In response to Russia's invasion of Ukraine, the United States Government has undertaken several actions, including but not limited to imposing: (1) an embargo to the Donetsk People's Republic and the Luhansk People's Republic in Ukraine (similar to the existing embargo on the Crimea Region); (2) blocking sanctions on important Russian banks (VEB, PSB, VTB, Otkritie, Novikombank, and Sovcombank) and several of their subsidiaries; (3) correspondent and payable-through account sanctions on Sberbank; (4) blocking sanctions on certain Russian elites and Putin's close allies; (5) debt and equity prohibitions against 13 major firms; and (6) sanctions on Nord Stream 2 AG.  The U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") also sanctioned several Belarusian individuals and entities due to Belarus's support for, and facilitation of, the invasion.  In addition, the United States Department of Commerce issued a series of new export controls on Russia, including two foreign direct product rules, one for all of Russia and one for Russian military end-users.  Finally, as of late February 25, the  U.S.  imposed sanctions on Vladimir Putin himself, the Ministry of Foreign Affairs, and Security Council Members.

Each of these controls is discussed below in detail:

1. Embargo on the Donetsk People's Republic and the Luhansk People's Republic in Ukraine.

On February 21, 2022, President Putin declared the separatist regions in the Donetsk (DNR) and Luhansk (LNR) as Russian territory.  In response, President Biden issued Executive Order on Blocking Property of Certain Persons and Prohibiting Certain Transactions With Respect to Continued Russian Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine (the "EO" or the "Order") along with a series of sanctions designations.   The EO builds on the national security threat identified in 2014 in response to Russia's takeover of the Crimea Region of Ukraine and calls out the violations of the Minsk Accords from 2014 and 2015.  Correspondingly, the new territorial sanctions model the current sanctions on the Crimea Region of Ukraine.  They specifically prohibit:

  • The new investment in the DNR or LNR (or any other regions identified by the Treasury).
  • The import into the U.S. of any goods, services, or technology from the DNR or LNR.
  • The export, re-export, sale, supply from the U.S. or by a U.S. Person of any goods, services, or technology to the DNR or LNR.
  • Financial services (including financing, facilitating, approvals, guarantees) by a U.S. Person of a transaction by a foreign person where that transaction by a U.S. Person would be prohibited.

As with the Crimea Region sanctions, this Order effectively creates a complete embargo of the two regions.

OFAC has issued six general licenses in response, including General License Number 17 authorizing the wind-down of transactions involving the LNR and DNR through 12:01 a.m. ET on March 23, 2022.  The other general licenses authorize certain medical and agricultural-related transactions, transactions related to telecommunications and mail, official business of certain international organizations and entities, noncommercial personal remittances, and the exportation of certain services and software incident to internet-based communications.

2. Blocking Sanctions on Russian Banks

On February 22, President Biden announced additional sanctions to those enacted the day before, pursuant to EO 14024.  In addition, on February 24, as a result of Russia's full-scale invasion of Ukraine, several additional sanctions were announced.  The designations as Specially Designated Nationals ("SDNs") of the following banks meaning that all property and interests in property in the United States or in the possession or control of U.S. persons are blocked unless authorized by OFAC:

  1. State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank ("VEB"). VEB, a state-owned financial institution, finances Russia's national economic development including large-scale infrastructure projects. While all VEB's subsidiaries 50% or more owned by VEB are also blocked, OFAC specifically designated 25 of VEB's subsidiaries. OFAC also issued general licenses allowing the wind-down of transactions involving VEB.
  2. Promsvyazbank Public Joint Stock Company ("PSB"). PSB, a state-owned financial institution, finances the defense industry and services large defense contracts. PSB also provides credit to entities under U.S. and partner nations' sanctions so that other lenders, namely Sberbank and VTB Bank, can offload the risk of conducting business with sanctioned entities. OFAC has also specifically designated 17 PSB subsidiaries and five vessels owned by PSB Lizing OOO.
  3. VTB Bank Public Joint Stock Company("VTB Bank").  VTB Bank, Russia's second-largest financial institution, was designated pursuant to E.O. 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.  OFAC also designated 20 VTB Bank subsidiaries pursuant to E.O. 14024.
  4. Public Joint Stock Company Bank Financial Corporation Otkritie ("Otkritie"). Otkritie is Russia's seventh largest financial institution and was deemed to be a "systemically important Russian state-owned credit institution."  It was designated pursuant to E.O. 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.  OFAC also designated 12 Otkritie subsidiaries.
  5. Open Joint Stock Company Sovcombank ("Sovcombank"). Sovcombank is Russia's ninth-largest bank and was deemed to be a "systemically important Russian financial institution." Sovcombank was designated pursuant to E.O. 14024 for operating or having operated in the financial services sector of the Russian Federation economy.  OFAC also designated 22 Sovcombank subsidiaries.
  6. Joint Stock Commercial Bank Novikombank ("Novikombank"). Novikombank is among the 50 largest financial institutions in Russia and primarily operates in the Russian defense sector.  Novikombank was designated pursuant to E.O. 14024 for operating or having operated in the financial services sector of the Russian Federation economy.  Novikombank was previously subject to certain restrictions under Directive 3, but is now subject to full blocking sanctions.

3. Correspondent and Payable-Through Account Sanctions on Sberbank

On February 24, OFAC imposed correspondent and payable-through account sanctions on Sberbank, Russia's largest financial institution, and 25 of its subsidiaries.  In its press release, OFAC noted that "Sberbank is uniquely important to the Russian economy, holding about a third of all bank assets in Russia." By March 26, 2022 at 12:01 a.m. ET, all U.S. financial institutions must close any Sberbank correspondent or payable-through accounts and reject any future transactions involving Sberbank or its foreign financial institution subsidiaries.  OFAC noted that "Payments that Sberbank attempts to process in U.S. dollars for its clients - with examples ranging from to technology to transportation - will be disrupted and rejected once the payment hits a U.S. financial institution."

OFAC issued Directive 2 under E.O. 14024, "Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions" (the "Russia-related CAPTA Directive") in order to impose these sanctions.  This directive prohibits U.S. financial institutions from: (i) the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity determined to be subject to the prohibitions of the Russia-related CAPTA Directive, or their property or interests in property; and (ii) the processing of transactions involving any such entities determined to be subject to the Russia-related CAPTA Directive, or their property or interests in property. U.S. financial institutions must reject such transactions unless exempt or authorized by OFAC.

4. Blocking Sanctions on Certain Russian Elites and Putin's Close Allies

On February 22 and February 24, several "influential Russians in Putin's inner circle and in elite positions of power within the Russian state" were sanctioned by OFAC.  According to OFAC, "[m]any of these individuals are believed to participate in, or benefit from, the Russian regime's kleptocracy, along with their family members," and many serve in leadership roles on designated companies.  These designations include:

  1. Denis Aleksandrovich Bortnikov
  2. Petr Mikhailovich Fradkov
  3. Vladimir Sergeevich Kiriyenko
  4. Sergei Sergeevich Ivanov, son of Sergei Borisovich Ivanov
  5. Andrey Patrushev, son of Nikolai Platonovich Patrushev
  6. Ivan Igorevich Sechin, son of Igor Ivanovich Sechin
  7. Alexander Aleksandrovich Vedyakhin
  8. Andrey Sergeyevich Puchkov
  9. Yuriy Alekseyevich Solovie
  10. Galina Olegovna Ulyutina

5. Debt and Equity Prohibitions Against 13 Major Firms

OFAC issued Directive 3 under E.O. 14024, "Prohibitions Related to New Debt and Equity of Certain Russia-related Entities" (the "Russia-related Entities Directive") to prohibit transactions and dealings by U.S. Persons (or within the United States) in new debt of longer than 14 days' maturity and new equity of 13 major firms.  Through this designation, they will be heavily restricted from raising money through the U.S. market.  

Pursuant to E.O. 14024, OFAC identified the following 11 Russian entities as being owned or controlled by, or having acted or purposed to act for or on behalf of, directly or indirectly, the GoR:

  1. Sberbank
  2. Gazprombank Joint Stock Company 
  3. Joint Stock Company Russian Agricultural Bank 
  4. Public Joint Stock Company Gazprom 
  5. Public Joint Stock Company Gazprom Neft 
  6. Public Joint Stock Company Transneft (Transneft)
  7. Public Joint Stock Company Rostelecom 
  8. Public Joint Stock Company RusHydro 
  9. Public Joint Stock Company Alrosa
  10. Joint Stock Company Sovcomflot
  11. Open Joint Stock Company Russian Railways
  12. Joint Stock Company Alfa-Bank
  13. Credit Bank of Moscow Public Joint Stock Company

6. Nord Stream 2

On February 23, President Biden directed his administration to impose sanctions on Nord Stream 2 AG and its corporate officers.  Nord Stream 2 AG is now designated as an SDN under EO 14039.  As with the other blocking designations, the designation means that all property and interests in property in the United States or in the possession or control of U.S. persons are blocked unless authorized by OFAC.

7. Belarussian Designations

On February 24, OFAC sanctioned 24 Belarusian individuals and entities as SDNs due to Belarus's support for, and facilitation of, the Russian invasion.  The designations focus on Belarus's defense sector and financial institutions.  The designation means that all property and interests in property in the United States or in the possession or control of U.S. persons are blocked unless authorized by OFAC.

8. General Licenses and FAQs

Along with the aforementioned Russia designations, OFAC issued several general licenses and FAQs.  The general licenses are currently as follows:

The related FAQs can be found here: https://home.treasury.gov/policy-issues/financial-sanctions/faq/added/2022-02-24.

9. Export Controls

In addition to the economic sanctions, effective on February 24, the U.S. Department of Commerce's Bureau of Industry and Security ("BIS") issued a series of export controls targeting Russia in an attempt to prevent Russia's access to advanced technology.

The BIS final rule imposed the following important policies and requirements: 

  • License requirement to Russia for items in Categories 3 to 9 of the Commerce Control List ("CCL"). Some of these items were not previously controlled for export to Russia. Limited license exceptions are available as listed in 15 C.F.R. § 746.8(c).
  • A policy of denial for license applications to export, reexport, or transfer (in-country) to Russia for those items necessitating a license.
  • Establishment of two new foreign direct product rules ("FDP Rules"). Generally, FDP Rules extend BIS jurisdiction over foreign-produced items that are produced directly by the product of certain controlled software or technology, or produced by a plant that is the direct product of such software or technology when there is knowledge that the item is destined for certain end users or destinations:
    • (1) the "Russia FDP Rule" expands the FDP rule to include the "direct product" of a wide range of CCL software and technology (notably, this does not include EAR99 items) when there is knowledge that the item is destined for Russia or will be incorporated into or used in the production or development of non-EAR99 items produced in or destined for Russia.
    • (2) a more extensive "Russia-Military End User FDP Rule," restricts nearly all items (including EAR99 items) from being exported to military end users listed on the Entity List and identified by footnote 3 to the Entity List. 

Note that certain U.S.-allied countries that have agreed to implement "substantially similar export controls" against Russia will not be subject to these rules.   

  •  Restriction on the use of available EAR license exceptions for Russia exports.
  • Comprehensive restrictions on the DNR and LNR regions, such that any item destined for those regions requires a license.

10. Blocking Sanctions on Putin, Minister of Foreign Affairs and Members of Russian Security Council.

On February 25, Putin joined the list of heads of states that are subject to blocking sanctions, imposing cumulatively "unprecedented diplomatic and economic costs on Russia and further isolate[ing] it from the global financial system and international community." These designations include not only Vladimir Putin and the Minister of Foreign Affairs, Sergei Lavrov, but also the following members of the Russian Security Council:

  1. Valentina Matviyenko
  2. Sergei Naryshkin
  3. Vyacheslav Volodin
  4. Sergei Ivanov
  5. Nikolai Patrushev
  6. Vladimir Kolokoltsev
  7. Alexander Bortnikov
  8. Igor Krasnov, Prosecutor General
  9. Igor Shchegolev
  10. Vladimir Ustinov
  11. Viktor Zolotov

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.