On February 22, 2022, President Biden announced the first set of sanctions against Russia in response to Russia's deployment of troops to Ukrainian sovereign territory targeting two Russian financial institutions, trade in Russian sovereign debt, and five individuals. Shortly thereafter, the US Department of the Treasury, Office of Foreign Assets Control (OFAC) published additional details regarding the new sanctions, which include new prohibitions on two Russian financial institutions, Russian sovereign debt, and Russian Oligarchs. This action follows an executive order issued on February 21, 2022 restricting investment, trade, and financing in Donetsk and Luhansk.
Financial Institutions
Acting pursuant to Executive Order (EO) 14024 "Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation," the Secretary of the Treasury, in consultation with the Secretary of State, determined the financial services sector of the Russian economy fell within section 1(a)(i) of EO 14024. Therefore, OFAC added two Russian banks, VEB and Promsvyazbank, as well as 42 of their subsidiaries to the Specially Designated Nationals (SDNs) list. The listed subsidiaries (provided below) represent a wide range of businesses, including banks and other financial firms, electronic component producers, a coal mining company, a sporting activities company, among others, in Russia and three other countries. OFAC also identified five vessels owned by PSB Lizing OOO, a designated subsidiary of Promsvyazbank as SDNs.
US persons, including US financial institutions, are prohibited generally from engaging in any transactions with SDNs and are required to block (i.e., freeze) any property or interests in property belonging to SDNs. Further, under OFAC's 50% ownership rule, entities that are owned 50% or more, directly or indirectly, by one or more SDNs in the aggregate are also subject to OFAC's sanctions, even if OFAC does not publicly list those entities as SDNs.
The Treasury Department also issued two general licenses (General License 2 and General License 3).
- General License 2 authorizes transactions with VEB or its subsidiaries "that are ordinarily incident and necessary to the servicing of bonds issued before March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of Russian Federation, or the Ministry of Finance of the Russian Federation."
- General License 3 permits transactions "that are ordinarily incident and necessary to wind down" transactions with the VEB and its subsidiaries through March 24, 2022.
Russian Oligarchs
In addition to the entities outlined above, five individuals were added to the SDN list due to their close ties and connections to President Vladimir Putin:
- Denis Aleksandrovich Bortnikov, Deputy President of Russian-state owned financial institution VTB Bank Public Joint Stock Company (VTB Bank);
- Aleksandr Vasilievich Bortnikov, Director of the Federal Security Service (FSB) of the Russian Federation;
- Petr Mikhailovich Fradkov, Chairman and CEO of Promsvyazbank;
- Vladimir Sergeevich Kiriyenko, CEO of VK Group; and
- Sergei Vladilenovich Kiriyenko, First Deputy Chief of Staff of the Presidential Office.
As a result, the specified individuals are blocked from accessing all of their property and property interests that fall within US jurisdiction. Additionally, all US person are prohibited from engaging in any transactions with the individuals.
Russian Sovereign Debt
Since June 16, 2021, US financial institutions have been generally barred from purchasing ruble-denominated bonds directly from Russia pursuant to OFAC Directive 1 under Executive Order 14024. More specifically, US 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.
Today, OFAC issued Russia-related Directive 1A under EO 14024, "Prohibitions Related to Certain Sovereign Debt of the Russian Federation" (the Russia-related Sovereign Debt Directive), amending and superseding Directive 1 under EO 14024. Under the new Directive 1A, and in addition to the prohibitions implemented under Directive 1, US financial institutions are also prohibited from participating 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.
OFAC also issued new FAQs related to Russian Sovereign Debt:
- FAQ 964 (new) - Noting that OFACs new sanctions determinations not automatically impose sanctions on all persons who operate or have operated in the Russian financial services sector.
- FAQ 965 (new) - Explaining the expanded scope of Directive 1A and relationship with the now superseded Directive 1 under EO 14024.
FAQs 891, 890, 889, 888, and 678 were also updated to reflect Directive 1A and its expanded restrictions.
Conclusion
Notably, OFAC's announcement did not include sanctions against the Nord Stream 2 pipeline despite President Biden's earlier remarks claiming the US would ensure the unfinished gas pipeline would not become operational. Likely no formal actions were taken by OFAC since Germany recently announced its decision to halt approval of the pipeline in the future.
These measures work in tandem with the recent sanctions imposed by the European Union and the United Kingdom. The UK's initial set of measures include SDN-like measures on Boris Rotenberg, Igor Rotenberg and Gennady Timchenko and five Russian banks, including Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank. Meanwhile, the EU announced sanctions on Russian government officials, three Russian banks, restricted Russian government from accessing EU capital and financial markets, and prohibited trade to and from the DNR and LRN.
The US government clarified these additional "significant" sanctions are not the full set of sanction measures currently contemplated, and if Russian aggression continues, the US and its allies are ready to impose even more stringent sanctions.
VEB subsidiaries added to the SDN list:
- Bank BELVEB OJSC is a bank located in Belarus.
- VEB Leasing OJSC is a leasing company located in Russia.
- Prominvestbank is a bank located in Ukraine.
- VEB Capital is a financial company located in Russia.
- VEB Engineering LLC is an investment project implementation services company located in Russia.
- JSC Infraveb is an investment project support company located in Russia.
- JSC VEB.DV is an investment project support company located in Russia.
- VEB Asia Limited is a financial company located in Hong Kong.
- LLC Infrastructure Molzhaninovo is an electric energy company located in Russia.
- LLC Resort Zolotoe Koltso is a real estate and construction company located in Russia.
- JSC Russian Export Center is an export-related company located in Russia.
- LLC VEB Ventures is a financial company located in Russia.
- LLC VEB Service is a business and management advisory company located in Russia.
- LLC Special Organization for Project Finance Factory of Project Finance is a financial company located in Russia.
- LLC SIBUGLEMET Group is a coal mining company located in Russia.
- JSC ANGSTREM-T is a technology company located in Russia.
- LLC NM-TEKH is a technology company located in Russia.
- JSC SLAVA is a real estate company located in Russia.
- JSC PFC CSKA is a sporting activities company located in Russia.
- LLC Torgovy Kvartal-Novosibirsk is a property leasing company located in Russia.
- LLC Baikal Center is a construction company located in Russia.
- LLC Progorod is an infrastructure company located in Russia.
- LLC VEB.RF Asset Management is a financial company located in Russia.
- Eximbank of Russia JSC is an export support institution located in Russia as well as a commercial bank regulated by the Central Bank of the Russian Federation.
- Russian Agency for Export Credit and Investment Insurance OJSC is an insurance agency located in Russia.
Promsvyazbank subsidiaries added to the SDN list:
- Alkes Treid OOO is a financial company located in Russia.
- Antares OOO is a financial company located in Russia.
- Elitnye Doma OOO is a real estate company located in Russia.
- PSB Innovations and Investments Limited Liability Company is a technology company located in Russia.
- Era Fund Limited Liability Company is a technology company located in Russia.
- PSB-Foreks OOO is a financial company located in Russia.
- Kholtsvud OOO is a financial company located in Russia.
- Kourf OOO is a financial company located in Russia.
- Management Company Promsvyaz LLC is an investment company located in Russia.
- Paskal OOO is a company that provides management consulting services in Russia.
- PSB Biznes OOO is a hospitality company located in Russia.
- Saint-Petersburg International Banking Conference LLC is a financial company located in Russia.
- Sergievo-Posad Lend OOO is a financial company located in Russia.
- PSB Avializing OOO is a financial company located in Russia.
- Tekhnosoft OOO is a technology company located in Russia.
- Trinitex OOO is a real estate company located in Russia.
- PSB Lizing OOO is a financial company located in Russia.
Vessels added to the SDN List:
- Baltic Leader (IMO: 9220639), a Russian-flagged roll-on roll-off cargo vessel with a gross registered tonnage of 8831;
- Linda (IMO: 9256858), a Russian-flagged crude oil tanker with a gross registered tonnage of 61991;
- Pegas (IMO: 9256860), a Russian-flagged crude oil tanker with a gross registered tonnage of 61991;
- Fesco Magadan (IMO: 9287699), a Russian-flagged container ship with a gross registered tonnage of 7519; and
- Fesco Moneron (IMO: 9277412), a Russian-flagged container ship with a gross registered tonnage of 7519.
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