On 9 August 2021, the UK, US and Canadian governments announced the imposition of additional sanctions on Belarus. These new measures follow the coordinated imposition of sanctions against Belarus by the EU, UK, Canada and the US in June 2021.
In summary, the new UK measures comprise:
- the addition of one individual to the existing asset freeze list;
- the imposition of additional financial sector sanctions on certain Belarusian entities (similar to those currently imposed on Russian entities in response to the situation in Ukraine);
- a prohibition on the provision of insurance and reinsurance services; and
- trade sanctions impacting certain specific types of goods and services, including the provision of aviation-related technical assistance.
The new measures were alluded to in the press release announcing the previous round of Belarus sanctions in June and mean that the UK’s Belarus sanctions regime is now more closely aligned with the sanctions imposed by the EU at that time.
In summary, the new US measures comprise an executive order and accompanying designations that resulted in:
- the imposition of blocking sanctions on individuals and entities associated with the government of Belarus;
- the imposition of blocking sanctions on certain sectors of the Belarusian economy (including energy, defense, transportation, potash, tobacco, and construction); and
- the designation of 23 individuals and 21 entities.
These new measures reflect the Biden Administration’s continuing strategy of close coordination with US allies before implementing new sanctions. The imposition of sectoral sanctions is a significant escalation of US sanctions on Belarus and may result in additional designations in the future.
This briefing sets out more detail on the new restrictions.
On August 9, 2021, President Biden issued a new Executive Order (“EO”), entitled “Executive Order on Blocking Property of Additional Persons Contributing to the Situation in Belarus” to impose new sanctions on the government of Belarus. The EO expands on the scope of an existing order authorizing sanctions on Belarus, EO 13405, entitled “Blocking Property of Certain Persons Undermining Democratic Processes or Institutions in Belarus.” These sanctions follow an earlier round of US sanctions announced on June 21, 2021 in response to the Ryanair Incident (we discussed these sanctions in an earlier blog post). The EO cites the Ryanair Incident, the “fraudulent Belarusian presidential election” on August 9, 2020, and subsequent human rights abuses as the basis for the new sanctions.
The EO authorizes the Secretary of State and Secretary of the Treasury to impose new blocking sanctions and visa restrictions on certain individuals and entities associated with the government of Belarus, operating in certain sectors of the Belarusian economy (discussed below), and on individuals or entities determined to be “responsible for or complicit in, or to have directly or indirectly engaged or attempted to engage in” any of the following activities:
- actions or policies that threaten the peace, security, stability, or territorial integrity of Belarus;
- actions or policies that prohibit, limit or penalize the exercise of human rights and fundamental freedoms;
- electoral fraud or other actions or policies that undermined the electoral process in a Belarus election;
- deceptive or structured transactions to circumvent US sanctions; and
- public corruption related to Belarus.
As a result of the EO, all of the sanctioned entities and individuals’ property and interests in property in the US or in the possession or control of U.S. persons are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in, unless otherwise permitted by a license.
The EO further identifies several economic sectors that may now lead to the imposition of blocking sanctions. There is significant overlap with the sectors targeted by the UK’s sanctions discussed below, but the US restrictions are generally more expansive. The EO authorizes blocking sanctions to be imposed on entities and individuals that are determined to operate or have operated in the following sectors of the Belarusian economy:
- the defense and related material sector;
- the energy sector;
- the potassium chloride (potash) sector;
- the tobacco products sector;
- the construction sector;
- the transportation sector.
Foreign companies doing business in Belarus are exposed to secondary sanctions under this provision to the extent that they “operate in” any of the identified sectors of the Belarusian economy. In addition to the named sectors, the EO also authorizes the Treasury Secretary (in consultation with the Secretary of State) to identify additional sectors of Belarusian economy that may give rise to blocking sanctions.
Accompanying OFAC Designations
Pursuant to the August 9, 2021 EO and existing authorities, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) concurrently announced the designation of 23 individuals and 21 entities connected to the Belarus government.
The individuals and entities designated include, among others:
- Belarus’s National Olympic Committee;
- government officials involved in the Ryanair Incident;
- two Belarus state security services and associated government officials; and
- state-owned enterprises, private companies and individuals operating in sanctioned sectors of the Belarus economy.
As a result of the new designations, all property and interests in property of the individuals and entities described above that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50% or more by one or more blocked persons are also blocked. Unless authorized by a general or specific license, or otherwise exempt, all transactions by U.S. persons that involve any property or interests in property of these designated persons are generally prohibited. The prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person, or the receipt of any contribution or provision of funds, goods, or services from any such person.
OFAC’s press release provides some insight into the decision to target specific economic sectors. In it, OFAC describes several of the newly designated individuals as “Lukashenka’s wallets” because they allegedly “enrich Lukashenka personally and finance his corrupt and brutal regime” in exchange for receiving preferential government treatment. The press release identified three individuals who acted as such “wallets,” including: Mikalai Varabei (“Lulashenka’s Energy Wallet”); Aliaksey Aleksin (“Lukashenka’s Tobacco Wallet”), and Nebojsa Karic (“Lukashenka’s Construction Wallet”).
The new UK sanctions are contained in the Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2021 (the “Amending Regulations”), which came into force at noon on 9 August 2021 and amend the Republic of Belarus (Sanctions) (EU Exit) Regulations 2019 (the “Regulations”). In its press release announcing the new measures, the UK’s Foreign Commonwealth & Development Office stated that “these measures represent a significant additional step in bringing pressure to bear on the Lukashenko regime. They are carefully targeted to build pressure on Lukashenko, state institutions and those around him to change behaviour, while minimising, as far as possible, any unintended consequences on the wider population in Belarus”.
We have set out the key elements of the new UK sanctions below.
A Russian businessman has been added to the UK’s asset freeze list on the basis that he is said to have provided support for the government of Belarus, including through his business interests. As with other asset freezing restrictions, UK companies and persons within the territory of the UK are prohibited from dealing with his funds or economic resources, or making funds or economic resources available to him (directly or indirectly).
Financial sector restrictions
As part of the UK’s sectoral sanctions package, it has imposed restrictions limiting certain Belarusian entities’ access to the capital markets.
The Amending Regulations contain a prohibition on directly or indirectly dealing with transferable securities or money market instruments with a maturity exceeding 90 days issued after noon on 9 August 2021 by a “relevant person”. The dealing prohibition also extends to the provision of investment services in respect of such instruments/securities.
“Relevant person” is defined so as to capture:
- a Belarusian authority;
- any entity wholly owned by Belarus or a Belarusian authority; and
- (i) a credit or financial institution majority-owned by Belarus or a Belarusian authority, (ii) any non-UK entity majority-owned by such a credit or financial institutions, or (iii) anyone acting on behalf of or at the direction of an entity falling within (i) or (ii).
The concepts of “wholly-” and “majority-owned” are defined by reference to both shares and voting rights, and further supplemented by detailed ownership tests in a Schedule to the Regulations. So a company is wholly or majority owned if Belarus or a Belarusian authority holds (directly or indirectly) 100% or more than 50% (respectively) of the shares or voting rights in that company, applying those tests. These restrictions are therefore similar, but not identical in scope, to the parallel EU restrictions.
For these purposes, “Belarusian authority” means any of the following:
- public bodies and agencies subordinate to the President of Belarus;
- the Council of Ministers of Belarus and each of its members;
- any Ministry of the Government of Belarus;
- any public body, agency or state concern subordinate to the Council of Ministers of Belarus;
- any State Committee of Belarus;
- the National Bank of Belarus; or
- any local government body of Belarus.
The Amending Regulations also prohibit directly or indirectly granting a loan or credit with a maturity exceeding 90 days (or entering into any arrangement to directly or indirectly grant such a loan or credit) to a relevant person. There is an exemption in respect of: (i) a relevant loan that has the specific and documented objective of making funds available for non-restricted trade involving the import or export of goods from/to the UK, or the supply or receipt of non-financial services from/to the UK; and (ii) drawdowns or disbursements made under an arrangement entered into before the Amending Regulations came into force, subject to certain conditions being met.
The Amending Regulations also provide that HM Treasury may license acts which would otherwise be prohibited by the lending restrictions. This differs from the position in relation to the corresponding Russian lending restrictions, where no licensing grounds are available. Under the Amending Regulations, licences may be granted in respect of humanitarian assistance activity, nuclear safety, to deal with an extraordinary situation, or in relation to diplomatic missions/consular posts in the UK.
The new sanctions prohibit the provision of insurance and reinsurance services to:
- a Belarusian authority (as defined above);
- an entity wholly owned by Belarus or a Belarusian authority; or
- anyone acting on behalf of or at the direction of any of the above.
Note that the scope of these restrictions is slightly different to the other financial sector restrictions described above.
Again, the restriction on the provision of insurance is subject to licensing under specific grounds.
The Amending Regulations do not prohibit compliance with any insurance or reinsurance agreement concluded before they came into force and contain exemptions permitting the provision of (i) compulsory or third party insurance to Belarusian nationals or a Belarus-incorporated entity located in the UK; and (ii) insurance for a diplomatic mission or consular post of Belarus in the UK.
The new UK sanctions package also includes a series of trade restrictions applying to the following:
- military goods and technology;
- dual-use goods and technology;
- internal repression goods and technology;
- interception and monitoring goods and technology and services;
- technical assistance relating to aircraft (where that assistance is provided to a person who has been designated for the purposes of this restriction1);
- tobacco industry goods;
- potash; and
- petroleum products.
In many cases, restrictions on the import or export of the listed goods are accompanied by related restrictions on the provision of technical assistance and/or financing or brokering services relating to the listed items. As readers may be aware, the UK definitions of these ancillary services are broader than the equivalent EU concepts.
There are various exemptions and licensing grounds applying to these restrictions, including licences relating to the performance of certain contracts entered into prior to the Amending Regulations coming into force.
Under the new sanctions, the Secretary of State may direct the Civil Aviation Authority to refuse, suspend or revoke permissions given to Belarusian aircraft.
The UK has published guidance on the new sanctions measures. However, this does not go into the same level of detail as the FAQs published by the Office of Financial Sanctions Implementation in relation to the Russia capital markets restrictions (which take a similar form to the financial sector sanctions on Belarus mentioned above and which derive from FAQs issued by the European Commission). The Russia FAQs offer guidance on the application of the sanctions to certain derivatives and other capital markets transactions and provide further clarity on the scope of the Russian lending restrictions; it is unclear whether they should be read as also applying to the new Belarus sanctions and/or whether specific Belarus guidance will be forthcoming.
In addition to screening relevant counterparties against the updated asset freeze list, UK companies should ensure that they assess whether they are party to any transactions with Belarusian counterparties which may be impacted by the new sectoral sanctions.
Canada also announced new sanctions on Belarus on August 9, 2021. In a press release, the Canadian government announced that it was imposing new sanctions pursuant to the Special Economic Measures Act to address human rights abuses in Belarus.
The new sanctions prohibit Canadians and persons in Canada from engaging, directly or indirectly, in the following activities:
- dealing in transferable securities and money market instruments issued by the government of Belarus or state-owned entities;
- transacting in debt of longer than 90 days’ maturity in relation to the government of Belarus or state-owned entities;
- providing insurance or reinsurance to the government of Belarus or state-owned entities;
- transacting in petroleum products exported from Belarus;
- transacting in potassium chloride exported from Belarus.
We will continue to monitor developments in this area, and encourage you to subscribe to be kept informed of latest developments. Please contact the authors or your usual Herbert Smith Freehills contacts for more information.
1) The guidance referred to below lists certain aircraft which the government considers fall within the scope of these restrictions.