[Editor's Note: This alert was updated on February 23, 2022.]

The United States government, in coordination with the UK and EU, has imposed a round of targeted measures in what could be the first of a series of escalations in response to Russia’s recent actions along the Ukraine border. The latest sanctions block transactions with separatist regions in eastern Ukraine, impose restrictions on dealing in Russian sovereign debt, and add two more Russian banks along with their 42 affiliates, three family members of Russian oligarchs, five ocean vessels, and the company building the Nord Stream 2 pipeline and its CEO to the U.S. government’s Specially Designated Nationals and Blocked Persons (SDN) List.

Sanctions Against Separatist Regions in East Ukraine

On February 21, 2022, the Biden Administration issued an Executive Order (E.O.) imposing targeted sanctions on the “so called” Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) separatist regions of eastern Ukraine (the Covered Regions). 

The sanctions, administered by the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC), were imposed after the Russian Government formally recognized the two regions as independent, which the U.S. government stated threatens and destabilizes the territorial integrity of Ukraine, contradicts Russia’s commitments under the Minsk agreements, and poses an extraordinary threat to the national security and foreign policy of the U.S. The U.S. government has maintained a similar regional embargo against the Crimea region of Ukraine since 2014, with the intended goal of depriving Russia of access to the assets located there.

  • A comprehensive trade embargo has been imposed on the Covered Regions, which prohibits:
    • New investment in the Covered Regions by a U.S. person[1];
    • Export or reexport of services from the U.S. or by a U.S. person (directly or directly) to the Covered Regions;
    • Importation of goods, services or technology (directly or indirectly) from the Covered Regions to the U.S.; and
    • Any approval, financing, facilitation or guarantee by a U.S. person of a transaction or other business dealings by a foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person.
  • These sanctions are specific to the Covered Regions listed in the Executive Order. Public maps of the area show that the DNR and LNR actually constitute a portion of the Donetsk and Luhansk regions of Ukraine. The U.S. government has not provided specific guidance on the geographic coordinates of the sanctioned areas.
  • The E.O. also provides authority for OFAC to sanction parties that operate in the Covered Regions or that provide material support to sanctioned parties designated pursuant to the E.O.; such sanctions would take the form of individuals and entities being added to OFAC’s SDN List.
  • OFAC published six General Licenses (GL) authorizing certain transactions involving the Covered Regions, modeled after similar sanctions that were put in place around Crimea in 2014. The new General Licenses include:
    • Ukraine GL 17: Outlines a wind-down period through March 23, 2022, under which dealings with the Covered Regions are to be terminated.
    • Ukraine GL 18: Authorizes the export or reexport of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices and transactions related to the COVID-19 pandemic.
    • Ukraine GL 19: Authorizes the continuation of telecommunications and mail services, but not shipment of equipment.
    • Ukraine GL 20: Authorizes the conduct of the official business of certain international organizations including the United Nations.
    • Ukraine GL 21: Authorizes noncommercial, personal remittances and the operation of accounts.
    • Ukraine GL 22: Authorizes services incident to the exchange of personal communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing and blogging.

Prohibitions on Russian Sovereign Debt, and Targeting of Entities, Individuals and Vessels

A day later, on February 22, 2022, the Biden Administration announced another layer of sanctions under Executive Order 14024 (Russia-related Directive 1A). This second installment includes 52 additions to OFAC’s SDN list, including two banks and their 42 affiliates, three individual family members of Russian oligarchs and five vessels, as well as restrictions on Russian sovereign debt.

  • The Biden Administration imposed full blocking sanctions on two Russian banks: State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank (PSB). VEB Bank was previously added to the OFAC's Sectoral Sanctions Identifications List in 2014 under Executive Order 13662 (Directive 1), restricting its access to U.S. capital markets, but still allowing transactions with U.S. persons where VEB was providing banking services. OFAC also added 25 of VEB’s subsidiaries and 17 of PSB’s subsidiaries to its SDN List. (Note: under OFAC’s 50% rule, the sanctions automatically apply to any non-listed subsidiary in which VEN or PSB holds 50% or greater interest.)
  • OFAC added three individuals to its SDN List, each of whom is a family member of a previously sanctioned oligarch: Denis Aleksandrovich Bortnikov, Petr Mikhailovich Fradkov and Vladimir Sergeevich Kiriyenko.
  • OFAC added three freighters and two oil tankers to its SDN List, due to their ownership by PSB.
  • The Biden Administration also announced new comprehensive sanctions against Russian sovereign debt, which prohibits U.S. financial institutions, as of March 1, 2022, from participating in the secondary market for ruble or non-ruble denominated bonds issued after 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. OFAC added those three entities to its Non-SDN Menu-Based Sanctions List. In its FAQ update, it issued #964, clarifying that financial sector determination made pursuant to E.O. 14204 does not mean that the entire financial sector in Russia is subject to restrictions, and it updated #891, clarifying that the 50% rule does not apply to the Russia sovereign debt restrictions.
  • OFAC announced two General Licenses associated with the new Russian sanctions, including:
    • Russia GL 2: Authorizes certain servicing transactions with VEB, or any entity in which VEB owns, directly or indirectly, a 50%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.
    • Russia GL 3: Outlines a wind-down period through March 24, 2022, for all transactions involving VEB or any entities in which VEB owns, directly or indirectly, a 50% or greater interest.

On February 23, 2022, OFAC imposed full blocking sanctions on Nord Stream 2 AG, the Swiss-based company responsible for building the Nord Stream 2 gas pipeline between Russia and Germany, when it added both the company and its CEO to the SDN List. OFAC also issued Russia GL 4 authorizing the wind-down of transactions with Nord Stream 2 AG through March 2, 2022.

International Reaction

The U.S. is not the only nation responding to Russia’s action in Ukraine. Both the European Union and UK have announced further sanctions, including a trade and investment ban on the Covered Regions. In a “first tranche” response, the UK sanctioned five Russian banks and three individuals close to Russian President Vladimir Putin. The European Union also targeted 27 individuals and entities in the defense, financial and political sectors of Russia. The UK and EU sanctions align with those issued by the U.S. Additionally, Germany has announced its decision to suspend its certification of the Nord Stream 2 gas pipeline.

Next Steps

Further measures are expected as the situation continues to escalate. The U.S. Government is still preparing broader sanctions as well as new U.S. export controls. In a press release, the White House said that the new E.O.’s measures “are separate from and would be in addition to the swift and severe economic measures we have been preparing in coordination with Allies and partners should Russia further invade Ukraine.”

As companies prepare their contingency plans for increased U.S. and global sanctions, they should proactively review their supply chains and assess what impact new export bans on semiconductors, electronics or other speculated areas for heighted export controls would have. Companies should also pay close attention to any dealings with other Russian banks listed under the current OFAC Directive 1, including Sberbank, VTB Bank, Gazprombank and Russian Agricultural Bank (Rosselkhozbank), which could become the subject of expanded sanctions.

[1] “U.S. person” includes all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the U.S. and all U.S. incorporated entities and their foreign branches.

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