New Belarus Sanctions Could Lead to Compliance Challenges, More Designations, Law Firms Say
New U.S. and European sanctions against Belarus could have broad implications for companies doing business in the region and could signal more multilateral sanctions in the coming months, law firms said this month. The U.S.’s recent restrictions are particularly noteworthy because of a strict new prohibition on certain transactions involving Belarusian sovereign debt, the firms said.
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“It's very much a watch-this-space at the moment, because we could well expect further U.K., U.S. and [other] sanctions to come in due course in the next few weeks,” said Baker McKenzie trade lawyer Ben Smith, speaking during a webinar hosted by the law firm this month.
Earlier this month, the U.S. -- alongside similar designations by the EU, the U.K. and Canada -- sanctioned an additional 20 people, 12 entities and three aircraft for aiding the Alexander Lukashenko regime in Belarus (see 2112020023). The Office of Foreign Assets Control also issued a new Directive 1, which blocks certain transactions, financing or dealings by U.S. people with certain Belarusian debt.
While the “main risk” for companies still involves restricted party screening, the U.S. government is more frequently turning to other types of prohibitions, including restrictions on sovereign debt, Baker McKenzie lawyer Kerry Contini said during the webinar. She specifically pointed to the Biden administration’s April decision to block U.S. financial institutions from participating in the primary market for ruble or non-ruble denominated bonds in Russia (see 2104150019)
But the Belarus sanctions expanded on those Russian measures by also restricting certain activities in the Belarus secondary market, Contini said. She said the Biden administration was initially criticized by some for only placing restrictions on Russia’s primary market and not its secondary market. “The criticism at the time that some made was that this didn't prohibit trading securities among investors” in Russia, Contini said. “So theoretically, U.S. banks could trade in secondary markets and non-U.S. investors could buy Russian bonds knowing that they could be resold to U.S. banks.” She said the new restrictions “essentially cuts that off for Belarus.”
Those restrictions on Belarusian debt could have “broad reach to a variety of instruments as well as derivatives,” Schlute, Roth & Zabel said in a December alert. Willkie Farr & Gallagher said it “adds a layer of complexity that companies with dealings in Belarus will need to build into their compliance programs.”
Companies should also closely inspect the most recent round of individual financial designations, especially because company ownership information in Belarus is “notoriously opaque,” Crowell & Moring said this month. This could present challenges for companies looking to comply with OFAC’s 50% rule, which applies sanctions to any company owned 50% or more by a designated entity.
“With the number of sanctioned Belarussian entities and persons growing,” the firm said, “companies doing business involving Belarus should consider the risk that non-listed entities may have undisclosed ownership or control by sanctioned persons.”
Several firms said they expect more Belarus sanctions soon. Crowell & Moring said the U.S., the EU and the U.K. may look to “harmonize” their sanctions lists and announce more designations to continue to pressure the Lukashenko regime, which has been accused of various human rights abuses and carrying out a fraudulent presidential election earlier this year.
Contini said the U.S. could look to sanction people and entities in the country’s construction, defense and security sectors, all of which were mentioned in an August executive order that expanded the U.S.’s sanctions authority for Belarus (see 2108090033). She also said the administration may consider adding Belarus to the Commerce Department’s military end-use and end-user list, which imposes export licensing requirements on certain goods to listed countries. “That’s something else to keep an eye out for, because that has been an additional tool that the U.S. government has used in recent years,” Contini said, “and it has been increasingly adding some new countries.”