U.S. Government Imposes OFAC Sanctions on Russia

In response to the Russian invasion of Ukraine, the United States, in unprecedented coordination with global allies, has imposed expansive economic measures and export controls that target influential Russian authorities and elites, the core infrastructure of the Russian financial system, and Russian access to a broad range of products and technologies. 

The Office of Foreign Asset Control (OFAC) imposed a wide range of sanctions from comprehensive embargoes on the so-called Donetsk People’s Republic and Luhansk People’s Republic regions of Ukraine to severing Russia’s Central Bank and largest financial institutions from the world economy.  OFAC is also sanctioning Vladimir Putin, elites (and their family members) with close ties to Putin or the financial sector, and Belarusian individuals and entities supporting and facilitating the invasion, as well as imposing prohibitions related to new debt and equity of major Russian state-owned enterprises and large privately owned financial institutions.

Additionally, on February 24, 2022, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) released a new rule implementing more restrictive export controls on Russia under the Export Administration Regulations (EAR).  These new measures broadly prohibit exports to Russia for military end-use or to military end-users.  They also impose severe restrictions on exports of items and technologies to Russia, including licensing requirements (with a presumption of denial) on nearly all items on the Commerce Control List and limits on the availability of many license exceptions. 

Collectively, these sanctions and export controls are intended to impose severe costs on Russia’s economy, cut off more than half of Russia’s high-tech imports, restrict Russia’s access to vital technological inputs, atrophy its industrial base, and undercut Russia’s strategic ambitions. 

Impact on U.S. Businesses

Like the geopolitical conflict to which they respond, sanctions are evolving rapidly, and other jurisdictions, including the United Kingdom and the European Union, are working in concert with the United States to impose similar and wide-ranging restrictions.  While some sanctions are applicable specifically to financial institutions, others impose obligations across industries, and the U.S. government expects all companies  with international activities to have a trade compliance program that is commensurate with their size and sophistication. 

Businesses should screen their foreign customers, suppliers and business partners against embargoed countries or regions and restricted parties, including the Specially Designated Nationals and Blocked Persons List (SDN) maintained by OFAC and the Entity List maintained by BIS, to prevent sanctions violations.   For companies that engage in e-commerce or SaaS, it is also important to utilize GeoIP blocking to prevent purchase or download by customers in embargoed countries and territories.  There are a wide range of strategies and third-party solutions that can assist companies in developing an efficient compliance program in light of their size and scope of operations. 

Companies with sales, supply chains, or other operations in Russia, Belarus or Ukraine should carefully examine all relationships and activities in those regions in light of recent events.  Except for specified humanitarian activities, U.S. businesses must immediately cease conducting any new business in the newly designated restricted territories of Ukraine and wind-down any existing business in those regions prior to March 23, 2022.  Companies must also determine whether the newly imposed export restrictions apply to their business, and halt exports to Russia if necessary.  For example, technology companies should note that commercial software with standard encryption capability is subject to U.S. export control and may no longer be eligible for export to Russian military, government or state-owned end-users without an export license from BIS. 

The events of the past week follow a particularly active period in the use of sanctions and export controls by the United States, including against commercially significant Chinese technology companies (such as the telecommunications giant Huawei), universities and state-owned entities.  This increased use of sanctions and export controls as an integral tool in asserting geopolitical power to achieve larger strategic goals highlights the need for U.S. companies to implement or strengthen their trade compliance programs. 

Cassandra J. Creekman advises clients across a broad range of industries in connection with regulatory and compliance matters, including export controls and sanctions, anticorruption, and foreign investment issues. Wyrick Robbins publishes Client Alerts periodically as a service to clients and friends. The purpose of this Client Alert is to provide general information, and it is not intended to provide, and should not be relied upon as, legal advice.