U.S. Economic Sanctions Against Russia Grow Amid The Ukraine Crisis: What Businesses Need To Know

U.S. economic sanctions against Russian interests have been building in response to the developing situation between the Russian Federation and Ukraine.
Worldwide International Law
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U.S. economic sanctions against Russian interests have been building in response to the developing situation between the Russian Federation and Ukraine.

On Monday, February 21, 2022, President Biden issued Executive Order No. 14024 (E.O. 14024), "Blocking Property With Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation," which opens the door to a range of new sanctions.

Donetsk and Luhansk Regions

Among other restrictions, E.O. 14024 bars U.S. persons from importing any goods, services or technology from, or exporting them to, the two breakaway regions of Ukraine: Donetsk and Luhansk. E.O. 14024 also blocks the property and interests of persons operating in Donetsk and Luhansk, and of those persons (including officers and directors) leading business entities operating in those regions. These restrictions in effect mirror the existing set of sectoral sanctions put in place in 2014, prohibiting U.S. persons from doing business in the former Crimea region of Ukraine, and therefore should be familiar to compliance professionals in modifying their screening protocols.

To ease the discontinuation of business that U.S. persons may have in these regions, the Department of the Treasury's Office of Foreign Assets Control (OFAC) issued General License No. 17 authorizing U.S. persons to wind down existing transactions and business relationships in the Donetsk and Luhansk regions by March 23, 2022. Other general licenses authorize continued limited transactions with the Donetsk and Luhansk regions, including the exportation of certain agricultural commodities, medicines and medical devices, among other goods, personal remittances, telecommunications and mail, certain services and software incident to Internet-based communications, and the transactions of specific international organizations.

Designation of VEB and PSB

U.S. restrictions on Russia's ability to raise funds tightened following President Biden's public announcement on Tuesday, February 22, 2022, with the sanctioning of two of Russia's largest banks, Vnesheconombank (VEB) and Promsvyazbank (PSB), along with 42 of their subsidiaries. The designation of VEB and PSB as Specially Designated Nationals (SDNs) under E.O. 14024 effectively cuts them off from the U.S. financial system and freezes (blocks) their assets within U.S. jurisdiction. No U.S. person can, therefore, transact business with these designated institutions, and with respect to any pending business with VEB—which services Russia's sovereign debt—U.S. persons must wind down transactions by March 24, 2022.

Designation of Individuals

In addition to the designations of VEB and PSB, the Biden administration added several Russian officials and their immediate relatives to the SDN list pursuant to E.O. 14024. The administration alleges that these individuals have close ties to Russian President Vladimir Putin and participate in what the Administration claims is government corruption. As the Ukrainian situation deepens, we expect the number of Russian officials and their family members added to the SDN list to grow.

Further Restrictions on Dealings in Russian Sovereign Debt

On February 22, OFAC also increased existing restrictions on dealings in Russian sovereign debt, further limiting Russia's ability to raise revenue. Directive 1A under E.O. 14024 extends such 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.

Designation of More Financial Institutions and Individuals, and Export Controls

On February 24, 2022, President Biden announced another wave of U.S. economic sanctions against Russian enterprises and individuals in response to the escalating situation in Ukraine. He announced that the U.S. was adding four more Russian banks to the SDN list, including VTB Bank, which is one of the largest financial institutions in Russia and holds more than $250 billion in assets. As with VEB and PSB, VTBs assets within U.S. jurisdiction will be blocked, and U.S. persons will be prohibited from doing business with VTB except as permitted by OFAC license. As noted above, more Russian nationals who serve in the Putin administration or who are identified as having close ties to the Russian leader will likely be added to the SDN list, along with their close relatives. The U.S. also is expected to restrict the investment by U.S. persons in Russian state-owned businesses and impose stricter export controls on the sale of U.S. technologies to Russia.

Restricting U.S. Bank Transactions with Certain Large Financial Institutions and Investments in Certain Major State-Owned Enterprises

At the time this client alert was prepared, OFAC had issued two new directives pertaining to Russian financial institutions and state-owned enterprises under E.O. 14024. Directive 2 now prohibits U.S. financial institutions from opening or maintaining correspondent accounts or payable-through accounts for or on behalf of several Russian financial institutions listed in the directive, which notably includes another large Russian bank, Sberbank. Directive 2 also prohibits U.S. financial institutions from processing transactions involving any of the listed Russian financial institutions. Directive 3, in turn, prohibits U.S. persons from investing in new debt or equity in a number of Russian state-owned enterprises including, among others, Sberbank, energy giant Gazprom and telecommunications giant Rostelecom.


During the February 24th press conference, President Biden was asked whether the United States and its European allies would restrict Russian financial institutions from accessing the Society for Worldwide Interbank Financial Telecommunication financial messaging network. He answered that, although there is no agreement to do so at this time, it remains an option should circumstances warrant it.


Compliance professionals at U.S. companies and their foreign subsidiaries and affiliates should continue to monitor closely the unfolding events in Ukraine and the widening sets of sanctions being rolled out by the U.S. Treasury and Commerce Departments, among other federal government agencies charged with implementing U.S. economic sanctions. While many of the new sanctions programs have a short grace period built in for winding down business and financial transactions, U.S. companies and their subsidiaries doing business with Russian or Ukrainian interests should move swiftly to rescreen their client, customer, vendor and contractor databases; ensure that their compliance frameworks are updated; and verify that their payment processes with those parties are compliant and viable, among other risk mitigation measures.

The array of economic sanctions imposed by the United States and our European allies is nothing short of a sea change in the world economy. Unfortunately, as these sanctions multiply and create further separation between Russia and the rest of the international business community and the U.S. financial system in particular, we can expect to see significant business disruption to U.S. companies operating in the global economy.

This is a very fluid situation and Manatt is closely monitoring developments and will continue to provide information and insights as they become available.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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