In response to the Russian government’s recognition of the Donetsk and Luhansk People’s Republics of Ukraine (the “Covered Regions”) as states and deployment of Russian troops to the Covered Regions, the United States and its allies have imposed what has been described as the “first tranche” of new Russia-related economic sanctions.
- On February 21, 2022, President Biden issued Executive Order 14,065 imposing an embargo on the Covered Regions.
- On February 22, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed blocking sanctions on two major Russian financial institutions – the State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”) – and certain individuals, adding them to its Specially Designated Nationals and Blocked Persons (“SDN”) list, and imposed further prohibitions related to Russia’s sovereign debt.
- On February 22, 2022, the UK sanctioned the following five Russian banks: Bank Rossiya, IS Bank, Genbank, PSB, and the Black Sea Bank for Development and Reconstruction, as well as three individuals: Gennady Timchenko, Boris Rotenberg, and Igor Rotenberg. All such banks and individuals are SDNs.
- On February 22, 2022, the German government, with support of the EU, suspended the authorization process for the Nord Stream 2 pipeline.
- On February 23, 2022, the EU imposed sanctions on certain individuals and entities, introduced trade restrictions between the Covered Regions and the EU, and restricted Russia’s access to EU capital markets.
- On February 23, 2022, the United States imposed blocking sanctions on Nord Stream 2 AG, a company engaged in construction of the Nord Stream 2 pipeline, and its Chief Executive Officer.
These sanctions are the result of close coordination among the United States and its allies in Europe, as was the case at the time of the first major round of Russia-related sanctions in 2014. Discussions among the United States and its European allies regarding further sanctions are ongoing, and additional countries, including Japan, Taiwan, Singapore, and Australia, are contemplating or in the process of implementing sanctions in response to Russian government action.
U.S. Sanctions
Executive Order 14,065: Comprehensive Sanctions on Covered Regions
The Covered Regions are now U.S.-embargoed territories, like Crimea. Modeled after December 2014 Executive Order 13,685, which imposed comprehensive territorial sanctions on Crimea, Executive Order 14,065 imposes a broad embargo on the Covered Regions, generally prohibiting:
- new investments in the Covered Regions by U.S. persons;
- the importation into the United States of any goods, services, or technology from the Covered Regions;
- the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person, of any goods, services, or technology to the Covered Regions; and
- the approval, financing, facilitation, or guarantee by a U.S. person of any of the transactions described above by a foreign person where the transaction would be prohibited if performed by a U.S. person.
Executive Order 14,065 also authorizes imposition of blocking sanctions on persons determined to operate in the Covered Regions, their affiliates and associates, as well as persons providing material assistance or support to SDNs designated pursuant to Executive Order 14,065.
OFAC has published several general licenses with respect to these new sanctions. General License No. 17 authorizes a wind-down of certain operations, contracts, and transactions involving the Covered Regions by March 23, 2022. Additional general licenses authorize certain humanitarian activities in the Covered Regions.
SDN Designations, Sovereign Debt Restrictions, Russian Financial Sector Determination, and Nord Stream 2 Actions
The United States took the following additional actions:
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OFAC designated as SDNs:
- two major Russian financial institutions that are understood to be crucial to financing the Russian defense industry – VEB and PSB – along with 42 of their subsidiaries. VEB is a state-owned development institution that finances large-scale domestic projects to develop the country’s infrastructure and industrial production. PSB is a state-owned financial institution that finances the defense industry and services large defense contracts. General License No. 3 authorizes the wind-down of transactions with VEB through March 24, 2022; and
- five individuals in President Putin’s inner circle and their family members who allegedly directly benefit from their connections with the Kremlin, including Vladimir Sergeevich Kiriyenko, who is presently the Chief Executive Officer of VK Group, the parent company of Russia’s top social media platform, VKontakte.
- OFAC expanded restrictions on dealings in Russia’s sovereign debt by replacing Directive 1 under Executive Order 14,024 of April 15, 2021 with Directive 1A, which prohibits not only participation in the primary market for ruble or non-ruble denominated bonds issued by, or the lending of ruble or non-ruble funds to, the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, but also participation in the secondary market for bonds issued by these entities after March 1, 2022. General License No. 2 authorizes transactions involving VEB related to the servicing of bonds issued before March 1, 2022 by such entities.
- Pursuant to Executive Order 14,024, the Secretary of the Treasury issued a determination that authorizes sanctions against persons that operate or have operated in the financial services sector of the Russian economy. While such determination exposes persons operating in the Russian financial sector to sanctions risk, only parties specifically designated by the U.S. government are blocked. The Russian technology and defense and related material sectors were directly targeted in Executive Order 14,024.
- After Germany announced that it would halt certification of the Nord Stream 2 pipeline, OFAC designated Switzerland-based Nord Stream 2 AG, which is building the pipeline, and its Chief Executive Officer as SDNs. Last year, the Biden Administration waived sanctions on such parties. Nord Stream 2 AG is owned by Gazprom, the Russian state-owned gas company. General License No. 4 allows a wind-down of transactions involving Nord Stream 2 AG by March 2, 2022.
UK Sanctions
As a result of the February 22, 2022, designation by the UK of five banks (Bank Rossiya, IS Bank, Genbank, PSB, and the Black Sea Bank for Development and Reconstruction) and three individuals (Gennady Timchenko, Boris Rotenberg, and Igor Rotenberg), UK persons are prohibited from dealing with or providing funds or economic resources to the benefit of these banks and individuals, and entities owned or controlled by the newly designated parties.
The UK appears to intend to widen the scope of the entities subject to sanctions in response to military developments, and there is growing pressure from within the House of Commons for the UK government to take a harsher line.
EU Sanctions
On February 23, 2022, the EU member states agreed to impose the following new sanctions on Russia:
- the addition of 378 individuals and entities (to be published by the EU) to the EU list of sanctioned persons, including 351 members of the Russian State Duma who voted in favor of recognizing the independence of the Covered Regions and 27 high profile individuals and entities who played a key role in Russia’s advances in the Covered Regions. The sanctions entail the freezing of the listed persons’ assets in the EU, the prohibition of making funds available to them, and banning of their traveling into or transiting through the EU;
- restrictions on trade of goods between the EU and the Covered Regions, including a prohibition on import of goods and export of specific goods and technologies (to be published by the EU), restrictions on trade and investments related to specific economic sectors (to be published by the EU), and a prohibition on tourism services; and
- further restrictions on access to the EU’s capital and financial markets and services by the Russian Federation and its government, including the Central Bank.
Russian Counter-Sanctions
Russia has not yet announced any measures in response to recent developments. However, in September 2021, the Russian President extended, for the sixth time and until the end of 2022, special economic measures introduced in 2014 that restrict import of agricultural products, raw materials, and food from states that have imposed economic sanctions against Russia.
Additional Sanctions Likely to Follow Any Further Actions by Russia
Echoing statements by UK and European leaders, President Biden warned of additional, more severe, sanctions should Russia take further action with respect to Ukraine. Companies should continue to closely monitor developments and assess their impact on business activities.