Biden administration announces historic sanctions on Russia’s financial sector and state-owned companies – International law

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The Biden administration announces historic sanctions against Russia’s financial sector and state-owned companies

April 12, 2022

Buchanan Ingersoll & RooneyPC

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On Wednesday, April 6, 2022, the Biden administration announced its toughest and most far-reaching economic sanctions yet against Russia, banning new investments in the country and cutting off its largest banks and state-owned companies from world financial markets. According to the White House, these efforts, combined with sanctions against Russia by over 30 US partners and allies around the world, are expected to shrink Russia’s GDP by as much as 15%. With more than 600 private companies exiting the Russian market and US exports to Russia of items subject to new export controls down 99% in value, Russia’s economic and financial isolation from the world market is likely to continue for the foreseeable future.

In addition to the crippling economic impact on the Russian economy, the new restrictions on Russia’s economic and financial sectors impose increased compliance responsibilities on US companies and individuals who continue to do business with or in Russia. To help businesses and their leaders comply with escalating sanctions and economic measures against Russia, we have provided a summary of the April 6, 2022 White House announcement below.

Full lockdown sanctions against Sberbank and Alfa Bank

The White House tightened sanctions imposed on certain Russian financial institutions, announcing full lockdown sanctions on Sberbank and Alfa Bank, Russia’s largest financial institution and private bank respectively, following earlier lockdown sanctions on Bank Otkritie, Sovcombank OJSC and Novikombank. Blocking sanctions freeze the assets of these institutions that touch US financial systems and prohibit US companies and individuals from doing business with these organizations. Given the size of these institutions and their place in the Russian financial system, these measures will undoubtedly have a devastating impact on the Russian economy.

It is the responsibility of any U.S. company or organization doing business with or making payments through Russian financial institutions to be aware of the current OFAC sanctions and bans in relation to Russian financial institutions and their potential impact on the eligibility of payments to and or of people who use them to inform the same.

Full lockdown measures against Russian state-owned companies

Building on the sanctions against Russian financial institutions, the Biden administration also announced full lockdown sanctions against certain critical Russian state-owned companies, barring US persons from doing business with those companies and freezing any of their assets subject to US jurisdiction. On Thursday, April 7th, the US Treasury Department announced its preliminary list of Russian state-owned companies subject to full lockdown sanctions, which includes:
Public limited company Alrosathe world’s largest diamond mining company, and United Shipbuilding Societya major Russian shipbuilding company responsible for the design and construction of the Russian Navy’s warships.

Full lockdown measures against Russian elites and their families

In addition to the growing list of Russian oligarchs currently subject to US sanctions, the White House announced full lockdown sanctions against certain Russian elites, including: President Putin’s adult children, Foreign Minister Lavrov’s wife and daughter, and members of the Russian Security Council , including former President and Prime Minister Dmitry Medvedev and Prime Minister Mikhail Mishustin. With these sanctions, the identified individuals have effectively been cut off from the US financial system and all assets they hold in the United States have been frozen.

New investments in the Russian Federation are prohibited

In addition to lockdown sanctions against Russian financial institutions, state-owned companies and individuals, President Biden on Wednesday signed an executive order (EO) banning new investment in and certain services to the Russian Federation in response to the Russian Federation’s ongoing aggression. This EO prohibits: (1) new investments in the Russian Federation by US persons, wherever located; (2) direct or indirect export, re-export, sale or supply of certain categories of services to persons resident in the Russian Federation; and (3) the approval, financing, facilitation or guarantee of any transaction by a foreign party by a US person that would be prohibited by the EO.

Russian debt payments are subject to US jurisdiction

While US sanctions do not currently bar payments on Russian government debt, the US Treasury Department has banned Russia from making debt payments using funds subject to US jurisdiction.

As the White House and the world continue to increase the scope and severity of sanctions and economic bans and measures against Russia as a result of its invasion of Ukraine, the Biden administration reiterated its support for certain exceptions related to essential humanitarian assistance. These humanitarian measures include: ensuring the availability of basic agricultural goods, securing access to medicines and medical equipment, and enabling telecommunications to support the flow of information to the Russian people. These specific activities are not the target of US efforts against Russia and, where appropriate, relevant US agencies and/or departments will issue waivers to ensure such activities can continue.

The content of this article is intended to provide a general guide to the topic. Professional advice should be sought in relation to your specific circumstances.

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