The U.S. Government has announced additional measures to counter Russia’s war against Ukraine. On May 8, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) blocked certain Russian financial executives, state-controlled television stations, and a weapons manufacturer, and as of June 7, 2022 will prohibit U.S. persons from providing most accounting, trust and corporate formation, and management consulting services to or in Russia, subject to certain exemptions and authorizations. On May 11, 2022, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced additional export control restrictions on products vital to Russia’s industrial sector.
1. New Specially Designated National (SDN) Designations
OFAC added to its Specially Designated Nationals and Blocked Persons (SDN) List a number of individuals and entities critical to Russia’s ability to wage war against Ukraine, including:
- Eight current and recent members of the Executive Board of Sberbank (itself an SDN);
- 27 members of the Board of Directors of Gazprombank;
- Joint Stock Company Moscow Industrial Bank (MIB), a Russian state-owned bank, and 10 MIB subsidiaries;
- Limited Liability Company Promtekhnologiya, a state-supported weapons manufacturer; and
- Three of Russia’s top state-owned television stations: Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company. (OFAC concurrently issued General License No. 33, authorizing the wind down of operations, contracts, or other agreements involving these stations, through 12:01 a.m. EDT, June 7, 2022.)
As a result, U.S. persons generally are prohibited from directly or indirectly engaging in any transaction or dealing involving any of the named individuals or entities or their property or property interests and must block and report to OFAC any such property and property interests within their possession or control. This also applies to any entity, whether or not listed as an SDN, that is directly or indirectly owned 50% or more by one or more SDNs.
2. Prohibition on the Provision of Accounting, Trust and Corporate Formation, and Management Consulting Services to Russia; and Future SDN Designations in These Sectors
OFAC issued a determination pursuant to Executive Order 14071 prohibiting the export, reexport, sale, or supply, directly or indirectly, from the United States, or by a U.S. person, wherever located, of accounting, trust and corporate formation, and management consulting services to any person located in Russia. This prohibition will take effect June 7, 2022.
- “Accounting services” includes services related to the measurement, processing, and transfer of financial data about economic entities.
- “Trust and corporate formation services” includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts.
- “Management consulting services” includes services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.
This prohibition will not apply to services (1) to an entity located in Russia that is owned or controlled, directly or indirectly, by a U.S. person; or (2) for the wind down or divestiture of an entity located in Russia and not owned or controlled, directly or indirectly, by a Russian person.
OFAC issued two general licenses authorizing certain transactions related to these services:
- General License No. 34, authorizing the wind down of accounting, trust and corporate formation, or management consulting services to any person located in Russia, through 12:01 a.m. EDT, July 7, 2022.
- General License No. 35, authorizing the provision of credit rating or auditing services to any person located in Russia, through 12:01 a.m. EDT, August 20, 2022.
At the same time, OFAC identified the accounting, trust and corporate formation services, and management consulting sectors of the Russian economy pursuant to Executive Order 14024. This identification has no immediate legal effect, but it authorizes the imposition of SDN/blocking sanctions on any individual or entity determined to operate or have operated in any of those sectors.
3. Additional Restrictions on the Export to Russia of Previously Non-Controlled Items
BIS issued a final rule imposing license requirements for exports, reexports, and in-country transfers to and within Russia for additional items subject to the Export Administration Regulations (EAR). These items, identified under a to-be revised Supplement No. 4 to BIS’s existing Russian industry sector sanctions, include a broad range of inputs that were not previously controlled for export to Russia, including wood products, industrial engines, boilers, motors, fans, ventilation equipment, bulldozers, and many other items with industrial and commercial applications. Having already imposed a license requirement for export to Russia of all dual-use items on the EAR’s Commerce Control List, this latest expansion of export controls — to include scores of non-dual use items that are not otherwise controlled for export by the EAR — cuts even deeper into the supply chain for Russia’s industrial base.