Western sanctions on Belarus take flight

18 August 2021 Reed Smith Client Alerts

Home Publikationen Western sanctions on Belarus take flight

On August 9, 2021, the United States and the United Kingdom moved in tandem (along with Canada) to increase pressure on the Lukashenko regime by imposing further sanctions on Belarus. U.S. President Biden issued a new executive order (EO), “Blocking Property of Additional Persons Contributing to the Situation in Belarus,” (EO 14038) and the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) announced a slew of new sanctions, adding 44 persons to OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List.

The British Government’s actions, broadly speaking, brought the UK in line with the sanctions imposed by the European Union in June, implementing a package of trade, financial, and aviation sanctions targeting the Belarusian regime.

Autoren: Leigh T. Hansson Alexander Brandt Ray-Shio Ho William Young Ozra O. Ajizadeh

Background

Following the June 2021 sanctions imposed by the United States, UK, EU, and Canada on August 9, 2021, the United States and the UK announced further sanctions on Belarus, marking the one-year anniversary of President Lukashenko’s allegedly fraudulent election. Serving as the president of Belarus since 1994, Lukashenko’s most recent election was met by thousands of individuals challenging his regime by protesting in the streets of Belarus. Lukashenko responded by tightening his grasp on the country, implementing a crackdown on the media, shutting down numerous NGOs and human rights groups, arresting many of his opponents, and forcing others into exile.

This election, in culmination with the coordinated rounds of sanctions in response to the forced landing of a European passenger jet, and the attempted removal of Belarusian Olympic sprinter Kristina Timanovskaya from Japan, led to EO 14038 and the Biden administration’s call on the Lukashenko regime to allow an independent international investigation into the Ryanair flight diversion, commencement of talks with civil society figures and democratic opposition leaders that “result in a free and fair presidential election under observation by Organization for Security and Co-operation in Europe,” and release of all political prisoners.

U.S. sanctions

EO 14038 authorizes OFAC to sanction those who support or enable the Lukashenko regime by expanding the existing sanctions and targeting persons involved in public corruption, actions that threaten the security and peace of Belarus, activities that undermine the electoral process in Belarus, deceptive dealings to circumvent U.S. sanctions on Belarus, and measures that limit the exercise of fundamental freedoms and human rights.

EO 14038 also targets persons determined to be (1) leaders or officials of the Government of Belarus; (2) officials or directors of a blocked entity or operating in a sanctioned industry sector; (3) operating in the security sector, potassium chloride sector, construction sector, energy sector, transportation sector, tobacco products sector, or defense and related materiel sector; and (4) in political subdivisions of the Government of Belarus or agents thereof.

Although these new sanctions provide a robust response to what the United States views as Belarus’ malign activities, OFAC’s new FAQ 917 clarifies that “identification of a sector pursuant to [EO 14038] provides notice that persons operating in the identified sector risk exposure to sanctions; however, the identification of a sector does not automatically block all persons operating in that sector of the Belarus economy.” Therefore, although OFAC has indicated that while those operating in the identified sectors could be sanctioned, not all persons operating in the listed sectors will be targeted by this new order.

August 9 designations

Following the issuance of EO 14038, OFAC added 17 entities and 27 individuals to the SDN List. These designations include:

Belaruskali OAO, one of the country’s largest state-owned enterprises and one of the world’s largest producers of potassium chloride, which was designated for being owned or controlled by the Government of Belarus and for operating or having operated in the potassium chloride sector of the Belarus economy.
Certain entities operating in the energy, transportation, tobacco products, and construction sectors of the Belarus economy.
Individuals deemed to be senior-level officials, family members of such officials, or persons closely linked to such officials who are responsible for or have engaged in “public corruption related to Belarus,” or who otherwise support the Lukashenka regime, including Dzmitry Hara, chairman of the Investigative Committee of the Republic of Belarus).
The Belarusian National Olympic Committee, which is controlled by President Lukashenka’s eldest son, Viktor Lukashenka.

As a result of these sanctions, all property and interests in property under U.S. jurisdiction that belong to the sanctioned persons are blocked. U.S. persons are prohibited from engaging in virtually all transactions with the designated persons and their subsidiaries without specific authorization from OFAC. Furthermore, OFAC is authorized to impose sanctions on non-U.S. persons who “materially assist, sponsor, provide financial, material, or technological support, or goods or services” to any of the sanctioned persons, companies, or their subsidiaries.

Belarus General License 4

OFAC issued Belarus General License 4, “Authorizing the Wind Down of Transactions Involving Belaruskali OAO,” authorizing certain transactions with Belaruskali OAO, one of the world’s largest producers of potassium chloride and a major source of foreign currency and tax revenue for the Lukashenka regime. The wind-down period implemented by the new general license expires on December 8, 2021. Until then, all transactions and activities prohibited by EO 14038, as long as they are ordinarily incident and necessary to the wind down of transactions involving Belaruskali OAO and its subsidiaries, are authorized.

UK sanctions

The UK sanctions are similar to those introduced by the EU in June 2021, as discussed in our earlier client alert. Broadly speaking, the sanctions package includes:

Aviation measures to prevent Belarusian air carriers from overflying or landing in the UK.
Trade measures on potash, petroleum products, interception and monitoring goods and technology, goods used in cigarette manufacturing, and dual-use goods and technology.
Financial measures prohibiting purchases of transferable securities and money-market instruments issued by the Belarusian state, as well as those issued by state-owned banks, and the provision of loans.

Close scrutiny of the UK legislation reveals material differences in the way in which the UK restrictions have been implemented, compared to the EU Regulation. These include the requirement of a license to fulfill pre-existing contractual commitments that are now the subject of sanctions – as opposed to the EU legislative carve-out. Operators subject to both the EU and UK sanctions are cautioned against assuming that exemptions or permitted activities under one regime are translated across identically.

Conclusion

While the UK sanctions on Belarus will continue to put the Lukashenko regime under pressure, key areas of the economy, such as certain categories of potash exports, have been spared sanctions (in line with those restrictions posed by the EU). That being so, it is likely that the sanctions imposed by the United States will prove the more impactful. Those familiar with the U.S. sanctions imposed on the Venezuelan oil economy will be well-acquainted with the extra-territorial nature of the sanctions now imposed on Belaruskali OAO, and come December 8, 2021, we can expect to see a marked reduction in Belarus origin -potash. We can also expect to see other key players in the Belarus economy targeted over the coming months. Those doing business in Belarus should ensure they have robust contractual protections and a clear mechanism to withdraw from contracts that may expose them to the fluid sanctions landscape.

Client Alert 2021-220

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