On April 15, 2021, the Biden administration issued a new executive order (the New EO) creating broad authority to impose blocking sanctions against a wide range of individuals and entities determined to be engaged in “harmful foreign activities” of the Russian Federation.[1]  In parallel with and under the authority of the New EO, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) issued a new directive (Directive 1) prohibiting U.S. financial institutions from participating in the primary market for ruble-denominated sovereign debt or from otherwise lending funds to the Russian Federation, effective June 14, 2021.[2]  (Non-ruble Russian sovereign debt and funding have been prohibited under an existing 2019 ban, described in our previous post and below.)  As part of “a new U.S. campaign against Russian malign behavior” under the New EO and existing authorities, OFAC also designated over 40 individuals and entities alleged to have attempted to influence the 2020 U.S. presidential election or to be operating in the Crimea region.[3]

Ruble-Denominated Funding

Existing sanctions under the Chemical and Biological Weapons and Warfare Elimination Act of 1991 prohibit U.S. financial institutions from participating in primary issuances of non-ruble Russian sovereign debt or lending non-ruble denominated funds to certain entities of the Russian Federation (CBW Act Directive).[4]  Directive 1 effectively extends the CBW Act Directive’s restrictions on U.S. financial institutions to include ruble-denominated bonds issued by, and funds lent to, the Central Bank, National Wealth Fund, or Ministry of Finance of the Russian Federation.  Under prior guidance, “participating in the primary market” includes acting as a bookrunner or purchasing directly from a bookrunner, and “lending” is defined as cash lending.  Trading in the secondary market is not affected.  As with the CBW Act Directive, the prohibitions in Directive 1 do not cover state-owned enterprises, and entities 50% or more owned by the listed governmental entities are not automatically subject to the restrictions.[5]

Also consistent with the CBW Act Directive, “U.S. financial institution” is defined broadly to include U.S. entities (including their foreign branches), that are “depository institutions, banks, savings banks, trust companies, securities brokers and dealers, futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, and U.S. holding companies, U.S. affiliates, or U.S. subsidiaries of any of the foregoing.”  Directive 1 does not apply to non-U.S. financial institutions, except with respect to their branches, offices, or agencies located in the United States.

New Blocking Sanctions

The New EO creates a blocking regime authorizing the Secretaries of the Treasury or State, in consultation with the other, to impose—but not automatically imposing—blocking sanctions against:

  • individuals and entities operating in the technology sector or the defense and defense-related sector of the Russian Federation, or any other sector of the Russian economy as may be identified at a later date;
  • subdivisions, agencies, and instrumentalities of the Russian Government;
  • individuals and entities that are Russian citizens, nationals, or residents providing financial, material, or technological support or other assistance to governments blocked by U.S. sanctions (Cuba, Iran, North Korea, Syria, and Venezuela); and
  • individuals and entities that are Russian citizens or nationals disrupting gas or energy supplies to Europe, the Caucasus, or Asia.

The New EO also authorizes the imposition of blocking sanctions against individuals or entities determined, in consultation with the Attorney General, to have engaged in any of a wide range of activities, including:

  • cyberattacks;
  • election interference;
  • transnational corruption;
  • assassination, murder, or other attacks on citizens of the United States or its allies;
  • undermining the peace and security of the United States, its allies, or its partners; or
  • deceptive transactions designed to evade U.S. sanctions.

Blocking sanctions are also authorized against officials of the Russian Federation or of any entity engaged in the foregoing activities, as well as spouses and adult children of any of the foregoing individuals.

[1] See “Executive Order on Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation” (April 15, 2021), available at https://home.treasury.gov/system/files/126/russian_harmful_for_act_eo.pdf.

[2] See OFAC, “Directive 1 Under Executive Order of April 15, 2021 Blocking Property with respect to Specified Harmful Foreign Activities of the Government of the Russian Federation” (April 15, 2021), available at https://home.treasury.gov/system/files/126/sovereign_debt_prohibition_directive_1.pdf.

[3] See OFAC, “Issuance of Executive Order Blocking Property With Respect To Specified Harmful Foreign Activities Of The Government Of The Russian Federation and related Frequently Asked Questions; Russia-related Designations” (April 15, 2021), available at https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20210415.

[4] 22 USC. § 5601 et seq.; 84 Fed. Reg. 48704 (Sept. 16, 2019).

[5] See OFAC, FAQ #891 (April 15, 2021), available at https://home.treasury.gov/policy-issues/financial-sanctions/faqs/891.