United States Sanctions
The Department of the Treasury Office of Foreign Assets Control (OFAC) designated 32 Belarusian individuals and entities and identified three aircraft as blocked property pursuant to Executive Orders (EOs) 14038 and 13405 and imposed restrictions on dealings with Belarus’ sovereign debt.
The OFAC Specially Designated Nationals (SDN) designations of entities with which business is generally prohibited include, but are not limited to, Transaviaexport Airlines (Belarus’ state-owned cargo carrier); Belarusian Potash Company (BPC) (Belarus’ leading exporter of Potash) and its subsidiary, Agrorozkvit LLC; Republican Unitary Enterprise Tsentrkurort (Belarus’ state-owned tourism company); and several entities linked to the Belarusian defense sector. According to OFAC, the designated persons “have enabled the [Lukashenko] regime’s migrant smuggling into the [EU], have taken part in the ongoing crackdown on human rights and democracy, and have propped up the regime financially.”1
OFAC simultaneously issued Belarus General License (GL) 5, which temporarily authorizes, until April 1, 2022, transactions and activities ordinarily incident and necessary to the wind-down of transactions involving BPC or Agrorozkvit LLC or any entity in which BPC or Agrorozkvit LLC owns a 50% or greater interest, including the wind-down of such transactions in which Belaruskali OAO has a property interest (e.g., certain resale transactions by BPC or Agrorozkvit LLC of product sourced from Belaruskali OAO).
However, GL 5 does not authorize the entry into new purchase contracts, or the stockpiling of inventory, involving BPC or Agrorozkvit LLC.2 GL 5 also does not authorize direct transactions with Belaruskali OAO, which was sanctioned by OFAC on August 9. GL 4, which authorizes the wind-down of transactions involving Belaruskali OAO, expires on December 8.3
Prohibitions on Certain Dealings in Sovereign Debt
On December 2, OFAC also published Belarus Directive 1 under EO 14038, which imposes restrictions on dealings in new issuances of Belarusian sovereign debt. Specifically, Belarus Directive 1 prohibits transactions in, provision of financing for, or other dealings by U.S. persons or within the United States in debt with a maturity of greater than 90 days issued on or after December 2, 2021, by the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus. These prohibitions apply to all denominations of debt, where the term “debt” includes bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers’ acceptances, discount notes or bills, or commercial paper.4 The restrictions on dealings in new issuances of Belarusian sovereign debt apply to dealings in both the primary and secondary markets. Transactions involving derivative products whose value is linked to an underlying asset that constitutes prohibited debt issued by the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus are also prohibited under Directive 1.5
However, Directive 1 does not prohibit U.S. persons from engaging in dealings related to debt issued before December 2, 2021, so long as the terms of such debt (including the repayment period, the interest rate, and the amount) were contractually agreed to before December 2 and were not modified on or after December 2.6 Further, the restrictions in Directive 1 prohibit U.S. persons from engaging in only certain activities with the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus.7 All other activities involving these entities not otherwise prohibited by EO 14038 or any other sanctions program are permitted. U.S. financial institutions may also continue to maintain correspondent accounts and process U.S. dollar-clearing transactions for the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus.8
Notably, OFAC has also clarified that its “50 Percent Rule” does not apply to the prohibitions in Belarus Directive 1.9 That is, the prohibitions in Directive 1 do not apply to entities owned 50% or more by the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus.
European Union Sanctions
In a fifth round of sanctions designations targeting Belarus, the EU designated additional 17 individuals and 11 entities under Regulation (EC) No 765/2006.10 Among the entities designated are major Belarusian companies in the oil, petrochemical, automotive, aviation, and tourism sectors. These new designations add to the designations made earlier in 2021 and trade and sectoral sanctions already in place against Belarus.
In addition to members of the Belarusian regime holding various positions in the legislative, judiciary, or police administration, the EU designated major Belarusian companies in the oil, petrochemical, automotive, aviation, and tourism sectors.
Entities designated by the EU now include Belorusneft (state-owned petroleum company), Grodno Azot (large state-owned producer of fertilizers, pesticides, and other petrochemical products, including its branch Khimvolokno plant manufacturing polyamide, polyester, and other composite materials), Belshina (state-owned manufacturer of vehicle tires), Belavia (the Belarusian state-owned aviation company), and Cham Wings Airlines (company operating charter flights between Syria and Belarus). A number of Belarusian companies involved in the tourism sectors, such as tour operators, hotels, and passport and visa service providers, were also designated for their involvement in the illegal crossing of the EU’s external borders.
These designations add to the previous designations of various Belarusian persons and entities, including in the defense, automotive, logistics, and oil sectors: Sohra Group; OJSC BelAZ; OJSC MAZ; Globalcustom Management LLC; Logex; and NNK, Novaia Naftavaia Kampania.
Current EU Sanctions Regime Against Belarus
The EU had already introduced trade and sectoral sanctions against key sectors of the Belarusian economy, shifting the EU’s sanctions policy from targeting those associated with Lukashenko to more comprehensive measures targeting entire sectors of the economy.
Effective since June 25, 2021, the trade sanctions ban or restrict exports to and imports from Belarus (and generally include prohibitions on the provision of related services):
- arms embargo (including related technical or financial assistance and services)
- goods intended for use in monitoring or interception of internet and telephone communications in Belarus
- goods that might be used for internal repression in Belarus
- dual-use items intended for military use or military end-user in Belarus
- dual-use items intended for certain persons in Belarus (list not yet provided)
- goods used for the production or manufacturing of tobacco products
- petroleum products from Belarus
- potassium chloride (potash) products from Belarus
In addition, the sectoral sanctions significantly restrict the access to EU capital markets for the Belarusian government, its public bodies, and certain state-owned banks, in a similar fashion to those affecting certain Russian entities. No investment services in relation to, and no dealings in, transferable securities and money-market instruments issued after June 29, 2021, with a maturity date exceeding 90 days may be provided by (i) the Republic of Belarus, (i) public bodies and agencies, (i) state-owned companies, and (iv) three Belarusian banks (Belarusbank, Belinvestbank, Belagroprombank) (and their subsidiaries outside the EU or entities acting on their behalf or at their direction). Equally, no new loans or credit with a maturity exceeding 90 days may be granted to the aforementioned entities.
The provision of insurance and reinsurance services to the Belarusian government and Belarusian public bodies and agencies is generally prohibited, with the exception of insurance and reinsurance in relation to compulsory or third-party liability insurance where the risk is situated in the EU and to the provision of insurance for Belarusian diplomatic or consular missions in the EU.
Finally, the European Investment Bank is required to stop any payment or disbursement to the Republic of Belarus under existing agreements and suspend all existing technical assistance service contracts in relation to projects that benefit the Republic of Belarus.
United Kingdom and Canada Sanctions
The UK and Canada also announced new designations last week. While the UK sanctions regime targeting Belarus is largely aligned to the EU regime, the designations vary quite significantly from the EU’s designations, with a much shorter list of Belarusian persons and entities targeted. Further, UK investment and lending-related restrictions apply with respect to only securities and loans issued after August 9, 2021. According to reports, the Canadian designations are similar, though not identical, to designations by the U.S. and the EU.
Conclusions and Compliance Recommendations
Companies engaging with the Belarusian market should assess the impact of these new sanctions on their activities in the region and/or with Belarusian parties and revise internal compliance programs as appropriate. Companies, particularly financial service providers, should consider their potential indirect risk related to the ratcheting up of sanctions on Belarus and large Belarusian entities.
Some sanctioned Belarusian parties have reportedly indicated that they may consider adopting payments in cryptocurrency to avoid the consequences of sanctions.11 Such measures may, however, only cause governments to increase enforcement efforts involving cryptocurrency platforms. The United States, for example, has been increasing its enforcement focus on the cryptocurrency industry, including through its recently released sanctions compliance guidance for the virtual currency industry,12 an advisory highlighting the sanctions risks associated with ransomware payments in connection with malicious cyber-enabled activities,13 and the recent designation of a cryptocurrency exchange due to engagement in “malicious cyber activities.”14 Companies operating in the virtual currency industry should take this opportunity to review OFAC’s recent sanctions compliance guidance for the virtual currency industry and ensure that their compliance tools are in line with the agency’s expectations or work to increase their compliance.
1 U.S. Dep’t of the Treasury, Press Release, “Treasury Expands Sanctions Against Belarusian Regime with Partners and Allies,” (Dec. 2, 2021), https://home.treasury.gov/news/press-releases/jy0512.
2 OFAC FAQ No. 939, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/7771.
3 Belaruskali was designated as an SDN on August 9, 2021. OFAC simultaneously issued General License 4, which authorized the wind-down of transactions with Belaruskali through today, December 7, 2021. See U.S. Dep’t of the Treasury, Press Release, “Treasury Holds the Belarusian Regime to Account on Anniversary of Fraudulent Election,” (Aug. 9, 2021).
4 OFAC FAQ No. 944, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/7771.
5 OFAC FAQ No. 948, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/7771.
6 OFAC FAQ No. 942, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/7771.
7 OFAC FAQ No. 945, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/7771.
8 OFAC FAQ No. 946, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/7771.
9 OFAC FAQ No. 943, https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/7771.
10 Council Implementing Regulation (EU) 2021/2124 of December 2, 2021 implementing Article 8a(1) of Regulation (EC) No 765/2006 concerning restrictive measures in respect of Belarus, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32021R2124&qid=1638475179277.
11 See, e.g., Felipe Erazo, “Belarusian Chemicals Firm Grodno-Azot to Consider Making Payments in Crypto,” FINANCE MAGNATES (Oct. 2, 2021), https://www.financemagnates.com/cryptocurrency/news/belarusian-chemicals-firm-grodno-azot-to-consider-making-payments-in-crypto/.
12 U.S. Dep’t of the Treasury, “Sanctions Compliance Guidance for the Virtual Currency Industry,” (Oct. 15, 2021), https://home.treasury.gov/system/files/126/virtual_currency_guidance_brochure.pdf.
13 U.S. Dep’t of the Treasury, “Updated Advisory on Potential Sanctions Risks for Facilitating Ransomware Payments,” (Sep. 21, 2021), https://home.treasury.gov/system/files/126/ofac_ransomware_advisory.pdf.
14 U.S. Dep’t of the Treasury, “Treasury Takes Robust Actions to Counter Ransomware,” (Sept. 21, 2021), https://home.treasury.gov/news/press-releases/jy0364.
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