Today, the United States imposed broad new sanctions on Russia in response to the continuing conflict in Ukraine.  The new measures include full blocking sanctions on Sberbank and Alfa-Bank, two of the largest banks in Russia, a ban on new investment on any sector of the Russian economy, and blocking sanctions on additional Russian elites.  A new Executive Order issued by President Biden authorizes the U.S. Office of Foreign Assets Control (OFAC) to impose a ban on the provision of certain services to Russia in the future, and the White House announced that OFAC would impose additional blocking sanctions on a raft of Russian state-owned enterprises tomorrow.

The European Union announced yesterday that it would impose a fifth round of sanctions on Russia in response to the ongoing war and attacks on the civilian population of Ukraine.  The package will contain six elements, including a ban on coal imports, additional sanctions on Russian banks, port and transportation sanctions, export bans on sensitive items, import bans on wood, cement, seafood, and liquor, among other items, and a government procurement ban.  We will prepare a more detailed summary once the EU publishes the full measures.

Sanctions on Sberbank and Alfa-Bank

Today, OFAC imposed full blocking sanctions on Sberbank and Alfa-Bank by adding the banks to its List of Specially Designated Nationals (SDN List), effectively barring U.S. persons from conducting business, directly or indirectly, with the banks.  Previously, Sberbank was subject to targeted sanctions that prohibited U.S. financial institutions from maintaining correspondent accounts for Sberbank or processing transactions involving the bank, while Alfa-Bank was subject to more limited debt and equity sanctions.  The move is a significant escalation of U.S. financial sanctions on Russia, fully blocking the largest public and private banks in the country.

OFAC issued three new general licenses and updated three existing general licenses authorizing limited transactions with the banks for temporary periods.  The new general licenses authorize transactions that are ordinarily incident and necessary to the wind down of Sberbank CIB USA, Inc. until June 7, 2022; transactions ordinarily incident and necessary to the wind down of transactions involving Sberbank until April 13, 2022, other than those that are prohibited by Directive 2 to E.O. 14024; and transactions ordinarily incident and necessary to the wind down of transactions involving Alfa-Bank until May 6, 2022.  Existing general licenses authorizing transactions related to energy, the wind down of certain debt and equity, and certain derivative contracts were updated to include Alfa-Bank.

In a statement accompanying the new sanctions, OFAC clarified that Alfa-Bank (Ukraine) is a distinct entity from Alfa-Bank, and that Alfa-Bank (Ukraine) is not subject to U.S. sanctions.

Investment Ban

President Biden’s new E.O. imposes a ban on new investment in the Russian Federation by a U.S. person, wherever located.  The E.O. does not define the scope of what constitutes a “new investment” in Russia, but prior OFAC guidance on the recently imposed energy investment ban construed the term broadly to be “a commitment or contribution of funds or other assets for, or a loan or other extension of credit to, new energy sector activities (not including maintenance or repair)” in Russia.  We expect OFAC to publish additional guidance on the intended scope of the investment ban under the new E.O.

Authority to Ban the Export of Services to Russia

Today’s E.O. also provides OFAC with authority to impose new restrictions on the export, reexport, sale, or supply of services from the United States or by U.S. persons to Russia in the future.  While the provision does not immediately impose new trading restrictions, it does allow OFAC to identify categories of services that will be prohibited or restricted in the future.  OFAC and the Commerce Department have imposed bans on the import and export of goods to and from Russia, but have not yet specifically targeted categories of services.

Russian Officials and Family Members

OFAC sanctioned 25 Russian officials and their family members, including President Putin’s daughters, former President and Prime Minister of Russia Dmitry Medvedev, and members of Russia’s Security Council by adding the individuals to the SDN List today.

Humanitarian Transactions

The White House reiterated its position today that sanctions are not intended to apply to essential humanitarian activities, including the provision of food, agricultural commodities, medicine and medical devices, telecommunications, and access to the internet, and directed agencies to issue appropriate exemptions and carve outs to ensure that these activities can continue.  Companies that provide these essential goods and services may find that practical challenges, including obtaining cooperation from banks and logistics providers, remains challenging for legally permissible business, even where exemptions or licenses are provided.

The pace of new Russia sanctions matters slowed this week, with most of the action coming out of the European Union and United Kingdom.  New measures this week included bans on imports of steel and iron products, exports of luxury goods, investments in the Russian energy sector, and dealings with oligarchs and Russian state-owned enterprises. 

This post summarizes current sanctions on Russia and Belarus as of Friday, March 18, 2022.  Please reach out to our team if you have any questions about these or future developments. 

Central Bank Sanctions

G7 countries imposed broad sanctions on transactions involving Russia’s Central Bank, National Wealth Fund, and Ministry of Finance.  These sanctions include a sweeping prohibition on direct or indirect transactions or other business dealings involving the sanctioned entities without authorization.  The U.S. Office of Foreign Assets Control (OFAC) issued two general licenses and expanded two existing general licenses to authorize limited interactions with the sanctioned entities.  OFAC also issued important guidance explaining the intended scope of the U.S. sanctions.

You can read more here and here.

Banks Subject to Blocking or Asset Freeze Restrictions

Western countries have implemented blocking sanctions or asset freeze restrictions on a number of large Russian financial institutions over the last several weeks.  In the United States, banks were added to the List of Specially Designated Nationals.  Russian banks subject to blocking or asset freeze sanctions in at least one Western jurisdiction include: VEB, PSB, VTB Bank, Bank Otkritie, Sovcombank, Novikombank, Bank Rossiya, Black Sea Bank For Development And Reconstruction, Genbank, and IS Bank.

The sanctions generally prohibit any direct or indirect dealings with these banks, unless authorized pursuant to a “wind down” or other type of general license or OFAC Directive.  We cover these sanctions in several posts, including here, here, here, here, and here.

Sberbank Restrictions

The United States imposed correspondent and payable-through sanctions on Sberbank, which will limit Sberbank’s ability to conduct U.S. dollar transactions.  The sanctions also require U.S. financial institutions to reject future transactions involving Sberbank and its subsidiaries.  The U.K. imposed similar measures.  You can read more about sanctions on Sberbank here and here.

EU Banking, Financial, & SWIFT Restrictions on Russia & Belarus

The EU imposed a series of financial sanctions on Russia and Belarus, including limits on deposits in the European Union, sanctions on the sale of euro-denominated securities, limits on the listing of shares in the EU, sanctions on the provision of investment services, limits on supplying euro-denominated banknotes, and the expansion of existing securities and debt sanctions.  The EU also imposed a ban on the provision of specialized financial messaging services to listed Russian and Belarusian banks, a move that will effectively cut off those banks from the SWIFT interbank messaging system.  We cover these developments here, here, and here.

New SDNs and Asset Freezes

The United States and allies imposed blocking sanctions and asset freezes on a number of Russian elites, their family members, and Russian companies.  Nord Stream 2 AG and the Russian Direct Investment Fund were also subject to sanctions.  Blocking and asset freeze sanctions generally prohibit all business with the sanctioned parties and their majority-owned entities.  We cover these sanctions in many of our posts.

Financing Restrictions & U.S. Dollar Banknotes

The United States imposed financing restrictions on large Russian state-owned enterprises that prohibit U.S. persons from dealing in new debt of those companies with a maturity of more than 14 days or in new equity of those companies.  The sanctions are very similar to existing U.S. sectoral sanctions that have been imposed on Russian companies pursuant to E.O. 13662 since 2014.  As noted below, the EU expanded similar debt sanctions. 

The United States also prohibited the export, sale, or supply of U.S. dollar banknotes to Russia, subject to certain exceptions.

More information is available here and here.

Expanded Dual-Use Export Controls

The United States, European Union, and other countries amended export control regulations to impose license requirements on exports of a broad array of goods, software, and related technical knowhow to Russia and Belarus.  The U.S. restrictions apply to all items listed in Categories 3 through 9 of the Commerce Control List, including a number of less sensitive items.  Subject to a limited number of exceptions, the U.S. government will review license applications related to these exports under a presumption of denial, which means that licenses will rarely be granted.  The EU and UK imposed corresponding broad-based dual use export bans on Russia and Belarus, subject to limited exceptions.

The United States extended prohibitions on the export of specified items to Military End Users and Uses and added a significant number of Russian and Belarusian companies to the Entity List, broadly prohibiting the transfer of items subject to the EAR to the listed parties.  The United States also expanded existing controls on the transfer of certain items in support of oil refining in Russia and imposed a heightened license review policy.  The EU imposed license requirements on the transfer of enumerated items that could contribute to Russia’s military or technological enhancement and on transfers of specified goods and technology suited for use in oil refining, aviation, and space industries.

The United States also extended its “Foreign Direct Product Rule” (FDPR) to apply to exports of goods made outside the U.S. using certain U.S. equipment and know how to Russia and to Russian Military End Users (including supporters of Military End Users or the Russian military).  The FDPR operates differently depending on whether military end users are involved.  The complex changes to the FDPR significantly increase the scope of non-U.S. origin items that are now subject to the EAR’s Russia-related license requirements.

For more on the new U.S., EU, and U.K. export control measures, see our posts here, here, here, and here.

Energy Bans: Imports & Investment

The United States banned the import of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products into the United States.   The EU and UK announced corresponding measures designed to reduce their reliance on Russian energy supplies.  

The United States and EU also adopted measures that prohibit new investment in the Russian energy sector.  

We cover these developments here and here.

Other Import Bans: Iron & Steel, Seafood, Alcohol, Diamonds

The United States adopted measures that ban the import of certain Russian-origin seafood, vodka and spirits, and diamonds into the United States, while the EU imposed restrictions on dealings in Russian-origin iron and steel products.  We cover these developments here and here.

Luxury Goods Export Bans

The United States and EU imposed bans on the export of luxury goods to Russia, including alcohol products, tobacco products, clothing items, jewelry, vehicles, art, and antique goods, among other items.  We cover these developments here and here.

Embargo and Trading Ban on Separatist Regions

The United States and allies imposed embargoes or trading bans on the separatist Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.  We cover the U.S. and EU bans here and here, and provide initial thoughts on how to comply with the embargo here.

Trade Controls & Sanctions on Belarus

Western countries imposed additional sanctions, export controls, and import restrictions on Belarus in response to the country’s growing involvement in the conflict in Ukraine.  The measures imposed additional asset freeze restrictions on Belarusian companies and officials, extended the new Russia dual-use export controls to Belarus, and limited imports of certain wood, cement, iron, steel, rubbery, and machinery products to the EU.  The U.S. and EU have taken steps to subject Belarus to restrictions that are similar to those imposed on Russia.

We cover Belarus-related developments here, here, here, and here.

Airspace

The United States, EU, and other jurisdictions closed their airspace to Russian aircraft last week.  You can read more about these measures here and here.

Global Considerations

While the United States, EU, and other allies are closely coordinating new sanctions measures, there are meaningful differences between the measures imposed by different jurisdictions.  To ensure compliance with applicable law, it is important to review the new sanctions measures in all of the jurisdictions in which you operate.

It has been almost three weeks since the U.S. and its allies began imposing serious new sanctions and export control restrictions on Russia and Belarus in response to Russia’s invasion of Ukraine.  This post summarizes the state of affairs as of Friday, March 11, 2022.

Please reach out to our team if you have any questions about these or future developments.

Current Status & What’s New

The current sanctions measures still do not amount to a full embargo on Russia, and Russia has not been cut off fully from the global financial system.  As a result, certain types of international trade with Russia remain permissible for U.S., EU, and other western companies.  Cross-border payments also remain possible for certain types of transactions.

That said, the United States, European Union, and other G7 countries have imposed unprecedented sanctions on Russia to-date, with much of the economy subject to direct sanctions or suffering from the secondary effects of those sanctions.  Western companies continued to withdrawal or curtail operations in Russia this week in response to the new measures and public pressure.  As noted last week, Western companies should continue to expect disruptions to legally permissible Russia-related business, as banks, logistics providers, and companies review the new restrictions and impose additional compliance measures.

This week, the United States imposed a ban on imports of energy from Russia and prohibited new investment in the Russian energy sector, imposed a ban on imports of certain Russian goods, banned the export of certain luxury items to the Russian market, and banned the supply of U.S. dollar banknotes to Russia and its government.  President Biden also provided the Treasury Department with legal authority to ban new U.S. investments in other sectors of the Russian economy, suggesting further measures of this type may be coming.  The U.S. and its allies are working to revoke Most-Favored Nation status for Russia, which will increase import duties on Russian goods, in some cases substantially.  The EU and United Kingdom committed to reducing their reliance on Russian energy, imposed asset freeze sanctions on additional Russian oligarchs, and significantly expanded sanctions and export controls on Belarus, among other measures.  FinCEN and OFAC also issued warnings about sanctions evasion, particularly related to the use of virtual or crypto currencies.

Banks subject to blocking or asset freeze restrictions

Western countries have implemented blocking sanctions or asset freeze restrictions on a number of large Russian financial institutions over the last two weeks.  In the United States, banks were added to the List of Specially Designated Nationals (SDN List).  Russian banks subject to blocking or asset freeze sanctions in at least one Western jurisdiction include: VEB, PSB, VTB Bank, Bank Otkritie, Sovcombank, Novikombank, Bank Rossiya, Black Sea Bank For Development And Reconstruction, Genbank, and IS Bank.

The sanctions generally prohibit any direct or indirect dealings with these banks, unless authorized pursuant to a “wind down” or other type of general license or OFAC Directive.  We cover these sanctions in several posts, including here, here, here, here, and here.

Sberbank Restrictions

The United States imposed correspondent and payable-through sanctions on Sberbank, which will limit Sberbank’s ability to conduct U.S. dollar transactions.  The sanctions also require U.S. financial institutions to reject future transactions involving Sberbank and its subsidiaries.  The U.K. imposed similar measures last week.  You can read more about sanctions on Sberbank here and here.

Financing Restrictions

The United States imposed financing restrictions on large Russian state-owned enterprises that prohibit U.S. persons from dealing in new debt of those companies with a maturity of more than 14 days or in new equity of those companies.  The sanctions are very similar to existing U.S. sectoral sanctions that have been imposed on Russian companies pursuant to E.O. 13662 since 2014.  As noted below, the EU expanded similar debt sanctions.  More information is available here.

Embargo and Trading Ban on Separatist Regions

The United States and allies imposed embargoes or trading bans on the separatist Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of Ukraine.  We cover the U.S. and EU bans here and here, and provide initial thoughts on how to comply with the embargo here.

New SDNs and Asset Freezes

The United States and allies imposed blocking sanctions and asset freezes on a number of Russian elites, their family members, and Russian companies.  Nord Stream 2 AG and the Russian Direct Investment Fund (RDIF) were also subject to sanctions.  Blocking and asset freeze sanctions generally prohibit all business with the sanctioned parties and their majority-owned entities.  We covered these sanctions in several of our posts.

Central Bank Sanctions

As noted above, G7 countries imposed broad sanctions on transactions involving Russia’s Central Bank, National Wealth Fund, and Ministry of Finance.  These sanctions include a sweeping prohibition on direct or indirect transactions or other business dealings involving the sanctioned entities without authorization.  The U.S. Office of Foreign Assets Control (OFAC) issued two new general licenses and expanded two existing general licenses this week that authorize limited interactions with the sanctioned entities.  OFAC also issued important guidance explaining the intended scope of the U.S. sanctions.

You can read more here and here.

EU Banking, Financial, & SWIFT Restrictions on Russia & Belarus

The EU imposed a series of financial sanctions on Russia and Belarus, including limits on deposits in the European Union, sanctions on the sale of euro-denominated securities, limits on the listing of shares in the EU, sanctions on the provision of investment services, limits on supplying euro-denominated banknotes, and the expansion of existing securities and debt sanctions.  The EU also imposed a ban on the provision of specialized financial messaging services on listed Russian and Belarusian banks, a move that will effectively cut off those banks from the SWIFT interbank messaging system.  We cover these developments here, here, and here.

Expanded Russia Dual-Use Licensing Requirements

The United States, European Union, and other countries amended export control regulations to impose license requirements on exports of a broad array of goods, software, and related technical knowhow to Russia and Belarus.  The U.S. restrictions apply to all items listed in Categories 3 through 9 of the Commerce Control List, including a number of less sensitive items.  Subject to a limited number of exceptions, the U.S. government will review license applications related to these exports under a presumption of denial, which means that licenses will rarely be granted.  The EU and UK imposed corresponding broad-based dual use export bans on Russia and Belarus, subject to limited exceptions.

The United States extended prohibitions on the export of specified items to Military End Users and Uses and added a significant number of Russian and Belarusian companies to the Entity List, broadly prohibiting the transfer of items subject to the EAR to the listed parties.  The United States also expanded existing controls on the transfer of certain items in support of oil refining in Russia and imposed a heightened license review policy.  The EU imposed license requirements on the transfer of enumerated items that could contribute to Russia’s military or technological enhancement and on transfers of specified goods and technology suited for use in oil refining, aviation, and space industries.

The United States also extended its “Foreign Direct Product Rule” (FDPR) to apply to exports of goods made outside the U.S. using certain U.S. equipment and know how to Russia and to Russian Military End Users (including supporters of Military End Users or the Russian military).  The FDPR operates differently depending on whether military end users are involved.  The complex changes to the FDPR significantly increase the scope of non-U.S. origin items that are now subject to the EAR’s Russia-related license requirements.

For more on the new U.S., EU, and U.K. export control measures, see our posts here, here, here, and here.

Energy Bans: Imports & Investment

The United States imposed new sanctions that banned the import of Russian-origin crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products into the United States.  The measures also prohibit new investment in the Russian energy sector.  The EU and UK announced corresponding measures designed to reduce their reliance on Russian energy supplies.  We cover these developments here.

Other U.S. Import Bans, Luxury Goods Export Ban, U.S. Dollar Ban

The United States also adopted new measures today to ban the import of certain Russian-origin seafood, vodka and spirits, and diamonds, the export of luxury goods to Russia and Belarus, and the provision of U.S. dollar bank notes to Russia or the Russian government without prior authorization.  We cover these developments here.

Trade Controls & Sanctions on Belarus

Western countries imposed additional sanctions, export controls, and import restrictions on Belarus in response to the country’s growing involvement in the conflict in Ukraine.  The measures imposed additional asset freeze restrictions on Belarusian companies and officials, extended the new Russia dual-use export controls to Belarus, and limited imports of certain wood, cement, iron, steel, rubbery, and machinery products to the EU.  The U.S. and EU have taken steps to subject Belarus to restrictions that are similar to those imposed on Russia.

We cover Belarus-related developments here, here, here, and here.

Airspace

The United States, EU, and other jurisdictions closed their airspace to Russian aircraft last week.  You can read more about these measures here and here.

Global considerations

While the United States, EU, and other allies are closely coordinating new sanctions measures, there are meaningful differences between the measures imposed by different jurisdictions.  To ensure compliance with applicable law, it is important to review the new sanctions measures in all of the jurisdictions in which you operate.

 

Today, the United States imposed a significant package of sanctions and export control restrictions on Russia following the escalating hostilities in Ukraine.  The European Union, United Kingdom, and allied countries have or are expected to impose similar, coordinated measures in the coming days.

This post provides an overview of the new U.S. sanctions measures.  We’ll cover the new U.S. export control measures in a subsequent post.

Cutting Off Sberbank From the United States

The United States imposed correspondent and payable-through account sanctions on Sberbank and 25 of its subsidiaries, severely limiting the bank’s ability to conduct U.S. dollar transactions pursuant to a new Directive 2 to E.O. 14024.

Effective March 26, 2022, all U.S. financial institutions must close and are prohibited from opening or maintaining correspondent or payable-through accounts on behalf of Sberbank.  In addition, U.S. financial institutions must formally reject (refuse to process) future transactions involving Sberbank or its foreign financial institution subsidiaries.  The sanctions apply to Sberbank, the subsidiaries listed in Directive 2, and any entities owned 50 percent or more, directly or indirectly by Sberbank.  The Office of Foreign Assets Control (OFAC) could designate additional Russian financial institutions under the Directive in the future.  These measures will effectively cut off Sberbank from the U.S. financial system.

Unlike the Russian financial institutions below, Sberbank has not been added to the U.S. List of Specially Designated Nationals (SDN List), and is not subject to full U.S. blocking sanctions.  As a result, U.S. companies (non-financial institutions) can continue to conduct certain non-U.S. dollar business directly or indirectly involving Sberbank outside of the United States in certain instances, so long as those activities comply with the new Directive 2 and the limited sectoral sanctions described below.  

SDN Bank Sanctions

In addition to the sanctions targeting Sberbank, the United States added VTB Bank (VTB), Russia’s second largest bank, and three other banks to the SDN List, effectively cutting the banks off from the United States and much of the global financial system.  The other banks added to the SDN List are Bank Otkritie, Sovcombank OJSC, Novikombank, and 34 of their subsidiaries.  Any entities owned 50 percent or more, directly or indirectly, by these or other SDNs are also subject to full U.S. blocking sanctions, even if the entities do not formally appear on the SDN List.

The SDN sanctions mean that U.S. persons, including U.S. companies and financial institutions, U.S. citizens and permanent residents, and any persons located in the United States, are prohibited from conducting direct or indirect dealings with the banks, unless authorized by OFAC.  Any SDN bank property or interests in property in the possession or control of U.S. persons must be formally blocked (frozen) and reported to OFAC within 10 days, unless a license applies.  Non-U.S. persons are also prohibited from engaging in transactions or other business dealings involving the banks if those activities have a direct or indirect nexus with the United States or U.S. persons.  Non-U.S. financial institutions and companies could also be subject to secondary sanctions, including potentially being added to the SDN List themselves, if they conduct a “significant” transaction with either institution following the imposition of sanctions.

OFAC issued General License No. 11 authorizing U.S. persons to engage in transactions ordinarily incident and necessary to the wind down of transactions involving Bank Otkritie, Sovcombank OJSC, and VTB, including entities owned 50 percent or more by the foregoing, until 12:01 am EST on March 26, 2022.

Financing Sanctions: State-Owned Enterprises

 The United States also imposed more limited financing sanctions on certain Russian companies pursuant to a new Directive 3 to E.O. 14024.  The limited sanctions prohibit U.S. persons from dealing in the new equity or new debt (with a maturity of 14 days or more) of 13 Russian companies.  The restrictions only apply to equity or debt issued on or after March 26, 2022.  Several of the sanctioned companies were already subject to similar U.S. financing restrictions under E.O. 13662.

The companies targeted by these measures are:

• Sberbank
• Gazprombank Joint Stock Company
• Joint Stock Company Russian Agricultural Bank
• Public Joint Stock Company Gazprom
• Public Joint Stock Company Gazprom Neft
• Public Joint Stock Company Transneft
• Public Joint Stock Company Rostelecom
• Public Joint Stock Company RusHydro
• Public Joint Stock Company Alrosa
• Joint Stock Company Sovcomflot
• Open Joint Stock Company Russian Railways
• Joint Stock Company Alfa-Bank.
• Credit Bank of Moscow

U.S. companies can continue to do most business with these entities so long as the underlying transactions comply with these and other applicable sanctions.

Sanctioning Elites

 The United States targeted members of Russia’s elite by adding 15 individuals to the SDN List.

General Licenses

 OFAC issued a number of general licenses authorizing limited dealings with the sanctioned parties.  They include the following:

• General License No. 5: Authorizing certain transactions involving certain international organizations;
• General License No. 6: Authorizing certain transactions related to the export of food, medicine, medical devices, and COVID-19 treatments;
• General License No. 7: Authorizing certain transactions involving overflight payments, emergency landings, and air ambulance services;
• General License No. 8: Authorizing certain transactions “related to energy” involving VEB, Bank Otkritie, Sovcombank OJSC, Sberbank, VTB, and entities owned 50 percent or more by the foregoing;
• General License No. 9: Authorizing U.S. persons to engage in certain transactions to divest debt or equity holdings in VEB, Bank Otkritie, Sovcombank OJSC, Sberbank, VTB, and entities owned 50 percent or more by the foregoing to a non-U.S. person until May 25, 2022;
• General License No. 10: Authorizing the wind down of certain preexisting derivative contracts involving certain blocked parties;
• General License No. 12: Authorizing U.S. persons to reject, rather than block, transactions involving Bank Otkritie, Sovcombank OJSC, or VTB, including entities owned 50 percent or more by the foregoing, until March 26, 2022.

U.S. persons should carefully examine the terms of available general licenses to ensure that any proposed line of conduct is fully authorized.  The general licenses contain a number of important limitations and restrictions.

Secondary Sanctions Considerations

 As noted above, non-U.S. persons face the risk of secondary sanctions penalties if they engage in significant transactions with Russian sanctioned parties and could be subject to blocking sanctions if they materially assist, sponsor, or provide financial, material, or technological support for, or goods or services to or in support of SDNs or other parties blocked pursuant to E.O. 14024.  In a new FAQ 980, OFAC indicates that non-U.S. companies generally do not risk exposure under U.S. sanctions for engaging in transactions with persons subject to the Directives (i.e., the non-SDN sanctions) issued under E.O. 14024, for engaging in transactions that would not require a specific license if engaged in by a U.S. person, or for replacing sanctioned suppliers or service providers with non-sanctioned parties.

FAQs

OFAC issued a number of Frequently Asked Questions that provide important guidance on how the agency will apply the new rules and interprets key terms.

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Please contact our team if you have any questions about these new measures.

In a move coordinated with U.S. allies, the United States imposed a “first tranche” of sanctions on Russia today following that country’s recognition of the Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) as independent countries.  These measures follow the imposition of a U.S. embargo on the separatist regions yesterday and U.S. government officials, including President Biden, emphasized that additional sanctions are possible.

Today’s action adds the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries, to the SDN List.  The move effectively cuts the banks off from the U.S. financial system, and will likely result in global non-U.S. financial institutions cutting ties with the banks.  The United States also extended sanctions on dealings in Russian sovereign debt, prohibiting U.S. financial institutions from participating in the secondary debt market for ruble or non-ruble denominated bonds issued after March 1, 2022.

VEB & PSB

The addition of VEB, PSB, and their subsidiaries to the SDN List means that U.S. persons, including U.S. companies and financial institutions, U.S. citizens and permanent residents, and any persons located in the United States, are prohibited from conducting direct or indirect dealings with the banks, unless authorized by the U.S. Office of Foreign Assets Control (OFAC).  Any VEB or PSB property or interests in property in the possession or control of U.S. persons must be formally blocked (frozen) and reported to OFAC within 10 days, unless a license applies.  Non-U.S. persons are also prohibited from engaging in transactions or other business dealings involving the banks if those activities have a direct or indirect nexus with the United States or U.S. persons.  Non-U.S. financial institutions and companies could also be subject to secondary sanctions, including potentially being added to the SDN List themselves, if they conduct a “significant” transaction with either institution following the imposition of sanctions.

U.S. persons are authorized to conduct transactions ordinarily incident and necessary to the wind down of preexisting dealings with VEB through 12:01 am EST on March 24, 2022 pursuant to the newly issued General License No. 3 to E.O. 14024 and to engage in certain transactions involving VEB that are ordinarily incident and necessary to the servicing of Russian sovereign bonds issued before March 1, 2022 pursuant to General License No. 2.

The full list of subsidiaries identified by OFAC in today’s announcement are provided below.

More Banks Could be Targeted

 The Secretary of the Treasury issued a formal notice today authorizing further sanctions on any financial institution in Russia under E.O. 14024, paving the way for additional sanctions on the Russian financial industry.  A Fact Sheet issued by the White House today notes that over 80 percent of Russia’s foreign exchange transactions are in U.S. dollars and half of Russia’s foreign trade is conducted in dollars.  Today’s notice is a warning that the U.S. could cut off Russia’s access to U.S. dollar transactions by imposing broader sanctions on the financial industry in Russia, a move that would have significant impacts for companies that do business in or with Russia.

Secondary Market Restrictions on Sovereign Debt

OFAC expanded existing sanctions on Russian sovereign debt by issuing Directive 1A to E.O. 14024.  The updated Directive prohibits U.S. financial institutions from participating in the secondary debt market for ruble or non-ruble denominated bonds issued by the Russian Central Bank, National Wealth Fund, or Ministry of Finance after March 1, 2022.  The Directive applies to all U.S. financial institutions in the United States, but not to their foreign branches, offices, or agencies.

Russian Elites

OFAC added three Russian individuals to the SDN List – Denis Aleksandrovich Bortnikov, an executive with VTB Bank, Petr Mikhailovich Fradkov, the Chairman and CEO of PSB, and Sergei Vladilenovich Kiriyenko, the CEO of VK Group, the parent company of Russia’s top social media platform, VKontakte.

Allied Measures

U.S. allies have imposed, or are preparing to impose, sanctions on Russia in response to the situation in Ukraine.  Germany announced today that it would suspend the certification process for the Nord Stream 2 pipeline.  The United Kingdom imposed limited sanctions, including sanctions on PSB, earlier today.  The European Union has approved a raft of sanctions measures that are likely to be similar in scope to the sanctions imposed by the United States.  Canada, Australia, and Japan have also indicated that new sanctions on Russia will be issued.

Please contact our sanctions team with any questions about these and further developments. Continue Reading More U.S. Sanctions on Russia: VEB, PSB, & Russian Sovereign Debt