On February 22, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) imposed additional sanctions in response to the Russian Federation’s recognition of the so-called Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LNR”) regions of Ukraine as “independent” states and deployment of troops to those regions. OFAC acted pursuant to Executive Order 14024, which authorizes sanctions against Russia for its harmful foreign activities, including violating core principles of international law such as respect for the territorial integrity of other states.

OFAC’s actions build on the Executive Order President Biden signed on February 21, 2022, imposing severe restrictions on economic activity with the DNR and LNR regions of Ukraine. Notably, Secretary of the Treasury Janet L. Yellen stated: “We will continue to monitor Russia’s actions and if it further invades Ukraine, the United States will swiftly impose expansive economic sanctions that will have a severe and lasting impact on Russia’s economy.”

OFAC’s actions on February 22, 2022, include: (1) sanctioning two major Russian state-owned financial institutions, (2) sanctioning five Kremlin-connected elites, and (3) imposing additional restrictions on Russian sovereign debt.

1. Blocking of Major Russian Financial Institutions

OFAC added to the Specially Designated Nationals List (“SDN List”) the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (“VEB”) and Promsvyazbank Public Joint Stock Company (“PSB”), along with 42 of their respective subsidiaries. Consequently, these financial institutions are “blocked,” meaning that all of these financial institutions’ assets under U.S. jurisdiction will be immediately frozen, and U.S. persons are prohibited from engaging, directly or indirectly, in virtually all transactions with the blocked financial institutions.

Moreover, under OFAC’s “50% rule,” all entities owned 50 percent or more, directly or indirectly, individually or in the aggregate, by VEB or PSB are subject to blocking under E.O. 14024, even if that entity is not specifically identified on the SDN List.

Additionally, OFAC issued two General Licenses authorizing the following limited activities:

• Transactions involving 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 the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation (this does not authorize transactions prohibited by Directive 1A under E.O. 14024 (discussed below) or transactions involving any other blocked persons); and

• Transactions 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, through 12:01 a.m. eastern daylight time, March 24, 2022 (this does not authorize transactions involving any other blocked persons).

2. Blocking of Kremlin-Connected Elites

OFAC also designated or redesignated on the SDN List five Kremlin-connected individuals close to President Putin:

• Aleksandr Bortnikov, Director of the Federal Security Service of the Russian Federation and a permanent member of the Security Council of the Russian Federation, previously designated as an SDN in March 2021;

• Denis Bortnikov (son of Aleksandr Bortnikov), Deputy President of Russian state-owned financial institution VTB Bank Public Joint Stock Company (“VTB Bank”) and a Chairman of the VTB Bank Management Board;

• Petr Fradkov, Chairman and CEO of PSB; he is also the son of Mikhail Fradkov, former Prime Minister of Russia and former Director of the Russian Foreign Intelligence Service;

• Sergei Kiriyenko, First Deputy Chief of Staff of the Presidential Office, previously designated as an SDN in March 2021; and

• Vladimir Kiriyenko (son of Sergei Kiriyenko), previous Vice President at the Russian state-controlled company, Rostelecom, and current CEO of VK Group, the parent company of Russia’s top social media platform, VKontakte.

As a result of the designation or redesignation of the foregoing individuals on the SDN List, all property and interests in property of the foregoing persons that are in the United States or in the possession or control of U.S. persons are blocked, and U.S. persons are prohibited from engaging, directly or indirectly, in virtually all transactions with the blocked individuals. In addition, any entities that are owned, directly or indirectly, individually or in the aggregate, 50 percent or more by one or more blocked persons are also blocked.

3. Imposition of Additional Restrictions on Russian Sovereign Debt

OFAC issued Russia-related Directive 1A under E.O. 14024 to increase restrictions on dealings in Russia’s sovereign debt. Directive 1A amended and superseded Directive 1 under E.O. 1404 to extend existing sovereign debt prohibitions to cover participation in the secondary market for 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.

Consequently, Directive 1A now provides that the following activities by a U.S. financial institution are prohibited, except to the extent provided by law, or unless licensed or otherwise authorized by OFAC:

(1) as of June 14, 2021, participation 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 Ministry of Finance of the Russian Federation;

(2) as of June 14, 2021, lending ruble or non-ruble denominated funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; and

(3) as of March 1, 2022, participation in the secondary market for ruble or non-ruble denominated 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.

As the situation in Ukraine continues to develop, additional sanctions measures and SDN designations of entities and individuals may be imposed by the U.S. Government in response to further actions taken by Russia.

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