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February 28, 2022 – As a result of Russian President Vladimir Putin’s ongoing assault on Ukraine, President Joe Biden has taken additional measures to isolate Russia from the global financial system and the global economy. On Friday, February 25, the U.S. imposed sanctions on President Putin, along with several other key Russian officials. On Saturday, February 26, the U.S. and several EU counterparts committed to removing certain Russian banks from the SWIFT international payments network. On Monday, February 28, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued Directive 4 under Executive Order (“E.O.”) 14024 and publicized its plans to add regulations implementing E.O. 14024.
On February 25 and 28, 2022, the European Union also imposed “overwhelming and hard-hitting sanctions” targeting the Russian regime in response to Russia's full-scale invasion of Ukraine, as announced early on February 24. The second and third rounds of sanctions have been prepared by the EU in close coordination with the United States, the United Kingdom, Canada, Norway, Japan, and Australia. They build on the first package of restrictions enacted on February 23, and target Russia’s finance, defense, energy, aviation and space sectors, as well as key Russian state-owned companies, diplomats and businesses. These sanctions became effective immediately.
New U.S. Actions
1. February 25, 2022 Designations
On February 25, 2022, OFAC issued a press release announcing that it had added Russian President Vladimir Putin, Minister of Foreign Affairs Sergei Lavrov, Minister of Defense Sergei Shoigu, and Chief of the General Staff of the Russian Armed Forces Valery Gerasimov to OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN List”). OFAC also noted that eleven other members of Russia’s Security Council had previously been added to the SDN list for unrelated reasons and threatened to designate additional members of Russia’s Security Council if Russia’s unprovoked campaign against Ukraine does not immediately conclude.
2. February 26, 2022 Commitment to Remove Certain Russian Banks from SWIFT
On February 26, 2022, the U.S., European Commission, France, Germany, Italy, the United Kingdom, and Canada issued a joint statement announcing that they would, among other things, “commit to ensuring that selected Russian banks are removed from the SWIFT messaging system. This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.” Additionally on February 26, 2022, a senior White House official reported that the EU plans to implement a regulation that removes sanctioned Russian banks from the SWIFT international payments network. We understand that these governments are still working on the specific mechanism to identify which banks will be affected and to implement the SWIFT ban, although the aforementioned White House official explained that the Russian banks already sanctioned by the U.S. and EU “will be the first ones considered.”
3. February 28, 2022 Directive and Upcoming Regulations
On February 28, 2022, OFAC issued a new Directive 4 under E.O. 14024, which prohibits U.S. persons from engaging in certain transactions involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. This action effectively immobilizes any assets of the Central Bank of the Russian Federation held in the United States or by U.S. persons, wherever located. A listing of entities determined to be subject to the prohibitions of this Directive can be found in OFAC’s Non-SDN Menu-Based Sanctions (“NS-MBS”) List. OFAC also amended General License 8 to allow energy-related transactions with the Central Bank of the Russian Federation through June 24, 2022.
In addition, OFAC added to the SDN list the following three entities with key roles in managing Russia’s sovereign wealth funds:
OFAC further continued its incremental designations of persons believed to be close to President Putin by adding Kirill Aleksandrovich Dmitriev to the SDN list, who OFAC described as “a close ally of Putin and the CEO of RDIF and JSC RDIF.”
Finally, on February 28, 2022, OFAC noted its intent to add regulations to implement E.O. 14024. These regulations, which are currently only pro forma, will take effect on Tuesday, March 1, 2022, and will be codified at a new Part 587 to title 31 of the Code of Federal Regulations. OFAC intends to supplement these regulations with a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.
New EU Actions
Second round of sanctions of February 25, 2022
1. Individual restrictive measures
Council Decision 2022/329 and Council Regulation 2022/330 amend the existing listing criteria for the designation of restricted individuals and entities subject to a travel ban and impose an asset freeze (including a prohibition to make funds and economic resources available) in the EU. The revised criteria allow the imposition of sanctions on individuals or entities that “support or benefit” from the Government of Russia and leading businessmen whose businesses provide a significant source of revenue to the Russian Government. The sanctions program was also amended to allow the designation of Belarusian individuals and entities facilitating Russia’s invasion of Ukraine.
2. Visa restrictions
Council Decision 2022/333 prevents diplomats, other Russian officials and business people from benefiting from visa facilitation provisions allowing privileged access to the EU by suspending a number of provisions of the Agreement of the European Community and the Russian Federation on the facilitation of the issuance of visas to the citizens of the European Union and the Russian Federation.
3. Sectoral sanctions
Council Decision 2022/327 and Council Regulation 2022/328 significantly broaden the existing export control restrictions on items which might contribute to Russia’s technological enhancement of its defense and security sector.
Adding to the existing oil equipment ban from 2014, Council Decision 2022/327 and Council Regulation 2022/328 introduce a new export ban related to the oil refining sector. The export of refined oil is reported to have generated 24 billion euros in revenues for Russia 2019.
Aviation and space sectors
Council Decision 2022/327 and Council Regulation 2022/328 significantly expand the existing financial restrictions, in order to cut Russia’s access to capital markets of the EU, increase borrowing costs for the sanctioned entities and gradually erode Russia’s industrial base. It is expected that 70% of the Russian banking system (in assets), government and key state-owned companies, will no longer be able to access EU capital markets.
The new financial restrictions finally include (i) new restrictions for central securities depositories (as defined in Regulation (EU) No 909/2014), (ii) a new prohibition from selling euro denominated transferable securities issued after April 12, 2022 or units in collective investment undertakings providing exposure to such securities, to any Russian national or natural person residing in Russia or any legal person, entity or body established in Russia, and (iii) a new prohibition from listing and providing services as of April 12, 2022 on trading venues for the transferable securities of any legal person established in Russia and with over 50% public ownership.
Third round of sanctions of February 28, 2022
1. Individual restrictive measures
On February 28, 2022, the EU added 28 individuals (including Vladimir Putin’s most trusted and closest advisors, oligarchs, and Russian businessmen) and SOGAZ to the EU restricted parties list pursuant to Council Decision 2022/337 and Council Implementing Regulation 2022/336. These persons are now subject to a travel ban and an asset freeze (including a prohibition to make funds and economic resources available) in the EU. In total, 680 individuals and 53 entities are now designated under EU sanctions targeting Russia.
2. Flight restrictions
As announced on February 27 by President von der Leyen, the EU shut down its airspace for Russian aircrafts. Council Decision 2022/335 and Council Regulation 2022/334 now prohibit any aircraft operated by Russian air carriers (including as a marketing carrier in code sharing or blocked-space arrangements) or for any Russian registered aircraft, or for any non-Russian-registered aircraft which is owned or chartered, or otherwise controlled by any Russian natural or legal person, entity or body, to land in, take off from or overfly the territory of the Union.
3. Additional financial sanctions targeting Central Bank of Russia
In order to prevent Russia’s Central Bank from financing Russia’s war, Council Decision 2022/335 and Council Regulation 2022/334 provide bans related to the management of reserves and assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of Russia. This new restriction must be examined together with the prohibitions provided in Council Implementing Regulation 2022/262 and Council Decision 2022/264 adopted on February 23, 2022, (i) to make or be part of any arrangement to make any new loans or credit to and (ii) to deal with transferable securities and money-market instruments issued after March 9, 2022 by Russia and its government, the Central Bank of Russia or any person or entity acting on behalf or at the direction of the Central Bank.
Next Possible Actions
As announced in a joint statement on February 26, other restrictive measures shall be adopted in the coming days in coordination with the U.S., the UK and Canada as part of the third package of sanctions “that will further isolate Russia from the international financial system.” The forthcoming sanctions are expected to:
The EU will continue to closely cooperate with its partners and will launch this week a transatlantic task force to ensure “the effective implementation of […] financial sanctions by identifying and freezing the assets of sanctioned individuals and companies that exist within [their respective] jurisdictions” in an effort to prevent sanctioned parties from hiding their assets in jurisdictions across the world. Further sanctions could be put on the table later, as the EU warned it is ready to impose “sanctions and other financial and enforcement measures on additional Russian officials and elites close to the Russian government, as well as their families, and their enablers.”
On February 27, 2022, European Commission President Ursula von der Leyen announced in a press conference that the EU will also ban Russian state-owned media (namely Russia Today and Sputnik and their subsidiaries) to fight disinformation and other forms of hybrid warfare.
The third round of sanctions is also likely to strengthen the existing EU sanctions against Belarus in response to that country’s facilitation and possible joining of Russia’s invasion. On February 24, 2022, the U.S. took retaliatory actions against a number of financial institutions, defense firms, and military officials in Belarus, as we explain in a previous client alert. In this regard, on February 24, 2022, the European Council called for “the urgent preparation and adoption of a further individual and economic sanctions package that will also cover Belarus”. On February 27, 2022, European Commission President Ursula von der Leyen announced that the EU will introduce restrictive measures against Belarus’ most important sectors, aiming to ban exports of products from mineral fuels to tobacco, wood and timber, cement, iron and steel. It is expected that these new sanctions will extend to Belarus the export restrictions introduced on dual-use goods for Russia. In addition, more Belarusians helping the Russian war effort are expected to be added to the EU sanctions list.