Worldwide: Sanctions Tracker – Sanctions Responses To The Situation In Ukraine

We are closely monitoring the international response to the evolving political situation in Ukraine and will be providing regular updates in relation to sanctions and other developments that may impact international businesses with interests or operations in Ukraine and/or Russia.

We previously discussed on  February 4, 2022 and  February 11, 2022 the sanctions measures that were proposed in several jurisdictions as a potential response to the situation in Ukraine. This post provides an update regarding recent Ukraine-related sanctions measures imposed by the United States, the United Kingdom, the European Union, and Australia.

United States

Last updated on 22 February 2022

Over the past few days, the U.S. government imposed several sanctions related to the situation in Ukraine. In particular, the Biden Administration has: (i) designed the "financial services sector" of the Russian economy as secondarily sanctioned; (ii) imposed blocking sanctions (via SDN designation) on two Russian banks; (iii) imposed new sanctions on secondary dealings in Russian sovereign debt; (iv) imposed an embargo on the separatist-controlled regions of Ukraine; and (v) made a number of additional SDN designations. These actions are reflected in the Office of Foreign Assets Control's ("OFAC") Russia-related Directive 1A under Executive Order ("E.O.") 14024 of April 15, 2021, "Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation," in several Russia-related General Licenses, as well as in several new and updated Frequently Asked Questions ("FAQs"). An OFAC press release is available here.

Sectoral Sanctions on the Russian Financial Sector

On  February 22, 2022, the Secretary of the Treasury, "determine[d] that [secondary sanctions] shall apply to the financial services sector of the Russian Federation economy."

FAQ 964 clarifies that, "[a] sector determination pursuant to E.O. 14024 exposes persons who operate or have operated in an identified sector to sanctions risk; however, a sector determination does not automatically impose sanctions on all persons who operate or have operated in the sector." Rather, only persons determined "by the Secretary of the Treasury in consultation with the Secretary of State, or by the Secretary of State, in consultation with the Secretary of the Treasury, to operate or have operated in the [Russian financial services sector] are subject to sanctions."

As such, persons that operate or have operated in the Russian financial services sector could be designated on one or more OFAC sanctions lists, typically through designation on OFAC's Specially Designated Nationals and Blocked Persons ("SDN") List.

Designation of Two Russian Banks as SDNs

On the same day, OFAC designated two major Russian state-owned financial institutions: (i) State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank ("VEB"); and (ii) Promsvyazbank Public Joint Stock Company ("PSB"). These restrictions mean that all property and interests in property of VEB and PSB, or their direct or indirect subsidiaries, within the United States or under the control of a U.S. person, is blocked, and that U.S. persons are generally prohibited from dealing with VEB and PSB.

OFAC also issued two General Licenses providing a wind-down period for certain transactions involving VEB:

• GL 2 authorizes certain servicing transactions involving VEB, or any entity in which VEB owns, directly or indirectly, a 50% or greater interest, that are ordinarily incident and necessary to the servicing of bonds issued before March 1, 2022.
• GL 3 authorizes a wind-down period for transactions involving VEB, or any entity in which VEB owns, directly or indirectly, a 50% or greater interest until March 24, 2022.

Finally, OFAC also designated 25 subsidiaries of VEB and 17 of subsidiaries of PSB, and took action against five marine vessels that are owned by a subsidiary of PSB.

Restrictions on Russian Sovereign Debt

OFAC also issued  Directive 1A pursuant to E.O. 14024 §§ 1(a)(iv), 1(d), and 8, which amends and supersedes Directive 1. In general, Directive 1A extends existing sovereign debt prohibitions to cover participation 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. According to OFAC, it "increased restrictions on dealings in Russia's sovereign debt, further cutting Russia off from sources of revenue to fund its government or President Putin's priorities, including his further invasion into Ukraine."

On the same day, OFAC issued related new and revised FAQs.

• FAQ 965 clarifies that Directive 1 of April 15, 2021 "imposed prohibitions on participation in the primary market for ruble or non-ruble denominated bonds issued by, or the lending of ruble or non-ruble denominated funds to, the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation." Now, Directive 1A "expands upon the existing prohibitions to also prohibit . . . participation in the secondary market for ruble or non-ruble denominated bonds issued by these entities after March 1, 2022."
• FAQ 891 explains that OFAC's 50% Rule does not apply to Directive 1A. Rather, the prohibitions described therein only apply to "bonds issued by, or loans made to, the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation."
• FAQ 890 states that, after June 14, 2021, U.S. financial institutions "are prohibited from participating in the primary market for ruble or non-ruble denominated bonds issued by, or the lending of ruble or non-ruble denominated funds to, the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation, unless otherwise authorized by OFAC or exempt" and are prohibited "from participating in the secondary market for ruble or non-ruble denominated bonds issued after March 1, 2022 by these entities."
• FAQ 889 clarifies that Directive 1A prohibits participation in the secondary market for bonds issued 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.
• FAQ 888 clarifies that the following activities by a U.S. financial institution are prohibited: (i) "participation in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 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"; (ii) "lending ruble or non-ruble denominated funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation"; and (iii) "participation in the secondary market for ruble or non-ruble denominated 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." Furthermore, the following are also prohibited: (i) "any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions of the Russia-related Sovereign Debt Directive"; and (ii) "any conspiracy formed to violate any of the prohibitions" of Directive 1A.
• FAQ 678 explains that, although the CBW Act Directive does not prohibit U.S. banks from participating in the secondary market for Russian sovereign debt, OFAC has imposed prohibitions on participation in the secondary market of certain Russian sovereign debt pursuant to Directive 1A.

Embargo Related to Certain Regions of Ukraine

On February 21, 2022, President Biden issued an  Executive Order, which blocks property of certain persons and prohibits certain transactions "with respect to continued Russian efforts to undermine the sovereignty and territorial integrity of Ukraine" (the "February 21 E.O."). According to a White House  press release, President Biden issued the February 21 E.O. "to respond to President Putin's action to purportedly recognize the so-called Donetsk and Luhansk People's Republics" ("DNR" and "LNR," respectively) as "independent states."

Like U.S. sanctions related to Crimea, the February 21 E.O. creates an effective embargo by prohibiting virtually all direct and indirect transactions (including financial, trade, and other commercial transactions) by U.S. persons or by persons within the U.S. to or from the DNR or LNR regions of Ukraine, unless authorized by OFAC or exempted by statute. In particular, the February 21 E.O. prohibits:

• New investment in the DNR or LNR regions of Ukraine by a U.S. person, wherever located;
• The importation into the U.S., directly or indirectly, of any goods, services, or technology from the DNR or LNR regions of Ukraine;
• The exportation, reexportation, sale, or supply, directly or indirectly, from the U.S., or by a U.S. person, wherever located, of any goods, services, or technology to the DNR or LNR regions of Ukraine; and
• Any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be covered by these prohibitions if performed by a U.S. person or within the U.S.

In addition, the February 21 E.O. provides authority to impose sanctions on persons determined to:

• Operate, or have operated, in the DNR or LNR regions of Ukraine;
• Be, or have been, a leader, official, senior executive officer, or member of the board of directors of an entity operating in the DNR or LNR regions of Ukraine;
• Be owned or controlled by, or to have acted or purported to act for or on behalf of, any person whose property and interests in property are blocked pursuant to the February 21 E.O.; or
• Have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to the February 21 E.O.

On the same day, OFAC issued six GLs "to ensure that humanitarian and other related activity can continue" in the DNR and LNR regions of Ukraine. Absent the authorizations outlined in these GLs, these transactions would be prohibited by the February 21 E.O.

• GL 17 authorizes the wind-down of transactions involving the DNR or LNR regions of Ukraine through March 23, 2022. This includes "the divestiture or transfer to a non-U.S. person of a U.S. person's share of ownership in any pre-February 21, 2022 investment located in the DNR or LNR regions of Ukraine," and "the winding down of operations, contracts, or other agreements in effect prior to February 21, 2022 involving the exportation, reexportation, sale, or supply of goods, services, or technology to, or importation of any goods, services, or technology" from the DNR or LNR regions of Ukraine.
• GL 18 authorizes the exportation or reexportation of certain agricultural commodities, medicine, medical devices, replacement parts and components, or software updates to the DNR and LNR regions of Ukraine, or to "such other regions of Ukraine as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State" (collectively, the "Covered Regions"), or "to persons in third countries purchasing specifically for resale to the Covered Regions[,]" or for "the prevention, diagnosis, or treatment of COVID-19" in the Covered Regions.
• GL 19 authorizes certain telecommunications and mail transactions related to the DNR and LNR regions of Ukraine or the Covered Regions.
• GL 20 authorizes "official business" of certain international organizations and entities, including, for example, the United Nations, the International Centre for Settlement of Investment Disputes, the Multilateral Investment Guarantee Agency, and the Red Cross.
• GL 21 authorizes all transactions "that are ordinarily incident and necessary to the transfer of noncommercial, personal remittances" to the DNR or LNR regions of Ukraine, or to the Covered Regions, or "for or on behalf of an individual ordinarily resident in the Covered Regions," provided that the transfer "is not by, to, or through any person whose property and interests in property are blocked pursuant to" the February 21 E.O. GL 21 further authorizes all transactions "that are ordinarily incident and necessary to maintaining, operating, or closing an account of an individual ordinarily resident in the Covered Regions," as long as such transactions: (i) "[a]re of a personal nature and not for the benefit of an entity"; and (ii) "[d]o not involve transfers directly or indirectly to the Covered Regions or for the benefit of persons ordinarily resident in the Covered Regions . . . ."
• GL 22 authorizes "the exportation of services incident to the exchange of personal communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging," to persons in the DNR or LNR regions of Ukraine, or to the Covered Regions.

Other Sanctions Measures

• Certain Russian Elites. OFAC sanctioned five individuals to "target powerful Russians in Putin's inner circle believed to be participating in the Russian regime's kleptocracy and their family members." According to OFAC, "[e]lites close to Putin continue to leverage their proximity to the Russian President to pillage the Russian state, enrich themselves, and elevate their family members into some of the highest positions of power in the country at the expense of the Russian people."
• Nord Stream 2.  During a February 22  press conference, President Biden stated, "because of Russia's actions, we've worked with Germany to ensure Nord Stream 2 will not - as I promised - will not move forward." Similarly, on the same day, a Senior Administration Official  stated, "Nord Stream 2 . . . is Putin's prized pipeline. . . That is now shut down after very close consultations overnight with Germany."

United Kingdom

Last updated on 23 February 2022

On February 22, the U.K.  announced that its existing asset freeze measures (imposed by the Russia (Sanctions) (EU Exit) Regulations 2019 (the "Regulations")) would be imposed on seven new targets: three individuals and five banks. The individuals (Gennady Timchenko, Boris Rotenberg and Igor Rotenberg) are described as "leading members of the Russian elite of particular significance to the Kremlin." The newly designated banks are: Bank Rossiya, Black Sea Bank for Development and Reconstructions, IS Bank, and Genbank, described as "involved in bankrolling the Russian occupation," along with Promsvyazbank, a "pivotal bank in propping up Russia's defence sector."

Despite the fanfare accompanying the introduction of these measures, the practical impact of the designations may be limited for many companies, given that nearly all the new designated persons are already subject to U.S. asset freezing measures. As such, companies with any U.S. nexus (or which otherwise comply with U.S. sanctions) are unlikely to have any ongoing dealings with these designated persons (or entities owned or controlled by them) in any event.

Further details regarding the new designated persons, and the reasons for their designation are set out in the  notice published by HM Treasury. All of the banks, together with Mr. Timchenko, were designated on the basis of involvement in activities destabilising Ukraine or undermining or threatening its territorial integrity, sovereignty or independence. This is the designation ground that has been available to the U.K. since the Regulations were introduced in 2019 in preparation for Brexit. Only two of the new designations (Boris and Igor Rotenberg) were therefore made under the  new designation grounds (relating to support of the Government of Russia) which were announced on February 11.

In common with other U.K. asset freezing measures, the newly designated persons are subject to two principal restrictions: (i) it is prohibited for U.K. persons to deal with funds or assets owned or controlled by the designated person; and (ii) U.K. persons are prohibited from making funds or economic resources available to the designated person. These restrictions can also extend to entities owned or controlled by the designated persons. The individuals are also subject to a U.K. travel ban.

The U.K. also issued a clarification later on February 22, having incorrectly listed Bank Rossiya as having the address of the Russian Central Bank. For the avoidance of doubt, the Central Bank has not at present been sanctioned by the U.K., and it is to be hoped that the identifying details of future designated persons are carefully checked to avoid potential confusion.

Further developments appear likely in the U.K., with the Foreign Secretary stating in today's announcement that "the UK will also sanction those members of the Russia Duma and Federation Council who voted to recognise the independence of Donestk and Luhansk" and that "over the coming weeks" the U.K. will also extend its existing Crimea sanctions to those regions, stating that "no UK individual or business will be able to deal with this territory until it is returned to Ukrainian control." The most recent announcement also repeats previous statements by the U.K. in relation to a wider package of sanctions to be deployed should the situation escalate further, noting that these include "a wide ranging set of measures targeting the Russian financial sector and trade." Further details of the precise measures that may be involved have yet to be released, although our previous  briefing summarises some possibilities.

Given the limited impact of the current designations, we expect most companies to be focussing on what the extended package of sanctions measures may comprise.

European Union

Last updated on 23 February 2022

On February 21, the E.U.  extended its asset freeze to five individuals "for actively supporting actions and implementing policies that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine." The measures came into force the same day, with the publication of  Council Implementing Regulation (EU) 2022/236 (the "Implementing Regulation") in the Official Journal. The Implementing Regulation amends Annex I to Regulation (EU) No 269/2014 which introduced an asset freeze in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

The newly designated persons are: Aleksei Cherniak, Leonid Babashov, Tatiana Lobach, Nina Faustova, and Aleksandr Chmyhalov, and are members of the Statue Duma of the Russian Federation elected to represent the Crimean peninsula and the City of Sevastopol on September 19 2021, and the deputy head of the Sevastopol electoral commission.

On February 22, the E.U. responded to Russia's recognition of Donetsk and Luhansk as independent entities by  announcing its intention to impose additional sanctions, stating that these would include restrictions on "all economic relations with [Donetsk and Luhansk], as well as designations against individuals and entities responsible for undermining the territorial integrity of Ukraine."

A separate  statement by the Presidents of the European Council and European Commission confirmed that a first package of sanctions was to be formally tabled during the afternoon of February 22, containing proposals:

• to target those who were involved in the decision to recognise Donetsk and Luhansk;
• to target banks that are financing Russian military and other operations in those territories;
• to target the ability of the Russian state and government to access the E.U.'s capital and financial markets and services; and
• to target trade from those territories to and from the E.U.

That statement also noted that "the EU has prepared and stands ready to adopt additional measures at a later stage if needed in the light of further developments." As with the U.K., it remains unclear precisely what those additional measures might involve, although our previous  briefing summarises some possibilities.

To date, no additional E.U. sanctions have been announced. Press reports indicate that unanimous agreement has been obtained, but that the details are to be finalised.

Australia

Last updated on 23 February 2022

On February 23, 2022, the Australian Government announced that Australia is "taking immediate action to sanction Russian individuals, organisations and banks as part of the international effort to impose a sharp cost on Russia for its unprovoked and unacceptable aggression against Ukraine."¹

Under the first phase of sanctions, Australia will impose travel bans and targeted financial sanctions on eight members of the Security Council of the Russian Federation. These individuals have not yet been named, but we anticipate will be identified in the coming days.

Australia will also amend the Autonomous Sanctions Regulation 2011  (Cth) to extend the  Crimea and Sevastopol autonomous sanctions regime to Luhansk and Donetsk. This regime currently imposes travel bans on 171 designated persons and 52 designated specified in the Ukraine List, including Boris Rotenberg and Gennady Timchenko, who were added to the U.K's existing asset freeze measures on February 22, 2022.

Luhansk and Donetsk will also be subject to the restrictions currently imposed on Crimea and Sevastopol, including:

• the export or supply of certain goods relating to the creation, acquisition or development of infrastructure for the transport, telecommunications or energy sectors, the exploitation of oil, gas or mineral reserves;
• the import, purchase or transport of certain goods;
• certain commercial activities including the grant of loans or credit or establishing a joint venture relating to the creation, acquisition or development of infrastructure in transport, telecommunications or energy sectors or the exploitation of oil or gas, or of specified mineral resources;
• the provision of certain services including, for example, financial assistance or financial services which relate to goods originating in or exported from the region;
• providing assets to designated persons or entities; and
• dealing with the assets of designated persons or entities.

The restrictions to Luhansk and Donetsk will target the transport, energy, telecommunications, oil, gas and mineral reserves industries.

Mr Morrison emphasised that these actions were taken to ensure Australia moves "in lock step" with the U.S., U.K., and E.U. Mr Morrison singled out six banks that would be designated: VEB state development bank, Promsvyazbank military bank, Bank Rossiya, Black Sea Bank for Development and Reconstructions, IS Bank, and Genbank. The Foreign Affairs Minister, Marise Payne, has been asked to consider sanctions against persons and entities identified by likeminded partners and subject tranches of sanctions are to be expected.

A special meeting of the Federal Executive Council will be held on February 24 to impose additional sanctions. Mr. Morrison foreshadowed significantly expanding the scope for persons and entities to be given targeted financial sanctions and travel bans, including to capture persons and entities of "strategic and economic significance to Russia".

The Foreign Minister has also foreshadowed that "we will not hesitate to further amend the Autonomous Sanctions Regulations 2011 to expand sanctions as necessary, and already have a wider package of sanctions on persons and entities in reserve should Russia escalate its unlawful conduct in Eastern Ukraine."²

Footnotes

1 https://www.foreignminister.gov.au/minister/marise-payne/media-release/australias-response-russias-aggression-against-ukraine

2 https://www.foreignminister.gov.au/minister/marise-payne/media-release/australias-response-russias-aggression-against-ukraine

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