US Imposes Further Economic Sanctions Due to the Russian Federation's Actions in Ukraine – JD Supra

On February 22, 2022, the United States announced and implemented new economic sanctions targeting the Russian Federation’s financial services sector and persons that operate in the sector. These sanctions are designed to cut off Russia’s access to the U.S. dollar and global financial markets and were the direct result of the Russian Federation’s continued aggression towards Ukraine. The United States designated two key Russian financial institutions, State Corporation Bank for Development and Foreign Economic Affairs Venesheconombank and Promsvyazbank Public Joint Stock Company, and a number of their subsidiaries as blocked persons (SDNs), thereby prohibiting U.S. persons from conducting any business with them and requiring U.S. persons to block their property and interests in property. The United States also designated five vessels owned by a subsidiary of Promsvyazbank Public Joint Stock Company and three individuals with ties to the Kremlin as SDNs. An SDN designation is one of the most restrictive, if not most restrictive, sanctions that the United States can implement and the SDN prohibitions apply not only to the actual designated person or entity (designated person) but also to any entity owned 50% or more by a designated person notwithstanding the fact that the 50% owned entity is not itself included on the SDN List. In addition, the United States further limited U.S. person participation in investing in new debt issued by a number of Russian financial entities.
The February 22 sanctions, which were issued pursuant to the Executive Order 14024 issued in April 2021, supplement the February 21 sanctions that were issued pursuant to the February 21, 2022 Executive Order on Blocking Property of Certain Persons and Prohibiting Certain Transactions With Respect to Continued Russian Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine, which was the subject of our previous alert.
A. Blocking of State Corporation Bank for Development and Foreign Economic Affairs Venesheconombank  and Promsvyazbank Public Joint Stock Company  and Their Subsidiaries
The most significant of the February 22 sanctions is the inclusion of VEB and 25 of its subsidiaries (collectively VEB) and PSB and 17 of its subsidiaries (collectively PSB) on the SDN List. As stated above, U.S. persons are now barred from conducting any business, directly or indirectly, with any of these entities and any property of any of these designated entities held by U.S. persons must be blocked. 
VEB, one of Russia’s largest banks, services Russia’s sovereign debt, provides financing for exports and finances domestic development, including for Russia’s infrastructure and industrial production. The 25 designated subsidiaries, which are in Russia, Belarus, Hong Kong and Ukraine, finance businesses in a variety of sectors, including financial institutions, electronic component manufacturers, a coal mining company, and sporting activities. See Appendix A for the list of designated subsidiaries.
The U.S. Government blocked PSB due to its ties with the Russian defense sector. PSB services nearly 70% of state contracts signed by the Russian Ministry of Defense. The 17 PSB subsidiaries designated as SDNs are all in Russia. The United States also imposed full blocking sanctions against five vessels owned by one of the designated PSB subsidiaries, PSB Lizing OOO. See Appendix A for the designated subsidiaries and vessels.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued two limited authorizations with respect to VEB. General License 3 (GL 3) allows U.S. persons to wind down business involving VEB. GL 3 license authorizes U.S. persons to engage in transactions that are ordinarily incident and necessary to the wind down of transactions by March 24, 2022, so long as no other SDN is involved in the winding down of such transactions. OFAC also issued General License 2 (GL 2) authorizing transactions with any VEB entity subject to the sanctions that are ordinarily incident and necessary to the servicing of bonds that were issued by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian prior to March 1, 2022. No general licenses were issued relating to transactions with PSB.
B. Individuals Designations
The United States also imposed full blocking sanctions against three Russian individuals due to their connections to the Kremlin. The individuals designated as SDNs are:
C. Sovereign Debt
Sanctions further limiting U.S. persons from participating in secondary markets for certain new debt issued were also imposed. The new sanctions, imposed via Directive 1A under Executive Order 14024, prohibit participation by U.S. persons in the secondary market for ruble or non-ruble denominated bonds issued by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. These sanctions, which will cut off Russia’s access to key U.S. markets and investors, become effective March 1, 2022. These sanctions also resulted in the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation being added to OFAC’s Non-SDN Sanctions List.
D. Key Takeaways
As a result of these sanctions and the high likelihood of further sanctions being imposed, it is important for a U.S. person to:
Authors: Barbara D. Linney, Melissa B. Mannino, Lana Muranovic
APPENDIX A
The property and interests in property of the following VEB subsidiaries are blocked:
The property and interests in property of the following PSB subsidiaries are blocked:
The property and interests in property of the following five vessels are blocked:
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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