US Issues New Russia Designations, Restrictions Under Expanded Sanctions Authority
President Joe Biden signed a sweeping executive order authorizing new sanctions against Russia, allowing the U.S. to designate people and companies operating in Russia’s defense and technology sectors or involved in attempts to influence foreign elections. The order, announced April 15, also authorizes sanctions against a range of Russian government officials and their associates as well as people and companies involved in Russian corruption, actions to “undermine democratic processes,” and human rights violations and transactions designed to circumvent U.S. sanctions.
The Office of Foreign Assets Control followed Biden’s EO by announcing a host of new Russian sanctions, including a directive that blocks certain activities by U.S. financial institutions with three Russian finance agencies. OFAC also added more than 40 Russian people and entities to its Specially Designated Nationals List for Russia’s continued occupation of Ukraine, human rights abuses, foreign election interference and support for the country’s intelligence services. The agency also issued six new frequently asked questions and updated four others.
The sanctions were designed to penalize Russia for its continued foreign election interference and cyberattacks, a senior administration official said. “We've been clear that we seek a relationship with Russia that is stable and predictable. We do not desire a downward spiral,” the official said during an April 15 call with reporters. “But we have also been clear publicly and privately that we will defend our national interests, and that we will impose costs on Russian government actions that seek to harm our sovereignty.”
Along with the sanctions, Biden expelled 10 Russian diplomats from the U.S. and formally named Russia’s Foreign Intelligence Service as the entity responsible for the cyberattack on SolarWinds last year, according to a fact sheet. Canada, the European Union and Australia voiced support for the U.S.'s sanctions and expressed concerns over Russian cyberattacks. “We're taking a number of steps to help allies and partners identify cyberattack perpetrators and strengthen our cybersecurity partnerships with like-minded nations,” the official said.
Among the new restrictions is a prohibition on U.S. financial institutions' participation in the “primary market for ruble or non-ruble denominated bonds” issued after June 14 by 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 said. That includes restrictions on U.S. banks’ ability to lend ruble or non-ruble denominated funds to those three Russian agencies, according to the directive, which also provided a definition for “financial institution” that describes which entities these restrictions affect.
The prohibition applies to only “newly issued ruble sovereign debt and the primary market” and not the secondary market or “existing sovereign debt holdings,” another senior administration official told reporters. The official said this measure will target the “main market” that funds the Russian government. “Removing U.S. investors as buyers in this market can create a broader chilling effect that raises Russia’s borrowing costs along with capital flight and a weaker currency,” the official said. “There's no credible reason why the American people should directly fund the Russian government when the [Vladimir] Putin regime has repeatedly attempted to undermine our sovereignty.”
The official said the U.S. chose the June 14 date to “allow time for financial institutions to understand and adapt to the measures we're taking, and to facilitate an orderly process for these financial institutions to make any adjustments they choose.”
Along with the sovereign debt restrictions, OFAC sanctioned 32 people and entities for working on behalf of the Russian government to influence the 2020 U.S. election, eight people and entities involved in Russia’s occupation of the Crimea region of Ukraine and five Russian companies that provide information technology security systems.
A senior administration official said the sanctions against those technology companies should “serve as a warning about the risks of using information and communication technology and services supplied by companies” in Russia. “The U.S. government strongly encourages all U.S. companies using communications or technologies supplied by companies with ties to Russia to evaluate the security of their infrastructures and be aware of the potential for future U.S. action that may affect their operation.”
New FAQs 886, 887, 888, 889 and 890 describe the scope of the new sanctions and sovereign debt directive. In FAQ 891, the agency stressed that its 50% rule -- which imposes restrictions on dealing with any entity owned by 50% or more by a U.S. sanctioned entity -- doesn’t apply to the three Russian finance agencies listed under the new sovereign debt restrictions. OFAC updated existing FAQs 673, 674, 675 and 676 to reflect the new sanctions.
Although the U.S. announced a significant number of sanctions, an official stressed that Biden’s executive order authorizes additional actions. “We would prefer not to have to deploy these authorities,” the official said. “But we are prepared going forward to impose substantial and lasting costs.
The official said Biden spoke with Russian President Putin this week and proposed a meeting in the “coming months” in a neutral country in Europe. Putin hasn’t yet responded to that proposal, the official said. “We believe that in the coming months it will be vital for the two leaders to sit down to discuss the full range of issues facing our relationship.”
The official also said Russia has “indicated publicly and in other formats” that it will retaliate for these sanctions. “We will have to see what they choose to do,” the official said. “But our view is that the best course forward at this point would be for the United States and Russia both to get off of the ladder of escalation and find a way forward.”