President Biden tightens noose against Russia

President Biden tightens noose against Russia

Biden Administration has announced a major expansion of sanctions targeting Russian entities over alleged election interference

The Biden Administration has authorized new sanctions against Russian entities through a new Executive Order issued last week. It targets the Russian entities over their alleged electoral interference, malicious cyber activities, corruption, human rights violations, and other violations of international law.

The Executive Order represents the first significant sanctions imposed by the Biden Administration targeting Russia and is seen as a clear departure from the Ukraine-focused sanctions of the past Obama and Trump administrations.

The Biden Administration's 15 April 2021 Executive Order includes sanctions targeting technology companies believed to be supporting the Russian Intelligence Services' activities against the United States and new prohibitions on transactions involving Russian sovereign debt.

It broadly authorizes asset blocking sanctions (i.e., inclusion on the Specially Designated Nationals and Blocked Persons List, or "SDN List") against any party determined by the US Secretary of the Treasury to be:

• Operating in the technology or defense and related materiel sector of the Russian economy;
• Individuals or entities responsible for:

Malicious cyber-enabled activities;

Election interference;

Actions to undermine democratic processes or institutions;

Transnational corruption;

Assassination, murder, or unlawful killing or infliction of bodily harm against a US person or a citizen or national of a United States ally or partner;

Activities that undermine the peace, security, political stability, or territorial integrity of the US or its allies or partners; or

Deceptive practices designed to evade US sanctions; leaders, officials, or senior officers in the Russian government, an entity engaged in any of the malign activity described above, or a blocked entity; political subdivisions, agencies, or instrumentalities of the Russian Government; or Russian citizens, residents, or entities providing material assistance to a government with assets blocked by the other US sanctions programs.

It further authorizes asset blocking sanctions against any party determined by the US Secretary of State to be a Russian citizen, resident, entity directly or indirectly engaged in or attempting to engage in disrupting gas or energy supplies to Europe, the Caucasus, or Asia.

None of the authorized sanctions is self-executing. The targeted party needs to be designated by the Secretaries of Treasury or State (or their designees).

The Department of the Treasury and the Office of Foreign Assets Control (OFAC) initiated actions to implement the Executive Order without wasting any time by adding five Russian technology companies to the SDN list for their alleged role in supporting the Russian Intelligence Services.

To prohibit US nationals from virtually all transactions with these entities, they will also become subject to secondary sanctions required under section 228 of the Countering America's Adversaries Through Sanctions Act.

The Office of Foreign Assets Control also got into action almost immediately by adding many other Russian parties to the SDN list under already-existing authorities.

Effective 14 June 2021, OFAC has issued a directive to prohibit US financial institutions from participating in the primary market (excluding the secondary market) for bonds issued after 14 June 2021 by, or lending funds to, the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.

OFAC has clarified that its 50 per cent rule – which causes some sanctions to flow down to unlisted parties if owned 50 per cent or more by sanctioned parties – does not apply to the new directive.

It is believed that this particular directive is intended to close a gap created through OFAC's September 2019 sanctions which were issued in response to Russia's use of the "Novichok" nerve agent to poison two individuals in the UK. The September 2019 sanctions prohibited the US financial institutions from participating in the primary market for bonds and making loans denominated in non-Ruble currencies, but not Rubles. The new directive prohibits Ruble-denominated transactions as well.

The 15 April Executive Order of the Biden Administration also defines the term "Government of the Russian Federation" to include not only government agencies, offices, and political subdivisions, but also any person owned, controlled, or directed by, or acting for or on behalf of, the Government of the Russian Federation.

Interestingly, the Russian government itself is not yet a blocked party, although many of its senior officials are subject to sanctions.