On December 2, 2021, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced expanded sanctions against Belarus, including significant sanctions that impact the financial services, defense, and potash sectors of the Belarus economy. Specifically, OFAC designated 20 individuals, 12 entities, and identified three aircraft as blocked property pursuant to Executive Orders 14038 and 13405. OFAC also imposed restrictions on dealings in new issuances of Belarusian sovereign debt in the primary and secondary markets, which could substantially impact investors and managers.
Identifying information for the entities, individuals, and aircraft sanctioned can be found here.
Debt Restrictions
OFAC issued new Directive 1 under E.O. 14038 which prohibits transactions in, provision of financing for, or other dealings by U.S. persons or within the U.S. in new 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 (Ministry of Finance) or the Development Bank of the Republic of Belarus (Development Bank).
OFAC issued considerable guidance on Directive 1 in the form of Frequently Asked Questions (FAQs). Notably, while U.S. persons are prohibited from transacting in debt issued after December 2, 2021 by the Ministry of Finance or the Development Bank, the prohibition does not apply to debt issued before December 2, 2021, provided that the terms of that debt were contractually agreed to before December 2 and were not modified after that date. See OFAC FAQ 942.
U.S. persons are also prohibited from entering into derivatives contracts linked to new debt issued by the Ministry of Finance and Development Bank. See OFAC FAQ 948. For U.S. persons that are entered in revolving credit facilities or long-term loan agreements with the Ministry of Finance or Development Bank before December 2, 2021, drawdowns and disbursements with repayment terms of 90 days or less are permitted. Drawdowns and disbursements whose repayment terms exceed 90 days are not prohibited, according to OFAC, if the terms of such drawdown and disbursements (e.g., the length of the repayment period, interest rated applied to the drawdown, and maximum drawdown amount) were contractually agreed to prior to December 2, 2021 and are not modified on or after that date. See OFAC FAQ 947. That notwithstanding, U.S. persons are prohibited from dealing in a drawdown or disbursement on or after December 2, 2021 with a repayment term that is greater than 90 days if the terms of the drawdown or disbursement were negotiated on or after December 2, 2021. OFAC advised that this newly negotiated drawdown or disbursement would constitute a prohibited extension of credit under Directive 1. Id.
Additionally, OFAC advised that its 50 Percent Rule does not apply to Directive 1 – thus, the prohibitions on dealing in debt issued after December 2, 2021 does not (yet) necessarily apply to issuances by subsidiaries or affiliates of the Ministry of Finance or Development Bank. See OFAC FAQ 943.
OFAC also stated that U.S. financial institutions can maintain correspondent accounts and process U.S. dollar-clearing transactions for the Ministry of Finance and Development Bank, provided that such activity is not otherwise prohibited. See OFAC FAQ 946.
In short, OFAC clarified that Directive 1 does not prohibit U.S. persons from engaging in all activities with the Ministry of Finance or Development Bank, other than dealings in certain debt, provided that such activities are not otherwise prohibited by E.O. 14038 or any other sanctions programs. See OFAC FAQ 945.
Potash Sector
In August 2021, OFAC had previously designated Belaruskali OAO, one of the world’s largest producers of potash fertilizer. OFAC went a step further in this latest announcement, sanctioning the Open Joint Stock Company Belarusian Potash Company (BPC), which is responsible for trading and exporting potash on behalf of Belaruskali. A subsidiary of BPC, Agrorozkvit LLC, was also sanctioned under E.O. 14038 for being owned or controlled by, or having acted or purported to act for or on behalf of, directly or indirectly, BPC.
OFAC issued General License 5, which provides U.S. persons with a 120-day period to wind down transactions involving BPC or Agrorozkvit (or any entity in which either owns directly or indirectly, individually or in the aggregate, a 50% or greater interest). The wind down period under General License 5 expires at 12:01 am EST on April 1, 2022. OFAC advised via FAQ 939 that General License 5 does not authorize entry into new purchase contracts or the stockpiling of inventory involving BPC or Agrorozkvit, or any entity that either owns 50% or more in the aggregate, directly or indirectly (unless those transactions are ordinarily incident and necessary to the wind down of permissible transactions).
OFAC also designated the Foreign Limited Liability Company Slavkali, which produces potash fertilizer in Belarus, as well as a luxury helicopter EW-001PH.
Other Actions Against Belarus
OFAC announced numerous additional designations, including Republican Unitary Enterprise Tsentrkurort, which is Belarus’s state-owned tourism company, for the victimization and smuggling of migrants. Additionally, OFAC sanctioned Belarus’s state-owned cargo carrier, JSC Transaviaexport Airlines, and identified two aircraft as property in which it has an interest. Finally, OFAC designated numerous entities in the defense and security sectors, including CJSC Beltechexport (a weapons and military equipment exporter) and OOO Gardservis (a government-backed security force), among others.
Conclusion
In summary, OFAC’s sanctions against Belarus represent yet another multi-lateral escalation of sanctions against Belarus, with the U.S., EU, UK, and Canada aligned. Notwithstanding the situation in Belarus, tensions in Ukraine and with regard to Nord Stream 2 could result in expanded sanctions in the region, particularly impacting those in the financial services and energy industries.
We will continue to closely monitor developments in this space. If you have any questions regarding U.S. sanctions, please contact Bruce Paulsen (212-574-1533) or Andrew Jacobson (212-574-1477) of the Sanctions Practice Group.
