Summary of the Wide-Ranging Sanctions Imposed on Russia This Week
This week, the United States, European Union, and allied countries imposed a broad range of sanctions and export control restrictions on Russia in response to Russia’s invasion of Ukraine. We expect Western countries to implement additional measures in the coming days and weeks in response to the very fluid situation in Ukraine.
This post summarizes the state of affairs as of Friday, February 25, 2022. Please reach out to our team if you have any questions about these or future developments.
Scope of the new measures
The new sanctions measures do not amount to a full embargo on Russia. Nor has Russia been cut off fully from the global financial system. Many types of international trade with Russian remain permissible for U.S., EU, and other western companies and cross-border payments remain permissible in many respects, depending on the banks and parties involved.
However, the measures imposed this week were significant and materially impact a number of companies that conduct business in or with Russia. Dealings with some of Russia’s largest financial institutions have been banned or seriously restricted, new dual use export controls impose license requirements on a broad array of exports to Russia, new financial or sectoral-type sanctions were imposed on large, state-owned enterprises, and dealings with the separatist regions of Ukraine were prohibited or restricted. Western governments also appear likely to impose additional sanctions on Russia in the coming days and weeks, so these measures may expand in scope in the near future.
Even where trade is legally permissible, companies should expect disruptions in Russia-related business for a period, as banks, logistics providers, and companies review the new restrictions and impose additional compliance measures.
Banks subject to blocking or asset freeze restrictions
Western countries imposed blocking sanctions or asset freeze restrictions on a number of large Russian financial institutions this week. In the United States, banks were added to the List of Specially Designated Nationals (SDN List). Russian banks subject to new 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. These sanctions generally prohibit any direct or indirect dealings with these banks, unless authorized pursuant to a wind down or other type of general license.
U.S. Sberbank Restrictions
The United States imposed correspondent and payable-through sanctions on Sberbank, which will limit the ability of Sberbank to conduct U.S. dollar transactions. The sanctions also require U.S. financial institutions to reject future transactions involving Sberbank and its subsidiaries. Similar sanctions on Russian banks have been proposed or are being implemented by the EU and U.K. We cover the U.S. Sberbank sanctions here.
The United States imposed new 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. 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. These sanctions generally prohibit all business with the sanctioned parties and their owned entities. Today, the United Kingdom imposed largely symbolic sanctions on Vladimir Putin and Russian Foreign Minister Sergei Lavrov, a move that the United States and EU are expected to match.
We covered asset freezes in several of our posts.
Expanded Dual Use Licensing Requirements
The United States amended its export control regulations to impose a license requirement on exports of a broad array of goods, software, and related technical knowhow to Russia. The restrictions apply to all items listed in Categories 3 through 9 of the Commerce Control List, the U.S. dual use 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 subject to a presumption of denial, which means that licenses will rarely be granted. The EU, UK, and other allies are working on implementing similar restrictions.
The United States extended prohibitions on the export of specified items to Military End Users and Uses in Russia and added a significant number of Russian companies to the Entity List, broadly prohibiting the transfer of items subject to the EAR to the listed parties.
The U.S. also extended its “Foreign Direct Product Rule” (FDPR) to apply to exports to Russia and Russian Military End Users (including supporters of Military End Users or the Russian military). The FDPR changes significantly increase the scope of non-U.S. origin items that are subject to the EAR’s restrictions in a number of sectors, including the semi-conductor industry.
For more on the new U.S. export control measures, see this post.
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. For more on allied country measures, see here and here.
* * * * *Please feel free to reach out to our team with any questions about these developments and how they may impact your company’s business.
Tags: Russia sanctions