In response to Russia’s recognition of the Donetsk and Luhansk People’s Republic Regions of Ukraine (the Covered Regions or DNR and LNR regions, respectively), on Monday, February 21, 2022, President Biden issued an Executive Order essentially prohibiting U.S. businesses and U.S. persons from engaging in business transactions with the Covered Regions. The Executive Order not only prohibits “United States persons” from engaging in new investment in the Covered Regions, it prohibits engaging in trade, including export, import, reexport, sale or supply, of goods, services or technology with, the DNR and LNR regions. Further, United States persons, wherever located, are prohibited from approving, financing, facilitating or guaranteeing transactions by foreign persons that cannot be performed by United States persons as a result of the Executive Order.

The Executive Order also authorizes “blocking” (or freezing) of the property and interests in property of various categories of persons, including those who have operated in the “Covered Regions” after the date of the Executive Order; leaders, officials, senior executive officers, or members of the board of directors of any such entities; and persons owned or controlled by or operating on behalf of, or who 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 or interests in property are blocked pursuant to the Executive Order. Suspension of entry of blocked persons into the United States is also authorized by the Executive Order.

As of February 21, no additions to the SDN List have yet been made pursuant to the Executive Order, but on the evening of February 21 OFAC issued several general licenses, including General License 17 (authorizing wind-down transactions through March 22); General License 18 (authorizing exports and reexports of agricultural commodities, medicines and medical devices and transactions “ordinarily incident and necessary to . . . the prevention, diagnosis, or treatment of COVID-19 (including research or clinical studies relating to COVID-19) in the Covered Regions); General License 19 (authorizing telecommunications and mail); General License 20 (authorizing the official business of certain international organizations); General License 21 (authorizing non-commercial personal remittances); and General License 22 (authorizing exportation of certain services and software ordinarily incident and necessary to internet based communications).

Should Russia take further aggressive actions, further sanctions should be swiftly forthcoming. The Executive Order provides for extension of the prohibition to investment in or transactions with other regions of Ukraine determined by the Secretaries of the Treasury and State to be “Covered Regions” for the purposes of the Executive Order. Further, a White House Fact Sheet issued concurrently with the Executive Order states that the measures imposed by the Executive Order are “distinct from the swift and severe economic measures we are prepared to issue with Allies and partners in response to a further Russian invasion of Ukraine” and the White House Press Secretary stated that the Administration is “continuing to closely consult with Allies and partners, including Ukraine, on next steps and on Russia’s ongoing escalation along the border with Ukraine.”

U.S. businesses and U.S. persons should monitor developments closely. Please do not hesitate to reach out to any member of our International Trade and National Security team or your BakerHostetler relationship partner with questions. BakerHostetler is closely monitoring the situation.

Authors: Barbara D. Linney, Melissa B. Mannino, Lana Muranovic