We outline below the further actions taken by the US, EU, UK, Canada, and Australia since our last update.
The most significant developments represent:
- The designation of VTB by the US and UK; and
- Restrictions by the US on Sberbank’s access to US dollar transactions.
We expect that the further and continued targeting of Russia regions, sectors, entities and individuals in these latest developments will spawn a multiplicity of complex compliance challenges going forward.
Nord Stream 2
On 23 February, the US blocked and designated as Specially Designated Nationals (SDNs) Nord Stream 2 AG, the lead company building the Nord Stream 2 gas pipeline between Russia and Germany, and its CEO, Matthias Warnig.
Nord Stream 2 AG and Mr Warnig were both designated under Executive Order 14039 of 20 August 2021. OFAC also issued a related general license authorizing transactions involving Nord Stream 2 AG, or any entity it owns 50% or more, through 2 March 2022.
Such designations follow a decision taken by Germany to halt the certification process for the Nord Stream 2 pipeline.
Measures Targeting Russian Financial Institutions and Other Entities
On 24 February 2022, OFAC announced the imposition of the following measures targeting Russian and Belarussian financial institutions:
- Full blocking sanctions on Russia’s second largest financial institution, VTB Bank (VTB), including 20 of its subsidiaries.
- Correspondent and payable-through account sanctions on Sberbank, including 25 of its subsidiaries. This action will restrict Sberbank’s ability to transact in US dollars.
- Full blocking sanctions on three other major Russian financial institutions: Bank Otkritie, Sovcombank OJSC, and Novikombank
- New debt and equity restrictions on thirteen major Russian enterprises and entities. This includes restrictions on all transactions in, provision of financing for, and other dealings in new debt of greater than 14 days maturity and new equity issued by: Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Transneft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways.
- Designation of two Belarussian state-owned banks: Belarussian Bank of Development and Reconstruction Belinvestbank JSC and Bank Dabrabyt JSC.
There are some accompanying General Licences which authorise, for a limited period of time, certain dealings with the above entities.
OFAC have also designated an additional number of Russian elites and their family members.
New Export Restrictions
The White House has also announced forthcoming export restrictions targeting military items and also sensitive goods and technologies related to the Russian defense, aviation, and maritime sectors
Further to the update in our last post, the EU has since published legislative details of the sanctions package that in enacted on 23 February.
- Designation of four entities, including VEB.RF (VEB), Promsvyazbank (PSB), and Bank Rossiya as asset freeze targets;
- A derogation permitting EU Member States to authorise the release of certain frozen funds or economic resources belong to VEB, PSB, and Bank Rossiya;
- Designation of 23 individuals as asset freeze targets. These individuals include members of the Russian government, senior military figures, and certain Russian businessmen;
- Designation of 351 members of the Russian State Duma as asset freeze targets; and
- Restrictions on the ability of Russia, the Russian government, the Central Bank of Russia and any entity acting on behalf of or at the direction of the Central Bank, to access EU capital and financial markets and services. This includes new restrictions on: (i) the making new loans and credit available to these entities; and (ii) provision of investment services or assistance in the issuance of money-market instruments and transferable securities issued after 9 March 2022. Unlike previous sectoral sanctions of this nature, these new restrictions do not have a maturity threshold.
- Trade restrictions between the EU and both Donetsk and Luhansk, similar to those imposed in relation to Crimea. This includes, amongst other things: (i) an important ban on goods originating from these territories; (ii) an export ban on certain goods and technologies used in the transport, telecommunications, energy and extractive sectors; (iii) a prohibition on acquiring or extending participation in real estate ownership in Donetsk and Luhansk; and (iv) a prohibition to provide services related to tourism in those areas.
The new measures have been implemented by way of updates of existing EU Regulations, such as Regulation (EU) No 269/2014 (as amended) and Regulation (EU) No 833/2014 (as amended), and through the introduction of the new Council Regulation (EU) 2022/263.
A further package of sanctions is expected to be finalised and enacted over the coming days following an extraordinary meeting of the European Council and European Commission late in the evening of 24 February 2022.
The European Council have also condemned the involvement of Belarus in the current conflict and have indicated that it will seek to expand the current EU-Belarus sanctions programme.
On 24 February 2022, the UK Foreign Secretary announced the imposition of immediate and future measures that were described as "punishing sanctions to inflict maximum and lasting pain on Russia".
In summary, the UK has imposed or will seek to impose:
- An immediate asset freeze on VTB Bank, Russia’s second largest bank;
- A full asset freeze on “all Russian financial institutions” and certain Russian individuals;
- Measures to prevent designated Russian banks from accessing Sterling and clearing payments through the UK;
- The imposition of £50,000 limits on the bank accounts by certain individuals;
- Asset freezes on five Russian defence companies: Rostec, United Aircraft corporation; United Shipbuilding Corporation; Uralvagonzavod, Tactical Missile Corporation;
- Prohibitions targeting the export of a range of high-end and critical technical equipment and components in sectors including electronics, telecommunications, and aerospace.
- Extension of financial and trade measures applying to Crimea to the DNR and LNR regions
- A ban on Aeroflot, a Russian state-owned airline, from accessing UK airspace.
The announcement made reference to the issue of a General Licence in relation to VTB, which will be published by OFSI.
On February 22 and 24, 2022, the Canadian federal government announced the imposition of various measures in response to Russia’s recognition of Donetsk and Luhansk and its deployment of military forces into those territories.
These measures have been enacted under the Special Economic Measures (Russia) Regulations and the Special Economic Measures (Ukraine) Regulations. Based on the Prime Minister’s announcements, Canada appears to be implementing measures in alignment with those announced by the US and EU.
The measures imposed on 22 February 2022 include:
- Prohibitions on entering into dealings with VEB and PSB;
- Prohibiting "all financial dealings" with the non-government controlled areas of Donetsk and Luhansk, which will effectively prohibit Canadians from engaging in specific transactions and activities in these regions;
- New prohibitions on direct and indirect dealings in Russian sovereign debt; and
- Restrictions on members of the Russian State Duma who voted in favour of the decision to recognize the independence of Donetsk and Luhansk.
On 24 February 2022, the Prime Minister announced the imposition of further measures, including:
- Imposing restrictions on 58 additional Russian individuals and entities, including banks, financial elites and their families;
- Sanctioning members of the Russian Security Council, including the Defence Minister, the Finance Minister, and the Justice Minister;
- Imposing restrictions on four Ukrainian individuals for their collaboration with Russia to destabilize Ukraine; and
- Restricting exports to Russia by halting new export permit applications and cancelling valid export permits, with a limited number of exceptions for critical medical supply chains.
On 24 February 2022, the Australian government designated:
- Four additional financial institutions: IS Bank, Genbank, Promsvyazbank, and the Black Sea Bank for Development and Reconstruction; and
- An additional 25 individuals, including senior Russian governmental and military officials, and four entities involved in the development and sale of military technology and weapons.
The Prime Minister stated that further designations were likely to be made, including on members of the Russian State Duma involved in Russia’s recognition of Donetsk and Luhansk.
Crimea Trade Restrictions Extended to Donetsk and Luhansk
The Autonomous Sanctions Amendment (Ukraine Regions) Regulations 2022 extend the following restrictive measures currently applicable to the Crimea and Sevastopol region to Donetsk and Luhansk:
- Restrictions on the export or supply of certain items relating to: (i) the transport, telecommunications or energy sectors; and (ii) the energy and natural resources industries.
- Restrictions on the import, purchase or transport of any goods if the goods originate in, or are exported from, the specified Ukraine region (subject to exceptions relating to actions taken by Ukrainian officials).
- Restrictions on certain commercial activities such as financing or jointly developing infrastructure in the transport, telecommunications or energy sectors or oil and gas projects in the specified Ukraine region.
- Restrictions on the provision of certain services which relate to the sanctioned goods or activities.
The legislation introduces the broader concept of a ‘specified Ukraine region’, allowing the Government to extend such measures to further regions in Ukraine, if required.
New Listing Criteria
Australia has also amended the Autonomous Sanctions Regulations 2011 (Cth) by way of the Autonomous Sanctions Amendment (Russia) Regulations 2022 to add further criteria for the imposition of asset freezes and travel bans on individuals or entities who are deemed to be:
- Involved in activities or functions of economic or strategic significance to Russia;
- A current or former senior official or minister of the Russian Government; or
- an immediate family member of a person meeting the above criteria.
It is anticipated that this new listing criteria will allow for the designation of individuals and entities in alignment with multilateral partners.
Further Sanctions Expected
In light of the rapidly escalating conflict in Ukraine, further measures are anticipated to be imposed over the coming days. Over the course of our previous updates on this situation (here, here, here and here), a greater degree of alignment on a policy level and timing between multilateral partners can be observed.
As we continue to monitor and update you on development, we encourage readers to subscribe to be kept informed of new developments.