On June 6 and June 9, 2022, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued additional guidance on the sanctions that prohibit U.S. persons from making a “new investment” in Russia and from providing accounting, trust and corporate formation, and management consulting services to any person located in Russia.

Separately, from June 15, 2022, the UK Office of Financial Sanctions Implementation (“OFSI”) gained new powers to impose financial penalties for breaches of UK sanctions regulations (including, but not limited to, the UK sanctions regulations with respect to Russia) on a strict liability basis and to publish reports of cases where it is satisfied that a breach of financial sanctions has occurred but where no penalty is imposed.

This alert summarizes these new sanctions developments.

New U.S. Sanctions Developments

Guidance on the Prohibitions on “New Investment” by U.S. Persons in Russia

On June 6, 2022, OFAC issued guidance in the form of responses to new frequently asked questions (“FAQs”) to clarify certain aspects of the prohibitions on “new investment” in Russia by U.S. persons that were imposed under the following executive orders (“E.O.s”):

  • E.O. 14066, issued on March 8, 2022 (prohibiting new investment by U.S. persons in the energy sector of the Russian Federation, as described in our March 10 alert); 
  • E.O. 14068, issued on March 11, 2022 (prohibiting new investment by U.S. persons in any sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State); and 
  • E.O. 14071, issued on April 6, 2022 (prohibiting “all new investment in the Russian Federation by U.S. persons, wherever located” as well as “any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by E.O. 14071 if performed by a U.S. person or within the United States,” as described in our April 11 alert.


Continue Reading Recent Developments in U.S. and UK Sanctions: OFAC Guidance on “New Investment” and Prohibition on the Provision of Certain Services to Any Person in Russia; UK Sanctions Enforcement Developments

On April 20, 2022, the cybersecurity authorities of the United States, Australia, Canada, New Zealand, and the United Kingdom—the so-called “Five Eye” governments—announced the publication of Alert AA22-110A, a Joint Cybersecurity Advisory (the “Advisory”) warning critical infrastructure organizations throughout the world that the Russian invasion of Ukraine could expose them “to increased malicious cyber activity from Russian state-sponsored cyber actors or Russian-aligned cybercrime groups.”  The Advisory is intended to update a January 2022 Joint Cybersecurity Advisory, which provided an overview of Russian state-sponsored cyber operations and tactics, techniques, and procedures (“TTPs”).

In its announcement, the authorities urged critical infrastructure network defenders in particular “to prepare for and mitigate potential cyber threats by hardening their cyber defenses” as recommended in the Advisory.

Overview.  The Advisory notes that “evolving intelligence” indicates that the Russian government is exploring options for potential cyber attacks and that some cybercrime groups have recently publicly pledged support for the Russian government and threatened to conduct cyber operations on behalf of the Russian government.  The Advisory summarizes TTPs used by five state-sponsored advanced persistent threat (“APT”) groups, two Russian-aligned cyber threat groups, and eight Russian-aligned cybercrime groups.  Additionally, it provides a list of mitigations and suggests that critical infrastructure organizations should implement certain mitigations “immediately.”

Russian State-Sponsored Cyber Operations.  The Advisory notes that Russian state-sponsored cyber actors have “demonstrated capabilities” to compromise networks; maintain long-term, persistent access to networks; exfiltrate sensitive data from information technology (“IT”) and operational technology (“OT”) networks; and disrupt critical industrial control systems (“ICS”) and OT networks by deploying destructive malware.  The Advisory details five Russian APT groups:
Continue Reading International Cybersecurity Authorities Issue Joint Advisory on Russian Cyber Threats to Critical Infrastructure

Russia’s continued invasion of Ukraine is broadly impacting foreign direct investment (“FDI”) screening. A range of governments have announced they will apply close scrutiny to investments from Russia and its allied countries in general, and not only to investors that are subject to sanctions or other restrictive measures. The European Commission (“Commission”) has published guidance on the screening of investments from Russia and Belarus.

The German government has already intervened, appointing a fiduciary for an operator of critical gas infrastructure. Canada issued a policy statement targeting Russian investors and Italy permanently broadened its FDI regime. Our blog provides a summary of these developments below.

Commission Communication calls for systematic assessment of Russian and Belarusian investments

On 6 April 2022, the Commission published a Communication (“Communication”) with guidance on screening of FDI from Russia and Belarus. The Communication emphasizes greater vigilance towards Russian and Belarusian investments into the EU and stresses that FDI screening goes beyond investments by persons or entities that are subject to sanctions. While the Communication is a direct response to the military aggression of Russia against Ukraine, it also elaborates on more general principles of FDI screening in the EU.

The Commission calls upon Member States to systematically assess and prevent threats related to Russian and Belarusian investments. In particular, the Commission encourages Member States to ensure close cooperation both on the national and EU level in relation to FDI screening activities, as well as in the implementation of EU sanctions. The EU FDI Regulation already provides for such cooperation and facilitates information exchange among Member States and the Commission. In particular, Member States may learn about a transaction through the cooperation mechanism and assess FDI filing requirements within their own jurisdiction. As discussed in our blogpost concerning “One Year of the EU FDI Regulation”, Member States have found the cooperation mechanism to be “a very useful instrument” and to have fostered valuable discussions in relation to transaction screening and critical sectors.

But a number of Member States do not have FDI screening regimes in place, including Belgium, Estonia, Greece, Ireland, Luxemburg, the Netherlands, Portugal and Sweden. Where FDI regimes are not yet in place or do not allow for pre-investment screening, the Commission calls to urgently set up a comprehensive FDI screening mechanism and in the meantime to use other suitable legal instruments to address security or public order risks. For those Member States that are in the process of setting up a screening mechanism, the Commission calls on them to accelerate adoption and prepare implementation, including supporting it with appropriate resources.

The Communication notes the potential screening of FDI after the completion of a transaction. While FDI screening is usually undertaken before closing of a transaction, the EU FDI Screening Regulation also allows for the screening of FDI post-closing. If a Member State launches the formal screening of an FDI, it is subject to EU cooperation mechanism irrespective of its planned or completed status. Furthermore, the cooperation mechanism may be initiated within 15 months after the investment has been completed when an investment is not subject to screening at national level. This may occur when the Member State does not have a screening mechanism or when the Member State maintains a screening mechanism but the specific FDI transaction was not submitted by the parties for ex-ante screening.

The Commission reports that based on 2020 data, Russian individuals or entities control about 17,000 EU companies, and have potentially controlling stakes in another 7,000 companies and minority stakes in a further 4,000 companies. The Commission strongly encourages Member States to apply FDI screening to intra-EU investments that are ultimately controlled by Russian or Belarusian persons or entities. In that context, the Communication describes the conditions under which Member States may be permitted to impose restrictions on the free movement of capital and freedom of establishment.
Continue Reading FDI regulators show their teeth – Close scrutiny and firm intervention in response to Russia’s war against Ukraine

Responding to Covid 19 has left many countries’ foreign exchange reserves dangerously low, with countries whose economies relied on tourism particularly badly affected.  The economic rebound as the Western world’s highly-vaccinated populations emerged from lockdowns and began spending, caused supply chain tightness, sparking the beginnings of an inflationary spike.  The Russia-Ukraine crisis has exacerbates that

On March 11, 2022, President Biden announced that the United States, acting in coordination with the European Union (“EU”) and leaders of major economies belonging to the Group of Seven (“G7”), would begin taking steps to revoke most-favored-nation (or “MFN”) trade status for Russia. MFN trade status—known as Permanent Normal Trade Relations (“PNTR”) status in the United States—is a term used to describe the nondiscriminatory treatment granted among most of the world’s trading partners. Days after the President’s address, on March 16, the House passed to formally revoke PNTR for Russia, and also stripping Belarus of MFN treatment. The bill now moves to the Senate, where timing for its consideration is uncertain.

MFN status is a fundamental principle in the international trading system established under the World Trade Organization (“WTO”), and as a general rule, WTO Members are required to accord MFN status to all other WTO Members. Having acceded to the WTO in 2012, Russia is generally entitled to MFN treatment by other WTO Members. In response to Russia’s invasion of Ukraine, however, several other WTO Members have joined the United States, the EU, and the G7 in stating an intent to revoke MFN treatment for Russia, invoking an “essential security” exception that permits WTO-inconsistent measures where a Member considers such measures to be “necessary for the protection of its essential security interests.” Statements issued by the White House and G7 Leaders emphasized the coordinated nature of the initiative across economies, and the intent to continue to pursue additional collective action to deny Russia the benefits of WTO membership.

While certain G7 countries, such as Canada, have already withdrawn Russia’s trade benefits by means of executive action, revocation of Russia’s PNTR status in the United States will require congressional action. While the House has passed a bill to do so, specific timing for consideration of that legislation in the Senate is still unknown. A revocation of Russia’s MFN status will increase tariff rates applicable to certain U.S. imports from Russia, and may also provoke Russia to take responsive, retaliatory actions against international firms. This alert provides background on Russia’s current trade status, analyzes congressional action to date on the issue, and describes the potential international trade implications for U.S. firms of a change in Russia’s trade status.

Background on Russia’s Trade Status

Under the principle of MFN treatment, WTO Members are required to treat imports of goods and services from any WTO Member as favorably as they treat the imports of like goods and services from any other WTO Member. In practice, this means that MFN treatment is the basic “non-discriminatory” treatment to which all WTO Members are generally entitled. Russia has been accorded MFN treatment by most major economies since it became a WTO Member in August 2012.
Continue Reading Revocation of Russia’s Most-Favored-Nation Trade Status: What Companies Need to Know

This alert provides a further update on the rapidly evolving sanctions landscape with regard to the Ukraine crisis, further to our alerts on February 22 and February 25. On 25 February 2022, the European Union adopted an additional package of targeted and sectoral sanctions against Russia in response to its military actions in Ukraine. Those measures, which were announced earlier last week, include a range of new asset-freezing designations, financial sector restrictions, export controls, and other measures. The UK has also announced further economic sanctions against Russian individuals.

According to a joint statement issued by Canada, France, Germany, Italy, the UK, the U.S., and the European Commission on 26 February, further economic sanctions yet will be introduced in the coming days. Those measures will include the removal of selected Russian banks from the SWIFT messaging system using to facilitate global financial transactions.

New EU Targeted and Sectoral Sanctions

Additional Asset-freezing Designations

Council Implementing Regulation (EU) 2022/332 adds 98 people to the EU asset-freezing list. The list notably includes the Russian President Vladimir Putin and the Minister of Foreign Affairs Sergey Lavrov, as well as other members of the Russian National Security Council. Sanctions will also be extended to the remaining members of the Russian State Duma, who ratified the government decision of the Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the two Ukrainian non-government controlled regions of the Donetsk and Luhansk oblasts. The Regulation also targets individuals who facilitated the Russian military action from Belarus.

New EU Sectoral Sanctions

The most far-reaching measures are introduced in Council Regulation (EU) 2022/328 (the “Regulation”). The Regulation amends Regulation (EU) 833/2014, first issued in August 2014, which set out the EU’s existing Russia sectoral sanctions regime, and introduces new measures targeting various sectors of the Russian economy.

As with regard to the original version of Regulation 833/2014, the restrictions summarized below extend to the worldwide conduct of EU persons and entities, conduct aboard EU-flagged vessels and aircraft, and to non-EU parties with regard to business occurring in whole or in part within the EU.

The Regulation introduces the following new export and related services restrictions:

  • Restrictions on exports of dual-use goods and technology: The Regulation replaces the pre-existing prohibition on exports of dual-use goods and technology under Council Regulation 833/2014. The pre-existing prohibition was limited to the export of dual-use goods and technology that were intended for military use or for a military end-user; the amended Regulation expands that prohibition to restrict the export of dual-use goods and technology and the provision of related services to persons in Russia regardless of the intended end-use or end user.

While exports of dual-use items always required licensing for Russia pursuant to the EU Dual Use Regulation, these new restrictions expand on those measures in important ways. In particular, as the jurisdictional scope of the Regulation extends to the conduct abroad of EU persons and entities, dual-use export controls on Russia are no longer limited to exports from the EU – the Regulation’s dual-use controls could apply with regard to actions by EU persons and entities in connection with the sale, supply, or transfer of dual-use items to Russia from anywhere in the world.
Continue Reading EU and UK Adopt Additional Sanctions Against Russia, with Further International Sanctions Measures Announced

During the past two weeks, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) and the U.S. Department of State have taken a number of steps toward implementing aspects of the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), a major piece of sanctions legislation passed by the U.S. Congress in July and signed by President Trump in early August. These steps are in addition to those described in our client alert last month.

Specifically, as called for by CAATSA, OFAC on October 31 issued a revised Russia sectoral sanctions Directive 4 that expands the restrictions on U.S. person support for certain unconventional oil projects to reach new such projects being undertaken anywhere in the world where a sectorally sanctioned Russian energy company has a majority voting or 33 percent or greater ownership interest in the project. OFAC also issued related guidance on this expanded sanction. In addition, OFAC issued guidance on the application of secondary sanctions to foreign financial institutions and on the implementation of other measures in CAATSA.

Also with respect to CAATSA, the U.S. Department of State has issued guidance on the imposition of secondary sanctions relating to Russia’s energy export pipelines, investments in special Russian crude oil projects, and a CAATSA provision that requires the President to sanction persons who knowingly engage in significant transactions with parties affiliated with Russia’s defense and intelligence sectors.

With respect to Iran, OFAC issued amended regulations on October 31 implementing CAATSA’s requirement to impose terrorism-related sanctions with respect to officials, agents, or affiliates of Iran’s Islamic Revolutionary Guard Corps (“IRGC”).

Primary Sectoral Sanctions Targeting Russia’s Energy Sector

Since September 12, 2014, OFAC Directive 4 has prohibited U.S. persons from providing goods, services (except for financial services), or technology in support of exploration or production from deepwater, Arctic offshore, or shale projects that have the potential to produce oil in Russia or its territorial waters and that involve a sectorally sanctioned Russian energy company or an entity owned 50 percent or more, directly or indirectly, individually or in the aggregate, by one or more such companies. “U.S. persons” are legal entities organized under U.S. law and their non-U.S. branches; individual U.S. citizens and lawful permanent residents (“green-card” holders), wherever located or employed; and any persons when physically present in the United States.

Continue Reading Russia and Iran Sanctions: Recent Developments