September 21, 2021

Volume XI, Number 264

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September 20, 2021

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Russia Russia Russia! The Biden Administration Imposes Tough Sanctions on Russia

This week has been a week of significant foreign policy action. Today, President Biden issued a new Executive Order imposing new tough sanctions on Russia for its interference in the U.S. 2020 presidential election, as well as the SolarWinds cyber-attack that impacted multiple U.S. government agencies. This action was taken a day after Secretary of State Blinken stated strong concerns about the increase in Russian troops along the Ukrainian border. Earlier this week, the 2021 Threat Assessment report published by the Office of DNI (Director of National Intelligence) also cited Russia as presenting “one of the most serious intelligence threats to the United States,” noting a variety of provocative actions relating to cyber, military, and intelligence activities.

Background on the New Russia Sanctions

At a high level, today’s E.O. prohibits certain dealings in Russian sovereign debt, and authorizes targeted sanctions on technology companies that support the Russian Intelligence Services’ efforts to carry out malicious cyber activities against the United States and its partners and allies. Under the E.O, the Treasury Department also announced the designation of over 30 Russian individuals and entities that carried out Russian government-directed attempts to influence the 2020 U.S. presidential election, and other acts of disinformation and interference (see full list here). In conjunction with the E.O., the U.S. expelled ten Russian diplomats that include representatives of Russian Intelligence Services.

The White House’s statement noted that these measures send “a signal that the United States will impose costs in a strategic and economically impactful manner on Russia if it continues or escalates its destabilizing international actions. This includes, in particular, efforts to undermine the conduct of free and fair democratic elections and democratic institutions in the United States and its allies and partners; [and] engage in and facilitate malicious cyber activities against the United States and its allies and partners ….”

What Triggered these New Sanctions?

Last year, SolarWinds, a major U.S. information technology firm, was the subject of a cyberattack that impacted its clients’ data, including multiple U.S. government agencies and Fortune 500 companies. In December, then U.S. Secretary of State Mike Pompeo said he believed Russia was behind the attack but U.S. investigators “were still unpacking precisely what it is.” Today, the U.S. has formally named Russian Foreign Intelligence Service (SVR) as the force behind these cybersecurity hacks on SolarWinds.

In addition to the attack on SolarWinds, the Biden Administration cited Russia’s attempts to influence the 2020 U.S. presidential elections, and other acts of disinformation and interference as triggers for these sanctions.

New Prohibitions on U.S. Financial Institutions on Dealing in Russian Sovereign Debt

Under the E.O., the Biden Administration issued Directive 1 generally prohibiting U.S. financial institutions from transacting in ruble and non-ruble denominated funds and bonds. This directive expands upon existing prohibitions on certain dealings in Russian sovereign debt that have been in place since August 2019.

Specifically, as of June 14, 2021, U.S. financial institution are prohibited from:

  • Participating in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 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; and

  • lending ruble or non-ruble denominated funds to the three aforementioned entities.

The immediate impact is on U.S. financial institutions, including its foreign branches, that may be dealing with Russian sovereign debt.

E.O. Authorizes Targeted Sanctions

The E.O. also authorizes targeted sanctions on persons that have supported Russia’s efforts to carry out malicious cyber activities against the United States and its interference in U.S. or foreign elections, among other things (see Section 1 of the E.O., found here). Any action taken pursuant to the E.O. requires a determination by the Treasury Department in consultation with the State Department. But, we wouldn’t be surprised if additional designations come out in the next days or weeks under this authority.

We expect that measures will be taken against high-ranking Russian officials and technology companies with close ties to Russia’s Intelligence Services. For example, among those entities already designated under the E.O. are ERA Technopolis; Pasit, AO (Pasit); Federal State Autonomous Scientific Establishment Scientific Research Institute Specialized Security Computing Devices and Automation (SVA); Neobit, OOO (Neobit); Advanced System Technology, AO (AST); and Pozitiv Teknolodzhiz, AO (Positive Technologies) (see here).

In addition to the primary sanctions outlined above, the E.O. authorizes secondary sanctions to non-U.S. persons that provide “financial, materials, or technological” support to persons sanctioned under the E.O.

While the short-term impact will likely be on U.S. financial institutions, the broader message is that this Administration is not going to be shy about stiffer sanctions on Russia. Though the financial sector will always be a ripe target for sanctions as a foreign policy tool, if Russia’s aggression increases, we may see other sectors being targeted as well.

We will keep monitoring and updating as news develops.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 105
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About this Author

Fatema Merchant, international, trade, Lawyer, Sheppard Mullin
Associate

Fatema Merchant is an associate in the Government Contracts, Investigations & International Trade Practice Group in the firm's Washington, D.C. office.

Fatema’s practice focuses on investigations and compliance counseling related to international trade laws.  She has extensive experience with U.S. Foreign Corrupt Practices Act and U.S.-Sanctioned Countries investigations, compliance, due diligence, and training.  Fatema also advises clients on compliance with International Traffic in Arms Regulations, Export Administration Regulations, Customs and Anti-Money Laundering...

202-469-4930
Mario Andres Torrico Government Investigations Attorney Sheppard Mullin
Associate

Mario Torrico is an associate in the Government Contracts, Investigations, and International Trade Practice Group in the firm's Washington, D.C. office.

Mario focuses his practice on compliance counseling, investigations, and cross-border transactional work concerning international trade matters including customs, trade remedies, export controls, economic sanctions and embargoes, the Foreign Corrupt Practices Act (FCPA), and other areas of international trade law.

Prior to entering the private sector, he served as an...

202-747-2652
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