U.S. imposes additional sanctions targeting the Russian Federation
23 February 2022
These measures were announced following the Executive Order President Biden issued on February 21, 2022 (Feb 21 EO), which, as detailed in our alert yesterday, imposed territory-wide sanctions targeting the DNR and LNR regions of Ukraine.
The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury designated five Russian individuals, 44 Russian entities, and five Russian vessels on the List of Specially Designated Nationals and Blocked Persons (SDN List, and persons thereon, SDNs) pursuant to Executive Order 14024 (EO 14024).
The new designations include the following individuals and entities:
- Aleksandr Bortnikov, the Director of the Federal Security Service of the Russian Federation and a permanent member of the Security Council of the Russian Federation who was previously designated in March 2021 under Executive Order 13661;
- Aleksandr Bortnikov’s son, Denis Bortnikov, who is currently a Deputy President of Russian-state owned financial institution VTB Bank and a Chairman of the VTB Bank Management Board;
- Sergei Kiriyenko, the First Deputy Chief of Staff of the Presidential Office and former Prime Minister of the Russian Federation who was also previously designated in March 2021 under Executive Order 13661;
- Sergei Kiriyenko’s son, Vladimir Kiriyenko, who previously worked as a vice president at the Russian state-controlled company Rostelecom and is currently the CEO of VK Group, the parent company of the Russian social media platform VKontakte;
- Petr Fradkov, Chairman and CEO of Promsvyazbank and son of Mikhail Fradkov, former Prime Minister of Russia and Director of the Russian Foreign Intelligence Service;
- Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), Russia’s primary state-financed development bank and the servicer of Russia’s sovereign debt, and its subsidiaries, including Eximbank of Russia; and
- Promsvyazbank Public Joint Stock Company (Promsvyazbank), a Russian state-owned financial institution that services the Russian defense sector, and its subsidiaries.
All property and interests in property of these individuals and entities that are in, or later come within, the U.S. or the possession or control of a U.S. Person,1 are blocked and cannot be transferred, paid, exported, withdrawn, or otherwise dealt in without a license from OFAC. U.S. Persons are also prohibited from engaging in any transaction or dealing with or for the benefit of these individuals and entities, their property, or their interests in property, unless otherwise authorized by OFAC. Although these prohibitions do not apply to non-U.S. Persons, non-U.S. Persons may nonetheless breach U.S. sanctions by engaging in transactions or dealings with or for the benefit of an SDN and involving a nexus to the U.S., such as payment denominated in USD.
These restrictions also apply to any entity that is directly or indirectly owned 50 percent or more, in the aggregate, by one or more of these individuals or entities or other SDNs, regardless of whether it is itself identified on the SDN List (the 50 Percent Rule). Further, OFAC may target a non-U.S. Person with sanctions for providing material assistance to any of these individuals or entities or other SDNs.
The Biden Administration also stated that other Russian elites and their family members may be targeted with additional sanctions.
Sovereign Debt Restrictions
In addition to the SDN designations, OFAC published Russia-related Directive 1A under EO 14024 (the Russia-related Sovereign Debt Directive). Directive 1A, which replaces and supersedes a prior version of the Directive, prohibits certain transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation (the Directive 1A Entities). Specifically, as of June 14, 2021, Directive 1A prohibits U.S. financial institutions from (1) participating in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by the Directive 1A Entities and (2) lending ruble or non-ruble denominated funds to the Directive 1A Entities. As of March 1, 2022, U.S. financial institutions will also be prohibited from participating in the secondary market for ruble or non-ruble denominated bonds issued after March 1, 2022 by the Directive 1A Entities. These prohibitions will operate to exclude Russia from access to U.S. markets and investors.
According to FAQs released alongside Directive 1A, the 50 Percent Rule does not apply to Directive 1A, and the Directive’s prohibitions do not extend to property or interests in property of the Directive 1A Entities (FAQ 891).
In connection with the SDN designations and publication of Directive 1A, the Treasury Department issued two Russia-related General Licenses.
General License 2 authorizes all transactions 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 Directive 1A Entities.
General License 3 is a 30-day wind-down license authorizing all transactions prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of transactions involving VEB and its subsidiaries until midnight EDT on March 24, 2022. General License 3 does not authorize any transactions involving any person blocked pursuant EO 14024 other than VEB, or any entity in which VEB owns, directly or indirectly, a 50 percent or greater interest, unless separately authorized by OFAC.
Treasury Department Determination
The Secretary of the Treasury also issued a determination identifying the financial services sector as a sector of the Russian Federation economy that can be targeted with further sanctions pursuant to EO 14024. With this action, any Russian financial institution can be targeted with full blocking sanctions at any time.
Nord Stream 2 Pipeline
Further, President Biden indicated in his remarks announcing these measures that the U.S. would cooperate with Germany to ensure that the Nord Stream 2 natural gas pipeline does not move forward. Earlier in the day, Germany announced that it would halt certification of Nord Stream 2.
While substantial, these sanctions are incremental and there is significant room for further sanctions to be imposed if the situation continues to escalate, including further SDN designations of Russian elites and their families and Russian financial institutions.
A&O’s Global Sanctions Group is tracking these developments closely. We will provide further updates on related developments, including those in and actions by the EU, the UK, the Russian Federation, and other key players as this situation evolves.
For more information please contact the authors (related people) or your usual contact within our Global Sanctions Group.
1 U.S. Person means (i) U.S. citizens and permanent residents, (ii) entities organized under the laws of the U.S. or any jurisdictions therein, and (iii) any persons located in the U.S..