On December 2, 2021, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury took several actions to increase sanctions pressure on Belarusian government, including the introduction of a new sectoral sanctions regime (Directive 1) targeting certain Belarusian sovereign debt, the designation of 35 additional persons and entities to the Specially Designated Nationals and Blocked Persons List (SDN List), and the issuance of general license 5 (GL 5) for the wind down of dealings with two entities designated in the potash sector.  OFAC’s designations were made pursuant to Executive Orders (EO) 14038 (“Blocking Property of Additional Persons Contributing to the Situation in Belarus”), dated August 9, 2021, and EO 13405 (“Blocking Property of Certain Persons Undermining Democratic Processes or Institutions in Belarus”), dated June 16, 2006.

We have previously commented on the Biden Administration’s multi-lateral efforts in connection with Belarus in June 2021 and August 2021.

Key takeaways from latest OFAC action include the following:

  • US financial institutions with exposure to Belarusian sovereign debt may need to perform more extensive due diligence to assess the applicability of Directive 1. Although OFAC has issued an extensive set of eight FAQs in connection with Directive 1 (discussed below), assessing whether Directive 1 applies in practice may require, for example, determining whether any “terms” of pre-existing credit facilities or agreements concluded prior to December 2, 2021 were “negotiated” on or after December 2, 2021.  Any modifications in existing credit facilities that would otherwise be covered could conceivably bring the facility within Directive 1.
  • The latest round of designations signals a continued ratcheting-up of the US Belarus sanctions program, with OFAC’s press release specifically noting that this marks the fifth round of designations since the allegedly fraudulent Belarusian presidential election in August 2020. Given the secondary sanctions authorization in EO 14038 (discussed in our August 2021 post) for non-US persons operating in the targeted sectors of the Belarusian economy, companies should be aware that further designations appear likely.  OFAC guidance states that entities currently operating in the economic sectors listed in EO 14038 are not automatically blocked by virtue of EO 14048, but “[t]he identification of a sector pursuant to [EO 14048] provides notice that persons operating in the identified sector risk exposure to sanctions . . . .”  Thus far, OFAC’s sectoral designations have focused on key entities in the potash, agricultural chemicals, and defense sectors of the Belarusian economy.

We summarize the key features of the December 2 action below.

Restrictions on purchases of Belarusian sovereign debt.

Directive 1 introduces restrictions on US persons or persons within the United States from engaging in “all transactions in, provision of financing for, and other dealings in new debt with a maturity of greater than 90 days issued on or after December 2, 2021,” if issued by the Ministry of Finance of the Republic of Belarus or the Development Bank of the Republic of Belarus.  As noted below, the Directive 1 restrictions differ from the sectoral sanctions imposed under the US Russia/Ukraine sanction program because, OFAC’s 50 Percent Rule does not apply to Directive 1.  OFAC issued eight FAQs in connection with Directive 1, which are summarized below:

  • FAQ 940 confirms that US persons are prohibited from engaging in the primary and secondary markets for new debt with a maturity of 90 days or greater. The restriction applies only to debt issued on or after December 2, 2021 by either the Belarusian Ministry of Finance or the Development Bank of the Republic of Belarus (collectively, the Directive 1 Entities).
  • FAQ 942 clarifies that US persons are not prohibited from dealing in new debt issued by the Directive 1 Entities issued prior to 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, 2021 and are not modified on or after December 2, 2021.”
  • FAQ 943 clarifies that OFAC’s 50 Percent Rule, according to which any entity owned 50 percent or more by a blocked person is also deemed to be blocked by operation of law, does not apply to the Directive 1 Entities.
  • FAQ 944 confirms that the term “debt” is defined as including “bonds, loans, extensions of credit, loan guarantees, letters of credit, drafts, bankers’ acceptances, discount notes or bills, or commercial paper.” This is consistent with the definition used in other OFAC sanctions programs.
  • FAQ 945 clarifies that Directive 1 is a limited, sectoral sanctions program. In other words, unlike SDNs, with whom US persons are generally prohibited from having any dealings, Directive 1 only applies to “certain activities,” e., the activities described in Directive 1 and in FAQ 940.  Apart from these activities, all other activities are permitted, provided they are not otherwise in violation of US sanctions.  As of this writing, OFAC has not designated the Directive 1 Entities as SDNs.
  • FAQ 946 confirms that US financial institutions “may continue to maintain correspondent accounts and process U.S. dollar-clearing transactions” for the Directive 1 Entities, provided such activity is not otherwise in violation of US sanctions.
  • FAQ 947 addresses the situation where a US person entered into a revolving credit facility or long-term loan agreement for a person determined to be subject to Directive 1 under E.O. 14038 prior to December 2, 2021. OFAC states that, in this situation, (i) drawdowns and disbursements with repayment terms of 90 days or less are permitted; and (ii) drawdowns and disbursements whose repayment terms exceed 90 days are not prohibited if the terms of such drawdowns and disbursements (including the length of the repayment period, the interest rate applied to the drawdown, and the maximum drawdown amount) were contractually agreed to prior to December 2, 2021 and are not modified on or after December 2, 2021.  However, drawdowns or disbursements that were initiated after December 2, 2021, with terms greater than 90 days, are prohibited if the terms were negotiated on or after December 2, 2021.
  • FAQ 948 confirms that US persons are prohibited from entered into derivatives contracts whose value is linked to an underlying asset that constitutes prohibited debt, e., new debt issued by the Directive 1 Entities where the maturity is 90 days or greater.

Additional designations

The additional designations announced on December 2, 2021 fell into several categories, as noted below:

  • Potash sector. Belarus reportedly produced up to 20% of the world’s potash supply prior to the onset of the coordinated, multi-lateral sanctions in 2021.  Potash is a key input to agricultural fertilizers.  Following OFAC’s designation of Belarus’ leading potash exported in August 2021, the December 2 action by OFAC targets three additional entities in the potash sector.  One of these entities operates as the primarily facilitator of Belarus potash exports worldwide.  In connection with the additional designations in the potash sector, OFAC has issued GL 5, which gives US persons 120 days from December 2, 2021 to wind down operations with the relevant entities.
  • Migrant smuggling and victimization of migrants. OFAC alleges in its press release that the Lukashenka regime has “orchestrated irregular migration” via Belarus to the European Union, including by “direct[ing] and forc[ing] migrants across the border to facilitate their passage into the EU.”  For this reason, OFAC designated the Belarusian state-owned tourism company, as well as seven Belarusian officials at the Belarusian State Border Committee, the entity responsible for border security.
  • Defense and security sectors. OFAC designated five entities in the Belarusian defense and security sectors that either produce or export defense materials, as well as identifying two aircraft as property in which one of the newly-designated entities has an interest, i.e., blocked property.

In addition to the above, OFAC designated a number of individuals, including 10 senior officials alleged to have participated in actions or policies that undermine democratic processes or institutions in Belarus, as well as the son of President Lukashenka, among others.

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Please reach out to your usual HSF New York contacts with any questions.  We will continue to monitor developments.


Jonathan Cross
Jonathan Cross
+1 917 542 7824
Christopher Boyd
Christopher Boyd
+1 917 542 7821
Brittany Crosby-Banyai
Brittany Crosby-Banyai
+1 917 542 7837