a
non-U.S. Person , (iii) facilitating, clearing, and settling trades of Covered Debt or Equity that were placed prior to 12 June 2024, and (iv) to the wind down of derivative contracts entered into prior to 12 June 2024 and involving these entities or Covered Debt and Equity, provided that any payment to these entities is made into a blocked account. - General Licence 100 authorises, until 13 August 2024, all transactions that are ordinarily incident and necessary to the divestment of debt or equity to a
non-U.S. Person , who is not a person whose property or interests in property are blocked, or the conversion of currencies, involving MOEX, NCC, NSD or their subsidiaries (50% or more), acting solely as a securities, trade, or settlement depository, central counterparty or clearing house, or public trading market.
