Another package of economic sanctions has been introduced against Belarus. US President Joe Biden signed a new executive order expanding both the number of Belarusian persons under sanctions and the range of restrictive measures applied. These actions mark another stage in the escalation of pressure on Minsk. They are largely the same as previously-imposed EU restrictions.
The new executive order of the President of the United States was published on August 9 this year. It expanded the state of emergency in connection with the “undermining of democratic processes and institutions in Belarus”, which was introduced by George W. Bush in 2006 (Executive Order 13405). There are several new features in the new decree.
First, the sanctions have acquired a sectoral dimension. The sectoral meaning of the sanctions differs from that in which they are used against the Russian defence, financial and energy sectors. In the case of Russia, we are talking about a certain set of restrictions used against a number of organisations from the aforementioned sectors, which is not related to blocking sanctions. For this, a separate list of persons subject to sectoral sanctions (Sectoral Sanctions Individuals) is maintained. They are milder in comparison with blocking sanctions and, in the case of each sector, imply a separate set of restrictive measures. The new sanctions against Belarus are a hybrid of sectoral and blocking sanctions. Specialised executive bodies of the United States are given the opportunity, at their discretion, to block people associated with certain sectors.
That is, this hybrid option is more destructive. In the case of Belarus, we are talking about such sectors as defence, state security, energy, potassium production, the tobacco industry, construction and transport. In other words, the affiliation of an organisation to one of the indicated sectors can in itself become the basis for blocking sanctions.
The latter, in turn, imply a ban on US citizens and organisations carrying out any transactions with a blocked person. Such persons lose, among other things, access to the US market, as well as the ability to use US dollars in their settlements. The US has already used hybrid blocking and sectoral sanctions against Iran and Russia. With regard to Russia, we are talking about the recent Executive Order 14024, which, among other things, targeted Russian citizens associated with the technology sector with blocking sanctions.
Second, any government structure and its leadership, as well as any organisation that the US authorities consider a government agent or instrument, can now fall under blocking sanctions. This is a broader interpretation in comparison with Executive Order 13405 of 2006. At that time, only those persons who were believed to be involved in the undermining of democratic institutions in the United States were subject to blocking sanctions. Now, any state or state-related organisation can be sanctioned.
Third, the range of actions subject to sanctions has been expanded. In particular, they include actions to undermine the “peace, security and territorial integrity” of the Republic of Belarus, corruption, the violation of freedom of speech and press, etc.
Simultaneously with the issuance of the decree, the US Treasury announced blocking sanctions against 23 individuals and 21 organisations in the Republic of Belarus. They include: Belneftegaz, Belaruskali, Belkaztrans, Absolutbank, Energo-Oil, New Nafta Company, Dana Holding, Dana Astra, Oil Bitumen Plant, Bremino Group, Dubai Water Front, Emirates Blue Sky, Inter Tobacco, New Oil Company Vostok, Intersevis, and Neman Tobacco.
To this list we need to add nine more large companies, according to which at the beginning of June this year the general license was not renewed. That is, they were no longer exempt from the sanctions.
In part, this list overlaps with the list of 78 organizations specified by the European Union when it introduced its restrictions in June. Brussels also used sectoral sanctions, but their principle is different from the American one. In particular, certain categories of petroleum products and potash fertilisers were prohibited from being imported into the EU, but significant concessions were made. In the American case, there are no such indulgences. Specific companies are blocked. The general license for Belaruskali, exempting it until December 2021, can be considered a weak consolation. However, such a license is only needed to wind up existing transactions and its extension is far from guaranteed. Along with the US and the EU, the UK has also introduced new sectoral and blocking sanctions, as well as Canada and Switzerland.
The effect of US sanctions will be much stronger in comparison with the restrictive measures of the EU and other countries. This is due to the persistence of US authorities in enforcing compliance, targeting companies, organisations and individuals that violate their sanctions regimes. Over the past 10 years, EU businesses have been slapped with hefty fines by the US Treasury. Their aggregate volume, since 2009, is nearly 5 billion US dollars. It is highly probable that EU banks and other counterparties of Belarusian companies that have come under sanctions are unlikely to decide to continue transactions, fearing secondary sanctions and coercive US measures. The ineffectiveness of the 1996 EU Blocking Statute, which was designed to protect EU businesses from extraterritorial sanctions by third countries, will only strengthen their resolve.
Other jurisdictions, including India, China and even Russia, are also wary of the prospect of administrative and criminal investigations by the US authorities. Russian business is not eager to be on the list of blocked persons or to go through the exhausting millstones of administrative or criminal proceedings. Joe Biden’s new executive order has a specific rule that will be of concern to businesses. Paragraph “D” of Article 1 of the new decree subjects those persons who carry out transactions bypassing the US sanctions regime in the interests of the government of the Republic of Belarus or parties blocked on the basis of this decree to US blocking sanctions; order 13405 applies the same measures to individuals and legal entities. At the same time, in contrast to order 13405, where a similar norm was enshrined, the nationality of the violators is not indicated. In theory, they could be anyone. American regulators may well interpret this provision broadly, which has already taken place in practice in relation to other sanctions regimes.
In other words, the popular point of view in the media that now Belarusian industry is “automatically” reorienting from counterparties in the EU and the United States to Russia should be taken with great caution. The question of the financial infrastructure for transactions within the Union State of Russia and Belarus is becoming even more urgent.
From our partner RIAC