Biden Administration Issues Initial Set of Sanctions in Response to Russian Invasion of Eastern Ukraine
February 23, 2022
The Biden Administration has issued an initial set of sanctions against the Russian Federation in response to Russia’s invasion of eastern Ukraine. On February 21, 2022, Russian President Vladimir Putin recognized the so-called Donetsk and Luhansk People’s Republics (“Covered Regions”), separatist regions in eastern Ukraine, as “independent” states and then deployed the Russian military to perform “peacekeeping functions” in those areas. President Biden called Russia’s actions the “beginning of a Russian invasion of Ukraine” in “flagrant violation of international law,” and in response imposed two new sets of sanctions: one against the Covered Regions and another targeting the Russian financial sector and Russian elites in President Putin’s inner circle.
The United States and its allies have warned that continued Russian activities against Ukraine’s sovereignty could lead to further, expansive sanctions targeting Russia.
Covered Regions Sanctions
On February 21, 2022, President Biden issued an Executive Order (“E.O.”) targeting the Covered Regions. The E.O. prohibits U.S. persons from engaging in transactions involving new investments, imports, exports, or financing in the Covered Regions, and authorizes the Treasury Secretary to impose blocking sanctions on persons connected to the Covered Regions including officials in the region and those providing material support to the Covered Regions.
Concurrently, the Office of Foreign Assets Control (“OFAC”) issued a series of general licenses authorizing certain transactions prohibited by the E.O. Specifically, OFAC issued a license permitting transactions ordinarily incident and necessary to winding down transactions in the Covered Regions through March 22, 2022, including the divestiture or transfer of investments located in the Covered Regions, and the winding down of operations, contracts, or other agreements in effect prior to February 21, 2022 that involve trade with the Covered Regions. OFAC also issued general licenses authorizing transactions related to certain agricultural commodities, medicine, and medical devices; the receipt or transmission of telecommunications and mail; international organization operations, personal remittances, and certain internet-based communications.
Sanctions Targeting Russian Financial Sector
In addition, the Biden Administration announced several sanctions targeting Russia’s financial sector. First, OFAC broadened prohibitions on U.S. financial institutions dealing in Russian sovereign debt. Specifically, the sanctions broaden pre-existing prohibitions on U.S. financial institutions from participating in the primary market for ruble and 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 to participating in the secondary market for such bonds issued after March 1, 2022
Second, OFAC imposed blocking sanctions on two state-owned Russian financial institutions and 42 of their subsidiaries: State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”). VEB is one of Russia’s largest financial institutions, and services Russia’s sovereign debt and finances Russia’s national economic development. PSB is Russia’s eighth largest financial institution and is a major source of financing for the Russian defense industry. As a result of these sanctions, U.S. persons are prohibited from engaging in transactions with the 44 newly designated entities, with the exception of certain authorized transactions related to the wind-down of transactions involving VEB, as well as VEB’s servicing of sovereign debt.
Sanctions on Russian Elites
The Biden Administration also targeted Russian elites in President Putin’s inner circle “believed to be participating in the Russian regime’s kleptocracy and their family members.” These individuals are: (1) Denis Bortnikov, Deputy President of Russian state-owned financial institution VTB Bank and son of Aleksandr Bortnikov, who is the director of Russia’s Federal Security Service (“FSB”); (2) Petr Fradkov, Chairman and CEO of Promsvyazbank; and (3) Vladimir Kiriyenko, CEO of VK Group, the parent company of Russian social media platform, VKontakte, and son of Sergei Kiriyenko, First Deputy Chief of Staff of the Russian President’s Office.
Implications
These sanctions are consistent with the U.S. Government’s targeted approach first deployed in 2014 in response to Russia’s invasion of Crimea, and then used thereafter in response to various Russian Government-supported actions, including election interference and cyberattacks. Rather than broadly prohibiting U.S. companies from engaging in commerce in Russia, the sanctions are designed to target malign actors, sectors of concern and sources of funds. It remains to be seen whether this strategy will change if Russian incursions into Ukraine deepen.
This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the District of Columbia, David J. Ribner, an O’Melveny counsel licensed to practice law in the District of Columbia and New York, and Dillon Roseen, an O’Melveny law clerk, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.
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