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U.S. Imposes Broad Sanctions on Russia in Response to Ukraine Attacks U.S. Imposes Broad Sanctions on Russia in Response to Ukraine Attacks

U.S. Imposes Broad Sanctions on Russia in Response to Ukraine Attacks

The United States, along with the European Union and many other countries, moved quickly over the past few days to impose an increasingly comprehensive embargo on Russia’s financial sector, with serious collateral impact across Russia’s business sector. Combined with additional export controls levied on Russia’s technology sector, and warnings of more actions to come, including with respect to cryptocurrencies, the overall environment poses significant risks to existing or future business activities involving Russia or companies owned or controlled by Russian nationals.

This summary is an update to our prior client alert, in which we anticipated that the United States would move toward expansive sanctions against Russia and its financial sector for its actions in Ukraine. We have included a general summary of the broad sanctions and prohibited transactions current as of today. 

Prohibitions on Transactions with Certain Russian Financial Institutions

  • U.S. persons are prohibited from engaging in 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.
  • Additionally, U.S. financial institutions [1] are prohibited from participating in the secondary market for ruble or non-ruble denominated bonds issued by these Russian financial institutions after March 1, 2022.

Sanctions on Sberbank and VTB Bank

  • The Public Joint Stock Company Sberbank of Russia (Sberbank) is barred from processing payments through the U.S. financial system. Within 30 days, all U.S. financial institutions must:
    • close any Sberbank correspondent or payable-through accounts; 
    • deny any requests to open a correspondent or payable-through account; and
    • reject any future transactions involving the Sberbank or its subsidiaries, for or on behalf of any foreign financial institution covered under these sanctions.
  • The VTB Bank Public Joint Stock Company (VTB Bank) is also barred from processing payments through the U.S. financial system and will be the subject of “full blocking” sanctions. These sanctions require the freezing of any U.S. assets associated with the VTB Bank and prohibit any U.S. persons or businesses from doing any transaction with or through the bank.

Designations of Russian Leadership and Related Entities

  • The Department of the Treasury’s Office of Foreign Assets Control (OFAC) has designated a range of individuals in the Russian Federation’s leadership, including President Putin. OFAC has also designated a number of entities related to Russia, including Otkritie, Novikom, Sovcom, and the Russian Direct Investment Fund (RDIF).  [2]
  • The United States has also sanctioned an array of Belarusian entities and individuals for their support of the Russian Invasion, including the Belinvestbank, the Bank Dabrabyt, and the Minsk Wheeled Tractor Plant. 
  • These designations will generally prohibit any U.S. persons or those within the United States from providing or receiving any funds, goods, or services or generally dealing with those targeted. 

Cryptocurrencies and Sanctions Evasion

  • The U.S. government has also issued public warnings and requests to companies operating in the cryptocurrency sector to be aware of efforts by sanctioned persons and entities to attempt to circumvent sanctions or other prohibitions. Accordingly, OFAC issued detailed regulations on March 1, 2022, that elaborate on the April 2021 Executive Order that allows for the designation of persons involved in Foreign Harmful Activities where they directly or indirectly engage or attempt to engage in an array of actions to benefit the Russian government, including: malicious cyber-enabled activities, transnational corruption, undermining the peace, or deploying deceptive or structured transactions or dealings to circumvent sanctions through physical or digital currencies and assets. 
  • OFAC has previously sanctioned cryptocurrency exchanges, such as SUEX and CHATEX, primarily for their role in facilitating criminal activities. We would expect that OFAC would likely move to designate other exchanges that are known or have been identified as high-risk due to weak or non-existent money laundering/know-your-customer compliance program.

Sanctions on the DNR and LNR Regions

  • In addition to the Russia-focused sanctions, the White House also issued an Executive Order (EO) that institutes new operational prohibitions and authorizes a slate of sanctions meant to deny Russia any monetary gain for its actions in the Donetsk and Luhansk People’s Republics (DNR and LNR) in eastern Ukraine.
  • In general, these measures prohibit certain investments in the DNR or LNR regions by any U.S. person, and the exportation, re-exportation, sale, or supply, directly or indirectly, from or importation into the United States or by a U.S. person of any goods, services, or technology to the DNR or LNR regions. In addition, the sanctions target any persons that operate or have operated in these regions since February 21, 2022.
  • The Treasury Department has issued a limited set of general licenses [3] designed to provide a short-term period for organizations to wind down activities in the impacted regions. [4] Notably, these licenses will allow for the continued export of agricultural commodities, medicine, and medical devices, and international organizations are still permitted to provide aid to the DNR and LNR. Additionally, telecommunication, internet, and mail services are authorized to remain operational.

General Compliance Advice Going Forward

Given the complex and rapidly evolving humanitarian and military situation in the Ukraine, we expect the U.S. and other countries to add additional sanctions and further tighten the embargo on Russia and its allies. We recommend that clients review their current customer and vendor relationships, as well as any prospective transactions or operational decisions, that could be impacted from these restrictions.

If you believe you’ll need assistance navigating or complying with these orders, or would like additional information, please contact Guillermo Christensen, office managing partner of the firm’s Washington D.C. office, and a former CIA officer with national security experience including in dealing with OFAC and export control matters; Frank Bayyari, of counsel with international regulatory and compliance experience in the technology, logistics, supply chain, and transportation sectors; or Dakota Coates, an associate in Ice Miller’s Litigation and Data, Security, and Privacy Groups.

[1] A U.S. financial institution is defined in Directive 1A Under Executive Order 14024 as amended on February 22, 2022.
[2] This includes the Joint Stock Company Management Company of the Russian Direct Investment Fund (JSC RDIF) and the Limited Liability Company RVC Management Company (LLC RVC).
[3] A general license authorizes certain types of transactions for a class of persons without the need to apply for a license. 
[4] General license No. 17 extends the wind-down of specific operations until 12:01 a.m. Eastern Daylight Time, March 23, 2022. General license No. 3 creates a wind down period for certain transactions involving State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank until 12:01 a.m. Eastern Daylight Time, March 24, 2022.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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