On March 2, 2021, the Secretary of State designated various entities affiliated with Russia’s government, including the FSB, as parties subject to Executive Order 13382 for “having engaged, or attempted to engage, in activities or transactions that have materially contributed to, or pose a risk of materially contributing to, the proliferation of weapons of mass destruction.” This designation was prompted by the poisoning of dissident Alexander Navalny, and may result in some public companies that do business in Russia being required to provide the disclosure and accompanying “Iran Notice” filing contemplated by Section 13(r) of the Exchange Act.
A Bryan Cave blog reviews the scope & implications of the new sanctions designations, including the potential disclosure obligations for public companies with business in Russia:
Importantly, the additional sanctions designations pursuant to EO 13382 may trigger reporting to the SEC pursuant to Section 13(r)(1)(D) of the ’34 Act. Although Section 13(r)(1) of the ’34 Act is typically associated with the sanctions against Iran, some of the reporting triggers are broader than just transactions involving Iran. Among the broader triggers are any transactions or dealings knowingly conducted with “any person the property and interests in property of which are blocked pursuant to Executive Order No. 13382.”
Based on this, parties that engage in transactions with any of the parties now blocked pursuant to EO 13382 in connection with the Navalny poisoning must be cognizant of these reporting requirements if the party is an issuer or the affiliate of an issuer required to report on a periodic basis to the SEC.
There are a number of Russian entities subject to the sanctions, but the big kahuna is the FSB. As a Hogan Lovells memo notes, the FSB plays a prominent role in licensing the importation of IT and other encryption products into Russia. Notification to or approval by the FSB may be necessary for a variety of technology products, including “laptops and smartphones, connected cars, medical devices, software, or any other items that make use of ordinary commercial encryption.”
OFAC updated General License No. 1B to confirm United States persons may continue to interact with the FSB for purposes of qualifying their products for importation and distribution in Russia, but that license doesn’t include an exemption from providing the disclosure required by Section 13(r) of the Exchange Act or from filing the accompanying Iran Notice with any annual or quarterly report.
-John Jenkins, TheCorporateCounsel.net April 26, 2021