April 06, 2022
Export Controls Alert
OFAC fully sanctions Sberbank and Alfa Bank but grants exceptions, including for energy transactions.
Today, the White House announced additional sanctions against Russia, including:
Sberbank is Russia’s largest financial institution and holds almost one-third of Russian banking assets, and Alfa Bank is Russia’s largest privately owned financial institution. Today the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated both Sberbank and Alfa Bank on the Specially Designated Nationals and Blocked Persons (SDN) List, thereby freezing these institutions’ assets from touching the U.S. financial system. U.S. persons are generally prohibited from transacting with them or being involved in transactions where Sberbank, Alfa Bank, and their designated or 50% or more-owned subsidiaries are in the payment chain. For example, an otherwise legal export by a U.S. person to a non-sanctioned Russian customer of an EAR99 consumer good would generally violate U.S. sanctions if the payment was made from a Sberbank bank account. These SDN designations also have secondary (extraterritorial) sanctions implications for non-U.S. entities and individuals. OFAC’s aggregate 50% rule applies.
OFAC has issued six related general licenses akin to automatic license exceptions if their requirements are fully met. General License 8B pertains to energy transactions, which will be critical for European and other imports of Russian oil and gas where Sberbank is involved in the payment chain. The other general licenses pertain to transactions incident and necessary to dealings in debt or equity (General License 9B), transactions incident and necessary to the wind down of derivative contracts entered into prior to February 24, 2022 (General License 10B), transactions incident and necessary to the wind down of Sberbank CIB USA, Inc. or an entity owned (50% or more) by Sberbank CIB USA, Inc. (General License 21), transactions incident and necessary to the wind down of transactions involving Public Joint Stock Company Sberbank of Russia (Sberbank) or an entity owned (50% or more) by Sberbank (General License 22), and transactions incident and necessary to the wind down of transactions involving Public Joint Stock Company Alfa-bank of Russia (Alfa-bank) or an entity owned (50% or more) by Alfa-bank (General License 23). OFAC did not issue a new general license for transactions involving food, medicine, or medical devices. Presumably, it expects prior General License 6A to apply to those transactions, but we are expecting either confirmation from OFAC on this point or the issuance of an updated general license.
A new executive order signed by President Biden will prohibit new investment in Russia by U.S. persons wherever located. The wording of this new executive order has not yet been published. Its exact scope is, therefore, still unclear. According to the White House, more than 600 multinational private-sector businesses have already exited Russia.
U.S. persons will be prohibited from transacting with these entities, and their assets subject to U.S. jurisdiction will be frozen in an effort to impede the Kremlin’s ability to rely on these entities. Be on the lookout—the Department of Treasury is expected to identify these entities tomorrow by designating them on the SDN List. These SDN designations will also have secondary (extraterritorial) sanctions implications for non-U.S. entities and individuals.
This effectively cuts these individuals off from the U.S. financial system and freezes their U.S.-based assets. Individuals named include President Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and members of Russia’s Security Council, including former President and Prime Minister of Russia Dmitry Medvedev and Prime Minister Mikhail Mishustin.
Payments on Russian sovereign debt are not precluded at this time; however, Russia must use funds outside of U.S. jurisdiction.
The White House has indicated that the U.S. exempts humanitarian and related activities from sanctions and supports U.S. and Western companies’ efforts to ensure the availability of food and agricultural commodities, safeguard access to medicine and medical devices, and enable communications services to provide outside perspectives to the Russian people. However, U.S. and foreign exporters would certainly welcome more clarity on these exemptions through, for example, specific license exemptions under the Export Administration Regulations and an updated (or a replacement for) General License 6A.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.
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