On February 21, 2022, President Biden issued an Executive Order (E.O. 14065) prohibiting certain transactions with “Covered Regions” in Ukraine following Russia’s recognition of these regions. The Covered Regions currently include the so-called Donetsk People’s Republic (DNR) and the Luhansk People’s Republic (LNR), self-proclaimed separatist territories located in the industrial Donbas region of eastern Ukraine. The E.O. authorizes the Secretary of Treasury to expand the definition of Covered Regions in response to changing conditions on the ground in Ukraine. The President determined that Russia’s recognition of the Covered Regions constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States and justifies the imposition of these prohibitions and sanctions.
E.O. 14065 prohibits:
- new investment in the Covered Regions of Ukraine by a U.S person, wherever located;
- the importation of any goods, services, or technology from the Covered Regions, whether directly or indirectly;
- the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a U.S person, wherever located, of any goods, services, or technology to the Covered Regions; and
- any approval, financing, facilitation, or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by the E.O. if performed by a U.S. person or within the United States.
E.O. 14065 also grants the Treasury Department’s Office of Foreign Assets Control (OFAC) with authority to sanction individuals and entities determined to:
- operate or have operated since February 21, 2022, in the Covered Regions;
- to be or have been since February 21, 2022, a leader, official, senior executive officer, or member of the board of directors of an entity operating in the Covered Regions
- to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the E.O.; or
- to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests are blocked pursuant to the E.O.
OFAC also issued six General Licenses authorizing certain transactions involving the Covered Regions:
- General License 17 – Authorizes the wind down of transactions involving the Covered Regions through March 23, 2022. This includes the divestiture or transfer to a non-U.S. person of a U.S. person’s share of ownership in any pre-February 21, 2022 investment located in the DNR or LNR regions of Ukraine, and the winding down of operations, contracts, or other agreements in effect prior to February 21, 2022 involving the exportation, reexportation, sale, or supply of goods, services, or technology to, or importation of any goods, services, or technology from, the DNR or LNR regions of Ukraine.
- General License 18 – Authorizes the export and reexport of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices, including to persons in third countries purchasing specifically for resale to the Covered Regions; also authorizes transactions relating to items for the prevention, diagnosis, or treatment of COVID-19 (including research or clinical studies relating to COVID-19) in the Covered Regions.
- General License 19 – Authorizes transactions ordinarily incident and necessary to the receipt or transmission of telecommunications to the Covered Regions. This does not include the provision, sale, or lease of telecommunications equipment, technology, or capacity on telecommunications transmission facilities (such as satellite or terrestrial network activity).
- General License 20 – Authorizes transactions relating to official business of the United Nations, the International Centre for Settlement of Investment Disputes, the Multilateral Investment Guarantee Agency, the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank Group, the International Committee of the Red Cross and the International Federation of Red Cross and Red Crescent Societies, and the Organization for Security and Co-operation in Europe.
- General License 21 – Authorizes noncommercial, personal remittances to the Covered Regions. This does not include charitable donations of funds to or for the benefit of an entity or funds transfers for use in supporting or operating a business, including a family-owned business.
- General License 22 – Authorizes the export and reexport, directly or indirectly, from the United States or by U.S. persons to the Covered Regions of (1) services incident to the exchange of personal communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging, and (2) software necessary to enable these services, provided that such software is designated EAR99, as mass market software under 5D992.c, or (if not subject to the EAR) is not listed under any multilateral export control regime.
On February 22, 2022, in efforts to cut off the Russian government from Western financing, President Biden announced additional sanctions to target Russian financial institutions, Russian sovereign debt, and Russian oligarchs and their family members. To implement this, OFAC published Russia-related Directive 1A under E.O. 14024 (replacing and superseding Directive 1 under E.O. 14024 of April 15, 2021) concerning prohibitions related to Russian sovereign debt. Pursuant to Directive 1A, OFAC determined that the Central Bank of the Russian Federation, the Russian National Wealth Fund, and the Russian Ministry of Finance are political subdivisions, agencies, or instrumentalities of the Government of Russia, and prohibited certain activities by U.S. financial institutions, unless excepted under the law, licensed, or otherwise authorized by OFAC. U.S. financial institutions are prohibited from:
- as of June 14, 2021, participating in the primary market for ruble or non-ruble denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Russian Ministry of Finance;
- as of June 14, 2021, lending ruble or non-ruble denominated funds to the Russian Central Bank, the Russian National Wealth Fund, or the Russian Ministry of Finance; and
- as of March 1, 2022, participating in the secondary market for ruble or non-ruble denominated bonds issued after March 1, 2022 by the Russian Central Bank, the Russian National Wealth Fund, or the Ministry of Finance.
A listing of entities determined to be subject to the prohibitions of Directive 1A can be found in OFAC’s Non-SDN Menu-Based Sanctions (NS-MBS) List.
Additionally, OFAC issued Russia-related General License 2 and General License 3.
- General License 2 authorizes all transactions prohibited by E.O. 14024 involving State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), or any entity in which VEB owns, directly or indirectly, a 50 percent or greater interest, that are ordinarily incident and necessary to the servicing of bonds issued before March 1, 2022 by the Central Bank of Russia, the Russian National Wealth Fund, or the Russian Ministry of Finance.
- General License 3 authorizes all transactions through 12:01 a.m. EST, March 24, 2022, prohibited by E.O. 14024 that are ordinarily incident and necessary to the wind down of transactions involving VEB, or any entity in which VEB owns, directly or indirectly, a 50 percent or greater interest.
Finally, sanctions were announced on several individuals and entities, which have been added to OFAC’s Specially Designated Nationals List (SDN List), including VEB, or the NS-MBS List. The full list of individuals and entities added to these lists in this first tranche of sanctions can be found here.
These sanctions expand those already in effect in the Russia/Ukraine region, which include sectoral sanctions on certain financial and oil and gas activities, as well as an embargo of the Crimea region. E.O. 14065 effectively imposes a complete trade embargo on the DNR and LNR regions, and the sanctions announced on February 22 have added individual entities to the SDN and NS-MBS lists. Companies should review their activities in Russia/Ukraine to determine if they are engaged in any transactions covered by these sanctions, and confirm whether they are currently engaged in business with any named entities.
U.S. sanctions with respect to Russia/Ukraine are expected to change in the coming days and weeks. Contact us if you have questions about these developments or their potential impact on your business.