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The full alert is available for download with footnotes here.
On February 22, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed sanctions on a number of Russian persons, entities, and vessels. This follows the issuance the day before of an Executive Order imposing severe restrictions on economic activity by U.S. persons with the DNR and LNR regions of Ukraine.
A press release issued by the U.S. Department of the Treasury explains the reason for these newest sanctions: “[T]he United States is taking action to respond to President Vladimir Putin’s decision to recognize the so-called Donetsk and Luhansk People’s Republics (DNR and LNR) as ‘independent’ states and to deploy troops to these regions by sanctioning two major Russian state-owned financial institutions, imposing additional restrictions on Russian sovereign debt, and sanctioning five Kremlin-connected elites.”
Secretary of the Treasury Janet L. Yellen noted “Today’s actions, taken in coordination with our partners and allies, begin the process of dismantling the Kremlin’s financial network and its ability to fund destabilizing activity in Ukraine and around the world”.
The designations were made pursuant to the authority granted by Executive Order (E.O.) 14024 of April 15, 2021, which authorizes the imposition of sanctions against Russia for, among other things, “violat[ing] established principles of international law, including respect for the territorial integrity of states[.]” Under Section 1(a)(i) of E.O. 14024, the Secretary of the Treasury, in consultation with the Secretary of State is authorized to designate any person operating in “the technology sector or the defense and related materiel sector of the Russian Federation economy, or any other sector of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State.” On February 22, 2022, the Secretary of the Treasury, in consultation with the Secretary of State, determined that Section 1(a)(i) “applies to the financial service sector of the Russian Federation economy.”
On this basis, the Secretary of the Treasury has designated two major state-owned financial institutions: the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries. As explained in the Department of the Treasury’s press release, “VEB is crucial to Russia’s ability to raise funds, and PSB is critical to Russia's defense sector. These sanctions ensure VEB and PSB can no longer do business in the United States and are cut off from the U.S. financial system.” The press release further states that “today’s action constrains Russia’s ability to finance defense-related contracts and raise new funds to finance its campaign against Ukraine.”
OFAC has also designated a number Russian nationals believed to be close to the Russian President. The designations have been made under E.O. 14024 on the basis of (i) being or having been leaders, officials, senior executive officers, or members of the board of directors of the Government of Russia; (ii) being a spouse or adult child of a person whose property has been blocked; (iii) operating or having operated in the defense and related materiel and financial services sectors of the Russian Federation economy.
As part of its designation of PSB, OFAC designated five vessels (crude oil tankers, container ships, and a cargo vessel) owned by a subsidiary of PSB. The designation precludes any U.S. person from participating in a transaction that involves the use of any of these vessels.
OFAC has also issued Russia-related Directive 1A under E.O. 14024, “Prohibitions Related to Certain Sovereign Debt of the Russian Federation,” which amends and supersedes Directive 1, issued under E.O. 14024 on April 15, 2021. Directive 1A expands the existing sovereign debt prohibitions to prohibit participation by U.S. persons in the secondary market for 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.
In conjunction with these designations, OFAC has issued two General Licenses:
Finally, OFAC has published two FAQs:
We expect further developments in U.S. sanctions if the crisis is not abated.
Attorney advertising. The material contained in this Client Alert is only a general review of the subjects covered and does not constitute legal advice. No legal or business decision should be based on its contents.
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