U.S. Economic Sanctions: Enforcement Strategy Against Russia Takes Shape

Over the past week, the international community's economic sanctions strategy—and enforcement of that strategy—has been taking shape. This strategy will continue to evolve as events dictate, and as illustrated by the additional multilateral sanctions announced at the NATO summit on March 24, 2022. The enforcement strategy carrying the sanctions into effect is similarly coordinated among NATO, the EU, and related countries, strongly supported by the U.S.

This alert summarizes the state of the U.S. sanctions regimes against Russia and Belarus, provides information concerning sanctions imposed by other countries, and outlines the United States' activities, internationally and domestically, to enforce the sanctions.

Current State of Sanctions

The current state of the U.S. sanctions against Russia and Belarus is shown on the linked chart. That chart, in turn, provides access to, and summaries of, releases by the:

Office of Foreign Assets Control (OFAC), Treasury Department, concerning economic sanctions imposed against Russia and Belarus regarding Russia's invasion of Crimea and the rest of Ukraine;
Bureau of Industry and Security (BIS), Department of Commerce, on the import and export restrictions placed on trade with Russia and Belarus; and
Financial Crimes Enforcement Network (FinCEN), Treasury Department, on enforcing the financial and trade sanctions against Russia and Belarus.

This chart is current as of March 24, 2022.

The International Russia Sanctions chart summarizes the sanctions imposed by the international community against Russia, following its invasion of Ukraine. It provides links to each country's sanctioning authority, and to the relevant sanctions programs and official announcements. This chart is current as of March 24, 2022. Both charts will be updated regularly, with the links remaining constant, for the foreseeable future.

Cross-referencing sanctions between and among countries is important. One bilateral example demonstrates this point. Under economic sanctions law in the United States, the "50% rule" applies. This means:

Persons whose property and interests in property are blocked . . . are considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest. Consequently, any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person.

This rule has been in effect since at least 2014. See also OFAC FAQ 401.

The UK, in contrast, uses a different test (General guidance for financial sanctions under the Sanctions and Anti-Money Laundering Act 2018, sec. 4.1.4):

When making an assessment on ownership and control, OFSI [Office of Financial Sanctions Implementation] would not simply aggregate different designated persons' holdings in a company, unless, for example, the shares or rights are subject to a joint arrangement between the designated parties or one party controls the rights of another. Consequently, if each of the designated person's holdings falls below the 50% threshold in respect of share ownership and there is no evidence of a joint arrangement or that the shares are held jointly, the company would not be directly or indirectly owned by a designated person.

Applying the U.S. 50% rule's automatic aggregation can bring about very different results than ones that flow from using the UK's "joint ownership or control" test. The U.S. rule would, it appears, bring a considerably larger number of companies under the sanctions umbrella, even if they are not on OFAC's List of Specially Designated Nationals.

International Enforcement Strategy

While multilateral sanctions programs are being both expanded and refined, the Finance, Justice, Home Affairs and Trade Ministers of the United States, Australia, Canada, France, Germany, Italy, Japan, the Netherlands, and the United Kingdom, together with the European Commission (EC), committed to prioritize resources and to "take all available legal steps to find, restrain, freeze, seize, and, where appropriate, confiscate or forfeit the assets of those individuals and entities that have been sanctioned in connection with Russia's premeditated, unjust, and unprovoked invasion of Ukraine and the continuing aggression of the Russian regime."

This action was taken in support of the Russian Elites, Proxies, and Oligarchs (REPO) Task Force, also created by the United States, Australia, Canada, France, Germany, Italy, Japan, the Netherlands, and the United Kingdom, together with the EC. On the same day (March 17, 2022), the EC set up a "Freeze and Seize" Task Force "to ensure EU-level coordination to implement sanctions against listed Russian and Belarussian oligarchs. . .. It will work alongside the newly established . . . REPO Task Force, under which the EU operates together with the G7 countries Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, as well as Australia."

United States Activities Supporting Sanctions Enforcement

Further supporting the REPO Task Force, the Financial Crimes Enforcement Network (FinCEN) announced the formation of an international, financial intelligence unit (FIU) working group for the purpose of sharing financial intelligence to enhance enforcement against Russia-related illicit finance and sanctions.

Of particular importance to U.S. financial institutions, FinCEN issued a second alert to U.S. financial institutions stressing the importance of identifying and reporting quickly any suspicious transactions involving sanctioned Russians. Clearly, the FIU working group will encourage more focused attention on compliance by banks and financial institutions (collectively, FIs), recognizing and emphasizing that FIs are the first line of defense against Russian attempts to circumvent the multilateral sanctions regime.

This is both a carrot and a stick approach. While the FIUs want to use the Working Group to boost the information flow within the international financial community to spot and stop sanctions violations, the Working Group is also reminding FIs of their compliance obligations. The Working Group is providing such reminders through alerts, such as the one that FinCEN issued on March 7, 2022, that identify "red flags" of methods being used to avoid or circumvent sanctions.

Crackdown on Russian Actors in the U.S.

Departments of State and Justice announcements illustrate increased prosecution efforts against Russian activity coming within the scope of U.S. law enforcement jurisdiction. At the strategic level, the U.S. and Canada announced the reestablishment of the Cross-Border Crime Forum. This is the principal forum for bilateral law enforcement cooperation between the United States and Canada. A major focus of the CBCF will be to "accelerate our joint efforts to freeze and seize key assets belonging to sanctioned Russian oligarchs worldwide."

At the tactical level, the Department of State has offered a reward of up to $10 million under the Rewards for Justice program for information on a significant, named Russian hacker or any other person who, under the control of a foreign government, is involved in violations of the Computer Fraud and Abuse Act. At the same time, the Justice Department unsealed two indictments charging four Russian government employees with conducting computer intrusions that targeted computers at hundreds of companies in the global energy sector. These companies included a U.S. company that manages critical infrastructure entities.