In the past few days EU, UK and US have issued sanctions against Russia and Belarus in response to Russia’s invasion of Ukraine. Of particular importance is yesterday’s action by the US to sanction the two largest Russian banks, VTB Bank and Sberbank. UK has also sanctioned VTB Bank and it is not unlikely that EU will follow suit within short. Business dealings involving these banks, as well as all other sanctioned entities, will be severely affected. The sanctions can be summarised as follows:

EU sanctions Sanctions decided on 23rd of February:

  • sanctions against the 351 members of the Russian State Duma (parliament's lower house), who voted in favour of the appeal to President Putin to recognise the independence of the self-proclaimed Donetsk and Luhansk ”republics” (names remain to be disclosed)
  • sanctions against an additional 27 individuals and entities who have contributed to the undermining or threatening of the territorial integrity, sovereignty and independence of Ukraine (names remain to be disclosed)
  • restrictions on economic relations with the non-government controlled areas of Donetsk and Luhansk oblasts comprising of- an import ban on goods- restrictions on trade and investment related to certain economic sectors- a prohibition on supplying tourism services- an export ban on certain goods and technologies
  • restrictions on the ability of the Russian state and government to access the EU’s capital and financial markets and services

In addition, Germany has announced that it will back-pedal the formal approval of the Nord Stream 2 pipeline, meaning the commencement of the operation of the pipeline will be postponed.

Sanctions decided on 24th of February

According to a statement from the European Council, member states agreed last night on further restrictive measures that will impose massive and severe consequences on Russia for its action, in close coordination with partners and allies. These sanctions cover the financial sector, the energy and transport sectors, dual-use goods as well as export control and export financing, visa policy, additional listings of Russian individuals and new listing criteria. The Council has stated it will adopt “without delay” the proposals prepared by the Commission and the High Representative. We will revert when more details about the measures are known.

UK sanctionsSanctions decided on or around 23rd of February:

UK added 10 entries to its sanctions list. Any type of transaction involving an entity on a sanction list, or an entity owned or controlled by such entity, is generally prohibited as the listing entails that the entity’s assets shall be frozen. The additional listed entities are:

  • Gennadiy Nikolayevich Timchenko
  • Boris Romanovich Rotenberg
  • Igor Arkadyevich Rotenberg
  • Bank Rossiya
  • Black Sea Bank for Development And Reconstruction
  • Joint Stock Company Genbank
  • IS Bank
  • Public Joint Stock Company Promsvyazbank
  • Bank Rossiya
  • Black Sea Bank for Development And Reconstruction

Sanctions decided on 24th February

  • Freezing the assets of Russia’s second largest bank
  • Excluding all Russian banks from the UK financial system
  • Banning Russian state and private companies from raising money in the UK
  • Sanctioning over 100 individuals and entities, including Russian oligarchs and defense companies
  • Limiting the amount of money Russians can maintain in British bank accounts; and
  • Implementing new export controls in concert with the United States.

New legislation banning the export of dual-use items to Russia, including a range of high-end and critical technological components, will be introduced early next week. Further details on new policies to address sanctions avoidance are expected before Easter. Johnson indicated the UK’s sanctions will also apply to Belarus.

US sanctionsSanctions decided on 23rd of February:

The following entities were added to the main US sanctions list, the SDN list:

  • Nord Stream 2 AG
  • State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) including the following subsidiaries:- VEB Leasing OJSC is a leasing company located in Russia.- Prominvestbank is a bank located in Ukraine.- VEB Capital is a financial company located in Russia.- VEB Engineering LLC is an investment project implementation services company located in Russia.- JSC Infraveb is an investment project support company located in Russia.- JSC VEB.DV is an investment project support company located in Russia.- VEB Asia Limited is a financial company located in Hong Kong.- LLC Infrastructure Molzhaninovo is an electric energy company located in Russia.- LLC Resort Zolotoe Koltso is a real estate and construction company located in Russia.- JSC Russian Export Center is an export-related company located in Russia.- LLC VEB Ventures is a financial company located in Russia.- LLC VEB Service is a business and management advisory company located in Russia.- LLC Special Organization for Project Finance Factory of Project Finance is a financial company located in Russia.- LLC SIBUGLEMET Group is a coal mining company located in Russia.- JSC ANGSTREM-T is a technology company located in Russia.- LLC NM-TEKH is a technology company located in Russia.- JSC SLAVA is a real estate company located in Russia.- JSC PFC CSKA is a sporting activities company located in Russia.- LLC Torgovy Kvartal-Novosibirsk is a property leasing company located in Russia.- LLC Baikal Center is a construction company located in Russia.- LLC Progorod is an infrastructure company located in Russia.- LLC VEB.RF Asset Management is a financial company located in Russia.- Eximbank of Russia JSC is an export support institution located in Russia as well as a commercial bank regulated by the Central Bank of the Russian Federation.- Russian Agency for Export Credit and Investment Insurance OJSC is an insurance agency located in Russia.
  • Promsvyazbank Public Joint Stock Company (PSB) including the following subsidiaries:- VEB Leasing OJSC is a leasing company located in Russia.- Prominvestbank is a bank located in Ukraine.- VEB Capital is a financial company located in Russia.- VEB Engineering LLC is an investment project implementation services company located in Russia.- JSC Infraveb is an investment project support company located in Russia.- JSC VEB.DV is an investment project support company located in Russia.- VEB Asia Limited is a financial company located in Hong Kong.- LLC Infrastructure Molzhaninovo is an electric energy company located in Russia.- LLC Resort Zolotoe Koltso is a real estate and construction company located in Russia.- JSC Russian Export Center is an export-related company located in Russia.- LLC VEB Ventures is a financial company located in Russia.- LLC VEB Service is a business and management advisory company located in Russia.- LLC Special Organization for Project Finance Factory of Project Finance is a financial company located in Russia.- LLC SIBUGLEMET Group is a coal mining company located in Russia.- JSC ANGSTREM-T is a technology company located in Russia.- LLC NM-TEKH is a technology company located in Russia.- JSC SLAVA is a real estate company located in Russia.- JSC PFC CSKA is a sporting activities company located in Russia.- LLC Torgovy Kvartal-Novosibirsk is a property leasing company located in Russia.- LLC Baikal Center is a construction company located in Russia.- LLC Progorod is an infrastructure company located in Russia.- LLC VEB.RF Asset Management is a financial company located in Russia.- Eximbank of Russia JSC is an export support institution located in Russia as well as a commercial bank regulated by the Central Bank of the Russian Federation.- Russian Agency for Export Credit and Investment Insurance OJSC is an insurance agency located in Russia
  • Denis Aleksandrovich Bortnikov, son of Aleksandr Vasilievich Bortnikov
  • Petr Mikhailovich Fradkov
  • Vladimir Sergeevich Kiriyenko

Sanctions were also imposed against the Central bank of the Russian Federation, Ministry of Finance of the Russian Federation and the National Wealth Fund of the Russian Federation. It would appear that these sanctions do not restrict payments generally with Russia but instead serve purpose to prevent dealings in Russia’s sovereign debt.

Notably, the relevant sanction text (Executive Order 14024) caters for a possibility to sanction further entities determined to operate in the Russian financial services sector. OFAC (the US agency responsible for sanctions) has clarified that this language does not mean that all persons that operate in the Russian financial services sector are sanctioned. Instead, an express listing is required.

In terms of activities; sanctions have been imposed against the following:

  • New investments in the Donetsk People’s Republic and Luhansk People’s Republic (applies to US persons only)
  • The importation of goods into the United States from the above regions (applies to US persons only)
  • The exportation, re-exportation, sale or supply of goods, services or technology from the US or by a US Person to the above regions (applies to US persons only)
  • Any approval, financing, facilitation or guarantee by a US Person of a transaction by a foreign person if the transaction would be prohibited if performed by a US person
  • Any person operating in the above regions (applies to anyone)
  • Any person being a leader, official or similar in the above regions (applies to anyone)
  • Any person being owned or controlled by a person whose property and interests in property is blocked pursuant to the sanctions (applies to anyone)
  • Any person materially assisting, sponsoring or providing financial, material or technological support for or goods or services to any blocked person (applies to anyone)
  • Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions as well as any conspiracy formed to violate any of the prohibitions (applies to anyone)

As to the proviso of goods or services there are some exceptions by way of so called General Licenses for goods relating to the combat of the COVID-19 pandemic, telecommunication and mail services, and flow of personal remittances and operation of bank accounts as well as internet services.

US also sanctioned five Russian vessels (Baltic Leader, Linda, Pegas, Fesco Magadan and Fesco Moneron).

Sanctions decided on 24th of February

The following entities became subject to “Correspondent and Payable-Through Account Sanctions” meaning the bank essentially will be unable to make and receive payments in US dollars

  • Sberbank (which is the largest financial institution in Russia) and 25 Sberbank foreign financial institution subsidiaries

The following entities were placed on the SDN list:

  • VTB Bank and 20 subsidiaries
  • Otkritie and 12 subsidiaries
  • Novikom
  • Sovcom and 22 subsidiaries
  • Joint Stock Company Alfa-Bank
  • Credit Bank of Moscow Public Joint Stock Company

Further sanctions include:

  • Expanded debt and equity prohibitions against major state-owned and private entities to include 13 additional firms.
  • Additional sanctioned individuals belonging to the Russian elite
  • Export control measures imposed on sensitive items Moscow relies on for its defense, aerospace, and maritime industries. These items include semiconductors, computers, telecommunications, information security equipment, lasers, and sensors (the EU, Japan, Australia, United Kingdom, Canada, and New Zealand have announced plans to implement substantially similar restrictions)
  • Imposition of stringent controls on 49 Russian military end users have been added to BIS’s Entity List (the EU, Japan, Australia, United Kingdom, Canada, and New Zealand have announced plans to implement substantially similar restrictions)

The following exceptions for certain transactions in relation to the following will apply:

  • International organisations and entities;
  • Agricultural and medical commodities and the COVID-19 pandemic
  • Overflight and emergency landings
  • Energy
  • Dealings in certain debt or equity
  • Derivative contracts
  • The wind down of transactions involving certain blocked persons
  • The rejection of transactions involving certain blocked persons.

Conclusion

Although the ambit of the second round of EU sanctions remains uncertain if would seem that the EU, UK and US sanctions essentially are aligned. One other observation is that although it may seem that, at a glance, some trade with Russia and Belarus relating to non-sanctioned sectors can continue it is important to recognize that payments to and from Russian/Belarusian entities/interests are severely hampered given the comprehensive sanctions against the financial sector. Furthermore, the sanctioning of the vast amount of Russian individuals will prohibit business operations involving companies owned or controlled by those individuals, something which expands the scope of the sanctions. One final observation is that the EU Members States could have some difficulties to agree on sanctions. Tougher sanctions inevitably will strike two-ways i.e. also against Russia’s business partners. Since certain Member States such as Germany have significant business dealings with Russia it might presumably be somewhat of a challenge for them to agree on further sanctions, and consequently for US and EU to align such sanctions.

RecommendationsCompanies are recommended to:

  • Review operations and identify any connection with Russia/Belarus, Russian/Belarusian entities and products.
  • Map the risks and make a risk analysis. It is advisable to terminate as quickly as possible business with entities that are targeted.
  • In case of any other connection, risk mitigating actions should be explored
  • Ensure there are no U.S. persons involved in transactions in the regions and that no US dollars are used regarding activities that are subject to US sanctions
  • Ensure employees responsible for regulatory compliance review the sanction texts and consider these new restrictions when assessing existing or prospective business relationships; and
  • Monitor closely further sanctions imposed