Russian sanctions escalate

Russia’s escalating aggression against Ukraine in the last week of February has been met with a parallel escalation of US sanctions against Russia on an almost daily basis.

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  1. OFAC 1A guideline

The United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued Russia Directive 1A to Executive Order 14024, Blocking of assets in connection with specified harmful foreign activities of the Government of the Russian Federation (“Executive Order 14024”), amending and replacing the former directive 1 relating to Russia. Directive 1 initially prohibited U.S. financial institutions from participating in the primary market for ruble-denominated or non-ruble-denominated bonds issued after June 14, 2021 by, or lending of, rubles or otherwise. funds denominated in the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation or the Ministry of Finance of the Russian Federation. Directive 1A expanded restrictions effective March 1, 2022 to prohibit secondary market participation of ruble-denominated and non-ruble-denominated bonds issued after March 1, 2022 by such entities.

  1. Nord Stream 2 Penalties

On February 23, the US State Department (“State Department”) issued blocking sanctions against the Nord Stream 2 pipeline under Executive Order 14039 of August 20, 2021, Blocking of assets regarding certain Russian energy export pipelines. The action came a day after Germany announced it was halting certification of the Nord Stream 2 gas pipeline. OFAC added Nord Stream 2 AG and CEO Matthias Warnig to the list of specially designated nationals and Blocked Persons (“SDN List”), but issued a tiered license, Russia-Linked General License 4, allowing transactions involving Nord Stream 2 AG through 12:01 a.m. EST on March 2, 2022.

  1. Debt and equity prohibitions

Under new Russia Directive 3 Executive Order 14024, OFAC also prohibited U.S. persons from engaging in transactions in new debt with maturities greater than 14 days and new equity from certain identified Russian entities. Entities are listed in Annex 1 of Guideline 3 and include a mix of public and private entities: 1) Public Joint Stock Company Sberbank (“Sberbank”), 2) Gazprombank Joint Stock Company, 3) Joint Stock Company Russian Agricultural Bank, 4) Public Joint Stock Company Gazprom, 5) Public Joint Stock Company Gazprom Neft, 6) Public Joint Stock Company Transneft, 7) Public Joint Stock Company Rostelecom, 8) Public Joint-Stock Company RusHydro, 9) Public Joint-Stock Company Alrosa, 10) Public Joint-Stock Company Sovcomflot, 11) Public Joint-Stock Company Russian Railways, 12) Joint-Stock Company Alfa-Bank, and 13) Bank credit union of the Moscow State Joint-Stock Company. The new debt and equity prohibitions come into effect at 12:01 a.m. EST on March 26, 2022.

  1. Central Bank of Russia sanctions

Punishments. On February 28, OFAC issued Directive 4 of Executive Order 14024. Pursuant to Directive 4, U.S. nationals are prohibited from engaging in “any transaction involving the Central Bank of the Russian Federation, the National Fund of Wealth of the Russian Federation or the Ministry of Foreign Affairs”. Finances of the Russian Federation, including any transfer of assets to such entities or any foreign exchange transactions for or on behalf of such entities. Treasury Secretary Janet L. Yellen said the measure is intended to “limit Russia’s ability to use assets to fund its destabilizing activities.”[1]

General license. OFAC issued General License 8A, superseding and superseding the former General License 8, at the same time authorizing certain transactions with previously sanctioned entities, including the Central Bank of the Russian Federation, until 12:01 a.m. EST on June 24, 2022, which are “energy-related”, as defined in the License.

  1. Sberbank CAPTA sanctions

OFAC imposed a correspondent and pass-through account (“CAPTA”) sanctions against Sberbank through the new Russia Directive 2 in Executive Order 14024. Under Directive 2, US financial institutions are prohibited from opening or maintaining correspondent or payment accounts in the name of Sberbank, 25 subsidiaries of foreign financial institutions of Sberbank, and any other foreign financial institution owned 50% or more by Sberbank. U.S. financial institutions are also prohibited from processing transactions involving such entities. Appendix 1 of Directive 2 provides the full list of the 25 identified subsidiaries subject to the Directive. The new CAPTA sanctions go into effect at 12:01 a.m. EST on March 26, 2022.

  1. Sanctions from financial institutions

Punishments. OFAC has imposed full blocking sanctions on major Russian financial institutions by adding them to the SDN list. These include the public joint-stock company VTB Bank (“VTB Bank”), as well as 20 of its subsidiaries, as well as State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”), as well as 42 of their subsidiaries. OFAC has also placed three additional Russian financial institutions on the SDN list: Public Joint Stock Company Bank Financial Corporation Otkritie (“Otkritie”), Open Joint Stock Company Sovcombank (“Sovcombank”), and Joint Stock Commercial Bank Novikombank (“Novikombank”). The designations also included 12 identified Otkritie subsidiaries and 22 Sovcombank subsidiaries.

On February 28, the list of sanctioned financial institutions placed on the SDN list grew to include a key Russian sovereign wealth fund, the Russian Direct Investment Fund, its management company and a subsidiary. Due to his close relationship with President Putin, OFAC also added CEO Kirill Aleksandrovich Dmitriev to the SDN list.

General licenses: VEB. OFAC has issued General License 2 and General License 3 related to Russia regarding VEB. General License 2 permits certain transactions involving VEB that are “ordinarily incidental and necessary to service bonds issued before March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finances of the Russian Federation.” General License 3 is a progressive license authorizing certain transactions involving VEB until 12:01 a.m. EST on March 24, 2022.

  1. Vessel and Aircraft Sanctions

OFAC has sanctioned the following Russian-flagged vessels in which PSB Lizing OOO is believed to have an interest (via PSB Leasing LLC): BALTIC LEADER, IMO No. 9220639 (RO-RO), FESCO MAGADAN, IMO No. 9287699 (Container Vessel) , FESCO MONERON , IMO n° 9277412 (container ship), LINDA, IMO n° 9256858 (tanker) and PEGAS, IMO n° 9256860 (tanker).

No new aircraft designations were announced by OFAC during the last week of February.

  1. Russian elite sanctions

OFAC included a large number of designations of Russian elites and individuals close to President Putin, as well as their family members. Designations included: Denis Aleksandrovich Bortnikov, Petr Mikhailovich Fradkov, Vladimir Sergeevich Kiriyenko, Sergei Sergeevich Ivanov, Andrey Patrushev, Andrey Sergeyevich Puchkov, Ivan Igorevich Sechin, Yuriy Alekseyevich Soloviev, Galina Olegovna Ulyutina and Alexander Aleksandrovich Vedyakhin.

  1. Putin sanctions

On February 25, OFAC took another important step by sanctioning Russian President Putin himself by adding him to the SDN list, along with Foreign Minister Sergei Viktorovich Lavrov and, in accordance with a designation from the Department of State, two other members of the Russian Security Council. , Chief of the General Staff of the Russian Armed Forces, First Deputy Minister of Defense and Army General Valery Gerasimov, and Minister of Defense Sergei Shoigu.

  1. SWIFT sanctions

The United States has committed, along with the United Kingdom, the European Commission, France, Germany, Italy and Canada, to put in place sanctions measures relating to SWIFT messaging .[2] Although the details have not yet been officially introduced, it is expected that a number of Russian financial institutions will be banned from the system. We will continue to monitor developments in this area.

FOOTNOTES

[1] Press Release, Treasury Bans Transactions with Central Bank of Russia and Imposes Sanctions on Russia’s Major Sources of Wealth, United States Department of the Treasury (February 28, 2022), Treasury Bans Transactions with Central Bank of Russia and imposes sanctions on the main sources of Russia’s wealth | US Department of Treasury

[2] Joint statement on further restrictive economic measuresThe White House (February 26, 2022), Joint Statement on Further Restrictive Economic Measures |

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