February 28, 2022
ジャンプリンクテキスト
Over the past week, the United States, the European Union and its member states, the United Kingdom, and several other countries have imposed rounds of sweeping new sanctions on Russia in response to its invasion of Ukraine. The landscape is changing rapidly, and reports indicate that additional sanctions could be forthcoming. We are tracking these developments closely and may provide further updates as the situation evolves.
The sanctions are multi-faceted and at times complex and far-reaching, with potential implications for any business operating in the global economy, even those with no immediate or direct ties to Russia. Corporations and financial institutions should conduct a risk assessment to determine if and how these sanctions will impact their operations and business relationships.
This note summarizes and discusses the implications of, and legal background to, the main new sanctions coming out of this crisis, as they stood at midnight on February 27, 2022.
Prior to Russia’s invasion of Ukraine, named Russian persons and businesses were already subject to wide-ranging international sanctions, linked to Russia’s annexation of Crimea and other events. Since February 21, 2022, these were ramped up considerably. From February 21-23, 2022, the US, EU, UK, Japan, and Australia announced an initial round of sanctions after Russia officially recognized two Russian-backed separatist regions of eastern Ukraine—the so-called Donetsk and Luhansk People’s Republics (respectively, “DNR” and “LNR”). The first wave of new sanctions targeted Russian sovereign debt, several Russian banks, and a number of Russian “elites” and officials, including Russian Defense Minister Sergei Shoigu. The measures additionally included a trade and investment embargo on the two separatist regions—similar to existing restrictions concerning Crimea. Germany also announced that it would halt certification of the Nord Stream 2 natural-gas pipeline. The US followed with sanctions on Nord Stream 2 AG, its CEO, and its corporate officers on February 23, 2022.
A second wave of sanctions was deployed after Russian forces crossed into Ukraine and launched air strikes. On February 24, 2022, the US, EU, UK, Japan, Australia, New Zealand, Taiwan, and Canada announced sanctions, which included targeting Russian financial institutions and individuals, extending restrictions on debt and equity, and announcing new controls on exports of high-tech goods into Russia and the DNR and LNR.
On February 25, 2022, the US, UK, EU, and Canada further intensified the pressure by directly targeting Russian President Vladimir Putin and Foreign Minister Sergei Lavrov with asset freezes and, in the US, travel bans. Australia also announced on February 26, 2022 that it would seek to directly sanction President Putin and Foreign Minister Lavrov.
On February 26, 2022, the European Commission, France, Germany, Italy, the UK, Canada, and the US committed to undertake further restrictive measures within the coming days. The announced moves include removing key Russian banks from using the secure financial messaging system operated by the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) and imposing sanctions on the Russian Central Bank, designed to significantly restrict the bank’s access to its foreign currency reserves. Japan subsequently announced that it would join the measures to block Russia from SWIFT on February 27, 2022.
As noted above, Russia is no stranger to sanctions. The US, EU, UK and Japan have each previously imposed sanctions on Russia in response to various historic events.
In recent years, Russia has sought to buffer the Russian economy against Western sanctions as part of its “Fortress Russia” strategy. It remains to be seen whether this latest wave of concerted sanctions efforts by the US, EU, UK, and other countries around the world will have the intended effect. However, they are by far the strongest and widest ranging package of sanctions that have been imposed on Russia.
This client note covers sanctions announced on or before February 27, 2022.
The US sanctions regime consists of a number of sanctions programs with a combination of country-wide, sectoral, targeted, and secondary sanctions. The sanctions program related to Russia and Ukraine is implemented primarily by the US Treasury Department’s Office of Foreign Assets Control (“OFAC”)—along with the State Department and Commerce Department—pursuant to Executive Orders (“EOs”) issued by the President and legislation passed by Congress.
On February 21, 2022, the US President issued EO 14065, imposing comprehensive economic sanctions on the DNR and LNR, along with any other regions of Ukraine that may be later added by the Secretary of the Treasury, in consultation with the Secretary of State (the “Covered Regions”). Relatedly, the US authorized blocking sanctions on individuals operating in the Covered Regions. The measures include:
Concurrent with EO 14065, OFAC issued six general licenses that provide exceptions to the restrictions and permit the following activities in the Covered Regions:
On February 22, 2022, OFAC designated to the Specially Designated Nationals and Blocked Persons List (the “SDN List”) two major Russian financial institutions and numerous individuals deemed to have ties to President Putin. OFAC also increased restrictions on the ability of US persons to deal in Russia’s sovereign debt. These actions were taken pursuant to EO 14024, which expanded the categories of Russian persons targeted by US sanctions.
Concurrently, OFAC issued two general licenses, authorizing:
On February 23, 2022, OFAC designated Nord Stream 2 AG and its CEO Matthias Warnig to the SDN List. The State Department also announced visa restrictions on Nord Stream 2 AG’s corporate officers under the Protecting Europe’s Energy Security Act, implemented through EO 14039.
Concurrently, OFAC issued a general license, which authorized transactions ordinarily incident and necessary to winding down transactions involving Nord Stream 2 AG (General License 4).
On February 24, 2022, OFAC announced additional measures targeting the Russian financial system.
In conjunction with the OFAC announcements, the Commerce Department’s Bureau of Industry and Security (“BIS”) announced new restrictions on exports from the US to Russia of high-tech goods, including semiconductors, computers, telecommunications, information security equipment, lasers, and sensors. BIS also added 49 Russian military end users to its entity list.
Additionally, on February 24, 2022, OFAC designated 24 Belarusian individuals and entities for Belarus’s support of the Russian invasion of Ukraine.
On February 25, 2022, the White House announced that the US would sanction President Putin and Foreign Minister Lavrov directly. OFAC designated President Putin and Foreign Minister Lavrov pursuant to EO 14024 for their direct responsibility for the invasion of Ukraine. Sanctioning a head of state is rare. President Putin joins a small group of leaders sanctioned by the US, including Kim Jong Un of North Korea, Nicolas Maduro of Venezuela, and Bashar al-Assad of Syria.
In the European Union, decisions on the adoption of sanctions are taken by the Council of the European Union (“European Council”) on the basis of proposals from the High Representative of the Union for Foreign Affairs & Security Policy. The High Representative together with the European Commission give effect to these decisions through joint proposals for Council regulations, which are then adopted by the Council. The Commission also oversees Member-State implementation of EU sanctions regimes. In addition, member states of the European Union are permitted to introduce their own sanctions regimes.
The current EU sanctions regime against Russia includes asset freezes and travel bans, sectoral sanctions, and trade and investment restrictions.
On February 23, 2022, the European Council agreed on a first sanctions package in response to Russia’s recognition of the self-proclaimed DNR and LNR as independent States, and other destabilizing actions in Ukraine.
The adopted measures included asset freezing restrictions against the following four entities (Council Decision (CFSP) 2022/265 and Council Implementing Regulation (EU) 2022/260).
With respect to Bank Rossiya, PSB, and VEB, a derogation mechanism was adopted to permit transactions necessary for the winding down of certain operations concluded with these entities before February 23, 2022 (Council Decision (CFSP) 2022/265 and Council Regulation (EU) 2022/259).
Also on February 23, 2022, asset freezing restrictions and travel bans were introduced against:
The February 23, 2022 sanctions package also introduced a prohibition on the Russian government and Russian Central Bank (as well as any legal person, entity or body acting on behalf of or at the direction of the Russian Central Bank) from accessing EU financial and capital markets (Council Decision (CFSP) 2022/264 and Council Regulation (EU) 2022/262). EU persons are now further prohibited from directly or indirectly making or being part of any arrangement to issue new loans or credit to these bodies.
These measures came on top of existing prohibitions on the purchase, sale or provision of brokering or other assistance in issuing, or otherwise dealing with, certain transferable securities and money-market instruments to specified credit institutions and other entities.
The package of sanctions adopted on February 23, 2022 moreover introduced certain trade and investment restrictions (Council Decision (CFSP) 2022/266 and Council Regulation (EU) 2022/263). These include bans on:
On February 24 and 25, 2022, a further package of restrictive measures was announced targeting the finance, defense, energy, aviation, and space sectors (Council Decision (CFSP) 2022/327 and Council Regulation (EU) 2022/328). It includes measures to:
On February 25, 2022, the EU announced its decision to freeze the assets of President Putin and Foreign Minister Lavrov.
At the same time, the EU announced that its sanctions regime will be extended to members of the National Security Council of the Russian Federation, the remaining members of the Russian State Duma who supported Russia’s recognition of the DNR and LNR, together with individuals who facilitated the Russian military aggression from Belarus (Council Decision (CFSP) 2022/331 and Council Implementing Regulation (EU) 2022/332).
The EU moreover expanded the criteria for designating individuals and entities under the existing sanctions regime to include, among others, those supporting materially or financially, or benefiting from, Russian decision-makers responsible for the destabilization of Ukraine, along with leading businesspersons and entities involved in economic sectors providing a substantial source of revenue to the Russian government (Council Decision (CFSP) 2022/329 and Council Regulation (EU) 2022/330). This paves the way for additional designations of prominent individuals and entities in the coming days.
It was also announced that diplomats and other Russian officials, as well as Russian businesspeople, will no longer enjoy the benefit of visa facilitation provisions allowing for privileged access to the EU. The decision does not affect ordinary Russian citizens (Council Decision (EU) 2022/333).
This was followed by an announcement on February 27, 2022 that the EU was banning Russian news outlets Russia Today and Sputnik, shutting down EU airspace for all Russian-owned, registered or controlled aircraft, and introducing a new package of sanctions against the regime of Belarus leader Alexander Lukashenko and other Belarussians helping the Russian war effort in Ukraine.
The UK has historically operated its own sanctions regime which was distinct from, and often more far-reaching than, that of the EU. A revamped domestic sanctions regime was introduced in the UK under the Sanctions and Anti-Money Laundering Act 2018. The majority of prior UK and EU sanctions in place at the time of the UK’s exit from the EU were brought under this legislation. The new regime also provided the UK government with powers to introduce new sanctions and wide-ranging enforcement powers. Sanctions are binding on both individuals and legal entities within (or undertaking activities in) the UK, as well as UK persons (UK nationals and entities incorporated under the law of the UK) wherever they may be in the world (“UK Persons”).
The UK’s sanctions regime has stood out from other regimes in respect of Russia, in light of at least two attacks by Russian agents on persons on UK soil over the last two decades and Russia’s annexation of Crimea. The UK therefore already had in place extensive sanctions against Russia including the listing of almost 200 individuals or entities linked to Russia prior to February 2022.
The UK measures in place as of February 27, 2022 with regard to Russian actions in Ukraine include:
In addition, certain measures announced on February 24, 2022 have yet to enter into force, but are expected to be implemented shortly. These include:
Further still, the UK government has indicated that it intends to extend sanctions to Sberbank (Russia’s largest state-owned bank) and the Russian Central Bank, as well as to Belarus for its role in Russia's actions in Ukraine. More generally, the UK Government has announced that it will fast track previously contemplated domestic measures designed to increase transparency in UK property markets and businesses, including the introduction of a register of beneficial ownership for foreign-owned UK property, in order to aid the enforcement of its sanctions regime.
On February 26, 2022, a joint statement by the US, EU, UK, France, Germany, Italy and Canada condemned Russia's attack on Ukraine. The states committed to implement further measures, including:
Blocking selected Russian banks from their ability to use the SWIFT system is a rare step which will affect their ability to operate in the global financial system. The only other countries whose institutions have been blocked previously from SWIFT are Iran and North Korea.
Several other countries have imposed restrictions similar to those of the US, EU, and UK.
Japan. Japan has announced the following measures:
On February 27, 2022, Japan further announced that it would join the US, EU, UK, Canada, France, Germany and Italy in blocking certain Russian banks’ access to SWIFT. All G7 countries have, therefore, now agreed to the SWIFT ban.
Australia. On February 23, 2022, Australia announced that it would impose targeted financial sanctions and travel bans on members of Russia’s National Security Council, as well as targeted financial sanctions on Russian institutions including Bank Rossiya, and PSB (in addition to existing sanctions against VEB).
This was followed on February 25, 2022 by an announcement that fresh sanctions would be placed against “oligarchs whose economic weight is of strategic significance to Moscow” and more than 300 members of the Russian State Duma, among others. On February 26, 2022, the Minister for Foreign Affairs further announced that she would be seeking to directly sanction President Putin and Foreign Minister Lavrov.
Also in recent days, Australia has adopted:
Australian sanction laws apply to activities in Australia and to activities undertaken overseas by Australian citizens and Australian-registered bodies corporate.
New Zealand. While lacking its own sanctions law, New Zealand has announced in the wake of the Russian invasion of Ukraine:
Taiwan. Taiwan has likewise announced its intention to impose sanctions targeting Russia in response to the crisis in Ukraine. While details have not been announced, it is anticipated that the measures may include restrictions on energy imports and high-tech exports such as semiconductors.
Canada. Canada has imposed far-reaching sanctions under its Special Economic Measures Act and associated Regulations in response to Russia’s actions in Ukraine. On February 24, 2022, Canada published additional amendments to the Special Economic Measures (Russia) Regulations and Special Economic Measures (Ukraine) Regulations, imposing further restrictive measures against Russia, along with the DNR and LNR. The new sanctions include, among other measures:
This was followed by an announcement on February 25, 2022 that Canada would be adding to its list of designated individuals and entities President Putin, Putin’s Chief of Staff Sergei Ivanov, and Foreign Minister Lavrov, along with various Belarusian leaders for their role in aiding the Russian invasion of Ukraine.
As noted above, Canada has also joined the other G7 countries and the European Commission in stating its intention to exclude Russian banks from SWIFT.
[1] Once an individual or entity is designated to the SDN List, the SDN’s assets within the US are frozen, and US persons are prohibited from dealing with the SDN without OFAC authorization. The restrictions extend by operation of law under OFAC’s 50 percent rule to any non-listed entities that are majority-owned by a designated SDN.
[2] Under OFAC’s 50 percent rule, the prohibitions also apply to foreign financial institutions that are 50 percent or more owned by a foreign financial institution determined to be subject to the prohibitions of the Russia-related CAPTA Directive. (OFAC FAQ 969).
[3] Under OFAC’s 50 percent rule, the prohibitions include entities 50 percent or more owned by one or more entities subject to the prohibitions of Directive 3. (OFAC FAQ 985).
[4] The definition of “transferable securities” has been expanded as a result of the February 23, 2022 measures. (See Council Regulation (EU) 2022/262).
