Please note that this post has been updated with information as of late evening on Thursday, February 24. Click here for the latest updates.
This post is to summarize the situation as of late evening on Wednesday, February 23, concerning current U.S. sanctions and export restrictions related to Russia and Ukraine. It is important to note that these new measures add to the existing framework of restrictions that the United States has maintained beginning in 2014 when Russia first invaded the eastern part of Ukraine. In addition, the EU, the UK, and Canada – among others – are imposing restrictions, many of which are comparable to the restrictions imposed by the United States.
The situation is likely to change quickly – and almost certainly in the direction of greater restrictions. We will provide updated guidance as the situation progresses.
Executive Order 14024 Establishes New Restrictions on Donetsk and Luhansk Regions of Ukraine, Russian Actors
On February 22, President Biden issued Executive Order14,024 (the EO), which authorizes the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) to designate Russian and other entities and individuals involved in the destabilization of the Donetsk and Luhansk regions of Ukraine.
Also pursuant to the EO, the United States has imposed a virtually complete economic embargo on the Donetsk and Luhansk regions. This means that generally speaking, no U.S. company or individual may conduct business with those regions, whether directly or indirectly. This embargo is akin to the one the United States has imposed on the Crimea region of Ukraine in accordance with Executive Order 13,685, which President Obama signed in December 2014.
Under the EO, to date, OFAC has designated two banks, Promsvyazbank Public Joint Stock Company (PPJSC) and the State Corporation Bank for Development and Foreign Economic Affairs (VEB), and related companies, as Specially Designated Nationals (SDNs). U.S. entities and individuals are generally prohibited from conducting business or other dealing with an SDN. Note that at least one of those related companies, VEB Asia, is located outside Russia and Ukraine (VEB Asia is in Hong Kong).
OFAC also designated five vessels under the EO. Each of those vessels is linked to PSB Lizing OOO, a financial company that has itself been designated as an SDN because of its link to PPJSC.
In addition, OFAC has issued Russia Directive 1A to restrict dealings in 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.
OFAC has issued several General Licenses authorizing U.S. companies to wind down operations in the Donetsk and Luhansk regions of Ukraine, though those licenses are limited in time. Those General Licenses – numbers 17, 18, 19, 20, 21, and 22 – are available here. OFAC has also issued Russia General License No. 3, which is available here, to authorize for a limited time transactions needed to wind-down business with VEB. And OFAC issued Russia General License No. 2, which is available here, to authorize certain transactions involving VEB and which pertain to servicing Russian-issued bonds.
On February 23, OFAC announced action under the Protecting Europe’s Energy Security Act (PEESA) with respect to the Nord Stream 2 pipeline. In particular, OFAC designated Nord Stream 2 AG, the company building the Nord Stream pipeline, and the German CEO of that company, as SDNs. OFAC did issue a General License authorizing the winding down of transactions with Nord Stream 2 AG, though that License expires on March 2, 2022. That License, Russia General License No. 4, is available here.
The Situation Is Evolving Rapidly, and It Is Critical to Review All Russia and Ukraine Transactions on Case-By-Case Basis
Because the situation is changing rapidly, all transactions involving one or both of those countries, or individuals or entities from those countries, should be reviewed on a case-by-case basis. This means screening all parties to a transaction against applicable prohibited parties lists, which are likely to be updated regularly. Note that all parties to all such transactions should be screened: a party not subject to sanctions at present may be designated with no warning and thus become a prohibited party.
And it means that it is necessary to pay particular attention to the location of Ukraine transactions since certain regions of Ukraine are now subject to comprehensive sanctions.
The Bass, Berry & Sims international trade team is actively monitoring the situation in Russia and Ukraine and providing real-time advice to clients on managing the situation. Please contact us anytime if we can assist.