Dentons’ International Trade and Public Policy teams are closely following sanctions developments targeting Russia related to the situation in Ukraine, including actions by the Biden administration and in Congress. We will provide updates below as this very fluid situation evolves.

If you have questions, please reach out to our key contacts here.

Use the links below to navigate to specific updates.

• View updates: March 5, 2022 – March 18, 2022
• March 2, 2022: BIS expands Russia export sanctions to Belarus, including EAR-based restrictions on non-export activities of US persons; makes certain clarifications to February 24 Russia rule
• March 2, 2022: Additional measures with respect to Russia and Belarus
• February 28, 2022: The US prohibits transactions involving the Central Bank of the Russian Federation, blocks “key Russian sovereign wealth fund” RDIF
• February 25, 2022: The US imposes sanctions on Russian Federation President Vladimir Putin and other key members of Russia’s Security Council
• February 24, 2022: US tightens export controls on Russia, including for certain foreign-made goods
• February 24, 2022: The US imposes further punitive sanctions on Russia and Belarus in response to invasion of Ukraine
• February 23, 2022: US imposes sanctions on Nord Stream 2 AG and its CEO
• February 22, 2022: US imposes additional sanctions on Russia targeting key financial institutions and sovereign debt transactions
• February 21, 2022: New US sanctions target Russian actions involving Donetsk and Luhansk regions of Ukraine

March 2, 2022: BIS expands Russia export sanctions to Belarus, including EAR-based restrictions on non-export activities of US persons; makes certain clarifications to February 24 Russia rule

On March 2, 2022, BIS published a Final Rule imposing export sanctions on Belarus that parallel those imposed on February 24 as to Russia. The Final Rule also revises and clarifies certain aspects of the February 24 Russia rule.  Here is what you need to know:

• As with Russia, items described under an ECCN in CCL Categories 3, 4, 5, 6, 7, 8, and 9 will now require a license to export, reexport, or transfer to or within Belarus.
• The rule resolves an ambiguity in the February 24 rule as to the license requirements applicable to 5A992 and 5D992.c. mass market encryption items to certain end users in Russia.  It sets out circumstances where such items do not require a license to either Russia or Belarus.   
• The new Foreign Direct Product (“FDP”) rules applicable to Russia generally and Russian military end users or end uses now also apply to Belarus generally and Belarusian military end users and end uses.
• The new rule adds Belarus to the countries in which US persons are restricted from providing “support” to or for a military-intelligence end use or end user.  Russia had been among those countries prior to the current situation in Ukraine.  It also expands to Belarus the existing EAR prohibition on exports to such end uses or end users.
• The rule removes certain exceptions for exports to certain Russian military end users on the Entity List that had been present in the February 24 rule.
• The rule extends to Belarus the provisions in the February 24 rule as to availability of EAR license exceptions.
• The rule adds licensing requirements to Belarus under multilateral regimes and generally aligns the licensing review policy applicable to Belarus with that applicable to Russia. This involves a policy of denial for items controlled under multilateral regimes, except as to civil space cooperation.  Under the new export sanctions, exceptions to the policy of denial include humanitarian aid, civil communications, flight safety, and certain exports to subsidiaries and joint ventures of companies in the US and close allies.
• A savings clause allows shipments en route to Belarus as of March 26, 2022 that would now require a license as a result of the expanded FDP rules to continue to their destination. Other items affected by the new rule (i.e., those controlled because they are under an ECCN in Categories 3-9) that are en route as of March 2, 2022 may continue to their destination.

March 2, 2022: Additional measures with respect to Russia and Belarus

The White House announced the imposition of additional economic measures to be deployed by various US agencies, including the Department of State and the Department of Commerce, with respect to Russia and Belarus in response to Russian President Putin’s invasion of Ukraine. In so doing, the White House stated that Belarus was “enabling Putin’s invasion of Ukraine,” and that these measures were intended to “weaken the Russian defense sector and its military power for years to come, target Russia’s most important sources of wealth, and ban Russian airlines from U.S. airspace.”

The measures announced include:

• The extension of the recent export control restrictions issued by the Department of Commerce’s Bureau of Industry and Security for Russia to Belarus;
• Blocking sanctions on Russian defense entities via the Department of State’s designation of 22 Russian defense-related entities, including entities that manufacture combat aircraft, infantry fighting vehicles, electronic warfare systems, missiles, and unmanned aerial vehicles;
• Export control restrictions on oil and gas extraction equipment intended to limit Russia’s long-term oil refining capacity. In announcing these measures, the White House highlighted its “strong interest in degrading Russia’s status as a leading energy supplier over time”;
• Entity List restrictions as to entities determined to have been involved in, contributed to, or otherwise supported the Russian and Belarusian security services, military and defense sectors, and/or military and defense and research and development efforts; and
• Closing off of American air space to all Russian flights, including aircrafts certified, operated, registered, or controlled by any person connected with Russia. This prohibition will apply to both passenger and cargo aircraft.

February 28, 2022: The US prohibits transactions involving the Central Bank of the Russian Federation, blocks “key Russian sovereign wealth fund” RDIF

In response to Russia’s further escalation of the crisis in Ukraine, OFAC issued Directive 4 under Executive Order 14024, which prohibits any transaction by US persons with the Central Bank of the Russian Federation, National Wealth Fund of the Russian Federation, and Ministry of Finance of the Russian Federation. The prohibitions specifically include transfers of assets to such entities or any foreign exchange transaction for or on behalf of such entities. 

OFAC also issued General License No. 8A (“GL 8A”), which amends General License No. 8, issued on February 24, authorizing certain transactions “related to energy” until June 24, 2022. GL 8A adds the Central Bank of the Russian Federation to the list of entities with which the general license authorizes specified transactions. The term “related to energy” remains as it was defined in GL 8. GL 8A excludes from its amended scope dealings in Russian sovereign debt and debits to accounts of the Russian Central Bank maintained at US financial institutions.

In addition, OFAC added the Russian Direct Investment Fund (RDIF), “a key Russian sovereign wealth fund … with exposure to the [US] financial system,” RDIF’s management company, one of the management company’s subsidiaries, and RDIF’s CEO, Kirill Dmitriev, to the SDN List. As a result, US persons are generally prohibited from dealing with these designated entities and their property and interests in property are blocked.

February 25, 2022: The US imposes sanctions on Russian Federation President Vladimir Putin and other key members of Russia’s Security Council

On February 25, 2022, the US Department of Treasury’s Office of Foreign Assets Control (OFAC) added Russian President Vladimir Putin to the List of Specially Designated Nationals (“SDN List”). Further, OFAC added Russian Minister of Foreign Affairs Sergei Lavrov, Russian Minister of Defence Sergei Shoigu, and Russian Armed Forces Chief of the General Staff Valery Gerasimov to the SDN List as well.

In announcing these actions, Treasury described the four sanctioned individuals as being “directly responsible” for the “further invasion of Ukraine.”

February 24, 2022: US tightens export controls on Russia, including for certain foreign-made goods

On February 24, 2022, in response to the Russian invasion of Ukraine, the US Commerce Department’s Bureau of Industry and Security (“BIS”) issued a Final Rule expanding the scope and restrictiveness of US controls on exports, reexports and in-country transfers to Russia. The Final Rule has a scheduled publication date in the Federal Register of March 3, 2022; however, BIS has stated that the regulation was effective upon publication on February 24. Updated sections have already been posted to the BIS website, but have not been updated in the electronic Code of Federal Regulations as of the date of this alert.

The US has been ratcheting up export controls as to Russia for some time, through use of the Entity List, military end use / end user controls, and imposing export license requirements for most items subject to more stringent, multilateral export controls. The new restrictions “target Russia’s defense, aerospace and maritime sectors” and are intended to “cut off Russia’s access to vital technological inputs, atrophy key sectors of its industrial base, and undercut its strategic ambitions to exert influence on the world stage.”

Here is what you need to know about the latest restrictions:

• Almost all US-origin goods, including software and technology, with an Export Control Classification Number (“ECCN”) on the Commerce Control List (“CCL”) will require a license to export or re-export to Russia - including 58 additional ECCNs that had not previously been controlled for Russia, such as 9A991 (which includes most civil aircraft and components) and 7A994 (which includes navigation and avionics items). Notably, this new licensing requirement does not apply to deemed exports or deemed reexports.
• Almost all US-origin goods will require a license to Russian military end users or end uses, and Russian entities on the Military End User List are being moved to the Entity List with a “Footnote 3” designation.
• There are two new “foreign direct product rules” by which foreign-made items can be subject to US export controls jurisdiction.
  • Under the Russia FDP rule, foreign-made items produced using US-origin technology and software that requires a license to Russia, or using a plant or major plant component produced from such technology or software, may require a license to export or re-export to Russia, if shipped after March 26, 2022. The Russia FDP rule, however, does NOT apply to foreign produced items that would be EAR99 if they were subject to US export controls, an exception that would include many commercial and consumer products.
  • Under the Russia Military End-User FDP rule, foreign-produced items made with any US-origin software or technology, or using a plant or major plant component produced from such technology or software, would be controlled for export, reexport or transfer involving any entity with a footnote 3 designation on the Entity List, subject to certain limited exceptions.
  • Notably, a list of US-designated “partner” countries are excluded from the two new FDP rules. These countries are: Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, New Zealand, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and the United Kingdom. This means that exports, reexports, and transfers (in-country) from these countries are not subject to these new FDP rules.
• Most license applications to Russia will be reviewed under a policy of denial except for certain circumstances involving humanitarian aid, civil communications, flight safety, and subsidiaries and joint ventures of companies in the US and close allies.
• License exceptions with broad applicability may not be used as to Russia or Russian Entity List entities unless their continued availability is specifically noted in the section imposing the export control sanctions on Russia or in any applicable Entity List entry.
• A license will be required for most items subject to the EAR to the so-called Donetsk People’s Republic (“DNR”) or Luhansk People’s Republic (“LNR”), other than food and medicine that is EAR99 or certain software for internet-based communications.

The new rule is available here.

February 24, 2022: The US imposes further punitive sanctions on Russia and Belarus in response to invasion of Ukraine

On February 24, 2022, following Russia’s large-scale military attacks on Ukraine, the US issued punitive sanctions targeting people and entities in Russia and Belarus. These measures were aimed at severing major parts of the Russian financial sector from access to the US financial system and capital markets, including access to the US dollar. In so doing, the United States imposed blocking sanctions on four major Russian banks, including Russia’s second largest bank, VTB Bank and numerous subsidiaries; imposed correspondent account and payable-through account (“CAPTA”) sanctions on Russia’s largest bank, Sberbank; prohibited US persons from transacting in new debt and equity of certain Russian state-owned enterprises and privately-owned financial institutions; and blocked the property of numerous Russian elites and their family members. OFAC also sanctioned 24 Belarusian individuals and entities in response to that country’s role in supporting the invasion. In connection with the new measures, the United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) also issued ten new general licenses and more than 30 new or amended Frequently Asked Questions (FAQs).

Sanctions on Russian banks

Acting pursuant to Executive Order 14024, OFAC designated VTB Bank, Bank Otkritie, Sovcombank, and Novikombank, as well as more than 50 of their subsidiaries, and added them to the List of Specially Designated Nationals and Blocked Persons (“SDN List”). As a result, their property and interests in property within the possession or control of US persons are blocked (frozen), and US persons are prohibited from doing business with them. Additionally, pursuant to OFAC’s 50 Percent Rule, all entities owned 50% or more by these designated persons, directly or indirectly, are also now blocked, even if those entities have not been added to the SDN List. Foreign (i.e., non-US) persons may themselves be designated by the US for sanctions under EO 14024 or other authorities if they engage in certain transactions with these entities. These blocking sanctions went into effect immediately.

Furthermore, OFAC also announced CAPTA sanctions on Sberbank, Russia’s largest financial institution, and 25 of its subsidiaries. These sanctions prohibit US financial institutions from maintaining correspondent or payable-through accounts on behalf of foreign financial institutions subject to CAPTA sanctions. As explained in newly-issued FAQ 969, foreign financial institutions in which Sberbank or any of its named subsidiaries holds a 50% or greater stake are also subject to CAPTA sanctions. In addition, US financial institutions may not process -- and must reject -- transactions involving those foreign financial institutions, unless exempt or authorized by OFAC. These restrictions go into effect on March 26, 2022. Of note, these sanctions, at this point, would not prohibit other commercial dealings with Sberbank, and do not require that US Persons block or freeze the assets of Sberbank.

Restrictions on transactions in new debt and equity

As a part of the January 24, 2022 actions, OFAC issued Directive 3 under EO 14024, “Prohibitions Related to New Debt and Equity of Certain Russia-related Entities” and designated 13 entities under that directive. Those entities are not blocked, but US persons are prohibited from dealing in their new debt of longer than 14 days maturity and new equity (defined as debt or equity issued on or after March 26, 2022). The entities are: Credit Bank of Moscow Public Joint Stock Company; Gazprombank Joint Stock Company; Joint Stock Company Alfa-Bank; Joint Stock Company Russian Agricultural Bank; Joint Stock Company Sovcomflot; Open Joint Stock Company Russian Railways; Public Joint Stock Company Alrosa; Public Joint Stock Company Gazprom; Public Joint Stock Company Gazprom Neft; Public Joint Stock Company Rostelecom; Public Joint Stock Company Rushydro; Public Joint Stock Company Sberbank Of Russia; and Public Joint Stock Company Transneft.

Six of these entities were already on the Sectoral Sanctions Identification (“SSI”) List under EO 13662 and subject to certain debt or equity restrictions. Directive 3 under EO 14024, however, limits debt (including credit and payment terms) to 14 days – shorter than the debt tenor limit applicable to some of the SSI entities, and includes a new equity prohibition, which only applied to SSI entities designated under one of the four Directives under EO 13662.

Blocking sanctions on certain individuals in Russia linked to Putin or Oligarchs

OFAC also added seven individuals deemed close to Russian President Vladimir Putin and other “powerful Russian elites” to the SDN List. These designations were noted as targeting “influential Russians in Putin’s inner circle and in elite positions of power within the Russian state.” Among those targeted are senior executives at Rosneft, Sberbank, and VTB, among other prominent Russian companies. In addition, OFAC also re-designated numerous already-designated individuals to the SDN List, including Igor Sechin, who was already subject to sanctions pursuant to EO 13661 and was further designated pursuant to EO 14024.

Issuance of general licenses

Limiting the scope and impact of the above restrictions, OFAC also issued several new general licenses (“GLs”). These include the following:

• GL 8 authorizes all transactions prohibited by EO 14024 involving VEB Bank, Otkritie Bank, Sovcombank, Sberbank, and VTB Bank that are “related to energy” through 12:01 am EDT on June 24, 2022. “Related to energy” means “the extraction, production, refinement, liquefaction, gasification, regasification, conversion, enrichment, fabrication, transport, or purchase of petroleum, including crude oil, lease condensates, unfinished oils, natural gas liquids, petroleum products, natural gas, or other products capable of producing energy, such as coal, wood, or agricultural products used to manufacture biofuels, or uranium in any form, as well as the development, production, generation, transmission, or exchange of power, through any means, including nuclear, thermal, and renewable energy sources.”

• GL 9, which authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to dealings in the debt or equity of VEB Bank, Otkritie Bank, Sovcombank, Sberbank, and VTB Bank issued prior to February 24, 2022 (“covered debt or equity”) through 12:01 a.m. EDT, May 25, 2022, provided that any divestment or transfer of, or facilitation of divestment or transfer of, such covered debt or equity is to a non-US person. In addition, paragraph (b)(1) of GL 9 authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to facilitating, clearing, and settling trades of covered debt or equity through 12:01 a.m. EDT, May 25, 2022, provided such trades were placed prior to 4:00 p.m. EST, February 24, 2022.

• GL 10, which authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of derivative contracts entered into prior to 4:00 p.m. EST, February 24, 2022, that include VEB Bank, Otkritie Bank, Sovcombank, Sberbank, and VTB Bank as counterparties or are linked to the debt or equity of VEB Bank, Otkritie Bank, Sovcombank, Sberbank, and VTB Bank through 12:01 a.m. EDT, May 25, 2022.

• GL 11 authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of transactions involving Bank Otkritie, Sovcombank, and VTB Bank until March 26, 2022.

• GL 12 authorizes US persons to reject -- rather than block -- all transactions prohibited by EO 14024 involving Bank Otkritie, Sovcombank, or VTB Bank until March 26, 2022.

OFAC also issued various licenses for civil aviation, humanitarian assistance, government business, and international organizations.

Issuance of FAQs

OFAC also issued public guidance under more than 20 new FAQs. These include, among others:

• FAQ 987 clarifies permitted activity for US persons under long-term credit facilities or loan agreements with entities designated under Directive 3 of EO 14024. US persons may engage in drawdowns and disbursements under such facilities if those facilities were entered into before the relevant sanctions effective date and the drawdown or disbursement has a repayment term of 14 days or less.

• FAQ 975 addresses wind-downs under GLs 3 and 11, outlining the wind-down periods for transactions involving blocked Russian financial institutions. The FAQ outlines, among other things, the types of transactions that are authorized during the relevant wind-down periods, including:

• “[S]teps necessary to collect on outstanding loans made to a blocked person, including exercising rights to any collateral related thereto, provided the transaction does not involve a debit to a blocked account on the books of a U.S. financial institution (unless separately authorized)”;

• “[S]teps necessary to pay outstanding loans, provided that, if such payment is for the benefit of a blocked person, it must be transferred into a blocked account”; and

• “[S]teps necessary to close a correspondent account maintained for a blocked person; however, funds in the correspondent account may not be returned to the blocked person, and must remain blocked, absent separate authorization from OFAC.”

The FAQ also provides examples of activities that are expressly outside of the scope of the GL: “The continued processing of funds transfers, securities trades, or other transactions involving a blocked person that were part of ongoing business activities prior to the imposition of sanctions, unless separately authorized.”

• FAQ 972 and 980 both address the application of sanctions under EO 14024 to non-US persons or non-US financial institutions.

• FAQ 972 notes that foreign branches of US financial institutions are included in the definition of “U.S. financial institution,” but foreign subsidiaries are not.

• FAQ 980 notes that non-US persons can be subject to sanctions in relation to activities with persons subject to blocking sanctions pursuant to EO 14024 if they have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, certain activities. However, non-US persons generally do not risk exposure to blocking sanctions under EO 14024 for engaging in transactions with persons subject to the prohibitions of the directives under EO 14024.

Both FAQs reiterate that transactions that evade or avoid, cause, or attempt violations of sanctions prohibitions are prohibited, as well as any conspiracy formed to violate any prohibitions. However, OFAC confirms that it “will not view as ‘evading or avoiding’ efforts by non-U.S. persons to comply with U.S. sanctions by replacing sanctioned suppliers or service providers (including financial institutions) with non-sanctioned persons.”

• FAQ 971 further explains that the prohibitions in Directive 2 are not applicable only to transactions in US dollars but apply with respect to any currency.

• FAQ 981 clarifies the scope of GL 9 and GL 10, outlining the types of activities authorized under the GLs. For purposes of assessing whether certain transactions are authorized under these GLs, the FAQ states that US persons—including financial institutions, registered broker-dealers in securities, securities exchanges, and other market intermediaries and participants—may rely upon the information available to them in the ordinary course of business, including reasonable reliance on information about the underlying transaction provided by the parties thereto.

• FAQ 979 provides that US persons supporting activities for the official business of certain international organizations or entities, certain humanitarian-related trade, or in response to the COVID-19 pandemic may continue to engage in such activity involving persons sanctioned pursuant to EO 14024 through various OFAC authorizations, including, among others, GL 5 and GL 6.

• FAQs 969 and 985 reaffirms that the 50 Percent Rule applies to persons sanctioned pursuant to Directives 2 and 3.

• FAQ 978 outlines examples of permissible funds transfers involving sanctioned foreign financial institutions authorized under GLs 6, 7, and 8. Specifically, the FAQ provides that all funds transfers authorized under the GLs must be processed indirectly through a non-sanctioned non-US financial institution and outlines examples of authorized payments as originated from the US and from a third country.

A listing of all FAQs issued along with the latest round of sanctions can be found here.

Blocking sanctions related to Belarus

In addition to sanctions targeting Russia, the United States also announced various sanctions targeting 24 Belarusian individuals and entities due to Belarus’s support for, and facilitation of, Russia’s invasion of Ukraine. OFAC noted that these measures were intended to “[focus] on Belarus’s defense sector and financial institutions, two areas in which Belarus has especially close ties to Russia.”

Among those targeted were Belarussian Bank of Development and Reconstruction Belinvestbank Joint Stock Company (Belinvestbank) and Bank Dabrabyt Joint-Stock Company (Bank Dabrabyt), two Belarusian state-owned banks, which OFAC explained were directly or indirectly financing or conducting activity on behalf of the Government of Belarus. Additionally, building on sanctions targeting the defense and related materiel sector of the Belarusian economy, OFAC also designated numerous Belarusian defense companies, including Minsk Wheeled Tractor Plant (MZKT), two of its senior executives, and various Belarusian officials.

Further sanctions anticipated

Both the US and EU confirmed over this past weekend that they are implementing additional restrictive measures with respect to Russia. We will track these measures and provide updates should they be implemented.

* * *

In addition to these sanctions-related restrictions, US authorities also expanded the scope of US export controls restrictions with respect to Russia. A summary of these measures will be covered in an upcoming post.

February 23, 2022: US imposes sanctions on Nord Stream 2 AG and its CEO

On Wednesday, February 23, 2022, the Biden Administration imposed further sanctions in connection with the Nord Stream 2 (“NS2”) pipeline. Specifically, OFAC added Nord Stream 2 AG, the pipeline’s Swiss project company ultimately owned by Gazprom, and Nord Stream 2’s Chief Executive Officer, Matthias Warnig, to the SDN List. As a result, the property and interests in property of Nord Stream 2 AG and Mr. Warnig are blocked, US persons may not engage in transactions with them, and non-US persons may face sanctions consequences for certain transactions with them.

OFAC also issued a general license, GL 4 under the Russian Harmful Foreign Activities Sanctions, authorizing a wind down of transactions involving Nord Stream 2 AG until 12:01 Eastern Standard Time, March 2, 2022.

The February 23 blocking sanctions were issued under Executive Order 14039, “Blocking Property With Respect to Certain Russian Energy Export Pipelines,” which President Biden issued on August 20, 2021. EO 14039, in turn, emanates from the Protecting Europe’s Energy Security Act (“PEESA”), as amended, which was part of the National Defense Authorization Act (“NDAA”) for Fiscal Year 2020.

There have been bipartisan calls for sanctions on NS2 for years, but both the Trump and Biden administrations have largely demurred to date, reportedly out of concern that they would cause economic harm to the United States’ European allies. The United States previously imposed sanctions under PEESA and EO 14039 against a handful of entities and vessels involved in the construction of NS2. But the Biden Administration waived sanctions as to Nord Stream 2 AG and its CEO to allow further coordination with Germany, which is where the pipeline terminates.

In response to Russian President Putin’s recognition of the so-called Donetsk and Luhansk People’s Republics’ “independence” from Ukraine, however, Germany blocked the final certification of the completed pipeline on February 22, 2022, stopping it from entering service. In what was a coordinated effort, the Biden Administration’s designation action followed.

February 22, 2022: US imposes additional sanctions on Russia targeting key financial institutions and sovereign debt transactions

On Tuesday, February 22, 2022, US President Joseph R. Biden issued additional sanctions targeting Russia in response to Russian President Vladimir Putin’s decision to recognize the so-called Donetsk and Luhansk People’s Republics (DNR and LNR) as “independent” states and to deploy troops to these regions. These further measures build on the February 21, 2022 US actions and include sanctions against two major Russian state-owned financial institutions and a number of their subsidiaries, additional restrictions on transactions in Russian sovereign debt, and sanctions designations of five Kremlin-connected elites. The Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) also issued two new general licenses (“GLs”), two new Frequently Asked Questions (“FAQs”), and amendments to various existing FAQs in connection with the newly-issued sanctions.

Sanctions on two major Russian financial institutions

The February 22, 2022 sanctions designated two state-owned Russian financial institutions, the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”).

OFAC designated VEB pursuant to Executive Order (“EO”) 14024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, the Government of Russia, and for operating or having operated in the financial services sector of the Russian Federation economy. The President also designated 25 of VEB’s subsidiaries for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, VEB or the Government of Russia.

OFAC designated PSB under EO 14024 for operating or having operated in the defense and related materiel and financial services sectors of the Russian economy. In addition to PSB, 17 of its subsidiaries were designated pursuant to EO 14024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, PSB. OFAC designated five vessels owned by PSB.

As a result of these designations, the property and interests in property within US jurisdiction of VEB, PSB and their named subsidiaries (and, in the case of PSB, the named vessels) are blocked (frozen), and US persons are prohibited from doing business with them. Additionally, pursuant to OFAC’s 50 Percent Rule, all entities owned 50% or more by VEB or PSB, directly or indirectly, are also now blocked, even if those entities were not specifically identified in the February 22, 2022 sanctions. Furthermore, foreign (i.e., non-US) persons may themselves be designated by the US for sanctions under EO 14024 or other authorities if they provide “material support” to VEB, PSB or their blocked subsidiaries - and, depending on how OFAC interprets its authorities, foreign persons may also be subject to secondary sanctions for engaging in “significant transactions” involving these entities.

New restrictions on trading in Russian sovereign debt

The February 22, 2022 sanctions extend existing sovereign debt prohibitions to secondary market transactions in Russian sovereign debt. Directive 1A, issued pursuant to EO 14024 will prohibit as of March 1, 2022, secondary market dealing in ruble and non-ruble denominated bonds issued on or after March 1, 2022 by the Central Bank, National Wealth Fund, or Ministry of Finance of the Russian Federation. Directive 1A also adopts a broader definition of the term “financial institution” than its predecessor Directive, now including money services businesses, operators of credit card systems, insurance companies, and dealers in precious metals, stones, or jewels.

Additional sanctions designations

Additionally, and in what many expect to be a first round of further sanctions designations against prominent Russian political, security and business leaders, OFAC designated five Russian “elites” in Putin’s inner circle. This includes the Chairman and CEO of PSB, as well as the son of the Director of the Federal Security Service (also known as the “FSB”).

As a result of these designations, the property and interests in property within US jurisdiction of these designated persons are blocked (frozen), and US persons are prohibited from doing business with them. Additionally, pursuant to OFAC’s 50 Percent Rule, all entities owned 50% or more by these designated persons, directly or indirectly, are also now blocked, even if those entities were not specifically identified in the February 22, 2022 sanctions. And, as with the sanctions on VEB and PSB described above, foreign (i.e., non-US) persons may themselves be designated by the US for sanctions under EO 14024 or other authorities if they provide “material support” to these persons - and, depending on how OFAC interprets its authorities, foreign persons may also be subject to secondary sanctions for engaging in “significant transactions” involving them.

New licenses and guidance

As part of the package announced on February 22, 2022, OFAC issued two new general licenses (each a “GL”): GL No. 2 and GL No. 3.[1]

GL No. 2 authorizes all transactions otherwise prohibited by EO 14024 involving VEB or any entity in which VEB owns, directly or indirectly, a 50 percent or greater interest, that are ordinarily incident and necessary to the servicing of bonds issued before March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. GL No. 2 does not authorize any transactions prohibited by Directive 1A.

GL No. 3 authorizes all transactions otherwise prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of transactions involving VEB, or any entity in which VEB owns, directly or indirectly, a 50 percent or greater interest, until 12:01 a.m. eastern daylight time, on March 24, 2022. The Department of the Treasury did not issue a similar license as to PSB.

In addition to these GLs, OFAC also issued FAQs 964 and 965, and amended certain existing FAQs. FAQ 964 provides clarification with respect to the Secretary of the Treasury’s determination to target the financial services sector of the Russian Federation economy pursuant to EO 14024. Specifically, the FAQ explains that this “sector determination does not automatically impose sanctions on all persons who operate or have operated in the sector,” requiring instead an affirmative designation by the relevant US authorities for persons operating in that sector to become subject to sanctions. FAQ 965 outlines the difference between Directive 1 and newly-issued Directive 1A, clarifying that Directive 1A expands upon the existing prohibitions in Directive 1 to also prohibit, as of March 1, 2022, participation in the secondary market for ruble or non-ruble denominated bonds issued by the named entities after March 1, 2022, and expands upon the definition of “US financial institution,” as outlined above.

These measures represent the latest punitive actions taken by the United States in response to Russia’s further escalation of the situation in Ukraine. In tandem with its new actions against Russia on February 22, 2022, Biden administration officials for the first time referred to Russia’s troop movements into Ukraine as an “invasion,” a description officials were reluctant to use even one day prior. Correspondingly, President Biden, in announcing the administration’s new punitive actions, described the sanctions as the “first tranche,” signaling repeatedly that the US government stands ready to impose much more severe measures in response to further escalation of the crisis in Ukraine. Many observers believe that a future tranche of punitive measures could include the imposition of export controls that would prohibit Russia’s access to certain key technologies.

[1] Because the sanctions announced on February 22, 2022 were issued pursuant to EO 14024, they are categorized under OFAC’s “Russian Harmful Foreign Activities Sanctions” program, not the “Ukraine-/Russia-Related Sanctions” program. Accordingly, among other distinctions, the numbering convention for these GLs is different from most Russia/Ukraine-related GLs.

February 21, 2022: New US sanctions target Russian actions involving Donetsk and Luhansk regions of Ukraine

Note: The UK and EU have also issued sanctions measures in response to Russia’s actions. For Dentons’ briefing on those actions, see here.

On Monday, February 21, 2022, U.S. President Joseph R. Biden issued an executive order imposing sanctions in response to Russian President Vladimir Putin’s recognition of the independence of two regions of Ukraine around the cities of Donetsk and Luhansk – referred to in the executive order as the “so-called Donetsk People’s Republic (DNR)” and “Luhansk People’s Republic (LNR).” The new executive order effectively extends the same restrictions already in place with respect to the Crimea region to the regions of Donetsk and Luhansk. The sanctions measures impose a commercial and financial embargo against these two additional regions of Ukraine, and authorize imposing sanctions on individuals and entities that the U.S. identifies as operating in those regions. The new executive order also allows for imposition of similar sanctions on other regions of Ukraine, should the United States determine in the future that such further actions are warranted.

As of February 21, 2022, the following activities are prohibited, unless authorized under a specific or general license:

• Investment by U.S. persons (defined as citizens, permanent residents, entities organized under the laws of the U.S., including foreign branches, and any person in the United States) in the Donetsk and Luhansk regions;
• Imports of goods or services to the U.S. from those regions;
• Exports and reexports, as well as other provisions or supply, of goods and services to those regions from the U.S. or by a U.S. person; and
• Facilitation or financing of the foregoing activities by a U.S. person.

In addition, the Secretary of the Treasury, in consultation with the Secretary of State, may block the property of certain persons, including:

• Persons operating in the regions; and
• Leaders, officials, senior executive officers, or members of the board of directors of an entity operating in the regions.

These restrictions go into effect immediately, but six newly-issued General Licenses (“GLs”) limit and modify their impact. Of note, GL No. 17 authorizes all transactions otherwise prohibited by the executive order that are ordinarily incident and necessary to the wind down of transactions involving the DNR and LNR regions of Ukraine. This authorization includes the divestiture or transfer to a non-U.S. person of a U.S. person’s share of ownership in any pre-February 21, 2022 investment located in the DNR and LNR regions, and the winding down of operations, contracts, or other agreements in effect prior to February 21, 2022 involving the exportation, reexportation, or import of goods, services, or technology to or from the regions. This wind-down authorization will terminate at 12:01 a.m. Eastern Daylight Time, March 23, 2022.

The other five GLs contain humanitarian authorizations typical of other embargo-type sanctions programs (including Crimea), relating to agricultural commodities, medicine, and medical devices (GL No. 18); telecommunications and mail (GL No. 19); activities of international organizations (GL No. 20); personal remittances (GL No. 21); and services and software incident to internet-based communications (GL No. 22).

As of the time of publication, the EU and UK have adopted parallel but more limited sanctions. Additional sanctions are anticipated from the United States and its EU and UK allies.