Last month, Russia launched a special military operation against Ukraine, causing a huge shock in the international community. The United States and its allies have introduced a series of new sanctions against Russia. Since the Crimean incident in 2014, the United States has continuously upgraded and developed its sanctions laws against Russia, which have had a huge and far-reaching impact on global enterprises, forming a complex legal issue. This article hopes to systematically review the sanctions laws of the United States against Russia, provide reference for Chinese enterprises in the current responsible international situation, and effectively identify and handle risks. 

1、 Overview of the Legal System of US Sanctions against Russia

The US sanctions policy against Russia is mainly formulated and implemented by the Office of Foreign Assets Control (OFAC) of the US Treasury Department. After the invasion of Norway by Nazi Germany in 1940, President Roosevelt established the Office of Foreign Funds Control (FFC) under the Ministry of Finance, which has been playing an important role in the United States' economic and trade sanctions against the Axis countries. OFAC itself was established in December 1950 when Chinese troops entered the Korean Peninsula to fight. President Truman declared a state of emergency and used OFAC to freeze all Chinese and North Korean assets in the United States. Today, OFAC remains the most important government department in the United States that imposes economic and trade sanctions against specific countries, regions, and individuals. In addition, the Bureau of Industry and Security (BIS) is responsible for export control regulations that also involve export controls against Russia. Due to space and professional considerations, this article will mainly review the specific evolution of OFAC's sanctions policy and implementation against Russia. 

The sanctions policy of the United States is mainly formulated in accordance with the International Emergency Economic Powers Act (IEEPA), which authorizes the President of the United States to declare a national emergency when "any occurrence outside the United States that may cause abnormal or significant threats to its national security, foreign policy, or economy" occurs, And take a series of actions to eliminate the threat. On March 6, 2014, after the Crimean incident, US President Barack Obama formulated Executive Order 13660 (hereinafter referred to as EO) according to the IEEPA, which opened the curtain of US sanctions against Russia. The Executive Order of President 13660 declared a national state of emergency, stating that "the actions and policies that have taken place in the Crimea region have subverted the democratic process and institutions of Ukraine... thereby posing an unusually significant threat to the national security and foreign policy of the United States". After Presidential Executive Order 13660, Obama continued to issue three presidential orders, constituting the main policy of sanctions against Russia: 

On March 6, 2014, Presidential Executive Order 13660, "Confiscation of Property of Specific Persons Affecting the Situation in Ukraine" 

On March 16, 2014, Presidential Executive Order No. 13661, "Confiscation of Property of Other Persons Affecting the Situation in Ukraine" [2]

On March 20, 2014, Presidential Executive Order 13662, "Confiscation of Property of the Remaining Persons Affecting the Situation in Ukraine" [3]

On December 19, 2014, Presidential Executive Order No. 13685, "Confiscation of Certain Persons' Property and Prohibition of Certain Transactions concerning the Crimean Region" [4]

The above four presidential executive orders form the basis of the United States sanctions policy against Russia. After the Obama administration, subsequent executive heads successively proposed the following presidential executive orders: 

On September 21, 2018, Trump signed Executive Order No. 13849, "Executive Order Authorizing the Implementation of Certain Sanctions under the Act of Countering US Opponents through Sanctions" [5]

On August 1, 2019, Trump signed Presidential Executive Order No. 13883, Implementation of Proliferation Sanctions and Amendment of Executive Order No. 12851 [6] (also called "CWB Act Presidential Executive Order")

On April 15, 2021, Biden signed Presidential Executive Order No. 14024, "Blocking Property Related to Harmful Foreign Activities Designated by the Government of the Russian Federation" [7]

On February 21, 2022, Biden signed Presidential Executive Order 14065, "Blocking the Property of Certain Persons and Prohibiting Certain Transactions Related to Russia's Continued Destruction of Ukraine's Sovereignty and Territorial Integrity" [8]

In addition to the above presidential executive orders formulated in accordance with different laws of Congress, the United States Congress has passed two laws to implement specific sanctions requirements, including the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act implemented on April 3, 2014, and the Ukraine Freedom Support Act implemented on December 18, 2014, However, due to the separation of powers between the legislative and executive branches of the United States, and the fact that the Obama administration has not implemented executive power on these two bills, this article will not discuss these two bills. In addition to this time, OFAC will formulate specific administrative instructions to implement the sanctions policy formulated by the EO when executing the presidential executive order according to the powers granted to it. For example, the financial sanctions imposed by the US government on Russia last month were all carried out by the relevant directives issued by OFAC pursuant to Executive Order No. 14024. 

From the above, it can be seen that the United States' sanctions policies and laws against Russia are mainly promoted by the administrative department. The Secretary of Finance of the United States once stated that economic sanctions have become an important means of implementing clear and complex foreign policies - especially in situations where diplomatic means are insufficient but military strikes are still immature. Although the laws passed by Parliament give the executive branch sufficient authority, it is the laws and regulations formulated by the executive branch that give rise to the sanctions policy. From the perspective of the development and evolution of US sanctions laws against Russia, sanctions laws are more driven by events in the international community (especially friction with Russia). Finally, if we zoom in, we can see that the sanctions policies adopted by the US government are largely the same frequency as those adopted by the EU. The EU's policies will be detailed in a separate article later. 

2、 Detailed US sanctions policy towards Russia

The economic sanctions law and its implementation in the United States have continuously developed and upgraded in practice. In the early stage, the United States took the sanctioned countries as a whole and conducted extensive and nationwide embargoes to prohibit Americans from trading with the target countries and their nationals, typically against Cuba after the Bay of Pigs incident. With the deepening of the implementation of sanctions laws, the United States government has developed more refined sanctions laws, mainly through list based management, including different "individuals" on different lists, thereby implementing different sanctions policies for entities on different lists. The individuals on the list are mainly listed as specially designated nationals (SDNs), and Americans are prohibited from trading with them. After the Crimean incident, the United States developed a Sectoral Sanctions Identification List (SSI List) for its sanctions policy against Russia, implementing a smaller and lighter sanctions policy on the subject of the SSI List. Overall, the United States' sanctions policy towards Russia includes the three different sanctions methods mentioned above: imposing embargo sanctions against the Crimea region, and developing SDN and SSI lists for different entities to implement more refined sanctions. 

1. List of Specially Designated Nationals (SDN)

According to Presidential Executive Order 13660, Presidential Executive Order 13661, and Presidential Executive Order 13685, the United States has developed the SDN list. The Presidential Decree authorizes OFAC to designate the SDN list based on the criteria detailed in the Presidential Decree. The impact of the SDN list on sanctioned persons includes the following three aspects: 

"If a US person is blocked from any SDN property under their control or possession, the US person must freeze the aforementioned property and report to OFAC.". Blocked property cannot be unsealed unless OFAC issues a permit or the overall sanctions policy is revoked; SDN cannot pay or accept USD denominated payments because all USD denominated interbank payments are cleared by Bank of America; Americans cannot conduct any transactions with SDN. 

The main SDN subjects of Russia's sanctions policy are mainly heavyweight Russian enterprises, elite politicians, or people close to or influential with Putin. 

2. Industry Sanctions List (SSI)

Considering Russia's important position in global economic transactions, especially in the energy industry, and in order to avoid unnecessary impacts on the global economy, OFAC has specially formulated a SSI list, specifically targeting specific industries in which Russia relies on the technology and finance of the United States or the European Union, but with minimal spillover effects on the United States, its allies, and the Russian people [11]. OFAC has developed a SSI list for specific sectors of the Russian economy in accordance with Presidential Executive Order 13662. It is worth noting that the SDN list includes Russian legal and natural persons, but the SSI list only includes legal entities. "Their American property is not blocked, and Americans can engage in extensive transactions with them. Americans can only engage in transactions with them determined by specific administrative instructions.". Compared to the above SDN sanctions, Americans or SSIs may be affected by the sanctions policy only within the specific transaction scope determined by specific administrative instructions. 

On August 2, 2017, President Trump signed the Countering America's Adversaries Through Actions Act (hereinafter referred to as CAATSA), Chapter II of the Countering Russian Influence in Europe and Eurasia Act requires the US Treasury Department to modify the SSI list established pursuant to Presidential Executive Order 13662. The main modifications are as follows: 

Directive 1: Americans cannot trade, provide financing, or purchase new debt with a maturity period of more than 14 days, or purchase shares issued by the entities on the SSI list (mainly Russian financial institutions) under this Act; [13]

Directive 2: Americans cannot trade, provide financing, or purchase new debt with a maturity of more than 60 days, or purchase shares issued by the entities on the SSI list (mainly Russian energy companies) under this Act; [14]

Instruction 3: Americans cannot trade, provide financing, or purchase new debt with a maturity of more than 30 days, or purchase shares issued by the entities on the SSI list (mainly Russian military enterprises) under this Act; [15]

Directive 4: Americans cannot provide, export, directly or indirectly re-export goods, services (other than financial services), or technology to the exploration and development of deepwater or offshore Antarctica or shale oil and gas projects. [16]

According to the statement in the list, after the subject of sanctions is included in the list, the equity or debt issued by the subject is considered as new shares or new debt. Trading or any circumvention against them is considered a violation of the above instructions. OFAC has also prepared general license arrangements for certain exempted sanctions activities. 

3. Embargo

Presidential Executive Order 13685 establishes a comprehensive embargo policy against the Crimean region, prohibiting the export or import of goods, services, or technology from the Crimean region to the United States through any American wherever they are. Specifically, it includes the following sanctions: 

(1) Prohibition of transactions between Americans and the region: 

Investing in the region; Import products, services, or technologies directly or indirectly from the region to the United States; Directly or indirectly exporting, re exporting, selling, or providing products, services, or technology to the region; "The provision of any approval, financing, assistance, or guarantee by a U.S. person (wherever located) for a foreign person's transaction is prohibited under this Act if the foreign person's transaction is conducted by or within the United States.". 

(2) The Secretary of the Treasury, in conjunction with the Secretary of State, determines that the property in the United States or in the control or possession of a United States person that: 

Entities operating in the Crimea region; Being a leader in the corporate entities operating in the Crimea region; Any subject controlled or owned by the subject of frozen property, or acting directly or indirectly for or on behalf of its interests; Any entity that provides material support, assistance, or financial, material, or technical support or support for goods or services to any frozen property; 

4. Effectiveness of sanctions

All sanctions policies actually affect the relationship between different sanctioned entities and "US Persons". In terms of Russian sanctions, Americans include the following three subjects: 

Any U.S. citizen or permanent resident; Any entity established in the United States or under the sovereignty of the United States (including overseas territories); Anyone who appears on American territory. 

It is worth noting that although the sanctions laws of the United States are mainly aimed at Americans, in certain circumstances, non Americans may also be considered to be in violation of the sanctions laws of the United States. For example, if another person conspires to violate U.S. sanctions laws, or "causes" an American to violate the sanctions laws, such as by concealing the connection of a U.S. dollar denominated payment with a sanctioned entity, initiating a transfer, and causing the U.S. bank making the payment to be unable to freeze or refuse to pay the payment in accordance with the sanctions laws, then the non American violates the sanctions laws, Shall be governed by United States sanctions laws. 

5. 50% rule

OFAC has developed a 50% rule for SDN list entities, whereby sanctions applied to any SDN entity automatically flow to entities that directly or indirectly control more than 50% of their shares, even if the entity is not listed on the SDN list [17]. When OFAC developed the SSI list, it was also clear that the 50% rule applies to SSI entities [18]. According to this rule, the 50% recognized by OFAC extends downward along the company's ownership structure. The application of the 50% rule has a clear boundary, only for ownership, not for control. Therefore, the specific application of this rule includes the following scenarios: 

According to OFAC, the following figure is an example. As the SDN entity holds 50% of the equity of A, A will become a sanctioned entity. Meanwhile, as the SDN entity indirectly controls 50% of the equity of B, B will also become a sanctioned entity. Meanwhile, SDN's holding of 50% of the equity of A leads to A becoming a sanctioned entity, and its holding of 50% of the equity of B leads to B becoming a sanctioned entity. Although it is understood according to general business rules that SDN entity actually only indirectly holds 25% of the equity of entity B. 

If a sanctioned entity controls an entity (but not through 50% equity), the entity is not automatically included as a sanctioned entity [19].

6. Supporters of sanctioned personnel

The aforementioned Presidential Executive Orders authorize OFAC to exercise broad discretion to identify supporters of SND in providing support, assistance, financial, material, or technical support, or goods or services, even if the transaction between the entity and SND is fully arm's length. However, so far, OFAC has only designated supporters of SND, and has not yet designated supporters for SSI.

7. CBW Sanctions

On August 2, 2019, according to the Chemical and Biological Weapons Control and War Elimination Act (hereinafter referred to as CBW) promulgated in 1991, the US government formulated a new round of sanctions policy against Russia due to the belief that the Russian government used nerve agents in the British Salisbury poisoning incident, mainly including the following aspects:

The United States opposes any debt, financial or technical assistance provided by international financial institutions to Russia; After August 26, 2019, Bank of America is prohibited from participating in any non ruble denominated bonds issued by the Russian government on the primary market or providing any non ruble denominated funds to the Russian government; A new export ban on dual-use substances (materials that can be used to make weapons of mass destruction) to Russia.
For CBW sanctions, OFAC has developed a CBW sanctions directive. Because OFAC does not provide a definition of "participation", the industry tends to believe that all activities related to non ruble denominated bonds in the primary market are prohibited, not just subscription. Therefore, whether as a buyer, seller, underwriter, intermediary, or agent, Bank of America has stopped corresponding activities. At the same time, OFAC or the US Treasury Department have not defined any "primary market" or secondary market for buying and selling bonds. It is generally understood that when a bond issuer sells the bond for the first time in the primary market, its resale occurs in the secondary market. American financial institutions can participate in the sale or purchase of Russian treasury bond in the secondary market after it is successfully issued. In its Q&A of 678, OFAC explicitly replied that the CBW Act does not prohibit American banks from participating in the trading of Russian sovereign bonds in the secondary market. It is worth noting that the President's Executive Order of the CBW Act does not authorize OFAC to impose sanctions on any entity (supporter) that provides significant support.

3、 Recent developments

On February 24, 2022, Russia launched a special military operation against Ukraine, and the United States and its allies launched a new round of sanctions against Russia. However, as can be seen from the figure below, compared to the EU, the United States has mainly upgraded its sanctions policies and laws that have already entered into force, further expanding the scope of its attacks. After February 2022, the main changes in the US sanctions policy and implementation against Russia are summarized as follows [20]:

1. Evolution of the 50% rule

From the guidance published by OFAC, the 50% application rules have been significantly expanded and further clarified, expanding the scope of application of the 50% rule to the following:

The subject of sanctions holds shares, retains control, or serves as a director on the board of directors; Only applicable to corporate entities, excluding NGOs or charitable organizations; The minimum controlling interest is 10%.

2. Expanding the scope of embargo sanctions

On February 21, 2022, Biden issued Presidential Executive Order 14045 [21], adding a comprehensive embargo on the Donlu region, with restrictions and expressions highly similar to those of the Crimean region:

(1) Prohibition of transactions between Americans and the region: investing in the region; Import products, services, or technologies directly or indirectly from the region to the United States; Directly or indirectly exporting, re exporting, selling, or providing products, services, or technology to the region; Approve, promote, or provide guarantees or funds for import and export transactions in the region.

(2) The Secretary of the Treasury, in conjunction with the Secretary of State, determines that the property in the United States or under the control or possession of a U.S. person that is the subject of the following actions is frozen and may not be paid, transferred, exported, withdrawn, or traded.

Activities in the embargoed area since the entry into force of this EO; Being a leader, manager, senior executive, or member of the board of directors of a company entity that still operates in the embargoed area since the entry into force of this EO; Any entity controlled or owned by the subject of any frozen property under this EO, or acting directly or indirectly for or on behalf of its interests; An entity that provides material support, assistance, or financial, material, or technical support, or support for goods or services, to any entity whose property is frozen under this EO.

3. On February 24, 2022, the US government imposed a new round of financial sanctions on Russia

OFAC has issued relevant directives (Directive 2&3&4) under Executive Order No. 14024, listing 90 financial institutions, enterprises, and individuals on multiple sanctions lists, such as the SDN list, NS-MBS list, and CAPTA list. Different sanctions lists also have different restrictions and exemptions. The main contents are detailed as follows:
(1) Sanctions against the Central Bank of Russia and Russian sovereign funds [23]

On February 28, 2022, OFAC issued Directive No. 4 under Executive Order No. 14024, "Prohibitions related to transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation", prohibiting the Central Bank of the Russian Federation from using its international reserves, ensuring the impact of the United States and EU sanctions policies on Russia, and sanctioning Russian Direct Investment Funds (RDIFs), To cut off Russia's access to financing from international capital markets, especially the United States. Kirill Dmitriev, CEO of RDIF, was also sanctioned.
(2) Severing ties between Russia's largest bank, the Reserve Bank of Russia, and US financial markets

According to the CAPTA Directive issued by Executive Order 14024 of OFAC on March 26, 2022, Sberbank is not allowed to open a Correspondent Account or Payable Through Account with banks in the United States, which means it is listed on the CAPTA list. The US Treasury Department has instructed US financial institutions to close the agency accounts of Sberbank and its 25 holding companies within 30 days (as of March 26). On March 2, 2022, Serbank announced its withdrawal from the European market.

(3) Full sanctions against Russia's second largest bank, VTB Bank, and three financial companies, Otkritie, Novikombank, and SovcomBank
OFAC has listed the Russian Federation Foreign Trade Bank (VTB Bank), as well as Otkritie, Novikombank, and Sovcom Bank on the SDN list [25], and has prohibited them from using their SWIFT settlement system. This means that all financial assets held by these banks in the United States, such as deposits and securities, have been frozen and can no longer be transferred, transferred, redeemed, used, or changed. However, the financial account or financial asset can still receive interest, dividends, and other payments. After VTB was listed on the SDN list in the United States, Sidley Austin immediately announced that it would no longer continue to provide lobbying services to VTB. Since 2015, VTB has been one of Shengde's important customers. After the sanctions, VTB has basically lost all communication and communication windows with the US business world.

(4) Restrictions on financing of 13 Russian state-owned enterprises related to the national economy and people's livelihood
According to Order No. 3 of Executive Order No. 14024 issued by OFAC on March 26, 2022, OFAC prohibits trading with 13 state-owned enterprises with significant influence in Russia or purchasing new bonds issued by them with a maturity period of more than 14 days, including Postal Savings Bank, Alpha Bank, Moscow Credit Bank, Russian Gas Bank, Agricultural Bank of Russia, Russian Gas, Russian Gas Oil, Russian Pipeline Network, Russian Telecom Russian Hydro, Erosha, Russian Modern Merchant Shipping Company, Russian Railway Company. The move is intended to cut off the channels for these companies to obtain financing from the US capital markets.
(5) Propose new General License requirements

To ensure the implementation of the sanctions policy, OFAC will establish exemptions from general licenses for several activities involving international organizations, agricultural and medical supplies, COVID-19 epidemics, energy (from production to sales), and grant them implementation [27].
(6) Full sanctions have been imposed on Russian authoritarians and their families
OFAC has imposed severe sanctions on key Russian figures who have close ties with Putin [28], including Sergei Ivanov (and his son, Sergei) (former Russian Minister of Defense and current Director of the Presidential Office), Nikolai Patrushev (and his son Andrey) (Secretary of the Russian Security Conference, successor to the KGB), Igor Sechin (and his son Ivan) (Putin's close friend and major shareholder of Rosneft), Andrey Puchkov (Head of Internal Affairs and Police Major General), Yury Solviev (and his two real estate companies) (Vice President and Chairman of the Board of Directors of VTB), Galina Ulyutina (former wife of Yury Solviev), and Alexander Vedyakhin (First Vice Chairman of the Executive Board of the Federal Reserve Bank of Russia).

4、 Conclusion

Judging from the current situation, the United States' sanctions policy towards Russia is still continuing and strengthening. As for Chinese companies, due to the US long arm jurisdiction principle, the US sanctions policy towards Russia requires careful sorting out of their transactions with Russia to confirm whether the transactions involve sensitive regions and industries. In particular, if the transaction involves industries such as the Donlu region, Russian finance, energy, and defense, it is recommended to conduct comprehensive and detailed screening. Confirm whether the transaction participants are involved in the sanctions list (considering current sanctions policies, generally these regional and industrial entities are on a certain list). After specifying the specific subject of the restriction and the list of sanctions, it is necessary to further analyze whether there are transaction exemptions and grace periods for the restriction. This article only provides a general overview of the evolution of the United States sanctions policy against Russia, and specific analysis is needed for specific businesses and specific Russian counterparties.

References and Notes:
[1] See details https://home.treasury.gov/system/files/126/ukraine_eo.pdf , visited on March 16, 2022.
[2] See details https://home.treasury.gov/system/files/126/ukraine_eo2.pdf , visited on March 16, 2022.
[3] See details https://home.treasury.gov/system/files/126/ukraine_eo3.pdf , visited on March 16, 2022.
[4] See details https://home.treasury.gov/system/files/126/ukraine_eo4.pdf , visited on March 16, 2022.
[5] https://home.treasury.gov/system/files/126/caatsa_eo.pdf , visited on March 16, 2022.
[6] https://home.treasury.gov/system/files/126/13883.pdf , visited on March 16, 2022.
[7] See details https://www.federalregister.gov/documents/2021/04/19/2021-08098/blocking-property-with-respect-to-specified-harmful-foreign-activities-of-the-government-of-the , visited on March 16, 2022.
[8]xiang jianhttps://home.treasury.gov/system/files/126/14065.pdf , visited on March 17, 2022.
[9] See details https://www.congress.gov/113/plaws/publ95/PLAW-113publ95.pdf , visited on March 17, 2022.
[10] See details https://congress.gov/113/plaws/publ272/PLAW-113publ272.pdf , visited on March 16, 2022.
[11] The United States Department of the Treasury, Remarks on the Evolution of Sanctions and Lessons for the Future at the Carnegie Endowment for International Peace, see https://www.treasury.gov/press-center/press-releases/Pages/jl0398.aspx , visited on March 16, 2022.
[12] https://www.congress.gov/bill/115th-congress/senate-bill/1221/text , visited on March 17, 2022.
[13] https://home.treasury.gov/system/files/126/eo13662_directive1.pdf , visited on March 17, 2022.
[14] https://home.treasury.gov/system/files/126/eo13662_directive2.pdf , visited on March 17, 2022.
[15] https://home.treasury.gov/system/files/126/eo13662_directive3.pdf , visited on March 17, 2022.
[16] https://home.treasury.gov/system/files/126/eo13662_directive4_20171031.pdf , visited on March 17, 2022.
[17]OFAC FAQ401， https://home.treasury.gov/policy-issues/financial-sanctions/faqs/401 , visited on March 17, 2022.
[18]OFAC FAQ373， https://home.treasury.gov/policy-issues/financial-sanctions/faqs/373 , visited on March 17, 2022.
[19]OFAC FAQ398， https://home.treasury.gov/policy-issues/financial-sanctions/faqs/398 , visited on March 17, 2022.
[20] Dow Jones Risk&Compliance, Seminar on March 10, 2022, "Exploring the Complexity and Breadth of Recent Sanctions against Russia.".
[21] Ibid. https://www.whitehouse.gov/briefing-room/presidential-actions/2022/02/21/executive-order-on-blocking-property-of-certain-persons-and-prohibiting-certain-transactions-with-respect-to-continued-russian-efforts-to-undermine-the-sovereignty-and-territorial-integrity-of-ukraine/ , visited on March 17, 2022.
[22] https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220228 , visited on March 17, 2022.
[23]https: