Following the imposition last week of wide ranging economic and trade sanctions on Russia for its actions against Ukraine, on February 28, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued sanctions against the Central Bank of Russia and Russia’s sovereign wealth fund and its subsidiaries. Also on February 28, OFAC issued the Russian Harmful Foreign Activities Regulations implementing Executive Order (E.O.) 14024, which authorized the February 28 sanctions and several of last week’s sanctions. The February 28 sanctions followed actions by several U.S. allies imposing additional sanctions and a February 26 joint statement by the leaders of the European Commission, the United States, and several of their allies announcing their intention to remove certain Russian financial institutions from the SWIFT financial messaging system. A press release issued by the U.S. Department of the Treasury stated that these measures would “significantly limit Russia’s ability to use assets to finance its destabilizing activities.”

A. Sanctions Against the Central Bank of the Russian Federation and other State-Owned Financial Entities

On February 28, OFAC issued Russia-related Directive 4 under E.O. 14024, which prohibits U.S. persons from engaging in any transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. The Directive does not impose blocking requirements, but prohibits any transactions involving these entities, including any transfer of assets to any of these entities or any foreign exchange transaction for or on behalf of such entities. Simultaneously, OFAC issued General License 8A, which authorizes, through June 23, 2022, certain energy-related transactions with the Central Bank of the Russian Federation and several other large Russian financial institutions which were designated as Specially Designated Nationals and Blocked Persons (SDNs) last week. The term “related to energy” is broadly defined to include a wide range of energy-related transactions, but the general license also contains a variety of limitations. U.S. persons planning to rely on General License 8A should carefully consider whether their activities fall within its scope.

In addition, OFAC designated the Russian Direct Investment Fund (RDIF), two of its subsidiaries, and its Chief Executive Officer Kirill Dmitriev, a close associate of President Putin, as SDNs, thereby prohibiting U.S. persons from conducting any business with them and requiring U.S. persons to block their property.

B. Removal of Certain Russian Financial Institutions from the SWIFT Financial Messaging System

On February 26, 2022, leaders of the European Commission, the United States, and several of their allies announced their intention to remove “selected Russian banks” from SWIFT, the high-security network that connects thousands of financial institutions around the world. The United States and the European Commission are in the process of determining which Russian banks will be expelled from SWIFT. The move represents additional efforts by the United States and its allies to further cut off Russia and its financial institutions from global financial markets. It also highlights the considerable global cooperation and unity among the U.S. and its allies in addressing Russia’s continued aggression in Ukraine.

C. Issuance of OFAC Regulations Implementing Russian Sanctions

On February 28, OFAC issued the Russian Harmful Foreign Activities Regulations implementing Executive Order 14024, which authorized the February 28 sanctions described in this Alert and several of last week’s sanctions. As a result of the rule, the “Russian Harmful Foreign Activities Sanctions Regulations” will be added as a new Part 587 to the OFAC regulations found in Title 31 of the Code of Federal Regulations. The final rule, found here, is expected to be published in the March 1 issue of the Federal Register and will go in effect on that date. In the draft Federal Register notice, OFAC stated that it “intends to supplement these regulations with a more comprehensive set of regulations, which may include additional interpretive guidance and definitions, general licenses, and other regulatory provisions.”

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 continues to closely monitor the situation.