New US Executive Order offers wide-ranging Russia sanctions powers

President Biden has issued a wide-ranging Executive Order targeting persons (individuals and entities) deemed by the US to be involved in malign activities against the US directed by the Russian government, including interference with the US Presidential election.

The new Executive Order, issued on April 15th, is called “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation”. It provides legal authority to impose sanctions on individuals and entities, corresponding with new prohibitions on:

  • certain dealings in Russian sovereign debt;
  • technology companies that support the Russian Intelligence Services’ efforts to carry out malicious cyber activities against the US.

Under the EO, sanctions may be imposed against persons that “…operate or have operated in the technology sector or the defence and related materiel sector of the Russian Federation economy”.

Steamship Mutual observed that “these sectors are not currently defined in the EO or related guidance, so the scope of the sanctions remains unclear at the present time. The same section also includes authority to target for future sanctions “any other sector of the Russian Federation economy”.

Six Russian technology companies have been added to the SDN List. They are:

  • ERA Technopolis;
  • Pasit, AO (Pasit);
  • Federal State Autonomous Scientific Establishment Scientific Research Institute Specialized Security Computing Devices and Automation (SVA);
  • Neobit, OOO (Neobit);
  • Advanced System Technology, AO (AST);
  • Pozitiv Teknolodzhiz, AO (Positive Technologies).

In tandem with the issuance of the EO a directive was released, aimed at Russia’s Central Bank, National Wealth Fund and Ministry of Finance.

US financial institutions as defined in the directive are prohibited from:

  • taking part in the primary market for ruble or non-ruble denominated bonds issued after 14 June 2021 by Russia’s Central Bank, National Wealth Fund and Ministry of Finance; and
  • lending ruble or non-ruble denominated funds to those same entities.

Impact of Sanctions

Steamship warned members that these new sanctions placed certain obligations and restrictions on US persons. Specifically, US persons must block and report to OFAC all property and interests in property of the persons designated under the EO that are in the US or in the possession or control of US persons.

This extends to any entities that are owned, directly or indirectly, 50% or more by one or more of the blocked persons.

Steamship said that, notwithstanding the primary nature of these new sanctions, there would likely be increased scrutiny of transactions involving the Russian Government by non-US persons, such as banks, which generally aim to comply with US sanctions as if they were US persons.