Sanctions against Russia: recent developments (Februrary 28th updates)

 

On 22 February 2022 Russian President Vladimir Putin signed laws ratifying agreements with the Donetsk and Luhansk People’s Republics (DNR and LNR) recognizing them as independent states. Sanctions were adopted against Russia further to these actions of Russian President (please see our legal alert on sanctions dated 24 February 2022).

Sanctions described below are a second round of sanctions against Russia. They were adopted after President Putin announced a “special military operation” in Ukraine on 24 February 2022.

Additional sanctions against Russia (third round), including the disconnection of certain Russian banks already subject to sanctions from SWIFT, are expected to be adopted shortly,

In this respect, it should be noted that on 26 February 2022 European Commission in a joint statement with France, Germany, Italy, the United Kingdom, Canada, and the United States announced further economic measures. 5

Those measures include removing selected Russian banks from the SWIFT messaging system. This will affect banks that are already under sanctions as well as additional institutions, if necessary. The official document with a list of such banks has not yet been issued.

On 28 February 2022, European Union authorities published sanctions prohibiting any aircraft operated by Russian air carriers, including as a marketing carrier in code-sharing or blocked-space arrangements, or for any Russian registered aircraft, or for any non-Russian-registered aircraft which is owned or chartered, or otherwise controlled by any Russian natural or legal person, entity or body, to land in, take off from or overfly the territory of the European Union.

Additionally, restrictive measures were imposed on the Russian Central Bank that prevent it from deploying its international reserves ‘in ways that undermine the impact of our sanctions’. Transactions related to the management of reserves as well as of assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of Russia, are prohibited,

On 28 February 2022, Russian authorities announced some counter-measure limiting the transactions in foreign currency that we will present in a separate legal alert when all the information will be available,

US MEASURES (SECOND ROUND)

1. Blocking sanctions and prohibitions

On 24 and 25 February 2022 US President Joe Biden announced another unit of sanctions targeting Russia pursuant to Executive Order (E.O.) 14024¹. In order to implement the sanctions the US Treasury issued a number of directives.

 

Blocking financial institutions

  • Correspondent and payable-through account sanctions targeting Sberbank under Directive 2 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”). Sanctions target Sberbank and 25 Sberbank foreign financial institution subsidiaries that are 50 percent or more owned, directly or indirectly, by Sberbank. Moreover, all financial institutions owned 50 percent or more, directly or indirectly, by Sberbank are covered by the prohibitions of the Russia-related CAPTA Directive, even if not identified on OFAC’s CAPTA List. Starting from 26 March 2022 the following activities by a US financial institution are prohibited:
    –   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
    –   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. Accordingly, U.S. financial institutions must reject such transactions unless exempt or authorized by OFAC;
  • Full blocking sanctions on VTB Bank and 20 VTB Bank subsidiaries. All entities owned 50 percent or more, directly or indirectly, by VTB Bank are subject to blocking, even if not identified by OFAC.
  • Full blocking sanctions on Public Joint Stock Company Bank Financial Corporation Otkritie and its 12 subsidiaries. All entities owned 50 percent or more, directly or indirectly, by Otkritie are subject to blocking under E.O. 14024, even if not identified by OFAC.
  • Full blocking sanctions on Open Joint Stock Company Sovcombank and its 22 subsidiaries. All entities owned 50 percent or more, directly or indirectly, by Sovcombank are subject to blocking under E.O. 14024, even if not identified by OFAC.
  • Full blocking sanctions on Joint Stock Commercial Bank Novikombank.

As a result of these blocking actions, all property and interests in property of persons mentioned above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC.

Debt and equity prohibitions. These sanctions are adopted under Directive 3 under E.O. 14024, “Prohibitions Related to New Debt and Equity of Certain Russia-related Entities” 3.

Starting from 26 March 2022 the measures 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 Russian state-owned enterprises, entities that operate in the financial services sector of the Russian Federation economy, and other entities determined to be subject to the prohibitions in this directive.

They target:

  • CREDIT BANK OF MOSCOW PUBLIC JOINT STOCK COMPANY
  • GAZPROMBANK JOINT STOCK COMPANY
  • JOINT STOCK COMPANY ALFA-BANK
  • JOINT STOCK COMPANY RUSSIAN AGRICULTURAL BANK
  • JOINT STOCK COMPANY SOVCOMFLOT
  • OPEN JOINT STOCK COMPANY RUSSIAN RAILWAYS
  • PUBLIC JOINT STOCK COMPANY ALROSA
  • PUBLIC JOINT STOCK COMPANY GAZPROM
  • PUBLIC JOINT STOCK COMPANY GAZPROM NEFT
  • PUBLIC JOINT STOCK COMPANY ROSTELECOM
  • PUBLIC JOINT STOCK COMPANY RUSHYDRO
  • PUBLIC JOINT STOCK COMPANY SBERBANK OF RUSSIA
  • PUBLIC JOINT STOCK COMPANY TRANSNEFT

 

Blocking sanctions targeting Russian elites.

The following persons have been added to OFAC’s SDN List:

  • Sergei Lavrov;
  • Vladimir Putin;
  • Valery Gerasimov;
  • Sergei Sergeevich Ivanov;
  • Andrey Patrushev;
  • Ivan Igorevich Sechin;
  • Alexander Aleksandrovich Vedyakhin;
  • Andrey Sergeyevich Puchkov;
  • Yuriy Alekseyevich Soloviev;
  • Galina Olegovna Ulyutina.

As a result of those measures, their property and interests in property become blocked.

2. Exports Controls

On 24 February 2022 the Department of Commerce’s Bureau of Industry and Security (BIS) has expanded export controls to restrict exports, reexports, and transfers of US goods, software, and technology to Russia. 4 Changes include:

  • Expanded export license requirements for exports, reexports, and transfers to Russia and Russian companies of a broad cross-section of items subject to the Export Administration Regulations (EAR) including products for the semiconductor, IT, data processing, telecommunications, healthcare, motor vehicle, marine, and aviation sectors. BIS will apply a licensing policy of denial to such license applications except in limited cases involving safety of flight, maritime safety, humanitarian needs, government space cooperation, civil telecommunications infrastructure, government-to-government activities and to support limited operations of partner companies in Russia.
  • Restrictions on transactions with “military end users” and state-owned enterprises in Russia.
  • Elimination of certain license exceptions for exports and retransfers of Items subject to the EAR to Russia.
  • New restrictions on certain Russian state-owned enterprises and aerospace and defense companies that have been added to the EAR’s Entity List.  Licenses are now required to export, reexport, or transfer virtually all Items subject to US export controls to such Entity List entities.
  • Application of the EAR’s Foreign Direct Product Rule (FDPR) to Russia and Russian military end users inside and outside Russia.
  • A near-total ban on exports to the Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) except for food and medicine designated as EAR99 or software necessary to enable the exchange of personal communications over the Internet.

New rules became effective immediately, no wind-down period was established.

EU MEASURES (SECOND ROUND)

1. Blocking individual sanctions

On 25 February 2022 the EU adopted Council Implementing Regulation 2022/332 providing for individual sanctions targeting Russian President Putin, Minister of Foreign Affairs Lavrov, members of the National Security Council of the Russian Federation who supported Russia’s recognition of DNR and LNR, remaining members of the Russian State Duma, who ratified the government decision of the Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and DNR and LNR.

2. Economic sanctions

On 25 February 2022 the EU adopted several decisions implementing a new package of sanctions. 7

The package provides for the following measures:

  • Prohibition to sell, supply, transfer or export dual-use goods and technology, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia; and to provide technical assistance, brokering services or other services, and financing or financial assistance to those goods and technology. There are currently two wordings of this provision, one of which refers to an exhaustive list of such goods and technology provided in Annex I to Regulation (EU) 2021/821. 8 While the second one does not limit the sanctioned goods and technology to a particular list. Additionally, the new measures provide that, when deciding on authorizations for such sale, supply, or exports of dual-use goods and technology, such authorizations should be denied to companies listed in Annex IV. 9 Such companies include JSC Kalashnikov, Communication center of the Ministry of Defense, JSC Sirius, OAO Almaz Antey, Rostec (Russian Technologies State Corporation), Sukhoi Civil Aircraft, United Aircraft Corporation, United Shipbuilding Corporation.
  • Prohibition  to sell, supply, transfer or export, directly or indirectly, goods and technology which might contribute to Russia’s military and technological enhancement, or the development of the defense and security sector, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia; and to provide technical assistance, brokering services or other services, and financing or financial assistance to those goods and technology. Additionally, the new measures provide that, when deciding on authorizations for such sale, supply, or exports, such authorizations should be denied to companies listed in Annex IV.
  • Prohibition to sell, supply, transfer or export, directly or indirectly, goods and technology suited for use in oil refining whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia; and to provide technical assistance, brokering services or other services, and financing or financial assistance to those goods and technology. These prohibitions will not apply to the execution until 27 May 2022 of contracts concluded before 26 February 2022, or ancillary contracts necessary for the execution of such contracts.
  • Prohibition to sell, supply, transfer or export, directly or indirectly, goods and technology suited for use in aviation or the space industry, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia; and to provide technical assistance, brokering services or other services, and financing or financial assistance to those goods and technology. As well as prohibition on the provision of insurance and reinsurance and maintenance services related to those goods and technology.
  • Prohibition to provide public financing or financial assistance for trade with, or investment in, Russia. This ban will not apply to :

+ commitments established before 26 February 2022;

+ financing not exceeding 10 million euros per project for small and medium-sized enterprises established in the EU;

+ provision of public financing for trade in food, and for agricultural, medical or humanitarian purposes.

  • Prohibition of listing and provision of services in relation to shares of Russian state-owned entities on EU trading venues. These sanctions will target 70% of the Russian banking market, and key state-owned companies, including in the field of defense, according to the official press release of the Council of the EU. 10
  • Prohibition for purchase, sale, investment, assistance or other dealing with transferrable securities and money-market  instruments issued after 12 April 2022 by:

+ Alfa Bank;

+ Bank Otkritie;

+ Bank Rossiya;

+ Promsvyazbank;

+ Almaz-Antey;

+ Kamaz;

+ Novorossiysk Commercial Sea Port;

+ Rostec (Russian Technologies State Corporation);

+ Russian Railways;

+ JSC PO Sevmash;

+ Sovcomflot;

+ United Shipbuilding Corporation.

  • Prohibition of acceptance of deposits exceeding certain values (EUR 100,000) from Russian nationals or residents, the holding of accounts of Russian clients by the EU Central Securities Depositories, as well as the selling of euro-denominated securities to Russian clients.
  • Visa restrictions. Diplomats, other Russian officials, and businesspeople will no longer be able to benefit from visa facilitation provisions, which allow privileged access to the EU.

Switzerland has announced on 28 February 2022 that they will join the EU sanctions adopted on 23 and 25 February. 11

We are actively following the developments related to those issues  and are fully prepared to advise our clients.

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